UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended June 30, 2004
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number: 1-3579
PITNEY BOWES INC.
State of Incorporation IRS Employer Identification No.
Delaware 06-0495050
World Headquarters
1 Elmcroft Road
Stamford, Connecticut 06926-0700
Telephone Number: (203) 356-5000
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 X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes X No
--- ---
Number of shares of common stock, $1 par value, outstanding as of July 23, 2004
is 231,129,359.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 2
Pitney Bowes Inc.
Index
-----------------
Page Number
-----------
Part I - Financial Information:
Item 1: Financial Statements
Consolidated Statements of Income (Unaudited) - Three and
Six Months Ended June 30, 2004 and 2003....................... 3
Consolidated Balance Sheets - June 30, 2004 (Unaudited)
and December 31, 2003......................................... 4
Consolidated Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2004 and 2003........................... 5
Notes to Consolidated Financial Statements........................ 6 - 13
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 14 - 21
Item 3: Quantitative and Qualitative Disclosures about
Market Risk............................................... 21
Item 4: Controls and Procedures..................................... 21
Part II - Other Information:
Item 1: Legal Proceedings........................................... 21
Item 2: Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities..................... 22
Item 4: Submission of Matters to a Vote of
Security Holders.......................................... 22 - 23
Item 6: Exhibits and Reports on Form 8-K............................ 23
Signatures ........................................................... 24
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 3
Part I - Financial Information
Pitney Bowes Inc.
Item 1. Financial Statements Consolidated Statements of Income
(Unaudited)
---------------------------------
(Dollars in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenue from:
Sales.................................................. $ 338,442 $ 327,804 $ 669,802 $ 618,654
Rentals................................................ 200,635 193,693 402,073 389,981
Business services...................................... 307,576 279,300 608,281 551,920
Support services....................................... 159,946 152,791 320,445 301,712
Core financing......................................... 158,627 152,888 317,016 304,557
Non-core financing..................................... 40,675 27,402 60,206 57,863
------------- ------------- ------------- -------------
Total revenue...................................... 1,205,901 1,133,878 2,377,823 2,224,687
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales.......................................... 151,918 147,549 311,293 287,476
Cost of rentals........................................ 43,077 43,643 84,777 85,108
Cost of business services.............................. 252,690 229,529 498,582 452,322
Cost of support services............................... 85,114 80,863 170,737 159,162
Cost of non-core financing............................. 13,017 - 13,017 -
Selling, general and administrative.................... 365,322 348,049 727,050 689,802
Research and development............................... 38,930 39,008 74,934 74,759
Restructuring charges (Note 9)......................... 16,229 32,091 31,272 53,356
Interest, net.......................................... 41,656 40,178 82,192 83,459
------------- ------------- ------------- -------------
Total costs and expenses........................... 1,007,953 960,910 1,993,854 1,885,444
------------- ------------- ------------- -------------
Income before income taxes................................ 197,948 172,968 383,969 339,243
Provision for income taxes................................ 63,230 54,072 122,657 106,444
------------- ------------- ------------- -------------
Net income................................................ $ 134,718 $ 118,896 $ 261,312 $ 232,799
============= ============= ============= =============
Basic earnings per share.................................. $ .58 $ .51 $ 1.13 $ .99
============= ============= ============= =============
Diluted earnings per share................................ $ .58 $ .50 $ 1.11 $ .98
============= ============= ============= =============
Dividends declared per share of common stock.............. $ .305 $ .30 $ .61 $ .60
============= ============= ============= =============
Ratio of earnings to fixed charges........................ 4.56 4.25 4.44 4.07
============= ============= ============= =============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 4
Pitney Bowes Inc.
Consolidated Balance Sheets
---------------------------
June 30, December 31,
(Dollars in thousands, except share data) 2004 2003
--------------- ---------------
(Unaudited)
Assets
- ------
Current assets:
Cash and cash equivalents................................ $ 328,282 $ 293,812
Short-term investments, at cost which
approximates market.................................. 1,951 28
Accounts receivable, less allowances:
6/04, $38,096; 12/03, $39,778........................ 480,314 459,106
Finance receivables, less allowances:
6/04, $69,449; 12/03, $62,269........................ 1,339,262 1,358,691
Inventories (Note 3)..................................... 207,950 209,527
Other current assets and prepayments..................... 198,011 192,011
--------------- ---------------
Total current assets................................. 2,555,770 2,513,175
Property, plant and equipment, net (Note 4)................... 662,011 653,661
Rental equipment and related inventories, net (Note 4)........ 453,855 414,341
Property leased under capital leases, net (Note 4)............ 2,176 2,230
Long-term finance receivables, less allowances:
6/04, $111,111; 12/03, $78,915........................... 1,799,073 1,654,419
Investment in leveraged leases................................ 1,541,186 1,534,864
Goodwill (Note 11)............................................ 1,003,002 956,284
Intangible assets, net (Note 11).............................. 208,611 203,606
Other assets.................................................. 856,682 958,808
--------------- ---------------
Total assets.................................................. $ 9,082,366 $ 8,891,388
=============== ===============
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities................. $ 1,312,469 $ 1,392,597
Income taxes payable..................................... 187,838 154,799
Notes payable and current portion of
long-term obligations................................ 1,151,359 728,658
Advance billings......................................... 383,856 370,915
--------------- ---------------
Total current liabilities............................ 3,035,522 2,646,969
Deferred taxes on income...................................... 1,715,412 1,659,226
Long-term debt (Note 5)....................................... 2,463,928 2,840,943
Other noncurrent liabilities.................................. 421,769 346,888
--------------- ---------------
Total liabilities.................................... 7,636,631 7,494,026
--------------- ---------------
Preferred stockholders' equity in a subsidiary company........ 310,000 310,000
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible................................ 19 19
Cumulative preference stock, no par
value, $2.12 convertible............................. 1,268 1,315
Common stock, $1 par value............................... 323,338 323,338
Retained earnings........................................ 4,161,616 4,057,654
Accumulated other comprehensive income (Note 8).......... 38,588 18,063
Treasury stock, at cost.................................. (3,389,094) (3,313,027)
--------------- ---------------
Total stockholders' equity........................... 1,135,735 1,087,362
--------------- ---------------
Total liabilities and stockholders' equity.................... $ 9,082,366 $ 8,891,388
=============== ===============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 5
Pitney Bowes Inc.
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands) Six Months Ended June 30,
-----------------------------------
2004 2003
--------------- ---------------
Cash flows from operating activities:
Net income................................................ $ 261,312 $ 232,799
Nonrecurring charges, net................................. 20,015 34,148
Nonrecurring payments..................................... (30,164) (23,722)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization........................ 148,744 138,506
Increase in deferred taxes on income................. 62,846 48,385
Change in assets and liabilities, net
of effects of acquisitions:
Accounts receivable.............................. (8,327) 3,653
Net investment in internal finance receivables... 45,910 (1,433)
Inventories...................................... 2,865 (7,949)
Other current assets and prepayments............. (967) (8,176)
Accounts payable and accrued liabilities......... (25,253) (37,930)
Income taxes payable............................. 29,924 49,328
Advanced billings................................ 12,245 4,871
Other, net....................................... (5,188) (6,644)
--------------- ---------------
Net cash provided by operating activities........ 513,962 425,836
--------------- ---------------
Cash flows from investing activities:
Short-term investments.................................... (1,998) (3,369)
Capital expenditures...................................... (146,847) (138,355)
Net investment in capital services........................ 49,005 155,906
Investment in leveraged leases............................ (27,702) 36,642
Reserve account deposits.................................. 10,754 16,636
Acquisitions.............................................. (29,085) -
Other investing activities................................ (18,115) (69,441)
--------------- ---------------
Net cash used in investing activities............ (163,988) (1,981)
--------------- ---------------
Cash flows from financing activities:
Increase (decrease) in notes payable, net................. 190,690 (664,198)
Proceeds from long-term obligations....................... 2,222 1,025,985
Principal payments on long-term obligations............... (314,236) (554,528)
Proceeds from issuance of stock........................... 43,018 33,499
Stock repurchases......................................... (135,000) (90,016)
Dividends paid............................................ (141,482) (140,778)
--------------- ---------------
Net cash used in financing activities............ (354,788) (390,036)
--------------- ---------------
Effect of exchange rate changes on cash....................... 2,664 9,192
--------------- ---------------
(Decrease) increase in cash and cash equivalents.............. (2,150) 43,011
Cash from consolidation of PBG Capital Partners LLC........... 36,620 -
Cash and cash equivalents at beginning of period.............. 293,812 315,156
--------------- ---------------
Cash and cash equivalents at end of period.................... $ 328,282 $ 358,167
=============== ===============
Interest paid................................................. $ 86,766 $ 96,908
================ ===============
Income taxes paid, net........................................ $ 43,151 $ 18,306
================ ===============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 6
Pitney Bowes Inc.
Notes to Consolidated Financial Statements
------------------------------------------
Note 1:
- -------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America (GAAP) for complete financial statements. In the
opinion of the management of Pitney Bowes Inc. (the company), all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the company at June 30, 2004 and December 31, 2003,
the results of its operations for the three and six months ended June 30, 2004
and 2003 and its cash flows for the six months ended June 30, 2004 and 2003 have
been included. Operating results for the three and six months ended June 30,
2004 are not necessarily indicative of the results that may be expected for any
other interim period or the year ending December 31, 2004. These statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the company's 2003 Annual Report to Stockholders
on Form 10-K. Certain prior year amounts in the consolidated financial
statements have been reclassified to conform to the current year presentation.
Note 2:
- -------
In December 2002, Statement of Financial Accounting Standards (FAS) No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," which
amends FAS No. 123, "Accounting for Stock-Based Compensation," was issued. FAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation and
requires more prominent and more frequent disclosures in the financial
statements of the effects of stock-based compensation. FAS No. 148 was effective
January 1, 2003 for the company. The company adopted the disclosure-only
provisions of this statement.
The company applies Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock-based plans. Accordingly, no
compensation expense has been recognized for its U.S. and U.K. Stock Option
Plans (ESP) or its U.S. and U.K. Employee Stock Purchase Plans (ESPP), except
for the compensation expense recorded for its performance-based awards under the
ESP and the Directors' Stock Plan. If the company had elected to recognize
compensation expense based on the fair value method as prescribed by FAS No.
123, net income and earnings per share for the three and six months ended June
30, 2004 and 2003 would have been reduced to the following pro forma amounts:
(Dollars in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
2004 2003 2004 2003
------------- ------------ ------------ ------------
Net Income
As reported............................................ $ 134,718 $ 118,896 $ 261,312 $ 232,799
Deduct: Stock-based employee compensation
expense determined under fair value method for
all awards, net of related tax effects............... (4,304) (4,861) (8,594) (10,013)
------------- ------------ ------------ ------------
Pro forma.............................................. $ 130,414 $ 114,035 $ 252,718 $ 222,786
============= ============ ============ ============
Basic earnings per share
As reported............................................ $ .58 $ .51 $ 1.13 $ .99
Pro forma.............................................. $ .56 $ .49 $ 1.09 $ .95
Diluted earnings per share
As reported............................................ $ .58 $ .50 $ 1.11 $ .98
Pro forma.............................................. $ .56 $ .48 $ 1.08 $ .94
The fair value of each stock option and employee stock purchase right grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
Three and Six Months Ended
June 30,
----------------------------
2004 2003
------------- -----------
Expected dividend yield.................................. 3.0% 3.5%
Expected stock price volatility.......................... 24% 32%
Risk-free interest rate.................................. 3% 3%
Expected life (years).................................... 5 5
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 7
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities." FIN
No. 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority of the
entity's residual returns or both. The company's ownership of the equity of PBG
Capital Partners LLC (PBG) qualifies as a variable interest entity under FIN No.
46. PBG was formed with GATX Corporation in 1997 for the purpose of financing
and managing certain leasing related assets. The company adopted the provisions
of FIN No. 46 effective March 31, 2004. As a result, the company consolidated
the operations of PBG on March 31, 2004. Prior to March 31, 2004, the company
accounted for PBG under the equity method of accounting. PBG's minority interest
of $70 million is included in other noncurrent liabilities in the Consolidated
Balance Sheets at June 30, 2004. PBG's nonrecourse debt of $174 million is
included in long-term debt and notes payable and current portion of long-term
obligations in the Consolidated Balance Sheets at June 30, 2004. The
consolidation of PBG did not have a material impact on the company's results of
operations or cash flows.
In December 2003, FAS No. 132 (Revised), "Employer's Disclosure about Pensions
and Other Postretirement Benefits," was issued. FAS No. 132 (Revised) retains
the disclosure requirements of the original pronouncement and requires
additional disclosures relating to assets, obligations, cash flows and net
periodic benefit cost. The provisions of FAS No. 132 (Revised) were effective
for fiscal years ending after December 15, 2003, except for certain disclosures
which are effective for fiscal years ending after June 15, 2004. See Note 14 to
the consolidated financial statements.
In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." The provisions of FSP No. 106-2 are
effective July 1, 2004 for the company. The company is currently evaluating the
provisions of this statement, including whether the benefits provided by its
nonpension postretirement benefit plans are actuarially equivalent to Medicare
Part D under the Act.
Note 3:
- -------
Inventories are composed of the following:
(Dollars in thousands) June 30, December 31,
2004 2003
------------ ------------
Raw materials and work in process.............. $ 95,695 $ 86,822
Supplies and service parts..................... 63,294 55,159
Finished products.............................. 48,961 67,546
------------ ------------
Total.......................................... $ 207,950 $ 209,527
============ ============
Note 4:
- -------
Fixed assets are composed of the following:
(Dollars in thousands) June 30, December 31,
2004 2003
------------ ------------
Property, plant and equipment.................. $ 1,632,082 $ 1,617,479
Accumulated depreciation....................... (970,071) (963,818)
------------ ------------
Property, plant and equipment, net............. $ 662,011 $ 653,661
============ ============
Rental equipment and related inventories....... $ 1,142,189 $ 1,103,474
Accumulated depreciation....................... (688,334) (689,133)
------------ ------------
Rental equipment and related inventories, net.. $ 453,855 $ 414,341
============ ============
Property leased under capital leases........... $ 9,061 $ 14,942
Accumulated amortization....................... (6,885) (12,712)
------------ ------------
Property leased under capital leases, net...... $ 2,176 $ 2,230
============ ============
Depreciation expense was $135.9 million and $125.8 million for the six months
ended June 30, 2004 and 2003, respectively.
Note 5:
- -------
On June 30, 2004, $456 million remained available under the shelf registration
statement filed in October 2001 with the Securities and Exchange Commission,
permitting issuances of up to $2 billion in debt securities, preferred stock and
depositary shares. In April 2003, as part of this shelf registration statement,
the company established a medium-term note program for the issuance of up to
$1.38 billion in aggregate principal, representing the remaining amount
available on the shelf at that time.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 8
In June 2003, the company issued $375 million of unsecured fixed rate notes
maturing in June 2013. These notes bear interest at an annual rate of 3.875% and
pay interest semi-annually beginning December 2003. The proceeds from these
notes were used for general corporate purposes, including the repayment of
commercial paper and the repurchase of company stock.
In June 2003, the company issued $200 million of unsecured floating rate notes
maturing in June 2005. These notes bear interest at a floating rate of LIBOR
minus 3 basis points, set two business days preceding the quarterly interest
payment dates. The proceeds from these notes were used for general corporate
purposes, including the repayment of commercial paper and the repurchase of
company stock.
In April 2003, the company issued $350 million of unsecured fixed rate notes
maturing in May 2018. These notes bear interest at an annual rate of 4.75% and
pay interest semi-annually beginning November 2003. In connection with this
issuance, the company entered into a $350 million swap maturing in May 2018,
converting this obligation to a floating rate note. The proceeds from these
notes were used for general corporate purposes, including the repayment of
commercial paper and the repurchase of company stock.
In February 2003, the company sold 6.45% Preferred Stock in a subsidiary of
Pitney Bowes Credit Corporation to an outside institutional investor for
approximately A$191 million ($110 million). As part of this transaction, the
company agreed to repurchase the stock in 10 years. Additionally, the company
entered into a cross currency interest rate swap with the same institutional
investor, effectively converting the obligation to a $110 million note that
bears interest at a floating rate of approximately LIBOR minus 50 basis points.
This note was recorded as long-term debt in the Consolidated Balance Sheets. The
proceeds from this transaction were used for general corporate purposes,
including the repayment of commercial paper and the repurchase of company stock.
Note 6:
- -------
A reconciliation of the basic and diluted earnings per share computations for
the three months ended June 30, 2004 and 2003 is as follows (in thousands,
except per share data):
2004 2003
------------------------------------- -------------------------------------
Per Per
Income Shares Share Income Shares Share
----------- ----------- ----------- ----------- ----------- -----------
Net income............................. $ 134,718 $ 118,896
Less:
Preferred stock dividends............ - -
Preference stock dividends........... (25) (27)
----------- ----------- ----------- ----------- ----------- ------------
Basic earnings per share............... $ 134,693 230,942 $ .58 $ 118,869 234,043 $.51
=========== =========== =========== =========== =========== ============
Effect of dilutive securities:
Preferred stock...................... - 9 - 11
Preference stock..................... 25 782 27 844
Stock options........................ 2,214 1,204
Other................................ 176 34
----------- ----------- ----------- ----------- ----------- ------------
Diluted earnings per share............. $ 134,718 234,123 $ .58 $ 118,896 236,136 $.50
=========== =========== =========== =========== =========== ============
A reconciliation of the basic and diluted earnings per share computations for
the six months ended June 30, 2004 and 2003 is as follows (in thousands, except
per share data):
2004 2003
------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
----------- ----------- ----------- ----------- ----------- ------------
Net income............................. $ 261,312 $ 232,799
Less:
Preferred stock dividends............ - -
Preference stock dividends........... (50) (55)
----------- ----------- ----------- ----------- ----------- ------------
Basic earnings per share............... $ 261,262 231,505 $1.13 $ 232,744 234,462 $.99
=========== =========== =========== =========== =========== ============
Effect of dilutive securities:
Preferred stock...................... - 9 - 11
Preference stock..................... 50 789 55 855
Stock options........................ 2,059 1,072
Other................................ 159 21
----------- ----------- ----------- ----------- ----------- ------------
Diluted earnings per share............. $ 261,312 234,521 $1.11 $ 232,799 236,421 $.98
=========== =========== =========== =========== =========== ============
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 9
In accordance with FAS No. 128, "Earnings per Share," 1.4 million and 4.3
million common stock equivalent shares for the three months ended June 30, 2004
and 2003, respectively, and 1.7 million and 4.6 million common stock equivalent
shares for the six months ended June 30, 2004 and 2003, respectively, issuable
upon the exercise of stock options were excluded from the computations because
the exercise prices of such options were greater than the average market price
of the common stock and therefore the impact of these shares was antidilutive.
Note 7:
- -------
Revenue and earnings before interest and taxes (EBIT) by business segment for
the three and six months ended June 30, 2004 and 2003 were as follows:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- -----------------------------------
2004 2003 2004 2003
------------------ ---------------- --------------- ----------------
Revenue:
Global Mailstream Solutions............... $ 820,409 $ 782,748 $ 1,634,022 $ 1,527,543
Global Enterprise Solutions............... 334,183 313,025 662,801 618,675
Capital Services.......................... 51,309 38,105 81,000 78,469
------------------ ---------------- --------------- ----------------
Total revenue............................... $ 1,205,901 $ 1,133,878 $ 2,377,823 $ 2,224,687
================== ================ =============== ================
EBIT: (1)
Global Mailstream Solutions............... $ 256,358 $ 246,316 $ 506,235 $ 479,653
Global Enterprise Solutions............... 21,262 18,556 36,222 33,229
Capital Services.......................... 25,232 25,011 44,442 50,407
------------------ ---------------- --------------- ----------------
Total EBIT.................................. 302,852 289,883 586,899 563,289
Unallocated amounts:
Interest, net............................. (41,656) (40,178) (82,192) (83,459)
Corporate expense......................... (47,019) (44,646) (89,466) (87,231)
Restructuring charges..................... (16,229) (32,091) (31,272) (53,356)
------------------ ---------------- --------------- ----------------
Income before income taxes.................. $ 197,948 $ 172,968 $ 383,969 $ 339,243
================== ================ =============== ================
(1) EBIT excludes general corporate expenses.
Note 8:
- -------
Comprehensive income for the three and six months ended June 30, 2004 and 2003
was as follows:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- -----------------------------------
2004 2003 2004 2003
------------------ ---------------- --------------- ----------------
Net income.................................. $ 134,718 $ 118,896 $ 261,312 $ 232,799
Other comprehensive (loss) income,
net of tax:
Foreign currency translation
adjustments............................ (61,345) 44,476 20,879 86,943
Net unrealized gain (loss) on
derivative instruments................. 5,201 (3,214) (354) (5,802)
------------------ ---------------- --------------- ----------------
Comprehensive income........................ $ 78,574 $ 160,158 $ 281,837 $ 313,940
================== ================ =============== ================
Note 9:
- -------
The company accounts for one-time benefit arrangements and exit or disposal
activities primarily in accordance with FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability be
recognized when the costs are incurred. The company accounts for ongoing benefit
arrangements under FAS No. 112, "Employers' Accounting for Postemployment
Benefits," which requires that a liability be recognized when the costs are
probable and reasonably estimable. The fair values of impaired long-lived assets
are determined primarily using probability weighted expected cash flows in
accordance with FAS No. 144, "Accounting for the Impairment of Long-Lived
Assets."
In January 2003, the company announced that it would undertake restructuring
initiatives related to realigned infrastructure requirements and reduced
manufacturing needs for digital equipment. The charges related to these
restructuring initiatives will be recorded as the various initiatives take
effect.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 10
In connection with this plan, the company recorded pre-tax restructuring charges
of $16.2 million and $32.1 million for the three months ended June 30, 2004 and
2003, respectively. For the six months ended June 30, 2004 and 2003, pre-tax
restructuring charges were $31.3 million and $53.4 million, respectively. The
pre-tax restructuring charges are composed of:
(Dollars in millions) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Severance and benefit costs............ $ 5.2 $ 29.2 $ 18.1 $ 47.6
Asset impairments...................... 8.1 0.2 9.4 0.7
Other exit costs....................... 2.9 2.7 3.8 5.1
----------- ----------- ----------- -----------
Total................................ $ 16.2 $ 32.1 $ 31.3 $ 53.4
=========== =========== =========== ===========
All restructuring charges, except for the asset impairments, will result in cash
outflows. The severance and benefit costs relate to a reduction in workforce of
approximately 1,800 employees worldwide from the inception of this plan through
June 30, 2004 and expected future workforce reductions of approximately 600
employees. The workforce reductions relate to actions across several of the
company's businesses resulting from infrastructure and process improvements and
its continuing efforts to streamline operations, and include managerial,
professional, clerical and technical roles. Approximately 66% of the workforce
reductions are in the U.S. The majority of the international workforce
reductions are in Europe and Canada. Asset impairments relate primarily to the
write-down of capitalized pre-implementation system costs. Other exit costs
relate primarily to lease termination costs, non-cancelable lease payments,
consolidation of excess facilities and other costs associated with exiting
business activities.
Accrued restructuring charges at June 30, 2004 are composed of the following:
(Dollars in millions) Balance at Ending balance
January 1, Restructuring Cash Non-cash at June 30,
2004 charges payments charges 2004
-------------- ----------------- ------------ ------------ ------------------
Severance and
benefit costs.................. $ 27.5 $ 18.1 $ (27.1) $ - $ 18.5
Asset impairments............... - 9.4 - (9.4) -
Other exit costs................ 4.7 3.8 (3.1) - 5.4
-------------- ----------------- ------------ ------------ ------------------
$ 32.2 $ 31.3 $ (30.2) $ (9.4) $ 23.9
============== ================= ============ ============ ==================
Note 10:
- --------
International Mail Express, Inc. (IMEX)
On May 21, 2004, the company completed the acquisition of substantially all of
the assets of IMEX for a net purchase price of $29 million of cash. The results
of IMEX's operations have been included in the consolidated financial statements
since the date of acquisition. IMEX consolidates letters and flat-sized mail
headed to international addresses to reduce postage costs and expedite delivery.
Allocation of the purchase price to the assets acquired and liabilities assumed
has not been finalized for this acquisition. Final determination of fair values
to be assigned may result in adjustments to the preliminary estimated values
assigned at the date of acquisition. The following table summarizes the
preliminary estimated fair values of the major assets acquired and liabilities
assumed at the date of acquisition:
(Dollars in thousands)
Intangible assets........................................ $ 7,000
Goodwill................................................. 22,459
Other, net............................................... (374)
-----------------
Purchase price.......................................... $ 29,085
=================
Intangible assets relate primarily to customer relationships and have a
weighted-average useful life of approximately 14 years. The goodwill was
assigned to the Global Mailstream Solutions segment. No research and development
assets were acquired.
DDD Company (DDD)
On October 23, 2003, the company completed the acquisition of DDD for a net
purchase price of $49.5 million, which consisted of approximately $24.8 million
of cash and the issuance of 595,485 shares of common stock valued at $24.7
million. The value of common shares was determined based on the average market
price of common shares over a period of time prior to the completion of the
acquisition. The results of DDD's operations have been included in the
consolidated financial statements since the date of acquisition. DDD offers a
broad array of services, including fulfillment services, secure mail processing,
messenger services, logistics support, and record and information management.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 11
Allocation of the purchase price to the assets acquired and liabilities assumed
has not been finalized for this acquisition. Final determination of fair values
to be assigned may result in adjustments to the preliminary estimated values
assigned at the date of acquisition. The following table summarizes the
preliminary estimated fair values of the major assets acquired and liabilities
assumed at the date of acquisition:
(Dollars in thousands)
Intangible assets........................................ $ 13,900
Goodwill................................................. 31,187
Other, net............................................... 4,452
-----------------
Purchase price.......................................... $ 49,539
=================
Intangible assets relate primarily to customer relationships and have a
weighted-average useful life of approximately 10 years. The goodwill was
assigned to the Global Enterprise Solutions segment. No research and development
assets were acquired.
Consolidated impact of acquisitions
- -----------------------------------
The acquisitions of IMEX and DDD increased the company's earnings, but including
related financing costs, did not materially impact earnings either on a per
share or aggregate basis.
The following unaudited pro forma consolidated results have been prepared as if
the acquisitions of IMEX and DDD had occurred on January 1, 2003:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Total revenue............................. $ 1,214,077 $ 1,164,878 $ 2,399,499 $ 2,286,687
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been completed on January 1, 2003,
nor do they purport to be indicative of the results that will be obtained in
the future. The pro forma earning results of these acquisitions were not
material to earnings on either a per share or an aggregate basis.
During 2004 and 2003, the company also completed several smaller acquisitions.
During 2004 and 2003, the company acquired some of its presort businesses and
international dealerships. During 2003, the company also acquired one of its
address printing suppliers. The cost of these acquisitions was in the aggregate
less than $70 million in each year. These acquisitions did not have a material
impact on the company's financial results either individually or on an aggregate
basis.
Note 11:
- --------
Intangible assets are composed of the following:
(Dollars in thousands) June 30, 2004 December 31, 2003
------------------------------------- ---------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------------- ---------------- ----------------- -----------------
Customer relationships.................. $ 174,802 $ 24,033 $ 161,655 $ 18,002
Mailing technology...................... 65,440 12,559 63,603 9,519
Trademark and trade names............... 8,536 5,002 8,357 4,067
Non-compete agreements.................. 3,753 2,326 3,496 1,917
----------------- ---------------- ----------------- -----------------
$ 252,531 $ 43,920 $ 237,111 $ 33,505
================= ================ ================= =================
Amortization expense for intangible assets for the three months ended June 30,
2004 and 2003 was $5.0 million and $3.9 million, respectively. Amortization
expense for intangible assets for the six months ended June 30, 2004 and 2003
was $10.0 million and $7.6 million, respectively. Estimated intangible asset
amortization expense for 2004 and the five succeeding years is as follows:
(Dollars in thousands)
For the year ending 12/31/04............................. $ 20,300
For the year ending 12/31/05............................. $ 20,500
For the year ending 12/31/06............................. $ 19,700
For the year ending 12/31/07............................. $ 18,100
For the year ending 12/31/08............................. $ 17,500
For the year ending 12/31/09............................. $ 16,900
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 12
Changes in the carrying amount of goodwill by business segment for the six
months ended June 30, 2004 are as follows:
(Dollars in thousands) Global Global
Mailstream Enterprise
Solutions Solutions Total
----------- ----------- -----------
Balance at January 1, 2004................. $ 492,445 $ 463,839 $ 956,284
Goodwill acquired during the period........ 34,419 - 34,419
Other...................................... 8,957 3,342 12,299
----------- ----------- -----------
Balance at June 30, 2004................... $ 535,821 $ 467,181 $ 1,003,002
=========== =========== ===========
"Other" primarily includes the impact of foreign currency translation
adjustments.
Note 12:
- --------
In connection with its Capital Services programs, the company has sold finance
receivables and entered into guarantee contracts with varying amounts of
recourse in privately-placed transactions with unrelated third-party investors.
The uncollected principal balance of receivables sold and guarantee contracts
totaled $121.8 million and $125.9 million at June 30, 2004 and December 31,
2003, respectively. In accordance with GAAP, the company does not record these
amounts as liabilities on its Consolidated Balance Sheets. The company's maximum
risk of loss on these finance receivables and guarantee contracts arises from
the possible non-performance of lessees to meet the terms of their contracts and
from changes in the value of the underlying equipment. These contracts are
secured by the underlying equipment value and/or supported by the
creditworthiness of its customers. At June 30, 2004 and December 31, 2003, the
underlying equipment value exceeded the sum of the uncollected principal balance
of receivables sold and the guarantee contracts.
The company provides product warranties in conjunction with certain product
sales, generally for a period of 90 days from the date of installation. The
company's product warranty liability reflects management's best estimate of
probable liability under its product warranties based on historical claims
experience, which has not been significant, and other currently available
evidence. Accordingly, the company's product warranty liability at June 30, 2004
and December 31, 2003, respectively, was not material.
Note 13:
- --------
In December 2003, the company received accepted closing agreements with the
Internal Revenue Service (IRS) showing income tax adjustments for the 1992 to
1994 tax years. The total additional tax for these years is approximately $5.0
million. Additional tax due for 1995 and future tax years in connection with
these closing agreements will not materially affect the company's future results
of operations, financial position or cash flows. In addition to the accepted
income tax adjustments, one 1994 proposed adjustment remains in dispute, which
could result in additional tax of approximately $4.3 million. The company
believes that it has meritorious defenses to this deficiency and that the
ultimate outcome will not result in a material effect on its results of
operations, financial position or cash flows. The company believes that its
accruals for tax liabilities are adequate for all open years. However, if the
IRS prevails on this deficiency, additional tax may be due for 1995 and future
tax years, which could materially affect its results of operations, financial
position or cash flows. At any time, the company's provision for taxes could be
affected by changes in tax laws and interpretations by governments or courts.
The IRS is in the process of completing its examination of the company's tax
returns for the 1995 to 2000 tax years and has issued a notice of proposed
adjustment with respect to a Capital Services leasing transaction entered into
in 1998. Specifically, the IRS is proposing to disallow certain expenses claimed
as deductions on the 1998 through 2000 tax returns. The company anticipates
receiving similar notices for other leasing transactions entered into during the
audit period. The IRS will likely make similar claims for years subsequent to
2000 in future audits with respect to these transactions. The IRS may propose
penalties on the company with respect to all periods that have been examined.
In addition, in June 2004, the Canada Revenue Agency (CRA) proposed an
adjustment for the 1996 to 1999 tax years, relating to intercompany loan
transactions. The CRA may propose penalties on the company with respect to all
periods that have been examined.
The company vigorously disagrees with the proposed adjustments and intends to
aggressively contest these matters through applicable IRS, CRA and judicial
procedures, as appropriate. Although the final resolution of the proposed
adjustments is uncertain and involves unsettled areas of the law, based on
currently available information, the company has provided for its best estimate
of the probable tax liability for these matters and believes that the resolution
of these matters will not have a material effect on the company's results of
operations, financial position or cash flows. However, an unfavorable resolution
could have a material effect on the company's results of operations, financial
position or cash flows.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 13
Note 14:
- --------
Defined Benefit Pension Plans
The components of net periodic benefit cost for defined benefit pension plans
for the three months ended June 30, 2004 and 2003 are as follows:
(Dollars in thousands) United States Foreign
---------------------------- -----------------------------
Three Months Ended June 30, Three Months Ended June 30,
---------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ -------------
Service cost................................. $ 8,314 $ 6,558 $ 2,736 $ 2,903
Interest cost................................ 22,194 22,301 6,335 6,411
Expected return on plan assets............... (31,771) (31,380) (7,630) (8,316)
Amortization of transition cost.............. - - (128) (354)
Amortization of prior service cost........... (678) (690) 165 224
Amortization of net loss..................... 2,947 (2,009) 2,020 1,242
Curtailment.................................. - - - 344
------------ ------------ ------------ -------------
Net periodic benefit cost.................... $ 1,006 $ (5,220) $ 3,498 $ 2,454
============ ============ ============ =============
The components of net periodic benefit cost for defined benefit pension plans
for the six months ended June 30, 2004 and 2003 are as follows:
(Dollars in thousands) United States Foreign
---------------------------- -----------------------------
Six Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ -------------
Service cost................................. $ 16,627 $ 13,595 $ 5,082 $ 4,904
Interest cost................................ 44,387 46,231 11,575 10,975
Expected return on plan assets............... (63,547) (60,468) (13,914) (13,951)
Amortization of transition cost.............. - - (262) (318)
Amortization of prior service cost........... (1,356) (1,329) 303 342
Amortization of net loss..................... 5,894 (1,517) 3,638 2,650
Curtailment.................................. - - - 733
------------ ------------ ------------ -------------
Net periodic benefit cost.................... $ 2,005 $ (3,488) $ 6,422 $ 5,335
============ ============ ============ =============
The company previously disclosed in its consolidated financial statements for
the year ended December 31, 2003 that it expects to contribute up to $5 million
and up to $10 million, respectively, to its U.S. and foreign pension plans
during 2004. At June 30, 2004, $2.1 million and $2.6 million of contributions
have been made to the U.S. and foreign pension plans, respectively.
Nonpension Postretirement Benefit Plans
The components of net periodic benefit cost for nonpension postretirement
benefit plans for the three and six months ended June 30, 2004 and 2003 are as
follows:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ -------------
Service cost................................. $ 1,004 $ 1,214 $ 2,064 $ 2,011
Interest cost................................ 5,464 6,681 10,348 11,056
Amortization of prior service cost........... (2,466) (2,949) (4,515) (4,867)
Amortization of net loss..................... 1,675 1,421 3,462 2,351
------------ ------------ ------------ -------------
Net periodic benefit cost.................... $ 5,677 $ 6,367 $ 11,359 $ 10,551
============ ============ ============ =============
The company previously disclosed in its consolidated financial statements for
the year ended December 31, 2003 that it expects to contribute $34 million,
which represents its expected benefit payments, to its nonpension postretirement
benefit plans during 2004. At June 30, 2004, $17.8 million of benefit payments
have been made.
Note 15:
- --------
On July 20, 2004, the company completed its acquisition of Group 1 Software,
Inc. (Group 1) for a net purchase price of $321 million of cash. Group 1 is an
industry leader in software that enhances mailing efficiency, data quality and
customer communications. Group 1 will operate within the Global Enterprise
Solutions segment.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains statements that are forward-looking. These statements
are based on current expectations and assumptions that are subject to risks and
uncertainties. Actual results could differ materially because of factors
discussed in Forward-Looking Statements and elsewhere in this report.
Overview
- --------
In the second quarter of 2004, we grew our existing businesses and continued to
execute our long-term growth strategies. The quarter included good market
acceptance of new products by small and mid-size, international and document
messaging technologies customers and ongoing integration of acquisitions such as
DDD Company (DDD) and International Mail Express, Inc. (IMEX). This is
consistent with our plan to grow by enhancing the core businesses and expanding
our market presence through strategic acquisitions. The acquisition of Group 1
Software, Inc. (Group 1), which was completed on July 20, 2004, is the latest
example of our strategy to grow our share of the $250 billion global mail and
document management markets. This acquisition will help us expand our global
reach; grow our mailstream participation; and lay the foundation for profitable
expansion into the customer communication market.
Revenue increased 6% in the second quarter of 2004 to $1.21 billion compared
with the second quarter of 2003 driven by organic growth in our Global
Mailstream Solutions and Global Enterprise Solutions segments, the favorable
impact of foreign currency, the acquisitions of DDD and IMEX, and higher revenue
at Capital Services. Net income increased 13% in the second quarter of 2004 to
$134.7 million compared with the second quarter of 2003. Diluted earnings per
share increased to 58 cents in the second quarter of 2004 from 50 cents in the
second quarter of 2003. During the second quarter of 2004, we took several
actions as part of our previously announced restructuring program. Net income
for the second quarter of 2004 and 2003, was reduced by pre-tax restructuring
charges of $16 million and $32 million, respectively, or 4 cents and 9 cents,
respectively, per diluted share relating to these actions. Second quarter 2004
diluted earnings per share included 3 cents per diluted share from non-core
Capital Services operations compared with 4 cents per diluted share in the
second quarter of 2003.
See Results of Continuing Operations - second quarter of 2004 vs. second quarter
of 2003 below for a more detailed discussion of our results of operations.
Results of Continuing Operations - second quarter of 2004 vs. second quarter of
- -------------------------------------------------------------------------------
2003
- ----
Business segment results
The following table shows revenue and earnings before interest and taxes (EBIT)
by business segment for the three months ended June 30, 2004 and 2003:
(Dollars in millions) Revenue EBIT
----------------------------------------- -----------------------------------------
Three months ended June 30, Three months ended June 30,
----------------------------------------- -----------------------------------------
2004 2003 % change 2004 2003 % change
----------- ----------- ----------- ----------- ----------- -----------
Global Mailstream Solutions...... $ 821 $ 783 5% $ 257 $ 246 4%
Global Enterprise Solutions...... 334 313 7% 21 19 15%
Capital Services................. 51 38 35% 25 25 1%
----------- ----------- ----------- ----------- ----------- -----------
Total............................ $ 1,206 $ 1,134 6% $ 303 $ 290 4%
=========== =========== =========== =========== =========== ===========
During the second quarter of 2004, Global Mailstream Solutions revenue grew 5%
and EBIT grew 4%. Global Mailstream Solutions continued to experience strong
growth in its small business solutions and had double-digit growth in its
supplies and presort mail services. The quarter's revenue trends also reflect
the ongoing change in mix of the product line, where a greater percentage of the
revenue is coming from more fully featured smaller systems, supplies, payment
solutions, software and services and less from larger system sales. Non-U.S.
revenue again experienced strong organic growth and favorable foreign currency
exchange rates. All of the major markets in Asia and Europe had positive revenue
growth, including Germany, which has experienced improving business trends.
During the second quarter of 2004, Global Enterprise Solutions revenue grew 7%
and EBIT grew 15%. Pitney Bowes Management Services (PBMS) reported revenue of
$264 million, a 5% increase over the prior year with improved margins on a
sequential basis. The increase in revenue was driven primarily by the
acquisition of DDD in 2003. There appeared to be improving demand during the
quarter for document management services in several key vertical markets,
including the government, legal and financial markets. Document Messaging
Technologies (DMT) reported revenue growth of 15% to $70 million for the
quarter, with improved margins over the prior year. DMT benefited from the large
backlog of orders generated in previous quarters, in addition to the ongoing
customer demand for the company's industry leading inserting systems, such as
APSTM and FlowmasterTM inserters. There was also strong growth during the
quarter in software solutions offerings.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 15
During the second quarter of 2004, revenue increased 35% and EBIT increased 1%
in the Capital Services segment. Revenue and EBIT were favorably impacted by
sale of non-core lease assets. These asset sales contributed approximately 40%
and 9% to segment revenue and EBIT respectively. These asset sales are
consistent with our ongoing planned strategy to reduce our exposure to non-core,
long-term financing on an economically advantageous basis. Second quarter 2004
diluted earnings per share included 3 cents per diluted share from non-core
Capital Services operations compared with 4 cents per diluted share in the
second quarter of 2003.
Revenue by source
Second quarter 2004 revenue included $338.4 million from sales, up 3% from
$327.8 million in the second quarter of 2003 due primarily to strong DMT and
supplies sales and the favorable impact of foreign currency; $200.6 million from
rentals, up 4% from $193.7 million due primarily to the favorable impact of
foreign currency and an increase in the meter population; $307.6 million from
business services, up 10% from $279.3 million due primarily to the acquisition
of DDD and growth in presort operations; $160.0 million from support services,
up 5% from $152.8 million due primarily to the favorable impact of foreign
currency and an increase in the service contract base; $158.6 million from core
financing, up 4% from $152.9 million due primarily to strong growth in postal
payment products; and $40.7 million from non-core financing, up 48% from $27.4
million due to the sale of non-core assets.
Costs and expenses
Cost of sales decreased to 44.9% of sales revenue in the second quarter of 2004
compared with 45.0% in the second quarter of 2003.
Cost of rentals decreased to 21.5% of related revenue in the second quarter of
2004 compared with 22.5% in the second quarter of 2003 due primarily to lower
repair costs resulting from the shift from electronic to digital meters.
Cost of business services as a percentage of business services revenue was 82.2%
in the second quarter of 2004 and 2003.
Cost of support services increased to 53.2% of related revenue in the second
quarter of 2004 compared with 52.9% in the second quarter of 2003 due to the
increase in mix of lower margin international support services revenue.
Cost of non-core financing in the second quarter of 2004 relates to the sale of
a non-core Capital Services operating lease.
Selling, general and administrative expenses decreased to 30.3% of revenue in
the second quarter of 2004 compared with 30.7% in the second quarter of 2003
reflecting our continuing emphasis on controlling operating expenses, partially
offset by costs associated with investments in infrastructure improvements, and
growth initiatives.
Research and development expenses decreased to $38.9 million in the second
quarter of 2004 from $39.0 million in the second quarter of 2003. Our investment
in research and development reflects our commitment to developing new
technologies and enhanced mailing and software products.
Net interest expense increased to $41.7 million in the second quarter of 2004
from $40.2 million in the second quarter of 2003. The increase was due to higher
average interest costs and the consolidation of PBG partially offset by lower
average borrowings during the second quarter of 2004 compared with the second
quarter of 2003.
The effective tax rate for the second quarter of 2004 was 31.9% compared with
31.3% in the second quarter of 2003. The effective tax rates for the second
quarter of 2004 and 2003 included tax benefits of .3% and .7%, respectively,
from restructuring charges. The increase in the 2004 effective tax rate also
reflects the impact of our strategy to cease originating large-ticket,
structured, third-party financing of non-core assets.
Results of Continuing Operations - six months of 2004 vs. six months of 2003
- ----------------------------------------------------------------------------
For the first six months of 2004 compared with the same period of 2003, revenue
increased 7% to $2.4 billion, and net income increased 12% to $261.3 million.
Net income for the first six months of 2004 and 2003 was reduced by pre-tax
restructuring charges of $31.3 million (9 cents per diluted share) and $53.4
million (14 cents per diluted share). The factors that affected revenue and EBIT
for the six months ended June 30, 2004 compared with the same period of 2003
included those cited for the second quarter of 2004 versus 2003.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 16
Accounting Pronouncements
- -------------------------
In December 2002, Statement of Financial Accounting Standards (FAS) No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," which
amends FAS No. 123, "Accounting for Stock-Based Compensation," was issued. FAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation and
requires more prominent and more frequent disclosures in the financial
statements of the effects of stock-based compensation. FAS No. 148 is effective
January 1, 2003. We adopted the disclosure-only provisions of this statement.
See Note 2 to the consolidated financial statements.
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities." FIN
No. 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority of the
entity's residual returns or both. Our ownership of the equity of PBG Capital
Partners LLC (PBG) qualifies as a variable interest entity under FIN No. 46. PBG
was formed with GATX Corporation in 1997 for the purpose of financing and
managing certain leasing related assets. We adopted the provisions of FIN No. 46
effective March 31, 2004. As a result, we consolidated the operations of PBG on
March 31, 2004. Prior to March 31, 2004, we accounted for PBG under the equity
method of accounting. PBG's minority interest of $70 million is included in
other noncurrent liabilities in the Consolidated Balance Sheets at June 30,
2004. PBG's nonrecourse debt of $174 million is included in long-term debt and
notes payable and current portion of long-term obligations in the Consolidated
Balance Sheets at June 30, 2004. The consolidation of PBG did not have a
material impact on our results of operations or cash flows.
In December 2003, FAS No. 132 (Revised), "Employer's Disclosure about Pensions
and Other Postretirement Benefits," was issued. FAS No. 132 (Revised) retains
the disclosure requirements of the original pronouncement and requires
additional disclosures relating to assets, obligations, cash flows and net
periodic benefit cost. The provisions of FAS No. 132 (Revised) were effective
for fiscal years ending after December 15, 2003, except for certain disclosures
which are effective for fiscal years ending after June 15, 2004. See Note 14 to
the consolidated financial statements.
In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." The provisions of FSP No. 106-2 are
effective July 1, 2004. We are currently evaluating the provisions of this
statement, including whether the benefits provided by our nonpension
postretirement benefit plans are actuarially equivalent to Medicare Part D under
the Act.
Restructuring Charges
- ---------------------
In January 2003, we announced that we would undertake restructuring initiatives
related to realigned infrastructure requirements and reduced manufacturing needs
for digital equipment. We continue to review the anticipated cost and timing of
these restructuring initiatives and currently estimate the total pre-tax cost of
these restructuring initiatives will be about $200 million ($125 million after
tax). As we continue to finalize our restructuring plans, the ultimate amount
and timing of the restructuring charges may differ from our current estimates.
The charges related to these restructuring initiatives will be recorded as the
various initiatives take effect.
The cash outflows related to restructuring charges will be funded primarily by
cash from operating activities. The restructuring initiatives are expected to
continue to increase our operating efficiency and effectiveness in 2004 and
beyond while enhancing growth, primarily as a result of reduced personnel
related expenses. See Note 9 to the consolidated financial statements for our
accounting policy related to restructuring charges.
In connection with this plan, we recorded pre-tax restructuring charges of $16.2
million and $32.1 million for the three months ended June 30, 2004 and 2003,
respectively. For the six months ended June 30, 2004 and 2003, pre-tax
restructuring charges were $31.3 million and $53.4 million, respectively. The
pre-tax restructuring charges are composed of:
(Dollars in millions) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Severance and benefit costs............ $ 5.2 $ 29.2 $ 18.1 $ 47.6
Asset impairments...................... 8.1 0.2 9.4 0.7
Other exit costs....................... 2.9 2.7 3.8 5.1
----------- ----------- ----------- -----------
Total................................ $ 16.2 $ 32.1 $ 31.3 $ 53.4
=========== =========== =========== ===========
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 17
All restructuring charges, except for the asset impairments, will result in cash
outflows. The severance and benefit costs relate to a reduction in workforce of
approximately 1,800 employees worldwide from the inception of this plan through
June 30, 2004 and expected future workforce reductions of approximately 600
employees. The workforce reductions relate to actions across several of our
businesses resulting from infrastructure and process improvements and our
continuing efforts to streamline operations, and include managerial,
professional, clerical and technical roles. Approximately 66% of the workforce
reductions are in the U.S. The majority of the international workforce
reductions are in Europe and Canada. Asset impairments relate primarily to the
write-down of capitalized pre-implementation system costs. Other exit costs
relate primarily to lease termination costs, non-cancelable lease payments,
consolidation of excess facilities and other costs associated with exiting
business activities.
Accrued restructuring charges at June 30, 2004 are composed of the following:
(Dollars in millions) Balance at Ending balance
January 1, Restructuring Cash Non-cash at June 30,
2004 charges payments charges 2004
-------------- ----------------- ------------ ------------ ------------------
Severance and
benefit costs.................. $ 27.5 $ 18.1 $ (27.1) $ - $ 18.5
Asset impairments............... - 9.4 - (9.4) -
Other exit costs................ 4.7 3.8 (3.1) - 5.4
-------------- ----------------- ------------ ------------ ------------------
$ 32.2 $ 31.3 $ (30.2) $ (9.4) $ 23.9
============== ================= ============ ============ ==================
Acquisitions
- ------------
On May 21, 2004, we acquired substantially all of the assets of IMEX for a net
purchase price of $29 million of cash. The results of IMEX's operations have
been included in the consolidated financial statements since the date of
acquisition. IMEX consolidates letters and flat-sized mail headed to
international addresses to reduce postage costs and expedite delivery.
In October 2003, we acquired DDD for a net purchase price of $49.5 million,
which consisted of approximately $24.8 million of cash and the issuance of
common stock valued at $24.7 million. DDD offers a broad array of services
including, fulfillment services, secure mail processing, manager services,
logistics support, and record and information management.
We accounted for the acquisitions of IMEX and DDD under the purchase method and
accordingly, the operating results of IMEX and DDD have been included in our
consolidated financial statements since the date of acquisition. The acquisition
of IMEX and DDD did not materially impact net income for the three and six
months ended June 30, 2004.
During 2004 and 2003, we also completed several smaller acquisitions. During
2004 and 2003, we acquired some of our presort businesses and international
dealerships. During 2003, we also acquired one of our address printing
suppliers. The cost of these acquisitions was in the aggregate less than $70
million in each year. These acquisitions did not have a material impact on our
financial results either individually or on an aggregate basis.
Liquidity and Capital Resources
- -------------------------------
Our ratio of current assets to current liabilities decreased to .84 to 1 at June
30, 2004 compared with .95 to 1 at December 31, 2003. The decrease in this ratio
was due primarily to the reclassification of long-term debt to short-term debt.
The following table summarizes our cash flows for the six months ended June 30,
2004 and 2003:
(Dollars in thousands) Six Months Ended June 30,
----------------------------
2004 2003
------------ ------------
Cash provided by (used in):
Operating activities.......................... $ 513,962 $ 425,836
Investing activities.......................... (163,988) (1,981)
Financing activities.......................... (354,788) (390,036)
Effect of exchange rate changes on cash....... 2,664 9,192
------------ ------------
Net change in cash and cash equivalents...... $ (2,150) $ 43,011
============ ============
Net cash provided by operating activities consisted primarily of net income
adjusted for non-cash items and changes in working capital. Net cash used in
investing activities consisted primarily of capital expenditures net of proceeds
from the sale of non-core Capital Services assets. Net cash used in financing
activities consisted primarily of stock repurchases, dividends paid to
stockholders and a decrease in total debt.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 18
The ratio of total debt to total debt and stockholders' equity was 76.1% and
76.7% at June 30, 2004 and December 31, 2003, respectively. Including the
preferred stockholders' equity in a subsidiary company as debt, the ratio of
total debt to total debt and stockholders' equity was 77.6% and 78.1% at June
30, 2004 and December 31, 2003, respectively. The decrease in this ratio was
driven by a reduction of recourse debt, favorable foreign currency translation
adjustments and net income, offset by the $135 million repurchase of 3.2 million
shares of common stock during the six months ended June 30, 2004, the payment of
common stock dividends, and the consolidation of PBG's nonrecourse debt.
Financings and Capitalization
- -----------------------------
At June 30, 2004, $456 million remained available under the shelf registration
statement filed in October 2001 with the Securities and Exchange Commission,
permitting issuances of up to $2 billion in debt securities, preferred stock and
depositary shares. In April 2003, as part of this shelf registration statement,
we established a medium-term note program for the issuance of up to $1.38
billion in aggregate principal, representing the remaining amount available on
the shelf at that time.
In June 2003, we issued $375 million of unsecured fixed rate notes maturing in
June 2013. These notes bear interest at an annual rate of 3.875% and pay
interest semi-annually beginning December 2003. The proceeds from these notes
were used for general corporate purposes, including the repayment of commercial
paper and the repurchase of company stock.
In June 2003, we issued $200 million of unsecured floating rate notes maturing
in June 2005. These notes bear interest at a floating rate of LIBOR minus 3
basis points, set two business days preceding the quarterly interest payment
dates. The proceeds from these notes were used for general corporate purposes,
including the repayment of commercial paper and the repurchase of company stock.
In April 2003, we issued $350 million of unsecured fixed rate notes maturing in
May 2018. These notes bear interest at an annual rate of 4.75% and pay interest
semi-annually beginning November 2003. In connection with this issuance, we
entered into a $350 million swap maturing in May 2018, converting this
obligation to a floating rate note. The proceeds from these notes were used for
general corporate purposes, including the repayment of commercial paper and the
repurchase of company stock.
In February 2003, we sold 6.45% Preferred Stock in a subsidiary of Pitney Bowes
Credit Corporation to an outside institutional investor for approximately A$191
million ($110 million). As part of this transaction, we agreed to repurchase the
stock in 10 years. Additionally, we entered into a cross currency interest rate
swap with the same institutional investor, effectively converting the obligation
to a $110 million note that bears interest at a floating rate of approximately
LIBOR minus 50 basis points. This note was recorded as long-term debt in our
Consolidated Balance Sheets. The proceeds from this transaction were used for
general corporate purposes, including the repayment of commercial paper and the
repurchase of company stock.
In accordance with the provisions of FIN No. 46, we consolidated PBG's
nonrecourse debt on March 31, 2004.
We believe our financing needs for the next 12 months can be met with cash
generated internally, debt issued under new and existing shelf registration
statements and our existing commercial paper programs. In addition, we maintain
a back-up credit facility for our commercial paper program.
Capital Expenditures
- --------------------
During the first six months of 2004, capital expenditures included $87.3 million
in net additions to property, plant and equipment and $59.5 million in net
additions to rental equipment and related inventories compared with $82.4
million and $56.0 million, respectively, in the same period in 2003.
We expect capital expenditures for the remainder of 2004 to be approximately the
same as the prior year. These investments will also be affected by the timing of
our customers' transition to digital meters.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 19
Investment in commercial passenger and cargo aircraft leasing transactions
- --------------------------------------------------------------------------
At June 30, 2004 and December 31, 2003, our net investment in commercial
passenger and cargo aircraft leasing transactions was $291 million and $298
million, respectively, which is composed of transactions with U.S. airlines of
$33 million and $41 million, respectively, and foreign airlines of $258 million
and $257 million, respectively. There have been no significant changes to the
net investment in commercial passenger and cargo aircraft leasing transactions
disclosure from our 2003 Annual Report on Form 10-K. Our net investment in
commercial passenger and cargo aircraft leasing portfolio is composed of
investments in leveraged lease transactions, direct financing lease transactions
and a portion of our investment in PBG. Risk of loss under these transactions is
primarily related to: (1) the inability of the airline to make underlying lease
payments; (2) our inability to generate sufficient cash flows either through the
sale of the aircraft or secondary lease transactions to recover our net
investment; and/or (3) in the case of the leveraged lease portfolio, the default
of an equity defeasance or other third party credit arrangements. At June 30,
2004 and December 31, 2003, approximately 43% and 42%, respectively, of our
remaining net investment in commercial passenger and cargo aircraft leasing
investments is further secured by approximately $126 million and $125 million,
respectively, of equity defeasance accounts or third party credit arrangements.
Capital Services portfolio
- --------------------------
Our investment in Capital Services lease related assets included in our
Consolidated Balance Sheets is composed of the following:
(Dollars in millions) June 30, December 31,
2004 2003
------------ ------------
Leveraged leases................................ $ 1,541 $ 1,535
Finance receivables (1)......................... 683 450
Other assets (1)................................ - 51
Rental equipment (1)............................ 56 18
------------ ------------
Total........................................... $ 2,280 $ 2,054
============ ============
(1) On March 31, 2004 we adopted the provisions of FIN No. 46 and consolidated
the assets and liabilities of PBG. Accordingly, the increase in finance
receivables and rental equipment at June 30, 2004 reflects the
consolidated assets of PBG. Other assets at December 31, 2003 represented
our investment in PBG, which at that time was accounted for under the
equity method of accounting. See Note 2 to the consolidated financial
statements for further details on the impact of adopting FIN No. 46.
The investment in leveraged leases included in our Consolidated Balance Sheets
is diversified across the following types of assets:
(Dollars in millions) June 30, December 31,
2004 2003
------------ ------------
Postal equipment................................ $ 349 $ 338
Locomotives and rail cars....................... 345 360
Commercial aircraft............................. 281 279
Commercial real estate.......................... 239 236
Telecommunications.............................. 140 139
Rail and bus.................................... 133 132
Shipping and handling........................... 54 51
------------ ------------
Total leveraged leases.......................... $ 1,541 $ 1,535
============ ============
At June 30, 2004 and December 31, 2003, our leveraged lease investment in
commercial real estate facilities included approximately $90 million and $88
million, respectively, related to leases of corporate facilities to four U.S.
telecommunication entities, of which $74 million and $73 million, respectively,
is with lessees that are highly rated.
Additionally, our leveraged lease investment in telecommunications equipment
represents leases to three highly rated international telecommunication
entities. At June 30, 2004 and December 31, 2003, approximately 84% of this
portfolio is further secured by equity defeasance accounts or other third party
credit arrangements.
At June 30, 2004 and December 31, 2003, approximately 51% of our total leveraged
lease portfolio is further secured by equity defeasance accounts or other third
party credit arrangements. In addition, at June 30, 2004 and December 31, 2003,
approximately 20% of the remaining leveraged lease portfolio represents leases
to highly rated government related organizations which have guarantees or
supplemental credit enhancements upon the occurrence of certain events.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 20
Finance receivables are composed of the following:
(Dollars in millions) June 30, December 31,
2004 2003
------------ ------------
Assets held for sale........................... $ 19 $ 21
Single investor leases:
Large ticket single investor leases (1)....... 376 157
Imagistics lease portfolio.................... 288 272
------------ ------------
Total.......................................... $ 683 $ 450
============ ============
(1) The increase in large ticket single investor leases at June 30, 2004
reflects the consolidated assets of PBG. See Note 2 to the consolidated
financial statements for further details on the impact of adopting FIN No. 46.
Subsequent Events
- -----------------
On July 20, 2004, we completed the acquisition of Group 1 for a net purchase
price of $321 million of cash. Group 1 is an industry leader in software that
enhances mailing efficiency, data quality and customer communications. Group 1
will operate within the Global Enterprise Solutions segment.
Regulatory Matters
- ------------------
There have been no significant changes to the regulatory matters disclosed in
our 2003 Annual Report to Stockholders on Form 10-K.
Other regulatory matters
- ------------------------
In December 2003, we received accepted closing agreements with the Internal
Revenue Service (IRS) showing income tax adjustments for the 1992 to 1994 tax
years. The total additional tax for these years is approximately $5.0 million.
Additional tax due for 1995 and future tax years in connection with these
closing agreements will not materially affect our future results of operations,
financial position or cash flows. In addition to the accepted income tax
adjustments, one 1994 proposed adjustment remains in dispute, which could result
in additional tax of approximately $4.3 million. We believe that we have
meritorious defenses to this deficiency and that the ultimate outcome will not
result in a material effect on our results of operations, financial position or
cash flows. We believe that our accruals for tax liabilities are adequate for
all open years. However, if the IRS prevails on this deficiency, additional tax
may be due for 1995 and future tax years, which could materially affect our
future results of operations, financial position or cash flows. At any time, our
provision for taxes could be affected by changes in tax laws and interpretations
by governments or courts.
The IRS is in the process of completing its examination of our tax returns for
the 1995 to 2000 tax years and has issued a notice of proposed adjustment with
respect to a Capital Services leasing transaction entered into in 1998.
Specifically, the IRS is proposing to disallow certain expenses claimed as
deductions on the 1998 through 2000 tax returns. We anticipate receiving similar
notices for other leasing transactions entered into during the audit period. The
IRS will likely make similar claims for years subsequent to 2000 in future
audits with respect to these transactions. The IRS may propose penalties on us
with respect to all periods that have been examined.
In addition, in June 2004, the Canada Revenue Agency (CRA) proposed an
adjustment for the 1996 to 1999 tax years, relating to intercompany loan
transactions. The CRA may propose penalties on us with respect to all periods
that have been examined.
We vigorously disagree with the proposed adjustments and intend to aggressively
contest these matters through applicable IRS, CRA and judicial procedures, as
appropriate. Although the final resolution of the proposed adjustments is
uncertain and involves unsettled areas of the law, based on currently available
information, we have provided for our best estimate of the probable tax
liability for these matters and believe that the resolution of these matters
will not have a material effect on our results of operations, financial position
or cash flows. However, an unfavorable resolution could have a material effect
on our results of operations, financial position or cash flows.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 21
Forward-Looking Statements
- --------------------------
We want to caution readers that any forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 in this Form 10-Q, other reports or press
releases or made by our management involve risks and uncertainties which may
change based on various important factors. These forward-looking statements are
those which talk about the company's or management's current expectations as to
the future and include, but are not limited to, statements about the amounts,
timing and results of possible restructuring charges and future earnings. Words
such as "estimate," "project," "plan," "believe," "expect," "anticipate,"
"intend," and similar expressions may identify such forward-looking statements.
Some of the factors which could cause future financial performance to differ
materially from the expectations as expressed in any forward-looking statement
made by or on our behalf include:
o changes in international or national political conditions, including any
terrorist attacks
o negative developments in economic conditions, including adverse impacts on
customer demand
o changes in postal regulations
o timely development and acceptance of new products
o success in gaining product approval in new markets where regulatory approval
is required
o successful entry into new markets
o mailers' utilization of alternative means of communication or competitors'
products
o the company's success at managing customer credit risk
o changes in interest rates
o foreign currency fluctuations
o cost, timing and execution of the restructuring plan, including any potential
asset impairments
o timing and execution of the meter transition plan
o regulatory approvals and satisfaction of other conditions to consummation of
any acquisitions and integration of recent acquisitions
o impact on mail volume resulting from current concerns over the use of the
mail for transmitting harmful biological agents
o third-party suppliers' ability to provide product components
o negative income tax adjustments for prior audit years and changes in tax laws
or regulations
o terms and timing of actions to reduce exposures and disposal of assets in our
Capital Services segment
o continuing developments in the U.S. and foreign airline industry
o changes in pension and retiree medical costs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the quantitative and qualitative
disclosures about market risk disclosed in our 2003 Annual Report to
Stockholders on Form 10-K.
Item 4. Controls and Procedures
Explanation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer, after evaluating
the effectiveness of the company's "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 ("Exchange Act") Rule 13a-15(e)
or 15d-15(e)) as of the end of the period covered by this quarterly report, have
concluded that our disclosure controls and procedures are effective based on
their evaluation of these controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Part II - Other Information
---------------------------
Item 1: Legal Proceedings
This Item updates the legal proceedings more fully described in our 2003 Annual
Report on Form 10-K, dated March 9, 2004. On May 25, 2004, in Boston Reed v.
--------------
Pitney Bowes, et al. (Superior Court of California, County of Napa, filed
- --------------------
January 16, 2002), the plaintiff filed a notice of appeal from the California
court's order granting our motion for summary judgment.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 22
Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Share Repurchases
We repurchase shares of our common stock under a systematic program to manage
the dilution created by shares issued under employee stock plans and for other
purposes. This program authorizes repurchases in the open market.
In November 2002, the Board of Directors of Pitney Bowes authorized $300 million
for repurchases of its outstanding shares of common stock on the open market
during the subsequent 12 to 24 months. We repurchased 5.4 million shares during
the year ended December 31, 2003 for a total price of $200 million under the
November 2002 program leaving $100 million remaining for future repurchases
under this program. We repurchased 2.4 million shares during the six months
ended June 30, 2004 for a total price of $100 million under this program.
On May 10, 2004, the Board of Directors of Pitney Bowes authorized $300 million
for repurchases of its outstanding shares of common stock on the open market
during the subsequent 12 to 24 months. We repurchased 0.8 million shares during
the three months ended June 30, 2004 for a total price of $35 million under the
May 2004 program leaving $265 million remaining for future repurchases under
this program.
Company Purchases of Equity Securities
The following table summarizes our share repurchase activity for the six months
ended June 30, 2004:
Total number of Approximate dollar value
Total number Average price shares purchased as of shares that may yet
of shares paid per part of publicly be purchased under the
Period purchased share announced plans plans (in thousands)
------------- -------------- -------------------- --------------------------
November 2002 Program
- ---------------------
January 2004.............. - - - $100,000
February 2004............. 736,100 $41.12 736,100 $70,000
March 2004................ 1,575,143 $41.73 1,575,143 $4,000
April 2004................ - - - $4,000
May 2004.................. 92,644 $43.17 92,644 $0
------------- --------------------
2,403,887 2,403,887
May 2004 Program
- ----------------
May 2004.................. 230,056 $42.94 230,056 $290,120
June 2004................. 569,519 $44.11 569,519 $265,000
------------- --------------------
799,575 799,575
Total repurchases 3,203,462 3,203,462
============= ====================
Item 4: Submission of Matters to a Vote of Security Holders
Below are the final results of the voting at the annual meeting of Stockholders
held on May 10, 2004:
Proposal 1 - Election of Directors
Nominee For Withheld
-------------------- ----------------- -----------------
Linda G. Alvarado 194,322,170 4,336,120
Ernie Green 192,012,844 6,645,446
John S. McFarlane 195,082,750 3,575,540
Eduardo R. Menasce 195,106,164 3,552,126
Proposal 2 - Ratification of PricewaterhouseCoopers LLP as Independent Auditors
for 2004
For Against Abstain
-------------------- ----------------- -----------------
190,952,995 6,356,203 1,349,092
Proposal 3 - Stockholder Proposal relating to Political Contributions
For Against Abstain
-------------------- ----------------- -----------------
20,861,948 138,413,373 14,164,502
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 23
The following other directors continued their term of office after the annual
meeting:
Colin G. Campbell James H. Keyes
Michael J. Critelli David L. Shedlarz
Jessica P. Einhorn Michael I. Roth
Herbert L. Henkel Robert E. Weissman
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Reg. S-K
Exhibits Description
-------- --------------------------------------------------------------
(12) Computation of ratio of earnings to fixed charges
(31.1) Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(31.2) Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(32.1) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
(32.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
(b) Reports on Form 8-K
On April 13, 2004, the company filed a current report on Form 8-K pursuant
to Items 5 and 7 thereof, reporting the Press Release dated April 13, 2004
regarding its announcement to acquire Group 1 Software, Inc.
On April 26, 2004, the company filed a current report on Form 8-K pursuant
to Items 9 and 12 thereof, reporting the Press Release dated April 26,
2004 regarding its financial results for the quarter ended March 31, 2004.
On May 17, 2004, the company filed a current report on Form 8-K pursuant
to Items 7 and 11 thereof, reporting the memorandum to directors and
executive officers dated May 14, 2004 regarding the temporary suspension
of trading under the company's employee benefit plans.
On May 24, 2004, the company filed a current report on Form 8-K pursuant
to Items 5 and 7 thereof, reporting the Press Release dated May 21, 2004
regarding its acquisition of International Mail Express, Inc.
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2004
Page 24
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PITNEY BOWES INC.
August 5, 2004
/s/ B. P. Nolop
-----------------------------
B. P. Nolop
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ J. R. Catapano
------------------------------
J. R. Catapano
Controller
(Principal Accounting Officer)
Exhibit Index
-------------
Reg. S-K
Exhibits Description
- -------- -----------------------------------------------------------------
(12) Computation of ratio of earnings to fixed charges
(31.1) Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
(31.2) Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
(32.1) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
(32.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350