SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-13497
PITNEY BOWES CREDIT CORPORATION
Incorporated pursuant to the Laws of the State of Delaware
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Internal Revenue Service -- Employer Identification No. 06-0946476
27 Waterview Drive, Shelton, CT 06484-4361
(203) 922-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
As of July 31, 1998, 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>
Page 2 of 14
PITNEY BOWES CREDIT CORPORATION
<TABLE>
Part I -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
<S> <C>
Consolidated Statements of Income:
Three and Six Months Ended June 30, 1998 and 1997................................... 3
Consolidated Balance Sheets:
As of June 30, 1998 and December 31, 1997........................................... 4
Consolidated Statements of Cash Flow:
Six Months Ended June 30, 1998 and 1997............................................. 5
Notes to Consolidated Financial Statements............................................ 6
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS OF
THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION............................................................................. 8
Part II -- OTHER INFORMATION
ITEM 1.-- LEGAL PROCEEDINGS............................................................... 11
ITEM 6.-- EXHIBITS AND REPORTS ON FORM 8-K................................................ 11
SIGNATURE................................................................................. 12
Exhibit (i) -- Computation of Ratio of Earnings
to Fixed Charges...................................................................... 13
Exhibit (ii)-- Financial Data Schedule................................................... 14
</TABLE>
<PAGE>
Page 3 of 14
PART I -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Finance income............................................... $ 177,259 $ 166,442 $ 331,265 $ 335,091
Mortgage servicing revenue................................... 29,306 16,717 52,618 31,462
------- ------- ------- -------
Total revenue.............................................. 206,565 183,159 383,883 366,553
------- ------- ------- -------
Expenses:
Selling, general and administrative.......................... 53,900 42,140 97,423 83,741
Interest..................................................... 40,387 51,098 80,786 100,993
Provision for credit losses.................................. 24,052 15,911 38,830 30,966
Depreciation and amortization................................ 14,231 9,833 26,493 20,337
------- ------- ------- -------
Total expenses............................................. 132,570 118,982 243,532 236,037
------- ------- ------- -------
Income before income taxes..................................... 73,995 64,177 140,351 130,516
Provision for income taxes..................................... 21,903 19,391 41,410 40,492
------- ------- ------- -------
Net income..................................................... $ 52,092 $ 44,786 $ 98,941 $ 90,024
======= ======= ======= =======
Ratio of earnings to fixed charges............................. 2.82X 2.25X 2.72X 2.28X
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Page 4 of 14
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of dollars)
<TABLE>
June 30, December 31,
1998 1997
--------- ------------
ASSETS
<S> <C> <C>
Cash................................................................. $ 48,562 $ 36,320
Investments:
Finance assets..................................................... 3,275,584 3,475,538
Investment in leveraged leases..................................... 713,742 667,779
Investment in operating leases, net of accumulated depreciation.... 43,972 32,112
Allowance for credit losses........................................ (121,880) (116,588)
--------- ---------
Net investments.................................................. 3,911,418 4,058,841
--------- ---------
Mortgage servicing rights, net of accumulated amortization........... 360,256 220,912
Assets held for sale................................................. 394,812 305,228
Investment in partnership............................................ 202,329 158,327
Loans and advances to affiliates..................................... 32,601 290,488
Other assets......................................................... 274,050 258,224
--------- ---------
Total assets.................................................. $ 5,224,028 $ 5,328,340
========= =========
LIABILITIES
Senior notes payable within one year................................. $ 1,618,346 $ 1,970,110
Short-term notes payable to affiliates............................... 277 -
Accounts payable to affiliates....................................... 177,923 232,917
Accounts payable and accrued liabilities............................. 196,786 199,905
Deferred taxes....................................................... 509,407 510,060
Senior notes payable after one year.................................. 1,300,000 1,050,000
Subordinated notes payable........................................... 270,487 270,487
--------- ---------
Total liabilities............................................... 4,073,226 4,233,479
--------- ---------
STOCKHOLDER'S EQUITY
Common stock......................................................... 46,000 46,000
Capital surplus...................................................... 41,725 41,725
Retained earnings.................................................... 1,063,077 1,007,136
--------- ---------
Total stockholder's equity...................................... 1,150,802 1,094,861
--------- ---------
Total liabilities and stockholder's equity.................... $ 5,224,028 $ 5,328,340
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Page 5 of 14
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
(in thousands of dollars)
<TABLE>
Six Months Ended June 30,
----------------------------
1998 1997
---- ----
Operating Activities
<S> <C> <C>
Net income................................................................. $ 98,941 $ 90,024
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses.............................................. 38,830 30,966
Depreciation and amortization............................................ 26,493 20,337
(Decrease) increase in accounts payable to affiliates.................... (54,994) 13,399
Increase in deferred taxes............................................... 44,888 39,142
Decrease (increase) in other current assets.............................. 25,731 (9,032)
Increase in other non-current assets..................................... (42,324) (17,962)
(Decrease) increase in accounts payable and accrued liabilities.......... (3,119) 21,488
Other, net............................................................... 437 4,568
--------- ---------
Net cash provided by operating activities.................................. 134,883 192,930
--------- ---------
Investing Activities
Investment in net finance assets........................................... (700,689) (988,567)
Investment in operating leases............................................. (20,050) (11,807)
Investment in leveraged leases............................................. (50,217) (13,328)
Investment in assets held for sale......................................... (170,245) (326,344)
Investment in partnership.................................................. (22,473) -
Cash receipts collected under lease contracts, net of finance
income recognized........................................................ 892,415 1,197,206
Investment in mortgage service rights...................................... (159,584) (66,234)
Loans and advances to affiliates, net...................................... 257,916 (1,651)
Additions to equipment and leasehold improvements.......................... (5,227) (6,711)
--------- ---------
Net cash provided by (used in) investing activities........................ 21,846 (217,436)
--------- ---------
Financing Activities
(Decrease) increase in short-term debt..................................... (226,487) 382,376
Settlement of long-term debt............................................... (125,000) (245,500)
Proceeds from issuance of senior notes..................................... 250,000 -
Short-term loans from affiliates........................................... - (43,800)
Dividends paid to Pitney Bowes Inc......................................... (43,000) (39,000)
--------- ---------
Net cash (used in) provided by financing activities........................ (144,487) 54,076
--------- ---------
Increase in cash........................................................... 12,242 29,570
Cash at beginning of period................................................ 36,320 20,937
--------- ---------
Cash at end of period...................................................... $ 48,562 $ 50,507
========= =========
Interest paid.............................................................. $ 82,191 $ 113,056
========= =========
Income taxes refunded, net................................................. $ (12,892) $ (4,744)
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Page 6 of 14
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 -- General
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, 1998, the results of operations for the three and six
months ended June 30, 1998 and 1997 and cash flows for the six months ended June
30, 1998 and 1997 have been included. Certain amounts from prior periods have
been reclassified to conform to current period presentation. Operating results
for the three and six months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.
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, 1997.
Note 2 -- New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities on its
balance sheet and measure those instruments at fair market value. Changes in the
fair value of those instruments will be reflected as gains or losses. The
accounting for the gains or losses depends on the intended use of the derivative
and the resulting designation. PBCC will be required to implement this statement
beginning January 1, 2000. The Company is currently in the process of evaluating
the potential impact of implementing this statement.
Note 3 --Finance Assets
The composition of the Company's finance assets is as follows:
<TABLE>
June 30, December 31,
(in thousands of dollars) 1998 1997
--------- ------------
<S> <C> <C>
Gross finance receivables...................................... $ 3,690,923 $ 3,926,540
Unguaranteed residual valuation................................ 444,351 461,051
Initial direct costs deferred.................................. 83,011 85,497
Unearned income................................................ (942,701) (997,550)
--------- ---------
Total finance assets......................................... $ 3,275,584 $ 3,475,538
========= =========
</TABLE>
Note 4 -- Mortgage Servicing Rights
Mortgage servicing rights ("MSR") are recorded at the lower of amortized cost
or present value of the estimated 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. 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 at June
30, 1998, no impairment was recognized in the Company's MSR portfolio.
<PAGE>
Page 7 of 14
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5 -- Notes Payable
<TABLE>
The composition of the Company's notes payable is as follows:
<S> <C> <C>
June 30, December 31,
(in thousands of dollars) 1998 1997
--------- ------------
Senior Notes Payable:
Commercial paper at the weighted average
interest rate of 5.57% (5.66% in 1997)........................ $ 888,450 $ 1,361,110
Notes payable against bank lines of credit and others at weighted
average interest rates of 1.23% to 6.60% (1.68% in 1997)...... 629,896 384,000
Current installment of long-term debt due within one year at
an interest rate of 6.31% (5.84% to 6.31% in 1997)........... 100,000 225,000
--------- ---------
Total senior notes payable due within one year................. 1,618,346 1,970,110
Senior notes payable due after one year at interest rates of
5.65% to 9.25% (6.06% to 9.25% in 1997)...................... 1,300,000 1,050,000
--------- ---------
Total senior notes payable..................................... 2,918,346 3,020,110
Short-term Notes Payable to Affiliates:
Notes payable to Pitney Bowes Deutschland at a
weighted average interest rate of 3.50%...................... 277 -
Subordinated Notes Payable:
Non-interest bearing notes due Pitney Bowes Inc................ 270,487 270,487
--------- ---------
Total notes payable............................................... $ 3,189,110 $ 3,290,597
========= =========
</TABLE>
Note 6 -- Subsequent Events
On July 15, 1998, the Company filed a shelf registration statement on Form
S-3 with the Securities and Exchange Commission. The registration statement
allows PBCC to offer, in one or more series, its unsecured debt securities at an
aggregate initial offering price not to exceed $750,000,000. The debt securities
will be offered in amounts, at prices and at terms to be determined at the time
of sale and which will be set forth in supplements to the prospectus forming
part of the shelf registration statement. The registration statement was
declared effective on July 28, 1998.
<PAGE>
Page 8 of 14
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS
OF THE RESULTS OF OPERATION AND FINANCIAL CONDITION
Results of Operations
Second Quarter of 1998 Compared to Second Quarter of 1997
Finance income in the second quarter of 1998 increased 6.5 percent to $177.3
million compared to $166.4 million in 1997. Finance income for internal
small-ticket financing programs increased 5.5 percent to $87.2 million from
$82.6 million primarily due to higher income from fee- and service-based
programs and a higher earning asset base. Finance income for external
large-ticket financing programs decreased to $37.0 million from $44.2 million
primarily due to lower external large-ticket investment levels in accordance
with the Company's strategy to shift the foundation of the external financing
business from asset-based to fee- and service- based revenues. Included in
finance income for external large-ticket financing for the second quarter of
1998 were gains on asset sales of $6.2 million. Finance income related to
external small-ticket financing programs increased to $53.1 million from $39.6
million in the second quarter of 1997. Included in the second quarter 1998
amount is a gain on an asset sale of $14.9 million. Also included is finance
income of $2.5 million from the Dictaphone and Monarch portfolios for the second
quarters of both 1998 and 1997. Aside from these effects, finance income
decreased primarily due to lower yields on new business underwritten with
tighter credit standards at Colonial Pacific Leasing Corporation ("CPLC").
Revenue generated from mortgage servicing increased 75.3 percent to $29.3
million in the second quarter of 1998 compared with $16.7 million in the second
quarter of 1997, due to a larger mortgage servicing portfolio and mortgage
refinancing fees, which is in keeping with the Company's fee-based income growth
strategy.
Selling, general and administrative ("SG&A") expenses increased 27.9 percent
to $53.9 million in the second quarter of 1998 compared to $42.1 million in
1997. SG&A for internal small-ticket financing programs increased to $16.5
million from $15.8 million principally due to higher professional fees and
outsourcing expenses related to new business initiatives as well as consulting
services in support of strategic initiatives such as improvements to information
technology and customer service. SG&A for external large-ticket financing
programs increased to $6.6 million in 1998 from $5.6 million in 1997 largely due
to costs related to an asset sale made in the second quarter of 1998. SG&A for
external small-ticket financing programs increased to $21.2 million from $15.3
million. Included in these amounts were costs incurred in connection with an
asset sale of $6.9 million in the second quarter of 1998. Also included are SG&A
expenses from the Dictaphone and Monarch portfolios of $0.4 and $0.6 million in
1998 and 1997, respectively. Aside from these effects, SG&A expenses decreased
principally due to lower sales assistance fees paid by CPLC. SG&A expenses
related to mortgage servicing increased to $9.6 million in 1998 from $5.5
million in 1997 primarily due to the administration of a larger mortgage
servicing portfolio.
Depreciation on operating leases was $1.6 million in the second quarter of
1998 compared to $2.3 million in 1997 reflecting a lower operating lease
investment balance at June 30, 1998 compared to June 30, 1997. Amortization of
mortgage servicing rights was $11.2 million in the second quarter of 1998
compared to $6.1 million in 1997 due to a larger mortgage servicing portfolio.
Costs associated with the Company's participation in partnership transactions
were $0.8 million for the second quarter of 1998 compared to $0.6 million for
the second quarter of 1997. This increase reflects a partnership created in
connection with an asset transfer made during the fourth quarter of 1997.
The provision for credit losses was $24.1 million for the second quarter of
1998 compared with $15.9 million in 1997. The provision for internal
small-ticket financing programs decreased to $8.0 million from $8.9 million
primarily due to lower reserve requirements partly offset by increased
provisions for new business initiatives. The provision for external small-ticket
financing programs was $15.5 million for the second quarter of 1998 compared to
$6.6 million in 1997. Included in these amounts was a credit loss provision of
$8.0 million recognized in connection with an asset sale in the second quarter
of 1998. These amounts also include credit losses from the Dictaphone and
Monarch portfolios of $0.4 million in the second quarter of 1998 and $0.5
million for the same period in 1997. The provision for external large-ticket
financing programs was $0.6 million in the second quarter of 1998 compared to
$0.4 million in 1997.
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) increased from 2.55 percent
at December 31, 1997 to 2.63 percent at June 30, 1998. PBCC charged $33.5
million and $25.8 million against the allowance for credit losses in the first
half of 1998 and 1997, respectively.
<PAGE>
Page 9 of 14
PITNEY BOWES CREDIT CORPORATION
MANAGEMENT'S NARRATIVE ANALYSIS
OF THE RESULTS OF OPERATION AND FINANCIAL CONDITION
Results of Operations
Second Quarter of 1998 Compared to Second Quarter of 1997 (continued)
Interest expense was $40.4 million in the second quarter of 1998 compared
with $51.1 million in 1997. The decrease reflects lower average borrowings in
1998 combined with lower interest rates. The lower borrowing levels were due to
decreased external large-ticket asset levels offset by higher internal and
external small-ticket asset levels as well as an increased mortgage servicing
portfolio. The effective interest rate on average borrowings was 5.70 percent
for the second quarter of 1998 compared to 6.12 percent for the same period in
1997. 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 1998 was 29.6 percent compared
with 30.2 percent for the same period of 1997. The decrease is primarily due to
lower tax provision requirements relating to certain leveraged lease
transactions. The Company's ratio of earnings to fixed charges was 2.82 times
for the second quarter of 1998 compared with 2.25 times for the same period of
1997. The increase reflects the disposition of external large-ticket assets,
proceeds from which were used for debt reduction.
Six Months of 1998 Compared to Six Months of 1997
For the six months of 1998 compared to the same period of 1997, total revenue
increased 4.7 percent to $383.9 million, SG&A expenses increased 16.3 percent to
$97.4 million, depreciation and amortization increased 30.3 percent to $26.5
million, the provision for credit losses increased 25.4 percent to $38.8
million, interest expense decreased 20.0 percent to $80.8 million and the
provision for income taxes increased 2.3 percent to $41.4 million, generating a
net income increase of 9.9 percent to $98.9 million.
Except for the effect of the asset sales in the second quarter of 1998, 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 1998 versus
1997.
Financial Condition
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 sensitivity to
interest rate volatility. PBCC's debt mix was 51 percent short-term and 49
percent long-term at June 30, 1998 and 60 percent short-term and 40 percent
long-term at December 31, 1997. PBCC's swap-adjusted variable-rate versus
fixed-rate debt mix was 37 percent variable-rate and 63 percent fixed-rate at
June 30, 1998 and 47 percent variable-rate and 53 percent fixed-rate at December
31, 1997. 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.
On July 15, 1998, the Company filed a shelf registration statement on Form
S-3 with the Securities and Exchange Commission. The registration statement
allows PBCC to offer, in one or more series, its unsecured debt securities at an
aggregate initial offering price not to exceed $750,000,000. The registration
statement was declared effective on July 28, 1998. (See Note 6 to CONSOLIDATED
FINANCIAL STATEMENTS).
The Company's utilization of derivative instruments is normally 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 paid or received is recognized as
an adjustment to interest expense. The interest differential on the swap will be
offset against changes in valuation of the assets resulting from interest rate
movements. 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.
<PAGE>
Page 10 of 14
PITNEY BOWES CREDIT CORPORATION
MANAGEMENT'S NARRATIVE ANALYSIS
OF THE RESULTS OF OPERATION AND FINANCIAL CONDITION
Financial Condition
Liquidity and Capital Resources (continued)
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.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities on its
balance sheet and measure those instruments at fair market value. Changes in the
fair value of those instruments will be reflected as gains or losses. The
accounting for the gains or losses depends on the intended use of the derivative
and the resulting designation. PBCC will be required to implement this statement
beginning January 1, 2000. The Company is currently in the process of evaluating
the potential impact of implementing this statement.
Gross finance assets at the end of the second quarter of 1998 decreased 5.8
percent from December 31, 1997. The decrease is principally due to the shift in
emphasis from asset-based investments in the external large-ticket segment to
fee-based transactions. Overall levels of lease receivables are in line with
management's expectations. The Company continues to actively pursue a strategy
of external large-ticket asset sales, thereby allowing it to focus on fee- and
service-based revenue rather than asset-based income.
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 1.16 times at June 30, 1998 and .89
times at December 31, 1997.
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. Borrowing requirements will be primarily dependent upon the level of
equipment purchases from Pitney Bowes Inc., the level of external financing
activity, capital requirements for new business initiatives, and the refinancing
of maturing debt. 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 under
revolving credit facilities and credit lines.
- --------------------------------------------------------------------------------
The Company wishes to caution readers that any forward-looking statements (those
which talk about the Company's or management's current expectations as to the
future), contained in this Form 10-Q or made by the management of the Company
involve risks and uncertainties which may change based on various important
factors. Some of these factors which 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 include: the level
of business and financial performance of Pitney Bowes, including the impact of
changes in postal regulations; 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 success of the Company at managing customer credit risk and associated
collection and asset management efforts.
<PAGE>
Page 11 of 14
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.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
a. Financial Statements - see index on page 2
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<S> <C> <C> <C>
Reg S-K Incorporation
Exhibits Description by Reference
-------- ------------------------------------------------- ---------------
(12) Computation of Ratio of Earnings to Fixed Charges See Exhibit (i)
on page 13
(27) Financial Data Schedule See Exhibit (ii)
on page 14
</TABLE>
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 on
request.
b. There were no reports on Form 8-K issued during the second quarter of
1998.
<PAGE>
Page 12 of 14
SIGNATURE
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
By /s/ G. KIRK HUDSON
----------------------
G. Kirk Hudson
Vice President - Finance
(Principal Financial and
Accounting Officer)
Dated: August 13, 1998
<PAGE>
Page 13 of 14
Exhibit (i)
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before income taxes.......... $ 73,995 $ 64,177 $ 140,351 $ 130,516
------- ------- ------- -------
Fixed charges:
Interest on debt.................. 40,387 51,098 80,786 100,993
One third rent expense............ 331 380 655 733
------- ------- ------- -------
Total fixed charges................. 40,718 51,478 81,441 101,726
------- ------- ------- -------
Earnings before fixed charges....... $ 114,713 $ 115,655 $ 221,792 $ 232,242
======= ======= ======= =======
Ratio of earnings to
fixed charges (1)................. 2.82X 2.25X 2.72X 2.28X
======= ======= ======= =======
</TABLE>
(1) The ratio of earnings to fixed charges is computed by dividing earnings
before fixed charges by fixed charges. Fixed charges consist of interest on debt
and one third of rent expense as representative of the interest portion.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 14 of 14
Exhibit (ii)
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 6/30/98
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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 48,562
<SECURITIES> 0
<RECEIVABLES> 4,033,298
<ALLOWANCES> 121,880
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,224,028
<CURRENT-LIABILITIES> 1,993,332
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 1,104,802
<TOTAL-LIABILITY-AND-EQUITY> 5,224,028
<SALES> 0
<TOTAL-REVENUES> 383,883
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 123,916
<LOSS-PROVISION> 38,830
<INTEREST-EXPENSE> 80,786
<INCOME-PRETAX> 140,351
<INCOME-TAX> 41,410
<INCOME-CONTINUING> 98,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,941
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
