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, 1996
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, 1996, 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, 1996
Page 2 of 22
Pitney Bowes Credit Corporation
Index
-------------------------------
Page Number
-----------
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Statement of Income -
Three and Nine Months Ended
September 30, 1996 and 1995 . . . . . . 3
Consolidated Balance Sheet -
September 30, 1996 and
December 31, 1995 . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Nine Months Ended
September 30, 1996 and 1995 . . . . . . 5 - 6
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . 7 - 10
Item 2. Management's Narrative Analysis of
the Results of Operations . . . . . . . 11 - 16
Part II - Other Information:
Item 1. Legal Proceedings. . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . 19
Exhibit (i) - Material Contracts: First Amended
and Restated Operating Agreement. . . . . . . . 20
Exhibit (ii) - Computation of Ratio of Earnings
to Fixed Charges. . . . . . . . . . . . . . . . 21
Exhibit (iii) - Financial Data Schedule. . . . . 22
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 3 of 22
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Income
--------------------------------
(Unaudited)
<CAPTION>
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Finance income . . . . . . . . . . . $191,475 $166,294 $548,321 $478,199
Equipment sales. . . . . . . . . . . - 2,474 421 2,474
------- ------- ------- -------
Total revenue. . . . . . . . . . . 191,475 168,768 548,742 480,673
------- ------- ------- -------
Expenses:
Selling, general and administrative. 47,814 34,831 126,078 100,162
Depreciation and amortization. . . . 10,563 9,238 29,676 23,064
Cost of equipment sales. . . . . . . - 2,163 283 2,163
Provision for credit losses. . . . . 17,547 13,315 48,117 38,633
Interest . . . . . . . . . . . . . . 50,394 51,236 149,663 150,703
------- ------- ------- -------
Total expenses . . . . . . . . . . 126,318 110,783 353,817 314,725
------- ------- ------- -------
Income before income taxes . . . . . . 65,157 57,985 194,925 165,948
Provision for income taxes . . . . . . 21,081 17,984 64,206 52,164
------- ------- ------- -------
Net income . . . . . . . . . . . . . . $ 44,076 $ 40,001 $130,719 $113,784
======= ======= ======= =======
Ratio of earnings to fixed charges . . 2.28X 2.12X 2.29X 2.09X
======= ======= ======= =======
</TABLE>
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 4 of 22
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
-------------------------------
(Unaudited)
(Dollars in thousands) September 30, December 31,
1996 1995
------------- ------------
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . $ 21,790 $ 10,129
---------- ----------
Investments:
Finance assets (Note 2) . . . . . . . . . . . 4,035,216 4,117,353
Investment in leveraged leases . . . . . . . . 588,414 562,500
Assets transferred from affiliate. . . . . . . 34,098 53,717
Investment in operating leases, net of
accumulated depreciation . . . . . . . . . . 104,873 114,587
Allowance for credit losses. . . . . . . . . . (95,282) (101,355)
---------- ----------
Net investments. . . . . . . . . . . . . . . 4,667,319 4,746,802
---------- ----------
Mortgage servicing rights, net of accumulated
amortization (Note 3) . . . . . . . . . . . . . 126,063 105,933
Assets held for sale . . . . . . . . . . . . . . 220,840 71,917
Other assets . . . . . . . . . . . . . . . . . . 162,060 123,093
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . $ 5,198,072 $ 5,057,874
========== ==========
Liabilities
Senior notes payable within one year (Note 4). . $ 1,942,261 $ 2,122,880
Short-term notes payable to affiliates (Note 4). 70,400 149,709
Accounts payable to affiliates . . . . . . . . . 128,379 127,007
Accounts payable and accrued liabilities . . . . 148,434 155,603
Deferred taxes . . . . . . . . . . . . . . . . . 515,428 441,324
Senior notes payable after one year (Note 4) . . 1,275,000 1,020,500
Subordinated notes payable (Note 4). . . . . . . 170,857 170,857
---------- ----------
Total liabilities . . . . . . . . . . . . . . 4,250,759 4,187,880
---------- ----------
Stockholder's Equity
Common stock . . . . . . . . . . . . . . . . . . 46,000 46,000
Capital surplus. . . . . . . . . . . . . . . . . 41,725 41,725
Retained earnings. . . . . . . . . . . . . . . . 859,588 782,269
---------- ----------
Total stockholder's equity. . . . . . . . . . 947,313 869,994
---------- ----------
Total liabilities and stockholder's equity . . . $ 5,198,072 $ 5,057,874
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 5 of 22
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
(Dollars in thousands) Nine Months Ended
September 30,
---------------------------
1996 1995
---------- ----------
Operating Activities
Net income. . . . . . . . . . . . . . . . . . $ 130,719 $ 113,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses . . . . . . . . 48,117 38,633
Depreciation and amortization . . . . . . . 29,676 23,064
Cost of equipment sales . . . . . . . . . . 283 2,163
Increase (decrease) in accounts payable to
affiliates . . . . . . . . . . . . . . . . 1,372 (27,660)
Increase in deferred taxes. . . . . . . . . 74,104 65,375
Decrease in accounts payable and accrued
liabilities. . . . . . . . . . . . . . . . (7,169) (84,720)
Increase in assets transferred from
affiliate. . . . . . . . . . . . . . . . . (4,559) (27,101)
Other, net. . . . . . . . . . . . . . . . . (29,336) (6,161)
--------- ---------
Net cash provided by operating activities. 243,207 97,377
--------- ---------
Investing Activities
Investment in net finance assets. . . . . . . (1,023,467) (988,948)
Investment in leveraged leases. . . . . . . . - (45,499)
Investment in operating leases. . . . . . . . (9,027) (27,731)
Investment in assets held for sale. . . . . . (237,971) (94,317)
Cash receipts collected under lease
contracts, net of finance income
recognized . . . . . . . . . . . . . . . . . 1,145,821 725,839
Investment in mortgage servicing rights . . . (34,759) (46,268)
Loans and advances to affiliates, net . . . . (3,534) 63,133
Additions to equipment and leasehold
improvements . . . . . . . . . . . . . . . . (9,781) (6,455)
--------- ---------
Net cash used in investing activities. . . (172,718) (420,246)
--------- ---------
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 6 of 22
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
(Dollars in thousands) Nine Months Ended
September 30,
---------------------------
1996 1995
---------- ----------
Financing Activities
Decrease in short-term debt . . . . . . . . . (426,119) (77,191)
Short-term loans from Pitney Bowes Inc. . . . (79,309) 204,500
Proceeds from the issuance of senior notes
payable after one year . . . . . . . . . . . 500,000 275,000
Settlement of long-term debt. . . . . . . . . - (29,500)
Payments to settle subordinated debt. . . . . - (740)
Dividends paid to Pitney Bowes Inc. . . . . . (53,400) (46,500)
--------- ---------
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . (58,828) 325,569
--------- ---------
Increase in cash. . . . . . . . . . . . . . . 11,661 2,700
Cash at beginning of period . . . . . . . . . 10,129 11,250
--------- ---------
Cash at end of period . . . . . . . . . . . . $ 21,790 $ 13,950
========= =========
Interest paid . . . . . . . . . . . . . . . . $ 153,334 $ 154,059
========= =========
Income taxes refunded, net. . . . . . . . . . $ (34,400) $ (30,545)
========= =========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 7 of 22
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 accruals) necessary to present fairly the financial
position as of September 30, 1996 and the results of operations and
cash flows for the nine months ended September 30, 1996 and 1995
have been included. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. 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 for the year ended December 31, 1995.
Note 2:
- ------
The composition of the Company's finance assets is as follows:
(Dollars in thousands)
September 30, December 31,
Finance Assets 1996 1995
------------- ------------
Gross finance receivables . . . . . . $ 4,630,354 $ 4,801,084
Unguaranteed residual valuation . . . 661,758 649,549
Initial direct cost deferred. . . . . 93,815 89,173
Unearned income . . . . . . . . . . . (1,350,711) (1,422,453)
---------- ----------
Finance assets. . . . . . . . . . . $ 4,035,216 $ 4,117,353
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 8 of 22
Note 3:
- ------
Mortgage servicing rights (MSR) are recorded at the lower of cost
or present value of the estimated future net servicing income,
which does not exceed fair market value and are amortized in
proportion to, and over the period of, estimated net servicing
income. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (FAS 122). FAS 122 requires that capitalized MSR
be assessed periodically for impairment based on the fair value of
those rights. Fair value is estimated using a discounted cash flow
model which incorporates market discount and prepayment rates as
well as other assumptions that market participants would use in
their estimates of future servicing income and expense. The
Company's policy for evaluating MSR for impairment is to stratify
the mortgage servicing rights based on the predominant risk
characteristics of the underlying loans. Upon evaluation,
adjustments to current period operations and the valuation
allowance are made if any individual portfolio stratum is deemed
impaired. Based on the evaluation performed as of September 30,
1996, no impairment was recognized in the Company's mortgage
servicing rights portfolio.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 9 of 22
Note 4:
- ------
The composition of the Company's notes payable is as follows:
(Dollars in thousands)
September 30, December 31,
Notes Payable 1996 1995
------------- ------------
Senior Notes Payable
Commercial paper at a weighted average
interest rate of 5.40% (5.69% in 1995). . . $1,398,000 $1,864,000
Notes payable against bank lines of
credit and others at a weighted average
interest rate of 1.99% (2.35% in 1995). . . 298,761 258,880
Current installment of long-term debt due
within one year at an interest rate of
5.96% . . . . . . . . . . . . . . . . . . . 245,500 -
--------- ---------
Total senior notes payable within one year. . 1,942,261 2,122,880
Senior notes payable after one year at
interest rates of 5.84% to 9.25%
through 2009. . . . . . . . . . . . . . . . 1,275,000 1,020,500
--------- ---------
Total senior notes payable. . . . . . . . . 3,217,261 3,143,380
--------- ---------
Short-term Notes Payable to Affiliates
Notes payable to Pitney Bowes Inc. at a
weighted average interest rate of 5.26%
(5.72% in 1995) . . . . . . . . . . . . . . 70,400 132,000
Notes payable to Pitney Bowes International
at a weighted average interest rate of
5.85% in 1995 . . . . . . . . . . . . . . . - 17,709
--------- ---------
Total short-term notes payable to affiliates. 70,400 149,709
--------- ---------
Subordinated Notes Payable
Non-interest bearing notes due
Pitney Bowes Inc. . . . . . . . . . . . . . 170,857 170,857
--------- ---------
Total notes payable . . . . . . . . . . . . . $3,458,518 $3,463,946
========= =========
In July 1996, the Company issued $200 million of medium-term notes due in
July 1999 and $100 million of medium-term notes due in July 2001 with
coupon rates of 6.54 percent and 6.78 percent, respectively.
In September 1996, the Company issued $100 million of medium-term notes
due in October 1998 and $100 million of medium-term notes due in October
2001 with coupon rates of 6.31 percent and 6.80 percent, respectively.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 10 of 22
Note 5:
- ------
In addition to the adoption of FAS 122, as discussed in Note 3, the
Company also adopted Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" on January 1, 1996 with no
material effect to the Company's reported results.
The Financial Accounting Standards Board issued Financial
Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities"
(FAS 125). FAS 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after
December 31, 1996 and is to be applied prospectively. The company
is currently assessing the prospective impact of the provisions of
this standard on its consolidated financial statements.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 11 of 22
Item 2. Management's Narrative Analysis of the Results of Operations
------------------------------------------------------------
Event Impacting Comparability
- -----------------------------
As a result of the 1995 sale of Dictaphone Corporation (Dictaphone)
and Monarch Marking Systems, Inc. (Monarch) by Pitney Bowes Inc.
(Pitney Bowes or PBI), effective January 1, 1996, the operating
results of these two previous affiliates of the Company are now
reported as part of the Company's External small-ticket financing
programs. Prior to January 1, 1996, this information had been
reported as part of the Company's Internal small-ticket financing
programs. Both of these companies were captive for the majority of
1995 and will therefore continue to have their prior year results
disclosed as part of the Internal small-ticket financing programs.
Results of Operations - third quarter of 1996 compared to third
quarter of 1995
- ----------------------------------------------------------------------
Finance income in the third quarter of 1996 increased 15.1 percent to
$191.5 million compared to $166.3 million in 1995. Finance income for
Internal small-ticket financing programs increased 2.3 percent to
$76.6 million from $74.8 million ($70.8 million excluding Dictaphone
and Monarch) primarily due to higher income from fee-based programs
and higher financing activity partially offset by lower lease rates on
new business. Finance income for External large-ticket financing
programs decreased to $49.1 million from $50.3 million primarily due
to lower income from fee-based programs and lower financing activity.
Finance income related to External small-ticket financing programs
increased to $52.0 million from $31.2 million ($35.2 million including
Dictaphone and Monarch) primarily due to the impact of the sale of $75
million of Colonial Pacific Leasing Corporation (CPLC) finance assets
in September 1996, higher income from fee-based programs, partially
offset by lower investment levels and lower lease rates on new
business. Exclusive of the asset sale impact, finance income for the
External small-ticket financing programs would have increased 31.3
percent in the third quarter of 1996. Revenue generated from mortgage
servicing increased 38.7 percent to $13.8 million in the third quarter
of 1996 compared with $10.0 million in the third quarter of 1995, due
to a larger mortgage servicing portfolio which supports the Company's
fee-based income growth strategy.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 12 of 22
Selling, general and administrative (SG&A) expenses increased 37.3
percent to $47.8 million in the third quarter of 1996 compared to
$34.8 million in 1995. SG&A expenses for Internal small-ticket
financing programs increased to $14.9 million from $14.2 million
($13.9 million excluding Dictaphone and Monarch) principally due to
higher professional fees related to new business initiatives partially
offset by lower amortization of deferred initial direct costs. SG&A
expenses for External large-ticket financing programs increased 19.2
percent to $5.1 million primarily due to higher personnel related
expenses. SG&A expenses for External small-ticket financing programs
increased to $22.8 million from $12.4 million ($12.7 million including
Dictaphone and Monarch) principally due to the sale of CPLC finance
assets, a higher level of marketing fees paid to brokers on higher
levels of new business and higher personnel related expenses at CPLC
partially offset by lower personnel expenses related to the Custom
Vendor Finance (CVF) staff transfer at the end of May, 1996. SG&A
expenses related to mortgage servicing increased 18.0 percent in 1996
to $4.7 million primarily due to the administration of a larger
mortgage servicing portfolio. SG&A expenses related to the start-up
of the Company's residual value operations in 1996 were $.3 million.
Depreciation on operating leases was $3.4 million in the third quarter
of 1996 compared to $4.1 million in 1995 reflecting higher adjustments
in 1995 partially offset by a higher operating lease investment
balance in 1996. Amortization of mortgage servicing rights was $6.4
million in the third quarter of 1996 compared to $4.5 million in 1995
due to a larger mortgage servicing portfolio. Amortization of
deferred costs associated with the Company's participation in a
partnership transaction was $.6 million for both the third quarter of
1996 and 1995. Amortization of Financial Structures LTD. (FSL)
acquisition costs was $.2 million in the third quarter of 1996.
The provision for credit losses was $17.5 million for the third
quarter of 1996 compared to $13.3 million in 1995. The provision for
Internal small-ticket financing programs decreased to $7.1 million
from $8.6 million ($7.8 million excluding Dictaphone and Monarch)
primarily due to favorable reserve adjustments including lower
provisional rates implemented in 1996. The provision for the External
large-ticket financing programs was a credit of $.2 million in the
third quarter of 1996 compared with a credit of $.3 million in the
third quarter of 1995, reflecting favorable reserve adjustments in
both 1996 and 1995 based on management's current evaluation of
expected losses. The provision for External small-ticket financing
programs was $10.6 million for the third quarter of 1996 compared to
$5.0 million in 1995 ($5.8 million including Dictaphone and Monarch)
primarily due to the impact of the sale of CPLC finance assets in the
third quarter of 1996 and higher investment levels.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 13 of 22
As disclosed in previous filings, in December 1992, as part of the
restructuring of its German affiliate, Adrema Leasing Corporation
(Adrema), the Company purchased certain finance receivables and other
assets from Adrema. Based on the evaluation of these assets, Pitney
Bowes and the Company 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, Adrema continues to bill and collect accounts and
repossess and remarket collateral where possible over the remainder of
the lease terms.
The Company's allowance for credit losses as a percentage of net lease
receivables (net investments before allowance for credit losses plus
the uncollected principal balance of receivables sold) decreased from
2.00 percent at December 31, 1995 to 1.90 percent at September 30,
1996. PBCC wrote-off $54.2 million and $36.0 million against the
allowance for credit losses through the end of the third quarter of
1996 and 1995, respectively. These write-offs included $17.7 million
and $8.8 million in 1996 and 1995, respectively, which were related to
assets purchased from Adrema.
Interest expense was $50.4 million in the third quarter of 1996
compared with $51.2 million in 1995. The decrease reflects lower
interest rates partially offset by higher average borrowings in 1996.
The effective interest rate on average borrowings was 5.99 percent for
the third quarter of 1996 compared to 6.55 percent for the same period
of 1995. The Company does not match fund its financing investments
and does not apply different interest rates to its various financing
portfolios.
The effective tax rate for the third quarter of 1996 was 32.4 percent
compared with 31.0 percent for the same period of 1995. The increase
is principally due to the declining impact of the residual portfolio
purchase completed in the fourth quarter of 1994 and a lower level of
tax exempt income.
The Company's ratio of earnings to fixed charges was 2.28 times for
the third quarter of 1996 compared with 2.12 times for the same period
of 1995. The increase reflects higher profitability from higher
investment and fee-based program levels, combined with lower effective
interest rates in 1996.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 14 of 22
Results of Operations - first nine months of 1996 compared to first
nine months of 1995
- ----------------------------------------------------------------------
For the first nine months of 1996 compared to the same period of 1995,
total revenue increased 14.2 percent to $548.7 million, SG&A expenses
increased 25.9 percent to $126.1 million, depreciation and
amortization including the cost of equipment sales increased 18.8
percent to $29.9 million, provision for credit losses increased 24.5
percent to $48.1 million, interest expense decreased .7 percent to
$149.7 million, provision for income taxes increased by 23.1 percent
to $64.2 million, generating a favorable net income increase of 14.9
percent to $130.7 million.
Except for the pretax gains from the sale of the finance assets in the
first three quarters of 1996 of $2.6 million, $3.2 million and $2.1
million respectively, the factors that affected the change in each of
the above income or expense items were essentially the same as those
affecting the third quarter of 1996 versus 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are from operations and
borrowings. It has been PBCC's practice to use a balanced mix of debt
maturities, variable- and fixed-rate debt and interest rate swap
agreements to control its sensitivity to interest rate volatility.
PBCC's debt mix was 58 percent short-term and 42 percent long-term at
September 30, 1996 and 66 percent short-term and 34 percent long-term
at December 31, 1995. PBCC's swap-adjusted debt mix was 43 percent
variable-rate and 57 percent fixed-rate at September 30, 1996 and 57
percent variable rate and 43 percent fixed rate at December 31, 1995.
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 July 1996, the Company issued $200 million of medium-term notes due
in July 1999 and $100 million of medium-term notes due in July 2001
with coupon rates of 6.54 percent and 6.78 percent, respectively.
In September 1996, the Company issued $100 million of medium-term
notes due in October 1998 and $100 million of medium-term notes due in
October 2001 with coupon rates of 6.31 percent and 6.80 percent,
respectively.
The Company has $250 million of unissued debt securities remaining
from a shelf registration statement filed with the Securities and
Exchange Commission in September 1995. The $250 million available
under this shelf registration statement should meet the Company's
financing needs for approximately the next year. The Company also had
unused lines of credit and revolving credit facilities totaling $1.55
billion at September 30, 1996, largely supporting its commercial paper
borrowings.
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 control the growth of External large-ticket investments and debt
levels.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 15 of 22
Additional financing will continue to be arranged as deemed necessary.
Borrowing requirements will be primarily dependent upon the level of
equipment purchases from Pitney Bowes, the level of External Division
financing activity, funding of any fee-based business initiatives and
the refinancing of maturing debt.
The Company's utilization of derivative instruments is currently
limited to interest rate swap agreements (interest rate swaps) and
foreign currency exchange forward contracts (foreign currency
contracts). The Company periodically enters into interest rate swaps
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
counterparties to the interest rate swaps 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. The Company is
exposed to credit loss in the event of non-performance by the
counterparties to the foreign currency contracts to the extent of the
difference between the spot rate at the date of the contract delivery
and the contracted rate; such exposure is also considered minimal.
Since the Company normally enters into derivative transactions only
with members of its banking group, the credit risk of these
transactions is monitored as part of the normal credit review of the
banking group. The Company monitors the market risk of derivative
instruments through periodic review of fair market values.
Gross finance assets at the end of the third quarter of 1996 decreased
2.9 percent from December 31, 1995. The decrease is principally due
to the sale of $98.8 million of External large-ticket gross finance
assets during the first quarter of 1996, the sale of $138.6 million of
External small-ticket (CVF) gross finance assets during the second
quarter of 1996 and the sale of $97.3 million External small-ticket
(CPLC) gross finance assets during the third quarter of 1996,
partially offset by higher new volume levels in the Internal small-
ticket financing programs during the third quarter of 1996. Gross
finance assets at September 30, 1996 were 1.0 percent, or $55.5
million lower than at September 30, 1995. Overall levels of lease
receivables are in line with management's expectations.
The Company's liquidity ratio (finance contracts receivable plus
residuals expected to be realized in cash over the next 12 months to
current maturities of debt over the same period) was .79 times at
September 30, 1996 and .61 times at December 31, 1995.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 16 of 22
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.
- ----------------------------------------------------------------------
The Company wishes to caution readers that any forward-looking
statements contained in this Form 10-Q or made by the management of
the Company involve risks and uncertainties, and are subject to change
based on various important factors. The following factors, among
others, could affect the Company's financial results and could cause
the Company's financial performance to differ materially from the
expectations expressed in any forward-looking statement made by or on
behalf of the Company - the level of business and financial
performance of Pitney Bowes; the impact of governmental financing
regulations; the success of the Company in developing strategies to
manage debt levels, including the ability of the Company to access the
capital markets; the strength of worldwide economies; the effects of
and changes in trade, monetary and fiscal policies and laws, and
inflation and monetary fluctuations, including changes in interest
rates; the willingness of customers to substitute financing sources;
and the level of write-offs and the Company's associated collection
and asset management efforts.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 17 of 22
Part II - Other Information
---------------------------
Item 1. Legal proceedings
From time to time, the Company is a party to lawsuits that
arise in the ordinary course of its business. These lawsuits
may involve litigation by or against the Company to enforce
contractual rights under vendor, insurance or other contracts;
lawsuits by or against the Company relating to equipment,
service or payment disputes with customers; disputes with
employees; or other matters. The Company is currently a
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.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 18 of 22
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
-------- ------------------------------ -------------
(10) Material Contracts See Exhibit (i)
on page 20
1. First Amended and Restated
Operating Agreement, dated
November 6, 1996 between
Pitney Bowes Credit
Corporation and Pitney
Bowes Inc.
(12) Computation of Ratio of See Exhibit (ii)
Earnings to Fixed Charges on page 21
(27) Financial Data Schedule See Exhibit (iii)
on page 22
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, 1996.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 19 of 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 CREDIT CORPORATION
Date: November 13, 1996 /s/ G. Kirk Hudson
----------------- ------------------------
G. Kirk Hudson
Vice President - Finance
(Principal Financial
and Accounting Officer)
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q Exhibit (i)
Nine Months Ended September 30, 1996
Page 20 of 22
FIRST AMENDED AND RESTATED OPERATING AGREEMENT
----------------------------------------------
Pitney Bowes Inc. ("PBI") and Pitney Bowes Credit Corporation ("PBCC")
(collectively the "Parties" or individually the "Party") make this
agreement this 6th day of November, 1996 ("Agreement").
WHEREAS, the Parties wish to terminate in its entirety the existing
operating agreement between the Parties dated March 3, 1977, as
amended, and supersede it with this successor Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the
Parties agree as follows:
1. TERM AND TERMINATION: This Agreement shall take effect upon execution
by both Parties. It shall remain in effect until it is canceled by the
mutual consent of the Parties or it is canceled by one Party giving the
other Party ninety (90) days prior written notice of termination.
2. BUSINESS RELATIONSHIP BETWEEN THE PARTIES: The Parties agree that they
will regularly review their business relationship and their respective
policies and procedures so as to continuously improve their
competitiveness and their service to customers. The current policies
and procedures may be amended from time to time by the Parties in a
writing mutually agreed to by the Parties. A Party proposing to
modify, amend, substitute, or delete a policy or procedure, or
establish a new policy or procedure, shall give written notice to the
President of the other Party. The notice shall be accompanied by the
proposal. The Parties shall meet as soon as necessary and reasonably
practicable to discuss the proposal.
3. GOVERNING LAW; SUCCESSORS AND ASSIGNS: This Agreement shall be
governed by and construed in accordance with the laws of the State of
Connecticut. This Agreement shall be binding upon and inure to the
benefit of PBI and PBCC and their respective successors and assigns.
This Agreement is not intended to, and does not, inure to the benefit
of any third parties.
4. INDEPENDENT OBLIGATION: This Agreement does not amend or modify any
other agreement between the Parties including, without limitation, the
Parties' Finance Agreement as amended July 12, 1995, and further this
Agreement does not constitute a guaranty by one Party of any of the
obligations of the other Party.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective representatives as of the day and year
first above written.
/s/ Matthew S. Kissner /s/ Michael J. Critelli
- ----------------------------------- ---------------------------------------
Matthew S. Kissner Michael J. Critelli
President & Chief Executive Officer Vice Chairman & Chief Executive Officer
Pitney Bowes Credit Corporation Pitney Bowes Inc.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Nine Months Ended September 30, 1996
Page 21 of 22
<TABLE>
Exhibit (ii)
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
(Dollars in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, Years Ended December 31,
----------------- ----------------- -------------------------------------------
1996 1995 1996 1995 1995 1994 1993 1992 1991
-------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes. . . . . . . . $ 65,157 $ 57,985 $194,925 $165,948 $231,334 $218,913 $189,960 $185,704 $148,746
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges:
Interest on debt . . 50,394 51,236 149,663 150,703 202,090 151,239 137,372 146,594 167,236
1/3 rental expense . 393 389 1,190 1,154 1,519 1,463 1,575 1,491 1,389
------- ------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges . 50,787 51,625 150,853 151,857 203,609 152,702 138,947 148,085 168,625
------- ------- ------- ------- ------- ------- ------- ------- -------
Total . . . . . . . . $115,944 $109,610 $345,778 $317,805 $434,943 $371,615 $328,907 $333,789 $317,371
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges (1). . 2.28X 2.12X 2.29X 2.09X 2.14X 2.43X 2.37X 2.25X 1.88X
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
(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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9/30/96
INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,790
<SECURITIES> 0
<RECEIVABLES> 4,762,601
<ALLOWANCES> 95,282
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,198,072
<CURRENT-LIABILITIES> 2,289,474
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 901,313
<TOTAL-LIABILITY-AND-EQUITY> 5,198,072
<SALES> 421
<TOTAL-REVENUES> 548,742
<CGS> 283
<TOTAL-COSTS> 156,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48,117
<INTEREST-EXPENSE> 149,663
<INCOME-PRETAX> 194,925
<INCOME-TAX> 64,206
<INCOME-CONTINUING> 130,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,719
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
