SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
F O R M 10 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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: 0-13497
PITNEY BOWES CREDIT CORPORATION
State of Incorporation IRS Employer Identification No.
Delaware 06-0946476
201 Merritt Seven
Norwalk, Connecticut 06856-5151
Telephone Number: (203) 846-5600
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
----- -----
As of July 31, 1994, 460 shares of common stock, no par value with
a stated value of $100,000 per share, were outstanding, all of
which were owned by Pitney Bowes Inc., the parent of the
Registrant.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 2 of 17
Pitney Bowes Credit Corporation
Index
-------------------------------
Page Number
-----------
Part I - Financial Information:
Consolidated Statement of Income - Three and Six
Months Ended June 30, 1994 and 1993 . . . . . . . . 3
Consolidated Balance Sheet - June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1994 and 1993 . . . . . . 5 - 6
Notes to Consolidated Financial Statements . . . . . 7 - 9
Management's Narrative Analysis of the
Results of Operations . . . . . . . . . . . . . . . 10 - 14
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit (i) - Computation of Ratio of Earnings
to Fixed Charges . . . . . . . . . . . . . . . . . 17
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 3 of 17
Part I - Financial Information
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Income
(Unaudited)
--------------------------------
<CAPTION>
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Finance income . . . . . . . . . . . $134,926 $137,647 $264,919 $262,688
Equipment sales. . . . . . . . . . . 26,961 - 26,961 -
ITC amortization . . . . . . . . . . 154 353 347 781
------- ------- ------- -------
Total revenue. . . . . . . . . . . . . 162,041 138,000 292,227 263,469
------- ------- ------- -------
Expenses:
Selling, general and administrative. 26,635 25,749 53,000 50,973
Depreciation and amortization. . . . 6,533 3,929 12,396 7,505
Cost of equipment sales. . . . . . . 25,217 - 25,217 -
Provision for credit losses. . . . . 13,877 27,854 27,974 41,818
Interest . . . . . . . . . . . . . . 36,806 33,930 70,130 70,440
------- ------- ------- -------
Total expenses . . . . . . . . . . 109,068 91,462 188,717 170,736
------- ------- ------- -------
Income before income taxes . . . . . . 52,973 46,538 103,510 92,733
Provision for income taxes . . . . . . 17,958 15,822 34,870 31,460
------- ------- ------- -------
Income before effect of a change in
accounting for postemployment
benefits . . . . . . . . . . . . . . 35,015 30,716 68,640 61,273
Effect of a change in accounting for
postemployment benefits . . . . . . - - (2,820) -
------- ------- ------- -------
Net income . . . . . . . . . . . . . . $ 35,015 $ 30,716 $ 65,820 $ 61,273
======= ======= ======= =======
Ratio of earnings to fixed charges . . 2.43 2.36 2.46 2.30
======= ======= ======= =======
</TABLE>
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 4 of 17
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
(Unaudited)
-------------------------------
(Dollars in thousands) June 30, December 31,
------------ ------------
1994 1993
------------ ------------
Assets
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . $ 7,749 $ 6,237
---------- ----------
Investments:
Finance assets (Note 2). . . . . . . . . . . . 3,477,823 3,410,522
Investment in leveraged leases . . . . . . . . 305,552 298,914
Assets transferred from affiliate. . . . . . . 17,510 82,274
Investment in operating leases, net of
depreciation . . . . . . . . . . . . . . . . 69,476 63,899
Allowance for credit losses. . . . . . . . . . (100,055) (98,311)
---------- ----------
Net investments. . . . . . . . . . . . . . . 3,770,306 3,757,298
---------- ----------
Other assets . . . . . . . . . . . . . . . . . . 177,356 167,927
---------- ----------
Total assets . . . . . . . . . . . . . . . . $ 3,955,411 $ 3,931,462
========== ==========
Liabilities
- -----------
Senior notes payable within one year (Note 3). . $ 1,761,352 $ 1,735,607
Accounts payable to affiliates . . . . . . . . . 122,902 162,914
Accounts payable . . . . . . . . . . . . . . . . 17,308 41,958
Accrued interest payable . . . . . . . . . . . . 36,429 23,472
Other accrued liabilities . . . . . . . . . . . 109,221 117,823
Deferred taxes . . . . . . . . . . . . . . . . . 337,980 294,494
Senior notes payable after one year (Note 3) . . 745,500 775,295
Subordinated notes payable (Note 3) . . . . . . 108,834 108,834
---------- ----------
Total liabilities. . . . . . . . . . . . . . 3,239,526 3,260,397
---------- ----------
Stockholder's Equity
- --------------------
Common stock . . . . . . . . . . . . . . . . . . 46,000 46,000
Capital surplus. . . . . . . . . . . . . . . . . 41,725 41,725
Retained earnings. . . . . . . . . . . . . . . . 628,160 583,340
---------- ----------
Total stockholder's equity . . . . . . . . . 715,885 671,065
---------- ----------
Total liabilities and
stockholder's equity . . . . . . . . . . . . $ 3,955,411 $ 3,931,462
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 5 of 17
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands) Six Months Ended June 30,
--------------------------
1994 1993
----------- -----------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . $ 65,820 $ 61,273
Effect of a change in accounting for
postemployment benefits. . . . . . . . . . . 2,820 -
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses . . . . . . . . 27,974 41,818
Cost of equipment sales . . . . . . . . . . 25,217 -
Depreciation and amortization . . . . . . . 12,396 7,505
(Decrease) increase in accounts payable to
affiliates . . . . . . . . . . . . . . . . (40,012) 4,188
(Decrease) increase in accounts payable and
accrued liabilities . . . . . . . . . . . (24,995) 39,030
Increase in deferred taxes. . . . . . . . . 45,366 24,721
Decrease in investment tax credits
deferred . . . . . . . . . . . . . . . . . (348) (781)
Other, net. . . . . . . . . . . . . . . . . (24,728) 13,171
--------- ---------
Net cash provided by operating activities . . 89,510 190,925
--------- ---------
Cash flows from investing activities:
Investment in finance assets . . . . . . . (498,968) (411,858)
Investment in operating leases. . . . . . . (33,571) (854)
Cash receipts collected under financing
contracts, net of finance income
recognized . . . . . . . . . . . . . . . . 494,482 388,454
Investment in mortgage servicing rights . . (17,622) (4,919)
Loans and advances to affiliated companies,
net. . . . . . . . . . . . . . . . . . . . (4,897) (22,613)
Additions to equipment and leasehold
improvements . . . . . . . . . . . . . . . (2,372) (770)
--------- ---------
Net cash used in investing activities . . . (62,948) (52,560)
--------- ---------
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 6 of 17
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Unaudited)
------------------------------------
(Dollars in thousands) Six Months Ended June 30,
-------------------------
1994 1993
---------- ----------
Cash flows from financing activities:
(Decrease) increase in short-term debt. . . (103,348) 94,170
Proceeds from the issuance of intermediate-
term debt. . . . . . . . . . . . . . . . . 200,000 -
Payments to settle long-term debt . . . . . (100,702) (83,197)
Payments to settle short-term loans from
Pitney Bowes Inc. . . . . . . . . . . . . - (31,025)
Capital contribution from Pitney Bowes
Inc. . . . . . . . . . . . . . . . . . . . - 2,442
Payments to settle note payable to
affiliate. . . . . . . . . . . . . . . . . - (98,488)
Dividends paid to Pitney Bowes Inc. . . . . (21,000) (18,000)
--------- ---------
Net cash used in financing activities. . . (25,050) (134,098)
--------- ---------
Increase in cash. . . . . . . . . . . . . . . 1,512 4,267
Cash at beginning of period . . . . . . . . . 6,237 4,855
--------- ---------
Cash at end of period . . . . . . . . . . . . $ 7,749 $ 9,122
========= =========
Interest paid . . . . . . . . . . . . . . . . $ 71,095 $ 72,237
========= =========
Income taxes refunded . . . . . . . . . . . . $ (9,193) $ (4,459)
========= =========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 7 of 17
Pitney Bowes Credit Corporation
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 the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of Pitney Bowes
Credit Corporation (the Company or PBCC), all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of June 30, 1994 and the results of its operations
and cash flows for the six months ended June 30, 1994 and 1993 have been
included. Operating results for the six months ended June 30, 1994 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1993.
Note 2:
- ------
The composition of the Company's finance assets is as follows:
(Dollars in thousands)
June 30, December 31,
------------- ------------
Finance Assets 1994 1993
------------- ------------
Gross finance receivables . . . . . . . . . . $ 4,123,435 $ 4,086,739
Unguaranteed residual valuation . . . . . . . 512,066 497,080
Initial direct cost deferred. . . . . . . . . 72,922 67,802
Unearned income . . . . . . . . . . . . . . . (1,229,939) (1,240,090)
Investment tax credits deferred . . . . . . . (661) (1,009)
---------- ----------
Total finance assets. . . . . . . . . . . . $ 3,477,823 $ 3,410,522
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 8 of 17
Note 3:
- ------
The composition of the Company's notes payable is as follows:
(Dollars in thousands)
June 30, December 31,
------------ ------------
Senior Notes Payable 1994 1993
------------ ------------
Commercial paper at a weighted average
interest rate of 4.28% (3.27% in 1993). . . $1,475,922 $1,574,999
Notes payable against bank lines of
credit and others at a weighted average
interest rate of 2.65% (2.13% in 1993). . . 155,416 159,687
Current installment of long-term debt
due within one year at interest rates of
6.56% to 10.50% . . . . . . . . . . . . . . 130,014 921
--------- ---------
Total senior notes payable within one year. . 1,761,352 1,735,607
Senior notes payable after one year at
interest rates of 5.625% to 10.65%
through 2009. . . . . . . . . . . . . . . . 745,500 775,295
--------- ---------
Total senior notes payable. . . . . . . . . . $2,506,852 $2,510,902
========= =========
In July 1994, the Company exercised the option to redeem $100 million of
10.125 percent notes due in 1997, on September 15, 1994. These notes are
reflected as senior notes payable within one year at June 30, 1994. The
Company currently anticipates funding this redemption through short-term
borrowings.
In March 1994, the Company issued $200 million of 5.625 percent notes due in
February 1997. In April 1994, the Company redeemed $100 million of 10.65
percent notes due in April 1999. The Company had previously sold an option
on a notional principal amount of $100 million to a counterparty to require
the Company to pay a fixed rate of 10.67 percent for five years starting
April 1, 1994. The counterparty has exercised that option.
June 30, December 31,
------------ ------------
Subordinated Notes Payable 1994 1993
------------ ------------
Non-interest bearing notes due
Pitney Bowes Inc. . . . . . . . . . . . . . $ 108,094 $ 108,094
12.75% note due in 1994 . . . . . . . . . . . 740 740
--------- ---------
Total subordinated notes payable. . . . . . . $ 108,834 $ 108,834
========= =========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 9 of 17
Note 4:
- ------
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January
1, 1994. FAS 112 requires that postemployment benefits be recognized on the
accrual basis of accounting for fiscal years beginning after December 31,
1993. Postemployment benefits include primarily Company provided medical
benefits to disabled employees and Company provided life insurance as well as
other disability- and death-related benefits to former or inactive employees,
their beneficiaries and covered dependents.
The one-time effect of adopting FAS 112 was a non-cash, after-tax charge of
$2.8 million (net of approximately $1.9 million of income taxes).
Application of this new standard had no significant effect on the Company's
1994 expenses.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 10 of 17
Management's Narrative Analysis of the Results of Operations
------------------------------------------------------------
Results of Operations - second quarter of 1994 compared to second quarter of
1993
- ---------------------------------------------------------------------------
Income for the second quarter of 1994 was $35.0 million compared to $30.7
million for the same period of 1993, an increase of 14.0 percent. The
increase is principally due to additional credit loss provisions recorded in
the second quarter of 1993 related to assets purchased from the Company's
German affiliate (Adrema) and higher earning asset levels in 1994.
Finance income in the second quarter of 1994 decreased 2.0 percent to $134.9
million. Excluding the impact of asset sales, which had increased 1993
finance income by $11.2 million, finance income for Internal small-ticket
financing programs increased 4.1 percent to $66.4 million due to higher
earning asset levels, which were up 14.0 percent at the end of the second
quarter of 1994, partly offset by lower lease rates on new business. Finance
income for External large-ticket financing programs increased 4.6 percent to
$39.1 million reflecting higher rental income from operating leases. Finance
income related to External small-ticket financing programs increased 9.2
percent to $23.6 million primarily due to higher earning asset levels in 1994
partly offset by lower lease rates on new business. Revenue generated from
mortgage servicing increased to $5.8 million in the second quarter of 1994
compared to $3.7 million in the second quarter of 1993, due to a larger
mortgage servicing portfolio. Additionally, in the second quarter of 1994,
the Company sold equipment on operating leases and generated proceeds of
$27.0 million. The cost of such equipment sales was $25.2 million.
Selling, general and administrative (SG&A) expenses were $26.6 million in the
second quarter of 1994 compared to $25.7 million for the same period of 1993.
Excluding the impact of asset sales which had increased 1993 SG&A expenses by
$1.6 million, SG&A for Internal small-ticket financing programs increased 4.4
percent to $13.2 million due to higher personnel costs and a higher level of
marketing fees paid to Pitney Bowes Inc. on new business volume. SG&A
expenses for External large-ticket financing programs increased 6.7 percent
to $3.5 million primarily due to higher personnel related costs. SG&A
expenses for External small-ticket financing programs increased 18.4 percent
to $7.5 million principally due to a higher level of marketing fees paid to
brokers on higher levels of new business. SG&A expenses related to mortgage
servicing increased to $2.4 million in the second quarter of 1994 compared to
$1.8 million in the second quarter of 1993 due to higher operating costs
associated with the larger mortgage servicing portfolio.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 11 of 17
Depreciation on operating leases increased to $2.9 million in the second
quarter of 1994 compared to $2.4 million for the same period of 1993
reflecting a higher operating lease investment balance in 1994. Amortization
of purchased mortgage servicing rights increased to $2.7 million in the
second quarter of 1994 compared to $1.5 million in the second quarter of 1993
due to the larger mortgage servicing portfolio. Amortization of deferred
costs, associated with the Company's participation in a partnership
transaction completed in the fourth quarter of 1993, totalled $.9 million.
The provision for credit losses for the second quarter of 1994 was $13.9
million compared to $27.9 million in the second quarter of 1993. The
provision for Internal small-ticket financing programs increased 9.9 percent
to $8.4 million primarily due to higher earning asset levels. The provision
for External large-ticket financing programs was $.3 million, which was $.8
million favorable to prior year due to the favorable loss experience in this
portfolio. Excluding the impact of credit loss provisions related to assets
purchased from Adrema, which increased 1993 provisions by $14.4 million,
credit loss provisions for External small-ticket financing programs increased
10.4 percent to $5.2 million due to higher earning asset levels.
The Company's allowance for credit losses as a percentage of net lease
receivables (net investments before allowance for credit losses and deferred
investment tax credits plus the uncollected principal balance of receivables
sold) was 2.47 percent at June 30, 1994 and 2.44 percent at December 31,
1993.
Interest expense was $36.8 million in the second quarter of 1994 compared to
$33.9 million for the same period of 1993. The increase primarily reflects
the Company's higher short-term cost of funds in 1994. The effective
interest rate on short-term average borrowings was 3.77 percent for the
second quarter of 1994 compared to 3.02 percent for the same period of 1993.
This unfavorable comparison is expected to continue throughout the remainder
of 1994 due to increasing short-term interest rates. The Company does not
match fund its financing investments and does not apply different interest
rates to its various financing portfolios.
Excluding ITC amortization, the effective tax rate for the second quarter of
1994 was 34.0 percent compared to 34.3 percent for the same period of 1993.
The decrease is principally due to a higher level of tax-exempt income,
partly offset by a higher Federal income tax rate in 1994.
The Company's ratio of earnings to fixed charges was 2.43 times for the
second quarter of 1994 compared to 2.36 times for the same period of 1993.
The increase reflects a higher level of Internal small-ticket earning assets
and lower credit loss provisions, partly offset by higher short-term interest
rates in 1994.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 12 of 17
Results of Operations - first six months of 1994 compared to first six months
- -----------------------------------------------------------------------------
of 1993
- -------
For the first six months of 1994 compared to the same period of 1993, finance
income increased .8 percent, while income before the one-time effect of a
change in accounting for postemployment benefits was $68.6 million compared
to $61.3 million for the same period of 1993, an increase of 12.0 percent.
The current year period reflects the impact of adopting Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112) as of January 1, 1994. FAS 112 requires
that postemployment benefit costs be recognized on the accrual basis of
accounting for fiscal years beginning after December 15, 1993.
Postemployment benefits include primarily Company provided medical benefits
to disabled employees and Company provided life insurance as well as other
disability- and death-related benefits to former or inactive employees, their
beneficiaries and covered dependents. The one-time effect of adopting FAS
112 was a non-cash, after-tax charge of $2.8 million.
Except for the effects of asset sales and the additional credit loss
provisions in 1993, as described in the previous section, the factors that
affected the change in finance income and income before the effect of a
change in accounting for postemployment benefits were essentially the same as
those affecting the second quarter of 1994 versus 1993.
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are from operations and borrowings.
It is PBCC's practice to use a balanced mix of maturities, variable- and
fixed-rate debt and interest rate swaps to control its sensitivity to
interest rate volatility. PBCC's swap adjusted debt mix was 52 percent
short-term and 48 percent long-term at June 30, 1994 and 58 percent short-
term and 42 percent long-term at December 31, 1993. The Company may borrow
through the sale of commercial paper, under its confirmed bank lines of
credit, and by private and public offerings of intermediate- or long-term
debt securities.
In March 1994, the Company issued $200 million of 5.625 percent notes due in
February 1997. In April 1994, the Company redeemed $100 million of 10.65
percent notes due in April 1999. The Company had previously sold an option
on a notional principal amount of $100 million to enable a counterparty to
require the Company to pay a fixed rate of 10.67 percent for five years
starting April 1, 1994. The counterparty has exercised that option.
In July 1994, the Company exercised the option to redeem $100 million of
10.125 percent notes due in 1997, on September 15, 1994. The Company
currently anticipates funding this redemption through short-term borrowings.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 13 of 17
The Company has $400 million available from a $500 million shelf registration
statement filed with the Securities and Exchange Commission in October 1992.
This should meet the Company's long-term financing needs for the next two
years. The Company also had unused lines of credit and revolving credit
facilities totaling $1.525 billion at June 30, 1994, largely supporting
commercial paper borrowings. Additional financing will be arranged as deemed
necessary. Borrowing requirements will be primarily dependent upon the level
of equipment purchases from Pitney Bowes Inc. and its subsidiaries, the level
of external financing activity and the refinancing of maturing debt.
In January 1994, the Company sold approximately $88 million of assets in a
privately-placed transaction with a third-party investor. These assets,
representing finance receivables and other assets, were previously
transferred in December 1992 from the Company's German affiliate, Adrema
Leasing Corporation. Proceeds from the sale of these assets were used to
repay a portion of the Company's commercial paper borrowings. This
transaction had no material effect on the Company's results.
Gross finance assets at the end of the second quarter of 1994 increased 1.1
percent from December 31, 1993. The increase is principally due to higher
levels of Internal and External small-ticket new financing volume partly
offset by lower lease rates on new business. The Company continues to
develop strategies in support of ongoing debt level management. Emphasis on
fee-based transactions and consideration of the sale of certain financing
transactions are expected to continue to slow growth in finance assets and
debt levels. Gross finance assets at June 30, 1994 were 7.5 percent, or
$322.9 million, higher than June 30, 1993. Overall levels of lease
receivables are in line with management's expectations.
As previously reported, the Company has made senior secured loans and
commitments in connection with acquisition, leveraged buyout and
recapitalization financing. At June 30, 1994, the Company had a total of
$2.5 million of such senior secured loans and commitments outstanding
compared to $13.9 million at December 31, 1993. In March 1994, the Company
sold $11.3 million of its senior secured loan and commitment with a company
that had previously filed under Chapter 11 of the Federal Bankruptcy Code and
recovered 100 percent of its carrying value. The Company has not
participated in unsecured or subordinated debt financing in any highly
leveraged transactions.
The Company's liquidity ratio (finance contracts receivable, including
residuals, expected to be realized in cash over the next 12 months to current
maturities of debt over the same period) was .67 times at June 30, 1994 and
.66 times at December 31, 1993.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 14 of 17
The Company will continue to use cash to invest in finance assets with
emphasis on Internal and External small-ticket leasing transactions and
controlled investment in External large-ticket financing programs. The
Company believes that cash generated from operations and collections on
existing lease contracts will provide the majority of cash needed for such
investment activities. Additional cash, to the extent needed, is expected to
be provided from commercial paper and intermediate- or long-term debt
securities. While the Company expects that market acceptance of its short-
and long-term debt will continue to be strong, additional liquidity is
available, if needed, under revolving credit facilities and credit lines.
Pitney Bowes Inc. and the Company (the Companies) have completed their
inquiry and evaluation, begun in 1993, of the assets and liabilities of the
German leasing business. At this time, the Companies believe that sufficient
reserves for credit losses are in place to provide for currently expected
losses. As part of the orderly liquidation of assets from leasing non-Pitney
Bowes products in Germany, the Companies continue to bill and collect
accounts and repossess and remarket collateral where possible. These
activities are expected to continue for the remainder of the lease terms.
The Companies are scrutinizing the circumstances surrounding the losses.
German authorities have undertaken criminal proceedings with respect to the
conduct of certain German lessees of non-Pitney Bowes products and, at the
request of the Companies, with respect to the disposition of the Companies
German leasing business assets. These proceedings include the former general
manager of the Companies German leasing business and others involved in that
business. The principals of one of the Companies large German leasing
accounts have been convicted of fraud against the Company and others. The
Companies are examining and evaluating additional actions it may take against
former management personnel of its German leasing business.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 15 of 17
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) 1. Financial Statements - see index on page 2
2. Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
Reg. S-K Incorporation
Exhibits Description by Reference
-------- ---------------------------- -------------
(12) Computation of Ratio of See Exhibit (i)
Earnings to Fixed Charges on page 17
There are no unregistered debt instruments in which the
total amount of securities authorized thereunder exceeds
10 percent of the total assets of the Company. Copies
of all instruments defining the rights of securities
holders are available upon request.
(b) No reports on Form 8-K were filed for the three months
ended June 30, 1994.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 16 of 17
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 CREDIT CORPORATION
Date: August 12, 1994 /s/ G. Kirk Hudson
-------------------- -----------------------------
G. Kirk Hudson
Vice President - Finance
(Principal Financial Officer)
/s/ Thomas P. Santora
------------------------------
Thomas P. Santora
Controller
(Principal Accounting Officer)
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1994
Page 17 of 17
Exhibit (i)
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
Income before income
taxes . . . . . . . . . . $ 52,973 $ 46,538 $103,510 $ 92,733
------- ------- ------- -------
Fixed charges:
Interest on debt . . . . 36,806 33,930 70,130 70,440
1/3 rental expense . . . 350 400 697 805
------- ------- ------- -------
Total fixed charges . . . 37,156 34,330 70,827 71,245
------- ------- ------- -------
Total . . . . . . . . . . $ 90,129 $ 80,868 $174,337 $163,978
======= ======= ======= =======
Ratio of earnings
to fixed charges (1) . . 2.43 2.36 2.46 2.30
======= ======= ======= =======
(1) The ratio of earnings to fixed charges is computed by dividing income
before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest on debt and one-third rental expense as representative
of the interest portion of rentals.
