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Pitney Bowes Annual Report 2012
Where
innovation
begins
Where does innovation begin?
At Pitney Bowes, it starts with our clients.
More than 1.5 million strong, they have
great ideas and urgent needs. We pay
close attention to both.
But we also look beyond the present
to the forces that will determine their
success tomorrow.
Reinventing communications for the
multichannel world. Opening international
e-commerce with seamless transactions.
Applying big-company experience to help
small companies grow.
It’s all part of what we do every day:
help our clients stay a step ahead.
On the cover, from left to right:
On the inside cover, from left to right:
Yuling Wu,
Director, Emerging Internet and Mobile Technologies,
Strategic Technology and Innovation Center
Bringing location context awareness to mobile
technologies to create new mobile experiences
Sherif Ahmed,
Research Fellow and Solutions Architect
Tackling the sophisticated technical challenges
of global e-commerce and location intelligence
Sue McKinney,
Vice President, Worldwide Engineering
Pushing to create best-in-class mailing and
software solutions for clients worldwide
Bob Cordery,
Pitney Bowes Fellow, Strategic Technology and Innovation Center
Inventing constantly; holds 149 patents—so far
George Monroe,
Pitney Bowes Fellow, Worldwide Shipping and Tracking
Reimagining our core mailing products from the inside out
Alexandra Mack,
Research Fellow, Strategic Technology and Innovation Center
Developing client insights using anthropology,
a crucial component of innovation
James Fairweather,
Vice President, Technology Development
Leading the development of software and technology
innovation for our clients
2
Pitney Bowes Annual Report 2012 Marc B. Lautenbach
President and
Chief Executive Officer
Fellow shareholders:
I am honored and excited to report to you as the new president
and chief executive officer of Pitney Bowes. I came here because
I saw a company with enormous promise and unique strengths.
We have not performed to our potential in recent years as
disruptive technologies have radically altered traditional
modes of communication and commerce. Yet the opportunities
remain immense for a company that understands this complex
new world, makes the right strategic choices and executes
with discipline. Given our extraordinary legacy, global customer
base and untold capacity for innovation, I am convinced that
Pitney Bowes can be that company.
The evidence is all around me. We have a terrific portfolio of best-in-class technologies,
from location intelligence, data quality and international e-commerce—capabilities built
on years of investment in research and development. We have more than 1.5 million clients
in over 100 countries—a large, diverse and valuable client base. We have a high recurring
revenue stream, enviable margins and strong market share in the modern mailing industry
that Pitney Bowes helped invent nearly a century ago. Most important, we have fantastic
employees eager to contribute and full of good ideas. These are the ingredients for a very
successful company.
3
Pitney Bowes Annual Report 2012 Revenue and income were down in 2012 from a year ago, and our stock price declined as
a result. It is too early in my tenure to make sweeping judgments about the reasons for this
performance. But to borrow a phrase from the world of politics, I am confident there is
nothing wrong with Pitney Bowes that cannot be cured by what is right with Pitney Bowes.
We control our own destiny.
Boundless opportunity
We signed major agreements in 2012 that demonstrate how Pitney Bowes is helping our
clients and their customers communicate and transact business in new ways.
Our software business entered into an agreement with Facebook that puts our geocoding
technologies in the hands of one-seventh of the world’s population. Facebook users can
now let their friends know their location with greater accuracy whenever and wherever
they log in. Facebook is also using our technology to add geographic information to billions
of records a month, including instant messages, photos, videos and events.
Our agreement with Facebook
puts our geocoding technologies
in the hands of one-seventh of
the world’s population.
Combine this technology with our location-based analytical tools and extensive databases,
and mobile marketing becomes much more effective. Mobile advertising revenue is
projected to be $24 billion by 2016, with over half of those ads in the U.S. powered by
location awareness. Pitney Bowes is well positioned to drive and profit from this trend.
Our e-commerce business signed an agreement to streamline international sales for
eBay users, creating a significant and largely untapped market opportunity for our services.
Our software instantly calculates each international buyer’s end-to-end costs, including
shipping charges, import fees, taxes and insurance. This reduces the hidden costs that
4
Pitney Bowes Annual Report 2012 We are streamlining international
sales for eBay users.
often spoil the customer experience in cross-border online retailing. We also manage
the international shipment of goods, tracking them end-to-end and clearing them through
customs faster. We are using this expertise to help dozens of companies, from small
merchants to major brands, break down the international barriers to online commerce
and cross-border shipping.
We continue to innovate in our traditional mailing operations for the benefit of businesses
of all sizes. For large mailers, we have transformed the economics of printing and mailing
by reengineering key technologies. For example, a bank issuing credit cards for multiple
merchants once had to print statements in separate runs, on each merchant’s preprinted
form. With our technology, jobs can be consolidated and printed together on the same roll
of plain white paper. Each merchant’s four-color graphics are printed during a common
workflow that saves time, eliminates the need for preprinted forms and allows statements
to be presorted by postal zones—and consequently qualifying for postage discounts. Multiply
these efficiencies by hundreds of millions of statements a year, and the bank can save
millions of dollars. An added bonus—statements can incorporate marketing messages
personalized for each merchant’s customers.
Smaller businesses also have needs we are uniquely equipped to meet. Last year we
expanded our pbSmart™ suite of cloud-based services with the launch of pbSmart Mobile.
Business owners can build a mobile website in minutes, without having to master any
programming software, and start tracking the results of their mobile campaign immediately.
Our pbSmartPostage™ service, which prints shipping labels and postage from any computer
connected to the cloud, is also gaining traction.
Other milestones for the year
Australia Post selected Volly™, our secure digital delivery service, to power its own digital
mail service. Once launched, the service will enable businesses in Australia to offer their
customers a new secure online delivery option for bills, statements and other material.
For consumers, it will reduce the clutter of physical mail while making it easy to pay bills
from a single, secure online location. For businesses, the service provides a secure digital
channel that allows them to promote their own brand at a fraction of the cost of printing
and delivering physical mail.
5
Pitney Bowes Annual Report 2012 We’re working on ways to help
marketers balance consumer demand
for special offers with their concerns
about privacy.
Our management services group continues to move higher up the value chain with the
launch of our print outsourcing business. This has the potential to save clients up to
30 percent of their annual print spend, and improve quality by bringing exceptional rigor
and extensive industry knowledge to a typically fragmented process. Large companies
and advertising agencies can spend millions of dollars a year printing everything from
stationery to marketing material to financial statements, yet they often do not have a
handle on their total costs. Our experts reengineer the entire process, centralizing print
expenditures, qualifying vendors, ensuring environmental compliance and fine-tuning
design specifications. We then leverage our buying power on behalf of our clients.
Technologies that set us apart
We should not overlook the extraordinary technology that powers the postage meter and
underlies our long global leadership in data security. Our ability to securely move billions of
dollars in postage funds across vast networks has broad applicability at a time when people
are increasingly concerned about privacy and security. Pitney Bowes has been responsible
for virtually every major advance in the underlying technology since 1920—from today’s
Internet postage to a host of emerging applications.
Our cryptographic technology is built into our e-commerce and pbSmartPostage™ offerings,
and our expertise in architecting secure systems was essential in the creation of the
Volly™ digital delivery service. Our technology also informs our new pbSecure™ evidencing
platform for verifying the authenticity of diplomas, employment records and other sensitive
documents in business and academia. Our scientists are also working on ways to couple
our data security technologies with our location intelligence applications to help marketers
find the best way to balance their customers’ desire for personalized offers with their
concerns about privacy.
This is only a sampling of the strides Pitney Bowes made across disparate parts of its
business in 2012. Our opportunities are real. Our challenge is to bring greater focus
and discipline to the task of determining where and how we invest in them. I have been
impressed with the technological expertise of our R&D team, who work closely with
clients to gain the insights that will drive future innovations. We are already employing
agile development practices to accelerate our time to market and reduce the risks inherent
in entering new markets. We will do more.
6
Pitney Bowes Annual Report 2012 Guiding principles
I believe that great companies are guided by simple principles that are clearly understood
and rigorously followed. Our guiding principle is clear: we must develop a client-led culture.
We are in business to serve our clients, and to do that effectively, we need to know them
intimately and learn to think like them. Driving value for clients leads to driving value for
shareholders. We must compete to win, and the fundamental measure of winning is sales.
We may have the right ingredients, but they do not have value until clients buy them.
We have work to do. I am confident we will do it.
In the short time I have been here, I have spoken with employees across the organization.
I am struck by their passionate engagement in our common destiny—and their readiness
for the task of turning this venerable company into a great global leader for the coming
generation.
I want to express a special appreciation to my predecessor, Murray D. Martin, who retired
in 2013 after more than 25 years of leadership. Murray has always been passionate about
Pitney Bowes and dedicated his professional life to our company. For that my colleagues
and I are very grateful.
I look forward to working with my new colleagues to build on our company’s great legacy.
Marc B. Lautenbach
President and
Chief Executive Officer
Pitney Bowes Annual Report 2012
7
Businesses face a host of new challenges today.
We help our clients clarify opportunities, streamline
operations and nurture more profitable relationships.
Pitney Bowes is everywhere business gets done.
Now I know how
many flyers to send
out—and where!
DOMINO’S LOCATION #23
When a mobile phone
order comes in, it’s
automatically routed to
my store if I’m closest
to the customer.
DOMINO’S LOCATION #17
8
Pitney Bowes Annual Report 2012
LOCATION INTELLIGENCE
Capturing
the business
value of
“where”
Vast amounts of data yield important insights when
mapped against specific locations. Decision makers in
virtually every industry and area of government rely on
our location intelligence tools to allocate resources better,
identify emerging opportunities faster and make smarter
decisions in general. Domino’s Pizza Enterprises Ltd of
Australia uses our technology to more equitably establish
hundreds of franchise territories across Australia and
New Zealand. Factors like the number of households and
related sociodemographic data help determine a territory’s
value in this highly competitive, fast-changing environment.
Domino’s is also using our technology to route customers
to their closest store. No more border disputes among
franchisees, no more wasted time on deliveries—nothing
to interfere with customer satisfaction.
Pitney Bowes Annual Report 2012
9
With optimized
sales territories,
my store can grow
to its maximum
potential.
DOMINO’S LOCATION #52
INTERNATIONAL
E-COMMERCE
Breaking down
cross-border
barriers for
online retailers
The global marketplace can be
daunting terrain for online retailers
and their customers. Currency
translation, hidden shipping charges,
import fees and customs delays can
all hinder cross-border shopping.
Our e-commerce solutions help break
down these barriers. Online retailers
can now give shoppers a complete
picture of end-to-end costs for every
item. By offering this simple, seamless
experience, San Francisco–based
Rickshaw Bagworks has been able
to attract new customers in nearly
50 countries over the past four years.
Rickshaw’s unique line of made-to-
order messenger bags, backpacks
and computer sleeves is produced
by a company of just 20 people.
You’d never know that from the
world-class, worldwide service that
Pitney Bowes makes possible for
www.rickshawbags.com and other
online retailers.
10
Pitney Bowes Annual Report 2012
ENTERPRISE-WIDE
DOCUMENT MANAGEMENT
Super-size the
service while
trimming costs
Managing the administrative workflow for
a company that serves 64 million people a
day can be a tall order. But for the Workplace
Programs and Services organization at
McDonald’s, it’s all in a day’s work—with
the help of Pitney Bowes. Our on-site team
manages a host of critical functions at
the company’s Illinois headquarters and
27 regional offices. Our coordinated approach
has helped McDonald’s reduce costs in areas
ranging from printing and copying—now
done on half the equipment it used to take—
to postage and shipping for nearly a million
pieces a year. The benefits go beyond
savings: A single project to digitize 1,500
boxes of documents not only avoided
additional building costs but made the
files electronically accessible with
just a few keystrokes.
MULTICHANNEL MARKETING FOR SMALL BUSINESS
Connect with prospects fast
via pbSmart Mobile
How do you get a potential customer who’s never heard of you to listen to your
pitch in less than two minutes? That’s the challenge Mary Hurley faced with her
MRH Productions voice-over service for medical professionals. Her specialized
skills have real value for doctors, dentists, device makers and their advertising
agencies—but capturing their attention during a medical convention was all but
impossible until she turned to pbSmart™ Mobile. Now she just hands prospects
her business card and suggests they scan the pbSmart™ Code on it. The QR code
takes them to her mobile website, which allows them to hear her audio demos
and see samples of her script writing.
Pitney Bowes Annual Report 2012
11
TARGETED ONLINE MARKETING
Stress relief
for movers,
super sales
channel for
retailers
Feathering the nest is a powerful instinct.
Just ask the 40 million Americans who
moved last year, spending $180 billion
on everything from furniture to financial
advice and creating a windfall for
marketers. It’s not surprising: Moving
is notoriously stressful, and getting
comfortable helps reduce stress. We’re
helping too with www.MyMove.com, an
online resource that combines useful
information and great deals for people
on the move with valuable access for
participating brands such as The Container
Store, Netflix and Pottery Barn. Developed
by Imagitas, a Pitney Bowes company,
My Move is backed by extensive research
on the buying habits of people who
move to maximize its value for households
and advertisers. Last year more than
six million consumers visited the site.
12
Pitney Bowes Annual Report 2012 VERTICAL-MARKET SOLUTIONS
Streamline
member
communications
for a healthier
bottom line
Enrollment packages. Explanations of
benefits. Regulatory letters. Member health
statements. Checks. Business and courtesy
envelopes. It adds up to a diverse mix of print
and mail jobs for Florida Blue, the state’s
largest health insurer. To lower costs and
improve its member communications, the
company transitioned to a subsidiary,
Incepture Print Solutions, to develop a
best-in-class production operation. Incepture
selected the Pitney Bowes White Paper
Factory, including our IntelliJet® Printing
and Mailstream Wrapper™ Productivity Series
systems. The result: transformation from a
world of preprinted forms, separate jobs and
manual handling to an integrated, automated
workflow and personalized four-color
documents and envelopes. The payoff for
Incepture goes beyond lower costs and faster
production. It is growing its business as
other insurers turn to Incepture to take
on their print and mail work.
At Pitney Bowes, we
are inventing a future
with our clients’ needs
in mind. We have the
expertise and insight
that help solve real
business problems
today and anticipate
solutions for the
challenges to come.
Listen and innovate.
It’s what we do at
Pitney Bowes.
13
Pitney Bowes Annual Report 2012 Summary of Selected Financial Data
For the year
(Dollars in thousands, except per share amounts)
As reported
Revenue
Income from continuing operations
Diluted earnings per share from continuing operations
Net cash provided by operating activities
Depreciation and amortization
Capital expenditures
Cash dividends per share of common stock
Average common and potential common shares outstanding
Total assets
Total debt
Stockholders’ equity (deficit)
Total employees
As adjusted
EBIT
Income from continuing operations
Diluted earnings per share from continuing operations
Free cash flow
EBIT to interest
2012
2011
2010
$ 4,904,015
$
$
$
$
$
$
435,932
2.16
660,188
255,556
176,586
1.50
201,366,139
$ 7,859,891
$ 4,017,375
$
110,631
27,353
$
$
$
$
819,932
438,453
2.18
769,084
4.4
$ 5,122,596
$ 400,556
$
1.98
$ 948,987
$ 272,142
$ 155,980
$
1.48
202,765,947
$ 8,147,104
$ 4,233,909
$ 5,260,356
$ 324,267
$
1.57
$ 952,111
$ 303,653
$ 119,768
$
1.46
206,752,872
$ 8,444,023
$ 4,289,248
$
(38,986)
$
(96,581)
28,683
30,661
$ 912,137
$ 557,957
$
2.75
$ 1,058,363
4.6
$ 939,474
$ 474,442
$
2.29
$ 962,307
4.7
14
Pitney Bowes Annual Report 2012
Reconciliation of Reported Consolidated
Results to Adjusted Results
For the year
(Dollars in thousands, except per share amounts)
GAAP income from continuing operations before income taxes,
as reported
Restructuring charges and asset impairments
Goodwill impairment
Sale of leveraged lease assets
Income from continuing operations before income taxes, as adjusted
Provision for income taxes, as adjusted
Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Income from continuing operations, as adjusted
Interest expense, net
Provision for income taxes, as adjusted
Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
EBIT
2012
2011
2010
$ 604,613
23,117
—
3,816
631,546
174,717
18,376
438,453
188,386
174,717
$ 486,541
136,548
84,500
7,282
714,871
138,539
18,375
557,957
197,266
138,539
18,376
18,375
$ 819,932
$ 912,137
$ 556,189
181,961
—
—
738,150
245,384
18,324
474,442
201,324
245,384
18,324
$ 939,474
GAAP diluted earnings per share, as reported
(Gain) loss from discontinued operations
$
2.21
(0.05)
$
3.05
(1.07)
$
1.41
0.15
1.57
0.59
—
—
0.13
$
2.29
$ 952,111
(119,768)
832,343
119,565
10,399
—
—
GAAP diluted earnings per share from continuing operations,
as reported
Restructuring charges and asset impairments
Goodwill impairment
Sale of leveraged lease assets
Tax adjustments
2.16
0.08
—
(0.06)
—
1.98
0.48
0.41
(0.13)
0.02
Diluted earnings per share from continuing operations, as adjusted
$
2.18
$
2.75
GAAP net cash provided by operating activities, as reported
Capital expenditures
Free cash flow
Payments related to restructuring charges
Reserve account deposits
Tax payments on sale of leveraged lease assets
Pension plan contributions
Free cash flow, as adjusted
$ 660,188
(176,586)
483,602
74,718
1,636
114,128
95,000
$ 948,987
(155,980)
793,007
107,002
35,354
—
123,000
$ 769,084
$ 1,058,363
$ 962,307
The sum of the earnings per share amounts may not equal the totals above due to rounding.
Management believes this presentation provides a reasonable basis on which to present the adjusted financial information. The Company’s financial results are reported in accordance
with generally accepted accounting principles (GAAP). The earnings per share and free cash flow results are adjusted to exclude the impact of special items such as restructuring charges
and asset impairments, goodwill impairment charges and other income and expense that materially impact the comparability of the Company’s results of operations. The use of free cash
flow has limitations. GAAP cash flow has the advantage of including all cash available to the Company after actual expenditures for all purposes. Free cash flow is the amount of cash that
management could have available for discretionary uses if it made different decisions about employing its cash. It adjusts for long-term commitments such as capital expenditures, and for
special items such as cash used for restructuring charges and contributions to its pension funds. All these items use cash that is not otherwise available to the Company and are important
expenditures. Management compensates for these limitations by using a combination of GAAP cash flow and free cash flow in doing its planning.
The adjusted financial information and certain financial measures such as earnings before interest and taxes (EBIT) and EBIT to interest are intended to be more indicative of the ongoing
operations and economic results of the Company. EBIT excludes interest and taxes and, as a result, has the effect of showing a greater amount of earnings than net income. The Company
believes that interest and taxes, though important, do not reflect management effectiveness, as these items are largely outside of its control. In assessing performance, the Company uses
both EBIT and net income.
This adjusted financial information should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our definition of this adjusted financial
information may differ from similarly titled measures used by other companies.
15
Pitney Bowes Annual Report 2012
Directors and Corporate Officers*
Directors
Corporate Officers
Helen Shan
Vice President—Finance
and Treasurer
Joseph H. Timko
Executive Vice President and
Chief Technology and
Strategy Officer
Johnna G. Torsone
Executive Vice President and
Chief Human Resources Officer
*As of March 2, 2013
Stockholders may visit the Pitney
Bowes corporate governance website
at www.pb.com under Our Company—
Leadership + Governance for information
concerning the Company’s governance
practices, including the Governance
Principles of the Board of Directors,
charters of the committees of the board,
the Company’s Business Practices
Guidelines and the Directors’ Code
of Business Conduct and Ethics.
Marc B. Lautenbach
President and
Chief Executive Officer
Leslie Abi-Karam
Executive Vice President
and President,
Pitney Bowes Communications
Solutions
Patrick M. Brand
Vice President and President,
Pitney Bowes Mailing,
North America
Amy C. Corn
Vice President, Secretary
and Chief Governance Officer
Daniel J. Goldstein
Executive Vice President
and Chief Legal and
Compliance Officer
Steven J. Green
Vice President—Finance
and Chief Accounting Officer
Sue McKinney
Vice President,
Worldwide Engineering
Michael Monahan
Executive Vice President
and Chief Financial Officer
John E. O’Hara
Executive Vice President
and President,
Pitney Bowes Software Solutions
Vicki A. O’Meara
Executive Vice President
and President,
Pitney Bowes Services Solutions
Rodney C. Adkins
Senior Vice President,
Systems and Technology Group,
International Business
Machines Corporation
Linda G. Alvarado
President and
Chief Executive Officer,
Alvarado Construction, Inc.
Anne M. Busquet
Principal,
AMB Advisors, LLC
Roger Fradin
President and
Chief Executive Officer,
Automation and
Control Solutions,
Honeywell International Inc.
Anne Sutherland Fuchs
Consultant
S. Douglas Hutcheson
Chief Executive Officer,
Leap Wireless International, Inc.
James H. Keyes
Retired Chairman,
Johnson Controls, Inc.
Marc B. Lautenbach
President and
Chief Executive Officer,
Pitney Bowes Inc.
Eduardo R. Menascé
Retired President,
Enterprise Solutions Group,
Verizon Communications Inc.
Michael I. Roth
Chairman and
Chief Executive Officer,
The Interpublic Group of
Companies, Inc.
Non-Executive Chairman,
Pitney Bowes Inc.
David L. Shedlarz
Retired Vice Chairman,
Pfizer Inc.
David B. Snow, Jr.
Former Chairman and
Chief Executive Officer,
Medco Health Solutions, Inc.
Robert E. Weissman
Retired Chairman,
IMS Health Incorporated
16
Pitney Bowes Annual Report 2012 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
For the fiscal year ended December 31, 2012
Commission file number: 1-3579
PITNEY BOWES INC.
Incorporated in Delaware
1 Elmcroft Road, Stamford, CT 06926-0700
(203) 356-5000
Securities registered pursuant to Section 12(b) of the Act:
I.R.S. Employer Identification No. 06-0495050
Title of Each Class
Common Stock, $1 par value per share
$2.12 Convertible Cumulative Preference Stock (no par value)
Name of Each Exchange on Which Registered
New York Stock Exchange
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
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
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
No
Indicate by check marks whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files) Yes
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 registrant's 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
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
As of June 30, 2012, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $2,999,131,402 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 12, 2013: 201,346,302 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed with the Securities and Exchange Commission (the Commission) no later than 120 days after our
fiscal year end and to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 13, 2013, are incorporated
by reference in Part III of this Form 10-K.
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PITNEY BOWES INC.
TABLE OF CONTENTS
PART I
PART II
Item 1.
Item 1A.
Business
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Signatures
Consolidated Financial Statements and Supplemental Data
2
PART I
ITEM 1. BUSINESS
General
Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware on April 23, 1920, as the Pitney Bowes Postage
Meter Company. Today, we are a global provider of software, hardware and services that enables and integrates both physical and digital
communications. We offer a full suite of equipment, supplies, software, services and solutions for managing and integrating physical
and digital communication channels. Our growth strategies focus on leveraging our expertise in physical communications with our
expanding capabilities in digital and hybrid communications. We will continue to develop and invest in products, software, services and
solutions that help our clients grow their business by more effectively communicating with their customers across physical, digital and
hybrid channels.
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 are available, free of charge, through
the Investor Relations section of our website at www.pb.com/investorrelations, as soon as reasonably practicable after these reports are
electronically filed with, or furnished to, the Securities and Exchange Commission (the SEC). The information found on our website is
not part of this or any other report we file with or furnish to the SEC.
Our Forms 10Ks, 10Qs, 8Ks, proxy statements and other information can also be obtained from the SEC's website at www.sec.gov. You
may also read and copy any document we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549 or request copies of these documents by writing to the Office of Public Reference. Call the SEC at (800) 732-0330 for further
information on the operations of the Public Reference Room and copying charges.
Business Segments
We organize and report our business activities within two groups based on the clients they primarily serve, Small & Medium Business
Solutions and Enterprise Business Solutions. See Note 16 to the Consolidated Financial Statements for financial information concerning
our reporting segments. The principal products and services of each of our reporting segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the U.S. and Canadian revenue and related expenses from the sale, rental and financing of our
mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services; and payment
solutions.
International Mailing: Includes the revenue and related expenses from the sale, rental and financing of our mail finishing, mail
creation, shipping equipment and software; supplies; support and other professional services; and payment solutions outside North
America.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale, support and other professional services of
our high-speed, production mail systems, sorting and production print equipment.
Software: Includes the worldwide revenue and related expenses from the sale and support services of non-equipment-based
mailing, client relationship and communication and location intelligence software.
Management Services: Includes worldwide revenue and related expenses from facilities management services; secure mail
services; reprographic, document management services; print outsourcing services; and litigation support and eDiscovery services.
Mail Services: Includes worldwide revenue and related expenses from presort mail services and cross-border ecommerce solutions.
Marketing Services: Includes the revenue and related expenses from direct marketing services for targeted clients.
Support Services
We maintain extensive field service organizations to provide servicing for our clients' equipment, usually in the form of annual maintenance
contracts.
Marketing
We market our products and services through our sales force, direct mailings, outbound telemarketing, independent distributors and the
Internet. We sell to a variety of business, governmental, institutional and other organizations. We have a broad base of clients, and we
are not dependent upon any one client or type of client for a significant part of our revenue.
3
Credit Policies
We establish credit approval limits and procedures based on the credit quality of the client and the type of product or service provided
to control risk in extending credit to clients. In addition, we utilize an automatic approval program for certain leases. This program is
designed to facilitate low dollar transactions by utilizing historical payment patterns and losses realized for clients with common credit
characteristics. The program defines the criteria under which we will accept a client without performing a more detailed credit
investigation, such as maximum equipment cost, a client's time in business and payment experience.
We closely monitor the portfolio by analyzing industry sectors and delinquency trends by product line, industry and client to ensure
reserve levels and credit policies reflect current trends. Management continues to closely monitor credit lines, collection resources and
revise credit policies as necessary to be more selective in managing the portfolio.
Competition
We are a major provider of products and services in the majority of our business segments and our long experience, reputation for product
quality and our sales and support service organizations are important factors in influencing client choices. All of our segments face
competition from a number of companies. In particular, we face competition from companies that offer products and services as alternative
means of message communications, including from postage meter and mailing machine suppliers for new placements of mailing equipment
and from companies that offer alternatives to our mailing products, services and software. We also face competition from companies
looking to digitize mail, as well as those providing on-line payment services. We offer a variety of finance and payment offerings to our
clients to finance their equipment purchases through our captive financing business. Our financing operations face competition, in varying
degrees, from large, diversified financial institutions, including leasing companies, commercial finance companies and commercial banks,
to small, specialized firms. We are a major provider of facilities management and document management services to the corporate,
financial services, professional services and government markets and compete against national, regional and local firms offering similar
services.
Research, Development and Intellectual Property
We invest in research and development programs to develop 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 license or any group of related patents or group of related licenses. Our
expenditures for research and development were $137 million, $149 million and $156 million in 2012, 2011 and 2010, respectively.
Material Suppliers
We depend on third-party suppliers for a variety of services, components, supplies and a large portion of our product manufacturing. In
certain instances, we rely on single sourced or limited sourced suppliers around the world because the relationship is advantageous due
to quality, price, or there are no alternative sources. We have not historically experienced shortages in services, components or products
and believe that our available sources for materials, components, services and supplies are adequate.
Regulatory Matters
We are subject to the regulations of postal authorities worldwide 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.
Employees and Employee Relations
At December 31, 2012, we employed approximately 20,800 persons in the U.S. and 6,600 persons outside the U.S. The large majority
of our employees are not represented by any labor union and we believe that our current relations with employees are good. Management
follows the policy of keeping employees informed of decisions and encourages and implements employee suggestions whenever
practicable.
Executive Officers
See Part III, Item 10. "Directors, Executive Officers and Corporate Governance" of this Form 10-K for information about Executive
Officers of the Registrant.
4
ITEM 1A. RISK FACTORS
In addition to the disclosures and other information discussed in this report, the following risk factors should be considered in evaluating
our business. We work to manage and mitigate these risks proactively, including through the use of an enterprise risk management
program. Nevertheless, the following risks, some of which may be beyond our control, could materially impact our businesses, our brand
and reputation, financial condition and results of operations and may cause future results to be materially different than our current
expectations:
We are subject to postal regulations and processes, which could adversely affect our revenue and profitability.
The majority of our revenue is directly or indirectly subject to regulation and oversight by postal authorities worldwide. We 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 those countries. Our profitability and revenue in a particular country could be affected by 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, client behavior and the overall mailing industry. Further, if we are found to have
violated postal regulations, we could be subject to fines or civil or criminal penalties.
An accelerated decline in physical mail volumes could have an increasingly adverse effect on our revenues and profitability as we
transition to more digital offerings and other services.
The use of postal services to send physical mail continues to decline, which has had an adverse effect on our revenues and profitability.
An accelerated or sudden decline in physical mail volumes could result from, among other things, changes in our clients' communication
behavior; changes in communications technologies; expansion of mobile Internet access; the growing trend by businesses to incent or
require their clients to use alternatives to mail for payments and statement presentment; government actions such as executive orders,
legislation or regulations that 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; and unexpected events such as the transmission of
biological or chemical agents or acts of terrorism.
We do not expect total mail volumes to rebound to prior peak levels. We have introduced various product and service offerings as
alternatives to physical mail. However, margin on these new product and service offerings are lower than our traditional mailing business;
there is no guarantee that these offerings will be widely accepted in the marketplace; and if accepted, they will face competition from
existing and emerging alternative products and services.
We may not realize the anticipated benefits of our strategic acquisitions and divestitures, which may harm our financial results.
We have made, and we may continue to make, strategic acquisitions and divestitures that involve significant risks and uncertainties,
including:
•
•
•
•
challenges in identifying and evaluating the acquisitions and divestitures that best enable our future success;
inability to complete acquisitions or divestitures on satisfactory terms or time frames or at all;
loss of key employees or clients of businesses acquired or divested;
difficulties in integrating newly acquired businesses and operations, including combining product and service offerings and
entering new markets;
difficulties in reducing fixed costs previously associated with divested assets or businesses; and
difficulties in identifying and separating intellectual property to be divested from intellectual property we wish to keep.
•
•
In addition, as we increase our focus towards providing more digital technology and software solutions for businesses while maintaining
a leadership role in the mailing industry, restructuring charges, asset impairments and other expenses may result. We may also need to
divert and/or dedicate management and other resources to complete the transactions. Furthermore, such transactions often have post-
closing arrangements including but not limited to post-closing adjustments, transition services, escrows or indemnifications, the financial
results of which can be difficult to predict. If we do not realize the anticipated benefits or synergies of our acquisitions and divestitures,
our consolidated financial position, results of operations, cash flows and stock price could be negatively affected.
We depend on third-party suppliers and outsource providers and our business could be adversely affected if we fail to manage these
constituents effectively.
We depend on third-party suppliers and outsource providers for a variety of services, components and supplies, including a large portion
of our product manufacturing and some non-core functions and operations. In certain instances, we rely on single sourced or limited
sourced suppliers and outsourcing vendors around the world because doing so is advantageous due to quality, price or lack of alternative
sources. If production or service was interrupted and we were not able to find alternate third-party suppliers, we could experience
5
disruptions in manufacturing and operations including product shortages, higher freight costs and re-engineering costs. If outsourcing
services are interrupted or not performed or the performance is poor, our ability to process, record and report transactions with our clients
and other constituents could be impacted. Such interruptions in the provision of supplies and/or services could result in our inability to
meet client demand, damage our reputation and client relationships and adversely affect our business.
Market and business deteriorations and credit downgrades could adversely affect our cost of funds and related margins, liquidity,
competitive position and access to capital markets.
We provide financing services to our clients for equipment, postage and supplies purchases. Our ability to provide these services is
largely dependent upon our continued access to the U.S. capital markets. An additional source of liquidity consists of deposits held in
our wholly owned industrial loan corporation, The Pitney Bowes Bank. A credit ratings downgrade, material capital market disruptions,
significant withdrawals by depositors at The Pitney Bowes Bank, adverse changes to our industrial loan charter or a significant decline
in cash flow could impact our ability to maintain adequate liquidity and provide competitive offerings to our clients. If such events
occurred, there can be no assurance that liquidity funding sources would be available or sufficient, and those funding sources that may
be available could result in a significantly higher cost of borrowing and adversely impact our ability to fund various discretionary priorities,
including business investments, pension contributions and dividend payments.
Failure to comply with privacy laws and other related regulations could subject us to significant liability and damage our reputation.
Several of our businesses use, process and store client 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. These laws are continuing to evolve. We, and our third-party benefits administrators,
have security systems and procedures in place that are designed to protect against unauthorized access to such information; however,
there is no guarantee that experienced computer programmers or hackers will not be able to gain access to our securities systems or the
security systems of our third-party benefits administrators and misappropriate confidential information. Any significant violations of
data privacy, disclosure of other confidential information or failure to comply with any of these laws, regulations or contract provisions
could damage our reputation and business and subject us to significant remediation costs and/or liability.
A disruption of our information technology systems could adversely impact our business and operating results.
Our portfolio of product, service and financing solutions is dependent on reliable information technology systems. We maintain secure
systems to collect revenue for certain postal services, which is critical to enable both our systems and the postal systems to run reliably.
In addition, we rely extensively on our computer systems to manage our business. These systems are subject to adverse acts of nature,
targeted or random security breaches, cyber-attacks, computer viruses, vandalism, power loss, computer or communications failures and
other unexpected events. Although we have disaster recovery plans in place to protect our business operations in case of such events,
those plans may not be successful. If our information technology systems are damaged or cease to function properly, we could be prevented
from fulfilling orders and servicing clients and postal services. Also, we may have to make a significant investment to repair or replace
these systems, and could suffer loss of critical data and interruptions or delays in our operations. The continuous and uninterrupted
performance of our information technology systems is critical to our ability to support and service our clients, to support postal services
and to manage our business.
Our inability to obtain and protect our intellectual property and defend against claims of infringement by others may negatively impact
our operating results.
We do not believe our businesses are materially dependent on any one patent or license or group of patents or licenses. However, 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 to our business. If we fail to enforce our intellectual property rights, our
businesses 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.
If we fail to comply with government contracting regulations, our operating results, brand name and reputation could suffer.
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 adversely affect our brand and reputation.
6
Our operations expose us to the risk of material environmental liabilities, litigation and violations.
We are subject to numerous foreign, federal, state and local environmental protection and health and safety laws governing, among other
things:
•
•
•
•
the generation, storage, use and transportation of hazardous materials;
emissions or discharges of substances into the environment;
substances that may be subject to regulation in the manufacture, distribution, use or disposal of our products; and
the health and safety of our employees.
If we are found to have violated these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. In addition,
private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. From time to
time, we may be involved in litigation over these issues.
Certain environmental laws assess liability on current and previous owners or operators of real property for the cost of removal or
remediation of hazardous substances at their property or at properties at which they have disposed of hazardous substances. We may be
subject to material liabilities for environmental claims for personal injury or cleanup in the future based on existing environmental
conditions resulting from events that happened long ago.
The ultimate cost of cleanup at disposal sites and manufacturing facilities is difficult to predict. Environmental laws are complex, change
frequently and have tended to become more stringent over time. There can be no assurance that our costs of complying with environmental
protection and health and safety laws, or our liabilities arising from releases of, or exposures to, hazardous substances will not materially
adversely affect our financial condition, results of operations or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our world headquarters is located in Stamford, Connecticut. We have facilities worldwide that are either leased or owned. Our primary
manufacturing and assembly facility is located in Danbury, Connecticut and our principal research and development facilities are located
in Danbury, Connecticut and Noida, India. We believe that our manufacturing and assembly, administrative and sales office locations
are adequate for the needs of all of our operations.
ITEM 3. 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 clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In October 2009, the company and certain of its current and former officers were named as defendants in NECA-IBEW Health & Welfare
Fund v. Pitney Bowes Inc. et al., a class action lawsuit filed in the U.S. District Court for the District of Connecticut. The complaint
asserts claims under the Securities Exchange Act of 1934 on behalf of those who purchased the common stock of the company during
the period between July 30, 2007 and October 29, 2007 alleging that the company, in essence, missed two financial projections. Plaintiffs
filed an amended complaint in September 2010. After briefing on the motion to dismiss was completed, the plaintiffs filed a new amended
complaint on February 17, 2012. We have moved to dismiss this new amended complaint. We expect to prevail in this legal action;
however, as litigation is inherently unpredictable, there can be no assurance in this regard. If the plaintiffs do prevail, the results may
have a material effect on our financial position, results of operations or cash flows. Based upon our current understanding of the facts
and applicable laws, we do not believe there is a reasonable possibility that any loss has been incurred.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
7
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded under the symbol “PBI” and is principally traded on the New York Stock Exchange (NYSE). At January 31,
2013, we had 20,614 common stockholders of record. The following table sets forth the high and low sales prices, as reported on the
NYSE, and the cash dividends paid per share of common stock, for the periods indicated.
Year Ended December 31, 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Share Repurchases
Stock Price
High
Low
Dividend Per
Share
$19.65
$17.87
$15.27
$14.73
$26.15
$26.36
$23.47
$21.20
$17.45
$12.81
$12.64
$10.34
$23.46
$22.05
$18.00
$17.33
$0.375
0.375
0.375
0.375
$1.50
$0.37
0.37
0.37
0.37
$1.48
We periodically repurchase shares of our common stock to manage the dilution created by shares issued under employee stock plans
and for other purposes in the open market. There were no shares repurchased in 2012. At December 31, 2012, we have remaining
authorization to repurchase up to $50 million of our common stock.
Stock Performance Graph
In 2012, we revised our Peer Group. Our previous peer group (Old Peer Group) was weighted towards companies with higher revenues
and market capitalization than ours. Our new group (New Peer Group) consists of services, industrial and technology companies and
eliminates our previous focus on industrial machinery companies. The New Peer Group consists of companies with revenues between
$2 billion and $22 billion and market capitalization between $1 billion and $14 billion.
The New Peer Group is comprised of the following companies: Agilent Technologies Inc., Alliance Data Systems Corp., Avery
Dennison Corp., Diebold Inc., R.R. Donnelley & Sons Co., DST Systems, Inc., Fiserv Inc., Harris Corp., Iron Mountain Inc., Lexmark
International, Inc., NCR Corp., Pitney Bowes Inc., Rockwell Automations Inc., Unisys Corp. and Xerox Corporation.
The Old Peer Group is comprised of the following companies: Automatic Data Processing, Inc., Diebold, Inc., R.R. Donnelley &
Sons Co., DST Systems, Inc., FedEx Corporation, Hewlett-Packard Company, Lexmark International, Inc., Pitney Bowes Inc., United
Parcel Service, Inc., and Xerox Corporation.
All information is based upon data independently provided to us by Standard & Poor's Corporation and is derived from their official
total return calculation. Total return for the S&P 500 Composite Index, the New Peer Group and the Old Peer Group is based on
market capitalization, weighted for each year.
8
The accompanying graph compares the most recent five-year share performance of Pitney Bowes, the Standard and Poor's (S&P) 500
Composite Index, the New Peer Group and the Old Peer Group and shows that on a total return basis, assuming reinvestment of all
dividends, $100 invested in the company's common stock, the S&P 500 Composite Index, the New Peer Group and the Old Peer
Group on December 31, 2007 would have been worth $40, $109, $90 and $74, respectively, on December 31, 2012.
Company Name / Index
Pitney Bowes
S&P 500
New Peer Group
Old Peer Group
Indexed Returns December 31,
2007
2008
2009
2010
2011
2012
$100
$100
$100
$100
$70
$63
$56
$74
$67
$80
$72
$93
$76
$92
$86
$95
$62
$94
$79
$81
$40
$109
$90
$74
9
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data 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.
Years Ended December 31,
2012
4,904,015
2011 (1)
2010 (1)
2009 (1)
2008 (1)
$
5,122,596
$
5,260,356
$
5,373,163
$
6,070,552
Total revenue
Amounts attributable to common stockholders:
Net income from continuing operations
Income (loss) from discontinued operations
Net income - Pitney Bowes Inc.
$
$
$
435,932
9,231
445,163
Basic earnings per share attributable to common stockholders (2):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
$
$
2.18
0.05
2.22
Diluted earnings per share attributable to common stockholders (2):
2.16
Continuing operations
$
Discontinued operations
Net income - Pitney Bowes Inc.
Cash dividends paid per share of common stock
Balance sheet data:
Total assets
Long-term debt
Total debt
Noncontrolling interests (Preferred stockholders'
equity in subsidiaries
0.05
2.21
1.50
2012
7,859,891
3,642,375
4,017,375
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
400,556
216,924
617,480
1.98
1.07
3.06
1.98
1.07
3.05
1.48
$
$
$
$
$
$
$
324,267
(31,888)
292,379
1.57
(0.15)
1.42
1.57
(0.15)
1.41
1.46
2011
8,147,104
3,683,909
4,233,909
296,370
December 31,
2010
8,444,023
4,239,248
4,289,248
296,370
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
415,149
8,296
423,445
2.01
0.04
2.05
2.00
0.04
2.04
1.44
2009
8,571,039
4,213,640
4,439,662
296,370
$
$
$
$
$
$
$
$
$
$
$
435,529
(15,736)
419,793
2.10
(0.08)
2.01
2.08
(0.08)
2.00
1.40
2008
8,810,236
3,934,865
4,705,366
374,165
(1) Amounts have been revised to reflect the results of IMS as a discontinued operation.
(2) The sum of earnings per share may not equal the totals due to rounding.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-
looking. 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 may change based on various factors. These forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could differ
materially. Words such as "estimate", "target", "project", "plan", "believe", "expect", "anticipate", "intend", and similar expressions may
identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. 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, without limitation:
declining physical mail volumes
•
• mailers’ utilization of alternative means of communication or competitors’ products
•
access to capital at a reasonable cost to continue to fund various discretionary priorities, including business investments, pension
contributions and dividend payments
timely development and acceptance of new products and services
successful entry into new markets
success in gaining product approval in new markets where regulatory approval is required
changes in postal or banking regulations
interrupted use of key information systems
third-party suppliers’ ability to provide product components, assemblies or inventories
our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations
not central to our business
changes in privacy laws
intellectual property infringement claims
regulatory approvals and satisfaction of other conditions to consummate and integrate any acquisitions
negative developments in economic conditions, including adverse impacts on customer demand
our success at managing customer credit risk
significant changes in pension, health care and retiree medical costs
changes in interest rates, foreign currency fluctuations or credit ratings
income tax adjustments or other regulatory levies for prior audit years and changes in tax laws, rulings or regulations
impact on mail volume resulting from concerns over the use of the mail for transmitting harmful biological agents
changes in international or national political conditions, including any terrorist attacks
acts of nature
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
Consolidated Financial Statements contained in this report. Certain amounts and discussions below have been changed to reflect the
reclassification of our International Mailing Services (IMS) operations, previously included in our Mail Services segment, as a discontinued
operation. All table amounts are presented in millions of dollars, unless otherwise stated. Table amounts may not sum to the total due
to rounding.
Overview
Revenue for 2012 decreased 4% to $4,904 million compared to $5,123 million in 2011 as worldwide economic conditions, pricing
pressures, declining mail volumes and constrained public sector spending in Europe all contributed to the decline. Worldwide economic
conditions continue to impact equipment sales, which declined 5% compared to last year. Declining equipment sales in prior periods
also impacts financing revenue, which declined 10% in 2012 compared to 2011. Rentals and supplies revenue both declined 8% due to
a decline in mail volumes and our installed meter base. Software revenue declined 3% mainly due to an overall economic uncertainty
in our global markets, particularly in our European and Asia Pacific markets.
Net income from continuing operations and earnings per diluted share for 2012 were $436 million and $2.16, respectively, compared to
$401 million and $1.98, respectively, in 2011. The improvement in 2012 was primarily due to lower restructuring charges and goodwill
impairment charges partially offset by higher tax expense due to tax benefits recognized from tax settlements in 2011.
As a result of the continuing under-performance of our IMS operations, and to enable us to better focus on higher growth cross-border
ecommerce parcel opportunities, we began exploring strategic alternatives to exit the IMS operations related to the international delivery
11
of mail and catalogs. During the year, we recorded goodwill and asset impairment charges of $35 million to write down the net assets
of IMS to their estimated fair value less costs to sell. These charges and the operating results of IMS for all periods presented have been
classified as discontinued operations.
For the year, cash flow from operations declined to $660 million compared to $949 million in 2011. Lower cash flow in 2012 was
primarily due to higher tax payments and a lower cash impact from net collections of finance and accounts receivables. Also in 2012,
we received $106 million from the sale of leveraged lease assets and $340 million from the issuance of new debt, while uses of cash
included $550 million to redeem maturing debt, $319 million to pay dividends and $177 million to fund capital investments. At
December 31, 2012, cash and cash equivalents and short-term investments were $950 million.
Outlook
Worldwide economic conditions continue to create a challenging business environment causing many of our clients to remain cautious
about spending and therefore impact the performance of our business segments. Our growth initiatives continue to focus on leveraging
our expertise in physical communications with our expanding capabilities in digital and hybrid communications and developing products,
software, services and solutions that help our clients grow their businesses by more effectively communicating with their customers. We
expect to make continued investments in these growth initiatives during the first half of 2013, which are expected to lead to greater
revenue and margin contribution in the second half of 2013.
We expect revenue growth in certain of our Enterprise Business Solutions segments in 2013 from our ecommerce, print outsourcing and
software solutions. We expect our mix of business will continue to shift to more enterprise related products and solutions and that these
new revenue streams will have lower margins than our traditional Mailing business.
Small and Medium Business Solutions revenues will continue to be challenged by the decline in physical mail volumes. However, in
2013, we expect revenue will benefit from an improvement in equipment sales trends, due in part to global sales of our Connect+TM
communications systems and SendSuite LiveTM shipping solutions, and that this improvement will lead to a moderation in the decline
of rentals, financing and supplies revenue in the second half of 2013.
Revenue by source and the related cost of revenue are shown in the following tables:
RESULTS OF OPERATIONS
Revenue
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total revenue
Year Ended December 31,
% change
2012
2011
2010
2012
2011
$
$
938
284
413
570
495
690
1,515
4,904
$
$
986
308
427
619
547
707
1,529
5,123
$
1,023
318
390
651
587
712
1,579
5,260
$
(5)%
(8)%
(3)%
(8)%
(10)%
(2)%
(1)%
(4)%
(4)%
(3)%
9 %
(5)%
(7)%
(1)%
(3)%
(3)%
12
Cost of revenue
Cost of equipment sales
Cost of supplies
Cost of software
Cost of rentals
Financing interest expense
Cost of support services
Cost of business services
Total cost of revenue
Equipment sales
Year Ended December 31,
2012
2011
2010
$
% of revenue
$
% of revenue
$
$
459
88
93
115
81
440
1,157
2,433
48.9% $
30.9%
22.5%
20.3%
16.4%
63.8%
76.4%
49.6% $
449
97
99
139
88
453
1,161
2,486
45.6 % $
31.6 %
23.2 %
22.4 %
16.0 %
64.1 %
76.0 %
48.5 % $
$
469
97
93
155
88
452
1,173
2,529
% of revenue
45.9%
30.5%
23.9%
23.9%
15.0%
63.5%
74.3%
48.1%
Equipment sales revenue decreased 5% to $938 million in 2012 compared to 2011 as worldwide economic conditions continue to impact
customer purchasing behavior. Foreign currency translation had an unfavorable impact on revenue of 2%. Cost of equipment sales as
a percentage of revenue increased to 48.9% compared to 45.6% in the prior year primarily due to a higher mix of lower margin product
sales, pricing pressure on competitive placements and a decline in the number of lease extensions relative to prior year.
In 2011, equipment sales revenue decreased 4% to $986 million compared to 2010, including a positive impact of 2% from foreign
currency translation. Equipment sales were adversely impacted as many customers delayed capital investment commitments and extended
leases of existing equipment. Cost of equipment sales as a percentage of revenue improved to 45.6% compared with 45.9% in the prior
year due to the mix of higher margin product sales and lease extensions.
Supplies
Supplies revenue decreased 8% to $284 million in 2012 compared to 2011 primarily due to reduced mail volumes, fewer installed meters
worldwide and lower ink and toner sales. Foreign currency translation had a 2% unfavorable impact on revenue. Cost of supplies as a
percentage of revenue was 30.9% compared to 31.6% in the prior year primarily due to a favorable mix of higher margin core supplies
sales.
Supplies revenue in 2011 decreased 3% to $308 million compared to 2010 due to reduced mail volumes and fewer installed meters
worldwide. Foreign currency translation had a 2% favorable impact. Cost of supplies as a percentage of revenue was 31.6% compared
with 30.5% in the prior year primarily due to the mix of lower margin supply sales worldwide.
Software
Software revenue decreased 3% to $413 million in 2012 compared to 2011. Foreign currency translation had a 1% unfavorable impact
on revenue. The decrease was primarily attributable to weak economic conditions and constrained public sector spending in Europe and
lower sales in Asia Pacific. Cost of software as a percentage of revenue improved to 22.5% compared with 23.2% in the prior year
primarily due to reduced headcount.
Software revenue in 2011 increased 9% to $427 million compared to 2010 driven by higher licensing revenue (3%), the full year impact
of 2010 acquisitions (3%) and foreign currency translation (3%). Cost of software as a percentage of revenue improved to 23.2% compared
with 23.9% in the prior year due to the increase in high margin licensing revenue.
Rentals
Rentals revenue decreased 8% to $570 million in 2012 compared to 2011 primarily due to declines in North America from fewer meters
in service and lower rentals in France due to a change in mix from rental to equipment sales. Foreign currency translation had an
unfavorable impact on revenue of 1%. Cost of rentals as a percentage of revenue improved to 20.3% compared with 22.4% in the prior
year mainly due to lower depreciation expense.
Rentals revenue decreased 5% to $619 million in 2011 compared to 2010 as customers in the U.S. continued to downsize to smaller, fully
featured machines and fewer installed meters worldwide. Foreign currency translation had a 1% positive impact. Cost of rentals as a
percentage of revenue improved to 22.4% compared with 23.9% in the prior year primarily due to lower depreciation associated with
higher levels of lease extensions.
13
Financing
Financing revenue decreased 10% in 2012 compared to 2011 and 7% in 2011 compared to 2010 primarily due to declining equipment
sales in prior periods. Financing interest expense as a percentage of revenue was 16.4%, 16.0% and 15.0% in 2012, 2011 and 2010,
respectively. The year-over-year increases were due to higher effective interest rates. Financing interest expense represents our cost of
borrowing associated with the generation of financing revenue. In computing financing interest expense, we assume a 10:1 leverage
ratio of debt to equity and apply our overall effective interest rate to the average outstanding finance receivables.
Support Services
Support services revenue decreased 2% to $690 million in 2012 compared to 2011 primarily due to foreign currency translation. Cost
of support services as a percentage of revenue was 63.8% in 2012, a slight improvement versus 64.1% in 2011.
Support services revenue decreased 1% to $707 million in 2011 compared to 2010 driven by lower new equipment placements worldwide.
Foreign currency translation had a positive impact of 2%. Cost of support services as a percentage of revenue increased to 64.1% compared
with 63.5% in the prior year primarily due to an increase in installations of high-end integrated mailing systems.
Business Services
Business services revenue decreased 1% to $1,515 million in 2012 compared to 2011 primarily due to lower facilities management
volumes, account contractions and pricing pressures on new business and contract renewals. Revenue in 2012 revenue benefited from
the recovery during the year of $20 million in revenue lost in 2011 as a result of a fire at our Dallas presort facility. Cost of business
services as a percentage of revenue was 76.4% in 2012 and 76.0% in 2011 due to lower revenues and pricing pressure on new business
and contract renewals.
Business services revenue decreased 3% to $1,529 million in 2011 compared to 2010 primarily due to the loss of several large contracts
in 2010 and the lost revenue from the fire at the Dallas presort facility. Foreign currency translation had a 1% favorable impact. Cost
of business services as a percentage of revenue increased to 76.0% compared with 74.3% in the prior year primarily due to lower revenues
and pricing pressure on new business and contract renewals.
Selling, general and administrative (SG&A)
SG&A expense decreased 5% in 2012 to $1,598 million compared to 2011 primarily driven by lower employee-related costs due to prior
restructuring actions and productivity initiatives, and to a lesser extent, lower intangible asset amortization expense and credit loss and
bad debt provisions.
SG&A expense decreased 2% in 2011 to $1,690 million compared to 2010 primarily driven by a 4% decrease in employee-related costs
due to prior restructuring actions and productivity initiatives and a 27% decrease in credit loss and bad debt provisions.
Restructuring charges and asset impairments
Restructuring charges and asset impairments were $23 million, $137 million and $182 million, in 2012, 2011 and 2010, respectively.
During 2012, we announced actions to further streamline our business operations and reduce our cost structure. These actions consisted
primarily of workforce reductions and resulted in a pre-tax restructuring charge of $38 million. During the year, we also reversed a net
$15 million of restructuring reserves based on a review of our remaining obligations under prior programs.
Restructuring charges in 2011 and 2010 represent charges taken in connection with a series of strategic transformation initiatives announced
in 2009. These initiatives were designed to transform and enhance the way we operate as a global company, enhance our responsiveness
to changing market conditions and create improved processes and systems and were implemented over a three year period through 2011.
Restructuring charges and asset impairments also include asset impairment charges unrelated to restructuring actions of $5 million in
both 2011 and 2010. Restructuring charges associated with our IMS operations have been reclassified as discontinued operations.
During 2012 and 2011, we also recorded asset impairment charges of $10 million and $12 million, respectively, associated with our IMS
operations. These charges are included in discontinued operations in the Consolidated Statements of Income. See Critical Accounting
Estimates section below for further details.
14
Goodwill impairment
During 2012 and 2011, we recorded goodwill impairment charges of $18 million and $46 million, respectively, associated with our IMS
operations. These charges are included in discontinued operations in the Consolidated Statements of Income. In 2011, we also recorded
a goodwill impairment charge of $84 million associated with the international operations of our Management Services segment (PBMSi).
This charge was included as Goodwill impairment in the Consolidated Statements of Income. See Critical Accounting Estimates section
below for further details of these charges.
Other expense (income), net
Other expense, net in 2012 includes income of $11 million from insurance proceeds received in connection with the February 2011 fire
at our Dallas presort facility offset by a loss of $6 million on a forward rate swap agreement, a loss of $2 million on the early redemption
of debt and a pre-tax loss of $4 million on the sale of leveraged lease assets. We do not anticipate receiving any further insurance proceeds
relating to the Dallas fire.
Other income, net in 2011 includes income of $27 million from insurance proceeds received in connection with the fire at our Dallas
presort facility and a pre-tax loss of $7 million on the sale of leveraged lease assets.
Income taxes
See Note 8 to the Consolidated Financial Statements.
Discontinued operations
See Note 18 to the Consolidated Financial Statements.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
See Note 9 to the Consolidated Financial Statements.
15
Business Segments
We conduct our business activities in seven reporting segments within two business groups, Small & Medium Business Solutions and
Enterprise Business Solutions. The following tables show revenue and EBIT by business segment for 2012, 2011 and 2010. The IMS
business, now reported as a discontinued operation, was previously included in our Mail Services segment. Segment EBIT, a non-GAAP
measure, is determined by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT
excludes interest, taxes, general corporate expenses not allocated to a particular business segment, restructuring charges, asset impairments
and goodwill charges, which are recognized on a consolidated basis. Management uses segment EBIT to measure profitability and
performance at the segment level. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should
be read in conjunction with our consolidated results of operations. Refer to Note 16 to the Consolidated Financial Statements for a
reconciliation of segment EBIT to income from continuing operations before income taxes.
Revenue
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total
EBIT
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total
Small & Medium Business Solutions
Year Ended December 31,
% change
2012
2011
2010
2012
2011
1,819
676
2,495
512
393
921
445
138
2,409
4,904
$
$
1,961
707
2,669
544
407
949
412
142
2,454
5,123
$
$
2,101
675
2,775
561
375
999
408
142
2,485
5,260
(7)%
(4)%
(7)%
(6)%
(3)%
(3)%
8 %
(3)%
(2)%
(4)%
(7)%
5 %
(4)%
(3)%
9 %
(5)%
1 %
— %
(1)%
(3)%
Year Ended December 31,
% change
2012
2011
2010
2012
2011
689
79
768
26
38
55
101
28
248
1,016
$
$
728
99
827
33
38
76
103
26
276
1,103
$
$
755
79
834
61
40
93
85
26
304
1,139
(5)%
(20)%
(7)%
(21)%
(1)%
(28)%
(2)%
7 %
(10)%
(8)%
(4)%
25 %
(1)%
(47)%
(5)%
(18)%
22 %
— %
(9)%
(3)%
$
$
$
$
Small & Medium Business Solutions revenue decreased 7% to $2,495 million in 2012 compared to $2,669 million in 2011. EBIT
decreased 7% to $768 million compared to $827 million in 2011. Small and Medium Business Solutions revenue in 2011 decreased 4%
compared to $2,775 million in 2010 and EBIT decreased 1% compared to $834 million in 2010. Within the Small & Medium Business
Solutions group:
North America Mailing
North America Mailing revenue decreased 7% to $1,819 million in 2012 compared to 2011. Equipment sales declined 6% due to continued
uncertain economic conditions and declining mail volumes. Financing revenue was 9% lower than last year due to the declining equipment
sales in prior periods. Rentals revenue declined 7% primarily due to fewer meters in service and supplies revenue declined 11% due to
lower mail volumes, a declining installed meter base and lower ink and toner sales. EBIT decreased 5% to $689 million in 2012 compared
to $728 million in 2011 primarily due to the decline in revenue; however, EBIT margin was slightly improved over last year due in part
to prior strategic initiatives, productivity improvements and lower credit losses.
16
North America Mailing revenue in 2011 decreased 7% to $1,961 million compared to $2,101 million in 2010. Foreign currency translation
had a less than 1% favorable impact on revenue. Excluding the effects of foreign currency, equipment sales declined 7% as increased
concerns about economic conditions resulted in customers delaying purchases of new equipment and extending leases of existing
equipment. Lease extensions are profitable transactions but generate less revenue in the current period than new equipment sales. The
lagging effects of lower equipment sales in prior periods, fewer meter placements and declining mail volumes contributed to declines in
financing revenue (11%), rental revenue (6%), supplies revenue (8%) and service revenue (4%). EBIT decreased 4% to $728 million in
2011 compared to $755 million in 2010 primarily due to lower revenues; however, EBIT margin improved as a result of continued
productivity improvements and lower credit losses.
International Mailing
International Mailing revenue decreased 4% to $676 million in 2012 compared to $707 million in 2011; however, excluding the effects
of foreign currency translation, revenue was flat compared to last year. Excluding the effects of foreign currency, equipment sales
increased 3% due to higher sales in the Nordics and France, partially offset by lower sales in the U.K. Equipment sales in France increased
due to the launch of the Connect+TM mailing system in 2012 and a change in mix from rentals to equipment sales. The decline in the U.K.
was due to overall economic condition. Rental revenue declined 6% primarily due to the change in mix from rentals to equipment sales
in France and lower rentals in the U.K. EBIT decreased 20% to $79 million compared to $99 million in 2011 primarily due to an increase
in the mix of lower margin product sales, including the equipment sales in the Nordics. Foreign currency translation unfavorably impacted
EBIT by 5%.
International Mailing revenue increased 5% in 2011 to $707 million compared to $675 million in 2010, but included a favorable impact
of 6% from foreign currency translation. Excluding the effects of foreign currency, the underlying decrease was primarily due to lower
equipment sales in the U.K., Germany, Asia Pacific and Latin America due to increased concerns about economic conditions throughout
the regions. EBIT increased 25% to $99 million in 2011 compared to $79 million in 2010 primarily due to continued productivity
improvements. Foreign currency translation favorably impacted EBIT by 5%.
Enterprise Business Solutions
Enterprise Business Solutions revenue decreased 2% in 2012 to $2,409 million compared to $2,454 million in 2011. EBIT decreased
10% in 2012 to $248 million compared to $276 million in 2011. Enterprise Business Solutions revenue in 2011 decreased 1% to $2,454
million compared to $2,485 million in 2010 and EBIT decreased 9% to $276 million compared to $304 million in 2010. Within the
Enterprise Business Solutions group:
Production Mail
Production Mail revenue decreased 6% in 2012 to $512 million compared to $544 million in 2011 primarily due to global economic
uncertainty that existed throughout the year. Foreign currency translation had an unfavorable impact on revenue of 2%. EBIT decreased
21% to $26 million in 2012 compared to $33 million in 2011 primarily due to the decline in revenue and higher mix of lower margin
sales.
Production Mail revenue decreased 3% in 2011 to $544 million compared to $561 million in 2010. Foreign currency translation had a
favorable impact of 2% on revenue. Excluding the effects of foreign currency, equipment sales decreased 11% as many enterprise accounts
worldwide, especially in Europe, delayed capital investment commitments. EBIT decreased 47% to $33 million compared to $61 million
in 2010 due to lower revenue and the expenses incurred in the development of VollyTM, our future secure digital mail delivery service
offering.
Software
Software revenue decreased 3% in 2012 to $393 million compared to $407 million in 2011 primarily attributable to weak economic
conditions and constrained public sector spending in Europe and lower sales in Asia Pacific. Foreign currency translation had a 1%
unfavorable impact on revenue. EBIT for 2012 and 2011 was $38 million.
In 2011, Software revenue increased 9% to $407 million compared to $375 million in 2010. Foreign currency translation had a 3%
favorable impact on revenue and the full year impact of 2010 acquisitions accounted for 3% of the increase. The remaining increase was
primarily due to higher licensing revenue in most regions, particularly North America and Asia Pacific. EBIT decreased 5% in 2011 to
$38 million compared to $40 million in 2010 due to higher selling costs as a percentage of revenue. Foreign currency had a favorable
impact of 7% on EBIT.
17
Management Services
Management Services revenue decreased 3% in 2012 to $921 million compared to $949 million in 2011 and EBIT decreased 28% to $55
million compared to $76 million in 2011. The decline in revenue and EBIT was primarily due to lower document volumes, account
contractions and reduced pricing on new business and contract renewals. Foreign currency translation had an unfavorable impact on
revenue of 1%.
Management Services revenue in 2011 decreased 5% to $949 million compared to $999 million in 2010. Foreign currency translation
had a positive impact of 1% on revenue. EBIT decreased 18% to $76 million compared to $93 million in 2010. The decrease in revenue
and EBIT was primarily due to the full year impact of account contractions and terminations in the U.S. during 2010 and pricing pressure
on new business and contract renewals.
Mail Services
Mail Services revenue increased 8% to $445 million in 2012 compared to $412 million in 2011; however, 5% of the increase was due to
lost revenue of $20 million in 2011 caused by the February 2011 fire at our Dallas presort facility. The remaining increase of 3% was
primarily due to higher standard mail volumes processed in our Presort business. EBIT decreased 2% to $101 million in 2012 compared
to $103 million in 2011. EBIT in 2012 includes a benefit of $11 million from insurance recoveries while EBIT in 2011 includes a benefit
of $27 million from insurance recoveries, partially offset by the adverse impact of $20 million from lost revenues (net benefit of $7
million). Excluding the fire-related benefits, underlying EBIT decreased 6% primarily due to start-up costs related to our partnership
with eBay to provide cross-border ecommerce solutions.
Mail Services revenue increased 1% to $412 million in 2011 compared to $408 million in 2010 and EBIT increased 22% to $103 million
compared to $85 million in 2010. However, taking into account the lost revenue of $20 million and EBIT benefit of $7 million in 2011,
revenue and EBIT increased 6% and 14%, respectively. The increase in revenue and EBIT was primarily due to the full year impact of
a 2010 acquisition, higher standard mail volumes processed in our Presort business and lower costs from productivity initiatives.
Marketing Services
Marketing Services revenue decreased 3% to $138 million compared to $142 million in 2011 in part due to a decline in household moves
but EBIT increased 7% to $28 million compared to $26 million in 2011 due to lower print production costs and administrative costs. We
expect segment revenue in 2013 to decline 10-15% and EBIT to decline by about a third due to lower fees for certain renegotiated
contracts. Marketing Services revenue and EBIT for 2011 were flat compared to 2010.
LIQUIDITY AND CAPITAL RESOURCES
We believe that cash generated from operations, existing cash and investments and borrowing capacity under our commercial paper
program are currently sufficient to support our cash needs, including items like business operations, debt repayments and customer
deposits as well as discretionary uses such as capital investments, dividends and share repurchases. Cash and cash equivalents and short-
term investments were $950 million at December 31, 2012 and $869 million at December 31, 2011.
We have had the ability to supplement short-term liquidity through our consistent and uninterrupted access to the commercial paper
market to date. We have the ability to fund the long-term needs of our business through broad access to capital markets, cash flow,
proceeds from divestitures, a credit line facility and our effective shelf registration statement.
During the year, the rating agencies reduced our credit ratings. There can be no assurances that one or more of the rating agencies will
not take additional adverse actions in the future.
We continuously review our liquidity profile through published credit ratings and the credit default swap market. We also monitor the
creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers.
Cash Flow Summary
During the fourth quarter of 2012, we determined that, beginning with the three month period ended December 31, 2011 and each
subsequent three month period through September 30, 2012, changes in certain investment-related working capital accounts that were
classified in the Consolidated Statement of Cash Flows as cash flows from operating activities should have been classified as cash flows
from investing activities. The cash flow amounts in the table below for the year ended December 31, 2011 have been revised to reflect
the correct classification of cash flows, resulting in an increase in cash provided by operating activities and an increase in cash used in
investing activities of $29 million.
18
The change in cash and cash equivalents is as follows:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Year Ended December 31,
Change
2012
2011
2010
2012
2011
$
$
$
660
(87)
(520)
3
57
$
949
(117)
(455)
(5)
372
$
$
$
952
(301)
(580)
1
72
$
(289) $
30
(65)
8
(316) $
(3)
184
125
(6)
300
Net cash provided by operating activities was $660 million in 2012 compared to $949 million in 2011. The decrease in cash provided
by operations was primarily due to higher tax payments in 2012 resulting from the sale of leveraged lease assets, the loss of bonus
depreciation and higher income tax refunds received in 2011. The cash impact of finance and accounts receivables were also $105 million
lower in 2012 compared to 2011.
Net cash provided by operating activities of $949 million in 2011 was relatively unchanged from cash provided by operating activities
of $952 million in 2010. Cash flow in 2011 benefited from lower tax payments of $187 million and higher net collections of finance and
accounts receivables of $26 million but these benefits were offset by a special pension plan contribution of $123 million and higher
payments of accounts payable and accrued liabilities of $42 million. Cash flow in 2010 benefited from proceeds of $32 million received
from the unwinding of interest rate swaps. The decrease in current and non-current income taxes of $258 million in 2011 includes the
tax benefits recognized in connection with the 2001-2008 IRS tax settlements.
Net cash used in investing activities was $87 million in 2012 and $117 million in 2011. The improvement in cash used in 2012 was due
to lower net purchases of investment securities partially offset by higher capital expenditures and lower growth in customer deposits.
Net cash used in investing activities was $117 million in 2011 compared to $301 million in 2010. The decrease in cash used was primarily
due to proceeds of $102 million from the sale of leveraged lease assets, lower net purchases of investment securities of $26 million and
acquisitions of $78 million in 2010. These improvements were partially offset by higher capital expenditures of $36 million.
Net cash used in financing activities was $520 million in 2012 compared to $455 million in 2011. The increase in cash used was due to
higher debt reduction partially offset by lower share repurchases. During the year, $550 million of debt matured and was repaid and we
issued $340 million of new debt. In 2011, the reduction in debt was $50 million. During 2012, we did not repurchase any shares of our
common stock compared to $100 million of share repurchases in 2011.
Net cash used in financing activities was $455 million in 2011 compared to $580 million in 2010. The decrease in cash used was primarily
due to lower repayments of notes payable due to an overall decline in commercial paper borrowings in 2011 compared to 2010.
Dividends
We paid dividends to our common stockholders of $301 million ($1.50 per share), $300 million ($1.48 per share) and $301 million ($1.46
per share) in 2012, 2011 and 2010, respectively.
Going forward, each quarter our Board of Directors will continue to consider our recent and projected earnings and other capital needs
and priorities in deciding whether to approve the amount and payment of a dividend.
On January 31, 2013, our Board of Directors declared a cash dividend of $0.375 cent per share for the first quarter of 2013. There are
no material restrictions on our ability to declare dividends.
Financings and Capitalization
We are a Well-Known Seasoned Issuer with the SEC, which allows us to issue debt securities, preferred stock, preference stock, common
stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We have a commercial paper program that is an
important source of liquidity for us and a committed credit facility of $1.0 billion to support our commercial paper issuances. The credit
facility expires in April 2016. We have not drawn upon the credit facility.
At December 31, 2012, there were no outstanding commercial paper borrowings. During the year, commercial paper borrowings averaged
$221 million at a weighted-average interest rate of 0.39% and the maximum amount outstanding at any time was $709 million. In 2011,
19
commercial paper borrowings averaged $138 million at a weighted-average interest rate of 0.22% and the maximum amount of commercial
paper outstanding at any point in time was $450 million.
In October 2012, we borrowed $230 million under term loan agreements. The loans bear interest at the applicable London Interbank
Offered Rate (LIBOR) plus 2.25% or Prime Rate plus 1.25%, at our option. Interest is payable quarterly and the loans mature in 2015
and 2016. The proceeds from the loans are for general corporate purposes, including the repayment of 2013 debt maturities.
In November 2012, we issued $110 million of 10-year notes with a coupon rate of 5.25%. Interest is paid quarterly beginning February
2013. The notes mature in November 2022; however, we may redeem some or all of the notes at anytime on or after November 2015 at
a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. The proceeds from the notes are for general
corporate purposes, including the repayment of 2013 debt maturities.
Cash and cash equivalents held by our foreign subsidiaries were $219 million at December 31, 2012 and $538 million at December 31,
2011. Cash and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these subsidiaries.
Most of these amounts could be repatriated to the U.S. but would be subject to additional taxes. Repatriation of some foreign balances
is restricted by local laws.
Contractual Obligations and Off-Balance Sheet Arrangements
The following summarizes our known contractual obligations and off-balance sheet arrangements at December 31, 2012 and the effect
that such obligations are expected to have on our liquidity and cash flow in future periods:
Long-term debt
Interest payments on debt (1)
Non-cancelable operating lease obligations
Purchase obligations (2)
Pension plan contributions (3)
Retiree medical payments (4)
Total
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments due by period
$
$
3,965
1,254
284
274
30
218
$
375
174
91
225
30
26
900
309
120
48
—
49
$
1,180
$
211
51
1
—
45
1,510
560
22
—
—
98
$
6,025
$
921
$
1,426
$
1,488
$
2,190
The amount and period of future payments related to our income tax uncertainties cannot be reliably estimated and are not included in
the above table. See Note 8 to the Consolidated Financial Statements for further details.
(1) Interest payments on debt includes interest on our $500 million 5.25% notes due in 2037. Bondholders may redeem these notes, in
whole or in part, at par plus accrued interest, in January 2017. If all $500 million of the notes are redeemed in January 2017, total
interest payments would be reduced by $524 million. Interest payments on debt also include interest on the $110 million 5.25%
notes due in 2022. These notes may be redeemed by us, in whole or in part, at anytime on or after November 2015 at par plus accrued
interest. If we redeem all the notes in November 2015, total interest payments would be reduced by $40 million.
(2) 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.
(3) Pension plan contributions represent the amount we anticipate making to our pension plans during 2013; however, we will assess
our funding alternatives as the year progresses.
(4) Our retiree health benefit plans are non-funded plans and cash contributions are made each year to cover medical claims costs
incurred. The amounts reported in the above table represent our estimate of future benefits payments.
20
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions about
certain items that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the
disclosure of contingent assets and liabilities. The accounting policies below have been identified by management as those accounting
policies that are most critical to our financial statements due to the estimates and assumptions required. Management believes that the
estimates and assumptions used are reasonable and appropriate based on the information available at the time the financial statements
were prepared; however, actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial
Statements for a summary of our accounting policies.
Revenue recognition - Multiple element 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 sale
of non-cancelable lease of equipment, 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, revenue is recognized for each of the elements based on their respective fair values. We recognize
revenue for delivered elements only when the fair values of undelivered elements are known and uncertainties regarding customer
acceptance are resolved. Revenue is allocated to the meter rental and equipment maintenance agreement elements using their respective
fair values, which are determined based on prices charged in standalone and renewal transactions. For a sale transaction, revenue is
allocated to the equipment based on a range of selling prices in standalone transactions. For a lease transaction, revenue is allocated to
the equipment based on the present value of the remaining minimum lease payments. We then compare the allocated equipment fair
value to the range of selling prices in standalone transactions during the period to ensure the allocated equipment fair value approximates
average selling prices. The allocation of fair values to the various elements does not change the total revenue recognized from a transaction,
but impacts the timing of revenue recognition.
Pension benefits
The valuation of our pension assets and obligations and the calculation of net periodic pension expense are dependent on assumptions
and estimates relating to, among other things, the interest rate used to discount the future estimated liability (discount rate) and the
expected rate of return on plan assets. These assumptions are evaluated and updated annually and are described in further detail in Note
17 to the Consolidated Financial Statements.
The discount rate for our largest plan, the U.S. Qualified Pension Plan (the U.S. Plan) is determined by matching the expected cash flows
associated with our benefit obligations to a yield curve based on long-term, high quality fixed income debt instruments available as of
the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by
using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from
a large number of high quality corporate bonds. The discount rate used in the determination of net periodic pension expense for 2012
for both the U.S. Plan and the U.K. Plan was 4.95%. For 2013, the discount rate to be used in the determination of net periodic pension
expense for the U.S. Plan and the U.K. Plan will be 4.05% and 4.55%, respectively. A 0.25% increase in the discount rate would decrease
annual pension expense by approximately $1 million for both the U.S. Plan and the U.K. Plan, and lower the projected benefit obligation
of the U.S. Plan and U.K. Plan by $42 million and $21 million, respectively.
The expected return on plan assets is based on historical and expected future returns for current and targeted asset allocations for each
asset class in the plans' investment portfolio, adjusted for historical and expected experience of active portfolio management results, as
compared to the benchmark returns. When assessing the expected future returns for the portfolio, management places more emphasis
on the expected future returns than historical returns. The expected rate of return used in the determination of net periodic pension expense
for 2012 was 7.75% for the U.S. Plan and 7.25% for the U.K. Plan. For 2013, the expected rate of return to be used in the determination
of net periodic pension expense for the U.S. Plan and the U.K. Plan will be 7.25%. A 0.25% increase in the expected rate of return on
plan return on assets would decrease annual pension expense for the U.S. Plan and U.K. Plan by $4 million and $1 million, respectively.
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the estimated future
working life of the plan participants and affect future pension expense. Net pension expense is also based on a market-related valuation
of plan assets where differences between the actual and expected return on plan assets are amortized to pension expense over a five-year
period.
21
We invest our pension plan assets in a variety of investment securities in accordance with our strategic asset allocation policy. The
allocations of our U.S. and U.K. pension plan assets at December 31, 2012 and target allocations for 2013 are as follows:
Equity securities
Fixed income
Real estate
Private equity
Cash
Total
U.S. Pension Plan
U.K. Pension Plan
Allocation of plan
assets at
December 31,
2012
2013 Target
allocation
Allocation of plan
assets at
December 31,
2012
2013 Target
allocation
29%
61%
4%
6%
—%
100%
28%
62%
2%
8%
—%
100%
63%
36%
—%
—%
1%
100%
65%
35%
—%
—%
—%
100%
Investment securities are exposed to various risks such as interest rate, market and credit risks, which could cause a change in the value
of such investment securities. Such a change could have a material impact on our future results.
Residual value of leased assets
We provide lease financing for our products primarily through sales-type leases. Equipment residual values are determined at inception
of the lease using estimates of equipment fair value at the end of the lease term. Residual value estimates impact the determination of
whether a lease is classified as an operating lease or sales-type lease. 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 and declines in estimated residual values
considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until
the equipment is remarketed. If the actual residual value of lease assets were 10% lower than management's current estimates, pre-tax
income would be lower by $17 million.
Allowances for doubtful accounts and credit losses
We estimate our credit risk for accounts and finance receivables and provide allowances for estimated losses. We believe that our credit
risk is limited because of our large number of customers, small account balances for most of our customers and customer geographic and
industry diversification. We continuously monitor collections and payments from our customers and evaluate the adequacy of the
applicable allowance based on historical loss experience, past due status, adverse situations that may affect a customer's ability to pay
and prevailing economic conditions. We make adjustments to the reserves as deemed necessary. This evaluation is inherently subjective
and actual results may differ significantly from estimated reserves.
Total allowance for credit losses as a percentage of finance receivables was 1.8% and 2.6% at December 31, 2012 and 2011, respectively.
Holding all other assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2012 would have changed
the 2012 provision by approximately $6 million.
The allowance for doubtful accounts as a percentage of trade receivables was 2.7% and 3.4% at December 31, 2012 and 2011, respectively.
Holding all other assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2012 would have changed
the 2012 provision by approximately $2 million.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on our income, statutory tax
rates, tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant
judgment is required in determining our annual tax rate and in evaluating our tax positions.
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 laws. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a change in the
22
reserve is appropriate. Future changes in tax reserve requirements could have a material impact on our financial condition or results of
operations.
Significant judgment is also required in determining the amount of valuation allowance to be recorded against deferred tax assets. In
assessing whether a valuation allowance is necessary, and the amount of such allowance, we consider all available evidence for each
jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. As
new information becomes available that would alter our determination as to the amount of deferred tax assets that will ultimately be
realized, we adjust the valuation allowance with a corresponding impact to income tax expense in the period in which such determination
is made.
Useful lives of long-lived assets
We depreciate property, plant and equipment and rental property and equipment principally using the straight-line method over the
estimated useful lives of up to 50 years for buildings, three to 15 years for machinery and equipment, four to six years for rental equipment
and three to five years for computer equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or
the remaining lease term. We amortize capitalized costs related to internally developed software using the straight-line method over the
estimated useful life, which is principally three to 10 years. Intangible assets with finite lives are amortized using the straight-line method
or an accelerated attrition method over their estimated useful lives, which are principally three to 15 years. Our estimates of useful lives
could be affected by changes in regulatory provisions, technology or business plans and changes to the assets' estimated useful lives could
have a material impact on our results of operations.
Impairment review
Long-lived 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. The related estimated future undiscounted cash flows expected to result from the
use and eventual disposition of the asset is compared to the asset's carrying amount. We derive the cash flow estimates from our future
long-term business plans and historical experience. If the sum of the expected cash flows is less than the carrying amount, an impairment
charge is recorded for an amount by which the carrying amount exceeds the fair value of the asset. The fair value of the asset is determined
using probability weighted expected discounted cash flow estimates, quoted market prices when available and appraisals, as appropriate.
Changes in the estimates and assumptions incorporated in our impairment assessment could materially affect the determination of fair
value and the associated impairment charge.
Goodwill is tested annually for impairment, during the fourth quarter, or sooner when circumstances indicate an impairment may exist
at the reporting unit level. The impairment test for goodwill is a two-step approach. In the first step, the fair value of each reporting unit
is compared to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value,
the second step of the goodwill impairment test is performed to measure the amount of impairment, if any. In the second step, the fair
value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had been acquired in a business combination
and the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the
amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting
unit's goodwill is then compared to the actual carrying value of goodwill. If the implied fair value of goodwill is less than the carrying
value of goodwill, an impairment loss is recognized for the difference.
Significant estimates and assumptions are used in our goodwill impairment review and include 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. The fair value of each reporting unit is determined based on a combination of techniques, including the present value of future cash
flows, applicable multiples of competitors and multiples from sales of like businesses, and requires us to make estimates and assumptions
regarding discount rates, growth rates and our future long-term business plans. Changes in any of these estimates or assumptions could
materially affect the determination of fair value and the associated goodwill impairment charge for each reporting unit.
During the third quarter of 2012, as a result of the continuing under-performance of our IMS operations, and to enable us to better focus
on higher growth cross-border ecommerce parcel opportunities, we began exploring strategic alternatives to exit the IMS operations
related to the international delivery of mail and catalogs and concluded it was appropriate to conduct a goodwill impairment review. We
determined the fair value of IMS based on negotiations with potential buyers and preliminary indications of interests and written offers
received for the IMS business, as well applying an income approach with revised cash flow projections. The inputs used to determine
the fair value of the IMS operations were classified as Level 3 in the fair value hierarchy. Based on our review, we recorded a goodwill
impairment charge of $18 million and additional impairment charges of $10 million to write-down the carrying values of certain intangible
and fixed assets associated with the IMS business to their respective fair values. At December 31, 2012, the assets and liabilities of IMS
were classified as held-for-sale and all historical amounts related to the IMS operations, including the above mentioned goodwill, intangible
asset and fixed asset impairment charges, were included in discontinued operations.
23
In 2011, due to the under-performance of our IMS operations, management concluded that it was appropriate to perform a goodwill
impairment review for IMS. We determined the fair value of IMS using a combination of techniques including the present value of future
cash flows, multiples of competitors and multiples from sales of like businesses, and determined that the IMS reporting unit was impaired.
The inputs used to determine the fair value of the IMS operations were classified as Level 3 in the fair value hierarchy. We allocated the
implied fair value to the assets and liabilities of IMS and determined the implied fair value of goodwill. Based on our review, we recorded
a goodwill impairment charge of $46 million and identifiable intangible asset impairment charges of $12 million to write-down the
carrying values of goodwill and intangible assets associated with the IMS business to their respective fair values. These charges are
recorded in discontinued operations in the Consolidated Statements of Income.
Also in 2011, based on the results of our annual goodwill impairment review process, we determined that the international operations of
our Management Services segment (PBMSi) were impaired. We determined the fair value of PBMSi using a combination of techniques
including the present value of future cash flows, derived from our long-term plans and historical experience, multiples of competitors
and multiples from sales of like businesses and allocated the estimated fair value of the assets and liabilities of PBMSi. The inputs used
to determine the fair value of PBMSi were classified as Level 3 in the fair value hierarchy. Based on our review, we recorded a goodwill
impairment charge of $84 million and intangible asset impairment charge of $5 million to write down the carrying value of goodwill and
intangible assets to their respective estimated fair values.
Based on the results of our annual impairment review conducted in 2012, the estimated fair values of our reporting units were substantially
in excess of their respective carrying values, except for PBMSi, whose estimated fair value exceeded its carrying value by approximately
4%. At December 31, 2012, the goodwill allocated to PBMSi was $5 million. The assumptions used to estimate fair value were based
on projections incorporated in our current operating plans as well as other available information. The current operating plans included
significant assumptions and estimates associated with sales growth, profitability and related cash flows, along with cash flows associated
with taxes and capital spending. The discount rate used to estimate fair value was risk adjusted in consideration of the economic conditions
of the reporting unit. We also considered other assumptions that market participants may use. The inputs used to determine the fair value
of PBMSi were classified as Level 3 in the fair value hierarchy. By their nature, projections are uncertain. Potential events and
circumstances, such as declining volumes, loss of client contracts and inability to acquire new clients could have an adverse effect on
our assumptions. We will continue to monitor and evaluate the carrying values of goodwill and intangible assets of PBMSi, and should
actual results differ significantly from our estimates and assumptions, additional non-cash impairment charges for goodwill could be
recorded in 2013.
Stock-based compensation expense
We recognize compensation cost for stock-based awards based on the estimated fair value of the award, net of an estimated forfeiture
rate. We recognize compensation costs for those shares expected to vest on a straight-line basis over the requisite service period.
We estimate the fair value of stock awards using a Black-Scholes valuation model or Monte Carlo simulation model. These models
require assumptions be made regarding the expected stock price volatility, risk-free interest rate, expected life of the award and dividend
yield. The estimate of stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S.
treasuries with a term equal to the expected life of the stock award. The expected life of the award and expected dividend yield are based
on historical experience.
We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in estimating
the fair value of our stock-based awards. If factors change and we use different assumptions, our stock-based compensation expense
could be different in the future. 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. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.
If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different
from what we have recorded in the current period.
Restructuring
We have undertaken restructuring actions which require management to utilize certain estimates related to the amount and timing of
expenses. If the actual amounts differ from our estimates, the amount of the restructuring charges could be impacted. On a quarterly
basis, we update our estimates of future remaining obligations and costs associated with all restructuring actions and compare these
updated estimates to our current restructuring reserves, and make adjustments if necessary.
24
Loss contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a
quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any
claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment
of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant
judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As
additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results
of operations and financial position.
Legal and Regulatory Matters
Legal
See Legal Proceedings in Item 3 for information regarding our legal proceedings.
Other regulatory matters
As is the case with other large corporations, 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. Except for a dispute arising out
of a partnership investment, the IRS examinations of tax years prior to 2009 are now closed to audit. We have other domestic and
international tax filings currently under examinations or subject to examination. Tax reserves have been established which we believe
to be appropriate given the possibility of tax adjustments. However, the resolution of such matters could have a material impact on our
results of operations, financial position and cash flows. See Note 8 to the Consolidated Financial Statements.
We are currently undergoing unclaimed property audits, which are being conducted by various state authorities. The property subject to
review in this audit process generally includes unclaimed wages, vendor payments and customer receipts. State escheat laws generally
require entities to report and remit abandoned and unclaimed property. Failure to timely report and remit the property can result in the
assessments of additional escheat liability, interest and penalties. It is too early to determine the ultimate outcome of such audits.
Foreign Currency Exchange
Over the last three years, approximately one-third of our consolidated revenue was derived from operations outside of the United States.
The functional currency for most of our foreign operations is the local currency. Our largest foreign currency exposure is to fluctuations
in the British pound, Euro and Canadian dollar, and to a lesser extent, the Australian dollar. Changes in the value of the U.S. dollar
relative to the currencies of countries in which we operate impact our reported assets, liabilities, revenue and expenses. Exchange rate
fluctuations can also impact the settlement of intercompany receivables and payables between our subsidiaries in different countries. For
the years ended December 31, 2012, 2011 and 2010, currency rate movements increased/(decreased) revenue by (1.2)%, 1.6% and 0.4%,
respectively. Based on the revenue contribution from our international operations in 2012, a 1% increase in the value of the U.S. dollar
would have reduced revenue by $15 million.
We use foreign exchange contracts to mitigate the risk of foreign currency exchange rate fluctuations. We enter into foreign exchange
contracts with only those financial institutions that meet stringent credit requirements as set forth in our derivative policy to mitigate our
exposure to counterparty credit risk. 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. At December 31, 2012, the fair value of our outstanding foreign exchange contracts was a net asset of $1 million.
25
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.
Our objective in managing our exposure to changing interest rates is to limit the volatility and impact of changing interest rates on earnings
and cash flows. To achieve these objectives, we use a balanced mix of debt maturities and interest rate swaps that convert the fixed rate
interest payments on certain debt issuances to variable rates. At December 31, 2012, approximately 17% of our debt was at variable
rates, including the fixed rate debt that has been swapped to variable rate through interest rate swaps. A one-percentage point increase/
decrease in the effective interest rate of our variable rate debt in 2012 would have reduced/increased 2012 pre-tax income by $7 million.
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 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, interest rate derivative contracts and foreign exchange derivative contracts associated with forecasted
transactions. The model excludes all anticipated transactions and firm commitments and account receivables and payables 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 2012 and 2011, 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.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Supplemental Data" on page 33 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we evaluated our disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act))
and internal control over financial reporting. Our CEO and CFO concluded that such disclosure controls and procedures were effective
as of December 31, 2012, 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. 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, 2012.
Management's Report on Internal Control over Financial Reporting
Management 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. Our 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all 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 our internal control over financial reporting as of December 31, 2012. 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. Management's assessment included evaluating the design of our internal control over financial reporting
and testing of the operational effectiveness of our internal control over financial reporting. Based on its assessment, management concluded
that, as of December 31, 2012, our internal control over financial reporting was effective based on the criteria issued by COSO in Internal
Control - Integrated Framework.
The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2012, that have
materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
27
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information pertaining to our Directors and the members of 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," "Security
Ownership of Directors and Executive Officers," "Beneficial Ownership," "Report of the Audit Committee" and "Corporate Governance"
of the Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with our Annual Meeting
of Stockholders to be held on May 13, 2013. Such Definitive Proxy Statement will be filed with the Commission within 120 days of our
fiscal year ended December 31, 2012. Our executive officers are as follows:
Name
Age
Title
Marc B. Lautenbach
Leslie Abi-Karam
Gregory E. Buoncontri
Daniel J. Goldstein
Michael Monahan
John E. O'Hara
Vicki A. O'Meara
Joseph H. Timko
Johnna G. Torsone
51
54
65
51
52
54
55
52
62
President and Chief Executive Officer
Executive Vice President and President, Pitney Bowes Communications Solutions
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Legal and Compliance Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President, Pitney Bowes Software Solutions
Executive Vice President and President, Pitney Bowes Services Solutions
Executive Vice President and Chief Technology and Strategy Officer
Executive Vice President and Chief Human Resources Officer
Executive
Officer Since
2012
2005
2000
2010
2005
2011
2008
2010
1993
There is no family relationship among the above officers. All of the officers have served in various corporate, division or subsidiary
positions with the Company for at least the past five years except as described below:
Mr. Lautenbach was appointed President and Chief Executive Officer of the Company in December 2012. Before joining Pitney Bowes,
Mr. Lautenbach held numerous positions during his career at IBM, which he joined in 1985. His leadership roles at IBM included serving
as Vice President Small and Medium Business in Asia Pacific from 1998-2000, General Manager of IBM Global Small and Medium
Business from 2000-2005, General Manager of IBM North America from 2005-2010, and Managing Partner, North America, for IBM
Global Business Services.
Mr. Goldstein re-joined the Company in October 2010 as Executive Vice President and Chief Legal and Compliance Officer. From
September 2008 until October 2010, Mr. Goldstein served as the Senior Vice President and General Counsel for GAF Materials Corporation,
International Specialty Products, and ISP Minerals, a group of privately held, commonly owned companies in the building materials,
chemicals and mining industries. Mr. Goldstein originally joined Pitney Bowes in 1999 as Associate General Counsel and was appointed
Vice President, Deputy General Counsel in 2005.
Ms. O'Meara joined the Company in June 2008 as Executive Vice President and Chief Legal and Compliance Officer. In July 2010, Ms.
O'Meara became Executive Vice President and President, Pitney Bowes Management Services & Government and Postal Affairs,
relinquishing her responsibilities as the Chief Legal and Compliance Officer. Prior to joining the Company, she was President - U.S.
Supply Chain Solutions for Ryder System, Inc., a leading transportation and supply chain solutions company. Ms. O'Meara joined Ryder
System, Inc. as Executive Vice President and General Counsel in June 1997.
Mr. Timko joined the Company in February 2010 as Executive Vice President and Chief Strategy and Innovation Officer. Prior to joining
the Company, Mr. Timko was a partner in the technology / telecom and industrial sector practice at McKinsey & Company.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal executive, financial
and accounting officers, or persons performing similar functions. Our Code of Ethics is posted on our corporate governance website
located at www.pb.com/Our-Company/Leadership-and-Governance/Corporate-Governance. In addition, amendments to the Code of
Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC rules will be disclosed
at the same location as the Code of Ethics.
28
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Directors' Compensation," "Compensation Discussion and Analysis", and "Executive Compensation Tables and
Related Narrative" of our Definitive Proxy Statement to be filed with the Commission within 120 days of our fiscal year ended
December 31, 2012 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, 2012 regarding the number of shares of common stock that may be issued
under our equity compensation plans.
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans excluding
securities reflected in
column (a)
15,760,550
—
15,760,550
$32.93
—
$32.93
16,644,439
—
16,644,439
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
The sections entitled "Security Ownership of Directors and Executive Officers" and "Beneficial Ownership" of our Definitive Proxy
Statement to be filed with the Commission within 120 days of our fiscal year ended December 31, 2012 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 our Definitive Proxy
Statement to be filed with the Commission within 120 days of our fiscal year ended December 31, 2012 are incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The section entitled “Principal Accountant Fees and Services" of our Definitive Proxy Statement to be filed with the Commission within
120 days of our fiscal year ended December 31, 2012 are incorporated herein by reference.
29
ITEM 15. - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. Financial statements - see "Index to Consolidated Financial Statements and Supplemental Data" on page 33 of this Form 10-
K.
2. Financial statement schedules - see "Index to Consolidated Financial Statements and Supplemental Data" on page 33 of this
Form 10-K.
3.
Index to Exhibits
Reg. S-K
exhibits
3(a)
3(b)
4(a)
4(b)
4(c)
4(d)
10(a) *
Restated Certificate of Incorporation of Pitney Bowes Inc.
Description
Pitney Bowes Inc. Amended and Restated By-laws (effective May
10, 2011)
Form of Indenture between the Company and SunTrust Bank, as
Trustee
Supplemental Indenture No. 1 dated April 18, 2003 between the
Company and SunTrust Bank, as Trustee
Form of Indenture between the Company and Citibank, N.A., as
Trustee, dated as of February 14, 2005
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
Retirement Plan for Directors of Pitney Bowes Inc.
10(b) *
Pitney Bowes Inc. Directors' Stock Plan (as amended and restated
1999)
10(b.1) *
Pitney Bowes Inc. Directors' Stock Plan (Amendment No. 1,
effective as of May 12, 2003)
10(b.2) *
Pitney Bowes Inc. Directors' Stock Plan (Amendment No. 2
effective as of May 1, 2007)
10(c) *
Pitney Bowes Stock Plan (as amended and restated as of January
1, 2002)
10(d) *
Pitney Bowes Inc. 2007 Stock Plan (as amended November 7,
2009)
10(e) *
Pitney Bowes Inc. Key Employees' Incentive Plan (as amended
and restated October 1, 2007) (as amended November 7, 2009)
10(f) *
Pitney Bowes Severance Plan (as amended and restated as of
January 1, 2008)
10(g) *
Pitney Bowes Senior Executive Severance Policy (as amended
and restated as of January 1, 2008)
10(h) *
Pitney Bowes Inc. Deferred Incentive Savings Plan for the Board
of Directors, as amended and restated effective January 1, 2009
10(i) *
Pitney Bowes Inc. Deferred Incentive Savings Plan as amended
and restated effective January 1, 2009
Status or incorporation by reference
Incorporated by reference to Exhibit 3(c) to Form 8-K as filed with
the Commission on May 12, 2011 (Commission file number
1-3579)
Incorporated by reference to Exhibit 3(d) to Form 8-K as filed with
the Commission on May 12, 2011 (Commission file number
1-3579)
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
Incorporated by reference to Exhibit 4.1 to Form 8-K as filed with
the Commission on August 18, 2004
Incorporated by reference to Exhibit 4(a) to Registration Statement
on Form S-3ASR (No. 333-151753) as filed with the Commission
on June 18, 2008.
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)
Incorporated by reference to Exhibit 10(a) to Form 10-K as filed
with the Commission on March 30, 1993 (Commission file number
1-3579)
Incorporated by reference to Exhibit (i) to Form 10-K as filed with
the Commission on March 30, 2000 (Commission file number
1-3579)
Incorporated by reference to Exhibit 10 to Form 10-Q as filed with
the Commission on August 11, 2003 (Commission file number
1-3579)
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)
Incorporated by reference to Annex 1 to the Definitive Proxy
Statement for the 2002 Annual Meeting of Stockholders filed with
the Commission on March 26, 2002 (Commission file number
1-3579)
Incorporated by reference to Exhibit (v) to Form 10-K as filed with
the Commission on February 26, 2010 (Commission file number
1-3579)
Incorporated by reference to Exhibit (iv) to Form 10-K as filed
with the Commission on February 26, 2010 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(e) to Form 10-K as filed
with the Commission on February 29, 2008 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(f) to Form 10-K as filed
with the Commission on February 29, 2008 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(g) to Form 10-K as filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
Incorporated by reference to Exhibit 10(h) to Form 10-k as filed
with the Commission on February 26, 2009 (Commission file
number 1-3579)
30
Reg. S-K
exhibits
10(j) *
Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
Description
Status or incorporation by reference
Incorporated by reference to Annex II to the Definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders filed with
the Commission on March 23, 2006 (Commission file number
1-3579)
10(k) *
Form of Long Term Incentive Award Agreement
Exhibit 10(k)
10(l) *
12
21
23
31.1
31.2
32.1
32.2
Compensation arrangement for Vicki O'Meara dated June 1, 2010 Incorporated by reference to Exhibit 10(a) to Form 10-Q as filed
with the Commission on August 5, 2010 (Commission file number
1-3579)
Exhibit 12
Computation of ratio of earnings to fixed charges
Subsidiaries of the registrant
Consent of experts and counsel
Certification of Chief Executive Officer Pursuant to Rules 13a-14
(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
amended.
Certification of Chief Financial Officer Pursuant to Rules 13a-14
(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
amended.
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
101.INS XBRL Report Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
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.
31
SIGNATURES
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 22, 2013
PITNEY BOWES INC.
Registrant
By: /s/ Marc B. Lautenbach
Marc B. Lautenbach
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/ Marc B. Lautenbach
Marc B. Lautenbach
/s/ Michael Monahan
Michael Monahan
/s/ Steven J. Green
Steven J. Green
/s/ Michael I. Roth
Michael I. Roth
/s/ Rodney C. Adkins
Rodney C. Adkins
/s/ Linda G. Alvarado
Linda G. Alvarado
/s/ Anne M. Busquet
Anne M. Busquet
/s/ Roger Fradin
Roger Fradin
/s/ Anne Sutherland Fuchs
Anne Sutherland Fuchs
/s/ S. Douglas Hutcheson
S. Douglas Hutcheson
/s/ James H. Keyes
James H. Keyes
/s/ Eduardo R. Menascé
Eduardo R. Menascé
/s/ David L. Shedlarz
David L. Shedlarz
/s/ David B. Snow, Jr.
David B. Snow, Jr.
__________________
Robert E. Weissman
President and Chief Executive Officer - Director
February 22, 2013
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
February 22, 2013
Vice President-Finance and Chief Accounting Officer (Principal
Accounting Officer)
February 22, 2013
Non-Executive Chairman - Director
February 22, 2013
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
32
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
PITNEY BOWES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Pitney Bowes Inc.
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Balance Sheets at December 31, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
Page Number
34
35
36
37
38
39
40
86
33
To the Stockholders and Board of Directors of Pitney Bowes Inc.
Report of Independent Registered Public Accounting Firm
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, 2012 and 2011, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2012 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,
2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company's 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 Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's 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.
A company's 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 company's 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 company's 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 22, 2013
34
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Revenue:
Equipment sales
Supplies
Software
Rentals
Financing
Support services
Business services
Total revenue
Costs and expenses:
Cost of equipment sales
Cost of supplies
Cost of software
Cost of rentals
Financing interest expense
Cost of support services
Cost of business services
Selling, general and administrative
Research and development
Restructuring charges and asset impairments, net
Goodwill impairment
Other interest expense
Interest income
Other expense (income), net
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders (1):
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
2012
Years Ended December 31,
2011
2010
$
$
$
$
$
$
$
$
938,289
283,604
412,762
569,619
495,130
689,667
1,514,944
4,904,015
459,051
87,569
92,708
115,356
81,140
440,055
1,156,828
1,598,286
136,908
23,117
—
115,228
(7,982)
1,138
4,299,402
604,613
150,305
454,308
9,231
463,539
18,376
445,163
435,932
9,231
445,163
2.18
0.05
2.22
2.16
0.05
2.21
$
$
$
$
$
$
$
$
986,392
307,974
426,606
618,990
547,269
706,505
1,528,860
5,122,596
449,479
97,454
99,107
138,603
87,698
452,582
1,161,429
1,690,360
148,645
136,548
84,500
115,363
(5,795)
(19,918)
4,636,055
486,541
67,610
418,931
216,924
635,855
18,375
617,480
400,556
216,924
617,480
1.98
1.07
3.06
1.98
1.07
3.05
$
$
$
$
$
$
$
$
1,022,563
318,430
390,219
651,348
587,359
711,519
1,578,918
5,260,356
469,158
97,172
93,391
155,480
88,292
451,609
1,173,418
1,724,283
156,371
181,961
—
115,619
(2,587)
—
4,704,167
556,189
213,598
342,591
(31,888)
310,703
18,324
292,379
324,267
(31,888)
292,379
1.57
(0.15)
1.42
1.57
(0.15)
1.41
See Notes to Consolidated Financial Statements
35
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income - Pitney Bowes Inc.
Other comprehensive income, net of tax:
Foreign currency translations
Net unrealized gain on cash flow hedges, net of tax of $429, $1,278 and $837,
respectively
Net unrealized gain on investment securities, net of tax of $81, $1,885 and $505,
respectively
Adjustments to pension and postretirement plans, net of tax benefit of $(38,934),
$(93,251) and $(17,183), respectively
Amortization of pension and postretirement costs, net of tax of $28,701, $19,601 and
$16,028, respectively
Other comprehensive loss
Comprehensive income - Pitney Bowes Inc.
Preferred stock dividends of subsidiaries attributable to noncontrolling interests
Years Ended December 31,
2012
2011
2010
$
445,163
$
617,480
$
292,379
(2,702)
(53,569)
(15,685)
661
126
2,007
2,948
1,293
790
(70,232)
(173,699)
(28,710)
52,579
(19,568)
425,595
18,376
34,474
(187,839)
429,641
18,375
28,298
(14,014)
278,365
18,324
296,689
Total comprehensive income
$
443,971
$
448,016
$
See Notes to Consolidated Financial Statements
36
PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable (net of allowance of $20,219 and $25,667, respectively)
Short-term finance receivables (net of allowance of $25,484 and $45,583, respectively)
Inventories
Current income taxes
Other current assets and prepayments
Total current assets
Property, plant and equipment, net
Rental property and equipment, net
Long-term finance receivables (net of allowance of $14,610 and $17,847, respectively)
Investment in leveraged leases
Goodwill
Intangible assets, net
Non-current income taxes
Other assets
Total assets
LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities
Current income taxes
Current portion of long-term obligations
Advance billings
Total current liabilities
Deferred taxes on income
Tax uncertainties and other income tax liabilities
Long-term debt
Other non-current liabilities
Total liabilities
Noncontrolling interests (Preferred stockholders’ equity in subsidiaries)
Commitments and contingencies (See Note 14)
Stockholders’ equity (deficit):
Cumulative preferred stock, $50 par value, 4% convertible
Cumulative preference stock, no par value, $2.12 convertible
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (122,453,865 and 123,586,842 shares, respectively)
Total Pitney Bowes Inc. stockholders’ equity (deficit)
Total liabilities, noncontrolling interests and stockholders’ equity (deficit)
December 31,
2012
December 31,
2011
$
$
$
$
$
$
$
913,276
36,611
728,250
1,188,292
179,678
51,836
114,184
3,212,127
385,377
241,192
1,026,489
34,546
2,136,138
166,214
94,434
563,374
7,859,891
1,809,226
240,681
375,000
452,130
2,877,037
69,222
145,881
3,642,375
718,375
7,452,890
856,238
12,971
723,630
1,251,090
178,599
102,556
134,774
3,259,858
404,146
258,711
1,105,791
138,271
2,147,088
212,603
89,992
530,644
8,147,104
1,840,465
242,972
550,000
458,425
3,091,862
175,944
194,840
3,683,909
743,165
7,889,720
296,370
296,370
4
648
323,338
223,847
4,744,802
(681,213)
(4,500,795)
110,631
7,859,891
$
4
659
323,338
240,584
4,600,217
(661,645)
(4,542,143)
(38,986)
8,147,104
See Notes to Consolidated Financial Statements
37
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income before attribution of noncontrolling interests
Restructuring payments
Special pension plan contributions
Tax payments related to sale of leveraged lease assets
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2012
2011
2010
$
$
463,539
(74,718)
(95,000)
(114,128)
$
635,855
(107,002)
(123,000)
—
310,703
(119,565)
—
—
Restructuring charges and asset impairments
Goodwill impairment
Depreciation and amortization
Gain on sale of leveraged lease assets, net of tax
Stock-based compensation
Proceeds from settlement of derivative instruments
Deferred tax (benefit) provision
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in finance receivables
(Increase) decrease in inventories
(Increase) decrease in other current assets and prepayments
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in current and non-current income taxes
Increase (decrease) in advance billings
Increase (decrease) in other operating capital, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investment securities
Proceeds from sales/maturities of investment securities
Capital expenditures
Proceeds from sale of leveraged lease assets
Net investment in external financing
Reserve account deposits
Proceeds from sale of facility
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Principal payments of long-term obligations
Decrease in notes payable, net
Proceeds from issuance of common stock
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Stock repurchases
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash interest paid
Cash income tax payments, net of refunds
33,351
18,315
255,556
(12,886)
18,227
—
(92,999
(92,999)
(3,068)
147,165
(599)
(3,131)
(47,023)
116,013
3,767
47,807
660,188
(367,745)
352,124
(176,586)
105,506
(1,667)
1,636
—
—
(86,732)
340,000
(550,000)
—
9,314
(300,578)
(18,376)
—
(519,640)
3,222
57,038
856,238
913,276
190,892
206,285
$
$
$
148,151
130,150
272,142
(26,689)
18,692
—
34,358
58,951
190,153
(12,830)
16,905
(13,086)
(257,631)
(12,854)
(3,278)
948,987
(406,114)
309,534
(155,980)
101,784
(2,677)
35,354
683
—
(117,416)
—
—
(50,000)
12,934
(299,579)
(18,375)
(99,997)
(455,017)
(4,679)
371,875
484,363
856,238
202,159
44,528
$
$
$
182,274
—
303,653
—
20,111
31,774
(34,387)
43,204
180,352
(11,913)
(8,658)
28,766
5,217
11,430
9,150
952,111
(315,355)
192,891
(119,768)
—
(4,718)
10,399
12,595
(77,537)
(301,493)
—
—
(170,794)
11,423
(301,456)
(19,141)
(100,000)
(579,968)
976
71,626
412,737
484,363
191,880
231,550
$
$
$
See Notes to Consolidated Financial Statements
38
PITNEY BOWES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
Preferred
stock
Preference
stock
Common
Stock
Additional
Paid-in
Capital
Retained
earnings
Accumulated
other
comprehensive
loss
Treasury
stock
Total
equity
Balance at December 31, 2009
$
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common ($1.46 per share)
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Repurchase of common stock
Balance at December 31, 2010
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common ($1.48 per share)
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
Repurchase of common stock
Balance at December 31, 2011
Net income - Pitney Bowes Inc.
Other comprehensive loss
Cash dividends
Common ($1.50 per share)
Preference
Issuances of common stock
Conversions to common stock
Stock-based compensation
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
$
868
$
323,338
$
256,133
$ 4,291,393
$
(459,792) $(4,415,096) $
(3,152)
—
—
—
—
—
(116)
—
—
752
—
—
—
—
—
(93)
—
—
659
—
—
—
—
—
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
292,379
—
(301,391)
(65)
(24,039)
(1,618)
20,452
—
—
—
—
—
—
(14,014)
—
—
—
—
—
—
—
—
—
—
33,249
1,734
—
292,379
(14,014)
(301,391)
(65)
9,210
—
20,452
(100,000)
(100,000)
323,338
250,928
4,282,316
(473,806)
(4,480,113)
—
—
—
—
—
—
—
—
—
—
—
—
(27,283)
(2,009)
18,948
—
617,480
—
—
(187,839)
(299,521)
(58)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,865
2,102
—
(99,997)
323,338
240,584
4,600,217
(661,645)
(4,542,143)
—
—
—
—
—
—
—
—
—
—
—
(34,727)
(237)
18,227
445,163
—
(300,527)
(51)
—
—
—
—
(19,568)
—
—
—
—
—
—
—
—
—
41,100
248
—
(96,581)
617,480
(187,839)
(299,521)
(58)
8,582
—
18,948
(99,997)
(38,986)
445,163
(19,568)
(300,527)
(51)
6,373
—
18,227
Balance at December 31, 2012
$
4
$
648
$
323,338
$
223,847
$ 4,744,802
$
(681,213) $(4,500,795) $
110,631
See Notes to Consolidated Financial Statements
39
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of Pitney Bowes Inc. (we, us, our, or the company) and its
wholly owned subsidiaries. The Consolidated Financial Statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP). Operating results of acquired companies are included in the consolidated financial
statements from the date of acquisition. Intercompany transactions and balances have been eliminated. Certain prior year amounts have
been reclassified to conform to the current year presentation.
As a result of the continuing under-performance of our IMS operations, and to enable us to better focus on higher growth cross-border
ecommerce parcel opportunities, we began exploring strategic alternatives to exit the IMS operations. The assets and liabilities of IMS
met held-for-sale classification and all historical amounts related to the IMS operations, including the related goodwill and asset impairment
charges, are presented as discontinued operations and have been excluded from continuing operations and from segment results for all
periods presented. The IMS operations were historically part of our Mail Services segment.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and
liabilities. These estimates and assumptions are based on management's best knowledge of current events, historical experience and other
information available when the financial statements are prepared. These estimates include, but are not limited to, revenue recognition
for multiple element arrangements, goodwill and intangible asset impairment review, allowance for doubtful accounts and credit losses,
residual values of leased assets, useful lives of long-lived and intangible assets, restructuring costs, pensions and other postretirement
benefits, income tax reserves, deferred tax asset valuation allowance and loss contingencies. Actual results could differ from those
estimates and assumptions.
Cash Equivalents and Short-Term Investments
Cash equivalents include short-term, liquid investments with maturities of three months or less at the date of purchase. Short-term
investments include investments with a maturity of greater than three months but less than one year from the reporting date.
Accounts Receivable and Allowance for Doubtful Accounts
We estimate our accounts receivable risks and provide an allowance for doubtful accounts accordingly. We evaluate the adequacy of the
allowance based on historical loss experience, aging of receivables, adverse situations that may affect a customer's ability to pay and
prevailing economic conditions and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual
results may differ significantly from estimated reserves. Accounts receivable are generally due within 30 days after the invoice date.
Accounts deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management
deems the account to be uncollectible. We believe that our accounts receivable credit risk is limited because of our large number of
customers, small account balances for most of our customers and customer geographic and industry diversification.
Finance Receivables and Allowance for Credit Losses
Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We estimate our finance
receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses
based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a customer's ability to pay,
prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This
evaluation is inherently subjective and actual results may differ significantly from estimated reserves.
We establish credit approval limits based on the credit quality of the customer and the type of equipment financed. Our policy is to
discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are
more than 90 days past due. We resume revenue recognition when customer payments reduce the account balance aging to 60 days or
less past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been
exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is limited because
of our large number of customers, small account balances for most of our customers and customer geographic and industry diversification.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories
and on the first-in, first-out (FIFO) basis for most non-U.S. inventories.
40
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Fixed Assets and Depreciation
Property, plant and equipment and rental equipment are stated at cost and depreciated principally using the straight-line method over
their estimated useful lives, which are up to 50 years for buildings, three to 15 years for machinery and equipment, four to six years for
rental equipment and three to five years for computer equipment. Major improvements which add to productive capacity or extend the
life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized
over the shorter of the estimated useful life or the remaining lease term.
Fully depreciated assets are retained in fixed assets and accumulated depreciation until they are removed from service. In the case of
disposals, assets and related accumulated depreciation are removed from the accounts and the net amounts, less proceeds from disposal,
are included in earnings.
Software Development Costs
We capitalize certain costs of software developed for internal use. Capitalized costs include purchased materials and services, payroll
and personnel-related costs and interest costs. The cost of internally developed software is amortized on a straight-line basis over its
estimated useful life, principally three to 10 years.
Costs incurred for the development of software to be sold, leased or otherwise marketed are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until the product is available for general release to the public.
Capitalized software development costs include purchased materials and services and payroll and personnel-related costs attributable to
programmers, software engineers, quality control and field certifiers. Capitalized software development costs are amortized generally
on a straight-line basis over the product's estimated useful life, principally three to five years. Software development costs capitalized
during 2012 and 2011 were $4 million and $5 million, respectively. Amortization of capitalized software development costs was $10
million, $10 million and $8 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012 and
2011, capitalized software development costs included in other assets were $9 million and $14 million, respectively.
Research and Development Costs
Research and product development costs, which primarily included personnel-related costs, are expensed as incurred. These costs include
engineering costs related to research and product development activities in our hardware segments and all engineering costs in our software
segment.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities
assumed be recorded at the date of acquisition at their respective fair values. The fair value of intangible assets is estimated using a cost,
market or income approach. Goodwill represents the excess of the purchase price over the estimated fair values of net tangible and
intangible assets acquired. Finite-lived intangible assets are amortized over their estimated useful lives, principally three to 15 years,
using either the straight-line method or an accelerated attrition method.
Impairment Review for Long-lived Assets
Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount
may not be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its
eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an
impairment charge is recorded for an amount by which the carrying amount exceeds the fair value of the asset. The fair value of the
impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and appraisals,
as appropriate. We derive cash flow estimates from our long-term business plans and historical experience.
Impairment Review for Goodwill and Intangible Assets
Goodwill is tested annually for impairment during the fourth quarter or sooner when circumstances indicate an impairment may exist, at
the reporting unit level. A reporting unit is the operating segment, or a business that is one level below that operating segment. Reporting
units are aggregated as a single reporting unit if they have similar economic characteristics. Goodwill is tested for impairment using a
two-step approach. In the first step, the fair value of each reporting unit is determined and compared to the reporting unit's carrying
value, including goodwill. If the fair value of a reporting unit is less than its carrying value, the second step of the goodwill impairment
test is performed to measure the amount of impairment, if any. In the second step, the fair value of the reporting unit is allocated to the
assets and liabilities of the reporting unit as if it had been acquired in a business combination and the purchase price was equivalent to
the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities
is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit's goodwill is then compared to the actual
carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is
recognized for the difference. The fair value of a reporting unit is determined based on a combination of various techniques, including
the present value of future cash flows, multiples of competitors and multiples from sales of like businesses.
41
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Intangible assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount
may not be fully recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset and its
eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an
impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value
of the asset. The fair value of the asset is determined using probability weighted expected cash flow estimates, quoted market prices
when available and appraisals, as appropriate.
Retirement Plans
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized over the estimated future
working life of the plan participants and affect future pension cost. Net periodic pension cost includes current service cost, interest cost
and return on plan assets. Net pension cost is also based on a market-related valuation of plan assets where differences between the actual
and expected return on plan assets are amortized to pension cost over a five-year period. We recognize the overfunded or underfunded
status of pension and other postretirement benefit plans in the Consolidated Balance Sheets. Gains and losses, prior service costs and
credits and any remaining transition amounts that have not yet been recognized in net periodic benefit cost are recognized in accumulated
other comprehensive income, net of tax, until they are amortized as a component of net periodic benefit cost.
Stock-based Compensation
We measure compensation expense for stock-based awards based on the estimated fair value of the award and recognize the expense on
a straight-line basis (net of estimated forfeitures) over the employee requisite service period. We estimate the fair value of stock awards
using a Black-Scholes valuation model or a Monte Carlo simulation model for those awards that contain a market condition. We believe
that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair value
of our stock awards. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees
and subsequent events are not indicative of the reasonableness of the original estimates of fair value.
Revenue Recognition
We derive our revenue from multiple sources including sales, rentals, financing and services. Certain of our transactions are consummated
at the same time and generate revenue from multiple sources. The most common form of these transactions involves the sale or non-
cancelable lease of equipment, a meter rental and an equipment maintenance agreement. In these multiple element arrangements, revenue
is allocated to each of the elements based on their relative fair values. The allocation of fair values to the various elements does not
change the total revenue recognized from a transaction, but impacts the timing of revenue recognition. Revenue is allocated to the meter
rental and equipment maintenance agreement elements using their respective fair values, which are determined based on prices charged
in standalone and renewal transactions. For a sale transaction, revenue is allocated to the equipment based on a range of selling prices
in standalone transactions. For a lease transaction, revenue is allocated to the equipment based on the present value of the remaining
minimum lease payments. The allocated equipment fair value is compared to the range of selling prices in standalone transactions during
the period to ensure the allocated equipment fair value approximates average selling prices. More specifically, revenue related to our
offerings is recognized as follows:
Sales Revenue
Sales of Equipment
We sell equipment directly to our customers and to distributors (re-sellers) throughout the world. We recognize revenue from these sales
when the risks and rewards of ownership transfer to the customer, which is generally upon shipment. We recognize revenue from the
sale of equipment under sales-type leases as equipment revenue at the inception of the lease. We do not typically offer any rights of
return or stock balancing rights. Sales revenue from customized equipment, mail creation equipment and shipping products is generally
recognized when installed.
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is generally upon delivery.
Standalone Software Sales and Integration Services
We recognize revenue from standalone software licenses upon delivery of the product when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed and determinable and collectability is probable. For software licenses that are included in a lease
contract, we recognize revenue upon shipment of the software unless the lease contract specifies that the license expires at the end of the
lease or the price of the software is deemed not fixed or determinable based on historical evidence of similar software leases. In these
instances, revenue is recognized on a straight-line basis over the term of the lease contract. We recognize revenue from software requiring
integration services at the point of customer acceptance. We recognize revenue related to off-the-shelf perpetual software licenses upon
transfer of title, which is generally upon shipment.
42
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Rentals Revenue
We rent equipment, primarily postage meters and mailing equipment, under short-term rental agreements. Rental revenue includes
revenue from the subscription for digital meter services. We may invoice in advance for postage meter rentals according to the terms of
the agreement. We initially defer these advanced billings and recognize rental revenue on a straight-line basis over the invoice period.
Revenues generated from financing customers for the continued use of equipment subsequent to the expiration of the original lease term
are classified within rentals revenue.
We defer certain initial direct costs incurred in consummating a transaction and recognize these costs over the expected term of the
agreement. Initial direct costs amortized in 2012, 2011 and 2010 were $13 million, $19 million and $27 million, respectively. Initial
direct costs deferred at December 31, 2012 and 2011 were $26 million and $31 million, respectively. These costs are included in rental
property and equipment, net on our Consolidated Balance Sheets.
Financing Revenue
We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit to our customers
for the purchase of postage and related supplies. The vast majority of our leases qualify as sales-type leases using the present value of
minimum lease payments classification criteria. We believe that our sales-type lease portfolio contains only normal collection risk.
Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease
payments plus the estimated residual value as finance receivables. The difference between the finance receivable and the equipment fair
value is recorded as unearned income and is amortized as income over the lease term using the interest method.
Equipment residual values are determined at inception of the lease using estimates of equipment fair value at the end of the lease term.
Estimates of future equipment fair value are based primarily on our historical experience. We also consider forecasted supply and demand
for our various products, product retirement and future product launch plans, end of lease customer behavior, regulatory changes,
remanufacturing strategies, used equipment markets, if any, competition and technological changes. We evaluate residual values on an
annual basis or as changes to the above considerations occur.
Support Services Revenue
We provide support services for our equipment primarily through maintenance contracts. Revenue related to these agreements is recognized
on a straight-line basis over the term of the agreement.
Business Services Revenue
Business services revenue includes revenue from management services, mail services and marketing services. Management services
include outsourcing of mailrooms, copy centers, print management or other document management functions. These service agreements
are typically one to five year contracts that contain a monthly service fee and in many cases a “click” charge based on the number of
copies made, documents processed, machines in use, etc. The monthly service fee is recognized over the term of the agreement and the
“click” charges are recognized as earned. Mail services include the preparation, sortation and aggregation of mail to earn postal discounts
and expedite delivery and ecommerce solutions for cross border transactions. Marketing services include direct mail marketing services.
Revenue from mail services and marketing services is recognized as the services are provided.
Shipping and Handling
Shipping and handling costs are recorded in cost of revenues.
Product Warranties
We provide product warranties in conjunction with the sale of certain products, generally for a period of 90 days from the date of
installation. We estimate our liability for product warranties based on historical claims experience and other currently available evidence.
Our product warranty liability at December 31, 2012 and 2011 was not material.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet and retail marketing costs associated with the acquisition of new customers and
recognize these costs over the expected revenue stream ranging from five to nine years. Deferred marketing costs expensed in 2012,
2011 and 2010 were $30 million, $34 million and $39 million, respectively. Deferred marketing costs included in other assets in the
Consolidated Balance Sheets were $73 million and $84 million at December 31, 2012 and 2011, respectively. We review individual
marketing programs for impairment annually or as circumstances warrant.
43
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Restructuring Charges
Costs associated with exit or disposal activities, including lease termination costs and employee severance costs associated with
restructuring, are recognized when they are incurred. The cost and related liability for one-time benefit arrangements is recognized when
they are both probable and reasonably estimable.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in interest rates and foreign currency exchange rates. We limit
these risks by following established risk management policies and procedures, including the use of derivatives. We do not use derivatives
for trading or speculative purposes.
We use derivative instruments to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial
results. Derivative instruments typically consist of interest-rate swaps, forward contracts and currency swaps depending upon the
underlying exposure. We record our derivative instruments at fair value and the accounting for changes in the fair value of the derivatives
depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk
exposure it is designed to hedge.
To qualify as a hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship
must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness
of the hedge relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we enter into contracts with only those
financial institutions that meet stringent credit requirements. We regularly review our credit exposure balances as well as the
creditworthiness of our counterparties.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts
of assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that a deferred
tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during
the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the year. Diluted earnings per
share also includes the dilutive effect of outstanding stock options, market stock units, restricted stock, preference stock, preferred stock
and stock purchase plans.
Statement of Cash Flows
During the fourth quarter of 2012, we determined that beginning with the three month period ended December 31, 2011 and each subsequent
three month period through September 30, 2012, changes in certain investment-related working capital accounts that were classified in
the Consolidated Statement of Cash Flows as cash flows from operating activities should have been included in cash flows from investing
activities. The Consolidated Statement of Cash Flows for the year ended December 31, 2011 has been revised in this Form 10-K by
increasing cash provided by operating activities and increasing cash used by investing activities by $29 million.
We have determined that the effect of this reclassification was not material to any of our previously issued consolidated financial statements
and will revise our previously issued quarterly financial statements to reflect this reclassification adjustment in future Form 10-Q filings
as appropriate. See Note 20.
Translation of Non-U.S. Currency Amounts
In general, the functional currency of our foreign operations is the local currency. Assets and liabilities of subsidiaries operating outside
the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during
the period. Net deferred translation gains and losses are included as a component of accumulated other comprehensive income.
Loss contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. On a
quarterly basis, we review the status of each significant matter and assess the potential financial exposure. If the potential loss from any
44
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
claim or legal action is considered probable and can be reasonably estimated, we establish a liability for the estimated loss. The assessment
of the ultimate outcome of each claim or legal action and the determination of the potential financial exposure requires significant
judgment. Estimates of potential liabilities for claims or legal actions are based only on information that is available at that time. As
additional information becomes available, we may revise our estimates, and these revisions could have a material impact on our results
of operations and financial position. Legal fees are expensed as incurred.
2. Inventories
Raw materials and work in process
Supplies and service parts
Finished products
Inventory at FIFO cost
Excess of FIFO cost over LIFO cost
Total inventory, net
3. Fixed Assets
Land
Buildings
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
Rental property and equipment
Accumulated depreciation
Rental property and equipment, net
December 31,
2012
2011
$
$
66,221
72,551
68,335
207,107
(27,429)
179,678
$
$
63,216
68,600
71,958
203,774
(25,175)
178,599
December 31,
2012
$
22,064
$
349,061
1,299,475
1,670,600
(1,285,223)
385,377
580,243
(339,051)
241,192
$
$
$
$
$
$
2011
23,852
335,625
1,278,332
1,637,809
(1,233,663)
404,146
649,343
(390,632)
258,711
Depreciation expense was $211 million, $214 million and $243 million for the years ended December 31, 2012, 2011 and 2010,
respectively. In 2012, we recorded asset impairment charges of $7 million to write down the carrying value of certain assets of IMS (see
Note 18). In 2011, we recorded asset impairment charges of $13 million associated with a restructuring program (see Note 13).
45
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
4. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease
receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan
receivables arise primarily from financing services offered to our customers for postage and related supplies. Loan receivables are
generally due each month; however, customers may rollover outstanding balances.
Finance receivables at December 31, 2012 and 2011 consisted of the following:
December 31, 2012
December 31, 2011
North
America
International
Total
North
America
International
Total
Sales-type lease receivables
Gross finance receivables
Unguaranteed residual values
Unearned income
Allowance for credit losses
Net investment in sales-type lease receivables
Loan receivables
Loan receivables
Allowance for credit losses
Net investment in loan receivables
$1,581,711
$ 461,510
$2,043,221
$1,727,653
$ 460,101
$2,187,754
148,664
(316,030)
(16,979)
1,397,366
21,025
(104,258)
(8,662)
369,615
169,689
(420,288)
(25,641)
1,766,981
185,450
(348,286)
(28,661)
1,536,156
20,443
(102,618)
(12,039)
365,887
205,893
(450,904)
(40,700)
1,902,043
414,960
(12,322)
402,638
47,293
(2,131)
45,162
462,253
(14,453)
447,800
436,631
(20,272)
416,359
40,937
(2,458)
38,479
477,568
(22,730)
454,838
Net investment in finance receivables
$1,800,004
$ 414,777
$2,214,781
$1,952,515
$ 404,366
$2,356,881
Loan receivables are due in less than one year. Maturities of gross sales-type lease finance receivables at December 31, 2012 were
as follows:
2013
2014
2015
2016
2017
Thereafter
Total
Sales-type Lease Receivables
North America
661,770
$
443,284
274,680
146,113
47,937
7,927
1,581,711
$
International
Total
$
142,134
$
127,040
95,268
63,029
30,273
3,766
461,510
$
$
803,904
570,324
369,948
209,142
78,210
11,693
2,043,221
46
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Allowance for Credit Losses
Activity in the allowance for credit losses for finance receivables for the years ended December 31, 2012, 2011 and 2010 was as
follows:
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
Balance at December 31, 2009
$
Amounts charged to expense
Accounts written off
Balance at December 31, 2010
Amounts charged to expense
Accounts written off
Balance at December 31, 2011
Amounts charged to expense
Accounts written off
31,005
13,211
(16,424)
27,792
13,726
(12,857)
28,661
2,276
(13,958)
Balance at December 31, 2012
$
16,979
$
Aging of Receivables
$
13,077
$
25,839
$
2,237
$
6,719
(6,478)
13,318
5,087
(6,366)
12,039
994
(4,371)
8,662
$
20,046
(19,677)
26,208
7,631
(13,567)
20,272
3,278
(11,228)
12,322
$
2,024
(2,149)
2,112
1,610
(1,264)
2,458
903
(1,230)
2,131
$
72,158
42,000
(44,728)
69,430
28,054
(34,054)
63,430
7,451
(30,787)
40,094
The aging of finance receivables at December 31, 2012 and 2011 was as follows:
December 31, 2012
< 31 days
> 30 days and < 61 days
> 60 days and < 91 days
> 90 days and < 121 days
> 120 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
1,497,797
$
435,780
$
392,108
$
45,324
$
2,371,009
37,348
24,059
6,665
15,842
1,581,711
6,665
15,842
22,507
$
$
$
$
$
$
9,994
5,198
3,327
7,211
461,510
3,327
7,211
10,538
$
$
$
12,666
4,577
2,319
3,290
1,368
285
179
137
61,376
34,119
12,490
26,480
414,960
$
47,293
$
2,505,474
— $
5,609
5,609
$
— $
316
316
$
9,992
28,978
38,970
47
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Sales-type Lease Receivables
Loan Receivables
North
America
International
North
America
International
Total
$
1,641,706
$
434,811
$
414,434
$
38,841
$
2,529,792
41,018
24,309
4,912
15,708
1,727,653
4,912
15,708
20,620
$
$
$
$
$
$
10,152
5,666
3,207
6,265
460,101
3,207
6,265
9,472
$
$
$
12,399
4,362
2,328
3,108
1,066
425
186
419
64,635
34,762
10,633
25,500
436,631
$
40,937
$
2,665,322
— $
5,436
5,436
$
— $
605
605
$
8,119
28,014
36,133
December 31, 2011
< 31 days
> 30 days and < 61 days
> 60 days and < 91 days
> 90 days and < 121 days
> 120 days
Total
Past due amounts > 90 days
Still accruing interest
Not accruing interest
Total
Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score,
where available, and a detailed manual review of the client’s financial condition and, when applicable, payment history. Once credit
is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct
follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes.
The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and
enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We
do not use a third party to score our International portfolio because the cost to do so is prohibitive, it is a localized process and there
is no single credit score model that covers all countries.
The table below shows the North America portfolio at December 31, 2012 and 2011 by relative risk class (low, medium, high) based
on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including
the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not
scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party,
refers to the relative risk that an account in the next 12 month period may become delinquent.
• Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial
borrowers.
• Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of
all commercial borrowers.
• High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered
to approximate the bottom 30% of all commercial borrowers.
48
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
December 31,
2012
2011
$
1,016,413
$
1,096,676
450,432
43,658
71,208
473,394
58,177
99,406
$
1,581,711
$
1,727,653
$
254,567
$
136,069
14,624
9,700
269,547
115,490
21,081
30,513
$
414,960
$
436,631
Sales-type lease receivables
Risk Level
Low
Medium
High
Not Scored
Total
Loan receivables
Risk Level
Low
Medium
High
Not Scored
Total
Troubled Debt
We maintain a program for U.S. clients in our North America loan portfolio who are experiencing financial difficulties, but are able
to make reduced payments over an extended period of time. Upon acceptance into the program, the client’s credit line is closed and
interest accrual is suspended. There is generally no forgiveness of debt or reduction of balances owed. The balance of loans in this
program, related loan loss allowance and write-offs are insignificant to the overall portfolio.
Leveraged Leases
Our investment in leveraged lease assets consisted of the following:
Rental receivables
Unguaranteed residual values
Principal and interest on non-recourse loans
Unearned income
Investment in leveraged leases
Less: deferred taxes related to leveraged leases
Net investment in leveraged leases
December 31,
2012
2011
$
83,254
$
810,306
14,177
(55,092)
(7,793)
34,546
(19,372)
15,174
$
13,784
(606,708)
(79,111)
138,271
(101,255)
37,016
$
During 2012 and 2011, we sold certain non-U.S. leveraged lease assets for cash. The investment in each of the leveraged leases at
the time of sale was $109 million. The leveraged lease assets sold in 2012 resulted in after-tax gain of $13 million and the leveraged
lease assets sold in 2011 resulted in an after-tax gain of $27 million.
Pitney Bowes Bank
The Pitney Bowes Bank (the Bank) is an indirect wholly owned subsidiary whose primary business is to provide financing solutions
to clients that rent or lease postage meters. The Bank's key product offering, Purchase Power, is a revolving credit solution, which
enables clients to finance their postage costs when they refill their meter. The Bank also provides a deposit solution to those clients
that prefer to prepay postage and earn interest on their deposits. When a client refills their postage meter, the funds are withdrawn
from the savings account to pay for the postage.
The Bank's assets consist primarily of finance receivables, short and long-term investments and cash and liabilities consist primarily
of deposit accounts. At December 31, 2012, the Bank had assets of $796 million and liabilities of $733 million. At December 31,
49
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2011, the Bank had assets of $738 million and liabilities of $680 million. The Bank is regulated by the Federal Deposit Insurance
Corporation (FDIC) and the Utah Department of Financial Institutions.
5. Intangible Assets and Goodwill
Intangible assets
Intangible assets at December 31, 2012 and 2011 consisted of the following:
December 31, 2012
December 31, 2011
Customer relationships
Supplier relationships
Software & technology
Trademarks & trade names
Non-compete agreements
Gross
Carrying
Amount
$
407,901
29,000
169,632
35,078
7,471
Total intangible assets
$
649,082
$
Accumulated
Amortization
$
(269,100) $
(22,113)
(151,628)
(32,615)
(7,412)
(482,868) $
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
138,801
$
409,489
$
6,887
18,004
2,463
59
29,000
170,286
33,908
7,564
166,214
$
650,247
$
(237,536) $
(19,213)
(143,456)
(30,076)
(7,363)
(437,644) $
171,953
9,787
26,830
3,832
201
212,603
Amortization expense for intangible assets was $45 million, $58 million and $61 million for the years ended December 31, 2012, 2011
and 2010, respectively. The future amortization expense for intangible assets as of December 31, 2012 was as follows:
Year ended December 31,
2013
2014
2015
2016
2017
Thereafter
Total
$
37,634
36,944
33,763
25,412
11,491
20,970
$
166,214
Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange
rates, impairments, future acquisitions and accelerated amortization.
Goodwill
In 2011, based on the results of our annual goodwill impairment review, management determined that the international operations of our
Management Services segment (PBMSi) were impaired. The fair value of PBMSi was determined using a combination of techniques
including the present value of future cash flows, derived from our long-term plans and historical experience, multiples of competitors
and multiples from sales of like businesses. The inputs used to determine the fair value were classified as Level 3 in the fair value
hierarchy. Based on the results of our impairment test, we recorded a goodwill impairment charge of $84 million and an intangible asset
impairment charge of $5 million to write-down the carrying value of goodwill and intangible assets to their respective implied fair values.
The intangible asset impairment charge is included in restructuring changes and asset impairments in the Consolidated Statements of
Income.
50
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The changes in the carrying amount of goodwill, by reporting segment, for the years ended December 31, 2012 and 2011 were as follows:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services (1)
Marketing Services
Enterprise Business Solutions
Total
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services (1)
Marketing Services
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2011
$
352,897
$
— $
352,897
Impairment
$
— $
—
—
—
—
(84,500)
(45,650)
—
(130,150)
176,285
529,182
140,371
667,124
402,723
213,455
194,233
—
—
—
—
—
(18,315)
—
(18,315)
(18,315) $
$
1,617,906
$ (130,150) $ 2,147,088
Other (2)
2,977
(5,158)
(2,181)
4,276
4,094
1,176
—
—
December 31,
2012
355,874
$
171,127
527,001
144,647
671,218
403,899
195,140
194,233
9,546
1,609,137
7,365
$ 2,136,138
176,285
529,182
140,371
667,124
487,223
259,105
194,233
1,748,056
$ 2,277,238
Gross value
before
accumulated
impairment
Accumulated
impairment
December 31,
2010
Impairment
Other (2)
December 31,
2011
$
357,909
$
— $
357,909
$
— $
193,761
551,670
129,246
678,111
494,432
259,101
194,233
—
—
—
—
—
—
—
193,761
551,670
129,246
678,111
494,432
259,101
194,233
—
—
—
—
(84,500)
(45,650)
—
(130,150)
(5,012) $
(17,476)
(22,488)
11,125
(10,987)
(7,209)
4
—
(7,067)
352,897
176,285
529,182
140,371
667,124
402,723
213,455
194,233
Enterprise Business Solutions
1,755,123
— 1,755,123
Total
$ 2,306,793
$
— $ 2,306,793
1,617,906
$ (130,150) $ (29,555) $ 2,147,088
(1) Impairment charges for the Mail Services segment relate to IMS and have been classified as discontinued operations in the
Consolidated Statements of Income. See Note 18.
(2) Primarily foreign currency translation adjustments for the period.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
Accounts payable
Customer deposits
Employee related liabilities
Miscellaneous other
Accounts payable and accrued liabilities
51
December 31,
2012
361,169
698,770
356,188
393,099
1,809,226
$
$
$
2011
334,036
684,469
330,492
491,468
$
1,840,465
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
7. Debt
Term loans
4.625% notes due 2012
3.875% notes due 2013
4.875% notes due 2014 (1)
5.00% notes due 2015
4.75% notes due 2016
5.75% notes due 2017
4.75% notes due 2018
5.60% notes due 2018
6.25% notes due 2019
5.25% notes due 2022 (2)
5.25% notes due 2037 (3)
Other (4)
Total debt
Current portion long-term debt
Long-term debt
December 31,
2012
230,000
$
$
—
375,000
450,000
400,000
500,000
500,000
350,000
250,000
300,000
110,000
500,000
52,375
2011
150,000
400,000
375,000
450,000
400,000
500,000
500,000
350,000
250,000
300,000
—
500,000
58,909
4,017,375
375,000
4,233,909
550,000
$
3,642,375
$
3,683,909
Term loans at December 31, 2012 bear interest at the applicable London Interbank Offered Rate (LIBOR) plus 2.25% or Prime Rate plus
1.25%, at our option. Interest is payable and resets quarterly and the loans mature in 2015 and 2016. Term loans at December 31, 2011
were repaid during 2012.
(1) We have interest rate swap agreements with an aggregate notional value of $450 million that effectively convert the fixed rate interest
payments on this debt issue into variable interest rates. We pay a weighted-average variable rate based on three-month LIBOR plus
305 basis points and receive a fixed rate of 4.875%. The weighted-average rate paid during 2012 and 2011 was 3.5%.
(2) In November 2012, we issued $110 million of 10-year notes with a coupon rate of 5.25%. Interest is paid quarterly beginning
February 2013. The notes mature on November 27, 2022; however, we may redeem some or all of the notes at anytime on or after
November 27, 2015 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. The proceeds
from the notes will be used for general corporate purposes, including the repayment of 2013 debt maturities.
(3) Under the terms of these notes, in January 2017, bondholders may redeem the notes, in whole or in part, at par plus accrued interest.
(4) Other consists of the unamortized net proceeds received from unwinding of interest rate swaps, the mark-to-market adjustment of
interest rate swaps and debt discounts and premiums.
We have a commercial paper program that is an important source of liquidity for us and a committed credit facility of $1.0 billion to
support commercial paper issuances. There were no outstanding commercial paper borrowings at December 31, 2012 or 2011. As of
December 31, 2012, we had not drawn upon the credit facility. The credit facility expires in April 2016.
52
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Annual maturities of outstanding debt at December 31, 2012 are as follows:
2013
2014
2015
2016
2017
Thereafter
Total
8. Income Taxes
$
$
375,000
450,000
450,000
680,000
500,000
1,510,000
3,965,000
Income from continuing operations before taxes consisted of the following:
U.S.
International
Total
Years Ended December 31,
2012
458,456
146,157
604,613
$
$
2011
2010
$
$
463,814
22,727
486,541
$
$
407,060
149,129
556,189
The provision for income taxes from continuing operations consisted of the following:
U.S. Federal:
Current
Deferred
U.S. State and Local:
Current
Deferred
International:
Current
Deferred
Total current
Total deferred
Total provision for income taxes
Years Ended December 31,
2012
2011
2010
$
174,705
$
16,136
190,841
3,187
(26,273)
(23,086)
65,412
(82,862)
(17,450)
(68,505)
135,305
66,800
33,922
(15,546)
18,376
67,835
(85,401)
(17,566)
$
175,827
(24,632)
151,195
27,169
(17,518)
9,651
44,989
7,763
52,752
243,304
(92,999)
150,305
$
$
33,252
34,358
67,610
247,985
(34,387)
213,598
$
Effective tax rate
24.9%
13.9%
38.4%
The effective tax rate for 2012 includes tax benefits of $32 million from the sale of non-U.S. leveraged lease assets, $47 million of tax
benefits from the resolution of U.S. tax examinations and tax accruals of $43 million for the repatriation of additional non-U.S. earnings
that arose as a result of one-time events including the sale of leveraged lease assets and Canadian tax law changes.
53
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The effective tax rate for 2011 includes $90 million of tax benefits from the IRS tax settlements (see Other Matters below), a $34 million
tax benefit from the sale of non-U.S. leveraged lease assets and a $4 million charge from the write-off of deferred tax assets associated
with the expiration of out-of-the-money vested stock options and the vesting of restricted stock units previously granted to our employees.
In addition, the effective tax rate for 2011 was increased due to a reduced tax benefit associated with the goodwill impairment charges.
The effective tax rate for 2010 includes $16 million of tax benefits associated with previously unrecognized deferred taxes on outside
basis differences, a $15 million charge for the write-off of deferred tax assets associated with the expiration of out-of-the-money vested
stock options and the vesting of restricted stock units previously granted to our employees and a $9 million charge for the write-off of
deferred tax assets related to the U.S. health care reform legislation that eliminated the tax deduction for retiree health care costs to the
extent of federal subsidies received by companies that provide retiree prescription drug benefits equivalent to Medicare Part D coverage.
The items described in the immediately preceding paragraphs that generated significant tax rate fluctuations are not expected to recur in
future periods.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Act) was signed into law. Among others provisions, the Act retroactively
extends through 2013 certain expired provisions including the research credit and controlled foreign corporation look-thru rules. As a
result, we expect an immaterial decrease to our 2013 tax rate.
The items accounting for the difference between income taxes computed at the federal statutory rate and our provision for income taxes
consist of the following:
Federal statutory provision
State and local income taxes
Impact of non-U.S. leveraged lease asset sales
Other impact of foreign operations
Tax exempt income/reimbursement
Federal income tax credits/incentives
Unrealized stock compensation benefits
Resolution of U.S. tax examinations
U.S. health care reform tax change
Outside basis differences
Other, net
Provision for income taxes
Years Ended December 31,
2012
211,614
$
2011
2010
$
170,289
$
194,668
1,694
(30,367)
22,699
(1,992)
(8,918)
3,456
(47,380)
—
—
(501)
150,305
$
16,327
(31,423)
16,388
(2,674)
(10,741)
3,538
(94,225)
—
—
131
14,729
—
13,556
(2,352)
(7,580)
15,149
(8,230)
9,070
(15,798)
386
$
67,610
$
213,598
Other impacts of foreign operations include income of foreign affiliates taxed at rates other than the 35% U.S. statutory rate, the accrual
or release of tax uncertainty amounts related to foreign operations, the tax impacts of foreign earnings repatriation and the U.S. foreign
tax credit impacts of other foreign income taxed in the U.S.
54
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Deferred tax liabilities and assets consisted of the following:
Deferred tax liabilities:
Depreciation
Deferred profit (for tax purposes) on sale to finance subsidiary
Lease revenue and related depreciation
Amortizable intangibles
Other
Deferred tax liabilities
Deferred tax assets:
Nonpension postretirement benefits
Pension
Inventory and equipment capitalization
Restructuring charges
Long-term incentives
Net operating loss and tax credit carry forwards
Tax uncertainties gross-up
Other
Valuation allowance
Deferred tax assets
Total deferred taxes, net
December 31,
2012
2011
$
$
(65,205)
(157,279)
(306,612)
(104,156)
(35,157)
(668,409)
119,002
117,509
26,778
20,793
35,056
194,134
28,492
89,406
(142,176)
488,994
(69,092)
(157,397)
(422,541)
(99,980)
(49,044)
(798,054)
198,379
40,956
24,806
8,185
37,019
180,281
46,773
99,996
(111,438)
524,957
$
(179,415)
$
(273,097)
The above amounts are classified as current or long-term in the Consolidated Balance Sheets in accordance with the asset or liability to
which they related or based on the expected timing of the reversal. A valuation allowance was recognized to reduce the total deferred
tax assets to an amount that will more-likely-than-not be realized. The valuation allowance relates primarily to certain foreign, state and
local net operating loss and tax credit carryforwards that are more likely than not to expire unutilized.
We have net operating loss carry forwards of $339 million as of December 31, 2012. Most of these losses can be carried forward
indefinitely.
As of December 31, 2012 we have not provided for income taxes on $750 million of cumulative undistributed earnings of subsidiaries
outside the U.S. as these earnings will be either indefinitely reinvested or remitted substantially free of additional tax; however, we
estimate that withholding taxes on such remittances would be approximately $10 million. Determination of the liability that would be
incurred if these earnings were remitted to the U.S. is not practicable as there is a significant amount of uncertainty with respect to
determining the amount of foreign tax credits and other indirect tax consequences that may arise from the distribution of these earnings.
55
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Uncertain Tax Positions
A reconciliation of the amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Increases from prior period positions
Decreases from prior period positions
Increases from current period positions
Decreases from current period positions
Decreases relating to settlements with tax authorities
Reductions from lapse of applicable statute of limitations
Balance at end of year
2012
198,635
$
2011
2010
$
531,790
$
515,565
11,811
(17,985)
28,255
—
(1,948)
(71,863)
146,905
$
67,065
(140,107)
28,686
—
(18,204)
(270,595)
198,635
$
17,775
(27,669)
43,804
(8,689)
(1,434)
(7,562)
$
531,790
The amount of the unrecognized tax benefits at December 31, 2012, 2011 and 2010 that would affect the effective tax rate if recognized
was $127 million, $160 million and $249 million, respectively.
On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly
assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax
benefits will decrease in the next 12 months, and we expect this change could be up to 10% of our unrecognized tax benefits. We recognize
interest and penalties related to uncertain tax positions in our provision for income taxes or discontinued operations as appropriate. During
the years ended December 31, 2012, 2011 and 2010, we recorded interest and penalties of $(28) million, $(83) million and $15 million,
respectively, primarily in discontinued operations. We had $11 million and $67 million accrued for the payment of interest and penalties
at December 31, 2012 and 2011, respectively.
Other Tax Matters
As is the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S., other countries and
local jurisdictions in which we have operations. Except for issues arising out of certain partnership investments, the IRS examinations
of tax years prior to 2009 are closed to audit. Other than the pending application of legal principles to specific issues arising in earlier
years, only post-2007 Canadian tax years are subject to examination. Other significant tax filings subject to examination include various
post-2004 U.S. state and local, post-2007 German, and post-2008 French and U.K. tax filings. We have other less significant tax filings
currently under examination or subject to examination.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax
adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax
law and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative,
on our results of operations, financial position and cash flows.
On August 27, 2012, the Third Circuit Court of Appeals overturned a prior Tax Court decision and ruled in favor of the IRS and adverse
to the Historic Boardwalk Hall LLC, a partnership in which we had made an investment in the year 2000. The decision has been appealed
and, therefore, the judgment is not yet final. Based on our partnership contractual relationship, we do not expect this matter to have a
material effect on our results of operations.
9. Noncontrolling Interests (Preferred Stockholders’ Equity in Subsidiaries)
Pitney Bowes International Holdings, Inc. (PBIH), a subsidiary, has 300,000 shares, or $300 million, of outstanding perpetual voting
preferred stock (the Preferred Stock) held by certain institutional investors. The holders of the Preferred Stock are entitled as a group to
25% of the combined voting power of all classes of capital stock of PBIH. All outstanding common stock of PBIH, representing the
remaining 75% of the combined voting power of all classes of capital stock, is owned directly or indirectly by the company. The Preferred
Stock is entitled to cumulative dividends at a rate of 6.125% through 2016 after which it becomes callable and, if it remains outstanding,
will yield a dividend that increases by 50% every six months thereafter. No dividends were in arrears at December 31, 2012 or December 31,
2011. There was no change in the carrying value of noncontrolling interests during the years ended December 31, 2012 or 2011.
56
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
10. Stockholders' Equity
Preferred Stock
We have two classes of Preferred Stock issued and outstanding: the 4% Preferred Stock and the $2.12 Preference Stock. The 4% Preferred
Stock is entitled to cumulative dividends of $2 per year and can be converted into 24.24 shares of common stock, subject to adjustment
in certain events. The preferred stock is redeemable at our option at a price of $50 per share, plus dividends accrued through the redemption
date. We are authorized to issue 600,000 shares of 4% Preferred Stock. At December 31, 2012 and 2011, there were 85 shares outstanding.
There are no unpaid dividends in arrears.
The $2.12 Preference Stock is entitled to cumulative dividends of $2.12 per year and can be converted into 16.53 shares of common
stock, subject to adjustment in certain events. The preference stock is redeemable at our option at a price of $28 per share. We are
authorized to issue 5,000,000 shares of $2.12 Preference Stock. At December 31, 2012 and 2011, there were 23,928 shares and 24,336
shares outstanding, respectively. There are no unpaid dividends in arrears.
Common Stock
We have 480,000,000 shares of common stock authorized and 323,337,912 shares were issued at December 31, 2012 and 2011. At
December 31, 2012, 38,428,301 shares were reserved for issuance under our stock plans and dividend reinvestment program, 2,060 shares
were reserved for issuance upon conversion of the 4% Preferred Stock and 395,530 shares were reserved for issuance upon conversion
of the $2.12 Preference Stock. The following table summarizes the changes in Common Stock and Treasury Stock:
Balance at December 31, 2009
Repurchases of common stock
Issuance of common stock
Conversions to common stock
Balance at December 31, 2010
Repurchases of common stock
Issuance of common stock
Conversions to common stock
Balance at December 31, 2011
Issuance of common stock
Conversions to common stock
Balance at December 31, 2012
Treasury
116,140,084
4,687,304
(876,794)
(43,684)
119,906,910
4,692,200
(963,448)
(48,820)
123,586,842
(1,118,089)
(14,888)
122,453,865
Outstanding
207,197,828
(4,687,304)
876,794
43,684
203,431,002
(4,692,200)
963,448
48,820
199,751,070
1,118,089
14,888
200,884,047
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following:
Foreign currency translation adjustments
Net unrealized loss on derivatives
Net unrealized gain on investment securities
Net unamortized loss on pension and postretirement plans
Accumulated other comprehensive loss
2012
81,250
(7,777)
4,513
(759,199)
(681,213)
$
$
2011
2010
83,952
(8,438)
4,387
(741,546)
(661,645)
$
$
137,521
(10,445)
1,439
(602,321)
(473,806)
$
$
57
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
11. Stock-Based Compensation
The following table shows stock-based compensation expense as included in the Consolidated Statements of Income:
Cost of equipment sales
Cost of support services
Cost of business services
Selling, general and administrative
Research and development
Stock-based compensation expense
Income tax
Years Ended December 31,
2012
2011
2010
$
1,212
$
1,292
$
1,397
522
721
15,176
596
18,227
(6,061)
12,166
$
557
770
15,689
640
18,948
(6,170)
12,778
$
602
831
16,936
686
20,452
(7,265)
13,187
Stock-based compensation expense, net of tax
$
Stock Plans
We have a long-term incentive program whereby eligible employees may be granted restricted stock units, market stock units, non-
qualified stock options, other stock-based awards, cash or any combination thereof. The Executive Compensation Committee of the
Board of Directors administers these plans. We settle employee stock compensation awards with treasury shares. At December 31, 2012,
there were 16,644,439 shares available for future grants under our long-term incentive program.
Restricted Stock Units
Restricted stock units are granted to employees and entitle the holder to shares of common stock as the units vest, typically over a four
year service period. The fair value of the units is determined on the grant date based on our stock price at that date less the present value
of expected dividends. The following table summarizes information about restricted stock units during 2012 and 2011:
Restricted stock units outstanding at beginning of year
Granted
Vested
Forfeited
Restricted stock units outstanding at end of year
2012
2011
Shares
1,629,055
999,381
(598,543)
(120,733)
1,909,160
Weighted
average grant
date fair value
22.33
$
14.72
22.27
18.75
17.68
$
Shares
Weighted
average grant
date fair value
1,637,242
$
662,049
(543,688)
(126,548)
1,629,055
$
25.55
22.44
26.89
23.12
22.33
At December 31, 2012, there was $15 million of unrecognized compensation cost related to restricted stock units that is expected to be
recognized over a weighted-average period of 2.2 years. The intrinsic value of restricted stock units outstanding at December 31, 2012
was $20 million. The intrinsic value of restricted stock units vested during 2012, 2011 and 2010 was $11 million, $13 million and $9
million, respectively.
Market Stock Units
In 2012, we issued market stock units to key executives and other eligible employees. Each market stock unit award reflects a base
number of shares (Base Shares) that the recipient may receive before adjusting for performance and market conditions. The actual number
of shares the recipient receives is determined at the end of a three-year performance period based on the company's attainment of a
specified income target and a market condition based on total shareholder return of our common stock (including dividends) over a three-
year period, and may range from 50% to 200% of the Base Shares granted. The expense for these awards, net of estimated forfeitures,
is recorded over the performance period based on the fair value of the award, determined on the grant date using a Monte Carlo simulation
model.
58
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following table summarizes information about market stock units during 2012:
Shares
Market stock units outstanding at January 1, 2012
Granted
Forfeited
Market stock units outstanding at December 31, 2012
The fair value of market stock units was determined based on the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
— $
205,013
(6,868)
198,145
Weighted
average grant
date fair value
—
17.91
17.91
17.91
$
Year Ended
December 31, 2012
6.7%
29.7%
0.4%
At December 31, 2012, there was $1 million of unrecognized compensation cost related to market stock units that is expected to be
recognized over a weighted-average period of 1.6 years.
Stock Options
Under our stock option plan, certain officers and employees are granted options at prices equal to the market value of our common shares
at the date of grant. Options vest ratably over three or four years and expire ten years from the date of grant.
The following table summarizes information about stock option activity during 2012 and 2011:
Options outstanding at beginning of the year
Granted
Exercised
Canceled
Forfeited
Options outstanding at the end of the year
Options exercisable at the end of the year
2012
2011
Per share
weighted
average
exercise prices
36.42
$
15.71
—
36.15
40.20
35.28
37.44
$
$
Shares
14,471,464
600,000
—
(525,361)
(892,858)
13,653,245
11,762,341
Per share
weighted
average exercise
prices
Shares
14,506,522
$
1,312,910
(55,484)
(1,266,537)
(25,947)
14,471,464
11,478,630
$
$
37.38
26.07
25.15
37.61
27.27
36.42
39.13
At December 31, 2012, there was $1 million of unrecognized compensation cost related to stock options that is expected to be recognized
over a weighted-average period of 1.7 years. The options outstanding and exercisable at December 31, 2012 had no intrinsic value. There
were no options exercised in 2012 or 2010 and the intrinsic value of options exercised in 2011 was less than $1 million.
59
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The following table summarizes information about stock options outstanding and exercisable at December 31, 2012:
Range of per share exercise prices
Shares
Options Outstanding
Options Exercisable
Per share
weighted-average
exercise price
Weighted-average
remaining
contractual life
Shares
Per share
weighted-average
exercise price
Weighted-average
remaining
contractual life
$13.39 - $22.99
$23.00 - $30.99
$31.00 - $38.99
$39.00 - $48.03
1,959,735
$
2,471,949
2,962,324
6,259,237
13,653,245
$
20.14
25.42
34.73
44.17
35.28
8.0 years
7.1 years
2.8 years
2.4 years
4.2 years
906,744
$
1,634,036
2,962,324
6,259,237
11,762,341
$
22.09
25.09
34.73
44.17
37.44
7.1 years
6.6 years
2.8 years
2.4 years
3.5 years
We estimate the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value
of stock options include the volatility of our stock price, a risk-free interest rate, the expected dividend yield of our stock and expected
life of the award. Expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on
U.S. treasuries with a term equal to the expected option term. The expected life of the award and expected dividend yield are based on
historical experience. The fair value of stock options granted during the year was determined using the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life
Weighted-average fair value per option granted
Employee Stock Purchase Plan
Years Ended December 31,
2012
9.3%
30.0%
1.2%
2011
6.1%
26.1%
3.3%
2010
6.1%
25.6%
3.2%
7.9 years
7.4 years
7.3 years
$0.48
$3.45
$2.82
We maintain a non-compensatory Employee Stock Purchase Plan that enables substantially all U.S. and Canadian employees to purchase
shares of our common stock at an offering price of 95% of the average market price on the offering date. At no time will the exercise
price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased 291,859 shares and
258,667 shares in 2012 and 2011, respectively. We have reserved 4,816,935 common shares for future purchase under the ESPP.
Directors' Stock Plan
Each non-employee director is granted shares of restricted stock on an annual basis. In 2012 and 2011, we granted 26,653 shares and
22,000 shares to non-employee directors, respectively.
60
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
12. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered
from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and
liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in
active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies
based on management's best estimate of fair value and that are significant to the fair value of the asset or liability.
The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value
on a recurring basis at December 31, 2012 and 2011. Financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect their placement within the fair value hierarchy.
Assets:
Investment securities
Money market funds / commercial paper
$
581,648
$
34,369
$
— $
616,017
Level 1
Level 2
Level 3
Total
December 31, 2012
—
—
124,221
—
—
—
—
25,106
29,359
18,908
43,926
162,375
10,117
2,582
—
—
—
—
—
—
—
25,106
29,359
143,129
43,926
162,375
10,117
2,582
705,869
$
326,742
$
— $
1,032,611
— $
— $
(1,174) $
(1,174) $
— $
— $
(1,174)
(1,174)
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swaps
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
$
$
$
61
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Level 1
Level 2
Level 3
Total
December 31, 2011
Assets:
Investment securities
Money market funds / commercial paper
$
239,157
$
300,702
$
— $
539,859
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies
and municipalities
Debt securities - corporate
Mortgage-backed / asset-backed securities
Derivatives
Interest rate swaps
Foreign exchange contracts
Total assets
Liabilities:
Derivatives
Foreign exchange contracts
Total liabilities
Investment Securities
—
—
93,175
—
—
—
—
22,097
27,747
19,042
31,467
134,262
15,465
4,230
—
—
—
—
—
—
—
22,097
27,747
112,217
31,467
134,262
15,465
4,230
332,332
$
555,012
$
— $
887,344
— $
— $
(1,439) $
(1,439) $
— $
— $
(1,439)
(1,439)
$
$
$
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by
observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
• Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit,
commercial paper and other highly liquid, low-risk securities. Money market funds are principally used for overnight deposits and
are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively
traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified
as Level 2.
• Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds
are classified as Level 2 as they are not separately listed on an exchange.
• Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the
U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. The value of the funds
is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares
outstanding, as reported by the fund manager. These commingled funds are not listed on an exchange in an active market and are
classified as Level 2.
• Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: Debt securities are classified as Level 1 where active,
high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities valued
using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for
identical or comparable securities are classified as Level 2.
• Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations
where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as
Level 2.
• Mortgage-Backed Securities (MBS) / Asset-Backed Securities (ABS): These securities are valued based on external pricing indices.
When external index pricing is not observable, MBS and ABS are valued based on external price/spread data. These securities are
classified as Level 2.
Investment securities include investments held by the Bank. The Bank's investment securities are classified as available-for-sale and
recorded at fair value on the Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending
on the type of investment and maturity. Unrealized holding gains and losses are recorded, net of tax, in accumulated other comprehensive
income.
62
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
At December 31, 2012 and 2011, available-for-sale securities consisted of the following:
Money market funds / commercial paper
U.S. and foreign governments, agencies and municipalities
Corporate
Mortgage-back / asset-back securities
Total
Money market funds / commercial paper
U.S. and foreign governments, agencies and municipalities
Corporate
Mortgage-back / asset-back securities
Total
December 31, 2012
Gross
unrealized
gains
Gross
unrealized
losses
Estimated fair
value
Amortized cost
44,611
$
127,807
41,095
162,180
$
53
$
3,972
2,851
3,340
$
375,693
$
10,216
$
— $
(56)
(20)
(3,145)
(3,221)
$
44,664
131,723
43,926
162,375
382,688
December 31, 2011
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Estimated fair
value
$
25,253
93,995
31,114
131,982
$
282,344
$
$
43
$
4,264
935
3,303
8,545
$
— $
(8)
(582)
(1,023)
(1,613)
$
25,296
98,251
31,467
134,262
289,276
At December 31, 2012, the amortized cost and estimated fair value of investment securities have scheduled maturities as follows:
Within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Total
Amortized cost
86,867
$
56,732
65,019
167,075
Estimated fair
value
$
87,014
58,117
65,869
171,688
$
375,693
$
382,688
We have not experienced any write-offs in our investment portfolio. The majority of our MBS are either guaranteed or supported by the
U.S. government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification
within the fair value hierarchy. Further, we have no investments in auction rate securities.
Derivative Instruments
In the normal course of business, we are exposed to the impact of interest rate changes and foreign currency fluctuations. We limit these
risks by following established risk management policies and procedures, including the use of derivatives. We use derivatives to manage
the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. We do not use derivatives for
trading or speculative purposes. We record our derivative instruments at fair value. The accounting for changes in the fair value of the
derivatives depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting
the risk exposure it is designed to hedge.
As required by the fair value measurements guidance, we have incorporated counterparty credit risk and our credit risk into the fair value
measurement of our derivative assets and liabilities, respectively. We derive credit risk from observable data related to credit default
swaps. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.
The valuation of our interest rate swaps is based on the income approach using a model with inputs that are observable or that can be
derived from or corroborated by observable market data. The valuation of our foreign exchange derivatives is based on the market approach
using observable market inputs, such as forward rates.
63
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The fair value of our derivative instruments at December 31, 2012 and 2011 was as follows:
Designation of Derivatives
Balance Sheet Location
2012
2011
December 31,
Derivatives designated as
hedging instruments
Derivatives not designated as
hedging instruments
Other current assets and prepayments:
Foreign exchange contracts
$
78
$
780
Other assets:
Interest rate swaps
Accounts payable and accrued liabilities:
10,117
15,465
Foreign exchange contracts
(320)
(79)
Other current assets and prepayments:
Foreign exchange contracts
2,504
3,450
Accounts payable and accrued liabilities:
Foreign exchange contracts
(854)
(1,360)
Total derivative assets
Total derivative liabilities
Total net derivative assets
12,699
(1,174)
11,525
$
19,695
(1,439)
18,256
$
Interest Rate Swaps
Derivatives designated as fair value hedges include interest rate swaps related to fixed rate debt. Changes in the fair value of both the
derivative and item being hedged are recognized in earnings. The following represents the results of fair value hedging relationships for
the years ended December 31, 2012 and 2011:
Derivative Instrument
Interest rate swaps
Location of Gain (Loss)
Interest expense
Foreign Exchange Contracts
Year Ended December 31,
Derivative Gain
Recognized in Earnings
Hedged Item Expense
Recognized in Earnings
2012
2011
2012
2011
$
9,994
$
11,583
$
(31,137)
$
(33,125)
We enter into foreign currency exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory
between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on
cash flow hedges is included in accumulated other comprehensive income (AOCI) in the period that the change in fair value occurs and
is reclassified to earnings in the period that the hedged item is recorded in earnings. At December 31, 2012 and 2011, we had outstanding
contracts associated with these anticipated transactions with a notional amount of $25 million and $19 million, respectively. These
contracts had a net liability value of less than $1 million at December 31, 2012 and a net asset value of $1 million at December 31, 2011.
The amounts included in AOCI at December 31, 2012 will be recognized in earnings within the next 12 months. No amount of
ineffectiveness was recorded in earnings for these designated cash flow hedges.
The following represents the results of cash flow hedging relationships for the years ended December 31, 2012 and 2011:
Derivative Instrument
Foreign exchange contracts
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion)
2012
2011
$
(2,055) $
2,141
Year Ended December 31,
Location of Gain (Loss)
(Effective Portion)
Revenue
Cost of sales
Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
2012
2011
$
$
1,298
(185)
1,113
$
$
(166)
(719)
(885)
64
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
We also enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans
and related interest that are denominated in a foreign currency. The revaluation of the intercompany loans and interest and the mark-to-
market adjustment on the derivatives are both recorded in earnings. Outstanding foreign exchange contracts to buy or sell various currencies
had a net asset value of $2 million at December 31, 2012 and December 31, 2011. All outstanding contracts at December 31, 2012 mature
within one year.
The following represents the results of our non-designated derivative instruments for the years ended December 31, 2012 and 2011:
Derivatives Instrument
Foreign exchange contracts
Location of Derivative Gain (Loss)
Selling, general and administrative expense
Year Ended December 31,
Derivative Gain (Loss)
Recognized in Earnings
2012
2011
$
(4,254) $
(17,214)
Credit-Risk-Related Contingent Features
Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination
of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At December 31, 2012, we were not required to
post any collateral.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative
instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and
accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine
the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt
at December 31, 2012 and 2011 was as follows:
Carrying value
Fair value
December 31,
2012
4,017,375
4,200,970
$
$
2011
$
$
4,233,909
4,364,176
65
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
13. Restructuring Charges and Asset Impairments
Activity in our restructuring reserves for the years ended December 31, 2012, 2011 and 2010 was as follows:
Severance and
benefits costs
Pension and
Retiree
Medical
Asset
impairments
Other exit
costs
Balance at December 31, 2009
$
73,792
$
— $
— $
Expenses, net
Gain on sale of facility
Cash payments
Non-cash charges
Balance at December 31, 2010
Expenses, net
Gain on sale of facility
Cash payments
Non-cash charges
Balance at December 31, 2011
Expenses, net
Cash payments
Non-cash charges
114,873
—
(87,026)
—
101,639
101,043
—
(97,646)
—
105,036
24,992
(67,488)
—
23,620
—
—
(23,620)
—
8,178
—
—
(8,178)
—
—
—
—
9,799
(8,897)
8,897
(9,799)
—
13,528
(601)
601
(13,528)
—
—
—
—
$
14,834
38,163
—
(41,436)
—
11,561
12,471
—
(9,957)
—
14,075
(1,627)
(7,230)
—
Total
88,626
186,455
(8,897)
(119,565)
(33,419)
113,200
135,220
(601)
(107,002)
(21,706)
119,111
23,365
(74,718)
—
Balance at December 31, 2012
$
62,540
$
— $
— $
5,218
$
67,758
During 2012, we took actions to further streamline our business operations and reduce our cost structure. These actions consisted primarily
of workforce reductions and resulted in a pre-tax restructuring charge of $38 million. We anticipate that these actions will result in
annualized benefits of $45 million to $55 million. Restructuring charges are net of reversals of $15 million for changes in estimated
reserves for prior period programs. Total restructuring reserves at December 31, 2012 are expected to be paid over the next 12-24 months.
We expect to fund these payments from cash flows from operations.
Restructuring charges in 2011 and 2010 represent charges taken in connection with a series of strategic transformation initiatives announced
in 2009. These initiatives were designed to transform and enhance the way we operate as a global company, enhance our responsiveness
to changing market conditions and create improved processes and systems and were implemented over a three year period through 2011.
Restructuring charges and asset impairments on the Consolidated Statements of Income also includes asset impairment charges unrelated
to restructuring programs, which are not included in the table above and excludes restructuring charges related to discontinued operations,
which are included in the table above. Asset impairment charges unrelated to restructuring programs were $5 million in both 2011 and
2010.
14. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These
may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts;
intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of
these actions may be brought as a purported class action on behalf of a purported class of employees, clients or others.
In October 2009, the company and certain of its current and former officers were named as defendants in NECA-IBEW Health & Welfare
Fund v. Pitney Bowes Inc. et al., a class action lawsuit filed in the U.S. District Court for the District of Connecticut. The complaint
asserts claims under the Securities Exchange Act of 1934 on behalf of those who purchased the common stock of the company during
the period between July 30, 2007 and October 29, 2007 alleging that the company, in essence, missed two financial projections. Plaintiffs
filed an amended complaint in September 2010. After briefing on the motion to dismiss was completed, the plaintiffs filed a new amended
complaint on February 17, 2012. We have moved to dismiss this new amended complaint. We expect to prevail in this legal action;
however, as litigation is inherently unpredictable, there can be no assurance in this regard. If the plaintiffs do prevail, the results may
have a material effect on our financial position, results of operations or cash flows. Based upon our current understanding of the facts
and applicable laws, we do not believe there is a reasonable possibility that any loss has been incurred.
66
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
15. Leases
We lease office facilities, sales and service offices, equipment and other properties under operating lease agreements extending from
three to eight years. Certain leases require us to pay property taxes, insurance and routine maintenance and include renewal options and
escalation clauses. Rental expense was $100 million, $117 million and $118 million in 2012, 2011 and 2010, respectively. Future
minimum lease payments under non-cancelable operating leases at December 31, 2012 were as follows:
Years ending December 31,
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
16. Segment Information
$
90,936
69,945
49,835
32,355
18,647
22,360
$
284,078
We conduct our business activities in seven reporting segments within two business groups, Small & Medium Business Solutions and
Enterprise Business Solutions. The principal products and services of each of our reporting segments are as follows:
Small & Medium Business Solutions:
North America Mailing: Includes the U.S. and Canadian revenue and related expenses from the sale, rental and financing of
our mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services; and
payment solutions.
International Mailing: Includes the revenue and related expenses from the sale, rental and financing of our mail finishing, mail
creation, shipping equipment and software; supplies; support and other professional services; and payment solutions outside
North America.
Enterprise Business Solutions:
Production Mail: Includes the worldwide revenue and related expenses from the sale, support and other professional services
of our high-speed, production mail systems, sorting and production print equipment and related software.
Software: Includes the worldwide revenue and related expenses from the sale and support services of non-equipment-based
mailing, client relationship and communication and location intelligence software.
Management Services: Includes worldwide revenue and related expenses from facilities management services; secure mail
services; reprographic, document management services; print outsourcing services; and litigation support and eDiscovery
services.
Mail Services: Includes worldwide revenue and related expenses from presort mail services and cross-border ecommerce
solutions.
Marketing Services: Includes revenue and related expenses from direct marketing services for targeted clients.
Segment earnings before interest and taxes (EBIT), a non-GAAP measure, is determined by deducting from segment revenue the related
costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a
particular business segment, restructuring charges, asset impairments and goodwill charges which are recognized on a consolidated basis.
Management uses segment EBIT to measure profitability and performance at the segment level. Segment EBIT may not be indicative
of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. Segment
information for our Mail Services segment for all periods presented has been restated to reflect the presentation of the IMS business as
a discontinued operation.
67
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Financial information for our reportable segments for the years ended December 31, 2012, 2011 and 2010 was as follows:
Years Ended December 31,
2012
2011
2010
$
1,818,952
$
1,961,198
$ 2,100,677
675,637
2,494,589
512,109
393,380
920,958
445,093
137,886
707,416
674,759
2,668,614
2,775,436
544,483
407,402
948,891
411,634
141,572
561,447
374,750
999,288
407,897
141,538
2,409,426
2,453,982
2,484,920
$
4,904,015
$
5,122,596
$ 5,260,356
Years Ended December 31,
2012
2011
2010
$
688,665
$
727,999
$
755,153
78,979
767,644
25,644
37,958
55,198
101,005
28,061
247,866
98,601
826,600
32,562
38,182
76,321
103,026
26,184
276,275
1,015,510
1,102,875
78,950
834,103
60,896
40,046
92,671
84,714
26,133
304,460
1,138,563
(188,386)
(199,394)
(23,117)
—
604,613
$
(197,266)
(198,020)
(136,548)
(84,500)
486,541
$
(201,324)
(199,089)
(181,961)
—
556,189
Revenue:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total revenue
EBIT:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total EBIT
Reconciling items:
Interest, net (1)
Corporate and other expenses
Restructuring charges and asset impairments
Goodwill impairment
Income from continuing operations before income taxes
$
(1) Includes financing interest expense, other interest expense and interest income.
68
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Depreciation and amortization:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Unallocated amount
Consolidated depreciation and amortization
Capital expenditures:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Unallocated amount
Consolidated capital expenditures
Years Ended December 31,
2012
2011
2010
$
104,957
$
123,252
$
133,877
26,804
131,761
13,344
24,324
33,008
32,446
3,888
107,010
238,771
29,961
153,213
12,139
34,389
27,416
26,636
3,693
104,273
257,486
36,424
170,301
12,974
36,962
33,398
27,924
5,479
116,737
287,038
16,785
14,656
16,615
$
255,556
$
272,142
$
303,653
Years Ended December 31,
2012
2011
2010
$
$
78,511
29,642
108,153
12,694
1,550
32,846
17,676
2,436
67,202
175,355
57,308
13,905
71,213
11,326
5,142
18,853
34,987
364
70,672
141,885
$
67,731
999
68,730
8,326
4,215
17,307
7,243
626
37,717
106,447
1,231
176,586
$
14,095
155,980
$
13,321
119,768
$
69
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Assets:
North America Mailing
International Mailing
Small & Medium Business Solutions
Production Mail
Software
Management Services
Mail Services
Marketing Services
Enterprise Business Solutions
Total for reportable segments
Reconciliation to consolidated amount:
Cash and cash equivalents
Short-term investments
Other corporate assets
Consolidated assets
Geographic data is as follows:
Revenues
United States
Outside United States
Total
Identifiable long-lived assets:
United States
Outside United States
Total
December 31,
2012
2011
2010
$
3,101,959
$
3,350,457
$
3,488,322
871,162
3,973,121
408,657
929,509
700,972
397,745
221,269
2,658,152
6,631,273
913,276
36,611
278,731
789,337
4,139,794
504,939
932,389
688,766
454,585
235,462
2,816,141
6,955,935
856,238
12,971
321,960
962,973
4,451,295
547,002
1,058,057
799,290
512,785
230,995
3,148,129
7,599,424
484,363
30,609
329,627
$
7,859,891
$
8,147,104
$
8,444,023
Years Ended December 31,
2012
2011
2010
$
$
$
$
3,357,274
1,546,741
4,904,015
2012
2,831,810
836,346
3,668,156
$
$
$
$
3,475,473
1,647,123
5,122,596
December 31,
2011
2,749,101
910,048
3,659,149
$
$
$
$
3,672,842
1,587,514
5,260,356
2010
2,939,467
996,963
3,936,430
70
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
17. Retirement Plans and Postretirement Medical Benefits
We have several defined benefit retirement plans. Benefits are primarily based on employees' compensation and years of service. Our
contributions are determined based on the funding requirements of U.S. federal and other governmental laws and regulations. We use a
measurement date of December 31 for all of our retirement plans. U.S. employees hired after January 1, 2005, Canadian employees hired
after April 1, 2005 and U.K. employees hired after July 1, 2005 are not eligible for our defined benefit retirement plans. Benefit accruals
for all participants in our U.K. pension plans will be frozen effective June 30, 2013. Benefit accruals for participants with 16 or more
years of service as of March 31, 2013 in our two largest U.S. pension plans and all participants in our Canadian pension plans, will be
frozen effective December 31, 2014.
In January 2013, the Board of Directors approved a plan to freeze benefit accruals under our two largest U.S. pension plans for certain
participants on March 31, 2013. The freeze is effective for those participants with less than 16 years of service as of March 31, 2013.
We are in the process of re-measuring the assets and liabilities of these plans, but currently estimate that annual pension costs for 2013
will be $10-$15 million lower than 2012 pension costs.
The benefit obligations and funded status of defined benefit pension plans are as follows:
Accumulated benefit obligation
Projected benefit obligation
United States
Foreign
2012
1,802,811
$
2011
2012
2011
$
1,684,050
$
648,439
$
543,599
Benefit obligation at beginning of year
$
1,707,390
$
1,632,286
$
581,904
$
541,241
Service cost
Interest cost
Plan participants' contributions
Actuarial loss
Foreign currency changes
Settlement / curtailment
Special termination benefits
Benefits paid
Benefit obligation at end of year
Fair value of plan assets available for benefits
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Plan participants' contributions
Settlement / curtailment
Foreign currency changes
Benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in Consolidated Balance Sheets
Non-current asset
Current liability
Non-current liability
Net amount recognized
18,939
81,040
—
145,641
—
6
—
(130,339)
1,822,677
1,426,536
193,696
94,039
—
—
—
(130,339)
1,583,932
19,450
87,738
—
94,495
—
2,941
1,489
(131,009)
1,707,390
1,385,174
41,388
130,983
—
—
—
(131,009)
1,426,536
7,763
27,793
1,106
45,537
22,115
(1,489)
601
(21,504)
663,826
438,848
44,928
30,089
1,106
(1,489)
17,353
(21,504)
509,331
7,310
28,329
1,868
30,648
(6,424)
16
277
(21,361)
581,904
450,683
(7,478)
18,616
1,868
—
(3,480)
(21,361)
438,848
(238,745)
$
(280,854)
$
(154,495)
$
(143,056)
175
(7,456)
(231,464)
(238,745)
$
$
40
(11,323)
(269,571)
(280,854)
$
$
530
(967)
(154,058)
(154,495)
$
$
888
(852)
(143,092)
(143,056)
$
$
$
71
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2012 and 2011:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pretax amounts recognized in AOCI consists of:
Net actuarial loss
Prior service cost
Transition asset
Total
United States
2012
1,821,300
1,801,433
1,582,379
2011
1,705,732
1,682,392
1,424,837
$
$
$
$
$
$
Foreign
2012
660,110
645,361
505,084
$
$
$
2011
579,646
541,723
435,702
United States
2012
879,323
1,229
—
2011
$
858,531
$
2,159
—
880,552
$
860,690
$
Foreign
2012
242,668
541
(263)
242,946
$
$
2011
224,731
541
(273)
224,999
$
$
$
$
$
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2013 are as follows:
Net actuarial loss
Prior service cost
Transition asset
Total
United States
Foreign
72,382
$
13,191
803
—
99
(10)
73,185
$
13,280
$
$
The components of net periodic benefit cost for defined benefit pension plans were as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of transition credit
Amortization of prior service cost
Recognized net actuarial loss
Special termination benefits
Settlement / curtailment
Net periodic benefit cost
2012
18,939
81,040
(121,623)
—
803
52,957
—
(48)
32,068
$
$
United States
2011
2010
2012
Foreign
2011
$
19,450
$
23,157
$
7,763
$
7,310
$
87,738
(123,058)
—
147
37,522
1,489
3,036
26,324
89,602
(123,095)
—
(2,575)
32,343
8,148
10,712
38,292
$
$
$
27,793
(32,299)
(10)
112
14,103
601
444
18,507
$
28,329
(31,784)
(10)
170
11,135
277
274
15,701
$
2010
6,907
27,507
(28,838)
(9)
214
10,205
291
1,285
17,562
72
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were
as follows:
United States
Foreign
2012
2011
2012
2011
Curtailments effects and settlements
$
48
$
Net actuarial loss
Prior service credit
Amortization of net actuarial (loss) gain
Amortization of prior service (cost) credit
Net transitional obligation (asset)
73,701
(127)
(52,957)
(803)
—
$
(95)
176,164
—
(37,522)
(147)
—
$
(444)
32,596
—
(14,103)
(112)
10
(274)
67,934
—
(11,135)
(170)
9
Total recognized in other comprehensive income
$
19,862
$
138,400
$
17,947
$
56,364
Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined
benefit pension plans include:
United States
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
Foreign
Used to determine benefit obligations
Discount rate
Rate of compensation increase
Used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
2012
2011
2010
4.05%
3.50%
4.95%
7.75%
3.50%
4.95%
3.50%
5.60%
8.00%
3.50%
5.60%
3.50%
5.75%
8.00%
3.50%
1.95% - 4.65%
1.50% - 3.50%
1.80% - 6.10%
2.10% - 4.60%
2.25% - 5.50%
2.50% - 5.50%
1.80% - 6.10%
3.25% - 7.50%
2.10% - 4.60%
2.00% - 5.50%
4.00% - 7.75%
2.10% - 5.50%
2.25% - 6.00%
4.50% - 7.75%
2.50% - 5.60%
A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and
postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a yield
curve based on long-term, high-quality fixed income debt instruments available as of the measurement date. For the U.K. retirement
benefit plan, our largest foreign plan, the discount rate is determined by discounting each year's estimated benefit payments by an applicable
spot rate, derived from a yield curve created from a large number of high-quality corporate bonds. For our other smaller foreign pension
plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.
The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans'
investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes.
The overall expected rate of return for the portfolio is based on the asset allocation at the end of the year for our U.S. pension plans and
the target asset allocation for our international pension plans, adjusted for historical and expected experience of active portfolio
management results, when compared to the benchmark returns. When assessing the expected future returns for the portfolio, management
places more emphasis on the expected future returns than historical returns.
73
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Investment Strategy and Asset Allocation - U.S. Pension Plans
The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and
maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least
7.25%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset
classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options,
forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency
exposure. Investments within the private equity and real estate portfolios are comprised of limited partnership units in primary and
secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment vehicles are used
in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within the plan assets. The
pension plans' liabilities, investment objectives and investment managers are reviewed periodically.
The target asset allocation for 2013 and the actual asset allocations at December 31, 2012 and 2011, for the U.S. pension plans are as
follows:
Asset category
U.S. equities
Non-U.S. equities
Fixed income
Real estate
Private equity
Total
Target
allocation
Percent of Plan Assets at
December 31,
2013
2012
2011
14%
14%
62%
2%
8%
14%
15%
61%
4%
6%
18%
16%
56%
4%
6%
100%
100%
100%
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset
categories presented in the fair value hierarchy are subsets of the broad asset categories.
Investment Strategy and Asset Allocation - Foreign Pension Plans
Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate
personnel. The investment strategies adopted by our foreign plans vary by country and plan, with each strategy tailored to achieve the
expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local
funding requirements, investment markets and restrictions. The U.K. plan represents 73% of the non-U.S. pension assets. The U.K.
pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding
of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 7.25%. The fund has
established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each
class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures
contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have
any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment
managers are reviewed periodically.
The target asset allocation for 2013 and the actual asset allocations at December 31, 2012 and 2011, for the U.K. pension plan are as
follows:
Asset category
U.K. equities
Non-U.K. equities
Fixed income
Cash
Total
Target
Allocation
Percent of Plan Assets at
December 31,
2013
2012
2011
32%
33%
35%
—%
100%
32%
31%
36%
1%
100%
34%
28%
32%
6%
100%
74
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The target asset allocation used to manage the investment portfolio is based on the broad asset categories shown above. The plan asset
categories presented in the fair value hierarchy are subsets of the broad asset categories.
The fair value of the U.K. plan assets was $370 million and $326 million at December 31, 2012 and 2011, respectively, and the expected
long-term rate of return on these plan assets was 7.25% in both 2012 and 2011.
Fair Value Measurements of Plan Assets
The following tables show, by level within the fair value hierarchy, the financial assets and liabilities that are accounted for at fair value
on a recurring basis at December 31, 2012 and 2011, respectively, for the U.S. and foreign pension plans. Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement requires judgment and may affect placement within the fair value hierarchy
levels.
United States Pension Plans
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Mortgage-backed securities
Asset-backed securities
Private equity
Real estate
Derivatives
Securities lending collateral (1)
Total plan assets at fair value
Securities lending payable (1)
Cash
Other
December 31, 2012
Level 1
Level 2
Level 3
Total
$
— $
17,363
$
— $
250,303
—
53,984
—
—
—
—
—
738
—
203,766
200,899
35,461
621,691
39,552
547
—
—
—
104,375
—
—
—
—
3,191
—
91,805
63,168
—
—
17,363
454,069
200,899
89,445
621,691
42,743
547
91,805
63,168
738
104,375
$
305,025
$
1,223,654
$
158,164
$
1,686,843
(104,375)
618
846
$
1,583,932
Fair value of plan assets available for benefits
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
75
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Mortgage-backed securities
Asset-backed securities
Private equity
Real estate
Derivatives
Securities lending collateral (1)
Total plan assets at fair value
Securities lending payable (1)
Cash
Other
December 31, 2011
Level 1
Level 2
Level 3
Total
$
— $
22,064
$
— $
218,010
—
60,411
—
—
—
—
—
293
—
262,152
177,349
16,745
467,281
57,922
919
—
—
—
119,528
—
—
—
—
3,702
—
88,870
57,918
—
—
22,064
480,162
177,349
77,156
467,281
61,624
919
88,870
57,918
293
119,528
$
278,714
$
1,123,960
$
150,490
$
1,553,164
(119,528)
1,108
(8,208)
$
1,426,536
Fair value of plan assets available for benefits
(1) Securities lending collateral is offset by a corresponding securities lending payable amount.
Foreign Plans
December 31, 2012
Level 1
Level 2
Level 3
Total
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Derivatives
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
$
— $
7,130
$
— $
96,442
—
—
—
—
$
96,442
$
213,662
157,332
18,937
6,935
(114)
403,882
—
—
—
—
—
$
— $
$
7,130
310,104
157,332
18,937
6,935
(114)
500,324
4,414
4,593
509,331
76
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Money market funds
Equity securities
Commingled fixed income securities
Debt securities - U.S. and foreign governments, agencies and
municipalities
Debt securities - corporate
Derivatives
Total plan assets at fair value
Cash
Other
Fair value of plan assets available for benefits
December 31, 2011
Level 1
Level 2
Level 3
Total
$
— $
7,236
$
— $
113,257
—
—
—
—
150,787
127,611
13,616
7,150
382
—
—
—
—
—
7,236
264,044
127,611
13,616
7,150
382
$
113,257
$
306,782
$
— $
420,039
16,424
2,385
$
438,848
The following information relates to our classification of investments into the fair value hierarchy:
• Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper of
companies and other highly liquid, low-risk securities. Money market funds are principally used for overnight deposits. The money
market funds are classified as Level 2 since they are not actively traded on an exchange.
• Equity Securities: Equity securities include U.S. and foreign common stock, American Depository Receipts, preferred stock and
commingled funds. Equity securities classified as Level 1 are valued using active, high volume trades for identical securities. Equity
securities classified as Level 2 represent those not listed on an exchange in an active market. These securities are valued based on
quoted market prices of similar securities.
• Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the
U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is
based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying
investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled fixed income
securities are not listed on an active exchange and are classified as Level 2.
• Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities: Government securities include treasury notes and
bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include
general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume
trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted
market prices and trade data for identical or comparable securities.
• Corporate Debt Securities: Investments are comprised of both investment grade debt
The
fair value of corporate debt securities is valued using recently executed transactions, market price quotations where observable, or
bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.
and high-yield debt
• Mortgage-Backed Securities (MBS): Investments are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage
obligations, commercial MBS, and commingled funds. These securities are valued based on external pricing indices. When external
index pricing is not observable, MBS are valued based on external price/spread data. If neither pricing method is available, broker
quotes are utilized. When inputs are observable and supported by an active market, MBS are classified as Level 2 and when inputs
are unobservable, MBS are classified as Level 3.
• Asset-Backed Securities (ABS): Investments are primarily comprised of credit card receivables, auto loan receivables, student loan
receivables, and Small Business Administration loans. These securities are valued based on external pricing indices or external price/
spread data and are classified as Level 2.
• Private Equity: Investments are comprised of units in fund-of-fund investment vehicles. Fund-of-funds consist of various private
equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most
appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.
• Real Estate: Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued
in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to
determine a fair value.
77
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
• Derivatives: Instruments are comprised of futures, forwards, options and warrants and are used to gain exposure to a desired investment
as well as for defensive hedging purposes against currency and interest rate fluctuations. Derivative instruments classified as Level
1 are valued through a readily available exchange listed price. Derivative instruments classified as Level 2 are valued using observable
inputs but are not listed or traded on an exchange.
•
Securities Lending Fund: Investment represents a commingled fund through our custodian's securities lending program. The U.S.
pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This
collateral is invested in a short-term fixed income securities commingled fund. The commingled fund is not listed or traded on an
exchange and is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S.
pension plan's net assets available for benefits.
Level 3 Gains and Losses
The following table summarizes the changes in the fair value of Level 3 assets for the year ended December 31, 2012:
Mortgage-backed
securities
Private equity
Real estate
Total
Balance at beginning of year
Realized (losses) gains
Unrealized (losses) gains
Net purchases, sales and settlements
Balance at end of year
$
$
3,702
(3)
(20)
(488)
3,191
$
$
There are no shares of our common stock included in the plan assets of our pension plans.
88,870
(13)
742
2,206
91,805
$
$
57,918
$
150,490
1,780
5,711
(2,241)
63,168
1,764
6,433
(523)
$
158,164
During 2013, we anticipate making contributions of $10 million to our U.S. pension plans and $20 million to our foreign pension plans.
We will reassess our funding alternatives as the year progresses.
78
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Nonpension Postretirement Benefits
We provide certain health care and life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. The cost of
these benefits is recognized over the period the employee provides credited service to the company. Employees hired before January 1,
2005 in the U.S. and before April 1, 2005 in Canada become eligible for retiree health care benefits after reaching age 55 or in the case
of employees of Pitney Bowes Management Services after reaching age 60 and with the completion of the required service period. U.S.
employees hired after January 1, 2005 and Canadian employees hired after April 1, 2005, are not eligible for retiree health care benefits.
Effective January 1, 2013, we amended our retiree medical coverage for certain eligible retirees by eliminating company provided coverage
in some instances in favor of a Retirement Reimbursement Account and a third party health insurance exchange to assist retirees in making
health care coverage choices. These changes do not impact active employees or pre-age 65 retirees who are not otherwise Medicare
eligible.
The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:
Benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Actuarial loss
Foreign currency changes
Plan amendment
Curtailment
Special termination benefits
Benefits paid
Benefit obligation at end of year (1)
2012
2011
$
285,828
$
280,386
3,563
11,187
9,547
4,150
697
8,501
—
—
(40,616)
282,857
$
3,328
13,528
8,861
20,792
(648)
—
3,245
300
(43,964)
$
285,828
(1) The benefit obligation for the U.S. nonpension postretirement plans was $256 million and $262 million at December 31, 2012 and
2011, respectively.
Fair value of plan assets
Fair value of plan assets at beginning of year
Company contribution
Plan participants' contributions
Gross benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in the Consolidated Balance Sheets
Current liability
Non-current liability
Net amount recognized
79
2012
2011
— $
31,069
9,547
(40,616)
— $
—
35,103
8,861
(43,964)
—
(282,857)
$
(285,828)
(25,483)
(257,374)
(282,857)
$
$
(28,855)
(256,973)
(285,828)
$
$
$
$
$
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Pretax amounts recognized in AOCI consist of:
Net actuarial loss
Prior service cost (credit)
Total
2012
106,654
8,872
115,526
$
$
2011
115,713
(5,696)
110,017
$
$
The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:
Service cost
Interest cost
Amortization of prior service benefit
Recognized net actuarial loss
Curtailment
Special termination benefits
Net periodic benefit cost
2012
2011
2010
$
3,563
$
3,328
$
11,187
(1,724)
8,214
—
—
13,528
(2,504)
7,666
2,839
300
3,724
13,828
(2,511)
6,793
6,954
191
$
21,240
$
25,157
$
28,979
Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income
were as follows:
Net actuarial (gain) loss
Amortization of net actuarial gain (loss)
Amortization of prior service credit
Adjustment for actual Medicare Part D Premium
Curtailment
Total recognized in other comprehensive income
$
2012
2011
$
(195)
4,631
1,724
(651)
—
22,201
(9,980)
2,504
(2,040)
308
$
5,509
$
12,993
The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2013 are as follows:
Net actuarial loss
Prior service
cost
Total
$
$
8,961
661
9,622
The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:
Discount rate used to determine benefit obligation
U.S.
Canada
Discount rate used to determine net period benefit cost
U.S.
Canada
2012
2011
2010
3.50%
3.90%
4.50%
4.15%
4.50%
4.15%
5.15%
5.15%
5.15%
5.15%
5.35%
5.85%
80
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 7.50%
for 2012 and 7.50% for 2011. The assumed health care trend rate is 7.00% for 2013 and will gradually decline to 5.0% by the year 2017
and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plans. A 1% change in the assumed health care cost trend rates would have the following effects:
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
Estimated Future Benefit Payments
1% Increase
1% Decrease
573
10,086
(477)
(8,703)
Benefit payments expected to be paid, which reflect expected future service, are shown in the table below. Nonpension benefit
payments are net of expected Medicare Part D subsidy.
Years ending December 31,
2013
2014
2015
2016
2017
2018 - 2022
Savings Plans
Pension Benefits
Nonpension
Benefits
$
139,394
$
137,336
130,778
132,252
134,710
700,363
25,959
24,905
23,826
22,932
22,037
98,604
$
1,374,833
$
218,263
We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement.
We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating
employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $30 million in both 2012 and
2011.
81
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
18. Discontinued Operations and Assets Held for Sale
Discontinued operations include our IMS operations (see Note 1) and our Capital Services business, which was sold in 2006. The details
of discontinued operations are shown in the following table:
Years Ended December 31,
2012
2011
2010
International Mail Services
Revenue
Cost of revenue
SG&A
Restructuring charges and asset impairments
Goodwill impairment
Impairment on assets held for sale
Loss before taxes
Tax benefit
Net loss
$
135,222
$
155,378
$
120,251
19,565
10,234
18,315
6,941
(40,084)
(15,003)
(25,081)
142,165
28,220
11,603
45,650
—
(72,260)
(23,025)
(49,235)
Capital Services, net of tax
Income (loss) from discontinued operations
34,312
266,159
$
9,231
$
216,924
$
164,898
163,818
22,379
313
—
—
(21,612)
(7,828)
(13,784)
(18,104)
(31,888)
In connection with our decision to exit our IMS operations, during the third quarter of 2012, we conducted a goodwill impairment review.
We determined the fair value of the IMS operations based on third-party written offers to purchase the business as well applying an
income approach with revised cash flow projections. The inputs used to determine the fair value of IMS were classified as Level 3 in
the fair value hierarchy. Based on the results of our impairment test, in the third quarter of 2012, we recorded a goodwill impairment
charge of $18 million and asset impairment charges of $10 million to write-down the carrying value of goodwill, intangible assets and
fixed assets to their respective implied fair values. Based on the terms of the proposed agreement, we recorded an additional pre-tax loss
of $7 million in the fourth quarter to write down the carrying value of the net assets of IMS to their estimated fair value less costs to sell.
In 2011, due to the under-performance of our IMS operations and based on information developed during the early stages of our annual
budgeting and long-term planning process started in the third quarter, we concluded that it was appropriate to perform a goodwill
impairment review for IMS. We determined the fair value of IMS using a combination of techniques including the present value of future
cash flows, multiples of competitors and multiples from sales of like businesses, and determined that the IMS reporting unit was impaired.
The inputs used to determine the fair value of IMS were classified as Level 3 in the fair value hierarchy. Based on the results of our
impairment test, we recorded a goodwill impairment charge of $46 million and an intangible asset impairment charge of $12 million to
write-down the carrying value of goodwill and intangible assets to their respective implied fair values.
The assets and liabilities of IMS consists primarily of accounts receivable and accounts payable and other current accruals. At December
31, 2012, assets of IMS were $25 million and liabilities were $25 million.
The amount recognized for Capital Services in 2012 relates to tax benefits from the resolution of tax examinations. In 2011, we entered
into a series of settlements with the IRS in connection with their examinations of our tax years 2001-2008. We agreed upon both the tax
treatment of a number of disputed issues, including issues related to the Capital Services business, and revised tax calculations. As a
result of these settlements, an aggregate $264 million benefit was recognized in discontinued operations. The amount in 2010 includes
the accrual of interest on uncertain tax positions.
82
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
19. Earnings per Share
The calculations of basic and diluted earnings per share are presented below. The sum of earnings per share amounts may not equal the
totals due to rounding.
Numerator:
Amounts attributable to common stockholders:
Income from continuing operations
Income (loss) from discontinued operations
Net income (numerator for diluted EPS)
Less: Preference stock dividend
Income attributable to common stockholders (numerator for basic EPS)
Denominator (in thousands):
Weighted-average shares used in basic EPS
Effect of dilutive shares:
Preferred stock
Preference stock
Stock plans
Weighted-average shares used in diluted EPS
Basic earnings per share:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Years Ended December 31,
2012
2011
2010
$
435,932
$
400,556
$
324,267
9,231
445,163
(51)
445,112
$
216,924
617,480
(58)
617,422
(31,888)
292,379
(65)
$
292,314
200,389
201,976
205,968
2
398
577
2
445
343
2
501
282
201,366
202,766
206,753
2.18
0.05
2.22
2.16
0.05
2.21
$
$
$
$
1.98
1.07
3.06
1.98
1.07
3.05
$
$
$
$
1.57
(0.15)
1.42
1.57
(0.15)
1.41
$
$
$
$
$
Anti-dilutive options excluded from diluted earnings per share (in thousands):
13,801
14,016
15,168
83
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
20. Quarterly Financial Data (unaudited)
The following table sets forth selected unaudited quarterly data for the years ended December 31, 2012 and 2011. The amounts in the
tables below have been revised from the amounts previously filed to reflect the results of IMS as a discontinued operation (see Note 18).
The sum of the quarterly earnings per share amounts may not equal the quarterly total or annual amount due to rounding.
2012
Revenue
Cost and expenses
Income from continuing operations
Provision for income taxes
Income from continuing operations
Gain (loss) from discontinued operations
Net income before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Income from continuing operations
Gain
(loss)
from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 1,220,136
$ 1,213,356
$ 1,183,216
$ 1,287,307
$ 4,904,015
1,059,107
1,055,241
1,045,515
1,139,539
4,299,402
161,029
15,493
145,536
17,728
163,264
158,115
52,765
105,350
(1,133)
104,217
137,701
37,823
99,878
(18,751)
81,127
147,768
44,224
103,544
11,387
114,931
604,613
150,305
454,308
9,231
463,539
4,594
4,594
4,594
4,594
18,376
$
158,670
$
99,623
$
76,533
$
110,337
$
445,163
$
$
$
$
$
$
140,942
$
100,756
$
95,284
$
98,950
$
435,932
17,728
(1,133)
(18,751)
11,387
9,231
158,670
$
99,623
$
76,533
$
110,337
$
445,163
0.70
$
0.50
$
0.48
$
0.49
$
0.09
(0.01)
(0.09)
0.06
0.79
$
0.50
$
0.38
$
0.55
$
0.70
$
0.50
$
0.47
$
0.49
$
0.09
(0.01)
(0.09)
0.06
0.79
$
0.50
$
0.38
$
0.55
$
2.18
0.05
2.22
2.16
0.05
2.21
84
PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
2011
Revenue
Cost and expenses
Income from continuing operations
Provision (benefit) for income taxes
Income from continuing operations
(Loss) gain from discontinued operations
Net income before attribution of noncontrolling interests
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests
Net income - Pitney Bowes Inc.
Amounts attributable to common stockholders:
Income from continuing operations
(Loss) gain from discontinued operations
Net income - Pitney Bowes Inc.
Basic earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
Diluted earnings per share attributable to common stockholders:
Continuing operations
Discontinued operations
Net income - Pitney Bowes Inc.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 1,279,184
$ 1,275,500
$ 1,262,757
$ 1,305,155
$ 5,122,596
1,139,147
1,112,937
1,101,815
1,282,156
4,636,055
140,037
43,552
96,485
(5,588)
90,897
162,563
54,190
108,373
(2,844)
105,529
160,942
2,038
158,904
18,457
177,361
22,999
(32,170)
55,169
206,899
262,068
486,541
67,610
418,931
216,924
635,855
4,594
4,594
4,593
4,594
18,375
86,303
$
100,935
$
172,768
$
257,474
$
617,480
91,891
$
103,779
$
154,311
$
50,575
$
400,556
(5,588)
(2,844)
18,457
206,899
216,924
86,303
$
100,935
$
172,768
$
257,474
$
617,480
0.45
$
0.51
$
0.77
$
0.25
$
(0.03)
(0.01)
0.09
1.04
0.42
$
0.50
$
0.86
$
1.29
$
0.45
$
0.51
$
0.76
$
0.25
$
(0.03)
(0.01)
0.09
1.03
0.42
$
0.49
$
0.85
$
1.28
$
1.98
1.07
3.06
1.98
1.07
3.05
$
$
$
$
$
$
$
As discussed in Note 1, we have revised each of our statements of cash flows by reducing operating cash flows and increasing investing
cash flows for the year-to-date periods ended March, June and September 2012 by $25 million, $30 million and $35 million, respectively.
We have determined that these adjustments are not material to our consolidated financial statements for any of the affected periods.
However, we will reflect these revisions in future Form 10-Q filings as appropriate.
85
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Description
Balance at
beginning of year
Additions
Deductions
Balance at end of
year
Allowance for doubtful accounts
2012
2011
2010
Valuation allowance for deferred tax asset
2012
2011
2010
$
$
$
$
$
$
25,667
26,649
39,334
111,438
104,441
95,990
$
$
$
$
$
$
(1)
(1)
(1)
13,112
9,161
9,266
40,078
16,709
22,168
$
$
$
$
$
$
(18,560)
(10,143)
(21,951)
(2)
(2)
(2)
(9,340)
(9,712)
(13,717)
$
$
$
$
$
$
20,219
25,667
26,649
142,176
111,438
104,441
(1) Includes additions charged to expenses, additions from acquisitions and impact of foreign exchange.
(2) Includes uncollectible accounts written off.
86
Exhibit (12)
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
2012
2011
2010
2009
2008
Years Ended December 31,
Income from continuing operations
before income taxes
Add:
Interest expense (1)
Portion of rents representative of the
interest factor
Amortization of capitalized interest
Income as adjusted
Fixed charges:
Interest expense (1)
Portion of rents representative of the
interest factor
Noncontrolling interests (preferred
stock dividends of subsidiaries),
excluding taxes
Total fixed charges
$
604,613
$
486,541
$
556,189
$
676,771
$
701,213
196,368
203,061
203,911
208,855
229,343
33,438
973
38,968
1,535
39,219
1,716
41,499
1,716
43,030
1,717
835,392
$
730,105
$
801,035
$
928,841
$
975,303
196,368
$
203,061
$
203,911
$
208,855
$
229,343
33,438
38,968
39,219
41,499
43,030
$
$
27,841
27,507
29,790
32,851
31,610
$
257,647
$
269,536
$
272,920
$
283,205
$
303,983
Ratio of earnings to fixed charges (2)
3.24
2.71
2.94
3.28
3.21
(1) Interest expense includes both financing interest expense and other interest expense.
(2) 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 rent expense as the representative
portion of interest.
PITNEY BOWES INC.
SUBSIDIARIES OF REGISTRANT
The Registrant, Pitney Bowes Inc., a Delaware Corporation, has no parent
The following are subsidiaries of the Registrant
(as of December 31, 2012)
EXHIBIT 21
Subsidiary Name
Adrema Leasing Corporation
AIT Quest Trustee Ltd
Alternative Mail & Parcel Investments Limited
Andean Enterprises, Inc.
B. Williams Funding Corp.
B. Williams Holding Corp.
Canadian Office Services (Toronto) Limited
Digital Cement Co.
Digital Cement Inc.
Elmcroft Road Realty Corporation
Emtex Limited
Emtex Software, Inc.
Encom Europe Limited
Factor Humano y Cadena de Personal
FSL Holdings Inc.
FSL Risk Managers Inc.
Group 1 Software China Ltd.
Harvey Company, L.L.C
Historic Boardwalk Hall, L.L.C.
Horizon Management AB
Horizon Scandinavia AB
Ibis Consulting, Inc.
Imagitas Security Corporation
Imagitas, Inc.
Mag Systèmes SAS
MapInfo Realty LLC
PB Australia Funding Pty. Limited
PB Equipment Management Inc.
PB European UK LLC
PB Forms, Inc.
PB Historic Renovation LLC
PB Miles Inc.
PB Nova Scotia Holdings II ULC
PB Nova Scotia Holdings ULC
PB Nova Scotia V ULC
PB Nova Scotia VI ULC
PB Nova Scotia II ULC
PB Nova Scotia LP
Country or state of incorporation
Delaware
UK
UK
Panama
Delaware
Delaware
Canada
Canada
Delaware
Connecticut
UK
Canada
UK
Mexico
Connecticut
New York
Hong Kong
Delaware
Delaware
Sweden
Sweden
Rhode Island
Massachusetts
Delaware
France
New York
Australia
Delaware
Delaware
Nebraska
Delaware
Delaware
Canada
Canada
Canada
Canada
Canada
Delaware
PB Partnership Financing Inc.
PB Professional Services Inc.
PBDorm Ireland Limited
Pitney Bowes Asterion Direct SAS
Pitney Bowes (Asia Pacific) Pte. Ltd
Pitney Bowes (Dormant) Pte Ltd.
Pitney Bowes (Malaysia) Sdn Bhd
Pitney Bowes (Singapore) Pte Ltd.
Pitney Bowes (Switzerland) AG
Pitney Bowes (Thailand) Limited
Pitney Bowes Asterion SAS
Pitney Bowes Australia FAS Pty. Limited
Pitney Bowes Australia Pty Limited
Pitney Bowes Austria Ges.m.b.H
Pitney Bowes Batsumi Enterprise (Pty) Ltd.
Pitney Bowes Belgium NV
Pitney Bowes Canada LP
Pitney Bowes China Inc.
Pitney Bowes Credit Australia Limited
Pitney Bowes Cross Border Services, Inc
Pitney Bowes Danmark A/S (formerly Haro Systemer AS)
Pitney Bowes de Mexico, S.A. de C.V.
Pitney Bowes Deutschland GmbH
Pitney Bowes Document Messaging Technologies Limited (formerly Bell & Howell Limited)
Pitney Bowes Espana, S.A.
Pitney Bowes Europe Limited
Pitney Bowes Finance Ireland Limited
Pitney Bowes Finance Limited (formerly Pitney Bowes Finance plc)
Pitney Bowes Global Financial Services LLC
Pitney Bowes Global Limited
Pitney Bowes Global LLC
Pitney Bowes Government Solutions, Inc.
Pitney Bowes Holdco Limited
Pitney Bowes Holding SNC
Pitney Bowes Holdings B.V.
Pitney Bowes Holdings Denmark ApS
Pitney Bowes Holdings Limited
Pitney Bowes Hong Kong Limited
Pitney Bowes India Inc.
Pitney Bowes India Private Limited
Pitney Bowes International Funding
Pitney Bowes International Holdings, Inc.
Pitney Bowes International Mail Services Limited
Pitney Bowes Ireland Limited
Pitney Bowes Italia S.r.l.
Pitney Bowes Japan KK
Delaware
Delaware
Ireland
France
Singapore
Singapore
Malaysia
Singapore
Switzerland
Thailand
France
Australia
Australia
Austria
South Africa
Belgium
Canada
Delaware
Australia
Delaware
Denmark
Mexico
Germany
UK
Spain
UK
Ireland
UK
Delaware
UK
Delaware
Delaware
UK
France
Netherlands
Denmark
UK
Hong Kong
Delaware
India
Ireland
Delaware
UK
Ireland
Italy
Japan
Pitney Bowes Korea Ltd.
Pitney Bowes Limited
Pitney Bowes Luxembourg Holding II S.a.r.l.
Pitney Bowes Luxembourg Holding S.a.r.l.
Pitney Bowes Luxembourg SARL
Pitney Bowes Mail and Messaging Systems (Shanghai) Co., Ltd.
Pitney Bowes Management Services Belgium, NV
Korea
UK
Luxembourg
Luxembourg
Luxembourg
Shanghai
Belgium
Pitney Bowes Management Services Canada, Inc Services de Gestion Pitney Bowes Canada, Inc. Canada
Pitney Bowes Management Services Denmark, A/S
Pitney Bowes Management Services Deutschland GmbH
Pitney Bowes Management Services Italia S.r.l.
Pitney Bowes Management Services Limited
Pitney Bowes Management Services Netherlands, B.V.
Pitney Bowes Management Services Norway A.S.
Pitney Bowes Management Services Sweden AB
Pitney Bowes Management Services, Inc.
Pitney Bowes MapInfo Business Applications Limited (formerly Southbank Systems Limited)
Pitney Bowes MapInfo GDC Limited (formerly Graphical Data Capture Limited)
Pitney Bowes MapInfo Scotland Limited (formerly Moleseye Limited)
Pitney Bowes Middle East FZ-LLC
Pitney Bowes Netherlands B.V.
Pitney Bowes New Zealand Limited
Pitney Bowes Norge AS
Pitney Bowes Nova Scotia ULC
Pitney Bowes of Canada Ltd. - Pitney Bowes du Canada Ltee
Pitney Bowes Oy
Pitney Bowes Polska Sp. z.o.o.
Pitney Bowes Portugal Sociedade Unipessoal, Lda.
Pitney Bowes Presort Services, Inc. (formerly PSI Group, Inc.)
Pitney Bowes Properties Inc.
Pitney Bowes Puerto Rico, Inc.
Pitney Bowes SA (Pty) Ltd.
Pitney Bowes SAS
Pitney Bowes Semco Equipamentos E Servicos Ltda
Pitney Bowes Servicios, S.A. de C.V.
Pitney Bowes Shelton Realty Inc.
Pitney Bowes Software (Beijing) Ltd
Pitney Bowes Software Canada Inc.
Pitney Bowes Software GmbH
Pitney Bowes Software Europe Limited
Pitney Bowes Software Europe Holdco Limited
Pitney Bowes Software Holdings Limited
Pitney Bowes Software Inc.
Pitney Bowes Software India Private Limited
Pitney Bowes Software K. K.
Pitney Bowes Software Latin America Inc.
Denmark
Germany
Italy
UK
Netherlands
Norway
Sweden
Delaware
UK
UK
UK
Dubai
Netherlands
New Zealand
Norway
Canada
Canada
Finland
Poland
Portugal
Delaware
Connecticut
Puerto Rico
South Africa
France
Brazil
Mexico
Connecticut
China
Canada
Germany
UK
UK
UK
Delaware
India
Japan
Delaware
Pitney Bowes Software Limited
Pitney Bowes Software Private Limited
Pitney Bowes Software Pte Ltd
Pitney Bowes Software Pty Ltd
Pitney Bowes Software SAS
Pitney Bowes Svenska Aktiebolag
Pitney Bowes UK LP
PitneyWorks.com Inc.
PitneyWorks.com L.L.C.
Portrait International, Inc.
Portrait Million Handshakes AS
Portrait Software International Ltd.
Portrait Software Limited (formally Portrait Software plc)
Portrait Software UK Ltd
Print, Inc.
PrintValue Solutions, Inc.
Quadstone Paramics Ltd
Quadstone Trustee Company Ltd
Services Integrations Group, L.P.
SIG-GP, L.L.C.
Technopli SARL
The Pitney Bowes Bank, Inc.
Volly LLC
Wheeler Insurance, Ltd.
UK
India
Singapore
Australia
France
Sweden
UK
Delaware
Delaware
Ohio
Norway
UK
UK
UK
Washington
Arizona
Scotland
Scotland
Delaware
Delaware
France
Utah
Delaware
Vermont
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-05731,
333-132589, 333-132590, 333-132591, 333-132592, 333-145527) and on Forms S-3 (Registration Nos. 333-183070, 333-176957)
of Pitney Bowes Inc. of our report dated February 22, 2013 relating to the financial statements, financial statement schedule and
the effectiveness of internal control over financial reporting, which appears in this Form
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 22, 2013
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Marc B. Lautenbach, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's 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 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 registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's 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 registrant's 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
registrant's internal control over financial reporting.
Date: February 22, 2013
/s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Michael Monahan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pitney Bowes Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's 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 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 registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's 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 registrant's 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
registrant's internal control over financial reporting.
Date: February 22, 2013
/s/ Michael Monahan
Michael Monahan
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.
1
In connection with the Annual Report of Pitney Bowes Inc. (the "Company") on Form 10-K for the year ended December 31,
2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marc B. Lautenbach, Chief
Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Marc B. Lautenbach
Marc B. Lautenbach
President and Chief Executive Officer
Date: February 22, 2013
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. §1350, and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into
any filing of the Company.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Pitney Bowes Inc. (the "Company") on Form 10-K for the year ended December 31,
2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Monahan, Chief Financial
Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Michael Monahan
Michael Monahan
Executive Vice President and Chief Financial Officer
Date: February 22, 2013
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. §1350, and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into
any filing of the Company.
Stockholder Information
World Headquarters
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
203.356.5000
www.pb.com
Annual Meeting
Stockholders are cordially invited to attend the Annual
Meeting at 9:00 a.m., Monday, May 13, 2013, at Pitney Bowes
World Headquarters in Stamford, Connecticut. Notice of the
meeting will be mailed or made available to stockholders
of record as of March 15, 2013. Please refer to the Proxy
Statement for information concerning admission to the meeting.
10-K Report
Included in this Annual Report to Stockholders is a copy of
our Annual Report on Form 10-K for the fiscal year ended
December 31, 2012, as filed with the Securities and Exchange
Commission. This Annual Report 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 the Forward-Looking Statements section
of the Form 10-K. The CEO/CFO certifications required to be
filed with the SEC under Section 302 of the Sarbanes-Oxley
Act of 2002 were filed as exhibits to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2012.
The CEO certification required to be submitted to the NYSE
pursuant to Section 303A.12(a) of the NYSE Listed Company
Manual was submitted on June 5, 2012.
Additional copies of our Form 10-K will be sent to
stockholders free of charge upon written request to:
MSC 00-63-02
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Stock Exchanges
Pitney Bowes common stock is traded under the symbol
“PBI.” The principal market on which it is listed is the New
York Stock Exchange. The stock is also traded on the Chicago,
Philadelphia, Boston, Pacific and Cincinnati stock exchanges.
Investor Inquiries
All investor inquiries about Pitney Bowes should be
addressed to:
MSC 00-63-02
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Comments concerning the Annual Report
should be sent to:
MSC 00-63-03
Corporate Marketing
Pitney Bowes Inc.
1 Elmcroft Road, Stamford, CT 06926-0700
Transfer Agent and Registrar
Computershare Trust Company, N.A.
PO Box 43078
Providence, RI 02940-3078
Stockholders may call Computershare at (800) 648-8170
www.computershare.com
Stockholder Inquiries
To provide or obtain information concerning transfer
requirements, lost certificates, dividends, changes of address
and other matters, please call: (800) 648-8170, TDD phone
service for the hearing impaired (800) 952-9245, for foreign
holders (781) 575-2721; or write to the address above.
Dividend Reinvestment Plan
Owners of Pitney Bowes Inc. common stock may purchase
common stock, $1 par value, with their dividends through the
Dividend Reinvestment Plan. A prospectus and enrollment
card may be obtained by calling (800) 648-8170 or by writing
to the agent at the address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or write to the agent at the address above.
Duplicate Mailings
If you receive duplicate mailings because you have more than
one account listing, you may wish to save your company money
by consolidating your accounts. Please call (800) 648-8170 or
write to the agent at the address above.
Stock Information
Dividends per common share:
Quarter
First
Second
Third
Fourth
Total
2012
$
$
$
$
.375
.375
.375
.375
$ 1.50
Quarterly price ranges of common stock:
2012 Quarter
First
Second
Third
Fourth
2011 Quarter
First
Second
Third
Fourth
High
$ 19.65
$ 17.87
$ 15.27
$ 14.73
High
$ 26.15
$ 26.36
$ 23.47
$ 21.20
2011
$
$
$
$
.370
.370
.370
.370
$ 1.48
Low
$ 17.45
$ 12.81
$ 12.64
$ 10.34
Low
$ 23.46
$ 22.05
$ 18.00
$ 17.33
Pitney Bowes, the Corporate logo, Volly, pbSmart, pbSmartPostage,
pbSecure, IntelliJet, M, my move, Mailstream Wrapper and Every connection
is a new opportunity are trademarks of Pitney Bowes Inc. or a subsidiary.
All other trademarks are the property of the respective owners.
The materials used in this publication are recyclable.
The paper is certified to Forest Stewardship Council™ (FSC®) standards.
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Every connection is a new opportunity ®
1 Elmcroft Road, Stamford, CT 06926-0700 203.356.5000 www.pb.com