Equipment sales
Equipment sales revenue increased 1% to $242 million
compared to the prior year. Foreign currency translation had a positive impact
of 2%. Equipment sales were up 6% in Production Mail primarily driven by new
placement of production print equipment offset by lower equipment sales of 3%
in North America Mailing and 2% in International Mailing.
Cost of equipment sales as a percentage of revenue increased to 47.5%
compared to 44.2% in the prior year primarily due to the higher mix of lower margin
product sales in our North America Mailing and Production Mail businesses.
Supplies
Supplies revenue decreased 3% to $83 million compared
to the prior year. Foreign currency translation had a 1% favorable impact. The
overall decline was due to lower supplies usage resulting from lower mail
volumes and fewer installed meters worldwide.
Cost of supplies as a percentage of revenue
was 31.6% compared with 29.7% in the prior year primarily due to the increasing
mix of lower margin supplies sales.
Software
Software revenue increased 19% to $99 million compared
to the prior year. The increase was due to higher licensing revenue in the United States
and Asia Pacific regions. Additionally, acquisitions accounted for 8% of the
increase and foreign currency translation accounted for an additional 3%
increase.
Cost of software as a percentage of revenue
was unchanged at 25.3% compared with the prior year.
Rentals
Rentals revenue decreased 8% to $143 million compared
to prior year as customers in the United States continue to downsize to smaller, fully
featured machines and fewer installed meters. The weak economic conditions have
also impacted our International rental markets, specifically in France. Foreign
currency translation had a favorable impact of less than 1%.
Cost of rentals as a percentage of revenue improved to 22.8% compared
with 23.8% in the prior year primarily due to lower depreciation associated
with higher levels of lease extensions.
Financing
Financing revenue decreased 5% to $154 million
compared to the prior year. Lower equipment sales in prior periods have
resulted in a decline in our worldwide lease portfolio. Foreign currency
translation had a favorable impact of 1%.
Financing interest expense as a percentage of
revenue increased to 15.1% compared to 13.5% in the prior year. The increase is
principally due to a higher overall effective interest rate. In computing our
financing interest expense, which represents our cost of borrowing associated
with the generation of financing revenues, we assumed a 10:1 leveraging ratio
of debt to equity and applied our overall effective interest rate to the
average outstanding finance receivables.
Support Services
Support services revenue decreased 1% to $179 million
compared to the prior year. Foreign currency translation had a 1% favorable
impact. The lower revenue is due to lower new mailing equipment placements in
the United States.
Cost of support services as a percentage of
revenue increased to 64.5% compared with 63.7% in the prior year primarily due
to a more complex installation process associated with the Connect+
TM
product.
Business Services
Business services revenue decreased 4% to $423 million
compared to the prior year. Foreign currency translation had a less than 1%
favorable impact. The lower revenue is primarily driven by reduced volumes at
Management Services from the loss of several large postal contracts during 2010
and the lost revenue from the fire in our mail presort facility in Dallas.
Cost of business services as a percentage of
revenue increased to 78.8% compared with 74.8% in the prior year primarily due
to the lower revenues and higher shipping costs in our International Mail
Services businesses.
Selling, general and
administrative (SG&A)
SG&A expenses decreased $13 million, or 3% primarily due to our
cost reduction initiatives. Acquisitions completed after the first quarter 2010
increased SG&A by $4 million and foreign currency translation had a $3
million unfavorable impact. As a percentage of revenue, SG&A was 32.5% compared with 32.9% in the prior year.
26
Research and development
Research
and development expenses decreased $6 million, or 15% from the prior year due
to cost reduction initiatives and the completion of development work for
Connect+
TM
, which was launched in 2010.
Restructuring
charges and asset impairments
See Note 11 to the unaudited Condensed Consolidated
Financial Statements.
Income taxes
See Note 7 to the unaudited Condensed Consolidated
Financial Statements.
Discontinued
operations
See Note 3 to the unaudited Condensed Consolidated
Financial Statements.
Preferred stock
dividends of subsidiaries attributable to noncontrolling interests
See Note 8 to the unaudited Condensed Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
We believe that cash flow from operations,
existing cash and liquid investments, as well as borrowing capacity under our
commercial paper program, the existing credit facility and debt capital markets
should be sufficient to finance our capital requirements and to cover our
customer deposits. Our potential uses of cash include, but are not limited to,
growth and expansion opportunities; internal investments; customer financing;
severance and benefits payments under our restructuring programs; income tax,
interest and dividend payments; pension and other benefit plan funding;
acquisitions; and share repurchases.
We continuously review our liquidity profile. We monitor for material
changes in the creditworthiness of those banks acting as derivative
counterparties, depository banks or credit providers to us through credit
ratings and the credit default swap market. We have determined that there has
not been a material variation in the underlying sources of cash flows currently
used to finance the operations of the company. To date, we have had consistent
access to the commercial paper market.
Cash Flow Summary
The change in cash and cash equivalents is as
follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
297
|
|
$
|
302
|
|
Net cash used in investing activities
|
|
|
(53
|
)
|
|
(41
|
)
|
Net cash used in financing activities
|
|
|
(80
|
)
|
|
(195
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
4
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
$
|
168
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
2011 Cash
Flows
Net cash provided
by operating activities consists primarily of net income, non-cash items and
changes in operating assets and liabilities. Cash provided by operating
activities for the three months ended March 31, 2011 included decreases in
finance receivable and accounts receivable balances of $90 million and $52
million, respectively. Due to declining equipment sales, finance receivables
have declined as cash collections exceed the financing of new business.
Similarly, accounts receivables have declined primarily due to cash collections
in excess of new billings. In addition, the timing of tax payments and tax
refunds received contributed $67 million. Partially offsetting these positive
impacts was $30 million in restructuring payments and a reduction in accounts
payable and accrued liabilities of $79 million primarily due to the timing of
payments.
Net
cash used in investing activities consisted of capital expenditures of $35
million and the net purchase of investment securities of $11 million.
Net
cash used in financing activities consisted primarily of dividends paid to
common stockholders of $75 million and net
payments on commercial paper borrowings of $8 million.
27
2010 Cash
Flows
Cash provided by
operating activities for the three months ended March 31, 2010 included $74
million and $60 million from decreases in finance receivable and accounts
receivable balances, respectively. The decrease in finance receivables is due
to the decline in the finance receivables portfolio as a result of reduced
equipment sales from prior periods. The decrease in accounts receivable is
primarily due to lower billings and strong collections. In addition, the timing
of tax payments favorably contributed $57 million. Partially offsetting these
positive impacts was a reduction in accounts payable and accrued liabilities of
$61 million, primarily due to the timing of payments such as year-end incentive
compensation and commissions as well as $28 million in restructuring payments.
Net
cash used in investing activities consisted principally of capital expenditures
of $28 million.
Net
cash used in financing activities included a decrease of $122 million due to
the repayment of commercial paper and dividends paid to common stockholders of
$76 million.
Capital Expenditures
Capital
expenditures for the three
months ended March 31,
2011 and 2010 included additions to property, plant and equipment of $21
million and $12 million; respectively, and additions to rental equipment and
related inventories of $14 million and $16 million, respectively. We have no
material commitments for capital expenditures at March 31, 2011.
Financings and
Capitalization
We are a Well-Known Seasoned
Issuer with the SEC, which allows us to issue debt securities, preferred stock,
preference stock, common stock, purchase contracts, depositary shares, warrants
and units in an expedited fashion. We have a commercial paper program that is a
significant source of liquidity for us and a committed line of credit of $1.25
billion which supports our commercial paper issuance. The line of credit
expires in 2013. We have not experienced any problems to date in accessing the
commercial paper market. As of March 31, 2011, the line of credit had not been
drawn upon.
At March 31, 2011, we had $42 million of outstanding commercial paper
with a weighted average interest rate of 0.25%. During the three months ended
March 31, 2011, borrowings under our commercial paper program averaged $141
million at a weighted average interest rate of 0.26% and the maximum amount of
commercial paper issued at any point in time was $249 million.
At December 31, 2010, we had $50 million of outstanding commercial
paper with a weighted average interest rate of 0.32%. During 2010, borrowings
under our commercial paper program averaged $347 million at a weighted average
interest rate of 0.23%. The maximum amount of commercial paper issued at any
point in time during 2010 was $552 million.
There have been no significant changes to long-term debt since December
31, 2010. In April 2011, we entered into two interest rate swap agreements with
an aggregate notional value of $450 million to effectively convert the fixed
rate interest payments on our $450 million 4.875% notes due in 2014 into
variable rates. Under the terms of these agreements, we will pay a weighted-average
variable rate based on three month LIBOR plus 305 basis points and receive
fixed rate payments of 4.875%.
We believe our financing needs in the short and long-term can be met
from cash generated internally, the issuance of commercial paper, debt issuance
under our effective shelf registration statement and borrowing capacity under
our existing credit agreements.
Recent
Accounting Pronouncements
See Note 2 to the unaudited Condensed Consolidated Financial
Statements.
Regulatory Matters
There have been no significant changes to the regulatory matters
disclosed in our 2010 Annual Report.
28
I
tem 3:
Quantitative and Qualitative Disclosures about Market Risk
There were no material changes to the disclosures made in the 2010
Annual Report regarding this matter.
It
em 4: Controls
and Procedures
Disclosure
controls and procedures are designed to reasonably assure that information
required to be disclosed in reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures are
also designed to reasonably assure that such information is accumulated and
communicated to our management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate to allow timely decisions
regarding required disclosure.
Under the direction of our CEO and CFO, we evaluated our disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) and internal
control over financial reporting. Our CEO and CFO concluded that such
disclosure controls and procedures were effective as of March 31, 2011, based
on the evaluation of these controls and procedures required by paragraph (b) of
Rule 13a-15 or Rule 15d-15 under the Exchange Act. In addition, no changes in
internal control over financial reporting occurred during the three months
ended March 31, 2011, that have materially affected, or are reasonably likely
to materially affect, such internal control over financial reporting. It should
be noted that any system of controls is based in part upon certain assumptions
designed to obtain reasonable (and not absolute) assurance as to its effectiveness,
and there can be no assurance that any design will succeed in achieving its
stated goals. Notwithstanding this caution, the disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
stated objectives, and the CEO and CFO have concluded that the disclosure
controls and procedures are effective at that reasonable assurance level.
29
P
ART II. OTHER INFORMATION
I
tem 1: Legal Proceedings
See
Note 12 to the unaudited Condensed Consolidated Financial Statements.
I
tem 1A: Risk Factors
There were no material changes to the risk factors identified in the
2010 Annual Report.
I
tem 2: Unregistered Sales of Equity Securities and Use
of Proceeds
Repurchases of Equity Securities
We periodically repurchase shares of our common stock to manage the
dilution created by shares issued under employee stock plans and for other
purposes in the open market. In February 2011, our Board of Directors approved
an increase of $100 million in our share repurchase authorization to $150
million. We have not repurchased or
acquired any shares of our common stock during the first quarter 2011. At March
31, 2011, we have $150 million authorization for future repurchases of our
common stock.
I
tem 6: Exhibits
See Index of Exhibits.
30
S
ignatures
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.
|
|
|
Date: May 5, 2011
|
|
|
|
|
/s/ Michael Monahan
|
|
|
|
Michael Monahan
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
|
|
/s/ Steven J. Green
|
|
|
|
Steven J. Green
|
|
Vice President Finance and
|
|
Chief Accounting Officer
|
|
(Principal Accounting Officer)
|
31
Exhibit
Index
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
Status or
incorporation by reference
|
|
|
|
|
|
|
|
|
|
|
(12)
|
|
Computation of ratio of
earnings to fixed charges
|
|
Page
33
|
|
|
|
|
|
(31.1)
|
|
Certification of Chief
Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
|
Page
34
|
|
|
|
|
|
(31.2)
|
|
Certification of Chief
Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
|
|
Page
35
|
|
|
|
|
|
(32.1)
|
|
Certification of Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
36
|
|
|
|
|
|
(32.2)
|
|
Certification of Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
Page
37
|
|
|
|
|
|
101.INS
|
|
XBRL Report Instance
Document
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema Document
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Calculation
Linkbase Document
|
|
|
|
|
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|
101.DEF
|
|
XBRL Taxonomy Definition
Linkbase Document
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Label
Linkbase Document
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Presentation
Linkbase Document
|
|
|
|
|
|
|
|
|
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|
32
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