Pitney Bowes Inc. Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. Pitney Bowes Inc. operates as a provider of global, integrated mail and document management solutions, organized into two primary business groups: Mailstream Solutions (equipment, software, supplies) and Mailstream Services (facilities management, mail services, marketing). The reporting period reflects the impact of challenging global economic conditions and foreign currency translation.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenue | $1,379.6 million | $1,574.0 million |
| Net Income (Pitney Bowes Inc.) | $104.4 million | $119.1 million |
| Diluted EPS (Continuing Ops) | $0.49 | $0.58 |
| Operating Cash Flow | $276.5 million | $253.1 million |
| Cash and Equivalents (End of Period) | $423.2 million | $397.8 million |
| Total Debt (Current + Long-term) | $4,612.1 million | $4,705.4 million |
| EBIT (Total) | $265.7 million | $327.7 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 12% year-over-year. The decline was driven by a 15% drop in Mailstream Solutions and a 6% drop in Mailstream Services. Foreign currency translation negatively impacted revenue growth by approximately 6%.
- Profitability: Income from continuing operations decreased due to lower revenues and a non-cash tax charge of $11.1 million (5 cents per share) related to the expiration of out-of-the-money stock options. This contrasts with Q1 2008, which included restructuring charges of $17.1 million.
- Cost Management: Selling, general, and administrative (SG&A) expenses decreased by over $50 million compared to the prior year, despite headwinds from foreign currency and increased pension costs.
- Cash Flow: Net cash provided by operating activities increased 9% to $276.5 million, driven by strong collections and decreases in accounts and finance receivables.
- Debt Reduction: The company reduced its debt load, issuing $300 million in 10-year fixed-rate notes (6.25%) in March 2009 to repay commercial paper.
Outlook, Risks, and Unusual Items
- Outlook: Management expects 2009 results to continue being negatively impacted by the strengthening U.S. dollar and Japanese yen, as well as significant increases in pension costs. The revenue mix is expected to shift toward smaller, fully featured systems and away from large system sales.
- Unusual Items:
- Discontinued Operations: A net gain of $2.6 million was recorded in Q1 2009 from a bankruptcy settlement related to the former Capital Services business (sold in 2006).
- Derivatives: A $20.3 million loss (cash payment) occurred from unwinding forward starting swap agreements related to the March 2009 debt issuance. This was recorded in other comprehensive income.
- Risks and Contingencies:
- Legal Proceedings: Subsidiary Imagitas, Inc. is a defendant in ten coordinated class actions alleging violations of the Driver's Privacy Protection Act (DPPA). While the company expects to prevail, an adverse outcome could materially affect financial position.
- Tax Uncertainties: The company is under examination by the IRS and other authorities. Future changes in tax reserve requirements could materially impact results.
Investor Verification Checklist
- Revenue Mix Shift: Verify the extent of the shift from large equipment sales to smaller systems and the long-term margin implications.
- Foreign Currency Impact: Assess the sensitivity of future earnings to the strengthening U.S. dollar and Japanese yen.
- Pension Funding: Monitor the $10 million expected contribution to U.S. and foreign pension plans and the impact of market returns on funded status.
- Imagitas Litigation: Track the appellate process regarding the DPPA class actions for potential material liability.
- Debt Maturity: Confirm the repayment plan for the $150 million of 8.55% notes due September 15, 2009.