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 March 31, 2002
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, 2002
is 240,624,775.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 2
Pitney Bowes Inc.
Index
----------------
Page Number
-----------
Part I - Financial Information:
Item 1: Financial Statements
Consolidated Statements of Income (unaudited) - Three Months
Ended March 31, 2002 and 2001........................... 3
Consolidated Balance Sheets - March 31, 2002 (unaudited)
and December 31, 2001................................... 4
Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended March 31, 2002 and 2001.............. 5
Notes to Consolidated Financial Statements................... 6 - 12
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations... 13 - 20
Part II - Other Information:
Item 1: Legal Proceedings..................................... 21
Item 6: Exhibits and Reports on Form 8-K...................... 21
Signatures ........................................................ 22
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
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,
-------------------------------------------
2002 2001
-------------------- --------------------
Revenue from:
Sales and management services......................................... $ 541,199 $ 471,472
Rentals and financing................................................. 370,152 367,992
Support services...................................................... 138,157 126,859
-------------------- --------------------
Total revenue....................................................... 1,049,508 966,323
-------------------- --------------------
Costs and expenses:
Cost of sales and management services................................. 334,270 278,350
Cost of rentals and financing......................................... 90,667 90,833
Selling, service and administrative................................... 356,668 322,903
Research and development.............................................. 34,069 31,602
Interest, net......................................................... 45,298 50,585
Restructuring charge (Note 10)........................................ - 43,151
-------------------- --------------------
Total costs and expenses............................................ 860,972 817,424
-------------------- --------------------
Income before income taxes.............................................. 188,536 148,899
Provision for income taxes.............................................. 59,019 44,962
-------------------- --------------------
Net income.............................................................. $ 129,517 $ 103,937
==================== ====================
Basic earnings per share................................................ $ .54 $ .42
==================== ====================
Diluted earnings per share.............................................. $ .53 $ .42
==================== ====================
Dividends declared per share of
common stock.......................................................... $ .295 $ .29
==================== ====================
Ratio of earnings to fixed charges..................................... 4.11 3.18
==================== ====================
Ratio of earnings to fixed charges
excluding minority interest........................................... 4.22 3.37
==================== ====================
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 4
Pitney Bowes Inc.
Consolidated Balance Sheets
---------------------------
March 31, December 31,
(Dollars in thousands, except share data) 2002 2001
-------------- --------------
(unaudited)
Assets
- ------
Current assets:
Cash and cash equivalents.................................................. $ 264,323 $ 231,588
Short-term investments, at cost which
approximates market.................................................... 10,545 1,790
Accounts receivable, less allowances:
3/02, $32,199; 12/01, $32,448.......................................... 394,692 408,414
Finance receivables, less allowances:
3/02, $64,427; 12/01, $61,451.......................................... 1,598,463 1,601,189
Inventories (Note 3)....................................................... 172,804 163,012
Other current assets and prepayments....................................... 148,063 150,615
-------------- --------------
Total current assets................................................... 2,588,890 2,556,608
Property, plant and equipment, net (Note 4)..................................... 537,850 534,595
Rental equipment and related inventories, net (Note 4).......................... 450,582 472,186
Property leased under capital leases, net (Note 4).............................. 1,193 1,489
Long-term finance receivables, less allowances:
3/02, $66,913; 12/01, $65,967.............................................. 1,816,210 1,898,976
Investment in leveraged leases.................................................. 1,368,729 1,337,282
Goodwill ..................................................................... 668,908 635,873
Other assets .................................................................. 818,002 881,462
--------------- --------------
Total assets .................................................................. $ 8,250,364 $ 8,318,471
=============== ==============
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities................................... $ 1,367,091 $ 1,425,809
Income taxes payable....................................................... 290,024 250,895
Notes payable and current portion of
long-term obligations ................................................. 1,234,773 1,072,057
Advance billings........................................................... 321,264 334,281
--------------- --------------
Total current liabilities.............................................. 3,213,152 3,083,042
Deferred taxes on income........................................................ 1,260,820 1,273,593
Long-term debt (Note 5)......................................................... 2,233,844 2,419,150
Other noncurrent liabilities.................................................... 347,136 341,331
--------------- --------------
Total liabilities...................................................... 7,054,952 7,117,116
--------------- --------------
Preferred stockholders' equity in a subsidiary company.......................... 310,000 310,000
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible.................................................. 24 24
Cumulative preference stock, no par
value, $2.12 convertible............................................... 1,552 1,603
Common stock, $1 par value................................................. 323,338 323,338
Capital in excess of par value............................................. 2,013 6,979
Retained earnings.......................................................... 3,716,613 3,658,481
Accumulated other comprehensive income (Note 8)............................ (154,304) (155,380)
Treasury stock, at cost.................................................... (3,003,824) (2,943,690)
--------------- --------------
Total stockholders' equity............................................. 885,412 891,355
--------------- --------------
Total liabilities and stockholders' equity...................................... $ 8,250,364 $ 8,318,471
================ ==============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 5
Pitney Bowes Inc.
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands)
Three Months Ended
March 31,
--------------------------------
2002 2001
-------------- -----------
Cash flows from operating activities:
Net income................................................................. $ 129,517 $ 103,937
Nonrecurring charges, net....................................................... - 32,494
Nonrecurring payments...................................................... (20,641) (6,693)
Adjustments to reconcile net income
to net cash provided by operating activities:..........................
Depreciation and amortization....................................... 65,616 80,219
Increase in deferred taxes on income................................ 3,426 34,498
Change in assets and liabilities:
Accounts receivable.............................................. 11,952 3,387
Net investment in internal finance receivables................... 13,307 33,242
Inventories...................................................... (10,693) 3,614
Other current assets and prepayments............................. 2,317 (762)
Accounts payable and accrued liabilities......................... (17,456) (107,762)
Income taxes payable............................................. 42,932 2,684
Advance billings................................................. (12,374) (10,869)
Other, net....................................................... 874 (6,337)
-------------- -----------
Net cash provided by operating activities........................ 208,777 161,652
-------------- -----------
Cash flows from investing activities:
Short-term investments..................................................... (8,765) 13,667
Net investment in fixed assets............................................. (40,541) (56,671)
Net investment in finance receivables...................................... (4,262) 17,353
Net investment in capital services......................................... 63,583 58,741
Investment in leveraged leases............................................. (32,281) (16,188)
Net investment in insurance contracts...................................... 1,048 2,960
Reserve account deposits................................................... (461) 34,832
Other investing activities................................................. - (28,430)
-------------- -----------
Net cash (used in) provided by investing activities.............. (21,679) 26,264
-------------- -----------
Cash flows from financing activities:
(Decrease) increase in notes payable, net.................................. (233,595) 228,079
Proceeds from long-term obligations........................................ 217,938 786
Principal payments on long-term obligations................................ (1,532) (282,521)
Proceeds from issuance of stock............................................ 7,150 3,901
Stock repurchases.......................................................... (72,301) (71,879)
Dividends paid............................................................. (71,385) (72,008)
-------------- ------------
Net cash used in financing activities............................ (153,725) (193,642)
-------------- ------------
Effect of exchange rate changes on cash......................................... (638) 1,857
-------------- ------------
Increase (decrease) in cash and cash equivalents................................ 32,735 (3,869)
Cash and cash equivalents at beginning of period................................ 231,588 198,255
-------------- ------------
Cash and cash equivalents at end of period...................................... $ 264,323 $ 194,386
============== ============
Interest paid .................................................................. $ 54,074 $ 64,021
============== ============
Income taxes paid, net.......................................................... $ 3,774 $ 11,718
============== ============
See Notes to Consolidated Financial Statements
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
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 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 March 31, 2002 and December 31, 2001, and the results of our operations and
cash flows for the three months ended March 31, 2002 and 2001 have been
included. Operating results for the three months ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. These statements should be read in conjunction with the
financial statements and notes thereto included in the company's 2001 Annual
Report to Stockholders on Form 10-K. Certain prior year amounts in the
consolidated financial statements have been reclassified to conform with the
current year presentation.
Note 2:
------
On December 3, 2001, the company completed the spin off of its office systems
business to stockholders as an independent, publicly-traded company under the
name of Imagistics International Inc. (IGI).
Revenue of IGI was $151.9 million for the first quarter of 2001. Net interest
expense allocated to IGI's discontinued operations was $2.9 million for the
first quarter of 2001. Interest has been allocated based on the net assets of
IGI charged at the company's weighted average borrowing rate. Operating results
of IGI have been segregated and reported as discontinued operations in the
Consolidated Statement of Income for the first quarter of 2001. Income
from IGI's discontinued operations for the first quarter of 2001 was $7.6
million (net of taxes of $4.8 million), offset by costs, expenses and
restructuring charges directly associated with the spin-off. Cash flow impacts
of IGI's discontinued operations have not been segregated in the Consolidated
Statement of Cash Flows for the first quarter of 2001.
Note 3:
------
Inventories are comprised of the following:
(Dollars in thousands)
March 31, December 31,
2002 2001
------------- -------------
Raw materials and work in process............................................... $ 62,780 $ 55,679
Supplies and service parts...................................................... 50,905 48,498
Finished products............................................................... 59,119 58,835
------------- -------------
Total ......................................................................... $ 172,804 $ 163,012
============= =============
Note 4:
- ------
Fixed assets are comprised of the following:
(Dollars in thousands) March 31, December 31,
2002 2001
-------------- --------------
Property, plant and equipment................................................... $ 1,280,418 $ 1,261,102
Accumulated depreciation........................................................ (742,568) (726,507)
-------------- --------------
Property, plant and equipment, net.............................................. $ 537,850 $ 534,595
============== ==============
Rental equipment and related inventories........................................ $ 1,083,450 $ 1,079,260
Accumulated depreciation........................................................ (632,868) (607,074)
-------------- --------------
Rental equipment and related inventories, net................................... $ 450,582 $ 472,186
============== ==============
Property leased under capital leases............................................ $ 19,126 $ 19,240
Accumulated amortization........................................................ (17,933) (17,751)
-------------- --------------
Property leased under capital leases, net....................................... $ 1,193 $ 1,489
============== ==============
<FN>
Depreciation expense from continuing operations was $58.6 million and $57.3
million for the quarters ended March 31, 2002 and 2001, respectively.
</FN>
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 7
Note 5:
- ------
In October 2001, the company filed a shelf registration statement with the SEC
permitting issuances of up to $2 billion in debt securities, preferred stock and
depositary shares. Pursuant to this registration statement, on February 20,
2002, the company completed an offering of Euros 250 million of senior unsecured
notes. These notes bear interest at a floating rate of EURIBOR plus 20 basis
points, set two Euro business days preceding the quarterly interest payment
dates and mature in August 2003. The notes are listed on the Luxembourg Stock
Exchange and have been designated as a hedge of Euro denominated assets held by
the company. The proceeds from these notes were used for general corporate
purposes, including the repayment of commercial paper, financing acquisitions
and the repurchase of company stock. On March 31, 2002, $1.8 billion remained
available under this registration statement.
Pitney Bowes Credit Corporation (PBCC) has $75 million of unissued debt
securities available at March 31, 2002 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.
Note 6:
- ------
A reconciliation of the basic and diluted earnings per share computations for
the three months ended March 31, 2002 and 2001 is as follows (in thousands,
except per share data):
2002 2001
-------------------------------------------- --------------------------------------------
Per Per
Income Shares Share Income Shares Share
- -------------------------------------------------------------------------------- --------------------------------------------
Net income $ 129,517 $ 103,937
Less:
Preferred stock
dividends - (1)
Preference stock
dividends (30) (33)
- -------------------------------------------------------------------------------- --------------------------------------------
Basic earnings per
share $ 129,487 241,601 $ .54 $ 103,903 248,125 $ .42
- -------------------------------------------------------------------------------- --------------------------------------------
Effect of dilutive
securities:
Preferred stock - 12 1 14
Preference stock 30 951 33 1,013
Stock options 1,630 520
Other 94 89
- -------------------------------------------------------------------------------- --------------------------------------------
Diluted earnings per
share $ 129,517 244,288 $ .53 $ 103,937 249,761 $ .42
================================================================================ ============================================
<FN>
In accordance with Statement of Financial Accounting Standards (FAS) No. 128,
"Earnings per Share," 1.8 million and 4.4 million common stock equivalent
shares were excluded from the above computation, in the first quarter of 2002
and 2001, respectively, 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 would be antidilutive.
</FN>
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 8
Note 7:
- ------
Revenue and operating profit by business segment for the three months
ended March 31, 2002 and 2001 were as follows:
Three Months Ended March 31,
----------------------------
(Dollars in thousands) 2002 2001 (2)
------------ ----------
Revenue:
Global Mailing............................................................... $ 712,091 $ 688,224
Enterprise Solutions......................................................... 291,390 230,590
------------ ------------
Total Messaging Solutions.................................................... 1,003,481 918,814
Capital Services............................................................. 46,027 47,509
------------ -----------
Total revenue................................................................... $ 1,049,508 $ 966,323
============ ===========
Operating Profit: (1)
Global Mailing............................................................... $ 201,581 $ 204,329
Enterprise Solutions......................................................... 17,581 18,819
------------ -----------
Total Messaging Solutions.................................................... 219,162 223,148
Capital Services............................................................. 19,707 17,547
------------ -----------
Total operating profit.......................................................... 238,869 240,695
Unallocated amounts:
Net interest (corporate interest expense,
net of intercompany transactions)........................................... (20,245) (19,759)
Corporate expense............................................................ (30,088) (28,886)
Restructuring charge......................................................... - (43,151)
------------ -----------
Income before income taxes...................................................... $ 188,536 $ 148,899
============= ===========
<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>
Net interest expense included in business segment operating profit was as
follows:
Three Months Ended March 31,
----------------------------
(Dollars in thousands) 2002 2001
------------ -----------
Global Mailing............................................................... $ 13,492 $ 14,571
Enterprise Solutions......................................................... 225 240
------------ -----------
Total Messaging Solutions.................................................... 13,717 14,811
Capital Services............................................................. 11,336 16,015
------------ -----------
Total net interest expense for reportable segments.............................. 25,053 30,826
Net interest (corporate interest expense,
net of intercompany transactions).............................................. 20,245 19,759
------------ -----------
Consolidated net interest expense............................................... $ 45,298 $ 50,585
============ ===========
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 9
Note 8:
- ------
Comprehensive income for the three months ended March 31, 2002 and 2001 was as
follows:
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
2002 2001
------------ -----------
Net income...................................................................... $ 129,517 $ 103,937
Other comprehensive income:
Foreign currency translation adjustments...................................... (1,894) 11,596
Cumulative effect of accounting change........................................ - (9,152)
Net unrealized gains on derivative instruments.................................. 2,970 1,175
------------ -----------
Comprehensive income............................................................ $ 130,593 $ 107,556
============ ===========
Note 9:
- ------
In 1998, FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," amended in 2000 by FAS No. 138, was issued. FAS 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
adopted the provisions of FAS No. 133 in the first quarter of 2001. The company
uses derivatives to reduce the volatility in earnings and cash flows associated
with the impact of interest rate changes and foreign currency fluctuations due
to its investing and funding activities and its operations in different foreign
currencies. Derivatives designated as cash flow hedges include primarily foreign
exchange contracts and interest rate swaps related to variable-rate debt.
Derivatives designated as fair value hedges include primarily interest rate
swaps related to fixed-rate debt. The adoption of FAS No. 133 resulted in a
one-time cumulative effect of accounting change which reduced accumulated other
comprehensive income by approximately $9.2 million in the first quarter of 2001.
In 2001, FAS No. 141, "Business Combinations" and FAS No. 142, "Goodwill
and Other Intangible Assets" were issued requiring business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and refining the criteria for recording intangible assets separate
from goodwill. Recorded goodwill and intangibles have been evaluated against
this new criterion and resulted in certain intangibles being included in
goodwill, or alternatively, amounts initially recorded as goodwill being
separately identified and recognized apart from goodwill. FAS No. 142 requires
the use of a nonamortization approach to account for purchased goodwill and
indefinite lived intangibles. Under a nonamortization approach, goodwill and
indefinite lived intangibles have not been amortized into results of operations,
but instead will be reviewed for impairment and charged against results of
operations only in the periods in which the recorded value of goodwill and
indefinite lived intangibles is more than its fair value. In 2001, the company
adopted the provisions of each statement, which apply to business combinations
completed after June 30, 2001. The provisions of each statement, which apply
to goodwill and intangible assets acquired prior to June 30, 2001 were
adopted by the company effective January 1, 2002. The adoption of these
accounting standards did not materially impact results of operations for the
first quarter of 2002. Goodwill will be reviewed for impairment on a periodic
basis.
In 2001, FAS No. 143, "Accounting for Asset Retirement Obligations"
was issued, amending FAS No. 19, "Financial Accounting and Reporting by Oil
and Gas Producing Companies," and applies to all entities. FAS No. 143
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. FAS No. 143 is effective January 1, 2003 for the company. The
company is currently evaluating the impact of this statement.
In 2001, FAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued, replacing FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of Accounting Principles Board (APB) Opinion 30, "Reporting the
Results of Operations." FAS No. 144 provides a single accounting model for
long-lived assets to be disposed of and changes the criteria that would have to
be met to classify an asset as held-for-sale. FAS No. 144 retains the
requirement of APB Opinion 30, to report discontinued operations separately from
continuing operations and extends that reporting to separate components of an
entity. The provisions of FAS No. 144 have been adopted by the company effective
January 1, 2002. The adoption of these accounting standards did not materially
impact results of operations for the first quarter of 2002.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 10
Note 10:
- -------
In 2001, the company adopted a formal restructuring plan to implement a common,
streamlined business infrastructure across the corporation as a result of the
company's decisions to spin off its office systems business and align its
mailing business on a global basis, as well as cost saving opportunities
resulting from strategic acquisitions and partnerships, and additional benefits
attained from the consolidation of its IT organization and ERP initiatives. In
connection with this plan, the company recorded pretax restructuring charges of
$75.0 million and $149.3 million for the three months ended March 31, 2001 and
year ended December 31, 2001, respectively, of which $43.2 million and $116.1
million, respectively, related to continuing operations and the remaining $31.8
million and $33.2 million, respectively, related to discontinued operations. The
restructuring charges related to continuing operations have been segregated in
the Consolidated Statements of Income. The restructuring charges related to
discontinued operations have been reported in discontinued operations in the
Consolidated Statements of Income.
The restructuring charges related to continuing operations were comprised of:
(Dollars in millions) Three months ended Year ended
March 31, 2001 December 31, 2001
------------------ -----------------
Severance and benefit costs $ 35.2 $ 74.3
Asset impairments 2.2 28.0
Other exit costs 5.8 13.8
------------------ -----------------
$ 43.2 $ 116.1
================== =================
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 1,200 employees worldwide which was initiated in 2001 and will be
completed over the next six months. 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 80% of the
workforce reductions are in the U.S. The majority of the international workforce
reductions are in Europe. None of the reductions will impact sales coverage. As
of March 31, 2002, 922 employees were separated under these initiatives and
approximately $49 million of severance and benefit costs were paid. Asset
impairments relate primarily to the disposal or abandonment of certain hardware
and software applications, resulting from the alignment of our mailing business
on a global basis and ERP initiatives. Other exit costs relate primarily to
lease termination costs, non-cancelable lease payments, other costs associated
with business activities that have been exited and the consolidation of excess
facilities.
Accrued restructuring charges at March 31, 2002 consist of the following:
(Dollars in millions)
Ending Ending
Total balance at balance at
restructuring 2001 cash Non-cash December 31, 2002 cash March 31,
charges payments charges 2001 payments 2002
---------------- ---------- -------- ------------ --------- -----------
Severance and benefit
costs $ 76.2 $ 34.5 $ - $ 41.7 $ 14.2 $ 27.5
Asset impairments 45.5 - 45.5 - - -
Other exit costs 27.6 14.5 - 13.1 1.1 12.0
--------------- ---------- -------- ---------- -------- --------
$ 149.3 $ 49.0 $ 45.5 $ 54.8 $ 15.3 $ 39.5
=============== ========== ======== ========== ======== ========
The company expects that the majority of the remaining cash outflows related to
restructuring charges will take place over the next six months, funded
primarily by cash provided by operating activities. The restructuring charges
are expected to increase our operating efficiency and effectiveness in 2002 and
beyond while enhancing growth, primarily as a result of reduced
personnel-related expenses.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 11
Note 11:
- -------
In 2001, the company adopted a formal plan to transition to the next generation
of networked mailing technology. The information capture and exchange made
possible by advanced technology, turns the postage meter into an "intelligent"
terminal that networks the mailer to postal and carrier information and systems.
This two-way information architecture, in turn, enables convenient access to and
delivery of value-added services such as tracking, delivery confirmation and
rate information. The adoption of this plan was facilitated by our expanded
access to technology and our ability to move to networked products combined with
our expectations that the U.S. and postal services around the world will
continue to encourage the migration of mailing systems to networked digital
technologies. As a result of this plan, certain electronic meter rental assets
and related equipment will not be placed back in service. In addition, certain
leased equipment will either not be remarketed or will result in lower
realization at end of lease as a result of the introduction of new technology.
In connection with this plan, the company recorded non-cash pretax charges of
$268.3 million for the year ended December 31, 2001, related to assets
associated with our non-networked mailing technology. In November 2001, postal
regulations were issued, consistent with the company's meter transition plan,
defining the meter migration process and timing.
Note 12:
- -------
Secap SA (Secap)
On October 31, 2001, the company announced it had completed the acquisition of
Secap, the France-based mailing systems subsidiary of Fimalac, for approximately
Euros 220 million ($206 million) in cash. The results of Secap's operations have
been included in the consolidated financial statements since the date of
acquisition. Secap offers a range of mail processing and paper handling
equipment, supplies and technology for low- to mid-volume mailers. Secap holds
more than 30% of the postage meter market share in France.
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 $ 62,200
Goodwill 167,859
Other, net (23,632)
----------
Purchase price $ 206,427
==========
Intangible assets are comprised of customer relationships valued at $33.9
million, and paper handling and meter technology valued at $22.9 million, and a
trade name valued at $5.4 million. These intangible assets have a
weighted-average useful life of approximately 15 years. The goodwill was
assigned to the Global Mailing segment.
Danka Services International (DSI)
On June 29, 2001, the company completed its acquisition of DSI from Danka
Business Systems PLC for $290 million in cash. DSI provides on- and off-site
document management services, including the management of central reprographic
departments, the placement and maintenance of photocopiers, print-on-demand
operations and document archiving and retrieval services. The acquisition has
been accounted for under the purchase method and accordingly, the operating
results of DSI have been included in the company's consolidated financial
statements since 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 $ 43,800
Goodwill 214,990
Other, net 31,210
----------
Purchase price $ 290,000
==========
The intangible assets relate to customer relationships and have a useful life of
approximately 15 years. The goodwill was assigned to the Enterprise Solutions
segment.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 12
Bell & Howell International Mail and Messaging Technologies (MMT)
On June 5, 2001, the company completed the acquisition of MMT in Europe, Africa,
the Middle East and Asia for $51 million in cash. MMT markets and services
high-end mail processing, sorting and service-related products through a network
of distributors and direct operations. The acquisition has been accounted for
under the purchase method, and accordingly, the operating results of the
acquisition have been included in the company's consolidated financial
statements since 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 $ 10,900
Goodwill 47,022
Other, net (6,922)
----------
Purchase price $ 51,000
==========
The intangible assets relate primarily to customer relationships and inserting
technology. These intangibles have a useful life of approximately 10 years.
The goodwill was assigned to the Global Mailing segment.
Consolidated impact of acquisitions
The Consolidated Income Statement for the three months ended March 31, 2002
included revenues of $23.1 million, $62.6 million and $11.7 million from Secap,
DSI and MMT, respectively. The acquisitions of Secap, DSI, and MMT did not
materially impact net income for the three months ended March 31, 2002.
The following unaudited pro forma consolidated results have been prepared as if
the acquisitions of Secap, DSI, and MMT had occurred on January 1, 2001:
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
2002 2001
----------- -----------
Total revenue.............................. $ 1,049,508 $ 1,079,980
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, 2001,
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 2001, the company also completed several smaller acquisitions including,
the acquisition of a majority ownership in MailCode Inc., a mail processing
company, the acquisition of Alysis Technologies Inc., a leading provider of
digital document delivery solutions and the acquisition of some of the company's
international dealerships. The cost of these acquisitions were in the
aggregate less than $50 million. These acquisitions did not have a material
impact on the company's financial results either individually or on an
aggregate basis.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Continuing Operations - first quarter of 2002 vs. first quarter of
- -----------------------------------------------------------------------------
2001
- ----
Revenue increased nine percent in the first quarter of 2002 to $1,049.5 million
compared with $966.3 million in the first quarter of 2001. Net income increased
to $129.5 million in the first quarter of 2002 compared to $103.9 million in the
first quarter of 2001. Excluding the restructuring charge in the first quarter
of 2001, net income decreased two percent to $129.5 million from $131.6 million
for the same period in 2001 and diluted earnings per share was 53 cents for both
periods. Excluding the acquisitions of Secap SA (Secap), Danka Services
International (DSI) and Bell & Howell's International Mail and Messaging
Technologies (MMT), revenue declined one percent. These acquisitions did not
materially impact earnings either on a per share or aggregate basis.
First quarter 2002 revenue included $541.2 million from sales, up 14.8 percent
from $471.5 million in the first quarter of 2001; $370.2 million from rentals
and financing, up one percent from $368.0 million; and $138.2 million from
support services, up nine percent from $126.9 million. Sales revenue includes
all revenues from Pitney Bowes Management Services (PBMS) which were $234.4
million and $171.6 million for the quarters ended March 31, 2002 and 2001,
respectively. Excluding the acquisitions of Secap, DSI and MMT, sales revenue
declined two percent.
Total Messaging Solutions, the combined results of the Global Mailing segment
and Enterprise Solutions segment, reported nine percent revenue growth and a two
percent decline in operating profit growth.
Our Global Mailing segment includes worldwide revenues and related expenses from
the rental of postage meters and the sale, rental and financing of mailing
equipment, including mail finishing and software-based mail creation equipment,
software-based shipping, transportation and logistics systems, related supplies
and services, and postal payment and supply chain solutions such as order
management and fulfillment support. During the first quarter of 2002, Global
Mailing revenue increased three percent and operating profit decreased one
percent. Excluding the recent acquisitions of Secap, MMT and foreign currency
impacts, Global Mailing revenues decreased one percent compared to the prior
year. Global Mailing revenue growth, particularly in the U.S., continues to be
adversely impacted by moderating customer orders and upgrades due to the
continuing slow economic environment, especially for shipping and system related
products. We have also experienced a shift in product mix to lower margin
products and services, resulting in slightly lower operating profit. Within the
Global Mailing segment, international mailing's double-digit revenue growth was
supported by the recent acquisitions and improving business trends in the UK.
However, international revenues were adversely impacted by declines in revenue
in both Canada and Germany.
Our Enterprise Solutions segment includes PBMS and Document Messaging
Technologies (DMT). PBMS includes facilities management contracts for advanced
mailing, reprographic, document management and other high value-added services
to large enterprises. DMT includes sales, service and financing of high speed,
software-enabled production mail systems, sortation equipment, incoming mail
systems, electronic statement, billing and payment solutions, and mailing
software. During the first quarter of 2002, revenue grew 26 percent, and
operating profit declined seven percent. PBMS revenue grew 37 percent, and
operating profit grew 66 percent. Excluding DSI, PBMS revenue was flat for the
quarter. Contraction in the financial services and technology industries had an
adverse impact on PBMS's growth. However, there continues to be strong interest
among many large enterprises for integrated mailroom and document management
services as they seek enhanced operating efficiencies and security. DMT reported
revenue of $57 million for the quarter, a decline of three percent for the first
quarter of 2002, with a substantially greater decline in operating profit.
Slower placements of high margin equipment, an increase in lower margin service
revenue and continued investment in new product development contributed to the
decline in operating profit in the quarter.
Our Capital Services segment includes primarily asset- and fee-based income
generated by large-ticket, non-core asset transactions and revenue and related
expenses associated with the strategic financing of equipment for postal
authorities around the world that were previously included in the Global
Mailing segment.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 14
During the first quarter of 2002, revenue decreased three percent and operating
profit increased 12 percent which is consistent with our ongoing objectives to
shift to fee-based transactions.
Cost of sales increased to 61.8 percent of sales revenue in the first quarter of
2002 compared with 59.0 percent in the first quarter of 2001. The increase was
mainly driven by the acquisition of DSI, the increasing mix of lower margin core
PBMS sales revenue and unfavorable product mix at DMT as customers delayed
purchases of higher margin customized inserting systems. Cost of sales
attributable to PBMS was $187.9 million and $139.8 million for the quarters
ended March 31, 2002 and 2001, respectively.
Cost of rentals and financing decreased to 24.5 percent of related revenues in
the first quarter of 2002 compared with 24.7 percent in the first quarter of
2001.
Selling, service and administrative expenses were 34.0 percent of revenue in the
first quarter of 2002 compared with 33.4 percent in the first quarter of 2001.
The increase was due primarily to the higher mix of support services revenue and
costs associated with growth initiatives.
Research and development expenses increased eight percent to $34.1 million in
the first quarter of 2002 compared with $31.6 million in the first quarter of
2001. The increase reflects our continued commitment to developing new
technologies and other mailing and software products.
Net interest expense decreased to $45.3 million in the first quarter of 2002
from $50.6 million in the first quarter of 2001. The decrease was due to lower
interest rates during 2002 compared to 2001 associated with borrowings to fund
our investment in leasing and rental products, acquisitions and the stock
repurchase program.
The effective tax rate for the first quarter of 2002 was 31.3 percent. Excluding
the restructuring charge in the first quarter of 2001, the effective tax rate
was 31.5 percent. The tax rate was favorably impacted by the nonamortization
approach to goodwill beginning in 2002.
Net income in the first quarter of 2002 grew 24.6 percent. Excluding the
restructuring charge in the first quarter of 2001, net income in 2002 decreased
two percent while diluted earnings per share increased 0.6 percent. The reason
for the increase in diluted earnings per share outperforming net income was our
share repurchase program.
Accounting Pronouncements
- -------------------------
In 1998, Statement of Financial Accounting Standards (FAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," amended in 2000 by FAS No.
138, was issued. FAS 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. We adopted the provisions of FAS No. 133 in the first
quarter of 2001. We use derivatives to reduce the volatility in earnings and
cash flows associated with the impact of interest rate changes and foreign
currency fluctuations due to our investing and funding activities and our
operations in different foreign currencies. Derivatives designated as cash flow
hedges include primarily foreign exchange contracts and interest rate swaps
related to variable-rate debt. Derivatives designated as fair value hedges
include primarily interest rate swaps related to fixed rate debt. The adoption
of FAS No. 133 resulted in a one-time cumulative effect of accounting change
which reduced accumulated other comprehensive income by approximately $9.2
million in the first quarter of 2001.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 15
In 2001, FAS No. 141, "Business Combinations" and FAS No. 142, "Goodwill
and Other Intangible Assets" were issued requiring business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and refining the criteria for recording intangible assets separate
from goodwill. Recorded goodwill and intangibles have been evaluated against
this new criterion and resulted in certain intangibles being included in
goodwill, or alternatively, amounts initially recorded as goodwill being
separately identified and recognized apart from goodwill. FAS No. 142 requires
the use of a nonamortization approach to account for purchased goodwill and
indefinite lived intangibles. Under a nonamortization approach, goodwill and
indefinite lived intangibles have not been amortized into results of operations,
but instead will be reviewed for impairment and charged against results of
operations only in the periods in which the recorded value of goodwill and
indefinite lived intangibles is more than its fair value. In 2001, we adopted
the provisions of each statement, which apply to business combinations
completed after June 30, 2001. The provisions of each statement, which apply to
goodwill and intangible assets acquired prior to June 30, 2001 were adopted on
January 1, 2002. The adoption of these accounting standards did not materially
impact results of operations for the first quarter of 2002. Goodwill will be
reviewed for impairment on a periodic basis.
In 2001, FAS No. 143, "Accounting for Asset Retirement Obligations"
was issued, amending FAS No. 19, "Financial Accounting and Reporting by Oil
and Gas Producing Companies," and applies to all entities. FAS No. 143
addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. FAS No. 143 is effective January 1, 2003. We are currently
evaluating the impact of this statement.
In 2001, FAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued, replacing FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of Accounting Principles Board (APB) Opinion 30, "Reporting the
Results of Operations." FAS No. 144 provides a single accounting model for
long-lived assets to be disposed of and changes the criteria that would have to
be met to classify an asset as held-for-sale. FAS No. 144 retains the
requirement of APB Opinion 30, to report discontinued operations separately from
continuing operations and extends that reporting to separate components of an
entity. The provisions of FAS No. 144 have been adopted effective January 1,
2002. The adoption of these accounting standards did not materially impact
results of operations for the first quarter of 2002.
Discontinued Operations
- -----------------------
On December 3, 2001, we completed the spin off of our office systems business to
stockholders as an independent, publicly-traded company under the name of
Imagistics International Inc. (IGI). Operating results of IGI have been
segregated and reported as discontinued operations in the Consolidated
Statement of Income for the first quarter of 2001.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 16
Restructuring Charges
- ---------------------
In 2001, we adopted a formal restructuring plan to implement a common,
streamlined business infrastructure as a result of our decisions to spin off our
office systems business and align our mailing business on a global basis, as
well as cost saving opportunities resulting from strategic acquisitions and
partnerships, and additional benefits attained from the consolidation of our IT
organization and ERP initiatives. In connection with this plan, we recorded
pretax restructuring charges of $75.0 million and $149.3 million for the three
months ended March 31, 2001 and year ended December 31, 2001, respectively, of
which $43.2 million and $116.1 million, respectively, related to continuing
operations and the remaining $31.8 million and $33.2 million, respectively,
related to discontinued operations. The restructuring charges related to
continuing operations have been segregated in the Consolidated Statements of
Income. The restructuring charges related to discontinued operations have been
reported in discontinued operations in the Consolidated Statements of Income.
The restructuring charges related to continuing operations were comprised of:
(Dollars in millions) Three months ended Year ended
March 31, 2001 December 31, 2001
------------------ -----------------
Severance and benefit costs $ 35.2 $ 74.3
Asset impairments 2.2 28.0
Other exit costs 5.8 13.8
------------------ -----------------
$ 43.2 $ 116.1
================== =================
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 1,200 employees worldwide which was initiated in 2001 and will be
completed over the next six months. 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 80% of the
workforce reductions are in the U.S. The majority of the international workforce
reductions are in Europe. None of the reductions will impact sales coverage. As
of March 31, 2002, 922 employees were separated under these initiatives and
approximately $49 million of severance and benefit costs were paid. Asset
impairments relate primarily to the disposal or abandonment of certain hardware
and software applications, resulting from the alignment of our mailing business
on a global basis and ERP initiatives. Other exit costs relate primarily to
lease termination costs, non-cancelable lease payments, other costs associated
with business activities that have been exited and the consolidation of excess
facilities.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 17
Accrued restructuring charges at March 31, 2002 consist of the following:
(Dollars in millions)
Ending Ending
Total balance at balance at
restructuring 2001 cash Non-cash December 31, 2002 cash March 31,
charges payments charges 2001 payments 2002
---------------- ---------- -------- ------------ --------- -----------
Severance and benefit
costs $ 76.2 $ 34.5 $ - $ 41.7 $ 14.2 $ 27.5
Asset impairments 45.5 - 45.5 - - -
Other exit costs 27.6 14.5 - 13.1 1.1 12.0
--------------- ---------- -------- ---------- -------- --------
$ 149.3 $ 49.0 $ 45.5 $ 54.8 $ 15.3 $ 39.5
=============== ========== ======== ========== ======== ========
We expect that the majority of the remaining cash outflows related to
restructuring charges will take place over the next six months, funded
primarily by cash provided by operating activities. The restructuring charges
are expected to increase our operating efficiency and effectiveness in 2002 and
beyond while enhancing growth, primarily as a result of reduced
personnel-related expenses. We expect pretax savings in operating expenses of
approximately $50 million for the year ending December 31, 2002.
We operate in very competitive industries and we are continually evaluating our
cost structure. Economic or competitive events in the future may necessitate
that the company formulate additional plans to reduce our existing cost
structure.
Meter Transition
- ----------------
In 2001, we adopted a formal plan to transition to the next generation of
networked mailing technology. The information capture and exchange made possible
by advanced technology, turns the postage meter into an "intelligent" terminal
that networks the mailer to postal and carrier information and systems. This
two-way information architecture, in turn, enables convenient access to and
delivery of value-added services such as tracking, delivery confirmation and
rate information. The adoption of this plan was facilitated by our expanded
access to technology and our ability to move to networked products combined with
our expectations that the U.S. and postal services around the world will
continue to encourage the migration of mailing systems to networked digital
technologies. As a result of this plan, certain electronic meter rental assets
and related equipment will not be placed back in service. In addition, certain
leased equipment will either not be remarketed or will result in lower
realization at end of lease as a result of the introduction of new technology.
In connection with this plan, we recorded non-cash pretax charges of
$268.3 million for the year ended December 31, 2001, related to assets
associated with our non-networked mailing technology. In November 2001, postal
regulations were issued, consistent with our meter transition plan, defining the
meter migration process and timing.
Acquisitions
- ------------
In October 2001, we acquired Secap, a company based in France, for approximately
Euros 220 million ($206 million) in cash. Secap offers a range of mail
processing and paper handling equipment, supplies and technology for low- to
mid-volume mailers. Secap holds more than 30% of the postage meter market share
in France.
In June 2001, we acquired DSI from Danka Business Systems PLC for $290 million
in cash. DSI provides on- and off-site document management services, including
the management of central reprographic departments, the placement and
maintenance of photocopiers, print-on-demand operations and document archiving
and retrieval services.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 18
In June 2001, we acquired the MMT business in Europe, Africa, the Middle East
and Asia, for $51 million in cash. MMT markets and services high-end mail
processing, sorting and service-related products through a network of
distributors and direct operations.
We accounted for the acquisitions of Secap, DSI and MMT under the purchase
method and accordingly, the operating results of these acquisitions have been
included in our consolidated financial statements since the date of acquisition.
The acquisitions of Secap, DSI and MMT did not materially impact income from
continuing operations for the first quarter of 2002.
Liquidity and Capital Resources
- -------------------------------
Our ratio of current assets to current liabilities declined to .81 to 1 at March
31, 2002 compared with .83 to 1 at December 31, 2001. The decrease in this ratio
was primarily due to the reclassification of long-term debt to short-term.
Our cash and cash equivalents increased to $264.3 million at March 31, 2002,
from $231.6 million at December 31, 2001. The increase resulted primarily from
$208.8 million provided by operating activities, offset in part by $21.7 million
and $153.7 million used in investing and financing activities, respectively. Net
cash of $208.8 million provided by operating activities consisted primarily of
net income adjusted for non cash items and changes in working capital. Net cash
of $21.7 million used in investing activities consisted primarily of investments
in fixed assets and leveraged leases, partially offset by cash generated from
investments in capital services. Net cash of $153.7 million used in financing
activities consisted primarily of stock repurchases and dividends paid to
stockholders.
Excluding special items and discontinued operations in 2001, the ratio of
earnings before interest and taxes (EBIT) to interest was 5.2x and 4.8x and the
ratio of earnings before interest, taxes, depreciation and amortization (EBITDA)
to interest was 6.6x and 6.0x for the quarters ended March 31, 2002 and 2001,
respectively. The ratio of total debt to total debt and stockholders' equity was
79.7% at March 31, 2002 and December 31, 2001. Including the preferred
stockholders' equity in a subsidiary company as debt, the ratio of total debt to
total debt and stockholders' equity was 81.0% at March 31, 2002 and December 31,
2001. During the first quarter of 2002, we repurchased 1.7 million shares for
$72.3 million. Excluding the cash flow impacts of special items, free cash flow
was $189 million in the first quarter of 2002.
Financings and Capitalization
- -----------------------------
In October 2001, the company filed a shelf registration statement with the SEC
permitting issuances of up to $2 billion in debt securities, preferred stock and
depositary shares. Pursuant to this registration statement, on February 20,
2002, the company completed an offering of Euros 250 million of senior unsecured
notes. These notes bear interest at a floating rate of EURIBOR plus 20 basis
points, set two Euro business days preceding the quarterly interest payment
dates and mature in August 2003. The notes are listed on the Luxembourg Stock
Exchange and have been designated as a hedge of Euro denominated assets held by
the company. The proceeds from these notes were used for general corporate
purposes which may include repaying commercial paper, financing acquisitions and
the repurchase of company stock. On March 31, 2002, $1.8 billion remained
available under this registration statement.
Pitney Bowes Credit Corporation (PBCC) has $75 million of unissued debt
securities available at March 31, 2002 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.
We believe that our 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 paper and
medium-term note programs.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 19
Capital Investments
- -------------------
In the first quarter of 2002, net investments in fixed assets included $34.3
million in net additions to property, plant and equipment and $6.2 million in
net additions to rental equipment and related inventories compared with $31.5
million and $25.2 million, respectively, in the same period in 2001. These
additions include expenditures for normal plant and manufacturing equipment. In
the case of rental equipment, the additions included the production of postage
meters. In 2001, additions to rental assets also included the purchase of
facsimile and copier equipment related to the discontinued operations of IGI.
Excluding IGI, net additions to property, plant and equipment and rental
equipment were $31.0 million and $9.5 million respectively, for the first
quarter of 2001.
We expect net investments in fixed assets for the remainder of 2002, relating to
continuing operations, to be slightly higher than the prior year. These
investments will also be impacted by the timing of our customers' transition to
digital meters. At March 31, 2002, 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.
Regulatory Matters
- ------------------
In 2000, the U.S. Postal Service (USPS) 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
were no longer permitted.
o The current users of manually reset electronic meters could continue to use
these meters for the term of their rental and lease agreements. Leases or
rentals due to expire in 2000 could be extended to December 31, 2001.
On November 15, 2001, the USPS issued a final rule as follows:
o New placements of non-digital meters without the "timeout" feature that
enables the meters to be automatically disabled, if not reset within a
specified time period are no longer permitted after December 31, 2002.
These meters must be off the market by December 31, 2006.
o New placements of non-digital meters with a "timeout" feature are no longer
permitted after June 2004. These meters must be off the market by December
31, 2008.
We adopted a formal meter transition plan in the second quarter of 2001, to
transition to the next generation of networked mailing technology.
USPS Information Based Indicia Program (IBIP)
In May 1995, the USPS publicly announced its concept of its IBIP for future
postage evidencing devices. As initially stated by the USPS, the purpose of the
program was to develop a new standard for future digital postage evidencing
devices which would significantly enhance postal revenue security and support
expanded USPS value-added services to mailers. The program would consist of the
development of four separate specifications: (i) the Indicium specification;
(ii) a Postal Security Device specification; (iii) a Host specification; and
(iv) a Vendor Infrastructure specification. During the period from May 1995
through March 31, 2002, we submitted extensive comments to a series of proposed
IBIP specifications issued by the USPS, including comments on the IBI
Performance Criteria.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 20
Other regulatory matters
In June 1999, we were 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 have been reviewing the company's efforts to
protect its intellectual property rights. We believed we have complied fully
with the antitrust laws and cooperated fully with the department's
investigation. In February 2002, the Justice Department advised us that it has
decided to close this investigation with no further action.
Forward-Looking Statements
- --------------------------
We want to caution readers that any forward-looking statements with 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 the company's 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
behalf of the company include:
o changes in international or national political or economic conditions
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 timing and execution of the restructuring plan
o regulatory approvals and satisfaction of other conditions to
consummation of any acquisitions
o impact on mail volume resulting from current concerns over the use of
the mail for transmitting harmful biological agents.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 21
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.
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
(b) Reports on Form 8-K
On January 31, 2002, the company filed a current report on Form 8-K pursuant to
Item 5 thereof, reporting the Press Release dated January 29, 2002 for the
quarter and year ended December 31, 2001.
Pitney Bowes Inc. - Form 10-Q
Three Months Ended March 31, 2002
Page 22
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 10, 2002
/s/ B. P. Nolop
---------------------------------------------
B. P. Nolop
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ A. F. Henock
---------------------------------------------
A. F. Henock
Vice President - Finance
(Principal Accounting Officer)
Exhibit Index
-------------
Reg. S-K
Exhibits Description
-------- ----------------------------------------------
(10) Amendments to Rights Agreement
(12) Computation of ratio of
earnings to fixed charges
Exhibit (10)
-----------
AMENDMENTS TO RIGHTS AGREEMENT
------------------------------
1. General Background. In accordance with Section 27 of the Rights
Agreement between First Chicago Trust Company (as successor
to Chemical Mellon Shareholder Services, LLC) (the "Rights Agent")
and Pitney Bowes Inc. dated December 11, 1995 (the "Agreement"), the
Rights Agent and Pitney Bowes Inc. desire to amend the Agreement.
2. Effectiveness. This Amendment shall be effective as of April 8, 2002
(the "Amendment") and all defined terms and definitions in the
Agreement shall be the same in the Amendment except as specifically
revised by the Amendment.
3. Revision. Section 21 of the Agreement entitled "Change of Rights
Agent" is hereby deleted in its entirety and replaced with
the following:
Change of Rights Agent. The Rights Agent or any successor Rights Agent
may resign and be discharged from its duties under this Agreement upon
30 days' notice in writing mailed to the Company and to each transfer
agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent, as the case may be, upon 30 days' notice in
writing, mailed to the Rights Agent or Successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of
the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company
shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing
of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of Right Certificate (who shall, with
such notice, submit such holder's Right Certificate for inspection by
the Company), then the registered holder of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a
new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation or trust company
organized and doing business under the laws of the United States, or of
any state of the United States, in good standing, which is authorized
under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state
authority and which has individually or combined with an affiliate at
the time of its appointment as Rights Agent a combined capital and
surplus of at least $25 million. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent
without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
4. The legend specified in Section 3(c) of the Rights Agreement is hereby
amended by substituting EquiServe Trust Company, N.A., as the
successor Rights Agent to the Rights Agreement in place of First
Chicago Trust Company of New York.
5. Except as amended hereby, the Agreement and all schedules or exhibits
thereto shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
in their names and on their behalf by and through their duly authorized
officers, as of this 11th day of April, 2002.
Pitney Bowes Inc. First Chicago Trust Company
/s/Amy C. Corn /s/Michael J. Foley
- ------------------------ ---------------------------
By: Amy C. Corn By: Michael J. Foley
Title: Vice President and Title: Chief Marketing Officer
Corporate Secretary
Exhibit (12)
-----------
Pitney Bowes Inc.
Computation of Ratio of Earnings to Fixed Charges (1)
----------------------------------------------------
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
2002 2001(2)
---------- -----------
Income before income taxes..................................... $ 188,536 $ 148,899
Add:
Interest expense............................................. 48,391 52,788
Portion of rents
representative of the
interest factor............................................ 10,279 10,266
Amortization of capitalized
interest................................................... 243 243
Minority interest
in the income of
subsidiary with
fixed charges.............................................. 1,238 3,361
--------- ---------
Income as adjusted............................................. $ 248,687 $ 215,557
========= =========
Fixed charges:
Interest expense............................................. $ 48,391 $ 52,788
Portion of rents
representative of the
interest factor............................................ 10,279 10,266
Minority interest, excluding
taxes, in the income of
subsidiary with fixed
charges.................................................... 1,802 4,815
--------- ---------
Total fixed charges............................................ $ 60,472 $ 67,869
========== =========
Ratio of earnings to fixed
charges..................................................... 4.11 3.18
========== =========
Ratio of earnings to fixed
charges excluding minority
interest.................................................. 4.22 3.37
========== =========
<FN>
(1) The computation of the ratio of earnings to fixed charges has been
computed by dividing income before income taxes as adjusted by fixed
charges. Included in fixed charges is one-third of rental expense as the
representative portion of interest.
(2) Interest expense and the portion of rents representative of the interest
factor of the discontinued operations of IGI and AMIC have been excluded
from fixed charges in the computation.
Including these amounts in fixed charges, the ratio of earnings to fixed
charges would be 3.09 for the three months ended March 31, 2001. The
ratio of earnings to fixed charges excluding minority interest would be
3.26 for the three months ended March 31, 2001.
</FN>