UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Number of shares of common stock, $1 par value, outstanding as of April 30, 2000
is 257,738,910.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 2
Pitney Bowes Inc.
Index
-----------------
Page Number
-----------
Part I - Financial Information
Item 1: Financial Statements
Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999.............................. 3
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999...................................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999................. 5
Notes to Consolidated Financial Statements................... 6 - 10
Item 2: Management's Discussion and Analysis of
Financial Condition and
Results of Operations............................... 11 - 17
Part II - Other Information
Item 1: Legal Proceedings..................................... 17
Item 5: Other Information..................................... 18
Item 6: Exhibits and Reports on Form 8-K...................... 18
Signatures........................................................ 19
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 3
Part I - Financial Information
Item 1. Financial Statements.
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
---------------------------------
(Dollars in thousands, except per share data)
Three Months Ended March 31,
-----------------------------
2000 1999
------------- --------------
Revenue from:
Sales...................................... $ 520,042 $ 510,382
Rentals and financing...................... 436,166 405,725
Support services........................... 145,759 133,217
------------- --------------
Total revenue............................ 1,101,967 1,049,324
------------- --------------
Costs and expenses:
Cost of sales.............................. 300,833 296,719
Cost of rentals and financing.............. 121,611 110,933
Selling, service and administrative........ 378,313 361,028
Research and development................... 29,511 25,904
Interest, net.............................. 47,162 45,500
------------- --------------
Total costs and expenses................. 877,430 840,084
------------- --------------
Income from continuing operations before
income taxes............................... 224,537 209,240
Provision for income taxes................... 72,984 70,669
------------- --------------
Income from continuing operations............ 151,553 138,571
Income from discontinued operations (Note 2). - 3,700
------------- --------------
Net income................................... $ 151,553 $ 142,271
============= ==============
Basic earnings per share: ...................
Continuing operations...................... $ .58 $ .52
Discontinued operations.................... - .01
------------- --------------
Net income................................. $ .58 $ .53
============= ==============
Diluted earnings per share: .................
Continuing operations...................... $ .57 $ .51
Discontinued operations.................... - .01
------------- --------------
Net income................................. $ .57 $ .52
============= ==============
Dividends declared per share of
common stock............................... $ .285 $ .255
============= ==============
Ratio of earnings to fixed charges........... 4.42 4.40
============= ==============
Ratio of earnings to fixed
charges excluding minority interest........ 4.72 4.69
============= ==============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 4
Pitney Bowes Inc.
Consolidated Balance Sheets
---------------------------
(Dollars in thousands, except share data) March 31, December 31,
2000 1999
------------ ------------
Assets (unaudited)
- ------
Current assets:
Cash and cash equivalents........................ $ 219,063 $ 254,270
Short-term investments, at cost which
approximates market............................ 19,126 2,414
Accounts receivable, less allowances:
3/00, $25,443; 12/99, $28,716.................. 423,192 432,224
Finance receivables, less allowances:
3/00, $43,034; 12/99, $48,056.................. 1,617,858 1,779,696
Inventories (Note 3)............................. 262,595 257,452
Other current assets and prepayments............. 152,870 128,662
Net assets of discontinued operations............ - 487,856
----------- -----------
Total current assets........................... 2,694,704 3,342,574
Property, plant and equipment, net (Note 4)........ 484,812 484,181
Rental equipment and related
inventories, net (Note 4)........................ 797,301 810,788
Property leased under capital
leases, net (Note 4)............................. 2,800 11,140
Long-term finance receivables, less allowances:
3/00, $59,089; 12/99, $56,665.................... 2,010,562 1,907,431
Investment in leveraged leases..................... 987,297 969,589
Goodwill, net of amortization:
3/00, $56,628; 12/99, $54,848.................... 229,180 226,764
Other assets....................................... 612,005 470,205
----------- -----------
Total assets....................................... $ 7,818,661 $ 8,222,672
=========== ===========
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities............................ $ 903,565 $ 915,826
Income taxes payable............................. 265,275 255,201
Notes payable and current portion of
long-term obligations.......................... 974,370 1,320,332
Advance billings................................. 380,620 381,405
----------- -----------
Total current liabilities...................... 2,523,830 2,872,764
Deferred taxes on income........................... 1,122,865 1,082,019
Long-term debt (Note 5)............................ 2,037,860 1,997,856
Other noncurrent liabilities....................... 331,985 334,423
----------- -----------
Total liabilities.............................. 6,016,540 6,287,062
Preferred stockholders' equity in a
subsidiary company............................... 310,000 310,000
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible.......................... 29 29
Cumulative preference stock, no par
value, $2.12 convertible....................... 1,809 1,841
Common stock, $1 par value....................... 323,338 323,338
Capital in excess of par value................... 13,479 17,382
Retained earnings................................ 3,513,693 3,437,185
Accumulated other comprehensive income (Note 7).. (91,805) (93,015)
Treasury stock, at cost.......................... (2,268,422) (2,061,150)
----------- -----------
Total stockholders' equity..................... 1,492,121 1,625,610
----------- -----------
Total liabilities and stockholders' equity......... $ 7,818,661 $ 8,222,672
=========== ===========
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 5
Pitney Bowes Inc.
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands) Three Months Ended March 31,
----------------------------
2000 1999*
----------- -----------
Cash flows from operating activities:
Net income....................................................... $ 151,553 $ 142,271
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................................ 78,588 99,418
Increase in deferred taxes on income......................... 36,454 27,417
Pension plan investment...................................... - (67,000)
Change in assets and liabilities:
Accounts receivable........................................ 7,652 (37,868)
Net investment in internal finance receivables............. 16,765 6,962
Inventories................................................ (5,863) 5,816
Other current assets and prepayments....................... (25,155) (1,237)
Accounts payable and accrued liabilities................... (44,117) 3,350
Income taxes payable....................................... 13,810 30,016
Advance billings........................................... (1,500) 24,243
Other, net................................................. (12,108) (22,858)
----------- -----------
Net cash provided by operating activities.................. 216,079 210,530
----------- -----------
Cash flows from investing activities:
Short-term investments........................................... (16,682) 1,636
Net investment in fixed assets................................... (52,490) (91,797)
Net investment in finance receivables............................ (33,726) (54,084)
Net investment in capital and mortgage services.................. 74,373 (55,388)
Investment in leveraged leases................................... (18,159) (12,950)
Investment in mortgage servicing rights.......................... - (7,380)
Proceeds and cash receipts from the sale of discontinued
operations...................................................... 512,780 -
Net investment in insurance contracts............................ (131,548) 3,313
Other investing activities....................................... 6,148 (4,789)
----------- -----------
Net cash provided by (used in) investing activities........ 340,696 (221,439)
----------- -----------
Cash flows from financing activities:
(Decrease) increase in notes payable, net........................ (343,659) 225,011
Proceeds from long-term obligations.............................. 45,181 1,633
Principal payments on long-term obligations...................... (5,970) (6,008)
Proceeds from issuance of stock.................................. 7,084 7,105
Stock repurchases................................................ (218,291) (142,437)
Dividends paid................................................... (75,045) (69,164)
----------- -----------
Net cash (used in) provided by financing activities........ (590,700) 16,140
----------- -----------
Effect of exchange rate changes on cash............................ (1,282) (1,228)
----------- -----------
(Decrease) increase in cash and cash equivalents................... (35,207) 4,003
Cash and cash equivalents at beginning of period................... 254,270 125,684
----------- -----------
Cash and cash equivalents at end of period......................... $ 219,063 $ 129,687
=========== ===========
Interest paid...................................................... $ 63,594 $ 54,483
=========== ===========
Income taxes paid, net............................................. $ 17,753 $ 18,567
=========== ===========
<FN>
* Certain prior year amounts have been reclassified to conform with the
2000 presentation
</FN>
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
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 generally accepted accounting
principles for complete financial statements. In the opinion 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 March 31, 2000 and December 31, 1999, and the results of its operations and
cash flows for the three months ended March 31, 2000 and 1999 have been
included. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. These statements should be read in conjunction with the
financial statements and notes thereto included in the company's 1999 Annual
Report to Stockholders on Form 10-K.
Note 2:
- ------
On January 14, 2000, the company sold its mortgage servicing business,
Atlantic Mortgage & Investment Corporation (AMIC), a wholly-owned subsidiary
of the company to ABN AMRO North America. The company received approximately
$484 million in cash at closing. The transaction is subject to post-closing
adjustments.
Revenue of AMIC was $32.5 million for the three months ended March 31, 1999.
Net interest expense allocated to AMIC's discontinued operations was $1.8
million for the three months ended March 31, 1999. Interest has been
allocated based on AMIC's net intercompany borrowing levels with Pitney Bowes
Credit Corporation (PBCC), a wholly-owned subsidiary of the company, charged
at PBCC's weighted average borrowing rate, offset by the interest savings
PBCC realizes due to borrowings against AMIC's escrow deposits as opposed to
regular commercial paper borrowings.
Operating results have been segregated and reported as discontinued
operations in the Consolidated Statement of Income for the three months ended
March 31, 1999. Net assets of discontinued operations have been separately
classified in the Consolidated Balance Sheet at December 31, 1999. Cash flow
impacts of discontinued operations have not been segregated in the
Consolidated Statement of Cash Flows for the three months ended March 31,
1999.
Note 3:
- ------
Inventories are comprised of the following:
(Dollars in thousands) March 31, December 31,
2000 1999
----------- ------------
Raw materials and work in process.......... $ 42,811 $ 41,149
Supplies and service parts................. 121,442 122,726
Finished products.......................... 98,342 93,577
----------- ------------
Total...................................... $ 262,595 $ 257,452
=========== ============
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 7
Note 4:
- ------
Fixed assets are comprised of the following:
(Dollars in thousands) March 31, December 31,
2000 1999
------------ ------------
Property, plant and equipment................... $ 1,200,383 $ 1,187,198
Accumulated depreciation........................ (715,571) (703,017)
------------ ------------
Property, plant and equipment, net.............. $ 484,812 $ 484,181
============ ============
Rental equipment and related inventories........ $ 1,595,261 $ 1,706,306
Accumulated depreciation........................ (797,960) (895,518)
------------ ------------
Rental equipment and related inventories, net... $ 797,301 $ 810,788
============ ============
Property leased under capital leases............ $ 19,059 $ 27,217
Accumulated amortization........................ (16,259) (16,077)
------------ ------------
Property leased under capital leases, net....... $ 2,800 $ 11,140
============ ============
In connection with the U.S.P.S. meter migration, the company has written off
fully depreciated rental equipment in the first quarter of 2000.
Note 5:
- ------
The company has a medium-term note facility, which was established as part of
the company's shelf registrations, permitting issuances of up to $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at March 31, 2000.
On April 19, 2000, certain partnerships controlled by affiliates of PBCC issued
a total of $134 million of Series A and Series B Secured Fixed Rate Senior Notes
(the notes). The notes are due in 2003 and bear interest at 7.443 percent. The
proceeds from the notes were used to purchase subordinated debt obligations from
the company (PBI Obligations). The PBI Obligations have a principal amount of
$134 million and are due in 2010. The PBI Obligations bear interest at 8.073
percent for the first three years and reset in May 2003 and each third
anniversary of the first reset date.
On March 31, 2000, PBCC issued $43.3 million of 7.515 percent Senior Notes to
various holders maturing on January 10, 2012.
PBCC has $625 million of unissued debt securities available at March 31, 2000
from a shelf registration statement filed with the Securities and Exchange
Commission (SEC) in July 1998. As part of this shelf registration statement in
August 1999, PBCC established a medium-term note program for the issuance from
time to time of up to $500 million aggregate principal amount of Medium-Term
Notes, Series D, of which $375 million remained available at March 31, 2000.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 8
Note 6:
- ------
A reconciliation of the basic and diluted earnings per share computations for
income from continuing operations for the three months ended March 31, 2000 and
1999 is as follows (in thousands, except per share data):
2000 1999
--------------------------- ----------------------------
Per Per
Income Shares Share Income Shares Share
--------------------------------------------------- ----------------------------
Income from continuing $151,553 $ 138,571
operations
Less:
Preferred stock
dividends - -
Preference stock
dividends (35) (39)
--------------------------------------------------- ----------------------------
Basic earnings per
share $151,518 263,061 $ .58 $ 138,532 269,789 $ .52
--------------------------------------------------- ----------------------------
Effect of dilutive
securities:
Preferred stock - 14 - 17
Preference stock 35 1,078 39 1,179
Stock options 1,736 3,533
Other 145 444
--------------------------------------------------- ----------------------------
Diluted earnings per
share $151,553 266,034 $ .57 $ 138,571 274,962 $ .51
=================================================== ============================
Note 7:
- ------
Comprehensive income for the three months ended March 31, 2000 and 1999 was as
follows:
(Dollars in thousands)
2000 1999
-------- --------
Net income.................................. $151,553 $142,271
Other comprehensive income:
Foreign currency translation adjustments... 1,210 (448)
-------- --------
Comprehensive income........................ $152,763 $141,823
======== ========
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 9
Note 8:
- ------
Revenue and operating profit by business segment for the three months ended
March 31, 2000 and 1999 were as follows:
(Dollars in thousands) 2000 1999
----------- -----------
Revenue:
Mailing and Integrated Logistics (MAIL)..... $ 741,841 $ 698,629
Office Solutions............................ 323,989 314,580
----------- -----------
MAIL and Office Solutions................... 1,065,830 1,013,209
Capital Services............................ 36,137 36,115
----------- -----------
Total revenue.................................. $ 1,101,967 $ 1,049,324
=========== ===========
Operating Profit: (1)
Mailing and Integrated Logistics............ $ 196,104 $ 171,343 (2)
Office Solutions............................ 52,992 58,545
----------- -----------
MAIL and Office Solutions................... 249,096 229,888
Capital Services............................ 8,561 8,182
----------- -----------
Total operating profit......................... $ 257,657 $ 238,070
Unallocated amounts:
Net interest (corporate interest expense,
net of intercompany transactions).......... (14,795) (10,761)
Corporate expense......................... (18,325) (18,069)(2)
----------- -----------
Income from continuing operations before
income taxes.................................. $ 224,537 $ 209,240
=========== ===========
<FN>
(1) Operating profit excludes general corporate expenses, income taxes and net
interest other than that related to finance operations.
(2) Prior year amounts have been reclassified to conform with the current year
presentation.
</FN>
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 10
Note 9:
- ------
In June 1999, Statement of Financial Accounting Standards (SFAS) No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," was issued. This statement defers the effective date of SFAS No. 133 one
year (January 1, 2001 for the company). SFAS No. 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Changes in the fair value of those instruments will be reflected as gains or
losses. The accounting for the gains or losses depends on the intended use of
the derivative and the resulting designation. The company is currently
evaluating the impact of this statement.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," summarizing certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. This guidance is provided due, in part, to
the large number of revenue recognition issues that SEC registrants encounter.
Although the company believes it is in compliance with this guidance in all
material respects, the company is currently evaluating its current revenue
recognition policies to determine the impact of SAB No. 101. SAB No. 101 is
effective for the second quarter of 2000.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Continuing Operations - first quarter of 2000 vs. first quarter of
- --------------------------------------------------------------------------------
1999
- ----
Revenue increased five percent for the first quarter of 2000 to $1,102.0 million
compared with $1,049.3 million for the first quarter of 1999. Revenue for the
first quarter of 1999 includes revenues associated with the United States Postal
Service (U.S.P.S.) mechanical meter migration and sale of PROM (memory) chips
and scale charts associated with the U.S.P.S. rate increase. Excluding these
revenues, revenue increased eight percent for the first quarter of 2000. Income
from continuing operations increased nine percent to $151.6 million from $138.6
million for the same period in 1999. Diluted earnings per share from continuing
operations grew to 57 cents, a 13.1 percent increase from the first quarter of
1999.
First quarter 2000 revenue included $520.0 million from sales, up two percent
from $510.4 million in the first quarter of 1999; $436.2 million from rentals
and financing, up eight percent from $405.7 million; and $145.8 million from
support services, up nine percent from $133.2 million.
The Mailing and Integrated Logistics Segment includes revenues and related
expenses from the rental, sale and financing of mailing and shipping equipment,
related supplies and service, and software. During the first quarter of 2000,
revenue grew six percent and operating profit increased 14 percent. Operating
profit growth was due primarily to improved sales margins. Excluding first
quarter 1999 revenues associated with the U.S.P.S mechanical meter migration and
PROM revenue associated with the U.S.P.S. rate increase, revenue grew 10 percent
for the first quarter of 2000. Contributors to growth included: strong demand
for vendor-inclusive shipping and logistics systems driven by marketing and
e-commerce activity and mail creation products, such as the one-to-one marketing
mail preparation system, DocumatchTM, and the address correction and postal
formatting software, SmartMailerTM. In addition, international operations had
double-digit revenue and operating profit growth as the company continues to
benefit from meter migration mandates related to the Euro conversion in Germany
and the transition to electronic and digital metering technology in the United
Kingdom and Canada.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 12
The Office Solutions Segment includes Pitney Bowes Office Systems and Pitney
Bowes Management Services. During the first quarter of 2000, revenue grew three
percent while operating profit decreased nine percent. During the quarter,
Office Systems' revenue grew three percent while operating profit declined.
Operating profit was negatively impacted by an increase in the value of the yen,
the higher costs of digital equipment, and margin impacts associated with the
transition to a rental revenue model for large national accounts in the copier
business.
Pitney Bowes Management Services' revenue grew three percent as the company
pursued its strategy of disciplined, profitable expansion, while providing
superior customer service. These efforts, in conjunction with improved operating
efficiencies, resulted in strong double-digit operating profit growth.
The Capital Services Segment includes primarily asset- and fee-based income
generated by large ticket external assets. During the quarter, revenue remained
flat and operating profit increased five percent. The revenue base of Capital
Services is expected to remain flat or decline as the company continues its
strategic shift to fee-based income opportunities resulting in a lower revenue
generating asset base.
Cost of sales decreased to 57.8 percent of sales revenue in the first quarter of
2000 compared with 58.1 percent in the first quarter of 1999. This was due
primarily to lower product costs resulting from productivity improvements in
manufacturing processes and increased sales of higher margin software-based
logistics and mail creation products.
Cost of rentals and financing increased to 27.9 percent of related revenues in
the first quarter of 2000 compared with 27.3 percent in the first quarter of
1999. This was due mainly to higher depreciation expense from increased
placements of digital and electronic meters and increased costs associated with
new products at Financial Services.
Selling, service and administrative expenses were 34.3 percent of revenue in the
first quarter of 2000 compared with 34.4 percent in the first quarter of 1999.
This improvement was due primarily to the company's continued emphasis on
controlling operating expenses partially offset by costs for Internet,
enterprise-wide resource planning and other new business initiatives.
Research and development expenses increased 13.9 percent to $29.5 million in the
first quarter of 2000 compared with $25.9 million in 1999. The increase reflects
the company's continued commitment to developing new technologies and other
mailing and software products.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 13
Net interest expense increased to $47.2 million in the first quarter of 2000
from $45.5 million in the first quarter of 1999. The increase is due mainly to
interest associated with borrowings to fund the share repurchase program.
The effective tax rate for the first quarter of 2000 was 32.5 percent compared
with 33.8 percent in the first quarter of 1999. The decrease in the effective
tax rate reflects continued tax benefits from partnership leasing transactions
and lower taxes attributable to international sourced income.
Income from continuing operations and diluted earnings per share from continuing
operations increased 9.4 percent and 13.1 percent, respectively, compared to the
first quarter of 1999 due to the factors discussed above. The reason for the
increase in diluted earnings per share outpacing the increase in income from
continuing operations was the company's share repurchase program.
Discontinued Operations
- -----------------------
On January 14, 2000, the company sold Atlantic Mortgage & Investment Corporation
(AMIC), a wholly-owned subsidiary of the company to ABN AMRO North America. The
company received approximately $484 million in cash at closing. The transaction
is subject to post-closing adjustments. See Note 2 to the consolidated financial
statements.
Accounting Pronouncements
- -------------------------
In June 1999, Statement of Financial Accounting Standards (SFAS) No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," was issued. This statement defers the effective date of SFAS No. 133 one
year (January 1, 2001 for the company). SFAS No. 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Changes in the fair value of those instruments will be reflected as gains or
losses. The accounting for the gains and losses depends on the intended use of
the derivative and the resulting designation. The company is currently
evaluating the impact of this statement.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," summarizing certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
This guidance is provided due, in part, to the large number of revenue
recognition issues that SEC registrants encounter.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 14
Although the company believes it is in compliance with this guidance in all
material respects, the company is currently evaluating its current revenue
recognition policies to determine the impact of SAB No. 101. SAB No. 101 is
effective for the second quarter of 2000.
Liquidity and Capital Resources
- -------------------------------
The ratio of current assets to current liabilities is 1.07 to 1 at March 31,
2000 compared with 1.16 to 1 at December 31, 1999. The decrease was due
primarily to the sale of AMIC's net assets in January 2000.
The company has a medium-term note facility, which was established as part of
the company's shelf registrations, permitting issuances of up to $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at March 31, 2000.
On April 19, 2000, certain partnerships controlled by affiliates of Pitney Bowes
Credit Corporation (PBCC), a wholly-owned subsidiary of the company, issued a
total of $134 million of Series A and Series B Secured Fixed Rate Senior Notes
(the notes). The notes are due in 2003 and bear interest at 7.443 percent. The
proceeds from the notes were used to purchase subordinated debt obligations from
the company (PBI Obligations). The PBI Obligations have a principal amount of
$134 million and are due in 2010. The PBI Obligations bear interest at 8.073
percent for the first three years and reset in May 2003 and each third
anniversary of the first reset date. The proceeds from the PBI Obligations were
used for general corporate purposes, including the repayment of commercial
paper.
On March 31, 2000, PBCC issued $43.3 million of 7.515 percent Senior Notes to
various holders maturing on January 10, 2012. The proceeds from these notes were
used to pay down commercial paper.
PBCC has $625 million of unissued debt securities available at March 31, 2000
from a shelf registration statement filed with the SEC in July 1998. As part of
this shelf registration statement in August 1999, PBCC established a medium-term
note program for the issuance from time to time of up to $500 million aggregate
principal amount of Medium-Term Notes, Series D, of which $375 million remained
available at March 31, 2000.
The company believes that its financing needs for the next 12 months can be met
with cash generated internally, money from existing credit agreements, debt
issued under new and existing shelf registration statements and existing
commercial and medium-term note programs.
Pitney Bowes Inc. - Form 10-Q
March 31, 2000
Page 15
The ratio of total debt to total debt and stockholders' equity including the
preferred stockholders' equity in a subsidiary company in total debt was 69.0
percent at March 31, 2000 compared with 69.1 percent at December 31, 1999. Book
value per common share decreased to $5.72 at March 31, 2000 from $6.13 at
December 31, 1999 driven primarily by the repurchase of common shares. During
the quarter ended March 31, 2000, the company repurchased approximately 4.6
million common shares for $218.3 million.
To control the impact of interest rate risk on its business, the company uses a
balanced mix of debt maturities, variable and fixed rate debt and interest rate
swap agreements. The company enters into interest rate swap agreements,
primarily through its financial services business.
Year 2000
- ---------
The company experienced no significant Year 2000 issues on its business systems,
products and supporting infrastructure. Minor issues noted in the early days of
the year were fully addressed and remedied during the first week of January
2000. The company has not noted or been notified by any third party of any
significant concerns or impacts on its many business and IT systems, products,
services and infrastructure or the failure of any third party on which the
company relies to make timely changes to their own systems and processes.
While the company has not been notified of any specific product or system
failure as a result of the Year 2000 issue, it will continue its monitoring
activity into the second quarter of 2000 to ensure that any problems that may
arise are promptly addressed.
Capital Investments
- -------------------
In the first quarter of 2000, net investments in fixed assets included $18.7
million in net additions to property, plant and equipment and $33.8 million in
net additions to rental equipment and related inventories compared with $22.1
million and $69.7 million, respectively, in the same period in 1999. These
additions include expenditures for normal plant and manufacturing equipment. In
the case of rental equipment, the additions included the production of postage
meters and the purchase of facsimile and copier equipment for both new
placements and upgrade programs.
At March 31, 2000, commitments for the acquisition of property, plant and
equipment reflected plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 16
Regulatory Matters
- ------------------
In January 2000, the U.S.P.S. issued a proposed schedule for the phaseout of
manually reset electronic meters in the U.S. as follows:
o As of February 1, 2000, new placements of manually reset electronic meters
are no longer permitted. Current users of manually reset electronic meters
can continue to use these meters for the term of their current rental and
lease agreements.
Based on the proposed schedule, the company believes that the phaseout of
manually reset electronic meters will not cause a material adverse financial
impact on the company.
In May 1995, the U.S.P.S. publicly announced its concept of its Information
Based Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the U.S.P.S., the purpose of the program was to develop a new standard
for future digital postage evidencing devices which significantly enhanced
postal revenue security and supported expanded U.S.P.S. value-added services to
mailers.
During the period from May 1995 through May 2000, the company has submitted
extensive comments to a series of proposed IBIP specifications issued by the
U.S.P.S. In March 2000, the U.S.P.S. issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.
In March 2000, the company received approval from the U.S.P.S. for the
commercial launch of the Internet version of a product which satisfies the
proposed IBI Performance Criteria, ClickStampTM Online. The PC version of this
product is currently in the final phase of beta testing and is expected to be
ready for market upon final approval from the U.S.P.S.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 17
Forward-looking Statements
- --------------------------
The company wants to caution readers that any forward-looking statements (those
which talk about the company's or management's current expectations as to the
future) in this Form 10-Q or made by the company management involve risks and
uncertainties which may change based on various important factors. Words such as
"estimate", "project", "plan", "believe", "expect" 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 behalf of the company
include:
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 our success at managing customer credit risk
o changes in interest rates
Part II - Other Information
---------------------------
Item 1: Legal Proceedings.
In the course of normal business, the company is occasionally party to lawsuits.
These may involve litigation by or against the company relating to, among other
things:
o contractual rights under vendor, insurance or other contracts
o intellectual property or patent rights
o equipment, service or payment disputes with customers
o disputes with employees
The company is currently a plaintiff or defendant in a number of lawsuits, none
of which should have, in the opinion of management and legal counsel, a material
adverse effect on the company's financial position or results of operations.
In June 1999, the company was served with a Civil Investigative Demand (CID)
from the U.S. Justice Department's Antitrust Division. A CID is a tool used by
the Antitrust Division for gathering information and documents. The company
believes that the Justice Department may be reviewing the company's efforts to
protect its intellectual property rights. The company believes it has complied
fully with the antitrust laws and is cooperating fully with the department's
investigation.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 18
Item 5: Other Information.
PricewaterhouseCoopers LLP (PwC) has informed the company and the Board of
Directors that it has notified the SEC that there was a delay in the transfer
from PwC's control of certain retirement and other benefits which were due to
the chair of the Audit Committee of the Board of Directors of the company, as a
former partner of Coopers & Lybrand, a predecessor of PwC. PwC has informed the
company that these transfers should have occurred in May 1999, but were
completed on March 23, 2000. The SEC has advised the company that because of
this delay, PwC was not in compliance with its auditor independence regulations.
The SEC has further advised the company that it does not intend to take any
action against the company with respect to the company's financial statements as
a result of PwC's noncompliance. The Board of Directors, which is composed of
nine non-employee and two employee members, has reviewed this situation and has
concluded, based on its examination and review, that the delayed transfer of
these benefits did not affect the quality or integrity of PwC's audit of the
company's financial statements.
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
(27) Financial Data Schedule
(b) Reports on Form 8-K
On April 26, 2000, the company filed a current report on Form 8-K pursuant
to Item 5 thereof, correcting the data that appears in Table III of the
company's Notice of 2000 Annual Meeting and Proxy Statement.
On April 20, 2000, the company filed a current report on Form 8-K pursuant
to Item 5 thereof, reporting the Press Release dated April 18, 2000 for the
quarter ended March 31, 2000.
On January 31, 2000, the company filed a current report on Form 8-K
pursuant to Item 5 thereof, reporting the Press Release dated January 27,
2000.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2000
Page 19
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.
May 12, 2000
/s/ B. P. Nolop
------------------------------------------
B. P. Nolop
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ A. F. Henock
------------------------------------------
A. F. Henock
Vice President - Controller
and Chief Tax Counsel
(Principal Accounting Officer)
Exhibit Index
-------------
Reg. S-K
Exhibits Description
-------- ----------------------------
(12) Computation of ratio of
earnings to fixed charges
(27) Financial Data Schedule