Pitney Bowes 2007 Annual Report Download - page 36

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18
Discontinued operations
(Dollars in millions)
2006 2005
Revenue ....................................................................................... $ 81 $ 125
Pretax income.............................................................................. $ 29 $ 38
Net income................................................................................... $ 31 $ 35
Gain on sale of Imagistics, net of $7 tax expense ..................... 11 -
FSC tax law change .................................................................... (16) -
Additional tax on IRS settlement .............................................. (41) -
Loss on sale of Capital Services, net of $285 tax benefit ......... (445) -
Total discontinued operations, net of tax.................................. $ (460) $ 35
In 2006, we completed the sale of our Capital Services external financing business and our Imagistics lease portfolio. We
have reported the results of these businesses as discontinued operations for all periods presented. See Note 2 to the
Consolidated Financial Statements for further discussion and details of discontinued operations.
Other (Income) Expense
In 2007 and 2006, we recorded pre-tax gains of approximately $3 million and $5 million, respectively, related to a revised
liability estimate associated with the settlement of a previous lawsuit and net pre-tax charges of approximately $3 million in
2007 and $2 million in 2006 for other legal matters. In 2005, we contributed $10 million to the Pitney Bowes Literacy and
Education Fund and the Pitney Bowes Employee Involvement Fund. These amounts are included in other (income) expense
in the Consolidated Statements of Income.
Restructuring Charges and Asset Impairments
We recorded pre-tax restructuring charges and asset impairments of $264 million in 2007. These charges relate primarily to a
program we announced in November 2007 to lower our cost structure, accelerate efforts to improve operational efficiencies,
and transition our product line. The program includes charges primarily associated with older equipment that we have
stopped selling upon transition to the new generation of fully digital, networked, and remotely-downloadable equipment.
The asset impairment charges related to these initiatives include the write-off of inventory ($48 million), rental assets ($61
million), lease residual values ($46 million), and other assets ($9 million). The cash portion of the restructuring charges
includes employee termination costs ($85 million) and other exit costs ($6 million) and relates primarily to our efforts to
lower our cost structure and accelerate improvements in operational efficiencies. As a result of this program, we expect a net
reduction of about 1,500 positions. About half of these reductions will be outside of the U.S. As of December 31, 2007, 401
employees had been terminated under this program. Other exit costs relate primarily to lease termination costs and other
costs associated with exiting product lines and business activities. The cash outflows related to the cash charges will be
funded primarily by cash from operating activities. We expect to incur approximately $20 million of additional restructuring
charges in 2008 associated with these actions, however, we continue to evaluate additional actions in conjunction with this
program. We expect to complete the majority of this program by the end of 2008. We are targeting to achieve $150 million
in pre-tax annual benefits from these initiatives by 2009.
In addition, asset impairments also include the write-down of certain intangible assets for $9 million.
The pre-tax restructuring charges and asset impairments are composed of:
(Dollars in millions)
Restructuring
charges
Non-cash
Charges
Cash
payments
Balance
December 31,
2007
Severance and benefit costs............................. $ 85 $ - $ (4) $ 81
Asset impairments ........................................... 173 (173) - -
Other exit costs................................................. 6 - - 6
Total ................................................................. $ 264 $ (173) $ (4) $ 87