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 September 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 October 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
Nine Months Ended September 30, 1994
Page 2 of 19
Pitney Bowes Credit Corporation
Index
-------------------------------
Page Number
-----------
Part I - Financial Information:
Consolidated Statement of Income - Three and Nine
Months Ended September 30, 1994 and 1993. . . . . . 3
Consolidated Balance Sheet - September 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 . . . 5 - 6
Notes to Consolidated Financial Statements . . . . . 7 - 9
Management's Narrative Analysis of the
Results of Operations . . . . . . . . . . . . . . . 10 - 15
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . 17
Exhibit (i) - Computation of Ratio of Earnings
to Fixed Charges . . . . . . . . . . . . . . . . . 18
Exhibit (ii) - Financial Data Schedule . . . . . . . . 19
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 3 of 19
<TABLE>
Part I - Financial Information
Pitney Bowes Credit Corporation
Consolidated Statement of Income
(Unaudited)
--------------------------------
<CAPTION>
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Finance income . . . . . . . . . . . . . $147,858 $125,333 $412,777 $388,021
Equipment sales. . . . . . . . . . . . . - - 26,961 -
ITC amortization . . . . . . . . . . . . 126 293 473 1,074
------- ------- ------- -------
Total revenue. . . . . . . . . . . . . . . 147,984 125,626 440,211 389,095
------- ------- ------- -------
Expenses:
Selling, general and administrative. . . 31,582 24,799 84,582 75,772
Depreciation and amortization. . . . . . 6,762 3,752 19,158 11,257
Cost of equipment sales. . . . . . . . . - - 25,217 -
Provision for credit losses. . . . . . . 16,108 14,157 44,082 55,975
Interest . . . . . . . . . . . . . . . . 39,825 33,383 109,955 103,823
Nonrecurring items, net (Notes 4 and 5). (3,311) - (3,311) -
------- ------- ------- -------
Total expenses . . . . . . . . . . . . 90,966 76,091 279,683 246,827
------- ------- ------- -------
Income before income taxes . . . . . . . . 57,018 49,535 160,528 142,268
Provision for income taxes . . . . . . . . 19,122 27,942 53,992 59,402
------- ------- ------- -------
Income before effect of a change in
accounting for postemployment
benefits . . . . . . . . . . . . . . . . 37,896 21,593 106,536 82,866
Effect of a change in accounting for
postemployment benefits (Note 4) . . . . - - (2,820) -
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . $ 37,896 $ 21,593 $103,716 $ 82,866
======= ======= ======= =======
Ratio of earnings to fixed charges . . . . 2.42 2.47 2.45 2.35
======= ======= ======= =======
</TABLE>
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 4 of 19
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
(Unaudited)
-------------------------------
(Dollars in thousands) September 30, December 31,
------------- ------------
1994 1993
------------- ------------
Assets
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . $ 7,929 $ 6,237
---------- ----------
Investments:
Finance assets (Note 2). . . . . . . . . . . . 3,534,644 3,410,522
Investment in leveraged leases . . . . . . . . 356,763 298,914
Assets transferred from affiliate. . . . . . . 20,077 82,274
Investment in operating leases, net of
depreciation . . . . . . . . . . . . . . . . 75,124 63,899
Allowance for credit losses. . . . . . . . . . (97,946) (98,311)
---------- ----------
Net investments. . . . . . . . . . . . . . . 3,888,662 3,757,298
---------- ----------
Other assets . . . . . . . . . . . . . . . . . . 187,859 167,927
---------- ----------
Total assets . . . . . . . . . . . . . . . . $ 4,084,450 $ 3,931,462
========== ==========
Liabilities
- -----------
Senior notes payable within one year (Note 3). . $ 1,855,800 $ 1,735,607
Short-term notes payable to affiliate (Note 3) . 4,136 -
Accounts payable to affiliates . . . . . . . . . 126,915 162,914
Accounts payable . . . . . . . . . . . . . . . . 24,675 41,958
Accrued interest payable . . . . . . . . . . . . 27,967 23,472
Other accrued liabilities . . . . . . . . . . . 89,948 117,823
Deferred taxes . . . . . . . . . . . . . . . . . 357,394 294,494
Senior notes payable after one year (Note 3) . . 745,500 775,295
Subordinated notes payable (Note 3) . . . . . . 108,834 108,834
---------- ----------
Total liabilities. . . . . . . . . . . . . . 3,341,169 3,260,397
---------- ----------
Stockholder's Equity
- --------------------
Common stock . . . . . . . . . . . . . . . . . . 46,000 46,000
Capital surplus. . . . . . . . . . . . . . . . . 41,725 41,725
Retained earnings. . . . . . . . . . . . . . . . 655,556 583,340
---------- ----------
Total stockholder's equity . . . . . . . . . 743,281 671,065
---------- ----------
Total liabilities and
stockholder's equity . . . . . . . . . . . . $ 4,084,450 $ 3,931,462
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 5 of 19
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands)
Nine Months Ended
September 30,
-----------------------
1994 1993
---------- ----------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . $ 103,716 $ 82,866
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 . . . . . . . . 44,082 55,975
Cost of equipment sales . . . . . . . . . . 25,217 -
Depreciation and amortization . . . . . . . 19,158 11,257
(Decrease) increase in accounts payable to
affiliates . . . . . . . . . . . . . . . . (35,999) 18,457
(Decrease) increase in accounts payable and
accrued liabilities . . . . . . . . . . . (45,363) 31,224
Increase in deferred taxes. . . . . . . . . 64,780 42,807
Decrease in investment tax credits
deferred . . . . . . . . . . . . . . . . . (473) (1,074)
Other, net. . . . . . . . . . . . . . . . . (47,951) 4,991
--------- ---------
Net cash provided by operating activities . 129,987 246,503
--------- ---------
Cash flows from investing activities:
Investment in finance assets . . . . . . . (797,522) (662,833)
Investment in leveraged leases. . . . . . . (47,972) -
Investment in operating leases. . . . . . . (44,451) (1,064)
Cash receipts collected under financing
contracts, net of finance income
recognized . . . . . . . . . . . . . . . . 727,066 542,806
Investment in mortgage servicing rights . . (22,503) (14,218)
Loans and advances to affiliated companies,
net. . . . . . . . . . . . . . . . . . . . (2,933) (15,348)
Additions to equipment and leasehold
improvements . . . . . . . . . . . . . . . (3,014) (1,186)
--------- ---------
Net cash used in investing activities . . . (191,329) (151,843)
--------- ---------
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 6 of 19
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Unaudited)
-------------------------------------
(Dollars in thousands)
Nine Months Ended
September 30,
-----------------------
1994 1993
---------- ----------
Cash flows from financing activities:
Increase in short-term debt . . . . . . . . 91,192 147,345
Increase (decrease) in short-term notes
payable to affiliates. . . . . . . . . . . 4,136 (31,025)
Proceeds from the issuance of intermediate-
term debt. . . . . . . . . . . . . . . . . 200,000 -
Proceeds from the issuance of subordinated
debt . . . . . . . . . . . . . . . . . . . - 2,744
Payments to settle long-term debt . . . . . (200,794) (84,097)
Capital contribution from Pitney Bowes
Inc. . . . . . . . . . . . . . . . . . . . - 2,442
Payments to settle note payable to
affiliate. . . . . . . . . . . . . . . . . - (103,345)
Dividends paid to Pitney Bowes Inc. . . . . (31,500) (27,000)
--------- ---------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . 63,034 (92,936)
--------- ---------
Increase in cash. . . . . . . . . . . . . . . 1,692 1,724
Cash at beginning of period . . . . . . . . . 6,237 4,855
--------- ---------
Cash at end of period . . . . . . . . . . . . $ 7,929 $ 6,579
========= =========
Interest paid . . . . . . . . . . . . . . . . $ 125,509 $ 110,857
========= =========
Income taxes (refunded) paid. . . . . . . . . $ (9,675) $ 2,478
========= =========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 7 of 19
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 September 30, 1994 and the results of its operations and cash
flows for the nine months ended September 30, 1994 and 1993 have been
included. Operating results for the nine months ended September 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)
September 30, December 31,
------------- ------------
Finance Assets 1994 1993
------------- ------------
Gross finance receivables . . . . . $ 4,156,516 $ 4,086,739
Unguaranteed residual valuation . . 527,396 497,080
Initial direct cost deferred. . . . 71,461 67,802
Unearned income . . . . . . . . . . (1,220,193) (1,240,090)
Investment tax credits deferred . . (536) (1,009)
---------- ----------
Total finance assets. . . . . . . $ 3,534,644 $ 3,410,522
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 8 of 19
Note 3:
- ------
The composition of the Company's notes payable is as follows:
(Dollars in thousands)
September 30, December 31,
------------- ------------
Senior Notes Payable 1994 1993
------------- ------------
Commercial paper at a weighted average
interest rate of 4.83% (3.27% in 1993). . . $1,634,550 $1,574,999
Notes payable against bank lines of
credit and others at a weighted average
interest rate of 3.09% (2.13% in 1993). . . 191,328 159,687
Current installment of long-term debt
due within one year at interest rates of
6.56% to 10.50% . . . . . . . . . . . . . . 29,922 921
--------- ---------
Total senior notes payable within one year. . 1,855,800 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.. . . . . . . . . $2,601,300 $2,510,902
========= =========
At September 30, 1994, the Company had outstanding short-term loans from
an affiliate totaling $4.1 million at a weighted average interest rate of
4.85 percent.
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 September 1994, the Company redeemed $100 million of
10.125 percent notes due in 1997.
September 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
Nine Months Ended September 30, 1994
Page 9 of 19
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 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 in the first quarter of
1994 was a non-cash, after-tax charge of $2.8 million (net of
approximately $1.9 million of income taxes).
Since the first quarter of 1994, the Company's parent Pitney Bowes
Inc. (Pitney Bowes), as part of its employee work-life initiatives,
has actively sought employee input about benefits and it was
concluded that employees prefer benefits more closely related to
their changing work-life needs. As a result, Pitney Bowes
significantly reduced or eliminated certain postemployment
benefits, specifically service-related company-subsidized life
insurance, salary continuance and medical benefits, resulting in an
after-tax credit of $2.1 million (net of approximately $1.4 million
of income taxes) to the Company in the third quarter of 1994.
Note 5:
- ------
During the third quarter of 1994, Pitney Bowes adopted a formal
plan designed to address the impact of technology on work force
requirements and to refine its strategic focus on core businesses
worldwide. The impact of this plan on the Company was a $.2
million pre-tax charge in the third quarter of 1994.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 10 of 19
Management's Narrative Analysis of the Results of Operations
------------------------------------------------------------
Results of Operations - third quarter of 1994 compared to third
quarter of 1993
- -------------------------------------------------------------------
Income for the third quarter of 1994 was $37.9 million compared to
$21.6 million for the same period of 1993. Third quarter 1994
results include the effect of a nonrecurring $3.3 million pre-tax
credit. The credit is the result of a $3.5 million credit to
income due to changes made by the Company's parent, Pitney Bowes
Inc. (Pitney Bowes), related to certain postemployment benefits
partly offset by charges related to Pitney Bowes' continued
refinement of its strategic focus as outlined in Note 5 to the
consolidated financial statements. In the third quarter of 1993,
the Company recorded $11.6 million of additional tax expense as a
result of the enactment of the Omnibus Budget Reconciliation Act of
1993 (the Tax Act). Excluding the impact of the tax adjustment in
1993 and the nonrecurring net credit in 1994, net income for the
third quarter of 1994 increased 9.6 percent. The increase is
principally due to higher earning asset levels and the sale of
finance assets partly offset by higher short-term interest rates.
Finance income in the third quarter of 1994 increased 18.0 percent
to $147.9 million. Finance income for Internal small-ticket
financing programs increased 8.4 percent to $66.6 million due to
higher earning asset levels, which were up 12.5 percent at the end
of the third quarter of 1994, partly offset by lower lease rates on
new business. Finance income for External large-ticket financing
programs increased 7.3 percent to $41.1 million reflecting higher
earning asset levels. Finance income related to External small-
ticket financing programs increased 56.7 percent to $33.3 million
primarily due to the impact of the sale of $55.0 million of finance
assets in September 1994 and higher levels of earning assets which
were partly offset by lower lease rates on new business. Excluding
the sale of finance assets, finance income for External small-
ticket financing programs would have increased 15.4 percent for the
third quarter of 1994. Revenue generated from mortgage servicing
increased to $6.9 million in the third quarter of 1994 compared to
$4.4 million in the third quarter of 1993, due to a larger mortgage
servicing portfolio.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 11 of 19
Selling, general and administrative (SG&A) expenses were $31.6
million in the third quarter of 1994 compared to $24.8 million for
the same period of 1993. SG&A for Internal small-ticket financing
programs decreased 1.5 percent to $13.0 million due to lower
marketing fees paid to Pitney Bowes. SG&A expenses for External
large-ticket financing programs increased 9.3 percent to $3.4
million primarily due to higher personnel related costs. SG&A
expenses for External small-ticket financing programs were $12.7
million for the third quarter of 1994 compared to $6.4 million for
the same period of 1993. The increase is due to the impact of the
sale of finance assets and, to a lesser extent, higher marketing
fees paid to brokers on higher levels of new business. Excluding
the impact of the sale of finance assets, SG&A expenses for
External small-ticket financing programs increased 33.2 percent
principally due to increased emphasis on new vendor programs and
costs associated with the assets purchased from the Company's
German affiliate, Adrema Leasing Corporation, in December 1992.
SG&A expenses related to mortgage servicing increased to $2.5
million in the third quarter of 1994 compared to $2.1 million in
the third quarter of 1993 due to higher operating costs associated
with the larger mortgage servicing portfolio.
Depreciation on operating leases increased to $2.8 million in the
third quarter of 1994 compared to $1.9 million for the same period
of 1993 reflecting a higher operating lease investment balance in
1994. Amortization of purchased mortgage servicing rights
increased to $3.1 million in the third quarter of 1994 compared to
$1.9 million in the third quarter of 1993 due to the larger
mortgage servicing portfolio. Costs associated with the Company's
participation in a partnership transaction, completed in the fourth
quarter of 1993, totaled $.9 million.
The provision for credit losses for the third quarter of 1994 was
$16.1 million compared to $14.2 million in the third quarter of
1993. The provision for Internal small-ticket financing programs
increased 11.8 percent to $8.5 million primarily due to higher
earning asset levels. There was no loss provision recorded in the
third quarter of 1994 for External large-ticket financing programs
due to the favorable loss experience in this portfolio. This
compares to $1.0 million recorded in the third quarter of 1993 for
External large-ticket financing programs. The provision for
External small-ticket financing programs increased 39.8 percent to
$7.6 million due to the impact of the sale of finance assets.
Excluding the impact of the sale of finance assets, the provision
for small-ticket financing programs would have decreased 6.3
percent due to the favorable loss experience in this portfolio.
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 2.34 percent at
September 30, 1994 and 2.44 percent at December 31, 1993.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 12 of 19
Interest expense was $39.8 million in the third quarter of 1994
compared to $33.4 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 4.66 percent for the third quarter of 1994 compared
to 3.04 percent for the same period of 1993. This unfavorable
comparison is expected to continue throughout the remainder of 1994
due to higher 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 third
quarter of 1994 was 33.6 percent compared to 56.7 percent for the
same period of 1993. The decrease is principally due to the
additional tax expense recorded in the third quarter of 1993 as a
result of the federal tax law changes. On August 10, 1993, the Tax
Act was enacted increasing U.S. corporate income tax rates from 34
percent to 35 percent, retroactive to January 1, 1993. The
liability method of accounting for income taxes requires the effect
of a change in tax laws or rates on current or accumulated deferred
income taxes to be reflected in the period that includes the
enactment date of the new legislation. Accordingly, in the third
quarter of 1993, the Company recorded additional tax expense
reflecting the retroactive tax law changes, $9.3 million of which
was the effect of the rate change on deferred tax balances at
January 1, 1993.
The Company's ratio of earnings to fixed charges was 2.42 times for
the third quarter of 1994 compared to 2.47 times for the same
period of 1993. The decrease reflects the higher short-term
interest rates in the third quarter of 1994.
Results of Operations - first nine months of 1994 compared to first
nine months of 1993
- -------------------------------------------------------------------
For the first nine months of 1994 compared to the same period of
1993, finance income increased 6.4 percent, while income before the
effect of a change in accounting for postemployment benefits was
$106.5 million compared to $82.9 million for the same period of
1993, an increase of 28.6 percent. The increase is impacted by the
additional tax expense recorded in the third quarter of 1993, as a
result of the Tax Act. Excluding the impact of the Tax Act, income
before effect of a change in accounting for postemployment benefits
for the nine months of 1994 would have increased 15.6 percent.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 13 of 19
Except for the effects of the sales of finance assets in the third
quarter of 1994 and the second quarter of 1993, the sale of
operating lease assets in the second quarter of 1994 and the
additional credit loss provisions recorded in the second quarter of
1993 related to assets purchased from the Company's German
affiliate, the factors that affected the change in finance income
and income before effect of a change in accounting for
postemployment benefits were essentially the same as those
affecting the third quarter of 1994 versus 1993.
The current year period net income 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.
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 58 percent short-term and 42 percent
long-term at September 30, 1994 and 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 September
1994, the Company redeemed $100 million of 10.125 percent notes due
in 1997.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 14 of 19
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 September 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.
The Company's utilization of derivative instruments is currently
limited to interest rate swap and foreign currency forward
contracts. The Company periodically enters into interest rate swap
agreements as a means of managing interest rate exposure. The
interest rate differential to be paid or received is recognized
over the life of the agreements as an adjustment to interest
expense. The Company is exposed to credit loss in the event of
non-performance by the other parties to the interest rate swap
agreements to the extent of the differential between fixed- and
variable-rates; such exposure is considered minimal. The Company
has entered into foreign currency contracts for the purpose of
minimizing its risk of loss from fluctuations in exchange rates in
connection with certain intercompany loans and certain transfers to
the Company by foreign affiliates of foreign currency denominated
lease receivables.
In the third quarter of 1994, the Company sold approximately $55
million of External small-ticket finance assets with recourse in a
privately-placed transaction with a third-party investor. Proceeds
from the sale of these assets were used to repay a portion of the
Company's commercial paper borrowings.
Gross finance assets at the end of the third quarter of 1994
increased 2.2 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 September 30, 1994
were 6.5 percent, or $284.9 million, higher than September 30,
1993. Overall levels of lease receivables are in line with
management's expectations.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 15 of 19
As previously reported, the Company has made senior secured loans
and commitments in connection with acquisition, leveraged buyout
and recapitalization financing. At September 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
.63 times at September 30, 1994 and .66 times at December 31, 1993.
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, if 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
Nine Months Ended September 30, 1994
Page 16 of 19
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 18
(27) Financial Data Schedule See Exhibit (ii)
on page 19
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
September 30, 1994.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1994
Page 17 of 19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PITNEY BOWES CREDIT CORPORATION
Date: November 14, 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
Nine Months Ended September 30, 1994
Page 18 of 19
Exhibit (i)
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
Income before income
taxes . . . . . . . . . . $ 57,018 $ 49,535 $160,528 $142,268
------- ------- ------- -------
Fixed charges:
Interest on debt . . . . 39,825 33,383 109,955 103,823
1/3 rental expense . . . 384 387 1,081 1,192
------- ------- ------- -------
Total fixed charges . . . 40,209 33,770 111,036 105,015
------- ------- ------- -------
Total . . . . . . . . . . $ 97,227 $ 83,305 $271,564 $247,283
======= ======= ======= =======
Ratio of earnings
to fixed charges (1) . . 2.42 2.47 2.45 2.35
======= ======= ======= =======
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9/30/94
INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 7,929
<SECURITIES> 0
<RECEIVABLES> 3,986,608
<ALLOWANCES> 97,946
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
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<TOTAL-ASSETS> 4,084,450
<CURRENT-LIABILITIES> 2,129,441
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 697,281
<TOTAL-LIABILITY-AND-EQUITY> 4,084,450
<SALES> 26,961
<TOTAL-REVENUES> 440,211
<CGS> 25,217
<TOTAL-COSTS> 100,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44,082
<INTEREST-EXPENSE> 109,955
<INCOME-PRETAX> 160,528
<INCOME-TAX> 53,992
<INCOME-CONTINUING> 106,536
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<CHANGES> (2,820)
<NET-INCOME> 103,716
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