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, 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 July 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
Six Months Ended June 30, 1996
Page 2 of 21
Pitney Bowes Credit Corporation
Index
-------------------------------
Page Number
-----------
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Statement of Income -
Three and Six Months Ended
June 30, 1996 and 1995. . . . . . . . . 3
Consolidated Balance Sheet -
June 30, 1996 and
December 31, 1995 . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Six Months Ended
June 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 5. Other Information. . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . 19
Exhibit (i) - Computation of Ratio of Earnings
to Fixed Charges. . . . . . . . . . . . . . . . 20
Exhibit (ii) - Financial Data Schedule . . . . . 21
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 3 of 21
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Finance income . . . . . . . . . . . $179,570 $159,735 $356,846 $311,905
Equipment sales. . . . . . . . . . . 421 - 421 -
------- ------- ------- -------
Total revenue. . . . . . . . . . . 179,991 159,735 357,267 311,905
------- ------- ------- -------
Expenses:
Selling, general and administrative. 38,982 33,313 78,264 65,331
Depreciation and amortization. . . . 10,186 6,956 19,113 13,826
Cost of equipment sales. . . . . . . 283 - 283 -
Provision for credit losses. . . . . 13,875 13,050 30,570 25,318
Interest . . . . . . . . . . . . . . 48,954 50,918 99,269 99,467
------- ------- ------- -------
Total expenses . . . . . . . . . . 112,280 104,237 227,499 203,942
------- ------- ------- -------
Income before income taxes . . . . . . 67,711 55,498 129,768 107,963
Provision for income taxes . . . . . . 22,636 17,684 43,125 34,180
------- ------- ------- -------
Net income . . . . . . . . . . . . . . $ 45,075 $ 37,814 $ 86,643 $ 73,783
======= ======= ======= =======
Ratio of earnings to fixed charges . . 2.37X 2.08X 2.30X 2.08X
======= ======= ======= =======
</TABLE>
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 4 of 21
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
-------------------------------
(Unaudited)
(Dollars in thousands) June 30, December 31,
1996 1995
------------ ------------
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . $ 9,513 $ 10,129
---------- ----------
Investments:
Finance assets (Note 2) . . . . . . . . . . . 4,010,619 4,117,353
Investment in leveraged leases . . . . . . . . 575,394 562,500
Assets transferred from affiliate. . . . . . . 42,731 53,717
Investment in operating leases, net of
accumulated depreciation . . . . . . . . . . 109,096 114,587
Allowance for credit losses. . . . . . . . . . (95,670) (101,355)
---------- ----------
Net investments. . . . . . . . . . . . . . . 4,642,170 4,746,802
---------- ----------
Mortgage servicing rights, net of accumulated
amortization (Note 3) . . . . . . . . . . . . . 119,734 105,933
Assets held for sale . . . . . . . . . . . . . . 235,611 71,917
Other assets . . . . . . . . . . . . . . . . . . 151,836 123,093
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . $ 5,158,864 $ 5,057,874
========== ==========
Liabilities
Senior notes payable within one year (Note 4). . $ 2,380,778 $ 2,122,880
Short-term notes payable to affiliates (Note 4). 129,994 149,709
Accounts payable to affiliates . . . . . . . . . 135,914 127,007
Accounts payable and accrued liabilities . . . . 149,396 155,603
Deferred taxes . . . . . . . . . . . . . . . . . 495,888 441,324
Senior notes payable after one year (Note 4) . . 775,000 1,020,500
Subordinated notes payable (Note 4). . . . . . . 170,857 170,857
---------- ----------
Total liabilities . . . . . . . . . . . . . . 4,237,827 4,187,880
---------- ----------
Stockholder's Equity
Common stock . . . . . . . . . . . . . . . . . . 46,000 46,000
Capital surplus. . . . . . . . . . . . . . . . . 41,725 41,725
Retained earnings. . . . . . . . . . . . . . . . 833,312 782,269
---------- ----------
Total stockholder's equity. . . . . . . . . . 921,037 869,994
---------- ----------
Total liabilities and stockholder's equity . . . $ 5,158,864 $ 5,057,874
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 5 of 21
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
(Dollars in thousands) Six Months Ended June 30,
---------------------------
1996 1995
---------- ----------
Operating Activities
Net income. . . . . . . . . . . . . . . . . . $ 86,643 $ 73,783
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses . . . . . . . . 30,570 25,318
Depreciation and amortization . . . . . . . 19,113 13,826
Cost of equipment sales . . . . . . . . . . 283 -
Increase (decrease) in accounts payable to
affiliates . . . . . . . . . . . . . . . . 8,907 (26,213)
Increase in deferred taxes. . . . . . . . . 54,564 42,127
Decrease in accounts payable and accrued
liabilities. . . . . . . . . . . . . . . . (6,207) (80,308)
Increase in assets transferred from
affiliate. . . . . . . . . . . . . . . . . (2,420) (24,266)
Other, net. . . . . . . . . . . . . . . . . (21,671) (9,525)
--------- ---------
Net cash provided by operating activities . . 169,782 14,742
--------- ---------
Investing Activities
Investment in net finance assets. . . . . . (692,387) (607,486)
Investment in operating leases. . . . . . . (8,927) (1,100)
Investment in assets held for sale. . . . . (200,681) (59,523)
Cash receipts collected under lease
contracts, net of finance income
recognized . . . . . . . . . . . . . . . . 806,878 455,833
Investment in mortgage servicing rights . . (22,847) (36,562)
Loans and advances to affiliates, net . . . (3,452) 38,243
Additions to equipment and leasehold
improvements . . . . . . . . . . . . . . . (6,065) (3,770)
--------- ---------
Net cash used in investing activities . . . (127,481) (214,365)
--------- ---------
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 6 of 21
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
(Dollars in thousands) Six Months Ended June 30,
---------------------------
1996 1995
---------- ----------
Financing Activities
Increase (decrease) in short-term debt. . . 12,398 (20,001)
Proceeds from the issuance of senior notes
payable after one year . . . . . . . . . . - 275,000
Settlement of long-term debt. . . . . . . . - (29,500)
Short-term loans from affiliates. . . . . . (19,715) -
Payments to settle subordinated debt. . . . - (740)
Dividends paid to Pitney Bowes Inc. . . . . (35,600) (31,000)
--------- ---------
Net cash (used in) provided by financing
activities. . . . . . . . . . . . . . . . (42,917) 193,759
--------- ---------
Decrease in cash. . . . . . . . . . . . . . . (616) (5,864)
Cash at beginning of period . . . . . . . . . 10,129 11,250
--------- ---------
Cash at end of period . . . . . . . . . . . . $ 9,513 $ 5,386
========= =========
Interest paid . . . . . . . . . . . . . . . . $ 101,384 $ 108,704
========= =========
Income taxes refunded, net. . . . . . . . . . $ (35,611) $ (24,915)
========= =========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 7 of 21
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 June 30, 1996 and the results of operations and cash
flows for the six months ended June 30, 1996 and 1995 have been
included. Operating results for the six months ended June 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)
June 30, December 31,
Finance Assets 1996 1995
----------- ------------
Gross finance receivables . . . . . . $ 4,645,782 $ 4,801,084
Unguaranteed residual valuation . . . 649,457 649,549
Initial direct cost deferred. . . . . 97,713 89,173
Unearned income . . . . . . . . . . . (1,382,333) (1,422,453)
---------- ----------
Finance assets. . . . . . . . . . . $ 4,010,619 $ 4,117,353
========== ==========
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 8 of 21
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 June 30, 1996,
no impairment was recognized in the Company's mortgage servicing
rights portfolio.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 9 of 21
Note 4:
- ------
The composition of the Company's notes payable is as follows:
(Dollars in thousands)
June 30, December 31,
Notes Payable 1996 1995
------------ ------------
Senior Notes Payable
Commercial paper at a weighted average
interest rate of 5.28% (5.69% in 1995). . . $1,851,488 $1,864,000
Notes payable against bank lines of
credit and others at a weighted average
interest rate of 2.06% (2.35% in 1995). . . 283,790 258,880
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. . 2,380,778 2,122,880
Senior notes payable after one year at
interest rates of 5.84% to 9.25%
through 2009. . . . . . . . . . . . . . . . 775,000 1,020,500
--------- ---------
Total senior notes payable. . . . . . . . . 3,155,778 3,143,380
--------- ---------
Short-term Notes Payable to Affiliates
Notes payable to Pitney Bowes Inc. at a
weighted average interest rate of 5.30%
(5.72% in 1995) . . . . . . . . . . . . . . 126,200 132,000
Notes payable to Pitney Bowes International
at a weighted average interest rate of
5.39% (5.85% in 1995) . . . . . . . . . . . 3,794 17,709
--------- ---------
Total short-term notes payable to affiliates. 129,994 149,709
--------- ---------
Subordinated Notes Payable
Non-interest bearing notes due
Pitney Bowes Inc. . . . . . . . . . . . . . 170,857 170,857
--------- ---------
Total notes payable . . . . . . . . . . . . . $3,456,629 $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.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 10 of 21
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.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 11 of 21
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 - second quarter of 1996 compared to second
quarter of 1995
- ----------------------------------------------------------------------
Finance income in the second quarter of 1996 increased 12.4 percent to
$179.6 million compared to $159.7 million in 1995. Finance income for
Internal small-ticket financing programs increased marginally to $75.5
million from $75.2 million ($71.3 million excluding Dictaphone and
Monarch) primarily due to higher income from fee-based programs,
partly offset by lower income on lower financing activity. Finance
income for External large-ticket financing programs decreased to $46.2
million from $47.0 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 $45.1 million
from $28.2 million ($32.1 million including Dictaphone and Monarch)
primarily due to higher income from fee-based programs, a $3.2 million
pretax gain on the sale of the Company's net investment in the Custom
Vendor Finance (CVF) group, in addition to higher investment levels
and higher lease rates on new business. Revenue generated from
mortgage servicing increased 37.9 percent to $12.8 million in the
second quarter of 1996 compared with $9.3 million in the second
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
Six Months Ended June 30, 1996
Page 12 of 21
Selling, general and administrative (SG&A) expenses increased 17.0
percent to $39.0 million in the second quarter of 1996 compared to
$33.3 million in 1995. SG&A expenses for Internal small-ticket
financing programs increased to $14.4 million from $13.4 million
($12.3 million excluding Dictaphone and Monarch) principally due to
higher professional fees related to new business initiatives partially
offset by lower sales assistance fees paid to Pitney Bowes. SG&A
expenses for External large-ticket financing programs increased 14.6
percent to $4.5 million primarily due to the allocation of higher
personnel related expenses. SG&A expenses for External small-ticket
financing programs increased to $15.3 million from $12.5 million
($13.6 million including Dictaphone and Monarch) principally due to a
higher level of marketing fees paid to brokers on higher levels of new
business and higher personnel related expenses at Colonial Pacific
Leasing Corporation partially offset by lower personnel expenses
related to the Custom Vendor Finance staff transfer at the end of May,
1996. SG&A expenses related to mortgage servicing increased 33.6
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 $.1
million.
Depreciation on operating leases was $3.7 million in the second
quarter of 1996 compared to $2.5 million in 1995 reflecting a higher
operating lease investment balance in 1996. Amortization of mortgage
servicing rights was $5.9 million in the second quarter of 1996
compared to $3.9 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 second quarter of 1996 and 1995.
The provision for credit losses was $13.9 million for the second
quarter of 1996 compared to $13.1 million in 1995. The provision for
Internal small-ticket financing programs decreased to $7.3 million
from $8.5 million ($7.9 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 $.2 million in the second quarter
of 1996 compared with a credit of $.6 million in the second quarter of
1995, reflecting higher investment levels in 1996 and favorable
reserve adjustments in 1995. The provision for External small-ticket
financing programs was $6.4 million for the second quarter of 1996
compared to $5.2 million in 1995 ($5.8 million including Dictaphone
and Monarch) primarily due to higher investment levels.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 13 of 21
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 continues to scrutinize the
circumstances surrounding the losses and evaluate actions that can be
taken against former Adrema management and other related parties.
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 1.94 percent at June 30, 1996.
PBCC charged $36.3 million and $22.6 million against the allowance for
credit losses through the end of the second quarter of 1996 and 1995,
respectively. These write-offs included $12.3 million and $4.4
million in 1996 and 1995, respectively, which were related to assets
purchased from Adrema.
Interest expense was $49.0 million in the second quarter of 1996
compared with $50.9 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 5.93 percent for
the second quarter of 1996 compared to 6.67 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 second quarter of 1996 was 33.4 percent
compared with 31.9 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 2.37 times for
the second quarter of 1996 compared with 2.08 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
Six Months Ended June 30, 1996
Page 14 of 21
Results of Operations - first six months of 1996 compared to first six
months of 1995
- ----------------------------------------------------------------------
For the first six months of 1996 compared to the same period of 1995,
total revenue increased 14.5 percent to $357.3 million, SG&A expenses
increased 19.8 percent to $78.3 million, depreciation and amortization
including the cost of equipment sales increased 40.3 percent to $19.4
million, provision for credit losses increased 20.7 percent to $30.6
million, interest expense decreased .2 percent to $99.3 million,
provision for income taxes increased by 26.2 percent to $43.1 million,
generating a favorable net income increase of 17.4 percent to $86.6
million.
Except for the gain from the sale of the CVF finance assets in the
second quarter of 1996, the factors that affected the change in each
of the above income or expense items were essentially the same as
those affecting the second 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 73 percent short-term and 27 percent long-term at
June 30, 1996 and 66 percent short-term and 34 percent long-term at
December 31, 1995. PBCC's swap-adjusted debt mix was 58 percent
variable-rate and 42 percent fixed-rate at June 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.
Subsequent to the July 1996 $200 million medium-term notes issuance,
the Company has $450 million of unissued debt securities remaining
from a shelf registration statement filed with the Securities and
Exchange Commission in September 1995. Up to $200 million of medium-
term notes may be offered under this registration statement. The $450
million available under this shelf registration statement should meet
the Company's financing needs for approximately the next two years.
The Company also had unused lines of credit and revolving credit
facilities totaling $1.72 billion at June 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
Six Months Ended June 30, 1996
Page 15 of 21
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, capitalization 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 second quarter of 1996
decreased 2.9 percent from December 31, 1995. The decrease is
principally due to the sale of $139 million of External large-ticket
finance assets during the first quarter of 1996 and the sale of $126
million of External small-ticket (CVF) finance assets during the
second quarter of 1996, partially offset by higher new volume levels
in the Internal small-ticket financing programs during the second
quarter of 1996. Gross finance assets at June 30, 1996 were 2.5
percent, or $131.2 million higher than June 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 .71 times at June
30, 1996 and .61 times at December 31, 1995.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 16 of 21
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
Six Months Ended June 30, 1996
Page 17 of 21
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.
Pitney Bowes has been advised by the Antitrust Division of the
U.S. Department of Justice that its civil investigation of
PBI's postage equipment business has been closed. The
investigation was concluded without any findings that Pitney
Bowes violated the surviving provisions of the 1959 consent
decree between Pitney Bowes and the U.S. Department of
Justice, and/or the antitrust laws.
Item 5. Other Information
Effective May 31, 1996, the Company sold its Custom Vendor
Finance (CVF) operations to Newcourt Credit Group (based in
Toronto, Canada). Newcourt Credit Group acquired CVF's
existing operations including twelve employees, twelve U.S.
vendor finance programs and a portfolio of secured loans
valued at $126 million.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 18 of 21
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 20
(27) Financial Data Schedule See Exhibit (ii)
on page 21
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, 1996.
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 19 of 21
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 14, 1996 /s/ G. Kirk Hudson
-------------------- -----------------------------
G. Kirk Hudson
Vice President - Finance
(Principal Financial Officer)
/s/ Thomas P. Santora
------------------------------
Thomas P. Santora
Controller
(Principal Accounting Officer)
<PAGE>
Pitney Bowes Credit Corporation - Form 10-Q
Six Months Ended June 30, 1996
Page 20 of 21
<TABLE>
Exhibit (i)
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
(Dollars in thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 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. . . . . . . . $ 67,711 $ 55,498 $129,768 $107,963 $231,334 $218,913 $189,960 $185,704 $148,746
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges:
Interest on debt . . 48,954 50,918 99,269 99,467 202,090 151,239 137,372 146,594 167,236
1/3 rental expense . 385 373 797 765 1,519 1,463 1,575 1,491 1,389
------- ------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges . 49,339 51,291 100,066 100,232 203,609 152,702 138,947 148,085 168,625
------- ------- ------- ------- ------- ------- ------- ------- -------
Total . . . . . . . . $117,050 $106,789 $229,834 $208,195 $434,943 $371,615 $328,907 $333,789 $317,371
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges (1). . 2.37X 2.08X 2.30X 2.08X 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.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 6/30/96
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,513
<SECURITIES> 0
<RECEIVABLES> 4,737,840
<ALLOWANCES> 95,670
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,158,864
<CURRENT-LIABILITIES> 2,796,082
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 875,037
<TOTAL-LIABILITY-AND-EQUITY> 5,158,864
<SALES> 421
<TOTAL-REVENUES> 357,267
<CGS> 283
<TOTAL-COSTS> 97,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,570
<INTEREST-EXPENSE> 99,269
<INCOME-PRETAX> 129,768
<INCOME-TAX> 43,125
<INCOME-CONTINUING> 86,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,643
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
