UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For the fiscal year ended December 31, 2007 |
Commission file number: 1-3579 |
PITNEY BOWES INC.
|
|
Incorporated in Delaware |
I.R.S. Employer Identification No. |
1 Elmcroft Road, Stamford, Connecticut 06926-0700 |
06-0495050 |
(203) 356-5000 |
|
|
|
|
Securities registered pursuant to Section 12(b) of the Act: |
|
|
Title of Each Class |
|
Name of Each Exchange on Which Registered |
|
|
|
Common Stock, $1 par value per share |
|
New York Stock Exchange |
$2.12 Convertible Cumulative Preference Stock (no par value) |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: 4% Convertible Cumulative Preferred Stock ($50 par value)
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
þ
No
¨
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes
¨
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
Large accelerated filer þ |
Accelerated filer ¨ |
Non-accelerated filer ¨ |
Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
As of June 30, 2007, the aggregate market value of the registrants common stock held by non-affiliates of the registrant was $10,295,378,321 based on the closing sale price as reported on the New York Stock Exchange.
Number of shares of common stock, $1 par value, outstanding as of close of business on February 26, 2008: 211,088,288 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants proxy statement to be filed with the Commission on or before March 31, 2008 and to be delivered to stockholders in connection with the 2008 Annual Meeting of Stockholders to be held May 12, 2008, are incorporated by reference in Part III.
1
PITNEY BOWES INC.
TABLE OF CONTENTS
2
General
Pitney Bowes Inc. was incorporated in the state of Delaware on April 23, 1920, as the Pitney Bowes Postage Meter Company. Today, Pitney Bowes Inc. is the largest provider of mail processing equipment and integrated mail solutions in the world. In the report, the terms we, us, our, or Company are used to refer collectively to Pitney Bowes Inc. and its subsidiaries.
We offer a full suite of equipment, supplies, software and services for end-to-end mailstream solutions which enable our customers to optimize the flow of physical and electronic mail, documents and packages across their operations.
We operate in two business groups, Mailstream Solutions and Mailstream Services. We operate both inside and outside the United States. See Note 19 to the Consolidated Financial Statements for financial information concerning revenue, earnings before interest and taxes (EBIT) and identifiable assets, by reportable segment and geographic area.
For more information about us, our products, services and solutions, visit www.pb.com . Also, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments or exhibits to those reports will be made available free of charge through our Investor Relations section of our website at www.pb.com/investorrelations as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The information found on our website is not part of this or any other report we file with or furnish to the SEC.
Business Segments
We conduct our business activities in seven business segments within the Mailstream Solutions and Mailstream Services business groups. The principal products and services of each of our business segments are as follows:
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 sale, financing, support and other professional services of our high-speed, production mail systems and sorting equipment. |
|
|
|
Software : Includes the worldwide sale and support services of non-equipment-based mailing and 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. |
Support Services
We maintain extensive field service organizations to provide servicing for customers equipment, usually in the form of annual maintenance contracts.
3
Marketing
Our products and services are marketed through an extensive network of direct sales offices in the U.S. and through a number of our subsidiaries and independent distributors and dealers in many countries throughout the world. We also use direct marketing, outbound telemarketing and the Internet to reach our existing and potential customers. We sell to a variety of business, governmental, institutional and other organizations. We have a broad base of customers, and we are not dependent upon any one customer or type of customer for a significant part of our revenue. We do not have significant backlog or seasonality relating to our businesses.
Credit Policies
We establish credit approval limits and procedures at regional, divisional, subsidiary and corporate levels based on the credit quality of the customer and the type of product or service provided. In addition, we utilize an automatic approval program (AAP) for certain leases within our internal financing operations. The AAP program is designed to facilitate low dollar transactions by utilizing historical payment patterns and losses realized for customers with common credit characteristics. The program dictates the criteria under which we will accept a customer without performing a more detailed credit investigation. The AAP considers criteria such as maximum equipment cost, a customers time in business and payment experience with us. We base our credit decisions primarily on a customers financial strength.
Competition
We are a leading supplier of products and services in our business segments, particularly postage meters, mailing equipment and related document messaging services and software, management services, mail services and marketing services. Our meter base and our continued ability to place and finance meters in key markets is a significant contributor to our current and future revenue and profitability. However, all of our segments face strong competition from a number of companies. In particular, we face competition for new placements of mailing equipment from other postage meter and mailing machine suppliers, and our mailing products, services and software face competition from products and services offered as alternative means of message communications. In addition, the financing business is highly competitive. Leasing companies, commercial finance companies, commercial banks and other financial institutions compete, in varying degrees, in the markets in which our finance operations do business. Our competitors range from very large, diversified financial institutions to many small, specialized firms. We offer a complete line of products and services as well as a variety of finance and payment offerings to our customers. We finance the majority of our products through our captive financing business and we are a major provider of business services to the corporate, financial services, professional services and government markets, competing against national, regional and local firms specializing in facilities and document management throughout the world.
We believe that our long experience and reputation for product quality, and our sales and support service organizations are important factors in influencing customer choices with respect to our products and services.
Research, Development and Intellectual Property
Our significant investment in research and development operations differentiates us from our competitors. We have many research and development programs that are directed toward developing new products and service offerings. As a result of our research and development efforts, we have been awarded a number of patents with respect to several of our existing and planned products. We do not believe our businesses are materially dependent on any one patent or any group of related patents or on any one license or any group of related licenses. Our expenditures on research and development were $186 million, $165 million and $166 million in 2007, 2006 and 2005, respectively.
Material Supplies
We depend on third party suppliers for a variety of services, components, supplies and a portion of our product manufacturing. We believe we have adequate sources for our purchases of materials, components, services and supplies for products that we manufacture or assemble. However, as we continue to shift from direct manufacturing to assembly of our products, we rely to an increasing extent on third-party suppliers.
Regulatory Matters
We are subject to the U.S. Postal Services (USPS) regulations and those of foreign postal authorities, related to product specifications and business practices involving our postage meters. From time to time, we will work with these governing bodies to help in the enhancement and growth of mail and the mail channel. See Legal and Regulatory Matters in Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.
4
Employees and Employee Relations
At December 31, 2007, we employed 26,267 persons in the U.S. and 9,898 persons outside the U.S. Headcount increased in 2007 compared to 2006 primarily due to our acquisitions in 2007. We believe that our current relations with employees are very good. The large majority of our employees are not represented by any labor union. Our management follows the policy of keeping employees informed of decisions, and encourages and implements employee suggestions whenever practicable.
In addition to other information and risk disclosures contained in this Form 10-K, the risk factors discussed in this section should be considered in evaluating our business. We work to manage and mitigate these risks proactively, including through our use of an enterprise risk management program. In our management of these risks, we also evaluate the potential for additional opportunities that may be exploitable in mitigating these risks. Nevertheless, the following risks, some of which may be beyond our control, could materially impact our brand and reputation or results of operations or could cause future results to differ materially from our current expectations:
Postal regulations and processes
The majority of our revenue is directly or indirectly subject to regulation and oversight by the USPS and foreign postal authorities. We also depend on a healthy postal sector in the geographic markets where we do business, which could be influenced positively or negatively by legislative or regulatory changes in the United States, another country or in the European Union. Our profitability and revenue in a particular country could be affected as a result of adverse changes in postal regulations, the business processes and practices of individual posts, the decision of a post to enter into particular markets in direct competition with us, and the impact of any of these changes on postal competitors that do not use our products or services. These changes could affect product specifications, service offerings, customer behavior and the overall mailing industry.
Accelerated decline in use of physical mail
Changes in our customers communication behavior, including changes in communications technologies, could adversely impact our revenue and profitability. Accelerated decline in physical mail could also result from government actions such as executive orders, legislation or regulations that either mandate electronic substitution, prohibit certain types of mailings, increase the difficulty of using information or materials in the mail, or impose higher taxes or fees on mailing or postal services. While we have introduced various product and service offerings as alternatives to physical mail, we face competition from existing and emerging products and services that offer alternative means of communication, such as email and electronic document transmission technologies. An accelerated increase in the acceptance of electronic delivery technologies or other displacement of physical mail could adversely affect our business.
Reduced confidence in the mail system
Unexpected events such as the transmission of biological or chemical agents, or acts of terrorism could have a negative effect on customer confidence in a postal system and as a result adversely impact mail volume. An unexpected and significant interruption in the use of the mail could have an adverse effect on our business.
Dependence on third-party suppliers
We depend on third-party suppliers for a variety of services, components, supplies and a portion of our product manufacturing. In certain instances, we rely on single sourced or limited sourced suppliers around the world because there are no alternative sources or the relationship is advantageous due to quality or price. If production or service was interrupted and we were not able to find alternate suppliers, we could experience disruptions in manufacturing and operations including product shortages, an increase in freight costs, and re-engineering costs. This could result in our inability to meet customer demand, damage our reputation and customer relationships and adversely affect our business.
Access to additional liquidity
We provide financing services to our customers for equipment, postage, and supplies. Our ability to provide these services is largely dependent upon our continued access to the U.S. capital markets. An additional source of liquidity for the company consists of deposits held in our wholly-owned industrial loan corporation, Pitney Bowes Bank (Bank). A significant credit rating downgrade, material capital market disruptions, significant withdrawals by depositors at the Bank, or adverse changes
5
to our industrial loan charter could impede our ability to maintain adequate liquidity, and impact our ability to provide competitive offerings to our customers.
Privacy laws and other related regulations
Several of our services and financing businesses use, process and store customer information that could include confidential, personal or financial information. We also provide third party benefits administrators with access to our employees personal information. Privacy laws and similar regulations in many jurisdictions where we do business, as well as contractual provisions, require that we and our benefits administrators take significant steps to safeguard this information. Failure to comply with any of these laws, regulations or contract provisions could adversely affect our reputation and business and subject us to significant liability.
Dependence on information systems
Our portfolio of product, service and financing solutions increases our dependence on information technologies. We maintain a secure system to collect revenue for certain postal services, which is critical to enable both our systems and the postal systems to run reliably. The continuous and uninterrupted performance of our systems is critical to our ability to support and service our customers and to support postal services. While we do maintain back-up systems, these systems could be damaged by acts of nature, power loss, telecommunications failures, computer viruses, vandalism and other unexpected events. If our systems were disrupted, we could be prevented from fulfilling orders and servicing customers and postal services, which could have an adverse effect on our reputation and business.
Intellectual property infringement
We rely on copyright, trade secret, patent and other intellectual property laws in the United States and similar laws in other countries to establish and protect proprietary rights that are important for our business. If we fail to enforce our intellectual property rights, our business may suffer. We, or our suppliers, may be subject to third-party claims of infringement on intellectual property rights. These claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products .
Litigation and regulation
Our results may be affected by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. As a large multi-national corporation that does business throughout all of the United States and in many other countries, subsequent developments in legal proceedings, including private civil litigations or proceedings brought by governmental entities, or changes in laws or regulations or their interpretation or administration, including developments in antitrust law or regulation, class actions, or intellectual property litigations, could result in an adverse effect on our results of operations. For a description of current legal proceedings and regulatory matters, see Legal Proceedings in Item 3 and Legal and Regulatory Matters in Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.
Government contracts
Many of our contracts are with governmental entities. Government contracts are subject to extensive and complex government procurement laws and regulations, along with regular audits of contract pricing and our business practices by government agencies. If we are found to have violated some provisions of the government contracts, we could be required to provide a refund, pay significant damages, or be subject to contract cancellation, civil or criminal penalties, fines, or debarment from doing business with the government. Any of these events could not only affect us financially but also affect our brand and reputation.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Our world headquarters and certain other facilities are located in Stamford, Connecticut. We have over 500 facilities that are either leased or owned throughout the U.S. and other countries. Our Mailstream Solutions and Mailstream Services businesses utilize these facilities jointly and separately. Our products are manufactured or assembled in a number of
6
locations, principally in Danbury, Connecticut; Harlow, United Kingdom; and Lyon and St. Denis, France. We believe that our manufacturing, administrative and sales office properties are adequate for the needs of all of our operations.
In the ordinary course of business, we are routinely defendants in or party to a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things:
|
|
|
|
|
contractual rights under vendor, insurance or other contracts |
|
|
|
|
|
intellectual property or patent rights |
|
|
|
|
|
equipment, service, payment, contractual or other disputes with customers |
|
|
|
|
|
disputes with employees |
These litigations are on occasion brought on behalf of purported classes of customers, employees or others.
We are a defendant in a patent action brought by Ricoh Company, Ltd., in which there are allegations of infringement against certain of our important mailing products, including the DM Series TM . Ricoh Corporation et al. v. Pitney Bowes Inc. (United States District Court, District of New Jersey, filed November 26, 2002). The plaintiff in this action is seeking both large damages and injunctive relief. We prevailed at the trial held in this matter in the fall of 2006. The jury found the Ricoh patents at issue to be invalid. Even though a finding of invalidity means that the plaintiffs claim must fail, the jury was also required to rule on infringement and found that we infringed the Ricoh patents and did so willfully. As a result of the invalidity finding, we prevailed and no damages were awarded. The matter is currently on appeal to the United States Court of Appeals for the Federal Circuit.
Our wholly-owned subsidiary, Imagitas, Inc., is a defendant in ten purported class actions filed in six different states. These litigations have been consolidated into a single federal multi-district litigation in the United States District for the Middle District of Florida, In re: Imagitas, Drivers Privacy Protection Act (Consolidated, May 28, 2007). Each of these lawsuits alleges that the Imagitas DriverSource program violates the federal Drivers Privacy Protection Act (DPPA). Under the DriverSource program, Imagitas enters 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 assists the state in performing its 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. The plaintiffs have also sued state officials in four of the affected states, Florida, Minnesota, Missouri, and Ohio. Those suits have also been consolidated into the multi-district litigation. The state officials from Florida who were sued in their individual capacity have reached a settlement with the plaintiffs. As a result of that settlement, Imagitas has agreed to voluntarily suspend a portion of the program, pending a ruling in the litigation against it. During this period, Imagitas will still be placing advertisements in the registration renewal forms in Florida.
We expect to prevail in both the Ricoh litigation and 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of our stockholders during the three months ended December 31, 2007.
|
|
MARKET FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Pitney Bowes common stock is traded under the symbol PBI. The principal market is the New York Stock Exchange (NYSE). Our stock is also traded on the Boston, Chicago, Philadelphia, Pacific and Cincinnati stock exchanges. At December 31, 2007, we had 21,574 common stockholders of record.
On November 14, 2007, our Board of Directors authorized a two-cent increase of our quarterly common stock dividend to $0.35 per share, marking the 26 th consecutive year that we have increased the dividend on our common stock. This represents a 6 percent increase and applies to the dividend with a record date of February 18, 2008.
See Equity Compensation Plan Information Table in Item 12 of this Form 10-K for information regarding securities for issuance under our equity compensation plans.
7
Stock Information
Dividends per common share:
|
|
|
|
|
|
|
|
Quarter |
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
First |
|
$ |
0.33 |
|
$ |
0.32 |
|
Second |
|
|
0.33 |
|
|
0.32 |
|
Third |
|
|
0.33 |
|
|
0.32 |
|
Fourth |
|
|
0.33 |
|
|
0.32 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1.32 |
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
Quarterly price ranges of common stock as reported on the NYSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||||||||
|
|
|
|
|
|
||||||||
Quarter |
|
High |
|
Low |
|
High |
|
Low |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
First |
|
$ |
48.95 |
|
$ |
44.61 |
|
$ |
44.63 |
|
$ |
41.01 |
|
Second |
|
$ |
49.70 |
|
$ |
45.22 |
|
$ |
44.24 |
|
$ |
40.18 |
|
Third |
|
$ |
48.91 |
|
$ |
43.04 |
|
$ |
45.12 |
|
$ |
40.38 |
|
Fourth |
|
$ |
47.07 |
|
$ |
36.40 |
|
$ |
47.97 |
|
$ |
44.19 |
|
Share Repurchases
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 2007 in any other manner.
In March 2006, our Board of Directors authorized $300 million for repurchases of outstanding shares of our common stock in the open market of which $141.2 million remained for future purchases at December 31, 2006. We repurchased 3.0 million shares during the first five months of 2007 under this program for a total price of $141.2 million. There are no further funds available under this authorization for the repurchase of outstanding shares.
In March 2007, our Board of Directors authorized $300 million for repurchases of outstanding shares of our common stock in the open market. In November 2007, our Board of Directors increased this share repurchase authorization by $365.4 million. We repurchased 6.1 million shares at a total price of $258.8 million during 2007 under this program. As of December 31, 2007, there was $406.6 million available for future repurchases under this program.
For the combined 2006 and 2007 programs, we repurchased a total of 9.1 million shares for a total price of $400.0 million during 2007.
The following table summarizes our share repurchase activity during the fourth quarter for the 2007 program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
number
|
|
Average
price
|
|
Total
number of
|
|
Approximate
dollar value of
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
March 2007 Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2007 |
|
|
597,400 |
|
$ |
44.54 |
|
|
597,400 |
|
$ |
134,596 |
|
November 2007 |
|
|
832,000 |
|
$ |
37.97 |
|
|
832,000 |
|
$ |
468,413 |
|
December 2007 |
|
|
1,620,900 |
|
$ |
38.13 |
|
|
1,620,900 |
|
$ |
406,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchases |
|
|
3,050,300 |
|
|
|
|
|
3,050,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
SELECTED FINANCIAL DATA |
The following tables summarize selected financial data for the Company, and should be read in conjunction with the more detailed consolidated financial statements and related notes thereto included under Item 8 of this Form 10-K.
Summary of Selected Financial Data
(Dollars in
thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenue |
|
$ |
6,129,795 |
|
$ |
5,730,018 |
|
$ |
5,366,936 |
|
$ |
4,832,304 |
|
$ |
4,440,312 |
|
Total costs and expenses |
|
|
5,469,084 |
|
|
4,815,528 |
|
|
4,555,268 |
|
|
4,223,914 |
|
|
3,846,655 |
|
Income from continuing operations before income taxes and minority interest |
|
|
660,711 |
|
|
914,490 |
|
|
811,668 |
|
|
608,390 |
|
|
593,657 |
|
Provision for income taxes |
|
|
280,222 |
|
|
335,004 |
|
|
328,597 |
|
|
197,317 |
|
|
185,046 |
|
Minority interest |
|
|
19,242 |
|
|
13,827 |
|
|
9,828 |
|
|
5,634 |
|
|
4,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
361,247 |
|
|
565,659 |
|
|
473,243 |
|
|
405,439 |
|
|
404,068 |
|
Discontinued operations |
|
|
5,534 |
|
|
(460,312 |
) |
|
35,368 |
|
|
56,557 |
|
|
72,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
366,781 |
|
$ |
105,347 |
|
$ |
508,611 |
|
$ |
461,996 |
|
$ |
476,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.65 |
|
$ |
2.54 |
|
$ |
2.07 |
|
$ |
1.76 |
|
$ |
1.73 |
|
Discontinued operations |
|
|
0.03 |
|
|
(2.07 |
) |
|
0.15 |
|
|
0.24 |
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.68 |
|
$ |
0.47 |
|
$ |
2.22 |
|
$ |
2.00 |
|
$ |
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.63 |
|
$ |
2.51 |
|
$ |
2.04 |
|
$ |
1.73 |
|
$ |
1.71 |
|
Discontinued operations |
|
|
0.03 |
|
|
(2.04 |
) |
|
0.15 |
|
|
0.24 |
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.66 |
|
$ |
0.47 |
|
$ |
2.19 |
|
$ |
1.97 |
|
$ |
2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash dividends on common, preference and preferred stock |
|
$ |
288,790 |
|
$ |
285,051 |
|
$ |
284,348 |
|
$ |
282,265 |
|
$ |
280,870 |
|
Cash dividends per share of common stock |
|
$ |
1.32 |
|
$ |
1.28 |
|
$ |
1.24 |
|
$ |
1.22 |
|
$ |
1.20 |
|
Average common and potential common shares outstanding |
|
|
221,219,746 |
|
|
225,443,060 |
|
|
232,089,178 |
|
|
234,229,987 |
|
|
236,183,715 |
|
Cash provided by (used in) operating activities |
|
$ |
1,060,465 |
|
$ |
(286,574 |
) |
$ |
530,441 |
|
$ |
935,487 |
|
$ |
842,109 |
|
Depreciation and amortization |
|
$ |
383,141 |
|
$ |
363,258 |
|
$ |
331,963 |
|
$ |
306,750 |
|
$ |
288,808 |
|
Capital expenditures |
|
$ |
264,656 |
|
$ |
327,877 |
|
$ |
291,550 |
|
$ |
316,982 |
|
$ |
285,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,549,943 |
|
$ |
8,608,944 |
|
$ |
10,621,382 |
|
$ |
10,211,626 |
|
$ |
8,891,388 |
|
Long-term debt |
|
$ |
3,802,075 |
|
$ |
3,847,617 |
|
$ |
3,849,623 |
|
$ |
3,164,688 |
|
$ |
2,840,943 |
|
Total debt |
|
$ |
4,755,842 |
|
$ |
4,338,157 |
|
$ |
4,707,365 |
|
$ |
4,375,163 |
|
$ |
3,569,601 |
|
Preferred stockholders equity in subsidiary companies |
|
$ |
384,165 |
|
$ |
384,165 |
|
$ |
310,000 |
|
$ |
310,000 |
|
$ |
310,000 |
|
Stockholders equity |
|
$ |
643,303 |
|
$ |
699,189 |
|
$ |
1,364,249 |
|
$ |
1,349,152 |
|
$ |
1,145,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders of record |
|
|
21,574 |
|
|
22,923 |
|
|
23,639 |
|
|
26,129 |
|
|
27,011 |
|
Total employees |
|
|
36,165 |
|
|
34,454 |
|
|
34,165 |
|
|
35,183 |
|
|
32,474 |
|
9
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in Forward-Looking Statements and elsewhere in this report.
Overview
Revenue grew 7% in 2007 to $6.1 billion. Acquisitions and foreign currency translation contributed about 4% and 2%, respectively to this growth. Acquisitions for this year included MapInfo Corporation, Digital Cement, and Asterion SAS.
Income from continuing operations was $361 million in 2007 compared with $566 million in 2006 and diluted earnings per share from continuing operations was $1.63 in 2007 compared with $2.51 in 2006. In 2007, diluted earnings per share from continuing operations was reduced by restructuring and impairment charges of 87 cents, 5 cents for the purchase accounting alignment for MapInfo, and 16 cents for tax adjustments, related principally to a valuation allowance for net operating losses outside the U.S. In 2006, diluted earnings per share from continuing operations was reduced by restructuring charges of 10 cents and tax adjustments of 9 cents and increased by 1 cent from net legal settlements.
Our Software and Mail Services segments experienced strong results during 2007. These strong performances were offset by disappointing results in Europe, weaker performance in the legal solutions portion of our Management Services segment, and lower sales at U.S. Mailing due to the wind-down of meter migration. In addition, weakness in certain sectors of the economy, such as financial services, adversely affected our results during the second half of 2007.
On November 15, 2007, we announced a plan to lower our cost structure, accelerate efforts to improve operational efficiencies, and to transition our product line. As a result of this program, we expect a net reduction of about 1,500 positions across business lines and geographies, representing approximately 4 percent of the global employment base. Also, following a comprehensive review of our portfolio, we decided to explore strategic alternatives to determine the best course of action for our U.S. Management Services business.
See Results of Operations for 2007, 2006 and 2005 for a more detailed discussion of our results of operations.
Outlook
We believe that the actions we took in the fourth quarter of 2007, and actions that we will continue to take in 2008, will position us for sustained, long-term improvement in earnings and increased shareholder value. We expect to realize approximately $70 million in pre-tax annual benefits from these actions in 2008. We intend to reinvest the majority of these benefits in programs to improve our customers experience and our operational efficiencies. We are targeting $150 million in pre-tax annual benefits by 2009. We plan to use about half of these benefits to improve customer processes and generate revenue.
We expect our mix of revenue to continue to change, with a greater percentage of revenue coming from diversified revenue streams associated with fully featured smaller systems and a smaller percentage from larger system sales. We also expect a greater percentage of revenue growth from the Software and Mail Services segments. In addition, we expect to derive further synergies from our recent acquisitions. We will continue to remain focused on enhancing our productivity and to allocate capital in order to optimize our returns.
10
Results of Operations 2007 Compared to 2006
Business segment revenue
The following table shows revenue in 2007 and 2006 by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
|
% change |
|
% contribution
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
2,346 |
|
$ |
2,350 |
|
|
|
% |
|
1 |
% |
International Mailing |
|
|
1,070 |
|
|
1,013 |
|
|
6 |
% |
|
|
% |
Production Mail |
|
|
603 |
|
|
575 |
|
|
5 |
% |
|
2 |
% |
Software |
|
|
346 |
|
|
203 |
|
|
71 |
% |
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
4,365 |
|
|
4,141 |
|
|
5 |
% |
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
1,135 |
|
|
1,074 |
|
|
6 |
% |
|
3 |
% |
Mail Services |
|
|
459 |
|
|
370 |
|
|
24 |
% |
|
5 |
% |
Marketing Services |
|
|
171 |
|
|
145 |
|
|
18 |
% |
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
1,765 |
|
|
1,589 |
|
|
11 |
% |
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
6,130 |
|
$ |
5,730 |
|
|
7 |
% |
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailings revenue remained flat. Revenue benefited from growth in supplies, payment solutions, and the sale of equipment related to shape-based rating. However, results were unfavorably impacted by lower equipment sales due to the wind-down of meter migration and weak economic conditions. International Mailings revenue grew by 6%, including favorable foreign currency translation of 8%. The segments results were negatively impacted by lower sales and rentals in Europe as delays in postal liberalization across Europe affected customer purchases. Worldwide revenue for Production Mail grew by 5%, primarily driven by favorable foreign currency of 3% and acquisitions as higher equipment placements in the U.S. were offset by lower sales in Europe. Softwares revenue grew by 71% driven by continued strong worldwide demand for our software solutions, the acquisition of MapInfo, and favorable foreign currency translation of 4%.
Management Services revenue increased by 6% due to the acquisition of Asterion SAS and favorable foreign currency translation of 2%. The segments revenue growth was negatively impacted by weakness in our legal solutions vertical as well as print contracts in the prior year that did not repeat in 2007. Mail Services revenue increased by 24% due to continued growth in presort and cross-border mail services. Marketing Services revenue increased by 18% driven primarily by acquisitions. Revenue growth for this segment was negatively affected by lower revenue from our motor vehicle registration services program.
Business segment earnings before interest and taxes (EBIT)
We use EBIT as a measure of our segment profitability. Refer to the reconciliation of segment amounts to income from continuing operations before income taxes and minority interest in Note 19 to the Consolidated Financial Statements.
The following table shows EBIT in 2007 and 2006 by business segment:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
EBIT |
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
957 |
|
$ |
944 |
|
|
1 |
% |
International Mailing |
|
|
162 |
|
|
179 |
|
|
(10 |
)% |
Production Mail |
|
|
73 |
|
|
66 |
|
|
11 |
% |
Software |
|
|
55 |
|
|
33 |
|
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
1,247 |
|
|
1,222 |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Management Services |
|
|
76 |
|
|
83 |
|
|
(9 |
)% |
Mail Services |
|
|
65 |
|
|
43 |
|
|
51 |
% |
Marketing Services |
|
|
9 |
|
|
20 |
|
|
(55 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
150 |
|
|
146 |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total EBIT |
|
$ |
1,397 |
|
$ |
1,368 |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
11
U.S. Mailings EBIT grew 1% due to the increase in mix of higher margin revenue from payment solutions and supplies as well as our continued focus on controlling operating expenses. International Mailing EBIT decreased 10%. The segments profitability was adversely impacted by lower equipment sales and rentals in Europe, and incremental costs in 2007 related to back office operations, including the outsourcing of our European order and financial processing. Production Mail EBIT increased 11% driven primarily by revenue growth and net legal recoveries of approximately $4 million in Europe. Software EBIT increased 66%, driven by revenue growth partially offset by integration costs for the MapInfo acquisition.
Management Services EBIT decreased 9% due to continued weakness in our legal solutions vertical. Mail Services EBIT grew by 51% driven by revenue growth, successful integration of acquired sites, and increased operating efficiencies. Marketing Services EBIT decreased 55%, principally due to lower revenue in our motor vehicle registration services program.
Revenue by source
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
Equipment sales |
|
$ |
1,336 |
|
$ |
1,373 |
|
|
(3 |
)% |
Supplies |
|
|
393 |
|
|
340 |
|
|
16 |
% |
Software |
|
|
346 |
|
|
202 |
|
|
71 |
% |
Rentals |
|
|
739 |
|
|
785 |
|
|
(6 |
)% |
Financing |
|
|
790 |
|
|
725 |
|
|
9 |
% |
Support services |
|
|
761 |
|
|
717 |
|
|
6 |
% |
Business services |
|
|
1,765 |
|
|
1,588 |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
6,130 |
|
$ |
5,730 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Equipment sales revenue decreased 3% from the prior year, primarily due to lower sales of mailing equipment in the U.S. and Europe, partially offset by favorable foreign currency translation of 3%.
Supplies revenue increased 16% from the prior year due to the continued transition of our meter base to digital technology. Acquisitions and foreign currency translation contributed 4% and 3% to this growth, respectively.
Software revenue increased 71% from the prior year primarily driven by strong worldwide demand for our software solutions, acquisitions which contributed 50%, and currency translation which contributed 4%.
Rentals revenue decreased 6% from the prior year due to the continued downsizing by customers to smaller machines.
Financing revenue increased 9% from the prior year primarily due to higher revenue from payment solutions and equipment leases. Foreign currency translation accounted for 2% of this growth.
Support services revenue increased 6% from the prior year due primarily to acquisitions, which contributed 2%, and foreign currency translation, which contributed 3% to this growth.
Business services revenue increased 11% over the prior year. This increase was driven by strong growth in our presort and cross-border mail services. Acquisitions contributed 5% and foreign currency translation contributed 1% to this growth.
Costs of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
(Dollars in millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cost of equipment sales |
|
$ |
697 |
|
$ |
694 |
|
|
52.2 |
% |
|
50.5 |
% |
Cost of supplies |
|
$ |
107 |
|
$ |
90 |
|
|
27.1 |
% |
|
26.5 |
% |
Cost of software |
|
$ |
82 |
|
$ |
43 |
|
|
23.7 |
% |
|
21.3 |
% |
Cost of rentals |
|
$ |
171 |
|
$ |
171 |
|
|
23.2 |
% |
|
21.8 |
% |
Cost of support services |
|
$ |
433 |
|
$ |
400 |
|
|
56.9 |
% |
|
55.8 |
% |
Cost of business services |
|
$ |
1,381 |
|
$ |
1,242 |
|
|
78.2 |
% |
|
78.2 |
% |
Cost of equipment sales as a percentage of revenue increased to 52.2% in 2007 compared with 50.5% in the prior year, primarily due to the decrease in mix of higher margin equipment sales in the U.S.
Cost of supplies as a percentage of revenue increased to 27.1% in 2007 compared with 26.5% in the prior year, primarily due to increased sales of private label toner, ink and other supplies which have lower margins than our meter-related supplies.
12
Cost of software as a percentage of revenue increased to 23.7% in 2007 compared with 21.3% in the prior year, primarily due to the acquisition of MapInfo.
Cost of rentals as a percentage of revenue increased to 23.2% in 2007 compared with 21.8% in the prior year, primarily due to higher depreciation costs from placements of new digital meters.
Cost of support services as a percentage of revenue increased to 56.9% in 2007 compared with 55.8% in the prior year, primarily due to an increase in mix of production mail and international mailing revenue.
Cost of business services as a percentage of revenue remained flat at 78.2%. Improving margins in our presort and cross-border services were offset by lower margins in our legal solutions business.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
Percentage of Revenue |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
1,907 |
|
$ |
1,764 |
|
|
31.1 |
% |
|
30.8 |
% |
Selling, general and administrative expenses, as a percentage of total revenue, increased to 31.1% compared with 30.8% in the prior year. This increase was due to the impact of acquisitions which offset the benefits from productivity initiatives.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
186 |
|
$ |
165 |
|
|
12 |
% |
Research and development expenses increased 12% over the prior year, primarily due to the acquisition of MapInfo. Our investment in research and development reflects higher expenses for software development and our continued focus on developing new technologies and enhancing features for all of our different products.
Net interest expense
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2007 |
|
2006 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
242 |
|
$ |
213 |
|
|
14 |
% |
Net interest expense increased 14% in 2007 due to higher average interest rates and higher average borrowings during the year. Also, last year we had interest income on the cash balance that resulted from the Capital Services divestiture. Our variable and fixed rate debt mix, after adjusting for the effect of interest rate swaps, was 19% and 81%, respectively, at December 31, 2007.
Income taxes / effective tax rate
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|
|
42.4 |
% |
|
36.6 |
% |
The effective tax rate for continuing operations for 2007 included $54 million of tax charges related principally to a valuation allowance for certain deferred tax assets and tax rate changes outside the U.S. The effective tax rate for 2006 included a $20 million charge related to the IRS settlement discussed in Note 9 to the Consolidated Financial Statements.
Minority interest
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
19 |
|
$ |
14 |
|
|
39 |
% |
Minority interest includes dividends paid to preferred stockholders in subsidiary companies. Minority interest increased by $5 million compared with the prior year, primarily due to an increase in the average outstanding preferred shares and a higher weighted average dividend rate.
13
Discontinued operations
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Revenue |
|
$ |
|
|
$ |
81 |
|
Pretax income |
|
$ |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6 |
|
$ |
31 |
|
Gain on sale of Imagistics, net of $7 tax expense |
|
|
|
|
|
11 |
|
FSC tax law change |
|
|
|
|
|
(16 |
) |
Additional tax on IRS settlement |
|
|
|
|
|
(41 |
) |
Loss on sale of Capital Services, net of $285 tax benefit |
|
|
|
|
|
(445 |
) |
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax |
|
$ |
6 |
|
$ |
(460 |
) |
|
|
|
|
|
|
|
|
Net income in 2007 includes a gain of $11.3 million from the conclusion of certain tax issues net of an interest accrual for uncertain tax positions of $5.8 million. In 2006, we completed the sale of our Capital Services external financing business and our Imagistics lease portfolio. See Note 2 to the Consolidated Financial Statements for further discussion and details of discontinued operations.
14
Results of Operations 2006 Compared to 2005
Business segment revenue
The following table shows revenue in 2006 and 2005 by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2006 |
|
2005 |
|
% change |
|
%
contribution
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
2,350 |
|
$ |
2,260 |
|
|
4 |
% |
1 |
% |
|
International Mailing |
|
|
1,013 |
|
|
917 |
|
|
10 |
% |
3 |
% |
|
Production Mail |
|
|
575 |
|
|
534 |
|
|
8 |
% |
1 |
% |
|
Software |
|
|
203 |
|
|
174 |
|
|
16 |
% |
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
4,141 |
|
|
3,885 |
|
|
7 |
% |
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
1,074 |
|
|
1,072 |
|
|
|
|
2 |
% |
|
Mail Services |
|
|
370 |
|
|
335 |
|
|
10 |
% |
|
|
|
Marketing Services |
|
|
145 |
|
|
75 |
|
|
93 |
% |
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
1,589 |
|
|
1,482 |
|
|
7 |
% |
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
5,730 |
|
$ |
5,367 |
|
|
7 |
% |
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions revenue increased 7% over the prior year driven by growth in our worldwide operations, and the acquisitions of Print, Inc. and Emtex in 2006 and Danka Canada in 2005. U.S. Mailings revenue grew by 4% due to solid growth in U.S. equipment sales, supplies, shipping solutions and financing as our meter base continued to transition to new digital technology and customers took advantage of our broad range of financial offerings. However, revenue continued to be adversely affected by the ongoing changing mix to more fully featured smaller systems. International Mailings revenue grew by 10% driven by growth in mailing equipment and supplies. Worldwide revenue for Production Mail grew by 8% due to placements of inserting systems and strong demand for our advanced, high-speed Infinity metering system in the U.S., offset by lower sales in Europe. Softwares revenue grew by 16% due to sales of document composition, and address management products.
Mailstream Services revenue increased 7% driven by growth in Mail Services and Marketing Services and the acquisitions of Advertising Audit Services and PMH Caramanning (collectively AAS) and Ibis Consulting in 2006 and Imagitas as well as Compulit in 2005. During the year, we expanded our marketing services for the motor vehicle registration process to a sixth state and launched a catalog request form as an enhanced offering in the USPS move update kit. Management Services revenue remained flat in 2006 as we continued to focus on enhancing the profitability of this segment. Mail Services revenue increased by 10% as a result of our continued expansion of our presort and international consolidation network and growth in our customer base. Revenue growth for Marketing Services was driven by existing and new direct marketing services and the acquisition of AAS.
Business segment earnings before interest and taxes (EBIT)
We use EBIT as a measure of our segment profitability. See reconciliation of segment amounts to Income from continuing operations before income taxes and minority interest in Note 19 to the Consolidated Financial Statements.
The following table shows EBIT in 2006 and 2005 by business segment:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2006 |
|
2005 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
EBIT |
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
944 |
|
$ |
906 |
|
|
4 |
% |
International Mailing |
|
|
179 |
|
|
182 |
|
|
(2 |
)% |
Production Mail |
|
|
66 |
|
|
49 |
|
|
35 |
% |
Software |
|
|
33 |
|
|
27 |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
1,222 |
|
|
1,164 |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
83 |
|
|
69 |
|
|
21 |
% |
Mail Services |
|
|
43 |
|
|
20 |
|
|
117 |
% |
Marketing Services |
|
|
20 |
|
|
10 |
|
|
97 |
% |
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
146 |
|
|
99 |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total EBIT |
|
$ |
1,368 |
|
$ |
1,263 |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
15
Mailstream Solutions EBIT increased 5% compared with the prior year. U.S. Mailings EBIT grew 4% driven by revenue growth and increased demand for higher margin supplies and financing products and services. International Mailing EBIT margins were adversely impacted by investments to expand sales channels and transitional expenses related to the consolidation and outsourcing of administrative functions. Production Mail EBIT increased 35% driven primarily by strong demand for our Infinity meters. Softwares EBIT increased 24% driven by revenue growth.
Mailstream Services EBIT grew 48% compared with the prior year. Management Services EBIT grew 21%, reflecting our continued strategy to focus on higher value services while reducing administrative costs. Mail Services EBIT grew 117% as a result of the ongoing successful integration of acquired sites and increased operating efficiencies. Marketing Services EBIT grew 97% driven by revenue growth.
Revenue by source
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2006 |
|
2005 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
Equipment sales |
|
$ |
1,373 |
|
$ |
1,251 |
|
|
10 |
% |
Supplies |
|
|
340 |
|
|
297 |
|
|
14 |
% |
Software |
|
|
202 |
|
|
174 |
|
|
16 |
% |
Rentals |
|
|
785 |
|
|
801 |
|
|
(2 |
) % |
Financing |
|
|
725 |
|
|
664 |
|
|
9 |
% |
Support services |
|
|
717 |
|
|
698 |
|
|
3 |
% |
Business services |
|
|
1,588 |
|
|
1,482 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
5,730 |
|
$ |
5,367 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Equipment sales revenue increased 10% over the prior year due to growth in sales of networked digital mailing systems, inserting equipment, and shipping solutions.
Supplies revenue increased 14% driven by customers migration to digital technology, price increases and the expansion through acquisition of our print management business. At December 31, 2006, digital meters represented approximately 93% of our 1.3 million U.S. meter base, up from 84% in 2005.
Software revenue increased 16% primarily due to higher sales of document composition, and address management products.
Rentals revenue decreased from the prior year due to the continued downsizing by customers to smaller machines, primarily in the U.S.
Financing revenue increased 9% primarily due to growth in our worldwide equipment leasing volumes and higher demand for our payment solutions.
Support services revenue increased 3% due to higher placements of equipment and shipping solutions and our acquisitions in the print management space which contributed 1%.
Business services revenue increased 7% primarily due to growth in mail and marketing services.
Costs of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
Percentage of Revenue |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cost of equipment sales |
|
$ |
694 |
|
$ |
625 |
|
|
50.5 |
% |
|
50.0 |
% |
Cost of supplies |
|
$ |
90 |
|
$ |
73 |
|
|
26.5 |
% |
|
24.6 |
% |
Cost of software |
|
$ |
43 |
|
$ |
37 |
|
|
21.3 |
% |
|
21.3 |
% |
Cost of rentals |
|
$ |
171 |
|
$ |
166 |
|
|
21.8 |
% |
|
20.7 |
% |
Cost of support services |
|
$ |
400 |
|
$ |
386 |
|
|
55.8 |
% |
|
55.3 |
% |
Cost of business services |
|
$ |
1,242 |
|
$ |
1,196 |
|
|
78.2 |
% |
|
80.7 |
% |
Cost of equipment sales as a percentage of revenue increased to 50.5% in 2006 compared with 50.0% in the prior year, primarily due to the increase in revenue mix of lower margin Production Mail and International Mailing sales.
Cost of supplies as a percentage of revenue increased to 26.5% in 2006 compared with 24.6% in the prior year, primarily due to sales of toner, ink and other supplies which have lower margins than our traditional meter supplies.
Cost of software as a percentage of revenue in 2006 remained flat at 21.3% compared with the prior year.
16
Cost of rentals as a percentage of revenue increased to 21.8% in 2006 compared with 20.7% in the prior year, primarily due to higher depreciation costs from new placements associated with our meter base migration.
Cost of support services as a percentage of revenue increased to 55.8% in 2006 compared with 55.3% in the prior year, primarily due to an increase in the mix of higher cost Production Mail and International Mail support services.
Cost of business services as a percentage of revenue decreased to 78.2% in 2006 compared with 80.7% in the prior year, primarily due to our ongoing focus on cost containment and efficiency in our Management Services operations, and the successful integration of new sites in our Mail Services operations.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
Percentage of Revenue |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
1,764 |
|
$ |
1,655 |
|
|
30.8 |
% |
|
30.8 |
% |
Selling, general and administrative expenses, as a percentage of total revenue, remained flat compared with 2005 as benefits from our transformation and productivity programs were offset by investments made in our selling and marketing capabilities as well as transition expenses related to the consolidation and outsourcing of administrative functions in Europe.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2006 |
|
2005 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
165 |
|
$ |
166 |
|
|
(1 |
)% |
Research and development expenses decreased 1% from the prior year. Our investment in research and development reflects our continued focus on developing new technologies and enhancing features for all of our different products as well as an increased mix of new software development.
Net interest expense
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2006 |
|
2005 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
213 |
|
$ |
188 |
|
|
13 |
% |
Net interest expense increased by $25 million in 2006 due to higher average interest rates and higher average borrowings during the year partly offset by higher interest income from the investment of proceeds received upon the sale of Capital Services. Our variable and fixed rate debt mix, after adjusting for the effect of interest rate swaps, was 23% and 77%, respectively, at December 31, 2006.
Income taxes / effective tax rate
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
||
|
|
|
36.6 |
% |
|
40.5 |
% |
The reduction in our 2006 effective tax rate was primarily due to the COLI tax reserve that was recorded in 2005.
Minority interest
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
% change |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
14 |
|
$ |
10 |
|
|
40 |
% |
Minority interest includes dividends paid to preferred stockholders in a subsidiary. Minority interest increased compared with the prior year primarily due to an increase in the weighted average dividend rate which is repriced at each auction date.
17
Discontinued operations
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
||
Revenue |
|
$ |
81 |
|
$ |
125 |
|
Pretax income |
|
$ |
29 |
|
$ |
38 |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
31 |
|
$ |
35 |
|
Gain on sale of Imagistics, net of $7 tax expense |
|
|
11 |
|
|
|
|
FSC tax law change |
|
|
(16 |
) |
|
|
|
Additional tax on IRS settlement |
|
|
(41 |
) |
|
|
|
Loss on sale of Capital Services, net of $285 tax benefit |
|
|
(445 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax |
|
$ |
(460 |
) |
$ |
35 |
|
|
|
|
|
|
|
|
|
In 2006, we completed the sale of our Capital Services external financing business and our Imagistics lease portfolio. We have reported the results of these businesses as discontinued operations for all periods presented. See Note 2 to the Consolidated Financial Statements for further discussion and details of discontinued operations.
Other (Income) Expense
In 2007 and 2006, we recorded pre-tax gains of approximately $3 million and $5 million, respectively, related to a revised liability estimate associated with the settlement of a previous lawsuit and net pre-tax charges of approximately $3 million in 2007 and $2 million in 2006 for other legal matters. In 2005, we contributed $10 million to the Pitney Bowes Literacy and Education Fund and the Pitney Bowes Employee Involvement Fund. These amounts are included in other (income) expense in the Consolidated Statements of Income.
Restructuring Charges and Asset Impairments
We recorded pre-tax restructuring charges and asset impairments of $264 million in 2007. These charges relate primarily to a program we announced in November 2007 to lower our cost structure, accelerate efforts to improve operational efficiencies, and transition our product line. The program includes charges primarily associated with older equipment that we have stopped selling upon transition to the new generation of fully digital, networked, and remotely-downloadable equipment. The asset impairment charges related to these initiatives include the write-off of inventory ($48 million), rental assets ($61 million), lease residual values ($46 million), and other assets ($9 million). The cash portion of the restructuring charges includes employee termination costs ($85 million) and other exit costs ($6 million) and relates primarily to our efforts to lower our cost structure and accelerate improvements in operational efficiencies. As a result of this program, we expect a net reduction of about 1,500 positions. About half of these reductions will be outside of the U.S. As of December 31, 2007, 401 employees had been terminated under this program. Other exit costs relate primarily to lease termination costs and other costs associated with exiting product lines and business activities. The cash outflows related to the cash charges will be funded primarily by cash from operating activities. We expect to incur approximately $20 million of additional restructuring charges in 2008 associated with these actions, however, we continue to evaluate additional actions in conjunction with this program. We expect to complete the majority of this program by the end of 2008. We are targeting to achieve $150 million in pre-tax annual benefits from these initiatives by 2009.
In addition, asset impairments also include the write-down of certain intangible assets for $9 million.
The pre-tax restructuring charges and asset impairments are composed of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
Restructuring
|
|
Non-cash
|
|
Cash
|
|
Balance
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefit costs |
|
$ |
85 |
|
$ |
|
|
$ |
(4 |
) |
$ |
81 |
|
Asset impairments |
|
|
173 |
|
|
(173 |
) |
|
|
|
|
|
|
Other exit costs |
|
|
6 |
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
264 |
|
$ |
(173 |
) |
$ |
(4 |
) |
$ |
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
In connection with our 2003 restructuring program, we recorded pre-tax restructuring charges of $36 million and $54 million for the years ended December 31, 2006 and 2005, respectively. The 2005 charge is net of a $30 million gain on the sale of our main plant manufacturing facility. The activities associated with this program were substantially completed in 2006. We made restructuring payments of $29 million, $51 million and $48 million (net of the $30 million gain) during 2007, 2006, and 2005, respectively. The remaining restructuring liability associated with this program at December 31, 2007 is $5 million. See Note 1 to the Consolidated Financial Statements for our accounting policy related to restructuring charges and asset impairments.
Acquisitions
On September 12, 2007, we acquired Asterion SAS for $28 million in cash, net of cash acquired. Asterion is a leading provider of outsourced transactional print and document process services in France. We assigned the goodwill to the Management Services segment.
On May 31, 2007, we acquired the remaining shares of Digital Cement, Inc. for a total purchase price of $49 million in cash, net of cash acquired. Digital Cement, Inc. provides marketing management strategy and services to help companies acquire, retain, manage, and grow their customer relationships. We assigned the goodwill to the Marketing Services segment.
On April 19, 2007, we acquired MapInfo Corporation for $446 million in cash, net of cash acquired. Included in the assets and liabilities acquired were short-term investments of $46 million and debt assumed of $14 million. MapInfo is a global company and a leading provider of location intelligence software and solutions. We assigned the goodwill to the Software segment. As part of the purchase accounting for MapInfo, we aligned MapInfos accounting policies with ours. Accordingly, certain software revenue that was previously recognized by MapInfo on a periodic basis is now being recognized over the life of the contract.
On July 31, 2006, we acquired Print, Inc. for approximately $46 million in cash, net of cash acquired. Print, Inc. provides printer supplies, service and equipment under long-term managed services contracts. The goodwill was assigned to the U.S. Mailing segment.
On June 15, 2006, we acquired substantially all the assets of Advertising Audit Service and PMH Caramanning (collectively AAS) for approximately $42 million in cash. AAS offers a variety of web-based tools for the customization of promotional mail and marketing collateral and designs and manages customer and channel performance solutions. The goodwill was assigned to the Marketing Services segment.
On April 24, 2006, we acquired Ibis Consulting, Inc. (Ibis) for approximately $65 million in cash, net of cash acquired. Ibis is a leading provider of electronic discovery (eDiscovery) services to law firms and corporate clients. Ibis technology and offerings complement those of Compulit, which we acquired in 2005, and expands our range of solutions and services for the complex litigation support needs of law firms and corporate legal departments. The goodwill was assigned to the Management Services segment.
On February 8, 2006, we acquired Emtex Ltd. (Emtex) for approximately $33 million in cash, net of cash acquired. Emtex is a software and services company that allows large-volume mailers to simplify document production and centrally manage complex multi-vendor and multi-site print operations. The goodwill was assigned to the Software segment.
We accounted for these acquisitions using the purchase method of accounting and accordingly, the operating results of these acquisitions have been included in our consolidated financial statements since the date of acquisition. As a result of the purchase accounting alignment, the acquisition of MapInfo reduced our diluted earnings per share by 5 cents in 2007. Acquisitions made in 2006 did not materially impact income from continuing operations for that year.
During 2007 and 2006, we also completed several smaller acquisitions for an aggregate cost of $87 million and $43 million, respectively. These acquisitions did not have a material impact on our financial results either individually or on an aggregate basis. See Note 3 to the Consolidated Financial Statements for further details.
Liquidity and Capital Resources
We believe that cash flow generated by operations, existing cash and liquid investments, as well as borrowing capacity under our commercial paper program, the existing credit facility and debt capital markets should be sufficient to finance our capital requirements and to cover our customer deposits for the foreseeable future. Our potential uses of cash include but are not limited to the following: growth and expansion opportunities; internal investments; customer financing; tax payments; interest and dividend payments; share repurchase program; and potential acquisitions and divestitures.
19
Cash Flow Summary
The change in cash and cash equivalents is as follows:
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Cash provided by (used in) operating activities |
|
$ |
1,060 |
|
$ |
(286 |
) |
Cash (used in) provided by investing activities |
|
|
(726 |
) |
|
720 |
|
Cash used in financing activities |
|
|
(204 |
) |
|
(440 |
) |
Effect of exchange rate changes on cash |
|
|
8 |
|
|
2 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
138 |
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
2007 Cash Flows
Net cash provided by operations consisted primarily of net income adjusted for non-cash items and changes in operating assets and liabilities. The strong cash flow provided by operations for 2007 is primarily driven by tax refunds and lower tax payments, lower investment in finance receivables, and increased management attention on working capital which resulted in lower accounts receivable, inventory and accounts payable balances.
Net cash used in investing activities consisted of acquisitions of $594 million and capital expenditures of $265 million partially offset by proceeds from the sale of a training facility for $30 million, proceeds from short-term investments of $42 million, and increased reserve account balances for customer deposits of $63 million.
Net cash used in financing activities was $204 million and consisted primarily of stock repurchases of $400 million and dividends paid of $289 million, primarily offset by a net borrowing of debt of $377 million and proceeds from stock issuance of $108 million.
2006 Cash Flows
Net cash used in operating activities decreased due to payments made to the IRS in connection with the sale of Capital Services and the IRS tax settlement. These payments to the IRS reflect taxes due from the sale of our Imagistics lease portfolio and Capital Services external financing business as well as final payments for our settlement of all outstanding tax audit issues in dispute for tax years through December 31, 2000. See Note 9 to the Consolidated Financial Statements for further discussion. The increase in accounts receivable decreased cash from operations by approximately $47 million, primarily reflecting growth in sales of equipment and software licenses. The increase in our internal finance receivables balances reduced cash from operations by $237 million, reflecting growth in equipment placements and our payment solutions business during the year.
Net cash provided by investing activities consisted primarily of proceeds of $747 million received from the sale of our Capital Services external financing business, $282 million received from the sale of our Imagistics lease portfolio and an advance of $138 million against the cash surrender value of our COLI policies, offset by $328 million in capital expenditures and $231 million used for acquisitions.
Net cash used in financing activities was $440 million and consisted primarily of stock repurchases and dividends paid, offset by the issuance of debt, common stock and proceeds from preferred stock issued by a subsidiary.
Capital Expenditures
During 2007, capital expenditures included net additions of $142 million to property, plant and equipment and $123 million in net additions to rental equipment and related inventories compared with $137 million and $191 million, respectively, in 2006. The decrease in rental asset additions relates primarily to the wind-down of our customers transition to digital meters.
Financings and Capitalization
We have a commercial paper program that is a significant source of liquidity. As of December 31, 2007, we had approximately $405 million of outstanding commercial paper issuances and an unused credit facility of $1.5 billion which supports commercial paper issuances.
In September 2007, we issued $500 million of unsecured fixed rate notes maturing in September 2017. These notes bear interest at an annual rate of 5.75% and pay interest semi-annually beginning in March 2008. The proceeds from these notes
20
were used for general corporate purposes, including the repayment of commercial paper, the financing of acquisitions and repurchase of our stock.
In December 2007, we entered into a $150 million syndicated bank transaction priced at 3 month LIBOR plus 35 basis points. The proceeds from this credit facility, due 2012, were used to pay off the $150 million variable rate debt that was due in 2010.
In addition to our borrowing capability under the unused credit facilities described above, we have $0.6 billion available under the shelf registration statement filed in February 2005 with the SEC, permitting issuances of up to $2.5 billion in debt securities, preferred stock, preference stock, common stock, purchase contracts, depository shares, warrants and units.
We believe our financing needs in the short and long term can be met from cash generated internally, borrowing capacity from existing credit agreements, available debt issuances under existing shelf registration statements and our existing commercial paper program. Information on debt maturities is presented in Note 8 to the Consolidated Financial Statements.
The following summarizes our known contractual obligations at December 31, 2007 and the effect that such obligations are expected to have on our liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|||||||||||||
|
|
|
|
|||||||||||||
(Dollars in millions) |
|
Total |
|
Less
than 1
|
|
1-3 years |
|
3-5 years |
|
More
than
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial paper borrowings |
|
$ |
405 |
|
$ |
405 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Long-term debt and current portion of long-term debt |
|
|
4,339 |
|
|
550 |
|
|
151 |
|
|
551 |
|
|
3,087 |
|
Non-cancelable operating lease obligations |
|
|
292 |
|
|
89 |
|
|
113 |
|
|
52 |
|
|
38 |
|
Capital lease obligations |
|
|
22 |
|
|
9 |
|
|
10 |
|
|
3 |
|
|
|
|
Purchase obligations (1) |
|
|
252 |
|
|
193 |
|
|
45 |
|
|
14 |
|
|
|
|
Other non-current liabilities (2) |
|
|
406 |
|
|
|
|
|
258 |
|
|
49 |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,716 |
|
$ |
1,246 |
|
$ |
577 |
|
$ |
669 |
|
$ |
3,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Purchase obligations include unrecorded agreements to purchase goods or services that are enforceable and legally binding upon us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. |
|
|
(2) |
Other non-current liabilities relate primarily to our postretirement benefits. See Note 13 to the Consolidated Financial Statements. |
The amount and period of future payments related to our FIN 48 income tax uncertainties cannot be reliably estimated and, therefore, is not included in the above table. See Note 9 to the Consolidated Financial Statements for further details.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and to the understanding of our results of operations. We have discussed the impact and any associated risks on our results of operations related to these policies throughout the MD&A. For a detailed discussion on the application of these and other accounting policies, see Note 1 to the Consolidated Financial Statements.
The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, customer cancellations, bad debts, inventory obsolescence, residual values of leased assets, useful lives of long-lived assets and intangible assets, warranty obligations, restructuring, pensions and other postretirement benefits, contingencies and litigation, and allocation of purchase price to tangible and intangible assets acquired in business combinations. Our actual results could differ from those estimates and assumptions. We believe the assumptions and estimates used are reasonable and appropriate in accordance with GAAP.
21
Revenue recognition
Multiple element and internal financing arrangements
We derive our revenue from multiple sources including sales, rentals, financing and services. Certain of our transactions are consummated at the same time and can therefore generate revenue from multiple sources. The most common form of these transactions involves a non-cancelable equipment lease, a meter rental and an equipment maintenance agreement. As a result, we are required to determine whether the deliverables in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the price should be allocated among the delivered elements and when to recognize revenue for each element.
In multiple element arrangements, we recognize revenue for each of the elements based on their respective fair values in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We recognize revenue for delivered elements only when the fair values of undelivered elements are known and uncertainties regarding customer acceptance are resolved. Our allocation of the fair values to the various elements does not change the total revenue recognized from a transaction, but impacts the timing of revenue recognition. Revenue is allocated to the meter rental and equipment maintenance agreement elements first using their respective fair values, which are determined based on prices charged in standalone and renewal transactions. Revenue is then allocated to the equipment based on the present value of the remaining minimum lease payments. We then compare the allocated equipment fair value to the range of cash selling prices in standalone transactions during the period to ensure the allocated equipment fair value approximates average cash selling prices.
We provide lease financing for our products primarily through sales-type leases. We classify our leases in accordance with SFAS No. 13, Accounting for Leases. The vast majority of our leases qualify as sales-type leases using the present value of minimum lease payments classification criteria outlined in SFAS No. 13. We believe that our sales-type lease portfolio contains only normal collection risk with no important uncertainties with respect to future costs. Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease payments plus the estimated residual value as gross finance receivables. The difference between the gross finance receivable and the equipment fair value is recorded as unearned income and is amortized as income over the lease term using the interest rate implicit in the lease.
Equipment residual values are determined at inception of the lease using estimates of equipment fair value at the end of the lease term. Estimates of future equipment fair value are based primarily on our historical experience. We also consider forecasted supply and demand for our various products, product retirement and future product launch plans, end of lease customer behavior, regulatory changes, remanufacturing strategies, used equipment markets, if any, competition and technological changes. We evaluate residual values on an annual basis or as changes to the above considerations occur. In 2007, we recorded an impairment charge of $46 million related to the transition of our product line. See Note 14 to the Consolidated Financial Statements for further details. We did not experience any material changes to our residual values during 2006 or 2005.
See Note 1 to the Consolidated Financial Statements for our accounting policies on revenue recognition.
Allowances for doubtful accounts and credit losses
Allowance for doubtful accounts
We estimate our accounts receivable risks and provide allowances for doubtful accounts accordingly. We evaluate the adequacy of the allowance for doubtful accounts on a periodic basis. Our evaluation includes historical loss experience, length of time receivables are past due, adverse situations that may affect a customers ability to repay and prevailing economic conditions. We make adjustments to our allowance if our evaluation of allowance requirements differs from our actual aggregate reserve. This evaluation is inherently subjective because our estimates may be revised as more information becomes available. Based on historical experience, we have not had any material revisions to our recorded allowance for doubtful accounts.
Allowance for credit losses
We estimate our finance receivables risks and provide allowances for credit losses accordingly. We establish credit approval limits based on the credit quality of our customers and the type of equipment financed. We charge finance receivables to the allowance for credit losses after collection efforts are exhausted and we deem the account uncollectible. We base credit decisions primarily on a customers financial strength. We believe that our concentration of credit risk for finance receivables in our internal financing division is limited because of our large number of customers, small account balances and customer geographic and industry diversification. Our general policy for finance receivables contractually past due for over
22
120 days is to discontinue revenue recognition. We resume revenue recognition when payments reduce the account to 60 days or less past due.
We evaluate the adequacy of allowance for credit losses on a periodic basis. Our evaluation includes historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a customers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. We make adjustments to our allowance for credit losses if the evaluation of reserve requirements differs from the actual aggregate reserve. This evaluation is inherently subjective because our estimates may be revised as more information becomes available.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. When we prepare our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We record this amount as a provision for our taxes in accordance with SFAS No. 109, Accounting for Income Taxes .
In June 2006, the Financial Accounting Standards Board issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires a two-step approach under which the tax effect of a position is recognized only if it is more-likely-than-not to be sustained and the amount of the tax benefit recognized is equal to the largest tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement of the tax position. This is a different standard for recognition than the approach previously required. Both approaches require us to exercise considerable judgment and estimates are inherent in both processes.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we operate and account for the related financial statement implications. We have established tax reserves 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. We adjust the amount of reserves 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.
Based on our 2007 income from continuing operations before income taxes and minority interest, a 1% change in our effective tax rate would impact income from continuing operations by approximately $7 million.
Long-lived assets
Useful lives of long-lived assets
We depreciate property, plant and equipment and rental property and equipment principally using the straight-line method over estimated useful lives: machinery and equipment principally 3 to 15 years and buildings up to 50 years. We depreciate other depreciable assets using either the straight-line method or accelerated methods. We amortize properties leased under capital leases on a straight-line basis over the primary lease terms. We amortize capitalized costs related to internally developed software using the straight-line method over the estimated useful life, which is principally 3 to 10 years. Intangible assets with finite lives are amortized over their estimated useful lives, which are principally 4 to 15 years. Our estimates of useful lives could be affected by changes in regulatory provisions, technology or business plans.
Impairment review
We evaluate the recoverability of our long-lived assets, including goodwill and intangible assets, on an annual basis or as circumstances warrant. Our goodwill impairment review requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. We use internal discounted cash flow estimates, quoted market prices when available and appraisals as appropriate to determine fair value. We derive the cash flow estimates from our historical experience and our future long-term business plans and apply an appropriate discount rate. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.
23
See Note 14 to the Consolidated Financial Statements for further details on our transition initiatives and asset impairments recorded in 2007. We believe that we have no unrecorded asset impairments at December 31, 2007. However, future events and circumstances, some of which are described below, may result in an impairment charge:
|
|
|
|
|
Changes in postal regulations governing the types of meters allowable for use. |
|
|
|
|
|
New technological developments that provide significantly enhanced benefits over current technology. |
|
|
|
|
|
Significant negative economic or industry trends. |
|
|
|
|
|
Changes in our business strategy that alters the expected usage of the related assets. |
|
|
|
|
|
Future economic results that are below our expectations used in the current assessments. |
Pension benefits
Assumptions and estimates
The valuation and calculation of our net pension expense, assets and obligations are dependent on various assumptions and estimates. We make assumptions relating to discount rates, rate of compensation increase, expected return on plan assets and other factors. These assumptions are evaluated and updated annually and are described in further detail in Note 13 to the Consolidated Financial Statements. The following assumptions relate to our U.S. qualified pension plan, which is our largest plan. We determine our discount rate for the U.S. retirement benefit plan by using a model that discounts each years estimated benefit payments by an applicable spot rate. These spot rates are derived from a yield curve created from a large number of high quality corporate bonds. Accordingly, our discount rate assumption was 6.15% at December 31, 2007 and 5.85% at December 31, 2006. The rate of compensation increase assumption reflects our actual experience and best estimate of future increases. Our estimate of the rate of compensation increase was 4.50% at December 31, 2007 and 2006. Our expected return on plan assets is determined based on historical portfolio results, the plans asset mix and future expectations of market rates of return on the types of assets in the plan. Our expected return on plan assets assumption was 8.50% in 2007 and 2006.
Sensitivity to changes in assumptions:
|
|
|
|
|
Discount rate a 0.25% increase in the discount rate would decrease annual pension expense by approximately $2.9 million. |
|
|
|
|
|
Rate of compensation increase a 0.25% increase in the rate of compensation increase would increase annual pension expense by approximately $2.5 million. |
|
|
|
|
|
Expected return on plan assets a 0.25% increase in the expected return on assets of our principal plans would decrease annual pension expense by approximately $3.9 million. |
Delayed recognition principles
In accordance with SFAS No. 87, Employers Accounting for Pensions , actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the estimated future working life of the plan participants and will therefore affect pension expense recognized and obligations recorded in future periods. We also base our net pension expense primarily on a market related valuation of plan assets. In accordance with this approach, we recognize differences between the actual and expected return on plan assets primarily over a five-year period and as a result future pension expense will be impacted when these previously deferred gains or losses are recorded. See the new accounting pronouncements below for the effect of SFAS No. 158, Employers Accounting for Defined Pension and Other Post Retirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R) .
Investment related risks and uncertainties
We invest our pension plan assets in a variety of investment securities in accordance with our strategic asset allocation policy. The composition of our U.S. pension plan assets at December 31, 2007 was approximately 66% equity securities, 28% fixed income securities and 6% real estate investments. Investment securities are exposed to various risks such as interest rate, market and credit risks. In particular, due to the level of risk associated with equity securities, it is reasonably possible those changes in the values of such investment securities will occur and that such changes could materially affect our future results.
24
New Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections (FAS 154) , which replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28. FAS 154 requires retrospective application to prior periods financial statements of a voluntary change in accounting principle unless it is not practicable. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Our adoption of SFAS 154 did not have a material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS 143-1, Accounting for Electronic Equipment Waste Obligations , that provides guidance on how commercial users and producers of electronic equipment should recognize and measure asset retirement obligations associated with the European Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the Directive). The adoption of this FSP did not have a material effect on our financial position, results of operations or cash flows for those European Union (EU) countries that enacted the Directive into country-specific laws.
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes , by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires the tax effect of a position to be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are recognized. This is a different standard for recognition than was previously required. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. At adoption, companies adjusted their financial statements to reflect only those tax positions that were more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment was recorded directly to opening retained earnings in the period of adoption and reported as a change in accounting principle. We adopted the provisions of FIN 48 on January 1, 2007 which resulted in a decrease to opening retained earnings of $84.4 million, with a corresponding increase in our tax liabilities.
In July 2006, the FASB issued FSP No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction, that provided guidance on how a change or a potential change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affected the accounting by a lessor for the lease. We adopted the provisions of FSP No. FAS 13-2 on January 1, 2007. Our adoption of this FSP did not have a material impact on our financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 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 establishes a framework within GAAP for measuring fair value and expands required disclosures surrounding fair-value measurements. While it will change the way companies currently measure fair value, it does not establish any new instances where fair value measurement is required. FAS 157 defines fair value as an amount that a company would receive if it sold an asset or paid to transfer a liability in a normal transaction between market participants in the same market where the company does business. It emphasizes that the value is based on assumptions that market participants would use, not necessarily only the company that might buy or sell the asset. The FASB issued FASB Staff Position (FSP) No. FAS 157-a, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions , which eliminated lease accounting from the scope of this standard. FAS 157, as issued, is effective for fiscal years beginning after November 15, 2007. The FASB issued FASB Staff Position (FSP) No. FAS 157-b, Effective Date of FASB Statement No. 157 , which delays 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, at least annually. We do not expect that the adoption of this statement for financial assets and liabilities, effective January 1, 2008, will have a material impact on our financial position, results of operations, or cash flow. We continue to evaluate the impact of adopting this statement for the nonfinancial items deferred until January 1, 2009.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R) (FAS 158), which required recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under FAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost were recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. Our adoption of the provisions of FAS 158 reduced stockholders equity by $297 million at December 31, 2006. FAS 158 did not affect our results of operations or cash flows.
25
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provided guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for the purposes of determining whether the current years financial statements are materially misstated. SAB 108 allowed registrants to adjust for the cumulative effect of certain errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption provided that management had properly concluded that the errors were not material to prior periods. SAB 108 was effective for fiscal years ending after November 15, 2006. In 2006, we determined that the accounting for certain leveraged lease transactions in Canada was misstated due to changes in assumptions having occurred prior to 2000 which impacted net income from the leases. Such changes in assumptions required the leveraged lease pricing models to be revised. These misstatements were immaterial to periods prior to 2006, however correction in that period would have had the effect of reducing our pre-tax income and our tax provision by $48 million and $43 million, respectively, which was considered material to the 2006 financial statements. Accordingly, we corrected these misstatements by adjusting opening retained earnings in 2006 by $5 million. As part of this adjustment, we also decreased our investment in leveraged leases by $33 million, increased other non-current liabilities by $15 million and decreased deferred taxes on income by $43 million.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , including an amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 159),which permits entities to choose to measure many financial assets and financial liabilities and certain other assets and liabilities at fair value on an instrument-by-instrument basis. The fair value election once made is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect to adopt the fair value option allowed by this standard.
In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations (FAS 141 (R)) . FAS 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 the 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. FAS 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 costs. FAS 141 (R) is effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively. We are currently evaluating the impact of adopting this Statement.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS 160 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. FAS 160 requires changes in ownership interest that do not result in deconsolidation to be accounted for as equity transactions. This Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This gain or loss is measured using the fair value of the noncontrolling equity investment. This Statement is effective for fiscal years beginning on or after December 15, 2008. FAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 are applied prospectively. We are currently evaluating the impact of adopting this Statement.
Legal and Regulatory Matters
Legal
See Legal Proceedings in Item 3 of this Form 10-K for information regarding our legal proceedings.
Other
The European Union has instituted two environmental directives that impact our international operations. The Waste Electrical and Electronic Equipment legislation, effective August 13, 2005, makes manufacturers responsible for the disposal of their equipment. The Restriction of Hazardous Substances directive (RoHS) effective July 2006, requires the removal of substances that are now considered actually or potentially hazardous, from future equipment placements. As a result of the RoHS directive, we have sought and received re-approval for the placement of postage meters from the appropriate postal authorities in each country.
26
Income taxes
The current IRS exam of tax years 2001-2004 is estimated to be completed in the next year or two, and the federal statute of limitations for years prior to 2001 has expired. In connection with the 2001-2004 audit, we are currently disputing a recent formal request from the IRS in the form of a civil summons to provide certain company workpapers. The company believes that certain documents being sought should not be produced because they are privileged. In the third quarter, 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. A similar issue is also being litigated between the IRS and another taxpayer before the U.S. District Court for the Northern District of Alabama. In connection with the 2001-2004 audit, we have recently entered into an agreement in principle with the IRS regarding the tax treatment of certain Capital Services lease transactions. The additional tax and interest associated with this settlement was accrued and paid to the IRS prior to 2007.
In 2006, we accrued in discontinued operations an additional tax expense of $16.2 million to record the impact of the Tax Increase Prevention and Reconciliation Act (TIPRA). The TIPRA legislation repealed the exclusion from federal income taxation of a portion of the income generated from certain leveraged leases of aircraft by foreign sales corporations. See Note 2 to the Consolidated Financial Statements for further discussion of discontinued operations.
In August 2006, we reached a settlement with the IRS governing all outstanding tax audit issues in dispute for the tax years through 2000. These disputed items related primarily to the tax treatment of corporate owned life insurance (COLI) and related interest expense, the tax effect of the sale of certain preferred share holdings, and the tax treatment of certain Capital Services lease transactions. In the second quarter of 2006, we estimated the tax due as a result of the IRS settlement including our best estimate of the additional liability for these items in all open years, the sale of the Imagistics portfolio and the sale of the Capital Services business to be approximately $1.1 billion. Accordingly, we recorded $61 million of additional tax expense. The $1.1 billion tax liability was net of $330 million of IRS tax bonds previously posted. In the third quarter of 2006, we paid $239 million of the $1.1 billion obligation to the IRS, with the remainder paid by the end of 2006. These tax obligations were funded with proceeds previously received in 2006 from the sale of the Imagistics lease portfolio and Capital Services and the advance against the cash surrender value of our COLI assets. Of the $61 million of tax expense, $41 million related to the Capital Services business and was included in discontinued operations and $20 million was included in continuing operations.
In January 2006, the U.S. Circuit Court of Appeals reversed a District Court decision that another company received related to the tax treatment of COLI and related interest deductions. As a result, we recorded additional tax reserves of $56 million in our 2005 financial results.
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 have accrued our estimate of the probable tax, interest and penalties that may result from these disputed matters as it relates to 2001 through 2007 and we believe that the accrual for tax liabilities is appropriate. However, the resolution of such matters could have a material impact on our results of operations, financial position and cash flow.
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.
Effects of Inflation and Foreign Exchange
Inflation, although moderate in recent years, continues to affect worldwide economies and the way companies operate. It increases labor costs and operating expenses, and raises costs associated with replacement of fixed assets such as rental equipment. Despite these growing costs and the USPS meter migration initiatives, we have generally been able to maintain profit margins through productivity and efficiency improvements, continual review of both manufacturing capacity and operating expense levels, and, where applicable, price increases.
Currency translation increased our 2007 revenue by approximately 2%. Also, currency translation gains increased our income before taxes by $11 million. Based on the current contribution from our international operations, a 1% increase in the value of the U.S. dollar would result in a decline in revenue of approximately $17 million and a decline in income from continuing operations before income taxes and minority interest of approximately $2 million.
27
Although not affecting income, balance sheet related deferred translation gains of $165 million were recorded in 2007 resulting primarily from the stronger British pound, Euro and Canadian dollar, as compared to the U.S. dollar. During 2006, we recorded deferred translation gains of $83 million resulting primarily from the stronger British pound, Euro and Canadian dollar, as compared to the U.S. dollar. During 2005, we recorded deferred translation losses of $54 million resulting primarily from the weaker British pound and Euro, partially offset by the stronger Canadian dollar as compared with the U.S. dollar.
The results of our international operations are subject to currency fluctuations. We enter into foreign exchange contracts primarily to minimize our risk of loss from such fluctuations. Exchange rates can also impact settlement of our intercompany receivables and payables that result from transfers of finished goods inventories between our affiliates in different countries, and intercompany loans.
At December 31, 2007, we had $316 million of foreign exchange contracts outstanding, all maturing in 2008, to buy or sell various currencies. As a result of the use of derivative instruments, we are exposed to counterparty risk. To mitigate such risks, we enter into contracts with only those financial institutions that meet stringent credit requirements as set forth in our derivative policy. We regularly review our credit exposure balances as well as the creditworthiness of our counterparties. Maximum risk of loss on these contracts is limited to the amount of the difference between the spot rate at the date of the contract delivery and the contracted rate.
Dividends
It is a general practice of our Board of Directors to pay a cash dividend on common stock each quarter. In setting dividend payments, our board considers the dividend rate in relation to our recent and projected earnings and our capital investment opportunities and requirements. We have paid a dividend each year since 1934.
Forward-Looking Statements
We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 in this Form 10-K, other reports or press releases or made by our management involve risks and uncertainties which may change based on various important factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are those which talk about our current expectations as to the future and include, but are not limited to, statements about the amounts, timing and results of possible restructuring charges and future earnings. Words such as estimate, project, plan, believe, expect, anticipate, intend, and similar expressions may identify such forward-looking statements. Some of the factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include:
|
|
|
|
|
changes in international or national political conditions, including any terrorist attacks |
|
|
|
|
|
negative developments in economic conditions, including adverse impacts on customer demand |
|
|
|
|
|
changes in postal regulations |
|
|
|
|
|
timely development and acceptance of new products |
|
|
|
|
|
success in gaining product approval in new markets where regulatory approval is required |
|
|
|
|
|
successful entry into new markets |
|
|
|
|
|
mailers utilization of alternative means of communication or competitors products |
|
|
|
|
|
our success at managing customer credit risk |
|
|
|
|
|
our success at managing costs associated with our strategy of outsourcing functions and operations not central to our business |
|
|
|
|
|
changes in interest rates |
|
|
|
|
|
foreign currency fluctuations |
|
|
|
|
|
cost, timing and execution of our transition plans including any potential asset impairments |
|
|
|
|
|
regulatory approvals and satisfaction of other conditions to consummation of any acquisitions and integration of recent acquisitions |
|
|
|
|
|
interrupted use of key information systems |
|
|
|
|
|
changes in privacy laws |
|
|
|
|
|
intellectual property infringement claims |
|
|
|
|
|
impact on mail volume resulting from current concerns over the use of the mail for transmitting harmful biological agents |
|
|
|
|
|
third-party suppliers ability to provide product components |
|
|
|
|
|
negative income tax adjustments for prior audit years and changes in tax laws or regulations |
|
|
|
|
|
changes in pension and retiree medical costs |
|
|
|
|
|
acts of nature |
28
|
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to the impact of interest rate changes and foreign currency fluctuations due to our investing and funding activities and our operations denominated in different foreign currencies.
We manage our exposure to changes in interest rates by limiting its impact on earnings and cash flows and lowering our overall borrowing costs. We use a balanced mix of debt maturities and variable and fixed rate debt together with interest rate swaps to execute our strategy.
Our objective in managing our exposure to foreign currency fluctuations is to reduce the volatility in earnings and cash flows associated with the effect of foreign exchange rate changes on transactions that are denominated in foreign currencies. Accordingly, we enter into various contracts, which change in value as foreign exchange rates change, to protect the value of external and intercompany transactions. The principal currencies actively hedged are the British pound, Canadian dollar and Euro.
We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. We do not enter into foreign currency or interest rate transactions for speculative purposes. The gains and losses on these contracts offset changes in the value of the related exposures.
We utilize a Value-at-Risk (VaR) model to determine the maximum potential loss in fair value from changes in market conditions. The VaR model utilizes a variance/co-variance approach and assumes normal market conditions, a 95% confidence level and a one-day holding period. The model includes all of our debt and all interest rate and foreign exchange derivative contracts. The model excludes anticipated transactions, firm commitments, and receivables and accounts payable denominated in foreign currencies, which certain of these instruments are intended to hedge.
The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that will be incurred by us, nor does it consider the potential effect of favorable changes in market factors.
During 2007 and 2006, our maximum potential one-day loss in fair value of our exposure to foreign exchange rates and interest rates, using the variance/co-variance technique described above, was not material.
|
|
See Index to Consolidated Financial Statements and Supplemental Data on Page 36.
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) and internal control over financial reporting. The CEO and CFO concluded that such disclosure controls and procedures were effective as of December 31, 2007, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. In addition, no change in internal control over financial reporting occurred during the year ended December 31, 2007, that has materially affected, or is 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 CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of December 31, 2007.
Managements Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
29
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with internal control policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework . Managements assessment included evaluating the design of the Companys internal control over financial reporting and testing of the operational effectiveness of the Companys internal control over financial reporting. Based on our assessment, we concluded that, as of December 31, 2007, the Companys internal control over financial reporting was effective based on the criteria issued by COSO in Internal Control Integrated Framework .
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Companys financial statements included in this Form 10-K, has issued an attestation report on the Companys internal control over financial reporting, which report is included on page 37 of this Form 10-K.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information pertaining to Directors of the Company and the Audit Committee of the Board of Directors is incorporated herein by reference to the sections entitled Compensation Committee Interlocks and Insider Participation, Election of Directors, How much stock is owned by directors and executive officers?, Which stockholders own at least 5% of Pitney Bowes?, Security Ownership of Directors and Executive Officers, Audit Committee and Corporate Governance of the Pitney Bowes Inc. Notice of the 2008 Annual Meeting and Proxy Statement are incorporated herein by reference. Executive officers of the Company are as follows:
Executive Officers of the Registrant as of February 29, 2008
|
|
|
|
|
|
Name |
Age |
|
Title |
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray D. Martin |
60 |
|
President and Chief Executive Officer |
|
1998 |
|
|
|
|
|
|
Michael J. Critelli |
59 |
|
Executive Chairman |
|
1988 |
|
|
|
|
|
|
Gregory E. Buoncontri |
60 |
|
Senior Vice President and Chief Information Officer |
|
2000 |
|
|
|
|
|
|
Bruce P. Nolop |
57 |
|
Executive Vice President and Chief Financial Officer |
|
2000 |
|
|
|
|
|
|
Johnna G. Torsone |
57 |
|
Senior Vice President and Chief Human Resources Officer |
|
1993 |
|
|
|
|
|
|
Leslie R. Abi-Karam |
49 |
|
Executive Vice President and President, Document Messaging Technologies |
|
2005 |
|
|
|
|
|
|
Elise R. DeBois |
52 |
|
Executive Vice President and President, Global Financial Services |
|
2005 |
|
|
|
|
|
|
Vincent R. De Palma |
50 |
|
Executive Vice President and President, Pitney Bowes Management Services |
|
2005 |
|
|
|
|
|
|
Patrick J. Keddy |
53 |
|
Executive Vice President and President, Mailstream International |
|
2005 |
|
|
|
|
|
|
Michael Monahan |
47 |
|
Executive Vice President and President, Mailing Solutions and Services |
|
2005 |
There is no family relationship among the above officers, all of whom have served in various corporate, division or subsidiary positions with the Company for at least the past five years except for Mr. De Palma.
30
Mr. De Palma joined the Company in June 2005 as President, Pitney Bowes Management Services. Prior to joining the Company, Mr. De Palma was with Automatic Data Processing (ADP) where he was a Corporate Officer and served as President of ADP Benefit Services. Mr. De Palma has also held senior management positions at Petroleum Heat & Power Company and McKinsey & Company.
On February 13, 2008, we announced key appointments, effective March 1, to our senior management team. Michael Monahan has been named Executive Vice President and Chief Financial Officer and will succeed Bruce Nolop. Leslie Abi-Karam has been named to a newly-created position, Executive Vice President and President, Mailing Solutions Management, which includes responsibility for the worldwide production mail business, as well as Mailing Solutions and Services formerly led by Mr. Monahan.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled Directors Compensation, Compensation Discussion and Analysis, and Executive Compensation Tables and Related Narrative of the Pitney Bowes Inc. Notice of the 2008 Annual Meeting and Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following table provides information as of December 31, 2007 regarding the number of shares of the Companys common stock that may be issued under the Companys equity compensation plans.
|
|
|
|
|
|
|
|
|
Plan Category |
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders |
|
19,202,997 |
|
$ |
43.30 |
|
15,416,166 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
19,202,997 |
|
$ |
43.30 |
|
15,416,166 |
|
|
|
|
|
|
|
|
|
|
The sections entitled How much stock is owned by directors and executive officers? and Security Ownership of the Pitney Bowes Inc. Notice of the 2008 Annual Meeting and Proxy Statement, to be filed with the SEC on or before March 31, 2008, are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The sections entitled Corporate Governance and Certain Relationships and Related Person Transactions of the Pitney Bowes Inc. Notice of the 2008 Annual Meeting and Proxy Statement, to be filed with the Commission on or before March 31, 2008, are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The section entitled Principal Accountant Fees and Services of the Pitney Bowes Inc. Notice of the 2008 Annual Meeting and Proxy Statement, to be filed with the Commission on or before March 31, 2008, is incorporated herein by reference.
31
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
(a) |
1. Financial statements - see Item 8 on page 29 and Index to Consolidated Financial Statements and Supplemental Data on page 36. |
|
|
|
2. Financial statement schedules - see Index to Consolidated Financial Statements and Supplemental Data on page 36. |
|
|
|
3. Exhibits (numbered in accordance with Item 601 of Regulation S-K). |
|
|
|
|
|
Reg. S-K
|
|
Description |
|
Status or incorporation
|
|
|
|
|
|
(3)(a) |
|
Restated Certificate of Incorporation, as amended |
|
Incorporated by reference to Exhibit (3) to Form 10-Q as filed with the Commission on August 14, 1996. (Commission file number 1-3579) |
|
|
|
|
|
(a.1) |
|
Certificate of Amendment to the Restated Certificate of Incorporation (as amended May 29, 1996) |
|
Incorporated by reference to Exhibit (a.1) to Form 10-K as filed with the Commission on March 27, 1998. (Commission file number 1-3579) |
|
|
|
|
|
(b) |
|
Pitney Bowes Inc. Amended and Restated By-laws |
|
Incorporated by reference to Exhibit (3)(ii) to Form 10-Q as filed with the Commission on August 6, 2007. (Commission file number 1-3579) |
|
|
|
|
|
(4)(a) |
|
Preference Share Purchase Rights Agreement dated December 11, 1995 between the Company and Chemical Mellon Shareholder Services, LLC, as Rights Agent, as amended |
|
Incorporated by reference to Exhibit (4) to Form 8-K as filed with the Commission on March 13, 1996. (Commission file number 1-3579) |
|
|
|
|
|
(a.1) |
|
Certificate of amendment to the Preference Share Purchase Rights Agreement dated December 11, 1995 between the Company and Chemical Mellon Shareholder Services, LLC, as Rights Agent, as amended December 8, 1998 |
|
Incorporated by reference to Exhibit (4.4) to Form 8-A/A as filed with the Commission on December 19, 2003. (Commission file number 1-3579) |
|
|
|
|
|
(b) |
|
Form of Indenture between the Company and SunTrust Bank, as Trustee |
|
Incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-3 (No. 333-72304) as filed with the Commission on October 26, 2001. |
|
|
|
|
|
(c) |
|
Supplemental Indenture No. 1 dated April 23, 2004 between the Company and SunTrust Bank, as Trustee |
|
Incorporated by reference to Exhibit 4.1 to Form 8-K as filed with the Commission on August 18, 2004. |
|
|
|
|
|
(d) |
|
Form of Indenture between the Company and Citibank, N.A., as Trustee |
|
Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 (No. 333-120525) as filed with the Commission on November 16, 2004. |
|
|
|
|
|
(e) |
|
First Supplemental Indenture, by and among Pitney Bowes Inc., The Bank of New York, and Citibank, N.A., to the Indenture, dated as of February 14, 2005, by and between the Company and Citibank |
|
Incorporated by reference to Exhibit 4.1 to Form 8-K as filed with the Commission on October 24, 2007 (Commission file number 1-3579) |
The Company has outstanding certain other long-term indebtedness. Such long-term indebtedness does not exceed 10% of the total assets of the Company; therefore, copies of instruments defining the rights of holders of such indebtedness are not included as exhibits. The Company agrees to furnish copies of such instruments to the SEC upon request.
|
|
|
|
|
Executive Compensation Plans : |
|
|
||
|
|
|
||
(10)(a) |
|
Retirement Plan for Directors of Pitney Bowes Inc. |
|
Incorporated by reference to Exhibit (10a) to Form 10-K as filed with the Commission on March 30, 1993. (Commission file number 1-3579) |
|
|
|
|
|
(b) |
|
Pitney Bowes Inc. Directors Stock Plan (as amended and restated 1999) |
|
Incorporated by reference to Exhibit (i) to Form 10-K as filed with the Commission on March 30, 2000. (Commission file number 1-3579) |
32
|
|
|
|
|
Executive Compensation Plans : |
|
|
||
|
|
|
||
(b.1) |
|
Pitney Bowes Inc. Directors Stock Plan (Amendment Number 1, effective as of May 12, 2003) |
|
Incorporated by reference to Exhibit (10) to Form 10-Q as filed with the Commission on August 11, 2003. (Commission file number 1-3579) |
|
|
|
|
|
(b.2) |
|
Pitney Bowes Inc. Directors Stock Plan (Amendment Number 2 effective as of May 1, 2007) |
|
Incorporated by reference to Exhibit (10.(b.2)) to Form 10-K as filed with the Commission on March 1, 2007 (Commission file number 1-3579) |
|
|
|
|
|
(c) |
|
Pitney Bowes 1991 Stock Plan (as amended and restated) |
|
Incorporated by reference to Exhibit (10) to Form 10-Q as filed with the Commission on May 14, 1998. (Commission file number 1-3579) |
|
|
|
|
|
(c.1) |
|
Pitney Bowes 1998 Stock Plan (as amended and restated) |
|
Incorporated by reference to Exhibit (ii) to Form 10-K as filed with the Commission on March 30, 2000. (Commission file number 1-3579) |
|
|
|
|
|
(c.2) |
|
Pitney Bowes Stock Plan (as amended and restated as of January 1, 2002) |
|
Incorporated by reference to Annex 1 to the proxy statement for the 2002 annual meeting of stockholders. (Commission file number 1-3579) |
|
|
|
|
|
(c.3) |
|
Pitney Bowes Inc. 2007 Stock Plan |
|
Incorporated by reference to Exhibit 10.1 to Form 10-Q as filed with the Commission on August 6, 2007 (Commission file number 1-3579) |
|
|
|
|
|
(d) |
|
Pitney Bowes Inc. Key Employees Incentive Plan (as amended and restated) |
|
Incorporated by reference to Annex I to the proxy statement for the 2006 annual meeting of stockholders. (Commission file number 1-3579) |
|
|
|
|
|
(e) |
|
Pitney Bowes Severance Plan (as amended, and restated effective January 1, 2008) |
|
Exhibit (i) |
|
|
|
|
|
(f) |
|
Pitney Bowes Senior Executive Severance Policy (amended and restated as of January 1, 2008) |
|
Exhibit (ii) |
|
|
|
|
|
(g) |
|
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board of Directors |
|
Incorporated by reference to Exhibit (i) to Form 10-Q as filed with the Commission on May 15, 1997. (Commission file number 1-3579) |
|
|
|
|
|
(g.1) |
|
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board of Directors (as amended and restated 1999) |
|
Incorporated by reference to Exhibit (iii) to Form 10-K as filed with the Commission on March 30, 2000. (Commission file number 1-3579) |
|
|
|
|
|
(h) |
|
Pitney Bowes Inc. Deferred Incentive Savings Plan (amended and restated January 1, 2003) |
|
Incorporated by reference to Exhibit (vi) to Form 10-K as filed with the Commission on March 13, 2006. (Commission file number 1-3579) |
|
|
|
|
|
(i) |
|
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan |
|
Incorporated by reference to Annex II to the proxy statement for the 2006 annual meeting of stockholders. (Commission file number 1-3579) |
|
|
|
|
|
(j) |
|
Restricted Stock Agreement for Murray D. Martin dated April 5, 2004 |
|
Incorporated by reference to Exhibit 10.1 to Form 8-K as filed with the Commission on February 16, 2006. (Commission file number 1-3579) |
|
|
|
|
|
(k) |
|
Form of Equity Compensation Grant Letter |
|
Incorporated by reference to Exhibit (10)(n) to Form 10-Q as filed with the Commission on May 4, 2006. (Commission file number 1-3579) |
|
|
|
|
|
(l) |
|
Service Agreement between Pitney Bowes Limited and Patrick S. Keddy dated January 29, 2003 |
|
Incorporated by reference to Exhibit 10.2 to Form 8-K as filed with the Commission on February 17, 2006. (Commission file number 1-3579) |
|
|
|
|
|
Other : |
|
|
|
|
|
|
|
|
|
(m) |
|
Stock Purchase Agreement, dated as of May 16, 2006, among Pitney Bowes Inc., JCC Management LLC and Pitney Bowes Credit Corporation (for the purposes of Section 10.07 thereof only) |
|
Incorporated by reference to Exhibit 99.1 to Form 8-K as filed with the Commission on May 18, 2006. (Commission file number 1-3579) |
|
|
|
|
|
(n) |
|
Amended and Restated Credit Agreement dated May 19, 2006 between the Company and JPMorgan Chase |
|
Incorporated by reference to Exhibit 10.1 to Form 8-K as filed with the Commission on May 24, 2006. (Commission |
33
|
|
|
|
|
|
|
|
||
|
|
|
||
|
|
Bank, N.A., as Administrative Agent |
|
file number 1-3579) |
|
|
|
|
|
(o) |
|
Pitney Bowes Inc. Global Medium-Term Notes Terms Agreement |
|
Incorporated by reference to Exhibit 1. d. 1. to Form 8-K as filed with the Commission on September 11, 2007. (Commission file number 1-3579) |
|
|
|
|
|
(12) |
|
Computation of ratio of earnings to fixed charges |
|
Exhibit (iii) |
|
|
|
|
|
(21) |
|
Subsidiaries of the registrant |
|
Exhibit (iv) |
|
|
|
|
|
(23) |
|
Consent of experts and counsel |
|
Exhibit (v) |
|
|
|
|
|
(31.1) |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|
See page 104 |
|
|
|
|
|
(31.2) |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|
See page 105 |
|
|
|
|
|
(32.1) |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
|
See page 106 |
|
|
|
|
|
(32.2) |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|
See page 107 |
34
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
Date: February 29, 2008 |
|
PITNEY BOWES INC. |
|
|
|
|
|
|
|
Registrant |
|
|
|
By: |
/s/ Murray D. Martin |
|
|
|
|
(Murray D. Martin) |
||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
|
|
|
|
/s/ Murray D. Martin |
|
President and Chief Executive Officer Director |
|
February 29, 2008 |
|
|
|
|
|
Murray D. Martin |
|
|
|
|
|
|
|
|
|
/s/ Michael J. Critelli |
|
Executive Chairman - Director |
|
February 29, 2008 |
|
|
|
|
|
Michael J. Critelli |
|
|
|
|
|
|
|
|
|
/s/ Bruce P. Nolop |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
February 29, 2008 |
|
|
|
|
|
Bruce P. Nolop |
|
|
|
|
|
|
|
|
|
/s/ Steven J. Green |
|
Vice PresidentFinance and Chief Accounting Officer (Principal Accounting Officer) |
|
February 29, 2008 |
|
|
|
|
|
Steven J. Green |
|
|
|
|
|
|
|
|
|
/s/ Rodney C. Adkins |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Rodney C. Adkins |
|
|
|
|
|
|
|
|
|
/s/ Linda G. Alvarado |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Linda G. Alvarado |
|
|
|
|
|
|
|
|
|
/s/ Anne M. Busquet |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Anne M. Busquet |
|
|
|
|
|
|
|
|
|
/s/ Anne Sutherland Fuchs |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Anne Sutherland Fuchs |
|
|
|
|
|
|
|
|
|
/s/ Ernie Green |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Ernie Green |
|
|
|
|
|
|
|
|
|
/s/ James H. Keyes |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
James H. Keyes |
|
|
|
|
|
|
|
|
|
/s/ John S. McFarlane |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
John S. McFarlane |
|
|
|
|
|
|
|
|
|
/s/ Eduardo R. Menascé |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Eduardo R. Menascé |
|
|
|
|
|
|
|
|
|
/s/ Michael I. Roth |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Michael I. Roth |
|
|
|
|
|
|
|
|
|
/s/ David L. Shedlarz |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
David L. Shedlarz |
|
|
|
|
|
|
|
|
|
/s/ David B. Snow |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
David B. Snow |
|
|
|
|
|
|
|
|
|
/s/ Robert E. Weissman |
|
Director |
|
February 29, 2008 |
|
|
|
|
|
Robert E. Weissman |
|
|
|
|
35
|
|
|
PAGE |
|
|
Report of Independent Registered Public Accounting Firm |
37 |
Consolidated Financial Statements of Pitney Bowes, Inc. |
|
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005 |
38 |
Consolidated Balance Sheets as of December 31, 2007 and 2006 |
39 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005 |
40 |
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2007, 2006 and 2005 |
41 |
Notes to Consolidated Financial Statements |
42 |
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Pitney Bowes Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Pitney Bowes Inc. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006 and the manner in which it accounts for uncertainty in income taxes in 2007.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Stamford, Connecticut
February 29, 2008
37
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Revenue: |
|
|
|
|
|
|
|
|||
Equipment sales |
|
$ |
1,335,538 |
|
$ |
1,372,566 |
|
$ |
1,251,026 |
|
Supplies |
|
|
393,478 |
|
|
339,594 |
|
|
297,151 |
|
Software |
|
|
346,020 |
|
|
202,415 |
|
|
174,085 |
|
Rentals |
|
|
739,130 |
|
|
785,068 |
|
|
801,285 |
|
Financing |
|
|
790,121 |
|
|
725,131 |
|
|
663,484 |
|
Support services |
|
|
760,915 |
|
|
716,556 |
|
|
697,796 |
|
Business services |
|
|
1,764,593 |
|
|
1,588,688 |
|
|
1,482,109 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
6,129,795 |
|
|
5,730,018 |
|
|
5,366,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales |
|
|
696,900 |
|
|
693,535 |
|
|
625,235 |
|
Cost of supplies |
|
|
106,702 |
|
|
90,035 |
|
|
73,330 |
|
Cost of software |
|
|
82,097 |
|
|
42,951 |
|
|
36,945 |
|
Cost of rentals |
|
|
171,191 |
|
|
171,491 |
|
|
165,963 |
|
Cost of support services |
|
|
433,324 |
|
|
400,089 |
|
|
385,547 |
|
Cost of business services |
|
|
1,380,541 |
|
|
1,242,226 |
|
|
1,195,761 |
|
Selling, general and administrative |
|
|
1,907,160 |
|
|
1,764,260 |
|
|
1,655,210 |
|
Research and development |
|
|
185,665 |
|
|
165,368 |
|
|
165,751 |
|
Restructuring charges and asset impairments |
|
|
264,013 |
|
|
35,999 |
|
|
53,650 |
|
Interest expense |
|
|
250,540 |
|
|
228,418 |
|
|
193,174 |
|
Interest income |
|
|
(8,669 |
) |
|
(15,822 |
) |
|
(5,298 |
) |
Other (income) expense |
|
|
(380 |
) |
|
(3,022 |
) |
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
5,469,084 |
|
|
4,815,528 |
|
|
4,555,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and minority interest |
|
|
660,711 |
|
|
914,490 |
|
|
811,668 |
|
Provision for income taxes |
|
|
280,222 |
|
|
335,004 |
|
|
328,597 |
|
Minority interest |
|
|
19,242 |
|
|
13,827 |
|
|
9,828 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
361,247 |
|
|
565,659 |
|
|
473,243 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax |
|
|
5,534 |
|
|
(460,312 |
) |
|
35,368 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
366,781 |
|
$ |
105,347 |
|
$ |
508,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.65 |
|
$ |
2.54 |
|
$ |
2.07 |
|
Discontinued operations |
|
|
0.03 |
|
|
(2.07 |
) |
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.68 |
|
$ |
0.47 |
|
$ |
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.63 |
|
$ |
2.51 |
|
$ |
2.04 |
|
Discontinued operations |
|
|
0.03 |
|
|
(2.04 |
) |
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.66 |
|
$ |
0.47 |
|
$ |
2.19 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
38
PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
377,176 |
|
$ |
239,102 |
|
Short-term investments |
|
|
63,279 |
|
|
62,512 |
|
Accounts receivable, less allowances of $49,324 and $50,052, respectively |
|
|
841,072 |
|
|
744,073 |
|
Finance receivables, less allowances of $45,859 and $45,643, respectively |
|
|
1,498,486 |
|
|
1,404,070 |
|
Inventories |
|
|
197,962 |
|
|
237,817 |
|
Current income taxes |
|
|
83,227 |
|
|
54,785 |
|
Other current assets and prepayments |
|
|
258,411 |
|
|
231,096 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,319,613 |
|
|
2,973,455 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
627,918 |
|
|
612,640 |
|
Rental property and equipment, net |
|
|
435,927 |
|
|
503,911 |
|
Long-term finance receivables, less allowances of $32,512 and $36,856, respectively |
|
|
1,533,773 |
|
|
1,530,153 |
|
Investment in leveraged leases |
|
|
249,191 |
|
|
215,371 |
|
Goodwill |
|
|
2,299,858 |
|
|
1,791,157 |
|
Intangible assets, net |
|
|
457,188 |
|
|
365,192 |
|
Non-current income taxes |
|
|
28,098 |
|
|
73,739 |
|
Other assets |
|
|
598,377 |
|
|
543,326 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,549,943 |
|
$ |
8,608,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
1,965,567 |
|
$ |
1,677,501 |
|
Current income taxes |
|
|
96,851 |
|
|
142,835 |
|
Notes payable and current portion of long-term obligations |
|
|
953,767 |
|
|
490,540 |
|
Advance billings |
|
|
540,254 |
|
|
465,862 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,556,439 |
|
|
2,776,738 |
|
|
|
|
|
|
|
|
|
Deferred taxes on income |
|
|
472,240 |
|
|
454,929 |
|
FIN 48 uncertainties and other income tax liabilities |
|
|
285,505 |
|
|
|
|
Long-term debt |
|
|
3,802,075 |
|
|
3,847,617 |
|
Other non-current liabilities |
|
|
406,216 |
|
|
446,306 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,522,475 |
|
|
7,525,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stockholders equity in subsidiaries |
|
|
384,165 |
|
|
384,165 |
|
Commitments and contingencies (see Note 15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
Cumulative preferred stock, $50 par value, 4% convertible |
|
|
7 |
|
|
7 |
|
Cumulative preference stock, no par value, $2.12 convertible |
|
|
1,003 |
|
|
1,068 |
|
Common stock, $1 par value (480,000,000 shares authorized; |
|
|
|
|
|
|
|
323,337,912 shares issued) |
|
|
323,338 |
|
|
323,338 |
|
Capital in excess of par value |
|
|
252,185 |
|
|
235,558 |
|
Retained earnings |
|
|
4,133,756 |
|
|
4,140,128 |
|
Accumulated other comprehensive income |
|
|
88,656 |
|
|
(131,744 |
) |
Treasury stock, at cost (108,822,953 and 102,724,590 shares, respectively) |
|
|
(4,155,642 |
) |
|
(3,869,166 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
643,303 |
|
|
699,189 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
9,549,943 |
|
$ |
8,608,944 |
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
39
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
366,781 |
|
$ |
105,347 |
|
$ |
508,611 |
|
Gain on sale of a facility, net of tax |
|
|
(1,623 |
) |
|
|
|
|
|
|
Loss on sale of Capital Services, net of tax |
|
|
|
|
|
445,150 |
|
|
|
|
Gain on sale of Imagistics, net of tax |
|
|
|
|
|
(11,065 |
) |
|
|
|
Non-cash charge from FSC tax law change |
|
|
|
|
|
16,209 |
|
|
|
|
Non-cash tax charge |
|
|
|
|
|
61,000 |
|
|
|
|
Tax and bond payments related to IRS settlement and Capital Services sale |
|
|
|
|
|
(1,040,700 |
) |
|
(200,000 |
) |
Restructuring and other charges, net of tax |
|
|
223,486 |
|
|
23,040 |
|
|
42,248 |
|
Restructuring and other payments |
|
|
(31,568 |
) |
|
(51,566 |
) |
|
(88,544 |
) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
383,141 |
|
|
363,258 |
|
|
331,963 |
|
Stock-based compensation |
|
|
24,131 |
|
|
27,375 |
|
|
27,223 |
|
Pension plan contributions |
|
|
|
|
|
|
|
|
(76,508 |
) |
Changes in operating assets and liabilities, excluding effects of acquisitions: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
35,853 |
|
|
(46,623 |
) |
|
(87,646 |
) |
Net investment in internal finance receivables |
|
|
(86,238 |
) |
|
(236,872 |
) |
|
(105,358 |
) |
Inventories |
|
|
7,710 |
|
|
(142 |
) |
|
(7,835 |
) |
Other current assets and prepayments |
|
|
906 |
|
|
(11,360 |
) |
|
(12,114 |
) |
Accounts payable and accrued liabilities |
|
|
32,789 |
|
|
42,231 |
|
|
3,324 |
|
Current and non-current income taxes |
|
|
123,636 |
|
|
52,784 |
|
|
185,628 |
|
Advance billings |
|
|
1,745 |
|
|
(6,029 |
) |
|
19,508 |
|
Other, net |
|
|
(20,284 |
) |
|
(18,611 |
) |
|
(10,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
1,060,465 |
|
|
(286,574 |
) |
|
530,441 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
42,367 |
|
|
(1,295 |
) |
|
(44,099 |
) |
Proceeds from the sale of facilities |
|
|
29,608 |
|
|
|
|
|
30,238 |
|
Capital expenditures |
|
|
(264,656 |
) |
|
(327,877 |
) |
|
(291,550 |
) |
Net investment in external financing |
|
|
(2,214 |
) |
|
109,050 |
|
|
117,595 |
|
Net proceeds from sale of Imagistics lease portfolio |
|
|
|
|
|
281,653 |
|
|
|
|
Net proceeds from sale of Capital Services |
|
|
|
|
|
746,897 |
|
|
|
|
Cash included in the sale of Capital Services |
|
|
|
|
|
(25,488 |
) |
|
|
|
Advance against COLI cash surrender value |
|
|
|
|
|
138,381 |
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(594,110 |
) |
|
(230,628 |
) |
|
(294,176 |
) |
Reserve account deposits |
|
|
62,666 |
|
|
28,780 |
|
|
9,800 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(726,339 |
) |
|
719,473 |
|
|
(472,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in notes payable, net |
|
|
(89,673 |
) |
|
(26,790 |
) |
|
(31,150 |
) |
Proceeds from long-term obligations |
|
|
640,765 |
|
|
493,285 |
|
|
1,050,000 |
|
Principal payments on long-term obligations |
|
|
(174,191 |
) |
|
(396,755 |
) |
|
(695,724 |
) |
Proceeds from issuance of stock |
|
|
107,517 |
|
|
101,449 |
|
|
92,164 |
|
Proceeds from issuance of preferred stock in a subsidiary |
|
|
|
|
|
74,165 |
|
|
|
|
Stock repurchases |
|
|
(399,996 |
) |
|
(400,000 |
) |
|
(258,803 |
) |
Dividends paid |
|
|
(288,790 |
) |
|
(285,051 |
) |
|
(284,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(204,368 |
) |
|
(439,697 |
) |
|
(127,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
8,316 |
|
|
2,391 |
|
|
(3,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
138,074 |
|
|
(4,407 |
) |
|
(72,708 |
) |
Cash and cash equivalents at beginning of year |
|
|
239,102 |
|
|
243,509 |
|
|
316,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
377,176 |
|
$ |
239,102 |
|
$ |
243,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid |
|
$ |
236,697 |
|
$ |
225,837 |
|
$ |
196,964 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash income taxes paid, net |
|
$ |
(178,469 |
) |
$ |
1,315,437 |
|
$ |
164,068 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
40
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
Preference
|
|
Common
|
|
Capital in
|
|
Comprehensive
|
|
Retained
|
|
Accumulated other
|
|
Treasury stock
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, December 31, 2004 |
|
$ |
19 |
|
$ |
1,252 |
|
$ |
323,338 |
|
$ |
201,704 |
|
|
|
|
$ |
4,100,771 |
|
$ |
135,526 |
|
$ |
(3,413,458 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
508,611 |
|
|
508,611 |
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,499 |
) |
|
|
|
|
(54,499 |
) |
|
|
|
Net unrealized gain on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,605 |
|
|
|
|
|
1,605 |
|
|
|
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,715 |
) |
|
|
|
|
(5,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
450,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred ($2.00 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
Preference ($2.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
Common ($1.24 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,254 |
) |
|
|
|
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
(8,468 |
) |
|
|
|
|
(583 |
) |
|
|
|
|
85,569 |
|
Conversions to common stock |
|
|
(2 |
) |
|
(94 |
) |
|
|
|
|
(2,056 |
) |
|
|
|
|
|
|
|
|
|
|
2,152 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
31,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
17 |
|
|
1,158 |
|
|
323,338 |
|
|
222,908 |
|
|
|
|
|
4,324,451 |
|
|
76,917 |
|
|
(3,584,540 |
) |
Adjustment to initially apply SAB 108, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,319,833 |
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
105,347 |
|
|
105,347 |
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,183 |
|
|
|
|
|
83,183 |
|
|
|
|
Net unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
(20 |
) |
|
|
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,405 |
|
|
|
|
|
5,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
193,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS 158, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297,229 |
) |
|
|
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred ($2.00 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
Preference ($2.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
Common ($1.28 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,965 |
) |
|
|
|
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
(11,575 |
) |
|
|
|
|
|
|
|
|
|
|
113,142 |
|
Conversions to common stock |
|
|
(10 |
) |
|
(90 |
) |
|
|
|
|
(2,132 |
) |
|
|
|
|
|
|
|
|
|
|
2,232 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
26,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
7 |
|
|
1,068 |
|
|
323,338 |
|
|
235,558 |
|
|
|
|
|
4,140,128 |
|
|
(131,744 |
) |
|
(3,869,166 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
366,781 |
|
|
366,781 |
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,728 |
|
|
|
|
|
164,728 |
|
|
|
|
Net unrealized gain on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,801 |
|
|
|
|
|
2,801 |
|
|
|
|
Net unrealized gain on investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352 |
|
|
|
|
|
352 |
|
|
|
|
Net gain on pension and postretirement plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,347 |
|
|
|
|
Amortization of pension and postretirement costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,172 |
|
|
|
|
|
22,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
556,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial adjustment for FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,363 |
) |
|
|
|
|
|
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred ($2.00 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference ($2.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
Common ($1.32 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288,709 |
) |
|
|
|
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
(7,967 |
) |
|
|
|
|
|
|
|
|
|
|
111,925 |
|
Conversions to common stock |
|
|
|
|
|
(65 |
) |
|
|
|
|
(1,530 |
) |
|
|
|
|
|
|
|
|
|
|
1,595 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
26,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(399,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
$ |
7 |
|
$ |
1,003 |
|
$ |
323,338 |
|
$ |
252,185 |
|
|
|
|
$ |
4,133,756 |
|
$ |
88,656 |
|
$ |
(4,155,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares of 3.0 million, 3.0 million and 2.3 million were issued under employee plans in 2007, 2006 and 2005, respectively. We repurchased 9.1 million, 9.2 million and 5.4 million shares in 2007, 2006 and 2005, respectively.
See Notes to Consolidated Financial Statements
41
PITNEY BOWES INC.
(Tabular dollars in thousands, except per share data)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
We 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. We operate both inside and outside the United States. See Note 19 to the Consolidated Financial Statements for financial information concerning revenue, earnings before interest and taxes (EBIT) and identifiable assets, by reportable segment and geographic area.
Basis of Presentation and Consolidation
We have prepared the Consolidated Financial Statements of the Company in conformity with accounting principles generally accepted in the United States of America (GAAP). Operating results of acquired companies are included in the Consolidated Financial Statements from the date of acquisition. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses that are reported in the Consolidated Financial Statements and accompanying disclosures, including the disclosure of contingent assets and liabilities. These estimates are based on our best knowledge of current events, historical experience, actions that we may undertake in the future, and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results could differ from those estimates and assumptions.
Cash Equivalents and Short-Term Investments
Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the date of acquisition. We place our temporary cash and highly liquid short-term investments with a maturity of greater than three months but less than one year from the reporting date with financial institutions or investment managers and/or invest in highly rated short-term obligations.
Accounts Receivable and Allowance for Doubtful Accounts
We estimate our accounts receivable risks and provide allowances for doubtful accounts accordingly. We believe that our credit risk for accounts receivable is limited because of our large number of customers and the relatively small account balances for most of our customers. Also, our customers are dispersed across different business and geographic areas. We evaluate the adequacy of the allowance for doubtful accounts on a periodic basis. The evaluation includes historical loss experience, length of time receivables are past due, adverse situations that may affect a customers ability to repay and prevailing economic conditions. We make adjustments to our allowance if the evaluation of allowance requirements differs from the actual aggregate reserve. This evaluation is inherently subjective and estimates may be revised as more information becomes available.
Allowance for Credit Losses
We estimate our finance receivables risks and provide allowances for credit losses accordingly. Our financial services businesses establish credit approval limits based on the credit quality of the customer and the type of equipment financed. We charge finance receivables through the allowance for credit losses after collection efforts are exhausted and we deem the account uncollectible. Our financial services businesses base credit decisions primarily on a customers financial strength and we may also consider collateral values. We believe that our concentration of credit risk for finance receivables in our internal financing division is limited because of our large number of customers, small account balances and customer geographic and industry diversification.
Our general policy for finance receivables contractually past due for over 120 days is to discontinue revenue recognition. We resume revenue recognition when payments reduce the account to 60 days or less past due.
We evaluate the adequacy of allowance for credit losses on a periodic basis. Our evaluation includes historical loss experience, the nature and volume of its portfolios, adverse situations that may affect a customers ability to repay, and prevailing economic conditions. We make adjustments to our allowance for credit losses if the evaluation of reserve requirements differs from the actual aggregate reserve. This evaluation is inherently subjective and estimates may be revised as more information becomes available.
42
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories, and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
Other Current Assets and Prepayments
Other current assets and prepayments include primarily postage meter receivables billed in advance and costs paid in advance.
Fixed Assets and Depreciation
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over their estimated useful lives. The estimated useful lives of depreciable fixed assets are as follows: buildings, up to 50 years; plant and equipment, 3 to 15 years; and computer equipment, 3 to 5 years. Major improvements which add to productive capacity or extend the life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the estimated useful life or their related lease term.
Fully depreciated assets are retained in fixed assets and accumulated depreciation until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.
Capitalized Software Development Costs
We capitalize certain costs of software developed for internal use in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . Capitalized costs include purchased materials and services, payroll and payroll-related costs and interest costs. The cost of internally developed software is amortized on a straight-line basis over its estimated useful life, principally 3 to 10 years.
We capitalize software development costs related to software to be sold, leased, or otherwise marketed in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to the public. Capitalized software development costs include purchased materials and services, payroll and payroll-related costs attributable to programmers, software engineers, quality control and field certifiers, and interest costs. Capitalized software development costs are amortized over the estimated product useful life, principally 3 to 5 years, using the greater of the straight-line method or the ratio of current product revenues to total projected future revenues. Other assets on our Consolidated Balance Sheets include $21.6 million and $14.8 million of capitalized software development costs at December 31, 2007 and 2006, respectively. The Consolidated Statements of Income include the related amortization expense of $3.9 million, $1.6 million, and $1.4 million for the years ended December 31, 2007, 2006, and 2005, respectively. Total software development costs capitalized in 2007 and 2006 were $10.1 million and $8.5 million, respectively.
Research and Development Costs
Research and product development costs not subject to SFAS 86 are expensed as incurred. These costs primarily include personnel related costs.
Business Combinations, Goodwill and Intangible Assets
We account for business combinations using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of net tangible and intangible assets acquired in business combinations. Goodwill is tested for impairment on an annual basis or as circumstances warrant. We estimate the fair value of intangible assets primarily using a cost, market and income approach. Intangible assets with finite lives acquired under business combinations are amortized over their estimated useful lives, principally 3 to 15 years. Customer relationship intangibles are generally amortized using an accelerated attrition method. All other intangibles are amortized on a straight-line method. See Note 6 to the Consolidated Financial Statements.
43
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Impairment Review
Long-lived assets, including goodwill and intangible assets are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, we record an impairment charge. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair values of impaired long-lived assets are determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals as appropriate in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . See Note 14 to the Consolidated Financial Statements for further details.
Retirement Plans
In accordance with SFAS No. 87, Employers Accounting for Pensions, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions , actual results that differ from our assumptions and estimates are accumulated and amortized over the estimated future working life of the plan participants and will therefore affect pension expense recognized in future periods. Net pension expense is based primarily on current service costs, interest costs and the returns on plan assets. In accordance with this approach, differences between the actual and expected return on plan assets are recognized over a five-year period. In accordance with SFAS No. 158, Employers Accounting for Defined Pension and Other Post Retirement Plans an amendment to FASB Statements No. 87, 88, 106 and 132(R) , we recognize the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized in net periodic benefit costs are recognized in accumulated other comprehensive income, net of tax, until they are amortized as a component of net periodic benefit cost. We use a measurement date of December 31 for all of our retirement plans. See Note 13 to the Consolidated Financial Statements for further details.
Revenue Recognition
We derive our revenue from the following sources:
|
|
|
equipment sales; |
|
|
|
supplies; |
|
|
|
software; |
|
|
|
rentals; |
|
|
|
financing; |
|
|
|
support services; and |
|
|
|
business services. |
In accordance with GAAP, the Company recognizes revenue from these sources as follows:
Sales Revenue
Sales of equipment
We sell equipment to our customers, as well as to distributors and dealers (re-sellers) throughout the world. We recognize revenue from these sales upon the transfer of title, which is generally at the point of shipment. We do not offer any rights of return or stock balancing rights.
Our sales revenue from customized equipment, mail creation equipment and shipping products is generally recognized when installed.
Embedded software sales
We sell equipment with embedded software to our customers. The embedded software is not sold separately, it is not a significant focus of the marketing effort and we do not provide post-contract customer support specific to the software or incur significant costs that are within the scope of SFAS 86. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole such that SOP No. 97-2, Software Revenue Recognition , is not applicable. Sales of these products are recognized in accordance with either SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, or SFAS No. 13, Accounting for Leases , for sales-type leases.
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is upon shipment.
Standalone Software Sales and Integration Services
In accordance with SOP 97-2, we recognize revenue from standalone software licenses upon delivery of the product when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectibility is probable. For software licenses that are included in a lease contract, we recognize revenue upon shipment of the software unless the lease contract specifies that the license expires at the end of the lease or the price of the software is deemed not fixed or determinable based on historical evidence of similar software leases. In these instances, revenue is recognized on a straight-line basis over the term of the lease contract. We recognize revenue from software requiring integration services at the point of customer acceptance. We recognize revenue related to off-the-shelf perpetual software licenses upon transfer of title, which is upon shipment.
Rentals Revenue
We rent equipment to our customers, primarily postage meters and mailing equipment, under short-term rental agreements, generally for periods of 3 months to 5 years. Rental revenue includes revenue from the subscription for digital meter services. We invoice in advance for postage meter rentals. We defer the billed revenue and include it initially in advance billings. Rental revenue is recognized on a straight-line basis over the term of the rental agreement. We defer certain initial direct costs incurred in consummating a transaction and amortize these costs over the term of the agreement. The initial direct costs are primarily personnel related costs. Other assets on our Consolidated Balance Sheets include $39.0 million and $42.9 million of these deferred costs at December 31, 2007 and 2006, respectively. The Consolidated Statements of Income include the related amortization expense of $19.1 million, $21.6 million and $24.8 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Financing Revenue
We provide lease financing of our products primarily through sales-type leases. When a sales-type lease is consummated, we record the gross finance receivable, unearned income and the estimated residual value of the leased equipment. Residual values are estimated based upon the average expected proceeds to be received at the end of the lease term. We evaluate recorded residual values at least on an annual basis or as circumstances warrant. A reduction in estimated residual values could require an impairment charge as well as a reduction in future financing income.
Unearned income represents the excess of the gross finance receivable plus the estimated residual value over the sales price of the equipment. We recognize the equipment sale at the inception of the lease. We recognize unearned income as financing revenue using the interest method over the lease term.
We provide financing to our customers for the purchase of postage and related supplies. Financing revenue includes interest which is earned over the term of the loan and related fees which are recognized as services are provided.
Support Services Revenue
We provide support services for our equipment through maintenance contracts. Revenue related to these agreements is recognized on a straight-line basis over the term of the agreement, which typically is 1 to 5 years in length.
Business Services Revenue
Business services revenue includes revenue from management services, mail services, and marketing services. Management services, which includes outsourcing of mailrooms, copy centers, or other document management functions, are typically 1 to 5 year contracts that contain a monthly service fee and in many cases a click charge based on the number of copies made, machines in use, etc. Revenue is recognized over the term of the agreement, based on monthly service charges, with the exception of the click charges, which are recognized as earned. Mail services include the preparation, sortation and aggregation of mail to earn postal discounts and expedite delivery. Marketing services include direct mail marketing services, and revenue is recognized over the term of the agreement as the services are provided.
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Multiple Element Arrangements
Certain of our transactions are consummated at the same time. The most common form of these transactions involves the sale or lease of equipment, a meter rental and/or an equipment maintenance agreement. In these cases, revenue is recognized for each of the elements based on their relative fair values in accordance with SFAS 13, Emerging Issues Task Force (EITF) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, and SAB 104. Fair values of any meter rental or equipment maintenance agreement are determined by reference to the prices charged in standalone and renewal transactions. Fair value of equipment is determined based upon the present value of the minimum lease payments.
Costs and Expenses
We have a centralized treasury system and do not allocate interest costs to our business segments. Accordingly, all interest costs are included in interest expense on the Consolidated Statements of Income and are not allocated to cost of financing.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, internet, and retail marketing costs, associated with the acquisition of new customers in accordance with SOP No. 93-7, Reporting on Advertising Costs . These costs are amortized over the expected revenue stream ranging from 5 to 9 years. We review individual marketing programs for impairment on a periodic basis or as circumstances warrant.
Other assets on our Consolidated Balance Sheets at December 31, 2007 and 2006 include $121 million and $117 million, respectively, of deferred marketing costs. The Consolidated Statements of Income include the related amortization expense of $39 million, $44 million and $46 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Restructuring Charges
We apply the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities , to account for one-time benefit arrangements and exit or disposal activities. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. We account for ongoing benefit arrangements under SFAS No. 112, Employers Accounting for Postemployment Benefits , which requires that a liability be recognized when the costs are probable and reasonably estimable. See Note 14 to the Consolidated Financial Statements.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the year, whereas diluted earnings per share also gives effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares include preference stock, preferred stock, stock option and purchase plan shares.
Stock-based Compensation
Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment (FAS 123R). We previously applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees , and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation . We elected to adopt the modified retrospective application method provided by FAS 123(R) and accordingly, financial statement amounts for the periods presented herein reflect results as if the fair value method of expensing had been applied from the original effective date of FAS 123.
Stock-based compensation represents the cost related to stock-based awards granted to employees. We measure stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period. We estimate the fair value of stock options using a Black-Scholes valuation model. The expense is recorded in costs; selling, general and administrative expense; and research and development expense in the Consolidated Statements of Income based on the employees respective functions.
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
We record deferred tax assets for awards that result in deductions on our income tax returns, based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported in our income tax return are recorded in capital in excess of par value (if the tax deduction exceeds the deferred tax asset or to the extent that previously recognized credits to paid-in-capital are still available if the tax deduction is less than the deferred tax asset).
Translation of Non-U.S. Currency Amounts
Assets and liabilities of subsidiaries operating outside the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during the period. Net deferred translation gains and losses are included in accumulated other comprehensive income in stockholders equity in the Consolidated Balance Sheets.
Derivative Instruments
In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits these risks by following established risk management policies and procedures, including the use of derivatives. The derivatives are used to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results.
In our hedging program, we normally use forward contracts, interest-rate swaps, and currency swaps depending upon the underlying exposure. We do not use derivatives for trading or speculative purposes. Changes in the fair value of the derivatives are reflected as gains or losses. The accounting for the gains or losses depends on the intended use of the derivative, the resulting designation, and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
To qualify as a hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge relationship is evaluated on a retrospective and prospective basis.
As a result of the use of derivative instruments, we are exposed to counterparty risk. To mitigate such risks, we enter into contracts with only those financial institutions that meet stringent credit requirements as set forth in our derivative policy. We regularly review our credit exposure balances as well as the creditworthiness of our counterparties.
Foreign Exchange Contracts
We enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on inter-company loans and related interest that are denominated in a foreign currency. The revaluation of the short-term inter-company loans and interest and the mark-to-market on the derivatives are both recorded to income. At December 31, 2007, we had 16 outstanding foreign exchange contracts to buy or sell various currencies with an asset value of $1.9 million. The contracts will expire by December 23, 2008.
We also enter into foreign currency exchange contracts arising from the anticipated purchase of inventory between affiliates. These contracts are designed as cash flow hedges. The effective portion of the gain or loss on the cash flow hedges is included in other comprehensive income in the period that the change in fair value occurs and is reclassified to income in the same period that the hedged item affects income. At December 31, 2007, we had no outstanding contracts associated with these anticipated transactions.
Certain foreign currency derivatives have been entered into to manage foreign currency transactional exposures associated with the transactions between affiliates. These derivatives have no specific hedging designation so gains or losses are recorded in income in the period that changes in fair value occur together with the offsetting foreign exchange gains or losses on the underlying assets and liabilities. At December 31, 2007, the fair value of these derivatives was a liability of $1.9 million.
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Interest Rate Swaps
Derivatives designated as fair value hedges include interest rate swaps related to fixed rate debt. Changes in the fair value of both the derivative and hedged item attributable to the risk being hedged are recognized in income. In December 2003, we entered into an interest rate swap for an aggregate notional amount of $350 million. The interest rate swap effectively converted the fixed rate of 4.75% on $350 million of our notes, due 2018, into variable interest rates. The variable rates payable by us in connection with the swap agreement are based on six month LIBOR less a spread of 22.8 basis points. At December 31, 2007, the fair value of the derivative represented an asset of $6.8 million. Long-term debt was increased by $6.8 million at December 31, 2007.
Net Investment Hedges
A portion of our inter-company loans denominated in a foreign currency is designated as a hedge of net investment. The revaluation of these loans is reflected as a deferred translation gain or loss and thereby offsets a portion of the translation adjustment of the applicable foreign subsidiaries net assets. At December 31, 2007, we had two inter-company loans with an outstanding value of $126.4 million associated with these net investment hedges. Net deferred translation gains of $37.4 million for 2007 were included in accumulated other comprehensive income in stockholders equity in the Consolidated Balance Sheet.
Reclassification
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections (FAS 154) , which replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28. FAS 154 requires retrospective application to prior periods financial statements of a voluntary change in accounting principle unless it is not practicable. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Our adoption of FAS 154 did not have a material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS 143-1, Accounting for Electronic Equipment Waste Obligations , that provides guidance on how commercial users and producers of electronic equipment should recognize and measure asset retirement obligations associated with the European Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the Directive). The adoption of this FSP did not have a material effect on our financial position, results of operations or cash flows for those European Union (EU) countries that enacted the Directive into country-specific laws.
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes , by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires the tax effect of a position to be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are recognized. This is a different standard for recognition than was previously required. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. At adoption, companies adjusted their financial statements to reflect only those tax positions that were more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment was recorded directly to opening retained earnings in the period of adoption and reported as a change in accounting principle. We adopted the provisions of FIN 48 on January 1, 2007 which resulted in a decrease to opening retained earnings of $84.4 million, with a corresponding increase in our tax liabilities.
In July 2006, the FASB issued FSP No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction, that provided guidance on how a change or a potential change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affected the accounting by a lessor for the lease. We adopted the provisions of FSP No. FAS 13-2 on January 1, 2007. Our adoption of this FSP did not have a material impact on our financial position, results of operations or cash flows.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 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 establishes a framework within GAAP for measuring fair value and expands required disclosures surrounding fair-value measurements. While it will change the way companies currently measure fair value, it does not establish any new instances where fair value measurement is required. FAS 157 defines fair value as an amount that a company would receive if it sold an asset or paid to transfer a liability in a normal transaction between market participants in the same market where the company does business. It emphasizes that the value is based on assumptions that market participants would use, not necessarily only the company that might buy or sell the asset. The FASB issued FASB Staff Position (FSP) No. FAS 157-a, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions , which eliminated lease accounting from the scope of this standard. FAS 157, as issued, is effective for fiscal years beginning after November 15, 2007. The FASB issued FASB Staff Position (FSP) No. FAS 157-b, Effective Date of FASB Statement No. 157 , which delays 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, at least annually. We do not expect the adoption of this statement for financial assets and liabilities, effective January 1, 2008, will have a material impact on our financial position, results of operations, or cash flow. We continue to evaluate the impact of adopting this statement for the nonfinancial items deferred until January 1, 2009.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R) (FAS 158), which required recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under FAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost were recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. Our adoption of the provisions of FAS 158 reduced stockholders equity by $297 million at December 31, 2006. FAS 158 did not affect our results of operations or cash flows.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108).SAB 108 provided guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for the purposes of determining whether the current years financial statements are materially misstated. SAB 108 allowed registrants to adjust for the cumulative effect of certain errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption provided that management had properly concluded that the errors were not material to prior periods. SAB 108 was effective for fiscal years ending after November 15, 2006. In 2006, we determined that the accounting for certain leveraged lease transactions in Canada was misstated due to changes in assumptions having occurred prior to 2000 which impacted net income from the leases. Such changes in assumptions required the leveraged lease pricing models to be revised. These misstatements were immaterial to periods prior to 2006, however correction in that period would have had the effect of reducing our pre-tax income and our tax provision by $48 million and $43 million, respectively, which was considered material to the 2006 financial statements. Accordingly, we corrected these misstatements by adjusting opening retained earnings in 2006 by $4.6 million. As part of this adjustment, we also decreased our investment in leveraged leases by $33 million, increased other non-current liabilities by $15 million and decreased deferred taxes on income by $43 million.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , including an amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 159),which permits entities to choose to measure many financial assets and financial liabilities and certain other assets and liabilities at fair value on an instrument-by-instrument basis. The fair value election once made is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect to adopt the fair value option allowed by this standard.
In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations (FAS 141 (R)) . FAS 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 the 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. FAS 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
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
and restructuring costs. FAS 141 (R) is effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively. We are currently evaluating the impact of adopting this Statement.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS 160 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. FAS 160 requires changes in ownership interest that do not result in deconsolidation to be accounted for as equity transactions. This Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This gain or loss is measured using the fair value of the noncontrolling equity investment. This Statement is effective for fiscal years beginning on or after December 15, 2008. FAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 are applied prospectively. We are currently evaluating the impact of adopting this Statement.
2. Discontinued Operations
On May 1, 2006, we completed the sale of our Imagistics lease portfolio to De Lage Landen Operational Services, LLC, a subsidiary of Rabobank Group, for approximately $288 million. Net proceeds on the sale were approximately $282 million after transaction expenses. We reported the results of the Imagistics lease portfolio in discontinued operations including an after-tax gain of approximately $11 million from the sale of this portfolio.
On July 14, 2006, we completed the sale of our Capital Services external financing business to Cerberus Capital Management, L.P. (Cerberus) for approximately $747 million and the assumption of approximately $470 million of non-recourse debt and other liabilities. This sale resulted in the disposition of most of the external financing activity in the Capital Services segment. The proceeds received at closing were used to pay our tax obligations. We reported the results of the Capital Services business in discontinued operations including an after-tax loss of $445 million from the sale of this business. We retained certain leveraged leases in Canada which are included in our International Mailing segment.
In August 2006, we reached a settlement with the Internal Revenue Service (IRS) on all outstanding tax audit issues in dispute for tax years through 2000. Years after 2000 are still under review by the IRS. In connection with the settlement, we recorded $61 million of additional tax expense of which $41 million was included in discontinued operations. See Note 9 for further discussion of the IRS settlement.
In 2006, we accrued in discontinued operations an additional tax expense of $16 million to record the impact of the Tax Increase Prevention and Reconciliation Act (TIPRA). The TIPRA legislation repealed the exclusion from federal income taxation of a portion of the income generated from certain leveraged leases of aircraft by foreign sales corporations (FSC).
In December 2006, we sold our bankruptcy claim related to certain aircraft leases with Delta Airlines. We received proceeds of $14.5 million, which represent a contingent gain pending the bankruptcy court decision. Given the continued uncertainty and inability to anticipate the outcome of the bankruptcy court decision, we have not recognized any portion of this contingent gain in our consolidated income statement.
The following table shows selected financial information included in discontinued operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
2007 |
|
2006 |
|
2005 |
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
|
|
$ |
81,199 |
|
$ |
125,247 |
|
|
Pretax income |
|
$ |
|
|
$ |
29,465 |
|
$ |
38,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,534 |
|
$ |
30,982 |
|
$ |
35,368 |
|
|
Gain on sale of Imagistics, net of $7,075 tax expense |
|
|
|
|
|
11,065 |
|
|
|
|
|
FSC tax law change |
|
|
|
|
|
(16,209 |
) |
|
|
|
|
Additional tax on IRS settlement |
|
|
|
|
|
(41,000 |
) |
|
|
|
|
Loss on sale of Capital Services, net of $284,605 tax benefit |
|
|
|
|
|
(445,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax |
|
$ |
5,534 |
|
$ |
(460,312 |
) |
$ |
35,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Net income in 2007 includes a gain of $11.3 million from the conclusion of certain tax issues net of the accrual of interest expense of $5.8 million on uncertain tax positions.
Interest expense included in discontinued operations was $19.2 million and $11.5 million for the years ended December 31, 2006 and 2005, respectively. Interest expense recorded in discontinued operations consisted of interest on third-party debt that was assumed by Cerberus. We have not allocated other consolidated interest expense to discontinued operations.
3. Acquisitions
On September 12, 2007, we acquired Asterion SAS for $28 million in cash, net of cash acquired. Asterion is a leading provider of outsourced transactional print and document process services in France. We assigned the goodwill to the Management Services segment.
On May 31, 2007, we acquired the remaining shares of Digital Cement, Inc. for a total purchase price of $49 million in cash, net of cash acquired. Digital Cement, Inc. provides marketing management strategy and services to help companies acquire, retain, manage, and grow their customer relationships. We assigned the goodwill to the Marketing Services segment.
On April 19, 2007, we acquired MapInfo Corporation for $446 million in cash, net of cash acquired. Included in the assets and liabilities acquired were short-term investments of $46 million and debt assumed of $14 million. MapInfo is a global company and a leading provider of location intelligence software and solutions. We assigned the goodwill to the Software segment. As part of the purchase accounting for MapInfo, we aligned MapInfos accounting policies with ours. Accordingly, certain software revenue that was previously recognized by MapInfo on a periodic basis is now being recognized over the life of the contract.
On July 31, 2006, we acquired Print, Inc. for approximately $46 million in cash, net of cash acquired. Print, Inc. provides printer supplies, service and equipment under long-term managed services contracts. The goodwill was assigned to the U.S. Mailing segment.
On June 15, 2006, we acquired substantially all the assets of Advertising Audit Service and PMH Caramanning (collectively AAS) for approximately $42 million in cash. AAS offers a variety of web-based tools for the customization of promotional mail and marketing collateral and designs and manages customer and channel performance solutions. The goodwill was assigned to the Marketing Services segment.
On April 24, 2006, we acquired Ibis Consulting, Inc. (Ibis) for approximately $65 million in cash, net of cash acquired. Ibis is a leading provider of electronic discovery (eDiscovery) services to law firms and corporate clients. Ibis technology and offerings complement those of Compulit, which we acquired in 2005, and expands our range of solutions and services for the complex litigation support needs of law firms and corporate legal departments. The goodwill was assigned to the Management Services segment.
On February 8, 2006, we acquired Emtex Ltd. (Emtex) for approximately $33 million in cash, net of cash acquired. Emtex is a software and services company that allows large-volume mailers to simplify document production and centrally manage complex multi-vendor and multi-site print operations. The goodwill was assigned to the Software segment.
51
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following table summarizes selected financial data for the opening balance sheet allocations of the acquisitions in 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asterion
|
|
Digital Cement,
|
|
MapInfo
|
|
|||
|
|
|
|
|
|
|
|
|||
Purchase price allocation |
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
|
|
$ |
|
|
$ |
46,308 |
|
Current assets |
|
|
52,900 |
|
|
2,146 |
|
|
41,213 |
|
Other non-current assets |
|
|
30,685 |
|
|
932 |
|
|
35,826 |
|
Intangible assets |
|
|
5,802 |
|
|
9,400 |
|
|
113,000 |
|
Goodwill |
|
|
26,763 |
|
|
39,878 |
|
|
326,296 |
|
Current liabilities |
|
|
(57,794 |
) |
|
(1,325 |
) |
|
(52,963 |
) |
Debt |
|
|
|
|
|
|
|
|
(13,866 |
) |
Non-current liabilities |
|
|
(29,929 |
) |
|
(1,900 |
) |
|
(50,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
Purchase price, net of cash acquired |
|
$ |
28,427 |
|
$ |
49,131 |
|
$ |
445,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
5,802 |
|
$ |
8,500 |
|
$ |
75,900 |
|
Mailing software and technology |
|
|
|
|
|
|
|
|
29,500 |
|
Trademarks and trade names |
|
|
|
|
|
900 |
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
5,802 |
|
$ |
9,400 |
|
$ |
113,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets amortization period |
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
10 years |
|
|
10 years |
|
|
10 years |
|
Mailing software and technology |
|
|
|
|
|
|
|
|
5 years |
|
Trademarks and trade names |
|
|
|
|
|
2 years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average |
|
|
10 years |
|
|
9 years |
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes selected financial data for the opening balance sheet allocations of the acquisitions in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print, Inc. |
|
AAS |
|
Ibis |
|
Emtex |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Purchase price allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
9,385 |
|
$ |
1,989 |
|
$ |
6,468 |
|
$ |
4,240 |
|
Other non-current assets |
|
|
1,610 |
|
|
789 |
|
|
3,349 |
|
|
1,034 |
|
Intangible assets |
|
|
8,144 |
|
|
8,200 |
|
|
17,700 |
|
|
14,540 |
|
Goodwill |
|
|
36,588 |
|
|
31,670 |
|
|
40,751 |
|
|
25,076 |
|
Current liabilities |
|
|
(8,547 |
) |
|
(1,033 |
) |
|
(3,258 |
) |
|
(11,946 |
) |
Non-current liabilities |
|
|
(1,163 |
) |
|
|
|
|
|
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
46,017 |
|
$ |
41,615 |
|
$ |
65,010 |
|
$ |
32,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
8,144 |
|
$ |
4,000 |
|
$ |
8,800 |
|
$ |
3,300 |
|
Mailing software and technology |
|
|
|
|
|
4,200 |
|
|
7,800 |
|
|
9,200 |
|
Trademarks and trade names |
|
|
|
|
|
|
|
|
1,100 |
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
8,144 |
|
$ |
8,200 |
|
$ |
17,700 |
|
$ |
14,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets amortization period |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
6 years |
|
|
10 years |
|
|
10 years |
|
|
10 years |
|
Mailing software and technology |
|
|
|
|
|
5 years |
|
|
5 years |
|
|
5 years |
|
Trademarks and trade names |
|
|
|
|
|
|
|
|
3 years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average |
|
|
6 years |
|
|
7 years |
|
|
7 years |
|
|
6 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Allocation of the purchase price to the assets acquired and liabilities assumed has not been finalized for MapInfo, Asterion SAS and Digital Cement, Inc. The purchase price allocation for these acquisitions will be finalized upon the completion of working capital closing adjustments and fair value analyses. Final determination of the purchase price and fair values to be assigned may result in adjustments to the preliminary estimated values assigned at the date of acquisition. The amount of tax deductible goodwill added from acquisitions in 2007 and 2006 was $27.5 million and $98.0 million, respectively.
During 2007 and 2006, we also completed several smaller acquisitions, the cost of which was $86.6 million and $43.1 million, respectively. These acquisitions did not have a material impact on our financial results.
Consolidated impact of acquisitions
The condensed consolidated financial statements include the results of operations of the acquired businesses from their respective dates of acquisition.
The following table provides unaudited pro forma consolidated revenue for the years ended December 31, 2007 and 2006 as if our acquisitions had been acquired on January 1 of each year presented:
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Total revenue |
|
$ |
6,252,694 |
|
$ |
6,078,392 |
|
The pro forma earnings of these acquisitions for 2007 and 2006 reduced our diluted earnings per share by approximately 6 cents, primarily due to the purchase accounting alignment for MapInfo. The pro forma consolidated results do not purport to be indicative of the actual results if the acquisitions had occurred on the dates indicated or that may result in the future.
4. Inventories
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|||||||
Raw materials and work in process |
|
$ |
87,053 |
|
$ |
97,870 |
|
Supplies and service parts |
|
|
52,895 |
|
|
82,669 |
|
Finished products |
|
|
58,014 |
|
|
57,278 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
197,962 |
|
$ |
237,817 |
|
|
|
|
|
|
|
|
|
If all inventories valued at LIFO had been stated at current costs, inventories would have been $23.7 million and $20.5 million higher than reported at December 31, 2007 and 2006, respectively. In 2007, we recorded an impairment charge to inventories for $48.1 million, included in the restructuring charges and asset impairments line on the Consolidated Statement of Income. See Note 14 to the Consolidated Financial Statements for further details.
5. Fixed Assets
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|||||||
Land |
|
$ |
33,961 |
|
$ |
34,397 |
|
Buildings |
|
|
400,548 |
|
|
402,200 |
|
Machinery and equipment |
|
|
1,443,384 |
|
|
1,394,543 |
|
|
|
|
|
|
|
|
|
|
|
|
1,877,893 |
|
|
1,831,140 |
|
Accumulated depreciation |
|
|
(1,249,975 |
) |
|
(1,218,500 |
) |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
627,918 |
|
$ |
612,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment |
|
$ |
1,189,675 |
|
$ |
1,163,705 |
|
Accumulated depreciation |
|
|
(753,748 |
) |
|
(659,794 |
) |
|
|
|
|
|
|
|
|
Rental property and equipment, net |
|
$ |
435,927 |
|
$ |
503,911 |
|
|
|
|
|
|
|
|
|
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Depreciation expense was $318.1 million, $311.2 million and $292.2 million for the years ended December 31, 2007, 2006 and 2005, respectively. Depreciation expense included amounts from discontinued operations of $9.2 million and $3.2 million for the years ended December 31, 2006 and 2005, respectively. Rental equipment is primarily comprised of postage meters. A pre-tax non-cash impairment charge of $61.5 million for net rental property and equipment was recorded in 2007 associated with our transitional initiatives, included in the restructuring charges and asset impairments line of the Consolidated Statement of Income. See Note 14 to the Consolidated Financial Statements for further details.
6. Intangible Assets and Goodwill
The components of our purchased intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Gross
|
|
Accumulated
|
|
Net
|
|
Gross
|
|
Accumulated
|
|
Net
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|||||||||||||||||||
Customer relationships |
|
$ |
427,487 |
|
$ |
(119,652 |
) |
$ |
307,835 |
|
$ |
314,768 |
|
$ |
(84,439 |
) |
$ |
230,329 |
|
Supplier relationships |
|
|
29,000 |
|
|
(7,492 |
) |
|
21,508 |
|
|
33,300 |
|
|
(5,954 |
) |
|
27,346 |
|
Mailing software & technology |
|
|
176,558 |
|
|
(65,032 |
) |
|
111,526 |
|
|
134,476 |
|
|
(42,357 |
) |
|
92,119 |
|
Trademarks and trade names |
|
|
32,661 |
|
|
(17,202 |
) |
|
15,459 |
|
|
28,961 |
|
|
(14,716 |
) |
|
14,245 |
|
Non-compete agreements |
|
|
5,491 |
|
|
(4,631 |
) |
|
860 |
|
|
5,247 |
|
|
(4,094 |
) |
|
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
671,197 |
|
$ |
(214,009 |
) |
$ |
457,188 |
|
$ |
516,752 |
|
$ |
(151,560 |
) |
$ |
365,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $65.0 million, $53.9 million and $39.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. In 2007, we recorded impairment charges of $8.5 million, included in the restructuring charges and asset impairments line of the Consolidated Statement of Income. See Note 14 to the Consolidated Financial Statements for further details.
The estimated future amortization expense related to intangible assets as of December 31, 2007 is as follows:
|
|
|
|
|
Year ended December 31, |
|
Amount |
|
|
|
|
|
|
|
2008 |
|
$ |
70,000 |
|
2009 |
|
|
67,000 |
|
2010 |
|
|
60,000 |
|
2011 |
|
|
54,000 |
|
2012 |
|
|
44,000 |
|
Thereafter |
|
|
162,000 |
|
|
|
|
|
|
|
|
$ |
457,000 |
|
|
|
|
|
|
During 2007 and 2006, we recorded additions to intangible assets of $158.2 million and $64.3 million, respectively. The components of these purchased intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|||||||||
|
|
|
|
|
|
|||||||||
|
|
Amount |
|
Weighted
|
|
Amount |
|
Weighted
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
|
||||||||||||||
Customer relationships |
|
$ |
111,315 |
|
|
10 years |
|
$ |
35,778 |
|
|
11 years |
|
|
Mailing software and technology |
|
|
38,323 |
|
|
7 years |
|
|
21,900 |
|
|
5 years |
|
|
Trademarks and trade names |
|
|
8,500 |
|
|
2 years |
|
|
6,390 |
|
|
4 years |
|
|
Non-compete agreements |
|
|
12 |
|
|
4 years |
|
|
228 |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
158,150 |
|
|
9 years |
|
$ |
64,296 |
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Acquired
|
|
Other |
|
Balance at
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|||||||||||||
U.S. Mailing |
|
$ |
84,380 |
|
$ |
13,703 |
|
$ |
31,100 |
|
$ |
129,183 |
|
International Mailing |
|
|
392,434 |
|
|
2,486 |
|
|
8,908 |
|
|
403,828 |
|
Production Mail |
|
|
102,848 |
|
|
4,165 |
|
|
3,587 |
|
|
110,600 |
|
Software |
|
|
340,062 |
|
|
355,189 |
|
|
1,440 |
|
|
696,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
919,724 |
|
|
375,543 |
|
|
45,035 |
|
|
1,340,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
429,990 |
|
|
28,668 |
|
|
2,931 |
|
|
461,589 |
|
Mail Services |
|
|
216,709 |
|
|
8,524 |
|
|
4,554 |
|
|
229,787 |
|
Marketing Services |
|
|
224,734 |
|
|
41,831 |
|
|
1,615 |
|
|
268,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
871,433 |
|
|
79,023 |
|
|
9,100 |
|
|
959,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,791,157 |
|
$ |
454,566 |
|
$ |
54,135 |
|
$ |
2,299,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Acquired
|
|
Other |
|
Balance at
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|||||||||||||
U.S. Mailing |
|
$ |
56,095 |
|
$ |
29,686 |
|
$ |
(1,401 |
) |
$ |
84,380 |
|
International Mailing |
|
|
355,947 |
|
|
5,072 |
|
|
31,415 |
|
|
392,434 |
|
Production Mail |
|
|
94,879 |
|
|
4,773 |
|
|
3,196 |
|
|
102,848 |
|
Software |
|
|
314,306 |
|
|
26,620 |
|
|
(864 |
) |
|
340,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
821,227 |
|
|
66,151 |
|
|
32,346 |
|
|
919,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
383,640 |
|
|
41,304 |
|
|
5,046 |
|
|
429,990 |
|
Mail Services |
|
|
211,686 |
|
|
5,767 |
|
|
(744 |
) |
|
216,709 |
|
Marketing Services |
|
|
195,233 |
|
|
29,937 |
|
|
(436 |
) |
|
224,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
790,559 |
|
|
77,008 |
|
|
3,866 |
|
|
871,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,611,786 |
|
$ |
143,159 |
|
$ |
36,212 |
|
$ |
1,791,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other includes the impact of foreign currency translations.
|
|
7. |
Current Liabilities |
Accounts payable, accrued liabilities, notes payable and current portion of long-term obligations are composed of the following:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Accounts payable-trade |
|
$ |
329,928 |
|
$ |
307,134 |
|
Reserve account deposits |
|
|
522,193 |
|
|
459,527 |
|
Accrued salaries, wages and commissions |
|
|
276,154 |
|
|
254,454 |
|
Accrued restructuring charges |
|
|
91,713 |
|
|
33,549 |
|
Accrued nonpension postretirement benefits |
|
|
27,728 |
|
|
30,849 |
|
Miscellaneous accounts payable and accrued liabilities |
|
|
717,851 |
|
|
591,988 |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
1,965,567 |
|
$ |
1,677,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
405,213 |
|
$ |
489,706 |
|
Current portion of long-term debt and capital leases |
|
|
548,554 |
|
|
834 |
|
|
|
|
|
|
|
|
|
Notes payable and current portion of long-term obligations |
|
$ |
953,767 |
|
$ |
490,540 |
|
|
|
|
|
|
|
|
|
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In countries outside the U.S., banks generally lend to our non-finance subsidiaries on an overdraft or term-loan basis. These overdraft arrangements and term-loans, for the most part, are extended on an uncommitted basis by banks and do not require compensating balances or commitment fees.
Reserve account deposits represent customers prepayment of postage. Deposits are held by our subsidiary, Pitney Bowes Bank. See Note 18 to the Consolidated Financial Statements for further details.
Notes payable are issued as commercial paper, loans against bank lines of credit, or to trust departments of banks and others at below prevailing prime rates. The weighted average interest rates were 4.3% and 5.3% on notes payable and overdrafts outstanding at December 31, 2007 and 2006, respectively.
At December 31, 2007, notes payable totaled $405.2 million. We had unused credit facilities of $1.5 billion at December 31, 2007, primarily to support commercial paper issuances. Fees paid to maintain lines of credit were $0.8 million, $0.9 million and $0.7 million in 2007, 2006 and 2005, respectively.
|
|
8. Long-term Debt |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Recourse debt |
|
|
|
|
|
|
|
5.75% notes due 2008 (1) |
|
$ |
|
|
$ |
350,000 |
|
8.63% notes due 2008 (1) |
|
|
|
|
|
100,000 |
|
9.25% notes due 2008 (1) |
|
|
|
|
|
100,000 |
|
8.55% notes due 2009 (1) |
|
|
150,000 |
|
|
150,000 |
|
4.65% to 5.57% notes due 2010 |
|
|
|
|
|
150,000 |
|
5.32% credit facility due 2012 |
|
|
150,000 |
|
|
|
|
4.63% notes due 2012 |
|
|
400,000 |
|
|
400,000 |
|
3.88% notes due 2013 |
|
|
375,000 |
|
|
375,000 |
|
4.88% notes due 2014 |
|
|
450,000 |
|
|
450,000 |
|
5.00% notes due 2015 |
|
|
400,000 |
|
|
400,000 |
|
4.75% notes due 2016 |
|
|
500,000 |
|
|
500,000 |
|
5.75% notes due 2017 |
|
|
500,000 |
|
|
|
|
3.75% to 5.43% notes due 2018 |
|
|
350,000 |
|
|
350,000 |
|
5.25% notes due 2037 |
|
|
500,000 |
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Fair value hedges basis adjustment |
|
|
25,753 |
|
|
27,757 |
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
13,186 |
|
|
|
|
|
|
|
|
|
|
|
|
Other (2) |
|
|
(11,864 |
) |
|
(5,140 |
) |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
3,802,075 |
|
$ |
3,847,617 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
In 2002, we received $95 million in cash from the termination of four swap agreements associated with these notes. This amount is being reflected as a reduction of interest expense over the remaining term of these notes. As a result of this transaction, the weighted average effective rate on these notes is 4.77%. The notes due in 2008 for a face value of $550 million are reported as current liabilities at December 31, 2007. |
|
|
(2) |
Other consists primarily of debt discounts and premiums. |
On December 31, 2007, $0.6 billion remained available under the shelf registration statement filed in February 2005 with the SEC, permitting issuances of up to $2.5 billion in debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units.
In December 2007, we entered into a $150 million syndicated bank transaction priced at 3 month LIBOR plus 35 basis points. The proceeds from this credit facility, due 2012, were used to pay off the $150 million variable rate debt that was due in 2010.
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In September 2007, we issued $500 million of unsecured fixed rate notes maturing in September 2017. These notes bear interest at an annual rate of 5.75% and pay interest semi-annually beginning in March 2008. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper, the financing of acquisitions, and repurchase of our stock.
In November 2006, we issued $500 million of unsecured fixed rate notes maturing in January 2037. These notes bear interest at an annual rate of 5.25% and pay interest semi-annually beginning in July 2007. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper, the financing of acquisitions and repurchase of the Companys stock.
The annual maturities of the outstanding debt during each of the next five years are as follows: 2008, $550 million; 2009, $150 million; 2010 no maturities; 2011 no maturities; 2012, $550 million; and $3,075 million thereafter.
The mortgage relates to debt assumed with the acquisition of MapInfo Corporation. The annual maturities of the outstanding mortgage for 2008 - 2012 are $0.3 million each year and $12.0 million thereafter.
The fair value hedges basis adjustment represents the revaluation of fixed rate debt that has been hedged in accordance with SFAS No. 133. See Note 1 to the Consolidated Financial Statements.
9. Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
Total current |
|
$ |
160,839 |
|
$ |
298,364 |
|
$ |
217,042 |
|
Total deferred |
|
|
119,383 |
|
|
36,640 |
|
|
111,555 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
280,222 |
|
$ |
335,004 |
|
$ |
328,597 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and international components of income from operations before income taxes and minority interest are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
||||||||||
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. |
|
$ |
624,030 |
|
$ |
719,931 |
|
$ |
623,529 |
|
International |
|
|
36,681 |
|
|
194,559 |
|
|
188,139 |
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
|
660,711 |
|
|
914,490 |
|
|
811,668 |
|
Discontinued operations |
|
|
|
|
|
(682,149 |
) |
|
38,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
660,711 |
|
$ |
232,341 |
|
$ |
849,729 |
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rates for continuing operations for 2007, 2006 and 2005 were 42.4%, 36.6% and 40.5%, respectively. The effective tax rate for 2007 included $54 million of tax charges related principally to a valuation allowance for certain deferred tax assets and tax rate changes outside of the U.S. The effective tax rate for 2006 and 2005 included a $20 million and $56 million charge, respectively, related to the IRS settlement discussed below.
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The items accounting for the difference between income taxes computed at the federal statutory rate and our provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
Federal statutory provision |
|
$ |
231,249 |
|
$ |
320,072 |
|
$ |
284,084 |
|
Life insurance tax reserve, federal and state |
|
|
|
|
|
20,000 |
|
|
56,000 |
|
State and local income taxes |
|
|
12,281 |
|
|
22,194 |
|
|
19,452 |
|
Foreign tax differential |
|
|
2,379 |
|
|
(12,713 |
) |
|
(11,517 |
) |
Valuation allowance |
|
|
51,724 |
|
|
|
|
|
|
|
Rate change |
|
|
2,485 |
|
|
|
|
|
|
|
Tax exempt income/reimbursement |
|
|
(6,743 |
) |
|
(15,110 |
) |
|
(4,162 |
) |
Federal income tax credits/incentives |
|
|
(12,732 |
) |
|
(2,508 |
) |
|
(5,966 |
) |
Other, net |
|
|
(421 |
) |
|
3,069 |
|
|
(9,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
280,222 |
|
|
335,004 |
|
|
328,597 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
Federal statutory provision |
|
|
|
|
|
(238,753 |
) |
|
13,321 |
|
State and local income taxes |
|
|
|
|
|
(29,225 |
) |
|
(642 |
) |
External financing transactions |
|
|
(5,534 |
) |
|
46,140 |
|
|
(9,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
274,688 |
|
$ |
113,166 |
|
$ |
331,290 |
|
|
|
|
|
|
|
|
|
|
|
|
The components of our total provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
U.S. Federal: |
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
136,528 |
|
$ |
1,090,252 |
|
$ |
166,590 |
|
Deferred |
|
|
53,235 |
|
|
(1,021,669 |
) |
|
81,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,763 |
|
|
68,583 |
|
|
247,941 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and Local: |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
12,813 |
|
|
179,602 |
|
|
18,867 |
|
Deferred |
|
|
6,083 |
|
|
(190,420 |
) |
|
10,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,896 |
|
|
(10,818 |
) |
|
28,938 |
|
|
|
|
|
|
|
|
|
|
|
|
International: |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
5,964 |
|
|
7,567 |
|
|
36,552 |
|
Deferred |
|
|
60,065 |
|
|
47,834 |
|
|
17,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,029 |
|
|
55,401 |
|
|
54,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total current |
|
|
155,305 |
|
|
1,277,421 |
|
|
222,009 |
|
Total deferred |
|
|
119,383 |
|
|
(1,164,255 |
) |
|
109,281 |
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
274,688 |
|
$ |
113,166 |
|
$ |
331,290 |
|
|
|
|
|
|
|
|
|
|
|
|
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The components of our deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
|
Depreciation |
|
$ |
44,125 |
|
$ |
82,578 |
|
Deferred profit (for tax purposes) on sales to finance subsidiaries |
|
|
486,107 |
|
|
440,525 |
|
Lease revenue and related depreciation |
|
|
313,393 |
|
|
189,976 |
|
Pension |
|
|
76,830 |
|
|
33,951 |
|
Other |
|
|
122,550 |
|
|
129,614 |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
1,043,005 |
|
|
876,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (assets): |
|
|
|
|
|
|
|
Nonpension postretirement benefits |
|
|
(141,205 |
) |
|
(89,416 |
) |
Inventory and equipment capitalization |
|
|
(22,651 |
) |
|
(23,132 |
) |
Restructuring charges |
|
|
(93,113 |
) |
|
(15,504 |
) |
Long-term incentives |
|
|
(60,571 |
) |
|
(61,422 |
) |
Net operating loss carry forwards |
|
|
(91,513 |
) |
|
(66,197 |
) |
Other |
|
|
(168,785 |
) |
|
(147,894 |
) |
Valuation allowance |
|
|
69,792 |
|
|
33,563 |
|
|
|
|
|
|
|
|
|
Deferred tax (assets) |
|
|
(508,046 |
) |
|
(370,002 |
) |
|
|
|
|
|
|
|
|
Net deferred taxes |
|
|
534,959 |
|
|
506,642 |
|
Less amounts included in current and non-current income taxes |
|
|
62,719 |
|
|
51,713 |
|
|
|
|
|
|
|
|
|
Deferred taxes on income |
|
$ |
472,240 |
|
$ |
454,929 |
|
|
|
|
|
|
|
|
|
During 2007, the deferred tax asset and related valuation allowances for net operating losses changed primarily due to establishing a valuation allowance against net deferred tax assets in Germany and France established in connection with strategic initiatives taken in the fourth quarter (see Note 14 to the Consolidated Financial Statements) and acquisition activity. As of December 31, 2007 and 2006, approximately $243.7 million and $185 million, respectively, of net operating loss carry forwards were available to us. Most of these losses can be carried forward indefinitely.
It has not been necessary to provide for income taxes on $660 million of cumulative undistributed earnings of subsidiaries outside the U.S. These earnings will be either indefinitely reinvested or remitted substantially free of additional tax. Determination of the liability that would result in the event all of these earnings were remitted to the U.S. is not practicable. It is estimated, however, that withholding taxes on such remittances would approximate $15 million.
Other Tax Matters
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.
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In June 2006, the FASB issued FIN. 48, Accounting for Uncertainty in Income Taxes , which supplements FAS 109, Accounting for Income Taxes , by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires a two-step approach under which the tax effect of a position is recognized only if it is more-likely-than-not to be sustained and the amount of tax benefit recognized is equal to the largest tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement of the tax position. This is a different standard for recognition than the approach previously required. Both approaches require us to exercise considerable judgment and estimates are inherent in both processes. We adopted the provisions of FIN 48 on January 1, 2007. As a result, on initial adoption we recognized an $84.4 million increase in our liability for uncertain tax positions and a corresponding reduction to our opening retained earnings. The total amount of unrecognized tax benefits at January 1 and December 31, 2007 was $356.1 million and $398.9 million, respectively, of which $299.6 million and $335.7 million, respectively, would affect the effective tax rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
356,063 |
|
Increases from prior period positions |
|
|
28,762 |
|
Decreases from prior period positions |
|
|
(20,063 |
) |
Increases from current period positions |
|
|
61,778 |
|
Decreases from current period positions |
|
|
|
|
Decreases relating to settlements with tax authorities |
|
|
(2,165 |
) |
Reductions as a result of a lapse of the applicable statute of limitations |
|
|
(25,497 |
) |
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
398,878 |
|
|
|
|
|
|
Our tax filings are under continual examination by tax authorities. On a regular basis we conclude tax return examinations, statutes of limitations expire, court decisions are made that interpret tax law and we regularly assess tax uncertainties in light of these developments. As a result of these developments, it is reasonably possible that the amount of our unrecognized tax benefits will increase or decrease in the next 12 months by less than 5%. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes. We recognized $9.5 million in interest and penalties during the year ended December 31, 2007 and this amount was included in discontinued operations. We had $104.1 million and $113.6 million accrued for the payment of interest and penalties at January 1 and December 31, 2007, respectively.
In August 2006, we reached a settlement with the IRS governing all outstanding tax audit issues in dispute for the tax years through 2000. These disputed items related primarily to the tax treatment of corporate owned life insurance (COLI) and related interest expense, the tax effect of the sale of certain preferred share holdings, and the tax treatment of certain Capital Services lease transactions. In the second quarter of 2006, we estimated the tax due as a result of the IRS settlement including our best estimate of the additional liability for these items in all open years, the sale of the Imagistics portfolio and the sale of the Capital Services business to be approximately $1.1 billion. Accordingly, we recorded $61 million of additional tax expense. The $1.1 billion tax liability was net of $330 million of IRS tax bonds previously posted. In the third quarter of 2006, we paid $239 million of the $1.1 billion obligation to the IRS, with the remainder paid by the end of 2006. These tax obligations were funded with proceeds previously received in 2006 from the sale of the Imagistics lease portfolio and Capital Services and the advance against the cash surrender value of our COLI assets. Of the $61 million of tax expense, $41 million related to the Capital Services business and was included in discontinued operations and $20 million was included in continuing operations.
The current IRS exam of tax years 2001-2004 is estimated to be completed in the next year or two, and the federal statute of limitations for years prior to 2001 has expired. In connection with the 2001-2004 audit, we are currently disputing a recent formal request from the IRS in the form of a civil summons to provide certain company workpapers. The company believes that certain documents being sought should not be produced because they are privileged. In the third quarter, 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. A similar issue is also being litigated between the IRS and another taxpayer before the U.S. District Court for the Northern District of Alabama. In connection with the 2001-2004 audit, we have recently entered into an agreement in principle with the IRS regarding the tax treatment of certain Capital Services lease transactions. The additional tax and interest associated with this settlement was accrued and paid to the IRS prior to 2007. A variety of post-1999 tax years remain subject to examination by other tax authorities, including the U.K., Canada, Germany and various U.S. states. We have accrued our best estimate of the probable 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 flow.
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
In 2006, we accrued in discontinued operations an additional tax expense of $16.2 million to record the impact of the Tax Increase Prevention and Reconciliation Act (TIPRA). The TIPRA legislation repealed the exclusion from federal income taxation of a portion of the income generated from certain leveraged leases of aircraft by foreign sales corporations. See Note 2 to the Consolidated Financial Statements for further discussion of the discontinued operations.
10. Preferred Stockholders Equity in Subsidiary Companies
Pitney Bowes International Holdings, Inc., 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. Of these shares outstanding, 750,000 were issued in December 2006. These preferred shares are entitled to 25% of the combined voting power of all classes of capital stock. 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 in 2007 and 2006 was 4.9% and 4.4%, respectively. Preferred dividends are included in minority interest in the 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 December 31, 2007 or 2006.
Additionally a subsidiary of the Company has 100 shares or $10 million of 9.11% Cumulative Preferred Stock, mandatorily redeemable in 20 years, outstanding and owned by an institutional investor.
11. Stockholders Equity
At December 31, 2007, 480,000,000 shares of common stock, 600,000 shares of cumulative preferred stock, and 5,000,000 shares of preference stock were authorized. At December 31, 2007, 214,514,959 shares of common stock (net of 108,822,953 shares of treasury stock), 135 shares of 4% convertible cumulative preferred stock (4% preferred stock) and 37,069 shares of $2.12 convertible preference stock ($2.12 preference stock) were issued and outstanding. In the future, the Board of Directors can issue the balance of unreserved and unissued preferred stock (599,865 shares) and preference stock (4,962,931 shares). The Board will determine the dividend rate, terms of redemption, terms of conversion (if any) and other pertinent features. At December 31, 2007, unreserved and unissued common stock (exclusive of treasury stock) amounted to 113,975,174 shares.
The 4% preferred stock outstanding, entitled to cumulative dividends at the rate of $2 per year, can be redeemed at our option, in whole or in part at any time, at the price of $50 per share, plus dividends accrued to the redemption date. Each share of the 4% preferred stock can be converted into 24.24 shares of common stock, subject to adjustment in certain events.
The $2.12 preference stock is entitled to cumulative dividends at the rate of $2.12 per year and can be redeemed at our option at the rate of $28 per share. Each share of the $2.12 preference stock can be converted into 16.53 shares of common stock, subject to adjustment in certain events.
At December 31, 2007, a total of 616,022 shares of common stock were reserved for issuance upon conversion of the 4% preferred stock (3,272 shares) and $2.12 preference stock (612,750 shares). In addition, 21,769,139 shares of common stock were reserved for issuance under our dividend reinvestment and other corporate plans.
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following table summarizes the preferred, preference and common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|||||||
|
|
Preferred
|
|
Preference
|
|
|
|
|||||||||
|
|
|
|
Issued |
|
Treasury |
|
Outstanding |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, December 31, 2004 |
|
|
385 |
|
|
46,405 |
|
|
323,337,912 |
|
|
(93,019,539 |
) |
|
230,318,373 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
(5,945,778 |
) |
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
2,276,222 |
|
|
|
|
Conversions of common stock |
|
|
(50 |
) |
|
(3,459 |
) |
|
|
|
|
58,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
335 |
|
|
42,946 |
|
|
323,337,912 |
|
|
(96,630,706 |
) |
|
226,707,206 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
(9,180,216 |
) |
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
3,026,290 |
|
|
|
|
Conversions of common stock |
|
|
(200 |
) |
|
(3,339 |
) |
|
|
|
|
60,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
135 |
|
|
39,607 |
|
|
323,337,912 |
|
|
(102,724,590 |
) |
|
220,613,322 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
(9,075,104 |
) |
|
|
|
Issuances of common stock |
|
|
|
|
|
|
|
|
|
|
|
2,934,801 |
|
|
|
|
Conversions of common stock |
|
|
|
|
|
(2,538 |
) |
|
|
|
|
41,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
135 |
|
|
37,069 |
|
|
323,337,912 |
|
|
(108,822,953 |
) |
|
214,514,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Foreign currency translation adjustments |
|
$ |
341,252 |
|
$ |
176,524 |
|
$ |
93,341 |
|
Net unrealized loss on derivative investments |
|
|
(282 |
) |
|
(3,083 |
) |
|
(3,063 |
) |
Net unrealized gain on investment securities |
|
|
352 |
|
|
|
|
|
|
|
Amortization of pension and postretirement costs |
|
|
22,172 |
|
|
|
|
|
|
|
Loss on pension and postretirement plans (1) |
|
|
(274,838 |
) |
|
(305,185 |
) |
|
(13,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
$ |
88,656 |
|
$ |
(131,744 |
) |
$ |
76,917 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes a charge of $297,229 for the initial adoption of FAS 158 in 2006.
12. Stock Plans
Effective January 1, 2006, we adopted the provisions of FAS 123(R). FAS 123(R) established accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. We elected to adopt the modified retrospective application method as provided by FAS 123(R), and, accordingly, financial statement amounts for 2005 have been adjusted to reflect the fair value method of expensing prescribed by FAS 123(R).
The following table shows total stock-based compensation expense for stock options, restricted stock units, and employee stock purchase plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
||||||||||
Stock options |
|
$ |
14,001 |
|
$ |
20,412 |
|
$ |
23,401 |
|
Restricted stock units |
|
|
7,115 |
|
|
3,363 |
|
|
|
|
Employee stock purchase plans |
|
|
3,015 |
|
|
3,600 |
|
|
3,822 |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation |
|
$ |
24,131 |
|
$ |
27,375 |
|
$ |
27,223 |
|
|
|
|
|
|
|
|
|
|
|
|
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following table shows stock-based compensation expense as included in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment sales |
|
$ |
1,649 |
|
$ |
1,869 |
|
$ |
1,845 |
|
Cost of support services |
|
|
710 |
|
|
806 |
|
|
796 |
|
Cost of business services |
|
|
980 |
|
|
1,112 |
|
|
1,111 |
|
Selling, general and administrative expense |
|
|
19,984 |
|
|
22,669 |
|
|
22,526 |
|
Research and development expense |
|
|
808 |
|
|
919 |
|
|
945 |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation |
|
|
24,131 |
|
|
27,375 |
|
|
27,223 |
|
Income tax |
|
|
(8,277 |
) |
|
(9,308 |
) |
|
(9,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net |
|
$ |
15,854 |
|
$ |
18,067 |
|
$ |
17,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share impact |
|
$ |
0.07 |
|
$ |
0.08 |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share impact |
|
$ |
0.07 |
|
$ |
0.08 |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized stock-based compensation costs at December 31, 2007 and 2006 were not material.
At December 31, 2007, $15.3 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted average period of 2.0 years. At December 31, 2007, $15.2 million of unrecognized compensation cost related to non-vested restricted stock units is expected to be recognized over a weighted average period of 2.8 years.
The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005, was $28.1 million, $23.2 million and $21.9 million, respectively. The total intrinsic value of restricted stock units converted during 2007 was $3.3 million. Proceeds from issuance of stock in our Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 include $5.0 million, $3.4 million and $3.9 million of windfall tax benefits from stock options exercised and restricted stock units converted, respectively.
We settle employee stock compensation awards with treasury shares.
Starting in 2006, we modified our stock-based compensation awards, requiring a minimum requisite service period of one year for retirement eligible employees.
At December 31, 2007, there were 15,416,166 shares available for future grants of stock options and restricted stock units under our stock plans.
Incentive Awards
Long-term incentive awards are provided to employees under the terms of our plans. The Executive Compensation Committee of the Board of Directors administers these plans. Awards granted under these plans may include stock options, restricted stock units, other stock based awards, cash or any combination thereof.
Effective in 2006, we changed the components of our long-term incentive compensation structure. This change increased the amount of restricted stock units and cash incentive awards issued to employees and reduced the number of stock options granted.
We have the following stock plans that are described below: the U.S. and U.K. Stock Option Plans (ESP), the U.S. and U.K. Employee Stock Purchase Plans (ESPP), and the Directors Stock Plan.
Stock Options
Under our stock plan, certain officers and employees are granted options at prices equal to the market value of our common shares at the date of grant. Options granted in 2004 and prior thereto generally became exercisable in three equal installments during the first three years following their grant and expire after ten years. Options granted in 2005 and thereafter generally become exercisable in four equal installments during the first four years following their grant and expire ten years from the date of grant.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The following tables summarize information about stock option transactions during 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Per share weighted
|
|
||||
|
|
|
|
|
|
||||
Options outstanding at December 31, 2006 |
|
|
20,255,738 |
|
|
$ |
42.13 |
|
|
Granted |
|
|
1,488,387 |
|
|
$ |
47.17 |
|
|
Exercised |
|
|
(2,438,009 |
) |
|
$ |
35.84 |
|
|
Canceled |
|
|
(321,048 |
) |
|
$ |
45.55 |
|
|
Forfeited |
|
|
(242,550 |
) |
|
$ |
46.19 |
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007 |
|
|
18,742,518 |
|
|
$ |
43.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Per share weighted
|
|
||||
|
|
|
|
|
|
||||
Options exercisable at December 31, 2007 |
|
|
14,798,177 |
|
|
$ |
42.60 |
|
|
The weighted-average remaining contractual life of the total options outstanding and options exercisable at December 31, 2007 was 4.3 years and 3.3 years, respectively. The intrinsic value of the total options outstanding and options exercisable at December 31, 2007 was $97.4 million and $67.6 million, respectively.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
||||||||||
|
|
||||||||||
Range of per share
|
|
Number |
|
Weighted average
|
|
Per share weighted
|
|
||||
|
|
|
|
|
|
|
|
||||
$26.99 - $35.99 |
|
4,213,080 |
|
|
3.4 years |
|
|
$ |
30.11 |
|
|
$36.00 - $45.99 |
|
6,690,738 |
|
|
5.0 years |
|
|
$ |
41.86 |
|
|
$46.00 - $56.99 |
|
5,775,781 |
|
|
5.4 years |
|
|
$ |
47.01 |
|
|
$57.00 - $65.72 |
|
2,062,919 |
|
|
1.0 years |
|
|
$ |
63.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,742,518 |
|
|
4.3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable |
|
|
|
|
|||||||
|
|
|
|
|
|||||||
Range of per share
|
|
Number |
|
Per share weighted
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
$26.99 - $35.99 |
|
4,213,080 |
|
|
$ |
30.11 |
|
|
|
|
|
$36.00 - $45.99 |
|
4,925,924 |
|
|
$ |
41.31 |
|
|
|
|
|
$46.00 - $56.99 |
|
3,596,254 |
|
|
$ |
46.78 |
|
|
|
|
|
$57.00 - $65.72 |
|
2,062,919 |
|
|
$ |
63.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,798,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain employees eligible for performance-based compensation may defer up to 100% of their annual awards, subject to the terms and conditions of the Pitney Bowes Deferred Incentive Savings Plan. Participants may allocate deferred compensation among specified investment choices. Previously, the investment choices offered included stock options under the U.S. stock option plan. Stock options acquired under this plan were generally exercisable three years following their grant and expired after a period not to exceed ten years from the date of grant. There were 163,480, 236,101 and 372,525 options outstanding under this plan at December 31, 2007, 2006 and 2005, respectively, which are included in outstanding options under our U.S. stock option plan. Beginning with the 2004 plan year, options were no longer offered as an investment choice.
We estimate the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the volatility of our stock, the risk-free interest rate and our dividend yield. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair value of our stock option grants. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value we made under FAS 123(R).
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The fair value of stock options granted and related assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield |
|
|
2.9 |
% |
|
2.9 |
% |
|
2.8 |
% |
Expected stock price volatility (1) |
|
|
13.7 |
% |
|
17.6 |
% |
|
18.5 |
% |
Risk-free interest rate (2) |
|
|
4.7 |
% |
|
4.6 |
% |
|
3.5 |
% |
Expected life years (3) |
|
|
5 |
|
|
5 |
|
|
5 |
|
Weighted-average fair value per option granted |
|
$ |
6.69 |
|
$ |
7.13 |
|
$ |
7.29 |
|
|
|
(1) Our estimates of expected stock price volatility are based on historical price changes of our stock. |
|
|
|
(2) The risk-free interest rate is based on U.S. Treasuries with a term equal to the expected option term. |
|
|
|
(3) The expected life is based on historical experience. |
Restricted Stock and Restricted Stock Units
Our stock plan permits the issuance of restricted stock and restricted stock units. Restricted stock units are stock awards that are granted to employees and entitle the holder to shares of common stock as the award vests, typically over a four year service period. The fair value of the awards is determined on the grant date based on our stock price at that date. We issued 334,442 shares and 256,519 shares of restricted stock units in 2007 and 2006, respectively. The weighted average grant price was $47.91 and $42.63 for 2007 and 2006, respectively. The intrinsic value of the outstanding restricted stock units at December 31, 2007 was $3.7 million, with a weighted average remaining term of 2.8 years.
The following table summarizes information about restricted stock unit transactions during 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Shares / Units |
|
Weighted average
|
|
||||
|
|
|
|
|
|
||||
Restricted stock units outstanding at December 31, 2006 |
|
|
237,020 |
|
|
$ |
42.63 |
|
|
Granted |
|
|
334,442 |
|
|
$ |
47.91 |
|
|
Vested |
|
|
(64,609 |
) |
|
$ |
42.89 |
|
|
Forfeited |
|
|
(46,374 |
) |
|
$ |
45.98 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at December 31, 2007 |
|
|
460,479 |
|
|
$ |
46.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards are subject to one or more restrictions, which may include continued employment over a specified period or the attainment of specified financial performance goals. Where a restricted stock award is subject to both tenure and attainment of financial performance goals, the restrictions would be released, in total or in part, only if the executive is still employed by us at the end of the performance period and if the performance objectives are achieved. Where the sole restriction of a restricted stock award is continued employment over a specified period, such period may not be less than three years. The compensation expense for each award is recognized over the performance period. We issued 8,150 shares of restricted stock in 2005. We did not issue any shares of restricted stock during 2006 and 2007. We recorded compensation expense, net of tax, of $0.7 million, $1.3 million and $1.4 million in 2007, 2006 and 2005, respectively.
Employee Stock Purchase Plans
The U.S. Employee Stock Purchase Plan enables substantially all U.S. and Canadian employees to purchase shares of our common stock at a discounted offering price and is considered a compensatory plan in accordance with FAS 123(R). In 2007, the offering price was 85% of the average price of our common stock on the New York Stock Exchange on the offering date. At no time will the exercise price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. The U.K. S.A.Y.E. Plan also enables eligible employees of our participating U.K. subsidiaries to purchase shares of our stock at a discounted offering price which, in 2007, was 90% of the average closing price of our common stock on the New York Stock Exchange for the three business days preceding the offering date. We may grant rights to purchase up to 6,664,027 common shares to our regular employees under the U.S. and U.K. Plans. Compensation expense relating to the U.S. Plan is recognized over a twelve month participation period. Compensation expense for the U.K. Plan is recognized over participation periods of 3 or 5 years.
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
We granted rights to purchase 446,755 shares in 2007, 435,592 shares in 2006 and 434,428 shares in 2005. The per share fair value of rights granted was $8 in 2007, $7 in 2006 and $7 in 2005 for the U.S. ESPP and $7 in 2007, $8 in 2006 and $8 in 2005 for the U.K. ESPP.
Directors Stock Plan
Under this plan, each non-employee director is granted 2,200 shares of restricted common stock annually. Shares granted at no cost to the directors were 24,665 in 2007 and 14,000 in 2006. Compensation expense, net of taxes, was $0.8 million for 2007 and $0.4 million a year for 2006 and 2005. The shares carry full voting and dividend rights but, except as provided herein, may not be transferred or alienated until the later of (1) termination of service as a director, or, if earlier, the date of a change of control, or (2) the expiration of the six-month period following the grant of such shares. If a director terminates service as a director prior to the expiration of the six-month period following a grant of restricted stock, that award will be forfeited. The Directors Stock Plan permits certain limited dispositions of restricted common stock to family members, family trusts or partnerships, as well as donations to charity after the expiration of the six-month holding period, provided the director retains a minimum of 7,500 shares of restricted common stock.
Non-employee directors may defer up to 100% of their eligible compensation, subject to the terms and conditions of the Pitney Bowes Deferred Incentive Savings Plan for directors. Participants may allocate deferred compensation among specified investment choices. Previously, the investment choices offered included stock options under the Directors Stock Plan. Stock options acquired under this plan were generally exercisable three years following their grant and expired after a period not to exceed ten years. There were 22,091, 41,716 and 48,019 options outstanding under this plan at December 31, 2007, 2006 and 2005, respectively. Beginning with the 2004 plan year, options were no longer offered as an investment choice.
13. Retirement Plans and Nonpension Postretirement Benefits
We have several defined benefit and defined contribution retirement plans covering substantially all employees worldwide. Benefits are primarily based on employees compensation and years of service. Our contributions are determined based on the funding requirements of U.S. federal and other governmental laws and regulations. We use a measurement date of December 31 for all of our retirement plans.
U.S. employees hired after January 1, 2005, Canadian employees hired after April 1, 2005, and U.K. employees hired after July 1, 2005, are not eligible for our defined benefit retirement plans.
We contributed $30.5 million, $28.1 million and $22.6 million to our U.S. defined contribution plans in 2007, 2006 and 2005, respectively.
Defined Benefit Pension Plans
The change in benefit obligations, plan assets and the funded status for defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
1,621,463 |
|
$ |
1,638,252 |
|
$ |
522, 451 |
|
$ |
471,420 |
|
Service cost |
|
|
28,204 |
|
|
26,495 |
|
|
12,797 |
|
|
11,207 |
|
Interest cost |
|
|
93,977 |
|
|
91,652 |
|
|
27,627 |
|
|
22,666 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
2,924 |
|
|
2,781 |
|
Actuarial gain |
|
|
(41,067 |
) |
|
(21,909 |
) |
|
(25,544 |
) |
|
(2,655 |
) |
Foreign currency changes |
|
|
|
|
|
|
|
|
32,299 |
|
|
33,360 |
|
Curtailment |
|
|
|
|
|
|
|
|
906 |
|
|
883 |
|
Special termination benefits |
|
|
1,187 |
|
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(111,035 |
) |
|
(113,027 |
) |
|
(18,443 |
) |
|
(17,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
1,592,729 |
|
$ |
1,621,463 |
|
$ |
555,017 |
|
$ |
522,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
1,655,283 |
|
$ |
1,528,917 |
|
$ |
476,939 |
|
$ |
411,518 |
|
Actual return on plan assets |
|
|
121,973 |
|
|
232,254 |
|
|
31,490 |
|
|
40,721 |
|
Company contributions |
|
|
8,781 |
|
|
7,139 |
|
|
8,926 |
|
|
9,513 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
2,924 |
|
|
2,781 |
|
Foreign currency changes |
|
|
|
|
|
|
|
|
28,479 |
|
|
29,617 |
|
Benefits paid |
|
|
(111,035 |
) |
|
(113,027 |
) |
|
(18,443 |
) |
|
(17,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
1,675,002 |
|
$ |
1,655,283 |
|
$ |
530,315 |
|
$ |
476,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
1,675,002 |
|
$ |
1,655,283 |
|
$ |
530,315 |
|
$ |
476,939 |
|
Benefit obligations at end of year |
|
|
1,592,729 |
|
|
1,621,463 |
|
|
555,017 |
|
|
522,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
82,273 |
|
$ |
33,820 |
|
$ |
(24,702 |
) |
$ |
(45,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for pension plans, that are included above, with an accumulated benefit obligation in excess of plan assets at December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Projected benefit obligation |
|
$ |
97,671 |
|
$ |
95,370 |
|
$ |
36,086 |
|
$ |
35,700 |
|
Accumulated benefit obligation |
|
$ |
78,564 |
|
$ |
78,392 |
|
$ |
34,428 |
|
$ |
33,955 |
|
Fair value of plan assets |
|
$ |
1,656 |
|
$ |
1,521 |
|
$ |
10,885 |
|
$ |
9,548 |
|
The accumulated benefit obligation for all U.S. defined benefit plans at December 31, 2007 and 2006 was $1.5 billion for both years. The accumulated benefit obligation for all foreign defined benefit plans at December 31, 2007 and 2006 was $484 million and $467 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Amounts recognized in the Consolidated Balance Sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset |
|
$ |
178,288 |
|
$ |
127,670 |
|
$ |
6,630 |
|
$ |
7,084 |
|
Current liability |
|
|
(5,354 |
) |
|
(7,638 |
) |
|
(884 |
) |
|
(872 |
) |
Non-current liability |
|
|
(90,661 |
) |
|
(86,212 |
) |
|
(30,448 |
) |
|
(51,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
82,273 |
|
$ |
33,820 |
|
$ |
(24,702 |
) |
$ |
(45,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts recognized in accumulated other comprehensive income (AOCI) consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
328,726 |
|
$ |
394,556 |
|
$ |
93,346 |
|
$ |
114,400 |
|
Prior service cost/(credit) |
|
|
(3,177 |
) |
|
(5,342 |
) |
|
2,266 |
|
|
2,672 |
|
Transition obligation (asset) |
|
|
|
|
|
|
|
|
131 |
|
|
(532 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
325,549 |
|
$ |
389,214 |
|
$ |
95,743 |
|
$ |
116,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from AOCI into net periodic benefits cost in 2008 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
19,161 |
|
|
|
|
$ |
4,211 |
|
|
|
|
Prior service cost/(credit) |
|
|
(2,609 |
) |
|
|
|
|
703 |
|
|
|
|
Transition obligation |
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,552 |
|
|
|
|
$ |
5,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine end of year benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.15 |
% |
|
5.85 |
% |
|
2.25% - 5.80 |
% |
|
2.25% - 5.30 |
% |
Rate of compensation increase |
|
|
4.50 |
% |
|
4.50 |
% |
|
2.50% - 4.70 |
% |
|
2.50% - 4.30 |
% |
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
At December 31, 2007 there are 8,800 shares of our common stock included in the plan assets of our pension plans.
We anticipate making contributions of up to $10 million to both our U.S. and foreign pension plans during 2008.
The components of the net periodic benefit cost for defined pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service cost |
|
$ |
28,204 |
|
$ |
26,495 |
|
$ |
29,241 |
|
$ |
12,797 |
|
$ |
11,207 |
|
$ |
8,881 |
|
Interest cost |
|
|
93,977 |
|
|
91,652 |
|
|
90,993 |
|
|
27,627 |
|
|
22,666 |
|
|
20,899 |
|
Expected return on plan assets |
|
|
(127,070 |
) |
|
(125,204 |
) |
|
(123,498 |
) |
|
(36,961 |
) |
|
(31,338 |
) |
|
(26,180 |
) |
Amortization of transition cost |
|
|
|
|
|
|
|
|
|
|
|
(694 |
) |
|
(654 |
) |
|
(624 |
) |
Amortization of prior service cost |
|
|
(2,165 |
) |
|
(2,139 |
) |
|
(2,123 |
) |
|
663 |
|
|
618 |
|
|
899 |
|
Recognized net actuarial loss |
|
|
29,860 |
|
|
34,881 |
|
|
27,021 |
|
|
7,347 |
|
|
9,516 |
|
|
6,038 |
|
Curtailment |
|
|
|
|
|
|
|
|
|
|
|
906 |
|
|
883 |
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
22,806 |
|
$ |
25,685 |
|
$ |
21,634 |
|
$ |
11,685 |
|
$ |
12,898 |
|
$ |
10,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Foreign |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
5.85 |
% |
5.60 |
% |
5.75 |
% |
2.25% - 5.30% |
|
2.25% - 5.00% |
|
2.25% - 5.75% |
|
Expected return on plan assets |
|
8.50 |
% |
8.50 |
% |
8.50 |
% |
3.50% - 7.75% |
|
3.50% - 8.00% |
|
3.50% - 8.25% |
|
Rate of compensation increase |
|
4.50 |
% |
4.50 |
% |
4.75 |
% |
2.50% - 4.30% |
|
1.75% - 4.10% |
|
1.75% - 4.00% |
|
U.S. Pension Plans Investment Strategy and Asset Allocation
Our U.S. pension plans investment strategy supports the objectives of the fund, which are to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligations and the actuarial liabilities, and to earn a nominal rate of return of at least 8.50%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. The pension plans liabilities, investment objectives and investment managers are reviewed periodically.
The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plans investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio was determined based on the target asset allocations for each asset class, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns.
The target allocation for 2008 and the asset allocation for the U.S. pension plan at December 31, 2007 and 2006, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation |
|
Percentage of Plan Assets at December 31, |
|
|||||
|
|
|
|
|
|
|||||
|
|
2008 |
|
2007 |
|
2006 |
|
|||
|
|
|
|
|
|
|
|
|||
Asset category |
|
|
|
|
|
|
|
|
|
|
U.S. equities |
|
|
40 |
% |
|
42 |
% |
|
49 |
% |
Non-U.S. equities |
|
|
20 |
% |
|
23 |
% |
|
23 |
% |
Fixed income |
|
|
30 |
% |
|
28 |
% |
|
23 |
% |
Real estate |
|
|
5 |
% |
|
6 |
% |
|
5 |
% |
Private equity |
|
|
5 |
% |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
The fair value of plan assets was $1.7 billion at December 31, 2007 and 2006 and the expected long-term rate of return on these plan assets was 8.50% in 2007 and 2006.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Foreign Pension Plans Investment Strategy
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees, in conjunction with our corporate personnel. The investment strategies adopted by our foreign plans vary by country and plan, with each strategy tailored to achieve the expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. Our largest foreign pension plan is the U.K. plan, which represents 76% of the non-U.S. pension assets. The U.K. pension plans investment strategy supports the objectives of the fund, which are to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligations and the actuarial liabilities, and to earn a nominal rate of return of at least 7.75%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. The pension plans liabilities, investment objectives and investment managers are reviewed periodically.
The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plans investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio was determined based on the target asset allocations for each asset class, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns.
The target allocation for 2008 and the asset allocation for the U.K. pension plan at December 31, 2007 and 2006, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation |
|
Percentage of Plan Assets at December 31, |
|
|||||
|
|
|
|
|
|
|||||
Asset category |
|
2008 |
|
2007 |
|
2006 |
|
|||
|
|
|
|
|
|
|
|
|||
U.K. equities |
|
|
30 |
% |
|
29 |
% |
|
36 |
% |
Non-U.K. equities |
|
|
40 |
% |
|
43 |
% |
|
36 |
% |
Fixed income |
|
|
30 |
% |
|
25 |
% |
|
26 |
% |
Cash |
|
|
|
|
|
3 |
% |
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
The fair value of plan assets was $403 million and $364 million at December 31, 2007 and 2006, respectively, and the expected long-term rate of return on these plan assets was 7.75% and 8.00% in 2007 and 2006, respectively.
Nonpension Postretirement Benefits
We provide certain health care and life insurance benefits to eligible retirees and their dependents. The cost of these benefits is recognized over the period the employee provides credited services to the Company. Substantially all of our U.S. and Canadian employees become eligible for retiree health care benefits after reaching age 55 and with the completion of the required service period. U.S. employees hired after January 1, 2005, and Canadian employees hired after April 1, 2005, are not eligible for retiree health care benefits.
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
The change in benefit obligations, plan assets and the funded status for nonpension postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Change in benefit obligation: |
|
|
|
|
|
|
|
Benefit obligations at beginning of year |
|
$ |
261,720 |
|
$ |
272,682 |
|
Service cost |
|
|
3,529 |
|
|
3,347 |
|
Interest cost |
|
|
13,904 |
|
|
13,352 |
|
Plan participants contributions |
|
|
7,951 |
|
|
6,640 |
|
Plan amendments |
|
|
(4,839 |
) |
|
|
|
Actuarial loss (gain) |
|
|
(95 |
) |
|
2,569 |
|
Foreign currency changes |
|
|
2,522 |
|
|
594 |
|
Gross benefits paid |
|
|
(41,415 |
) |
|
(40,819 |
) |
Less federal subsidy on benefits paid |
|
|
3,281 |
|
|
3,355 |
|
Special termination benefits |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year |
|
$ |
246,572 |
|
$ |
261,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
|
|
$ |
|
|
Company contribution |
|
|
30,183 |
|
|
30,824 |
|
Plan participants contributions |
|
|
7,951 |
|
|
6,640 |
|
Gross benefits paid |
|
|
(41,415 |
) |
|
(40,819 |
) |
Less federal subsidy on benefits paid |
|
|
3,281 |
|
|
3,355 |
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, end of year: |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
|
|
$ |
|
|
Benefit obligations at end of year |
|
|
246,572 |
|
|
261,720 |
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(246,572 |
) |
$ |
(261,720 |
) |
|
|
|
|
|
|
|
|
The discount rates used in determining the accumulated postretirement benefit obligations for the U.S. plan were 5.90% in 2007 and 5.85% in 2006. The discount rates used in determining the accumulated postretirement benefit obligations for the Canadian plan were 5.25% in 2007 and 5.00% in 2006.
|
|
|
|
|
|
|
|
Amounts recognized in AOCI consist of: |
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
43,913 |
|
|
|
|
Prior service credit |
|
|
(13,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,587 |
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net periodic benefit cost for nonpension postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Service cost |
|
$ |
3,529 |
|
$ |
3,347 |
|
$ |
3,154 |
|
Interest cost |
|
|
13,904 |
|
|
13,352 |
|
|
14,716 |
|
Amortization of prior service benefit |
|
|
(2,472 |
) |
|
(1,856 |
) |
|
(2,122 |
) |
Recognized net actuarial loss |
|
|
2,214 |
|
|
1,908 |
|
|
1,871 |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
17,175 |
|
$ |
16,751 |
|
$ |
17,619 |
|
|
|
|
|
|
|
|
|
|
|
|
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net periodic costs during the years: |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Discount rate U.S. |
|
|
5.85 |
% |
|
5.60 |
% |
|
5.75 |
% |
Discount rate Canada |
|
|
5.00 |
% |
|
5.00 |
% |
|
5.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2008 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net actuarial loss |
|
$ |
2,982 |
|
|
|
|
|
|
|
Prior service credit |
|
|
(2,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligations for the U.S. plan was 8.00% for 2007 and 7.00% for 2006. The assumed health care trend rate is 8.00% for 2008 and we assume it will gradually decline to 5.00% by the year 2014 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in the assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
1 % Increase |
|
1 % Decrease |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components |
|
|
508 |
|
|
(445 |
) |
Effect on postretirement benefit obligations |
|
|
7,412 |
|
|
(6,688 |
) |
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Nonpension
|
|
||
|
|
|
|
|
|
||
|
|||||||
For the year ending 12/31/08 |
|
$ |
117,214 |
|
$ |
27,751 |
|
For the year ending 12/31/09 |
|
|
122,219 |
|
|
27,278 |
|
For the year ending 12/31/10 |
|
|
129,055 |
|
|
26,702 |
|
For the year ending 12/31/11 |
|
|
133,439 |
|
|
25,419 |
|
For the year ending 12/31/12 |
|
|
143,849 |
|
|
23,805 |
|
For the years ending 12/31/13-12/31/17 |
|
|
776,294 |
|
|
99,208 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,422,070 |
|
$ |
230,163 |
|
|
|
|
|
|
|
|
|
Postretirement benefit payments represent expected contributions, net of the annual Medicare Part D subsidy of approximately $3.8 million in 2008. Subsidy payments for 2009 2017 range from $4.1 million to $6 million for each year.
14. Restructuring Charges and Asset Impairments
We recorded pre-tax restructuring charges and asset impairments of $264 million in 2007. These charges relate primarily to a program we announced in November 2007 to lower our cost structure, accelerate efforts to improve operational efficiencies, and transition our product line. The program includes charges primarily associated with older equipment that we have stopped selling upon transition to the new generation of fully digital, networked, and remotely-downloadable equipment. The asset impairment charges related to these initiatives include the write-off of inventory ($48.1 million), rental assets ($61.5 million), lease residual values ($46.1 million), and other assets ($8.8 million). The cash portion of the restructuring charges includes employee termination costs ($85.1 million) and other exit costs ($5.8 million) and relates primarily to our efforts to lower our cost structure and accelerate improvements in operational efficiencies. As a result of this program, we expect a net reduction of about 1,500 positions. About half of these reductions will be outside of the U.S. As of December 31, 2007, 401 employees had been terminated under this program. Other exit costs relate primarily to lease termination costs and other costs associated with exiting product lines and business activities. We expect to incur approximately $20 million of
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
additional restructuring charges in 2008 associated with these actions, however, we continue to evaluate additional actions in conjunction with this program. We expect to complete the majority of this program by the end of 2008.
In addition, asset impairments also include the write-down of certain intangible assets for $8.5 million.
The pre-tax restructuring charges and asset impairments are composed of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
Non-cash
|
|
Cash
|
|
Balance
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|||||||||||||
Severance and benefit costs |
|
$ |
85,137 |
|
$ |
|
|
$ |
(3,886 |
) |
$ |
81,251 |
|
Asset impairments |
|
|
173,081 |
|
|
(173,081 |
) |
|
|
|
|
|
|
Other exit costs |
|
|
5,795 |
|
|
|
|
|
|
|
|
5,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
264,013 |
|
$ |
(173,081 |
) |
$ |
(3,886 |
) |
$ |
87,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2003, we undertook restructuring initiatives related to realigned infrastructure requirements and reduced manufacturing needs for digital equipment. In connection with this plan, we recorded pre-tax restructuring charges of $36 million and $54 million for the years ended December 31, 2006 and 2005, respectively. The 2005 charge is net of a $30 million gain on the sale of our main plant manufacturing facility. The activities associated with this program were substantially completed in 2006. During 2007, 2006, and 2005 we made restructuring payments of $29 million, $51 million and $48 million (net of the $30 million gain), respectively. At December 31, 2007, we have a remaining liability associated with this program of $5 million.
See Note 1 to the Consolidated Financial Statements for our accounting policy related to restructuring charges and asset impairments.
15. Commitments, Contingencies and Regulatory Matters
Legal Proceedings
In the ordinary course of business, we are routinely defendants in or party to a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with customers; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, customers or others.
We are a defendant in a patent action brought by Ricoh Company, Ltd. in which there are allegations of infringement against certain of our important mailing products, including the DM Series TM . Ricoh Corporation et al. v. Pitney Bowes Inc. (United States District Court, District of New Jersey, filed November 26, 2002). The plaintiff in this action is seeking both large damage and injunctive relief. We prevailed at the trial held in this matter in the fall of 2006. The jury found the Ricoh patents at issue to be invalid. Even though a finding of invalidity means that the plaintiffs claim must fail, the jury was also required to rule on infringement and found that we infringed the Ricoh patents and did so willfully. As a result of the invalidity finding, we prevailed and no damages were awarded. The matter is currently on appeal to the United States Court of Appeals for the Federal Circuit.
Our wholly-owned subsidiary, Imagitas, Inc., is a defendant in ten purported class actions filed in six different states. These litigations have been consolidated into a single federal multi-district litigation in the United States District for the Middle District of Florida, In re: Imagitas, Drivers Privacy Protection Act (Consolidated, May 28, 2007). Each of these lawsuits alleges that the Imagitas DriverSource program violates the federal Drivers Privacy Protection Act (DPPA). Under the DriverSource program, Imagitas enters 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 assists the state in performing its 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. The plaintiffs have also sued state officials in four of the affected states, Florida, Minnesota, Missouri, and Ohio. Those suits have also been consolidated into the multi-district litigation. The state officials from Florida who were sued in their individual capacity have reached a settlement with the plaintiffs. As a result of that settlement,
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Imagitas has agreed to voluntarily suspend a portion of the program, pending a ruling in the litigation against it. During this period, Imagitas will still be placing advertisements in the registration renewal forms in Florida.
We expect to prevail in both the Ricoh litigation and 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.
16. Guarantees
We apply FIN No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others , to our agreements that contain guarantees or indemnifications. The provisions of FIN 45 require that at the time a company issues a guarantee, it must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantors obligations does not apply to product warranties or to guarantees accounted for as derivatives.
As part of the sale of the Capital Services business in the second quarter of 2006, we indemnified the buyer for certain guarantees by posting letters of credit at the date of sale. At December 31, 2007, the outstanding balance of these guarantees was $8.5 million.
Our maximum risk of loss related to these letters of credit arises from the possible non-performance of lessees to meet the terms of their contracts and from changes in the value of the underlying equipment. These contracts are secured by the underlying equipment value and supported by the creditworthiness of the customer.
We 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 or product warranties based on historical claims experience, which has not been significant, and other currently available evidence. Accordingly, our product warranty liability at December 31, 2007 and 2006, respectively, was not material.
17. Leases
In addition to factory and office facilities owned, we lease similar properties, as well as sales and service offices, equipment and other properties, generally under long-term operating lease agreements extending from 3 to 25 years.
Future minimum lease payments under non-cancelable operating leases at December 31, 2007 are as follows:
|
|
|
|
|
Years ending December 31, |
|
Operating
|
|
|
|
|
|
|
|
2008 |
|
$ |
88,740 |
|
2009 |
|
|
65,504 |
|
2010 |
|
|
47,457 |
|
2011 |
|
|
31,347 |
|
2012 |
|
|
20,664 |
|
Thereafter |
|
|
38,345 |
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
292,057 |
|
|
|
|
|
|
Rental expense was $146.9 million, $138.8 million and $158.4 million in 2007, 2006 and 2005, respectively.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
18. Finance Assets
Finance Receivables
Finance receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from 3 to 5 years and are comprised of sales-type leases and customer loan receivables.
The components of finance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|||||||
Gross finance receivables |
|
$ |
3,587,947 |
|
$ |
3,480,695 |
|
Unguaranteed residual values |
|
|
260,815 |
|
|
281,581 |
|
Unearned income |
|
|
(740,046 |
) |
|
(749,728 |
) |
Initial direct cost deferred |
|
|
1,914 |
|
|
4,174 |
|
Allowance for credit losses |
|
|
(78,371 |
) |
|
(82,499 |
) |
|
|
|
|
|
|
|
|
Net investment in finance receivables |
|
$ |
3,032,259 |
|
$ |
2,934,223 |
|
|
|
|
|
|
|
|
|
Net investment in finance receivables include net customer loan receivables at December 31, 2007 and 2006 of $552.9 million and $524.7 million, respectively. Customer loan receivables arise primarily from financing services offered to our customers for postage, supplies, and shipping payments. Customer loan receivables are generally due each month, however, customers may rollover outstanding balances. See discussion on Pitney Bowes bank below. As part of our 2007 transition initiatives, we recorded a charge of $46.1 million for the impairment of unguaranteed residual values which was included in the restructuring charges and asset impairments line of the Consolidated Statement of Income. Also see Note 14 to the Consolidated Financial Statements for further details.
Maturities of gross finance receivables are as follows:
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2008 |
|
$ |
1,650,947 |
|
2009 |
|
|
798,667 |
|
2010 |
|
|
584,410 |
|
2011 |
|
|
364,901 |
|
2012 |
|
|
170,292 |
|
Thereafter |
|
|
18,730 |
|
|
|
|
|
|
Total |
|
$ |
3,587,947 |
|
|
|
|
|
|
Pitney Bowes Bank
The Pitney Bowes Bank (PBB), our wholly owned subsidiary, is a Utah-chartered Industrial Loan Company (ILC). At December 31, 2007, the Bank had assets of $672 million and liabilities of $617 million. The banks assets consist of finance receivables, short-term investments and cash. PBBs key product offering, Purchase Power, is a revolving credit solution, which enables customers to defer payment for postage when they refill their meter. PBB earns revenue through transaction fees, finance charges on outstanding balances, and other fee items. The banks liabilities consist primarily of PBBs deposit solution, Reserve Account, which provides value to large-volume mailers who prefer to prepay postage. The FDIC and the Utah Department of Financial Institutions provide oversight of PBB.
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Leveraged Leases
Our investment in leveraged lease assets consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|||||||
Rental receivables |
|
$ |
1,889,083 |
|
$ |
1,687,730 |
|
Unguaranteed residual values |
|
|
32,487 |
|
|
28,536 |
|
Principal and interest on non-recourse loans |
|
|
(1,478,555 |
) |
|
(1,326,361 |
) |
Unearned income |
|
|
(193,824 |
) |
|
(174,534 |
) |
|
|
|
|
|
|
|
|
Investment in leveraged leases |
|
|
249,191 |
|
|
215,371 |
|
Less: Deferred taxes related to leveraged leases |
|
|
(117,500 |
) |
|
(90,716 |
) |
|
|
|
|
|
|
|
|
Net investment in leveraged leases |
|
$ |
131,691 |
|
$ |
124,655 |
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2006, we determined the need to adjust the accounting for our remaining leveraged lease transactions. As a result, we recorded a $4.6 million reduction to our opening retained earnings. This reflects the cumulative effect of these adjustments. We also adjusted the related lease assets and liabilities on our Consolidated Balance Sheet. See Note 1 to the Consolidated Financial Statements for further discussion.
The following is a summary of the components of income from leveraged leases. The income amounts in prior years from Capital Services have been reclassified as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
||||||||||
Pre-tax leveraged lease income |
|
$ |
4,270 |
|
$ |
8,019 |
|
$ |
10,897 |
|
Income tax effect |
|
|
1,186 |
|
|
(923 |
) |
|
(3,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income from leveraged leases |
|
$ |
5,456 |
|
$ |
7,096 |
|
$ |
7,083 |
|
|
|
|
|
|
|
|
|
|
|
|
19. Business Segment Information
We conduct our business activities in seven business segments within the Mailstream Solutions and Mailstream Services business groups. For a description of our reportable segments and the types of products and services from which each reportable segment derives its revenue, see Item 1 - Business on page 3. That information is incorporated herein by reference. The information set forth below should be read in conjunction with such information. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, with the exception of the items outlined below.
EBIT is determined by deducting from revenue the related costs and expenses attributable to the segment. Segment EBIT excludes general corporate expenses, restructuring charges, interest expense, other income (expense) and income taxes. Identifiable assets are those used in our operations and exclude cash and cash equivalents, short-term investments and general corporate assets. Long-lived assets exclude finance receivables and investment in leveraged leases.
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Revenue and earnings before interest and taxes (EBIT) by business segment and geographic area follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
||||||||
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
||||||||||
U.S. Mailing |
|
$ |
2,346,431 |
|
$ |
2,350,284 |
|
$ |
2,259,533 |
|
International Mailing |
|
|
1,069,713 |
|
|
1,013,278 |
|
|
917,237 |
|
Production Mail |
|
|
603,038 |
|
|
575,353 |
|
|
533,972 |
|
Software |
|
|
346,020 |
|
|
202,415 |
|
|
174,085 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
4,365,202 |
|
|
4,141,330 |
|
|
3,884,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Management Services |
|
|
1,134,767 |
|
|
1,073,911 |
|
|
1,072,395 |
|
Mail Services |
|
|
458,983 |
|
|
369,765 |
|
|
334,746 |
|
Marketing Services |
|
|
170,843 |
|
|
145,012 |
|
|
74,968 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
1,764,593 |
|
|
1,588,688 |
|
|
1,482,109 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,129,795 |
|
$ |
5,730,018 |
|
$ |
5,366,936 |
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas: |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,394,156 |
|
$ |
4,213,247 |
|
$ |
3,962,819 |
|
Outside the United States |
|
|
1,735,639 |
|
|
1,516,771 |
|
|
1,404,117 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,129,795 |
|
$ |
5,730,018 |
|
$ |
5,366,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
||||||||
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
|
||||||||||
U.S. Mailing |
|
$ |
956,375 |
|
$ |
943,657 |
|
$ |
905,797 |
|
International Mailing |
|
|
162,257 |
|
|
179,377 |
|
|
182,198 |
|
Production Mail |
|
|
73,003 |
|
|
65,574 |
|
|
48,729 |
|
Software |
|
|
55,318 |
|
|
33,343 |
|
|
26,981 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
1,246,953 |
|
|
1,221,951 |
|
|
1,163,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
76,051 |
|
|
83,169 |
|
|
68,936 |
|
Mail Services |
|
|
64,707 |
|
|
42,986 |
|
|
19,776 |
|
Marketing Services |
|
|
8,930 |
|
|
20,056 |
|
|
10,187 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
149,688 |
|
|
146,211 |
|
|
98,899 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,396,641 |
|
$ |
1,368,162 |
|
$ |
1,262,604 |
|
|
|
|
|
|
|
|
|
|
|
|
Geographic areas: |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,194,846 |
|
$ |
1,160,382 |
|
$ |
1,053,186 |
|
Outside the United States |
|
|
201,795 |
|
|
207,780 |
|
|
209,418 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,396,641 |
|
$ |
1,368,162 |
|
$ |
1,262,604 |
|
|
|
|
|
|
|
|
|
|
|
|
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Additional segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Depreciation and amortization: |
|
|
|
|
|
|
|
|||
U.S. Mailing |
|
$ |
158,568 |
|
$ |
150,784 |
|
$ |
141,523 |
|
International Mailing |
|
|
67,192 |
|
|
60,125 |
|
|
58,178 |
|
Production Mail |
|
|
7,809 |
|
|
8,445 |
|
|
5,401 |
|
Software |
|
|
29,147 |
|
|
12,403 |
|
|
11,624 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
262,716 |
|
|
231,757 |
|
|
216,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
65,480 |
|
|
64,507 |
|
|
58,998 |
|
Mail Services |
|
|
27,573 |
|
|
29,620 |
|
|
27,370 |
|
Marketing Services |
|
|
12,662 |
|
|
10,180 |
|
|
5,938 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
105,715 |
|
|
104,307 |
|
|
92,306 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
368,431 |
|
$ |
336,064 |
|
$ |
309,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
92,112 |
|
$ |
142,538 |
|
$ |
138,558 |
|
International Mailing |
|
|
64,241 |
|
|
87,192 |
|
|
70,652 |
|
Production Mail |
|
|
2,223 |
|
|
8,014 |
|
|
8,921 |
|
Software |
|
|
8,967 |
|
|
1,613 |
|
|
979 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
167,543 |
|
|
239,357 |
|
|
219,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
52,540 |
|
|
54,417 |
|
|
47,592 |
|
Mail Services |
|
|
21,431 |
|
|
12,332 |
|
|
16,243 |
|
Marketing Services |
|
|
619 |
|
|
726 |
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
74,590 |
|
|
67,475 |
|
|
64,733 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
242,133 |
|
$ |
306,832 |
|
$ |
283,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
|
||||
|
|
|
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Identifiable assets: |
|
|
|
|
|
|
|
|
|
|
U.S. Mailing |
|
$ |
3,370,420 |
|
$ |
3,391,605 |
|
|
|
|
International Mailing |
|
|
1,993,980 |
|
|
1,847,795 |
|
|
|
|
Production Mail |
|
|
595,599 |
|
|
586,539 |
|
|
|
|
Software |
|
|
1,096,365 |
|
|
526,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Solutions |
|
|
7,056,364 |
|
|
6,352,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
|
962,997 |
|
|
874,448 |
|
|
|
|
Mail Services |
|
|
432,856 |
|
|
419,722 |
|
|
|
|
Marketing Services |
|
|
326,257 |
|
|
281,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mailstream Services |
|
|
1,722,110 |
|
|
1,575,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,778,474 |
|
$ |
7,928,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable long-lived assets by geographic areas: |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,862,738 |
|
$ |
2,645,125 |
|
|
|
|
Outside the United States |
|
|
1,557,125 |
|
|
958,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,419,863 |
|
$ |
3,603,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Reconciliation of Segment Amounts to Consolidated Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|||||||
|
|
|
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
EBIT: |
|
|
|
|
|
|
|
|
|
|
Total EBIT for reportable segments |
|
$ |
1,396,641 |
|
$ |
1,368,162 |
|
$ |
1,262,604 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
|
(241,871 |
) |
|
(212,596 |
) |
|
(187,876 |
) |
Corporate expense |
|
|
(210,544 |
) |
|
(208,099 |
) |
|
(199,410 |
) |
Restructuring charges and asset impairments |
|
|
(264,013 |
) |
|
(35,999 |
) |
|
(53,650 |
) |
Other items |
|
|
(2,576 |
) |
|
3,022 |
|
|
(10,000 |
) |
MapInfo Purchase Accounting |
|
|
(16,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and minority interest |
|
$ |
660,711 |
|
$ |
914,490 |
|
$ |
811,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization for reportable segments |
|
$ |
368,431 |
|
$ |
336,064 |
|
$ |
309,032 |
|
Corporate depreciation |
|
|
14,710 |
|
|
15,216 |
|
|
14,821 |
|
Discontinued operations |
|
|
|
|
|
11,978 |
|
|
8,110 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization |
|
$ |
383,141 |
|
$ |
363,258 |
|
$ |
331,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
Total additions for reportable segments |
|
$ |
242,133 |
|
$ |
306,832 |
|
$ |
283,843 |
|
Unallocated amounts |
|
|
22,523 |
|
|
21,045 |
|
|
7,707 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures |
|
$ |
264,656 |
|
$ |
327,877 |
|
$ |
291,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
||||
|
|
|
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Total assets: |
|
|
|
|
|
|
|
|
|
|
Total identifiable assets by reportable segments |
|
$ |
8,778,474 |
|
$ |
7,928,437 |
|
|
|
|
Cash and cash equivalents and short-term investments |
|
|
440,455 |
|
|
301,614 |
|
|
|
|
General corporate assets |
|
|
331,014 |
|
|
378,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets |
|
$ |
9,549,943 |
|
$ |
8,608,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash, Cash Equivalents, Short-term
Investments, Accounts Receivable, Accounts Payable and Notes Payable
The carrying amounts approximate fair value because of
the short maturity of these instruments.
Investment Securities
The fair value of investment securities is estimated
based on quoted market prices, dealer quotes and other estimates.
Loans Receivable
The fair value of loans receivable is estimated based
on quoted market prices, dealer quotes or by discounting the future cash flows
using current interest rates at which similar loans would be made to borrowers
with similar credit ratings and similar remaining maturities.
Long-term Debt
The fair value of long-term debt is estimated based on
quoted dealer prices for the same or similar issues.
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
Interest Rate Swap Agreements and Foreign Currency Exchange
Contracts
The fair values of interest rate swaps and foreign currency
exchange contracts are obtained from dealer quotes. These values represent the
estimated amount we would receive or pay to terminate agreements, taking into
consideration current interest rates, the creditworthiness of the counterparties
and current foreign currency exchange rates.
The estimated fair value of our financial instruments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Carrying
|
|
Fair value |
|
Carrying
|
|
Fair value |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Investment securities |
|
$ |
200,006 |
|
$ |
200,005 |
|
$ |
142,217 |
|
$ |
142,217 |
|
Loans receivable |
|
$ |
554,370 |
|
$ |
554,370 |
|
$ |
524,717 |
|
$ |
524,717 |
|
Long-term debt |
|
$ |
(3,848,359 |
) |
$ |
(3,722,209 |
) |
$ |
(3,905,634 |
) |
$ |
(3,796,270 |
) |
Interest rate swaps |
|
$ |
7,635 |
|
$ |
7,635 |
|
$ |
(7,543 |
) |
$ |
(7,543 |
) |
Foreign currency exchange contracts |
|
$ |
(12 |
) |
$ |
(12 |
) |
$ |
(8,468 |
) |
$ |
(8,468 |
) |
(1) Carrying value includes accrued interest and deferred fee income, where applicable.
21. Earnings per Share
A reconciliation of the basic and diluted earnings per share computations for income from continuing operations for the years ended December 31, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|||||||
|
|
|
|
|||||||
|
|
Income |
|
Shares |
|
Per Share |
|
|||
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
361,247 |
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
Preference stock dividends |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
361,166 |
|
|
218,444,268 |
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
361,166 |
|
|
218,444,268 |
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
3,272 |
|
|
|
|
Preference stock |
|
|
81 |
|
|
637,877 |
|
|
|
|
Stock options |
|
|
|
|
|
1,971,010 |
|
|
|
|
Other |
|
|
|
|
|
163,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
361,247 |
|
|
221,219,746 |
|
$ |
1.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
1.65 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
1.63 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
79
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|||||||
|
|
|
|
|||||||
|
|
Income |
|
Shares |
|
Per Share |
|
|||
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
565,659 |
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(1 |
) |
|
|
|
|
|
|
Preference stock dividends |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
565,572 |
|
|
222,473,514 |
|
$ |
2.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
565,572 |
|
|
222,473,514 |
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
1 |
|
|
6,815 |
|
|
|
|
Preference stock |
|
|
86 |
|
|
682,934 |
|
|
|
|
Stock options |
|
|
|
|
|
2,093,517 |
|
|
|
|
Other |
|
|
|
|
|
186,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
565,659 |
|
|
225,443,060 |
|
$ |
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
2.54 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
(2.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
2.51 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
(2.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|||||||
|
|
|
|
|||||||
|
|
Income |
|
Shares |
|
Per Share |
|
|||
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
473,243 |
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(1 |
) |
|
|
|
|
|
|
Preference stock dividends |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
473,149 |
|
|
228,833,070 |
|
$ |
2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
473,149 |
|
|
228,833,070 |
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
1 |
|
|
8,307 |
|
|
|
|
Preference stock |
|
|
93 |
|
|
732,276 |
|
|
|
|
Stock options |
|
|
|
|
|
2,381,656 |
|
|
|
|
Other |
|
|
|
|
|
133,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
473,243 |
|
|
232,089,178 |
|
$ |
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
2.07 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
$ |
2.04 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
$ |
2.19 |
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 128, Earnings per Share , 0.5 million, 0.8 million and 1.5 million common stock equivalent shares in 2007, 2006 and 2005, respectively, issuable upon the exercise of stock options were excluded from the above computations because the exercise prices of such options were greater than the average market price of the common stock, and therefore the impact of these shares was anti-dilutive.
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
22. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 2007 and 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Full Year |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenue |
|
$ |
1,414,237 |
|
$ |
1,543,034 |
|
$ |
1,508,277 |
|
$ |
1,664,247 |
|
$ |
6,129,795 |
|
Gross profit (1) |
|
|
756,734 |
|
|
837,725 |
|
|
799,143 |
|
|
865,438 |
|
|
3,259,040 |
|
Restructuring charges and asset impairments |
|
|
|
|
|
|
|
|
4,300 |
|
|
259,713 |
|
|
264,013 |
|
Income (loss) from continuing operations |
|
|
146,584 |
|
|
153,581 |
|
|
129,240 |
|
|
(68,158 |
) |
|
361,247 |
|
Income (loss) from discontinued operations |
|
|
(1,788 |
) |
|
(1,342 |
) |
|
(1,565 |
) |
|
10,229 |
|
|
5,534 |
|
Net income (loss) |
|
|
144,796 |
|
|
152,239 |
|
|
127,675 |
|
|
(57,929 |
) |
|
366,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.67 |
|
$ |
0.70 |
|
$ |
0.59 |
|
$ |
(0.32 |
) |
$ |
1.65 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
0.05 |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.66 |
|
$ |
0.69 |
|
$ |
0.58 |
|
$ |
(0.27 |
) |
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.66 |
|
$ |
0.69 |
|
$ |
0.58 |
|
$ |
(0.31 |
) |
$ |
1.63 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
0.05 |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.65 |
|
$ |
0.68 |
|
$ |
0.58 |
|
$ |
(0.26 |
) |
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Full Year |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenue |
|
$ |
1,361,646 |
|
$ |
1,389,210 |
|
$ |
1,433,331 |
|
$ |
1,545,831 |
|
$ |
5,730,018 |
|
Gross profit (1) |
|
|
731,720 |
|
|
754,195 |
|
|
769,497 |
|
|
834,279 |
|
|
3,089,691 |
|
Restructuring charges |
|
|
5,597 |
|
|
5,041 |
|
|
6,771 |
|
|
18,590 |
|
|
35,999 |
|
Income from continuing operations |
|
|
136,859 |
|
|
121,252 |
|
|
144,227 |
|
|
163,321 |
|
|
565,659 |
|
(Loss) income from discontinued operations |
|
|
16,669 |
|
|
(477,326 |
) |
|
4,393 |
|
|
(4,048 |
) |
|
(460,312 |
) |
Net income (loss) |
|
|
153,528 |
|
|
(356,074 |
) |
|
148,620 |
|
|
159,273 |
|
|
105,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.61 |
|
$ |
0.55 |
|
$ |
0.65 |
|
$ |
0.74 |
|
$ |
2.54 |
|
Discontinued operations |
|
|
0.07 |
|
|
(2.15 |
) |
|
0.02 |
|
|
(0.02 |
) |
|
(2.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.68 |
|
$ |
(1.61 |
) |
$ |
0.67 |
|
$ |
0.72 |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.60 |
|
$ |
0.54 |
|
$ |
0.64 |
|
$ |
0.73 |
|
$ |
2.51 |
|
Discontinued operations |
|
|
0.07 |
|
|
(2.13 |
) |
|
0.02 |
|
|
(0.02 |
) |
|
(2.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.67 |
|
$ |
(1.59 |
) |
$ |
0.66 |
|
$ |
0.71 |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Gross profit is defined as total revenue less cost of equipment sales, cost of supplies, cost of software, cost of rentals, cost of support services and cost of business services.
The sum of the quarters and earnings per share amounts may not equal the annual and total amounts due to rounding.
81
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2005 TO 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Balance at
|
|
Additions |
|
Deductions |
|
Balance at
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
50,052 |
|
$ |
19,880 |
(1) |
$ |
(20,608 |
) (2) |
$ |
49,324 |
|
2006 |
|
$ |
46,261 |
|
$ |
27,718 |
(1) |
$ |
(23,927 |
) (2) |
$ |
50,052 |
|
2005 |
|
$ |
50,254 |
|
$ |
8,707 |
(1) |
$ |
(12,700 |
) (2) |
$ |
46,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
82,499 |
|
$ |
44,440 |
|
$ |
(48,568 |
) (2) |
$ |
78,371 |
|
2006 |
|
$ |
128,862 |
|
$ |
39,432 |
|
$ |
(85,795 |
) (2) |
$ |
82,499 |
|
2005 |
|
$ |
173,032 |
|
$ |
51,566 |
|
$ |
(95,736 |
) (2) |
$ |
128,862 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax asset (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
33,563 |
|
$ |
64,487 |
|
$ |
(28,258 |
) |
$ |
69,792 |
|
2006 |
|
$ |
21,777 |
|
$ |
13,583 |
|
$ |
(1,797 |
) |
$ |
33,563 |
|
2005 |
|
$ |
18,427 |
|
$ |
7,641 |
|
$ |
(4,291 |
) |
$ |
21,777 |
|
|
|
(1) Includes additions charged to expenses, additions from acquisitions and impact of foreign exchange translation. |
|
|
|
(2) Includes uncollectible accounts written off and amounts included in divestitures. |
|
|
|
(3) Includes $41,104 related to the Imagistics lease portfolio and Capital Services, which were sold in 2006. |
|
|
|
(4) Included in Consolidated Balance Sheet as a liability. |
82
|
|
|
EXHIBIT (i)-(10)(e) |
PITNEY BOWES SEVERANCE PAY PLAN
As Amended and Restated Effective January 1, 2008
I. PURPOSE
The purpose of the Pitney Bowes Severance Pay Plan is to provide income to Employees who are involuntarily terminated by the Company for certain reasons. The provisions of this Plan generally do not apply in the case of an Employees voluntary termination. However, the Plan contains provisions providing certain benefits to Employees who resign under specified circumstances following a Change of Control.
II. DEFINITIONS
|
|
|
A. |
Board means the board of directors of Pitney Bowes Inc. |
|
|
|
|
B. |
Cause means with respect to the Company, embezzlement, malfeasance, commission of a felony, the non-performance of ones job or duties as determined by the Company in its sole discretion and acts of moral turpitude. |
|
|
|
|
C. |
Change of Control means the following where: |
|
|
|
|
|
|
(i) there is an acquisition, in any one transaction or a series of transactions, other than from Pitney Bowes Inc., by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of Pitney Bowes Inc. entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by Pitney Bowes Inc. or any of its subsidiaries, or any employee benefit plan (or related trust) of Pitney Bowes Inc. or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owed, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, of the common stock and voting securities of Pitney Bowes Inc. immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of Pitney Bowes Inc. entitled to vote generally in the election of directors, as the case may be; or |
|
|
|
|
|
(ii) individuals who, as of the date this Plan has been restated, constitute the Board (as of such date, the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date this Plan has been restated, whose election, or nomination for election by Pitney Bowes shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Pitney Bowes Inc. (as such terms are used in Rule 14(a)(11) or Regulation 14A promulgated under the Exchange Act); or |
|
|
|
|
|
(iii) there occurs either (A) the consummation of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of Pitney Bowes Inc. immediately prior to such reorganization, merger, consolidation or sale or other disposition do not, following such reorganization, merger, consolidation or sale or other disposition, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or sale or other disposition, or (B) an approval by the shareholders of Pitney Bowes Inc. of a complete liquidation or dissolution of Pitney Bowes Inc. or of the sale or other disposition of all or substantially all of the assets of Pitney Bowes Inc. |
|
|
|
D. |
Committee means the Employee Benefits Committee established by the Company. |
|
|
|
|
E. |
Company means Pitney Bowes Inc. (and any successor entity) |
83
|
|
|
|
F. |
Contract Employee means an employee who is employed by the Company pursuant to a written agreement and who is employed only for the duration of a particular project. |
||
|
|
||
G. |
DSR Employees means employees who function at the district level and whose job responsibilities are primarily limited to inspection, maintenance, delivery and pickup of meters, collection of customer accounts payable, and maintenance of the metered mail system under statutory requirements. |
||
|
|
||
H. |
Employee means any Employee on the U.S. payroll who is employed by the Company or any wholly-owned, fully-integrated subsidiary which is on the Pitney Bowes Inc. SAP information system, other than Contract Employees, Leased Employees, DSR Employees, PB Credit Union Employees, Temporary Employees, Part-Time Employees and independent contractors. |
||
|
|
||
|
For purposes of determining an individuals eligibility to participate in the plan, an individual who is an independent contractor and is reclassified by the Company, any governmental agency or a court as an employee for any purpose, including for purposes of employment taxes and wage withholding for Federal income taxes, shall not be eligible for participation in the Plan for the period during which such individual was an independent contractor. Subsequent participation in the Plan by a reclassified employee shall be based on eligibility requirements under the Plan then applicable to the employee. |
||
|
|
||
I. |
ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
||
|
|
||
J. |
Leased Employees means any individuals who meet the definition of leased employee in Section 414(n) of the Internal Revenue Code, as amended and related regulations. |
||
|
|
||
K. |
Part-Time Employees means employees who regularly work less than 30 hours per week. |
||
|
|
||
L. |
Participant means any Employee who is covered by the Plan. |
||
|
|
||
M. |
Pay means the base rate of pay (including shift premium, where applicable) that is effective on the last working day of employment. For sales representatives, Pay will be the earnings paid to the Employee during the preceding 12 months. The following items will not be considered Pay: overtime, profit sharing, compensation in lieu of vacation, suggestion awards, special awards and prizes, adoption payments, severance payments, relocation payments, referral payments, tuition reimbursements, year-end override bonus, performance-based compensation such as a payment under the Pitney Bowes Incentive Plan, sales representatives vacation pay and cash incentive unit awards. |
||
|
|
||
N. |
PB Credit Union Employee means an employee of the Pitney Bowes Credit Union. |
||
|
|
||
O. |
Pitney Bowes means Pitney Bowes Inc. |
||
|
|
||
P. |
Plan means the Pitney Bowes Severance Pay Plan effective as of January 1, 2008, as amended and restated from time to time. |
||
|
|
||
Q. |
Temporary Employees means an employee whose employment with the Company is intended to be for a period not to exceed 12 months and whose work activity consists of short-term projects other than as a Contract Employee. |
||
|
|
||
R. |
Years of Service means completed years and months of service with the Company based on the period of service beginning with the Employees employment date (the date he or she first performs an hour of service as an Employee) to his or her termination date. The Employee shall continue to accrue Years of Service during approved leaves of absence, military service absences, paid holidays, paid vacations, temporary absences due to illness or injury, disability, or any other reason, if service is customarily accrued for purposes of the Pitney Bowes Pension Plan or the retirement plan of the Companys subsidiary for which the Employee works. In case of reemployment, subsequent termination pay entitlement will be based upon credited service beginning on the date of rehire. |
III. ELIGIBLITY
|
|
|
|
A. |
Eligibility . Each Employee shall be entitled to severance pay under the Plan payable in accordance with the applicable severance benefit formula set forth in Section IV, provided his or her employment is terminated by the Company for any one of the following reasons: |
||
|
|
|
|
|
1. |
The full or partial shutdown of a business or a facility or department. |
84
|
|
|
|
|
2. |
The sale of all or part of a business of the Company by means of a sale of assets or stock, or any form of merger, spinoff or reorganization, including outsourcing of a business or function. |
|
|
|
|
|
|
3. |
The elimination of the Employees job or the consolidation or restructuring of his or her job functions on account of reorganization. |
|
|
|
|
|
|
4. |
Employment termination within two years after a Change of Control of the Company. |
|
|
|
|
|
|
5. |
In other circumstances deemed appropriate by the Company in its sole discretion from time to time, subject to Section III.C. hereof. |
|
|
|
||
B. |
Exception . Notwithstanding any other provision hereunder, an Employee shall not be eligible for severance pay hereunder if: |
||
|
|
|
|
|
1. |
Prior to or within 30 days of termination of employment other than for reasons set forth in Section III.A.2. he or she is offered a comparable job with the Company or one of its subsidiaries and affiliates, except that an offer of continued employment or reemployment after a Change of Control shall be subject to the limitations set forth in Section IV.E. herein; |
|
|
|
|
|
|
2. |
The Employee is terminated for Cause. |
|
|
|
|
|
|
3. |
In the case of an Employee of an Affected Business (Affected Business for purposes of this Section shall mean (a) Pitney Bowes Management Services, Inc. (PBMS), or other company owned by Pitney Bowes or PBMS that is in the same business as PBMS or (b) Pitney Bowes Inc. Document Messaging Technology Division or any successor to that business division), no severance payments under the Plan shall be made to such Employee where |
|
|
|
|
|
|
|
a) |
the Employees termination from the Affected Business is on account of the termination of the business relationship between the Affected Business and its customer for whom the terminated Employee performs services, and |
|
|
|
|
|
|
b) |
within 30 days of the termination of the business relationship between the Affected Business and the customer, the Employee either receives an offer of comparable employment from such customer or the third party business entity that has taken over the business from the Affected Business or is employed by such customer or third party business entity. |
|
|
|
|
|
4. |
Within 30 days of termination of employment with the Company or its subsidiaries or affiliates, the Employee is either offered a comparable job or accepts a position offered by a purchaser, joint venturer, affiliate, transferee, spun-off entity, successor in interest (including without limitation one resulting from a merger or reorganization) of the Company or any of its subsidiaries or affiliates or other entity acquiring the stock or the assets of the Company or any of its subsidiaries or affiliates, including without limitation, an outsourcing company taking over a function or portion of the business of the Company or its subsidiaries or affiliates. |
|
|
|
||
|
A comparable job for purposes of this Section III shall mean a job that pays at least 90% of the Employees base salary or straight time hourly rate immediately prior to the offer of employment and the location of which is within 35 miles from the Employees prior primary worksite. The Committee shall determine the primary worksite where the Employee does not report to any one work location on a regular basis. An offer of continued employment or reemployment after a Change of Control shall be subject to the limitations set forth in Section IV.E. herein. The Committees determination as to whether a job is comparable shall be made in the Committees sole and absolute discretion and shall be final and binding on all parties. |
||
|
|
||
C. |
Release . Notwithstanding any other provision hereunder to the contrary, any additional discretionary payments made pursuant to Section III.A.5. and Section IV.A. may at the Companys discretion be conditioned on the Employees signing a waiver or release of claims to the satisfaction of the company. |
||
|
|
||
D. |
Danka Business Systems. Notwithstanding anything to the contrary, an Employee who was hired by Pitney Bowes or any of its subsidiaries or affiliates in connection with the acquisition of certain assets and liabilities of Danka Business Systems shall be required pursuant to the purchase agreement between the parties dated April 8, 2001 to execute a release of claims agreement under such terms and conditions as Pitney Bowes or any of its subsidiaries or affiliates, in its discretion, may determine as a prerequisite to entitlement to severance pay under the Plan. |
85
IV. PAYMENT FORMULA
|
|
|
A. |
Base Formula . Pursuant to Section III.A., the Company shall pay a minimum of one week of Pay for each completed full Year of Service (and half week of Pay for each completed half Year of Service), with a minimum of two weeks of Pay (hereinafter, this is referred to as the Minimum Payment). In addition, subject to Section III.C., the Company reserves the right to pay additional amounts to Employees, but the Company may exercise its discretion to pay no additional amount at all. |
|
|
|
|
|
Notwithstanding the foregoing formula, the Company reserves the right to make discretionary severance payments as business conditions warrant in lieu of payments based on the normal severance benefit formula described herein. |
|
|
|
|
B. |
Change of Control Exception . If any Employee employed by the Company as of the date of a Change of Control resigns for any Good Reason set forth in Section IV.E. hereof and is then not subject to termination of employment by the Company for Cause or, if any Employee is terminated by the Company for the reasons set forth in Section III.A. (and the exception under Section III.B. is not applicable for this purpose) within two years after a Change of Control occurs whether or not such termination is in connection with such Change of Control (Change of Control Termination), such Employee shall be entitled to severance pay in accordance with the following: |
|
|
|
|
|
1. |
For non-exempt Employees, two weeks of Pay for each completed full or partial Year of Service, with a minimum of four weeks. |
|
|
|
|
2. |
For exempt Employees below compensation Band F, three weeks of Pay for each completed full or partial Year of Service, with a minimum of three months. |
|
|
|
|
3. |
For Employees in compensation bands F or G, four weeks of Pay for each full or partial Year of Service, with a minimum of six months. |
|
|
|
|
Employees in compensation Bands H, I and J are not eligible for Change of Control severance benefits under this Plan. |
|
|
|
|
C. |
Applicability of Change of Control. Change of Control provisions only apply if Pitney Bowes Inc. incurs a Change of Control. Such provisions do not apply to employees of a Pitney Bowes subsidiary if that subsidiary or affiliated company undergoes a change of control. |
|
|
|
|
D. |
Maximum Severance Benefit. Notwithstanding anything to the contrary, the maximum severance pay benefit payable hereunder to any Employee shall be an amount equal to two years of Pay. |
|
|
|
|
E. |
Change of Control Termination. A Change of Control Termination shall include termination of the Employees employment by the Employee for the following Good Reasons: |
|
|
|
|
|
1. |
The assignment to an Employee of any duties inconsistent in any respect with the Employees position, authority, duties or responsibilities as existed on the day immediately prior to the Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties, or responsibilities, excluding for this purpose an isolated, insubstantial, and inadvertent action taken in good faith and remedied by the Company or subsidiary, as applicable, promptly after receipt of notice thereof given by the Employee; |
|
|
|
|
2. |
Any failure by the Company following a Change of Control to continue to provide the Employee with Pay, benefits, or other compensation equal to or greater than that to which such Employee was entitled immediately prior to the date of the Change of Control, other than an isolated, insubstantial, and inadvertent failure occurring in good faith and remedied by the Company promptly after receipt of notice thereof given by the Employee; |
|
|
|
|
3. |
The Companys requiring the Employee after a Change in Control to be based at any office or location more than 35 miles farther from the Employees place of residence or the office or location at which the Employee is employed immediately prior to the date of the Change of Control; or |
|
|
|
|
4. |
Any failure by Pitney Bowes Inc. to require any successor company who acquires all or substantially all of the business and/or assets of Pitney Bowes Inc. (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform the Companys obligations under the Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. |
|
|
|
|
|
For purposes of subparagraphs 1 through 4 of Section IV, any good faith determination made by an affected Employee shall be conclusive. |
86
|
|
F. |
Notice of Termination . As a condition of receiving any severance pay hereunder in connection with a Change of Control Termination, any termination by the Employee shall be communicated by a Notice of Termination to the Company. Any Notice of Termination shall be by written instrument which (i) indicates the specific termination provision in paragraph E above relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the date of termination is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice). The failure by any Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of entitlement to, terminate under subparagraphs 1 through 4 of paragraph E above shall not waive any right of such Employee or preclude such Employee from asserting such fact or circumstance in enforcing his rights. |
|
|
G. |
Cure Period . Notwithstanding the foregoing, a termination of employment for Good Reason under Section IV. E. shall not occur if, within 30 days after the date the Employee gives a Notice of Termination to the Company after a Change of Control, the Company corrects the action or failure to act that constitutes the grounds for termination for Good Reason as described in Section IV.E. and as set forth in the Employees Notice of Termination. If the Company does not correct the action or failure to act, the Employee must terminate his or her employment for Good Reason within 60 days after the end of the cure period, in order for the termination to be considered a Good Reason termination. |
|
|
H. |
Excise Tax - Additional Payments . In the event it shall be determined that compensatory payments made to the Employee, including severance pay benefits under this Plan and other compensatory payments within the meaning of Internal Revenue Code (Code) Section 280G(b)(2), would be subject to an excise tax under Code Section 4999, the Employee shall be entitled to receive an additional payment (a Additional Payment) in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and excise tax imposed upon the Additional Payment, the Employee retains an amount equal to the excise tax imposed upon the payments made to the Employee. Notwithstanding the foregoing provisions, if it shall be determined that the Employee is entitled to an Additional Payment, but that the compensatory payments made to the Employee giving rise to the excise tax do not exceed 110% of the amount the Employee may receive without giving rise to an excise tax under Code Section 4999, then no Additional Payment shall be made to the Employee and the severance pay benefits made under this Plan shall be reduced to (but not below zero) to the point where the severance pay benefits would not be subject to the excise tax imposed by Code Section 4999. This shall be determined in such a manner as to maximize the value of all severance pay benefits actually made to the Employee. Determinations made under this paragraph H, shall be made by an independent accounting firm retained by the Company before the Change of Control and whose fees are borne by the Company. The Employee shall fully cooperate with the Company regarding any tax assessment made hereunder, including without limitation, giving timely notices to the Company and allowing the Company to contest any such assessments. This paragraph shall be administered similarly to the manner in which Section Eight of the Pitney Bowes Senior Executive Severance Policy is administered. The Additional Payment described in this paragraph shall be paid in any event not later than the date on which the related taxes are remitted to the relevant tax authorities. |
|
|
I. |
Other Severance and Severance type Payments . Any severance pay benefits otherwise payable under this Plan, shall be reduced by amounts paid or payable under a severance pay arrangement or agreement between Pitney Bowes (including such company that Pitney Bowes has acquired, divested, reorganized, merged into or spun-off) and the Employee. In addition, any severance pay benefits made hereunder shall be reduced by the amount of statutory severance benefits paid to an Employee if Pitney Bowes had contributed to the fund or statutory scheme under which benefits are paid. |
V. FORMS OF PAYMENT
With respect to Employees in compensation Bands A, B, C, D and E severance shall be fully paid in the same calendar year of the termination date. With respect to Employees in compensation Bands F and above, severance shall be paid in a stream of payments on normal paydays following the termination date at the salary rate in effect on the termination date, however, in no event shall the payment schedule extend over a period of more than two years from the date of termination from employment.
Notwithstanding the above, severance payable as a result of a termination of employment occurring within two years after a Change of Control shall be paid either: (a) in a single lump sum payment within fifteen (15) days following the termination of employment or (b) in a stream of payments payable on regular pay periods following the termination of employment only if the Change of Control event does not meet the definition of change of control under IRC Section 409A and if required to be paid in that fashion by IRC Section 409A to avoid the additional tax imposed by IRC Section 409A.
87
VI. DEATH
If an Employee dies during a period of severance payment hereunder, any remaining severance pay that would otherwise be payable if the Employee had not died shall be paid to the Employees estate. No severance benefits not otherwise payable hereunder shall be payable under this Plan by reason of the Employees death.
VII. CLAIM PROCEDURE
|
|
A. |
Administrative Review. If an Employee makes a written request alleging a right to receive payments under this Plan or alleging a right to receive an adjustment in benefits being paid under this Plan, such actions shall be treated as a claim for benefits. All claims for benefits under this Plan shall be administered by the Vice President of Workforce Relations or, if delegated, to such human resources director or appropriate administrator at the Employees business unit (Administrator). If the Administrator determines that any individual who has claimed a right to receive benefits, or different benefits, under this Plan is not entitled to receive all or any part of the benefits claimed, the Administrator shall inform the claimant in writing of such determination and the reasons therefore in terms calculated to be understood by the claimant. The notice shall be sent within 90 days of the claim unless the Administrator determines that additional time, not exceeding 90 days, is needed. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and shall describe any additional material or information that is necessary. Such notice shall, in addition, inform the claimant of the procedure that the claimant should follow to take advantage of the review procedure set forth below in the event the claimant desires to contest the denial of the claim. If the Employee is not notified within the 90 day period specified herein, he or she may assume the claim has been denied. |
|
|
B. |
Appeal to the Committee. The claimant may within 90 days thereafter submit in writing to the Committee a notice that the claimant contests the denial of his or her claims and desires a further review by the Committee. The Committee shall within 60 days thereafter review the claim. The Committee will render a final decision on behalf of the Company with specific reasons therefore in writing and will transmit it to the claimant within 60 days of the written request for review, unless it is determined that additional time, not exceeding 60 days, is needed, and so notifies the Employee. If the Committee fails to respond to a claim filed in accordance with the foregoing within 60 days or any such extended period, the Company shall be deemed to have denied the claim. |
|
|
C. |
Reimbursement of Claimants Expenses. If, after a Change of Control, an Employee institutes any legal action seeking to obtain or enforce, or is required to defend in any legal action the validity or enforceability of, any right or benefit provided by this Plan, the Company will pay for all actual legal fees and expenses incurred (as incurred) by such Employee, regardless of the outcome of such action and whether such action is between the Company and the Participant or between either of them and any third party. |
VIII. AMENDMENT AND TERMINATION
|
|
A. |
This Plan is established by the Company on a voluntary basis and not on past consideration for services rendered, and the benefits herein are provided at the will of the Company. Neither the establishment of this Plan nor the payment of benefits by the Company shall be construed or interpreted as a condition of employment, nor shall this Plan modify or enlarge any rights of any person covered by it to be continued or to be retained in the employ of the Company. |
|
|
B. |
Prior to the time a Change of Control has occurred, the Company may, in its sole discretion, without notice, amend or modify, in whole or in part, all of the terms and conditions of this Plan; provided, however, that this Plan may not be so amended or modified in connection with an actual or threatened Change of Control in any manner which would adversely affect the interests of Employees. Such amendment or modification may be retroactive in application; provided, however, such retroactive application shall not require or provide for the return or repayment of any benefits paid prior to the date of the adoption of the amendment or modification. |
|
|
C. |
Prior to the time a Change of Control has occurred, the Company shall have the sole and absolute right to terminate this Plan without notice at any time; provided, however, that this Plan may not be so terminated in connection with an actual or threatened Change of Control. Such termination shall be effective as of the date specified by the Company and, if no date is specified, the date of the action of termination by the Company. Upon termination, the Company will continue to make payments according to the terms of any effective terminated pay agreements, which have not been fully paid. |
|
|
D. |
When a Change of Control, as defined herein, occurs, then all rights to severance payments contained herein shall vest in all covered Employees and shall be considered a contract right enforceable against the Company and any successors thereto. |
88
IX. PLAN ADMINSTRATON
|
|
|
A. |
The Committee shall be authorized to adopt administrative rules and procedures concerning the Plan or delegate to the business units such authority and any such rules and procedures shall be binding upon Participants. |
|
|
|
|
B. |
All expenses reasonably incurred in the administration of the Plan shall be paid by the Company. |
|
|
|
|
C. |
The determination or action of the Committee with respect to any question arising out of or in connection with the administration of the Plan shall, to the extent not inconsistent with the provisions of the Plan, be final, conclusive, and binding upon all persons having an interest in the Plan. |
|
|
|
|
D. |
The Committee shall have the following powers and duties concerning the Plan: |
|
|
|
|
|
1. |
to interpret and construe the terms and provisions of the Plan, to apply such terms and provisions as the Committee may exclusively determine, to determine questions of eligibility and of the status and rights of Participants; |
|
|
|
|
2. |
to make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; |
|
|
|
|
3. |
to delegate to the business units at Pitney Bowes such powers and duties to enable them to administer the Plan. |
|
|
|
E. |
The Committee shall be the Plan Administrator of the Plan for purposes of ERISA. However, the Committee has delegated to the appropriate Human Resources professionals in the business units the day-to-day, on-going administrative responsibilities of the Plan. In addition, the Committee has delegated to the Human Resources professionals administrative responsibility regarding employee eligibility for the Plan. It is intended that Human Resources administrators in the business units shall have no discretion such that these individuals performing services in these business units with respect to the Plan would not be considered to be fiduciaries within the meaning of Section (3)(21) of ERISA. |
|
|
|
|
F. |
All fiduciaries shall discharge their duties with respect to the Plan solely in the interest of the Employees and for the exclusive purpose of providing benefits to Employees and of defraying reasonable expenses of administering the Plan, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Company shall purchase and maintain liability insurance (which insurance shall not permit recourse against the insured parties), with scope of coverage and limits of liability sufficient to protect the fiduciaries from monetary liability for any breach of their responsibilities not resulting from their own gross negligence or willful misconduct. |
X. MISCELLANEOUS
|
|
A. |
Benefits under the Plan are not in any way subject to the debts or other obligations of the persons entitled thereto and may not be voluntarily or involuntarily sold, transferred, hypothecated, pledged or assigned. When any person entitled to benefits under the Plan is under a legal disability, or in the opinion of the Committee is in any way incapacitated so as to be unable to manage his or her affairs, the Committee may cause such persons benefits to be paid to or for the benefit of such person in any manner that the Committee may determine without responsibility of the Committee or the Company. Payments made pursuant to such power shall operate as a complete discharge of the obligation under the Plan to make such payments. Payments hereunder are, however, subject to all applicable withholding taxes. |
|
|
B. |
The headings of the section in this Plan are placed herein for convenience of reference and, in the case of any conflict, the text of the Plan, rather than such headings, shall control. |
|
|
C. |
The masculine or feminine pronoun used herein refers to both men and women and, used in singular, is intended to include the plural, whenever appropriate. |
|
|
D. |
To the extent not inconsistent with ERISA, the provisions of this Plan shall be construed in accordance with the laws of the State of Connecticut other than its choice of law rules. |
|
|
E. |
In the event a person receives a benefit payment under the Plan which is in excess of the benefit payment that should have been made, the Committee shall have the right to recover the amount of such excess from such person. The Committee may at its option, deduct the amount of such excess from any subsequent benefits payable under the Plan to, or for, the person. |
89
|
|
F. |
Any action required or permitted to be taken under the Plan by the Company may be taken by such individual, Committee or entity as the Company may designate from time to time. |
|
|
G. |
No payment may be made under this Plan that would cause it to be a pension plan as distinguished from a welfare plan under the Employees Retirement Income Security Act of 1974 and the Department of Labor Regulations 29 C.F.R. 2510.3-2(b) and successor regulations. |
|
|
H. |
This Plan shall have no effect on the Employees eligibility for other benefits customarily provided after termination unless otherwise stated in a written agreement executed by an authorized representative of the Company or in the applicable employee benefit plan document. The payments of benefits under this Plan shall not be deemed to be a continuation of employment. |
|
|
I. |
This Plan is intended to be an unfunded plan. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. |
|
|
J. |
Code Section 409A . If and to the extent that Code Section 409A applies to amounts payable under the Plan, distributions may only be made under the Plan upon an event and in a manner permitted by Section 409A. To the extent that any provision of the Plan would cause a conflict with any applicable requirements of Section 409A, or would cause the administration of the Plan to fail to satisfy the applicable requirements of Section 409A, such provision shall be deemed null and void. |
|
|
|
This Agreement is intended to comply with Code Section 409A and its corresponding regulations, or an exemption, to the extent applicable. Notwithstanding anything in the Plan to the contrary, if Code Section 409A applies to the Plan and if an Employee is a specified employee, as defined in Code Section 409A, payment of benefits under this Plan upon termination of employment shall be postponed for six months after termination of employment if required in order to avoid adverse taxation under Code Section 409A. If payment of benefits under the Plan is required to be postponed pursuant to Code Section 409A, the accumulated amounts withheld on account of Code Section 409A shall be paid in a lump sum payment within five days after the end of the required postponement period along with interest at the Applicable Federal Rate (short-term) on the unpaid balance for the postponement period. If the Employee dies during such postponement period prior to the payment of benefits, the amounts withheld on account of Code Section 409A shall be paid to the Employees beneficiary determined under Section VI. |
|
|
|
As used in this Plan, the term termination of employment shall mean an Employees separation from service with the Company within the meaning of Code Section 409A. For purposes of Code Section 409A, the right to a series of payments under the Agreement shall be treated as a right to a series of separate payments. In no event may a Participant, directly or indirectly, designate the calendar year of a payment. All reimbursements and in-kind benefits provided under this Plan and any separation agreement hereunder shall be made or provided in accordance with the requirements of Code Section 409A. |
|
|
K. |
The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. |
90
|
|
EXHIBIT (ii)-(10)(f) |
PITNEY BOWES SENIOR EXECUTIVE SEVERANCE POLICY
As Amended and Restated Effective January 1, 2008
I. PURPOSE
|
|
1.1 |
The purpose of the Plan is to provide certain designated senior executive employees with continued compensation and benefits, subject to the specific terms and conditions set forth in the Plan, in the event there is a Change of Control and the covered executive incurs a Termination of Employment. In addition, the Plan is intended to provide an incentive to covered executives to continue to perform their job duties on behalf of the Company where the Company is faced with a Change of Control. No Change of Control has occurred under the terms of the Plan as of the effective date of this restatement. |
II. DEFINITIONS
For the purposes of the Plan, the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise.
|
|
|
2.1 |
Annual Incentive shall mean the annual Performance Based Compensation Incentive that a Participant is eligible to earn pursuant to the Pitney Bowes Key Employee Incentive Plan. |
|
|
|
|
2.2 |
Annual Incentive Award shall mean the average Annual Incentive amount a Participant received in any of the three consecutive twelve month periods prior to the Date of Termination. |
|
|
|
|
2.3 |
Annual Salary shall mean the Participants regular annual base salary in effect immediately prior to his or her Date of Termination, including cash compensation converted to other benefits under a flexible benefit arrangement maintained by the Company or deferred pursuant to a written plan or agreement with the Company, but excluding any type of allowances, reimbursements, premium pay, Cash Incentive Units, sign-on bonus, stock options and any actual gain thereon, prizes, awards, special bonuses and incentive payments other than the Annual Incentive Award. |
|
|
|
|
2.4 |
Board shall mean the Board of Directors of the Company. |
|
|
|
|
2.5 |
Change of Control For purposes of this Plan, a Change of Control shall be deemed to have occurred if: |
|
|
|
|
|
(i) there is an acquisition, in any one transaction or a series of transactions, other than from Pitney Bowes Inc., by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of Pitney Bowes Inc. entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by Pitney Bowes Inc. or any of its subsidiaries, or any employee benefit plan (or related trust) of Pitney Bowes Inc. or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, of the common stock and voting securities of Pitney Bowes Inc. immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of Pitney Bowes Inc. entitled to vote generally in the election of directors, as the case may be; or |
|
|
|
|
|
(ii) individuals who, as of the Restatement Effective Date, constitute the Board (as of such date, the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the Restatement Effective Date, whose election, or nomination for election by Pitney Bowes shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Pitney Bowes Inc. (as such terms are used in Rule 14(a)(11) or Regulation 14A promulgated under the Exchange Act); or |
|
|
|
|
|
(iii) there occurs either (A) the consummation of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with respect to which the individuals and entities |
91
|
|
|
who were the respective beneficial owners of the common stock and voting securities of Pitney Bowes Inc. immediately prior to such reorganization, merger, consolidation or sale or other disposition do not, following such reorganization, merger, consolidation, or sale or other disposition beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger, consolidation, or sale or other disposition or (B) an approval by the shareholders of Pitney Bowes Inc. of a complete liquidation or dissolution of Pitney Bowes Inc. or of the sale or other disposition of all or substantially all of the assets of Pitney Bowes Inc. |
|
|
2.6 |
Code shall mean the Internal Revenue Code of 1986, as amended from time to time. |
|
|
2.7 |
Company shall mean Pitney Bowes Inc. and any successor thereto. |
|
|
2.8 |
Date of the Change of Control shall mean the date on which a Change of Control is determined to first occur. |
|
|
2.9 |
Date of Termination shall mean the date on which a Participant incurs a Termination of Employment as defined in Section 5.1 hereof. |
|
|
2.10 |
Employee shall mean any regular full-time employee of the Company or a wholly-owned, fully-integrated subsidiary or affiliate of the Company. |
|
|
2.11 |
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. |
|
|
2.12 |
Participant shall mean an Employee who is designated as a Participant pursuant to Section III hereof. |
|
|
2.13 |
Plan shall mean the Pitney Bowes Senior Executive Severance Policy as amended and restated effective as of January 1, 2008. |
|
|
2.14 |
Restatement Effective Date shall mean January 1, 2008. |
|
|
2.15 |
Separation Period shall mean (i) for Participants who are in compensation Bands I or J on the Change of Control the period beginning on a Participants Date of Termination and ending on the third anniversary thereof (ii) for Participants who are in compensation Band H, or Participants who are elected corporate officers of Pitney Bowes Inc. but not in compensation Bands I or J, the period beginning on a Participants Date of Termination and ending on the second anniversary thereof. |
III. PARTICIPATION
|
|
3.1 |
Each Employee who falls within compensation Bands H, I or J or who is an elected corporate officer of Pitney Bowes Inc. not in compensation Bands H, I or J shall be a Participant in the Plan. |
|
|
3.2 |
Prior to the time a Change of Control has occurred, the Board may, in its sole discretion, without notice, amend, modify or terminate the eligibility of certain individual Employees or classes of Employees or Participants to participate in the Plan; provided, however, that such eligibility or participation may not be so amended, modified or terminated in connection with an actual, threatened, or proposed Change of Control in any manner which would result in an Employee or Participant otherwise becoming ineligible to participate in the Plan; and provided further that any amendment, modification or termination of the definition of an Employee or Participants participation in the Plan occurring within one year prior to a Change of Control shall be deemed to be in connection with an actual, threatened, or proposed Change of Control and shall be void. |
92
In addition, when a Change of Control occurs, all rights of an Employee or Participant to eligibility and participation under the Plan shall be considered a contract right enforceable by the Participant against the Company and any successors thereto, subject to the terms and conditions hereof. This Plan is not amendable after a Change of Control without the consent of the Plan Participants to such amendment.
IV. SEPARATION BENEFITS
|
|
|
4.1 |
If any Participant incurs a Termination of Employment within two years after a Change of Control occurs (whether or not such termination is a result of such Change of Control) or a Participant is terminated within sixty (60) days before a Change of Control at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or otherwise in connection with or in anticipation of a Change of Control, and a Change of Control subsequently occurs, the Company shall pay such Participant separation benefits as determined in Section 4.2 hereof and the benefits as determined in Sections 4.3 and 4.4 hereof. For purposes of determining the benefits set forth in Sections 4.3 and 4.4, if the Participant incurs a Termination of Employment following a reduction of the Participants Annual Salary, opportunity to earn an Annual Incentive, or other compensation or employee benefits, such reduction shall not be given effect. Separation benefits as described in this Section shall be paid either (a) in one lump sum within fifteen (15) days of the Date of Termination or (b) in a stream of payments payable on regular pay periods following the Date of Termination only if the Change of Control event does not meet the definition of change of control under IRC Section 409A (as defined in Section 9.4 herein) and if required to be paid in that fashion by IRC 409A to avoid the additional tax imposed by IRC Section 409A; with such stream of payments continuing over the severance period used to calculate the severance benefits under Section 4.2 herein. If the termination of employment occurs before the Change of Control and is on account of the Change of Control, fifteen (15) days in the immediately prior sentence becomes ninety (90) days of the Date of Termination. |
|
|
|
|
4.2 |
Separation benefits described in Section 4.1 hereof shall be determined as described below: |
|
|
|
|
|
(a) |
For a Participant in compensation Bands I or J, an amount equal to the product of (1) three times (2) the sum of (x) the Participants Annual Salary and (y) the Participants Annual Incentive Award. |
|
|
|
|
|
For a Participant in Band H, or who is an elected corporate officer of Pitney Bowes Inc. and not in compensation Bands I or J, an amount equal to the product of (1) two times (2) the sum of (x) the Participants Annual Salary and (y) the Participants Annual Incentive Award. |
|
|
|
|
|
Payments made under this Section 4.2(a) shall be made as provided in Section 4.1 above. |
|
|
|
|
(b) |
An amount equal to the difference between (1) the lump sum actuarial equivalent of the benefit under the Companys qualified defined benefit retirement plan (the Pension Plan) and any excess or supplemental defined benefit retirement plans in which the Participant participates (collectively, the Pension Restoration Plan) which the Participant would receive if his or her employment continued during the Separation Period, assuming the Participant is fully vested in his or her benefit under the Pension Plan as of the Date of Termination, and (2) the lump sum actuarial equivalent of the Participants actual benefit (paid or payable), if any, under the Pension Plan and the Pension Restoration Plan as of the Date of Termination. For purposes of the calculation required under subsection 4.2(b)(1), only the Participants additional months of age and service accrued during the Separation Period, but not the Participants compensation earned during the Separation Period, shall be taken into account. This calculation shall be performed on the same basis as if the Participant had remained actively employed throughout the entire Separation Period, except that the Participants earnings used in calculating the Participants highest average earnings shall cease on the day before the Separation Period begins. The calculation of this amount shall be performed using the same factors employed under the Pension Plan and Participants compensation earned through the Date of Termination. The actuarial determination hereunder shall be made as of the Date of Termination and the actuarial assumptions used for purposes of determining actuarial equivalence shall be no less favorable to the Participant than the most favorable of those in effect under the Retirement Plan and the Pension Restoration Plan on the Date of Termination. Any Pension Restoration Plan payment shall be made in accordance with the payment election the Participant made under the Pension Restoration Plan. |
|
|
|
4.3 |
During the Separation Period, the Participant and his or her Dependents shall continue to be provided with the medical, prescription drug, dental and life insurance and other health and welfare benefits in which the Participant has coverage under the plans or programs of the Company or its affiliates at the Date of Termination as if the Participants employment had not been terminated, unless the Participant elects to decline such coverage; provided, however, that if the Participant becomes reemployed with another employer and is eligible to receive a particular benefit described above under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Participant for retiree medical, dental |
93
|
|
|
and life insurance benefits under the Companys plans, practices, programs and policies, the Participant shall be considered to have remained employed during the Separation Period and to have retired or terminated employment on the last day of such period. The COBRA continuation period for a Participant shall commence following the last day of the Separation Period. |
|
|
4.4 |
The Company shall, at its sole expense, provide the Participant with outplacement services, the scope and provider of which shall be selected by the Company from the list of vendors the Company used to provide those services before the Change of Control, but at a cost to the Company of not more than the lesser of (i) 12% of Annual Salary and (ii) fifty thousand dollars ($50,000.00). |
|
|
4.5 |
To the extent any benefits described in this Section 4 cannot be provided to the Participant pursuant to the appropriate plan or program maintained for Company employees in which a Participant participates, including, without limitation, because the coverage would cause the benefit plan to become discriminatory, the Company shall provide such benefits outside such plan or program at no additional cost (including, without limitation, tax cost) to the Participant. |
|
|
4.6 |
The cash lump sum payment and continuation benefits set forth in Sections 4.1, 4.2, 4.3 and 4.4 shall be payable in addition to, and not in lieu of, all other accrued or vested or earned but deferred rights, options or other benefits which may be owed to a Participant upon or following termination, including but not limited to regular Annual Salary earned but unpaid as of the Date of Termination, Annual Incentives earned but unpaid as of the Date of Termination, accrued vacation or sick pay, amounts or benefits payable under any incentive (other than the Annual Incentive) or other compensation plans, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar or successor plan. Amounts received under this Plan, shall not be duplicative of any severance pay or pay in lieu of required notice under any applicable federal, state or local law, including, without limitation, the federal Worker Adjustment and Retraining Notification Act paid or payable by the Company to the Participant. In addition, any severance pay benefits made hereunder shall be reduced by the amount of statutory severance benefits paid to the participant if the Company had contributed to the fund or statutory scheme under which the benefits are paid. |
V. TERMINATION OF EMPLOYMENT
|
|
|
5.1 |
For purposes of the Plan, Termination of Employment shall mean (i) a termination of a Participants employment by the Company other than because of (x) the willful and continued failure of the Participant to perform substantially the Participants duties with the Company or any of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness) or (y) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, and (ii) a termination of employment by the Participant for any of the following Good Reasons, subject to Section 5.3 below: |
|
|
|
|
|
|
1. The assignment following a Change of Control to a Participant of any duties inconsistent in any respect with the Participants position, authority, duties and responsibilities as existed on the day immediately prior to the Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties, or responsibilities, excluding for this purpose an isolated, insubstantial, and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant; |
|
|
|
|
|
2. Any failure by the Company following a Change of Control to continue to provide the Participant with Annual Salary, employee benefits, or other compensation equal to or greater than that to which such Participant was entitled immediately prior to the Date of the Change of Control, other than an isolated, insubstantial, and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant; |
|
|
|
|
|
3. Any failure by the Company following a Change of Control to continue to provide the Participant with the opportunity to earn Annual Incentives (and long-term incentive compensation as applicable) on a basis at least equal to that provided to the Participant prior to the Date of the Change of Control, taking into account the level of compensation that can be earned and the relative difficulty of any associated performance goals; |
|
|
|
|
|
4. The Companys requiring the Participant, after a Change of Control, to be based, at any office or location more than 35 miles farther from the Participants place of residence than the office or location at which the Participant is employed immediately prior to the Date of the Change of Control or the Companys requiring the Participant to travel on Company business to a substantially greater extent than required immediately before the Change of Control; |
94
|
|
|
|
|
5. Any failure by the Company, after a Change of Control, to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) who acquired all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the Companys obligations under the Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. |
|
|
|
|
Any good faith determination made by a Participant that a Good Reason described in subparagraphs 1 through 5 of this Section 5.1 has occurred shall be conclusive, subject to Section 5.3. |
|
|
|
|
5.2 |
Any termination by the Company or by the Participant in accordance with Section 5.1 shall be communicated by a Notice of Termination to the other party. Any Notice of Termination shall be by written instrument which (i) indicates the specific termination provision in Section 5.1 above relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participants employment under the provision so indicated, and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the Date of Termination (which date shall not be more than 15 days after the giving of such notice). The failure by any Participant to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of entitlement to terminate under subparagraphs 1 through 5 of Section 5.1 above shall not be deemed to be a waiver of any right of such Participant or preclude such Participant from asserting such fact or circumstance in enforcing his rights. |
|
|
|
|
5.3 |
Notwithstanding the foregoing, a Termination of Employment for Good Reason under Section 5.1 shall not occur if, within 30 days after the date the Participant gives a Notice of Termination to the Company after a Change of Control, the Company corrects the action or failure to act that constitutes the grounds for termination for Good Reason as described in Section 5.1 and as set forth in the Participants Notice of Termination. If the Company does not correct the action or failure to act, the Participant must terminate his or her employment for Good Reason within 60 days after the end of the cure period, in order for the termination to be considered a Good Reason termination. |
VI. ADMINISTRATION AND CLAIMS
|
|
6.1 |
The Plan Administrator shall be the Board or its delegate. If an Employee or former Employee makes a written request alleging a right to receive benefits under this Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Board shall treat it as a claim for benefits. All claims for benefits under the Plan shall be sent to the Executive Director, Corporate Compensation of the Company, or equivalent position, and must be received within 90 days after Termination of Employment. If the Board determines that any individual who has claimed a right to receive benefits, or different benefits, under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefore in terms calculated to be understood by the claimant. The notice will be sent within 90 days of the claim unless the Board determines additional time, not exceeding 90 days, is needed. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and describe any additional material or information as necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Board a notice that the claimant contests the denial of his or her claim by the Board and desires a further review. The Board shall within 60 days thereafter review the claim and authorize the claimant and his or her personal representative to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Board. The Board will render its final decision with specific reasons therefore in writing and will transmit it to the claimant within 60 days of the written request for review, unless the Board determines additional time, not exceeding 60 days, is needed, and so notifies the Participant. If the Company fails to respond to a claim filed in accordance with the foregoing within 60 days or any such extended period, the Company shall be deemed to have denied the claim. |
|
|
|
If, after a Change of Control, a Participant institutes any legal action seeking to obtain or enforce, or is required to defend in any legal action the validity or enforceability of, any right or benefit provided by this Plan, the Company will pay for all actual legal fees and expenses incurred (as incurred) by such Participant, regardless of the outcome of such action and whether such action is between the Company and the Participant or between either of them and any third party. |
95
VII. AMENDMENT AND TERMINATION
|
|
7.1 |
This Plan is established by the Company on a voluntary basis and not as consideration for services rendered in the past, and the benefits herein are provided at the will of the Company. Neither the establishment of this Plan nor the payment of benefits by the Company shall be construed or interpreted as a condition of employment, nor shall this Plan modify or enlarge any rights of any person covered by it to be continued or to be retained in the employ of the Company. |
|
|
|
Prior to the time a Change of Control has occurred, the Board may, in its sole discretion, without notice, amend or modify, in whole or in part, all of the terms and conditions of this Plan; provided, however, that this Plan may not be so amended or modified in connection with an actual, threatened, or proposed Change of Control in any manner which would result in a reduction of benefits to any Participant, without the express consent of the Participant; and provided further that any amendment or modification occurring within one year prior to a Change of Control shall be deemed to be in connection with an actual, threatened, or proposed Change of Control and shall be void unless the amended or modified Plan provides equivalent or greater benefits to every eligible Participant. Such amendment or modification may be retroactive in application; provided, however, such retroactive application shall not require or provide for the return or repayment of any benefits paid prior to the date of the adoption of the amendment or modification. |
|
|
|
Prior to the time a Change of Control has occurred, the Board shall have the sole and absolute right to terminate this Plan without notice at any time; provided, however, that this Plan may not be so terminated in connection with an actual, threatened, or proposed Change of Control, unless a new severance plan is adopted which provides equivalent or greater benefits to every eligible Participant; and provided further that any termination occurring within one year prior to a Change of Control shall be deemed to be in connection with an actual, threatened, or proposed Change of Control, and shall be void unless a new severance plan is adopted which provides equivalent or greater benefits to every eligible Participant. Any valid termination shall be effective as of the date specified by the Board and, if no date is specified, the date of the action of termination by the Board. Upon termination, the Company will continue to make payments which have not been fully paid, in accordance with the terms of the Plan immediately prior to termination. |
|
|
|
When a Change of Control, as defined herein, occurs, then all rights to severance payments contained herein shall be considered a contract right enforceable by the Participant against the Company and any successors thereto, subject to the terms and conditions hereof. |
VIII. ADDITIONAL PAYMENTS
|
|
8.1 |
Anything in this Plan to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any Payment would be subject to the Excise Tax, the Participant shall be entitled to receive an additional payment (a Gross-Up Payment) in an amount such that after payment by the Participant of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8.1, if it shall be determined that the Participant is entitled to a Gross-Up Payment, but that the Parachute Value of Payments does not exceed 110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to the Participant and the Plan Payments, in the aggregate, shall be reduced to (but not below zero) such that the Parachute Value of all Payments equals the Safe Harbor Amount, determined in such a manner as to maximize the Value of all Payments actually made to the Participant. |
|
|
8.2 |
Subject to the provisions of Section 8.3, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by such nationally recognized certified public accounting firm as may be designated by the Company (the Accounting Firm), which shall provide detailed supporting calculations both to the Company and the Participant within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Subject to Section 8.5 below, any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Participant within five days of the receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (Underpayment), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8.3, and the Participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant. |
96
|
|
|
8.3 |
The Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Participant is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant shall: |
|
|
|
|
|
(a) |
give the Company any information reasonably requested by the Company relating to such claim, |
|
|
|
|
(b) |
take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, cooperate with the Company in good faith in order effectively to contest such claim, and the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8.3, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Participant, on an interest-free basis and shall indemnify and hold the Participant harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount claimed to be due is limited solely to such contested amount. Furthermore, the Companys control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. |
|
|
|
8.4 |
If, after the receipt by the Participant of an amount advanced by the Company pursuant to Section 8.3, the Participant becomes entitled to receive any refund with respect to such claim the Participant shall (subject to the Companys complying with the requirements of Section 8.3) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by the Company pursuant to Section 8.3, a determination is made that the Participant shall not be entitled to any refund with respect to such claim and the Company does not notify the Participant in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. |
|
|
|
|
8.5 |
Notwithstanding any other provision of this Section VIII, the Company may withhold and pay over to the Internal Revenue Service for the benefit of the Participant all or any portion of the Gross-Up Payment that it determines in good faith that it is or may be in the future required to withhold, and the Participant hereby consents to such withholding |
|
|
|
|
8.6 |
Definitions . The following terms shall have the following meanings for purposes of this Section VIII. |
|
|
|
|
|
(a) Excise Tax shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax. |
|
|
|
|
|
(b) The Net After-Tax Amount of a Payment shall mean the Value of a Payment net of all taxes imposed on the Participant with respect thereto under Sections 1 and 4999 of the Code and applicable state and local law, determined by applying the highest marginal rates that are expected to apply to the Participants taxable income for the taxable year in which the Payment is made. |
97
|
|
|
(c) Parachute Value of a Payment shall mean the present value as of the date of the event constituting the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a parachute payment under Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment. |
|
|
|
(d) A Payment shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of a Participant, whether paid or payable pursuant to this Plan or otherwise. |
|
|
|
(e) A Plan Payment shall mean a Payment paid or payable pursuant to this Plan (disregarding this Section VIII). |
|
|
|
(f) The Safe Harbor Amount means the maximum Parachute Value of all Payments that the Participant can receive without any Payments being subject to the Excise Tax. |
|
|
|
(g) Value of a Payment shall mean the economic present value of a Payment as of the date of the event constituting the change of control for purposes of Section 280G of the Code, as determined by the Accounting Firm using the discount rate required by Section 280G(d)(4) of the Code. |
IX. MISCELLANEOUS
|
|
9.1 |
Non-Alienability . No benefit or payments provided hereunder shall be subject to any forms of sale, assignment or transfer. Benefits provided by this Plan shall not be subject to attachment, garnishment or other legal or equitable proceedings by creditors or persons representing creditors. Such payments are, however, subject to all applicable taxes and appropriate withholdings. |
|
|
9.2 |
Eligibility for Other Benefits . This Plan shall have no effect on the Participants eligibility for other benefits customarily provided after termination unless otherwise stated in a written agreement executed by an authorized representative of the Company. The payments of benefits under this Plan shall not be deemed to be a continuation of employment, pay, or credited service for purposes of determining the availability, nature, or extent of the Companys benefit plans, programs or policies, except as expressly set forth herein. |
|
|
9.3 |
Unfunded Plan Status . This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing nonqualified deferred compensation for a select group of management or highly compensated employees, within the meaning of Section 401 of ERISA. This Plan is not intended to qualify as an ERISA welfare benefit plan. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Companys creditors, to assist it in accumulating funds to pay its obligations under the Plan. |
|
|
9.4 |
Death . In case of death, any unpaid payment or benefits to which the Participant was entitled at the time of death shall be paid to the Participants survivors or estate |
|
|
9.5 |
I.R.C. Section 409A . If and to the extent that Section 409A of the Internal Revenue Code applies to amounts payable under the Plan, distributions may only be made under the Plan upon an event and in a manner permitted by Section 409A. To the extent that any provision of the Plan would cause a conflict with any applicable requirements of Section 409A, or would cause the administration of the Plan to fail to satisfy the applicable requirements of section 409A, such provision shall be deemed null and void. It is intended that this Plan comply with the Change of Control provisions of Section 409A. |
|
|
|
Notwithstanding anything in the Plan to the contrary, if Section 409A applies to the Plan and if a participant is a specified employee, as defined in section 409A, payment of benefits under this Plan upon termination of employment shall be postponed for six months after termination of employment if required in order to avoid adverse taxation under Section 409A. If payment of benefits under the Plan is required to be postponed pursuant to Section 409A, the accumulated amounts withheld on account of section 409A shall be paid in a lump sum payment within five days after the end of the required postponement period along with interest at the Applicable Federal Rate (Short-Term) on the unpaid balance for the postponement period. If the participant dies during such postponement period prior to the payment of benefits, the amounts withheld on account of Section 409A shall be paid to the participants beneficiary determined under Section 9.4. |
98
|
|
9.6 |
Validity and Severability . The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. |
|
|
9.7 |
Governing Law . The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of the State of Connecticut without reference to principles of conflict of law, except to the extent pre-empted by federal law. |
|
|
9.8 |
Plan Records . The records for this Plan are kept on a plan year beginning on January 1 and ending on the following December 31. |
|
|
9.9 |
Legal Service . The person designated to receive legal papers or summons in connection with this Plan is the Corporate Secretary, Pitney Bowes Inc., World Headquarters, Stamford CT 06926-0700. |
99
EXHIBIT (iii)
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
Years ended December 31, |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations before income taxes and minority interest |
|
$ |
660,711 |
|
$ |
914,490 |
|
$ |
811,668 |
|
$ |
608,390 |
|
$ |
593,657 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
250,540 |
|
|
228,418 |
|
|
193,174 |
|
|
161,650 |
|
|
166,856 |
|
Portion of rents representative of the interest factor |
|
|
48,969 |
|
|
46,255 |
|
|
52,823 |
|
|
51,445 |
|
|
45,978 |
|
Amortization of capitalized interest |
|
|
1,717 |
|
|
1,345 |
|
|
986 |
|
|
1,473 |
|
|
1,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income as adjusted |
|
$ |
961,937 |
|
$ |
1,190,508 |
|
$ |
1,058,651 |
|
$ |
822,958 |
|
$ |
807,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
250,540 |
|
$ |
228,418 |
|
$ |
193,174 |
|
$ |
161,650 |
|
$ |
166,856 |
|
Portions of rents representative of the interest factor |
|
|
48,969 |
|
|
46,255 |
|
|
52,823 |
|
|
51,445 |
|
|
45,978 |
|
Minority interest, excluding taxes, in the income of subsidiary with fixed charges |
|
|
33,412 |
|
|
21,819 |
|
|
16,512 |
|
|
8,338 |
|
|
5,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
$ |
332,921 |
|
$ |
296,492 |
|
$ |
262,509 |
|
$ |
221,433 |
|
$ |
218,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
2.89 |
|
|
4.02 |
|
|
4.03 |
|
|
3.72 |
|
|
3.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The computation of the ratio of earnings to fixed charges has been computed by dividing income from continuing operations before income taxes as adjusted by fixed charges. Included in fixed charges is one-third of rental expense as the representative portion of interest. |
100
EXHIBIT (iv)
Page 1of 2
PITNEY BOWES INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant, Pitney Bowes Inc., a Delaware Corporation, has no parent.
The following are subsidiaries of the
Registrant
(as of December 31, 2007)
|
|
|
Company name |
|
Country or
state
|
|
|
|
Addressing Systems International Holdings Limited |
|
England |
Adrema Leasing Corporation |
|
Delaware |
Adrema Maschinen und Auto Leasing GmbH |
|
Germany |
Andeen Enterprises, Inc. |
|
Panama |
Archiver Limited f/k/a Micromedia Limited |
|
England |
Artec International Corporation |
|
California |
Asterion Direct SAS |
|
France |
Asterion Sud SAS |
|
France |
Bell & Howell France Holding SAS |
|
France |
B. Williams Funding Corp. |
|
Delaware |
B. Williams Holding Corp. |
|
Delaware |
Burmas Voorheen Buroservice NV |
|
Belgium |
Canadian Office Services (Toronto) Limited |
|
Canada |
Cascade Microfilm Systems, Inc. |
|
California |
Digital Cement Inc. |
|
Delaware |
Digital Cement Co. |
|
Canada |
Dimasi Strategic Research Pty Ltd |
|
Australia |
Document Process S.A. |
|
France |
Elmcroft Road Realty Corporation |
|
Connecticut |
Emtex Limited |
|
England |
Emtex Software, Inc. |
|
Florida |
Emtex Software, Inc. |
|
Canada |
Encom Europe Limited |
|
England |
Encom Holdings Pty Limited |
|
Australia |
Encom Petroleum Information Pty Limited |
|
Australia |
Encom Technology Pty Limited |
|
Australia |
ERSIS Australia Pty Ltd |
|
Australia |
FSL Holdings Inc. |
|
Connecticut |
FSL Risk Managers Inc. |
|
New York |
Group 1 Software China Ltd. |
|
Hong Kong |
Group 1 Software Korea Ltd. |
|
Korea |
Group 1 Software Asia Pacific Pte Ltd. |
|
Singapore |
Group 1 Software Beijing Ltd. |
|
China |
Group 1 Software Europe Limited |
|
England |
Group 1 Software France SA |
|
France |
Group 1 Software Germany GmbH |
|
Germany |
Group 1 Software Japan KK |
|
Japan |
Group 1 Software Inc. |
|
Delaware |
Historic Boardwalk Hall, L.L.C. |
|
Delaware |
Horizon Management AB |
|
Sweden |
Horizon Scandinavia AB |
|
Sweden |
Ibis Consulting, Inc. |
|
Rhode Island |
Imagitas, Inc. |
|
Delaware |
Imagitas Security Corporation |
|
Massachusetts |
Informatech Inc. |
|
California |
International Imaging Limited |
|
England |
La Agricultora Ecuatoriana S.A. |
|
Ecuador |
Logestim Logiciels et Systèmes, Texte et Image SAS |
|
France |
Mag Expansion SA |
|
France |
Mag Systèmes SAS |
|
France |
Mag Graphic SAS |
|
France |
MailCode Holdings, Inc. |
|
Indiana |
MailCode, Inc. |
|
Delaware |
Mann & Mann Pty Limited |
|
Australia |
MapInfo GmbH |
|
Germany |
MapInfo Realty LLC |
|
New York |
Median GIS Pty Limited |
|
Australia |
Meridian Spatial Pty Limited |
|
Australia |
O. Antonsen Kontormaskiner |
|
Norway |
PB Australia Funding Pty. Limited |
|
Australia |
PB Canada Funding Ltd. |
|
Canada |
PB Equipment Management Inc. |
|
Delaware |
|
|
|
Company name |
|
Country or
state
|
|
|
|
PB Forms, Inc. |
|
Nebraska |
PB Historic Renovation LLC |
|
Delaware |
PB Leasing Corporation |
|
Delaware |
PB Miles Inc. |
|
Delaware |
PB Nova Scotia II ULC |
|
Canada |
PB Nova Scotia Holdings ULC |
|
Canada |
PB Nova Scotia Holdings II ULC |
|
Canada |
PB Nova Scotia LP |
|
Delaware |
PB Partnership Financing Inc. |
|
Delaware |
PB Production International Corp. |
|
Delaware |
PB Professional Services Inc. |
|
Delaware |
PB Texas LP |
|
Delaware |
PB World Trade Corp. |
|
Delaware |
PBCC LP |
|
Delaware |
PBCC Texas LLC |
|
Delaware |
PBDorm Ireland Limited |
|
Ireland |
PCAN Mailing Solutions, Inc./Solutions DAffranchissement PCAN Inc. |
|
Canada |
Pitney Bowes (Asia Pacific) Pte. Ltd |
|
Singapore |
Pitney Bowes Asterion SAS |
|
France |
Pitney Bowes Australia FAS Pty. Limited |
|
Australia |
Pitney Bowes Australia Pty Limited |
|
Australia |
Pitney Bowes Austria Ges.m.b.H |
|
Austria |
Pitney Bowes Belgium NV |
|
Belgium |
Pitney Bowes of Canada Ltd. - Pitney Bowes du Canada Ltee |
|
Canada |
Pitney Bowes Canada Holdings Limited |
|
Canada |
Pitney Bowes China Inc. |
|
Delaware |
Pitney Bowes Credit Australia Limited |
|
Australia |
Pitney Bowes Cross Border Services, Inc |
|
Delaware |
Pitney Bowes Danmark A/S (formerly Haro Systemer AS) |
|
Denmark |
Pitney Bowes Data Systems, Ltd. |
|
Delaware |
Pitney Bowes de Mexico, S.A. de C.V. |
|
Mexico |
Pitney Bowes Deutschland GmbH |
|
Germany |
Pitney Bowes Document Messaging Technologies Limited (formerly Bell & Howell Limited) |
|
England |
Pitney Bowes (Dormant) Pte Ltd. |
|
Singapore |
Pitney Bowes Espana, S.A. |
|
Spain |
Pitney Bowes Finans Norge AS |
|
Norway |
Pitney Bowes Finance plc (formerly PB Leasing Ltd.) |
|
England |
Pitney Bowes Finance Ireland Limited |
|
Ireland |
Pitney Bowes France S.A. |
|
France |
Pitney Bowes Global Financial Services LLC |
|
Delaware |
Pitney Bowes Global Limited |
|
England |
Pitney Bowes Government Solutions, Inc. |
|
Delaware |
Pitney Bowes Holding SNC |
|
France |
Pitney Bowes Holdings B.V. |
|
Netherlands |
Pitney Bowes Holdings Denmark ApS |
|
Denmark |
Pitney Bowes Holdings Limited |
|
England |
Pitney Bowes Hong Kong Inc. |
|
Delaware |
Pitney Bowes Hong Kong Limited |
|
Hong Kong |
Pitney Bowes India Inc. |
|
Delaware |
Pitney Bowes India Private Limited |
|
India |
Pitney Bowes Insurance Agency, Inc. |
|
Connecticut |
Pitney Bowes International |
|
Ireland |
Pitney Bowes International Funding |
|
Ireland |
Pitney Bowes International Holdings, Inc. |
|
Delaware |
Pitney Bowes Ireland Limited |
|
Ireland |
Pitney Bowes Italia S.r.l. |
|
Italy |
Pitney Bowes Japan KK |
|
Japan |
101
EXHIBIT (iv)
Page 2 of 2
PITNEY BOWES INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant, Pitney Bowes Inc., a Delaware Corporation, has no parent.
The following are subsidiaries of the
Registrant
(as of December 31, 2007)
|
|
|
Company name |
|
Country or
state
|
|
|
|
Pitney Bowes Korea Ltd. |
|
Korea |
Pitney Bowes Limited |
|
England |
Pitney Bowes Luxembourg SARL |
|
Luxembourg |
Pitney Bowes Mail and Messaging Systems (Shanghai) Co., Ltd. |
|
Shanghai |
Pitney Bowes (Malaysia) Sdn Bhd |
|
Malaysia |
Pitney Bowes Management Services Belgium, NV |
|
Belgium |
Pitney Bowes Management Services Canada, Inc. Services de Gestion Pitney Bowes Canada, Inc. |
|
Canada |
Pitney Bowes Management Services Denmark, A/S |
|
Denmark |
Pitney Bowes Management Services Deutschland GmbH |
|
Germany |
Pitney Bowes Management Services Italia S.r.l. |
|
Italy |
Pitney Bowes Management Services Limited |
|
England |
Pitney Bowes Management Services Netherlands, B.V. |
|
Netherlands |
Pitney Bowes Management Services Norway A.S. |
|
Norway |
Pitney Bowes Management Services Sweden AB |
|
Sweden |
Pitney Bowes Management Services, Inc. |
|
Delaware |
Pitney Bowes MapInfo Australia Pty Ltd |
|
Australia |
Pitney Bowes MapInfo Business Applications Limited (formerly Southbank Systems Limited) |
|
England |
Pitney Bowes MapInfo Canada Inc. |
|
Canada |
Pitney Bowes MapInfo Corporation |
|
Delaware |
Pitney Bowes MapInfo GDC Limited (formerly Graphical Data Capture Limited) |
|
England |
Pitney Bowes MapInfo India Private Limited |
|
India |
Pitney Bowes MapInfo Japan KK |
|
Japan |
Pitney Bowes MapInfo Limited |
|
England |
Pitney Bowes MapInfo Scotland Limited (formerly Moleseye Limited) |
|
England |
Pitney Bowes MapInfo UK Limited |
|
England |
Pitney Bowes Netherlands B.V. |
|
Netherlands |
Pitney Bowes New Zealand Limited |
|
New Zealand |
Pitney Bowes Norge AS |
|
Norway |
Pitney Bowes Nova Scotia ULC |
|
Canada |
Pitney Bowes Oy |
|
Finland |
Pitney Bowes Portugal Sociedade Unipessoal, Lda. |
|
Portugal |
Pitney Bowes Properties Inc. |
|
Connecticut |
Pitney Bowes SA (Pty) Ltd. |
|
South Africa |
Pitney Bowes Semco Equipamentos E Servicos Ltda |
|
Brazil |
Pitney Bowes Service Solutions, Inc. |
|
Delaware |
Pitney Bowes Servicios, S.A. de C.V. |
|
Mexico |
Pitney Bowes Shelton Realty Inc. |
|
Connecticut |
Pitney Bowes (Singapore) Pte Ltd. |
|
Singapore |
Pitney Bowes Software SAS |
|
France |
Pitney Bowes Svenska Aktiebolag |
|
Sweden |
Pitney Bowes (Switzerland) AG |
|
Switzerland |
Pitney Bowes (Thailand) Limited |
|
Thailand |
Pitney B2B Capital.com Inc. |
|
Delaware |
Pitney B2B Capital.com LLC |
|
Delaware |
PitneyWorks.com Inc. |
|
Delaware |
PitneyWorks.com L.L.C. |
|
Delaware |
Print, Inc. |
|
Washington |
Printing and Post Processing Company NV |
|
Belgium |
PRINTLINX CORPORATION |
|
Canada |
PrintValue Solutions, Inc. |
|
Arizona |
PSI Group, Inc. |
|
Delaware |
P. Technical Services Limited |
|
England |
Sagent UK, Ltd. |
|
England |
Sagent (Indonesia) Pte Ltd. |
|
Singapore |
Sagent (Malaysia) Sdn Bhd |
|
Malaysia |
|
|
|
Company name |
|
Country or
state
|
|
|
|
Sagent (Singapore) Pte Ltd. |
|
Singapore |
Sales and Service Training Center Inc. |
|
Georgia |
SCI François Gillet |
|
France |
SCI Méditerranée |
|
France |
Secap (Groupe Pitney Bowes) SAS |
|
France |
Secap Technologies Limited |
|
England |
Southbank Systems Australia Pty Ltd |
|
Australia |
Technopli SARL |
|
France |
The Pitney Bowes Bank, Inc. |
|
Utah |
Time-Sensitive Delivery Guide Inc. |
|
Delaware |
Universal Postal Frankers Ltd. |
|
England |
Wheeler Insurance, Ltd. |
|
Vermont |
1136 Corporation |
|
Delaware |
102
EXHIBIT (v)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on:
|
|
|
|
|
Form |
|
Reference |
|
|
|
|
|
|||
|
Form S-8 |
|
No. 33-5291 |
|
|
|
|
|
Form S-8 |
|
No. 33-4549 |
|
|
|
|
|
Form S-8 |
|
No. 33-22238 |
|
|
|
|
|
Form S-8 |
|
No. 33-5765 |
|
|
|
|
|
Form S-8 |
|
No. 33-41182 |
|
|
|
|
|
Form S-8 |
|
No. 333-66735 |
|
|
|
|
|
Form S-8 |
|
No. 333-132589 |
|
|
|
|
|
Form S-8 |
|
No. 333-132590 |
|
|
|
|
|
Form S-8 |
|
No. 333-132591 |
|
|
|
|
|
Form S-8 |
|
No. 333-132592 |
|
|
|
|
|
Form S-8 |
|
No. 333-145527 |
|
|
|
|
|
Form S-3 |
|
No. 33-5289 |
|
|
|
|
|
Form S-3 |
|
No. 33-5290 |
|
|
|
|
|
Form S-3 |
|
No. 33-18280 |
|
|
|
|
|
Form S-3 |
|
No. 33-25730 |
|
|
|
|
|
Form S-3 |
|
No. 33-21723 |
|
|
|
|
|
Form S-3 |
|
No. 33-27244 |
|
|
|
|
|
Form S-3 |
|
No. 33-33948 |
|
|
|
|
|
Form S-3 |
|
No. 333-51281 |
|
|
|
|
|
Form S-3 |
|
No. 333-72304 |
|
|
|
|
|
Form S-3 |
|
No. 33-10966 |
|
|
|
|
|
Form S-3 |
|
No. 333-120525 |
|
|
|
|
|
Form S-3 |
|
No. 333-122481 |
of Pitney Bowes Inc. of our report dated February 29, 2008 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
|
/s/ PricewaterhouseCoopers LLP |
|
103
EXHIBIT (31.1)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|
|
|
I, Murray D. Martin, certify that: |
||
|
|
|
1. |
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.; |
|
|
|
|
2. |
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
|
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
|
|
|
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and |
|
|
|
|
d. |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
|
|
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
|
|
|
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 29, 2008
|
|
/s/ Murray D. Martin |
|
|
|
Murray D. Martin |
|
President and Chief Executive Officer |
104
EXHIBIT (31.2)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|
|
|
I, Bruce P. Nolop, certify that: |
||
|
||
1. |
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.; |
|
|
|
|
2. |
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
|
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
|
|
|
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and |
|
|
|
|
d. |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
|
|
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
|
|
|
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 29, 2008
|
|
/s/ Bruce P. Nolop |
|
|
|
Bruce P. Nolop |
|
Chief Financial Officer |
105
EXHIBIT (32.1)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
The certification set forth below is being submitted in connection with the Annual Report of Pitney Bowes Inc. (the Company) on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Murray D. Martin, President and Chief Executive Officer of the Company, certify that, to the best of my knowledge:
|
|
|
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
|
|
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
/s/ Murray D. Martin |
|
|
|
Murray D. Martin |
|
President and Chief Executive Officer |
|
February 29, 2008 |
106
EXHIBIT (32.2)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
The certification set forth below is being submitted in connection with the Annual Report of Pitney Bowes Inc. (the Company) on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Bruce P. Nolop, Chief Financial Officer of the Company, certify that, to the best of my knowledge:
|
|
|
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
|
|
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
/s/ Bruce P. Nolop |
|
|
|
Bruce P. Nolop |
|
Chief Financial Officer |
|
February 29, 2008 |
107