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 March 31, 1999
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 April 30, 1999, 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> 2
PITNEY BOWES CREDIT CORPORATION
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTs
Consolidated Statements of Income:
Three Months Ended March 31, 1999 and 1998.......................................... 3
Consolidated Balance Sheets:
As of March 31, 1999 and December 31, 1998.......................................... 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1999 and 1998.......................................... 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............................................................... 12
ITEM 6.-- EXHIBITS AND REPORTS ON FORM 8-K................................................ 12
Signatures................................................................................ 13
Exhibit (i) -- Computation of Ratio of Earnings
from Continuing Operations to Fixed Charges........................................... 14
Exhibit (ii)-- Financial Data Schedule.................................................... 15
</TABLE>
<PAGE> 3
Part I -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTs
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars)
<TABLE>
<S> <C> <C>
Three Months Ended March 31,
---------------------------
1999 1998
---- ----
REVENUE
Finance income....................................... $ 135,124 $ 119,529
Mortgage servicing revenue........................... 32,498 23,312
------- -------
Total revenue....................................... 167,622 142,841
------- -------
EXPENSES
Selling, general and administrative.................. 37,324 30,008
Interest............................................. 29,890 29,870
Depreciation and amortization........................ 24,812 12,216
Provision for credit losses.......................... 12,299 8,849
------- -------
Total expenses...................................... 104,325 80,943
------- -------
Income from continuing operations before
income taxes......................................... 63,297 61,898
Provision for income taxes............................. 18,850 17,802
------- -------
Income from continuing operations...................... 44,447 44,096
Discontinued operations (net of taxes of $1,705)....... - 2,753
------- -------
Net income............................................. $ 44,447 $ 46,849
======= =======
Ratio of earnings from continuing
operations to fixed charges.......................... 3.10X 3.06X
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<S> <C> <C>
(Unaudited)
March 31, December 31,
1999 1998
--------- -----------
ASSETS
Cash................................................................. $ 19,665 $ 19,154
--------- ---------
Investments:
Finance assets..................................................... 2,742,343 2,721,805
Investment in leveraged leases..................................... 774,483 764,145
Investment in operating leases, net of accumulated depreciation.... 30,752 33,261
Allowance for credit losses........................................ (116,675) (115,233)
--------- ---------
Net investments.................................................. 3,430,903 3,403,978
--------- ---------
Mortgage servicing rights, net of accumulated amortization........... 362,957 364,071
Assets held for sale................................................. 413,217 337,757
Investment in partnership............................................ 168,525 165,950
Loans and advances to affiliates..................................... 360,760 611,625
Other assets......................................................... 404,328 391,135
--------- ---------
Total assets.................................................... $ 5,160,355 $ 5,293,670
========= =========
LIABILITIES
Senior notes payable within one year................................. $ 1,012,443 $ 991,853
Short-term notes payable to affiliates............................... 40,100 137,000
Accounts payable to affiliates....................................... 185,071 278,452
Accounts payable and accrued liabilities............................. 176,129 182,236
Deferred taxes....................................................... 506,192 486,906
Senior notes payable after one year.................................. 1,382,000 1,382,000
Long-term notes payable to affiliates................................ 333,000 333,000
Subordinated notes payable........................................... 285,886 285,886
--------- ---------
Total liabilities............................................... 3,920,821 4,077,333
--------- ---------
STOCKHOLDER'S EQUITY
Common stock......................................................... 46,000 46,000
Capital surplus...................................................... 41,725 41,725
Retained earnings.................................................... 1,151,809 1,128,612
--------- ---------
Total stockholder's equity...................................... 1,239,534 1,216,337
--------- ---------
Total liabilities and stockholder's equity.................... $ 5,160,355 $ 5,293,670
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
<TABLE>
<S> <C> <C>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
OPERATING ACTIVITIES
Net income................................................................. $ 44,447 $ 46,849
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for credit losses.............................................. 12,299 14,778
Depreciation and amortization............................................ 24,812 12,262
Cash effects of changes in:
Deferred taxes........................................................ 19,286 28,815
Other receivables..................................................... 7,973 4,666
Foreclosure claims receivable......................................... (5,932) 6,949
Advances and deposits................................................. 5,517 (46,856)
Loans held for sale................................................... (20,289) (124,609)
Accounts payable to affiliates........................................ (93,381) (35,670)
Accounts payable and accrued liabilities.............................. (1,865) 5,109
Other, net............................................................... (3,552) (4,372)
--------- ---------
Net cash used in operating activities...................................... (10,685) (92,079)
--------- ---------
INVESTING ACTIVITIES
Investment in net finance assets......................................... (211,957) (367,773)
Investment in leveraged leases........................................... (3,445) (21,792)
Investment in assets held for sale....................................... (128,497) (118,444)
Cash receipts collected under lease contracts, net of finance
income recognized..................................................... 223,113 407,942
Investment in mortgage service rights.................................... (7,380) ( 86,611)
Loans and advances to affiliates, net.................................... 239,007 252,000
Additions to equipment and leasehold improvements........................ (2,085) (2,414)
--------- ---------
Net cash provided by investing activities.................................. 108,756 62,908
--------- ---------
FINANCING ACTIVITIES
Change in short-term debt, net........................................... 20,590 (257,060)
Proceeds from senior notes............................................... - 250,000
Short-term loans from affiliates......................................... (96,900) 61,979
Dividends paid to Pitney Bowes Inc....................................... (21,250) (21,500)
--------- ---------
Net cash (used in) provided by financing activities........................ (97,560) 33,419
--------- ---------
Increase in cash........................................................... 511 4,248
Cash at beginning of period................................................ 19,154 36,320
--------- ---------
Cash at end of period...................................................... $ 19,665 $ 40,568
========= =========
Interest paid.............................................................. $ 35,367 $ 33,505
========= =========
Income taxes refunded, net................................................. $ (34,193) $ (2,006)
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
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 at March 31, 1999 and the results of operations and cash flows for the
three months ended March 31, 1999 and 1998 have been included. Certain amounts
from prior periods have been reclassified to conform to current period
presentation. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
Note 2 -- Discontinued Operations
On October 30, 1998, the Company's wholly-owned subsidiary, Colonial Pacific
Leasing Corporation ("CPLC"), transferred the operations, employees and
substantially all assets related to its broker-oriented small-ticket lease
financing business to General Electric Capital Corporation ("GECC"). The Company
received approximately $790 million at closing, which approximates the book
value of net assets sold or otherwise disposed of together with related
transaction costs. The transaction is subject to post-closing adjustments
pursuant to the terms of the purchase agreement with GECC executed on October
12, 1998. The Company does not expect the effect of any adjustments to be
significant.
Operating results of CPLC have been segregated and reported as discontinued
operations in the consolidated statements of income. Prior year results have
been reclassified to conform to the current year presentation. Cash flow impacts
of discontinued operations have not been segregated in the accompanying
statements of cash flows for the three months ended March 31, 1999 and 1998.
Finance income of CPLC was $34.5 million for the three months ended March 31,
1998. Interest expense allocated to discontinued operations was $10.5 million
for the three months ended March 31, 1998. Interest expense has been allocated
based on the level of CPLC's intercompany borrowing, charged at the Company's
weighted average borrowing rate.
Note 3 -- Finance Assets
The composition of the Company's finance assets is as follows:
<TABLE>
<S> <C> <C>
March 31, December 31,
(in thousands of dollars) 1999 1998
--------- ------------
Gross finance receivables...................................... $ 3,059,132 $ 3,050,572
Unguaranteed residual valuation................................ 379,060 412,569
Initial direct costs deferred.................................. 45,854 46,224
Unearned income................................................ (741,703) (787,560)
--------- ---------
Total finance assets......................................... $ 2,742,343 $ 2,721,805
========= =========
</TABLE>
Note 4 -- Mortgage Servicing Rights ("MSRs")
The cost of rights to service mortgage loans, whether those servicing rights are
originated or purchased, are capitalized and recorded as separate assets by the
Company. These costs are amortized in proportion to and over the period of
estimated net servicing income. The Company assesses impairment of MSRs based on
the fair value of those rights. The Company estimates the fair value of MSRs
based on estimated future net servicing income, using a valuation model which
considers such factors as market discount rates, consensus loan prepayment
predictions, servicing costs and other economic factors. For purposes of
impairment valuation, the Company stratifies MSRs based on predominant risk
characteristics of the underlying loans, including loan type, amortization type
(fixed or adjustable) and note rate. To the extent that the carrying value of
MSRs exceeds fair value by individual stratum, a valuation reserve is
established, which is adjusted as the value of MSRs increases or decreases.
Based on an evaluation performed as of March 31, 1999, no impairment was
recognized in the Company's MSR portfolio for the first quarter of 1999.
<PAGE> 7
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 -- Notes Payable
The composition of the Company's notes payable is as follows:
<TABLE>
<S> <C> <C>
March 31, December 31,
(in thousands of dollars) 1999 1998
---------- ------------
Senior Notes Payable:
Commercial paper at the weighted average
interest rate of 4.82% (4.90% in 1998).......................... $ 276,750 $ 173,700
Notes payable against bank lines of credit and others at a
weighted average interest rate of 1.16% in 1999 and 1998........ 535,693 618,153
Current installment of long-term debt due within one year at an
interest rate of 6.54% in 1999 and 1998........................ 200,000 200,000
--------- ---------
Total senior notes payable due within one year................... 1,012,443 991,853
Senior notes payable due after one year at interest rates of
5.65% to 9.25% in 1999 and 1998................................ 1,382,000 1,382,000
--------- ---------
Total senior notes payable....................................... 2,394,443 2,373,853
--------- ---------
Notes Payable to Affiliates:
Due within one year at an interest rate of 5.38% in 1999 and 1998 40,100 137,000
Due after one year at an interest rate of 5.38% in 1999 and 1998. 333,000 333,000
--------- ---------
Total notes payable to affiliates................................ 373,100 470,000
--------- ---------
Subordinated Notes Payable:
Non-interest bearing notes due Pitney Bowes Inc.................. 285,886 285,886
--------- ---------
Total notes payable................................................. $ 3,053,429 $ 3,129,739
========= =========
Note 6 -- Business Segment Information
Segment revenue and operating profit are as follows:
<S> <C> <C>
(in thousands of dollars) Revenue
-----------------------
Quarter Ended March 31 1999 1998
---- ----
Internal financing..................................................... $ 100,482 $ 86,379
Capital services....................................................... 34,642 33,150
Mortgage servicing..................................................... 32,498 23,312
------- -------
Total revenue for reportable segments............................. $ 167,622 $ 142,841
======= =======
(in thousands of dollars) Operating Profit
-----------------------
Quarter Ended March 31 1999 1998
---- ----
Internal financing..................................................... $ 55,052 $ 47,720
Capital services....................................................... 4,594 8,748
Mortgage servicing..................................................... 5,840 7,485
------- -------
Total operating profit for reportable segments........................... 65,486 63,953
Unallocated amounts:
Corporate interest expense, net...................................... (1,835) (1,943)
Corporate expenses................................................... (354) (112)
------- -------
Income from continuing operations before income taxes.................. $ 63,297 $ 61,898
======= =======
</TABLE>
<PAGE> 8
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONs
AND FINANCIAL CONDITION
Results of Operations
First Quarter of 1999 Compared to First Quarter of 1998
On October 30, 1998, the Company's wholly-owned subsidiary, Colonial
Pacific Leasing Corporation ("CPLC"), transferred the operations, employees and
substantially all assets related to its broker-oriented small-ticket lease
financing business to General Electric Capital Corporation ("GECC"). As a
result, CPLC has been accounted for as discontinued operations in the
accompanying Consolidated Statements of Income. Accordingly, the discussion that
follows concerns only the results of continuing operations. The Company received
approximately $790 million at closing, which approximates the book value of net
assets sold or otherwise disposed of together with related transaction costs.
The transaction is subject to post-closing adjustments pursuant to the terms of
the purchase agreement with GECC executed on October 12, 1998. The Company does
not expect the effect of any adjustments to be significant.
Finance income in the first quarter of 1999 increased 13.0 percent to
$135.1 million compared to $119.5 million in 1998. Finance income for internal
financing programs increased 16.3 percent to $100.5 million from $86.4 million
primarily due to higher income from fee- and service-based programs and higher
investment levels for the mail and copier financing programs. Finance income for
capital services financing programs increased 4.5 percent to $34.6 million from
$33.2 million primarily due to higher revenue from income and fee-based programs
offset by lower capital services investment levels in accordance with the
Company's strategy to shift the foundation of the capital services financing
business from asset-based to fee- and service- based revenues.
Revenue generated from mortgage servicing increased 39.4 percent to $32.5
million in the first quarter of 1999 compared with $23.3 million in the first
quarter of 1998, due to a larger mortgage servicing portfolio. Mortgage
servicing revenue also includes a gain on the sale of certain investments of
$4.6 million in the first quarter of 1999 compared to $1.7 million in the first
quarter of 1998.
Selling, general and administrative ("SG&A") expenses increased 24.4
percent to $37.3 million in the first quarter of 1999 compared to $30.0 million
in 1998. SG&A for internal financing programs increased to $19.0 million from
$16.5 million in 1998 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 capital services financing programs
increased to $6.7 million in 1999 from $6.2 million in 1998 mainly due to higher
personnel related expenses. SG&A expenses related to mortgage servicing
increased 58.8 percent to $11.6 million in 1999 from $7.3 million in 1998
primarily due to the administration of a larger mortgage servicing portfolio.
Depreciation on operating leases was $1.3 million in the first quarter of
1999 compared to $1.9 million in 1998 reflecting a lower operating lease
investment balance at March 31, 1999 compared to March 31, 1998. Amortization of
mortgage servicing rights was $17.1 million in the first quarter of 1999
compared to $9.3 million in 1998 due to a larger mortgage servicing portfolio.
The provision for credit losses was $12.3 million for the first quarter of
1999 compared with $8.8 million in 1998. The provision for internal financing
programs increased to $10.5 million from $8.0 million primarily due to increased
provisions for new business initiatives. The provision for capital services
financing programs increased to $1.8 million in the first quarter of 1999 from
$0.8 million in 1998.
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) was 2.87 percent at both
March 31, 1999 and December 31, 1998. PBCC charged $10.9 million and $16.5
million against the allowance for credit losses through the first quarters of
1999 and 1998, respectively. The decrease was mainly due to the sale of CPLC in
the fourth quarter of 1998.
Interest expense was $29.9 million in the first quarter of both 1999 and
1998. This was mainly due to higher borrowing levels offset by lower effective
interest rates. The effective interest rate on average borrowings was 5.55
percent for the first quarter of 1999 compared to 5.98 percent for the same
period of 1998. The Company does not match fund its financing investments and
does not apply different interest rates to its various financing portfolios.
<PAGE> 9
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONs
AND FINANCIAL CONDITION (CONTINUED)
The effective tax rate for the first quarter of 1999 was 29.8 percent
compared with 28.8 percent for the same period of 1998. The increase is
primarily due to the diminishing tax benefits of certain leveraged lease
transactions.
The Company's ratio of earnings from continuing operations to fixed charges
was 3.10 times for the first quarter of 1999 compared with 3.06 times for the
same period of 1998. The increase reflects higher pretax income from operations
while fixed charges remained substantially the same.
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 44 percent
short-term and 56 percent long-term at March 31, 1999 and 45 percent short-term
and 55 percent long-term at December 31, 1998. PBCC's swap-adjusted
variable-rate versus fixed-rate debt mix was 33 percent variable-rate and 67
percent fixed-rate at March 31, 1999 and 35 percent variable-rate and 65 percent
fixed-rate at December 31, 1998. 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. The Company had
unused lines of credit and revolving credit facilities totaling $1.2 billion at
March 31, 1999, largely supporting its commercial paper borrowings.
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.
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 first quarter of 1999 decreased 0.7
percent from December 31, 1998. The decrease is principally due to the shift in
emphasis from asset-based investments in the capital services 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 capital services
asset sales, thereby allowing the Company 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 1.63 times at March 31, 1999 and
1.47 times at December 31, 1998.
The Company will continue to use cash to invest in finance assets with
emphasis on internal leasing transactions and controlled investment in capital
services 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 debt will continue to be strong, additional liquidity
is available under revolving credit facilities and credit lines.
<PAGE> 10
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONs
AND FINANCIAL CONDITION (CONTINUED)
Year 2000
In 1997, the Company's parent, Pitney Bowes Inc., established a formal
worldwide program to identify and resolve the impact of the Year 2000 date
processing issue on its business systems, products and supporting
infrastructure. PBCC is included as part of this program. This program includes
a comprehensive review of information technology (IT) and non-IT systems,
software, and embedded processors. The program structure has strong executive
sponsorship and consists of a Year 2000 steering committee comprised of senior
business and technology management, a Year 2000 program office staffed with
full-time project management, and subject matter experts and dedicated business
unit project teams. The Company has also engaged independent consultants to
perform periodic program reviews and assist in systems assessment and test plan
development.
The program encompasses the following phases: an inventory of affected
technology and critical third party suppliers, an assessment of Year 2000
readiness, resolution, unit and integrated testing and contingency planning. The
Company has completed its worldwide inventory and assessment of all business
systems and supporting infrastructure. Required modifications are still in
progress but were substantially completed by March 31, 1999. Tests are performed
as software is remediated, upgraded, or replaced. Integrated testing is expected
to be complete by mid-1999.
PBCC relies on third parties for many systems, products and services. The
Company could be adversely impacted if third parties do not make necessary
changes to their own systems and products successfully and in a timely manner.
The Company has established a formal process to identify, assess and monitor the
Year 2000 readiness of critical third parties. Critical third parties with which
the Company interacts include, among others, customers and business partners
(supply chains, technology vendors and service providers); the global financial
market infrastructure (payment and clearing systems); and the utility
infrastructure (power, transportation and telecommunications) on which all
corporations rely. However, the Company is unable to predict whether such third
parties will be able to address their Year 2000 problems on a timely basis.
PBCC estimates the total cost of the program from inception in 1997 through
the Year 2000 to be approximately $2 million, of which approximately $1.4
million was incurred through March 31, 1999. These costs, which are funded
through the Company's cash flows, include both internal labor costs as well as
consulting and other external costs. These costs are incorporated in the
Company's current forecasts and are being expensed as incurred.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from
uncertainty about the Year 2000 readiness of third parties, PBCC is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on its results of operations, liquidity or financial
condition. However, the Company continues to evaluate its Year 2000 risks and is
developing contingency plans to mitigate the impact of any potential Year 2000
disruptions. PBCC expects to complete contingency plans by the second quarter of
1999.
Other Matters
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires 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 instrument 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 impact of implementing this statement.
<PAGE> 11
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONs
AND FINANCIAL CONDITION (CONTINUED)
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;
the success of the Company at managing customer credit risk and associated
collection and asset management efforts; and the impact of the Year 2000 issue,
including the effect of third parties' inability to address the Year 2000
problem as well as the Company's own readiness.
<PAGE> 12
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 from Continuing See Exhibit (i)
Operations to Fixed Charges on page 14
(27) Financial Data Schedule See Exhibit (ii)
on page 15
</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. No reports on Form 8-K were filed during the quarter ended March 31, 1999.
<PAGE> 13
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
By /s/ NANCY E. COOPER
----------------------
Nancy E. Cooper
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Dated: May 14, 1999
By /s/ R. JEFFREY MACARTNEY
----------------------------
R. Jeffrey Macartney
Controller
(Principal Accounting Officer)
Dated: May 14, 1999
<PAGE> 14
Exhibit (i)
Computation of Ratio of Earnings from Continuing Operations to Fixed Charges
(in thousands of dollars)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
-------------------------
1999 1998
---- ----
Income from continuing operations before income taxes............. $ 63,297 $ 61,898
------- -------
Fixed charges:
Interest on debt................................................. 29,890 29,870
One-third of rent expense........................................ 303 224
------- -------
Total fixed charges................................................ 30,193 30,094
------- -------
Earnings from continuing operations before fixed charges........... $ 93,490 $ 91,992
======= =======
Ratio of earnings from continuing operations to fixed charges (1).. 3.10X 3.06X
======= =======
</TABLE>
(1) The ratio of earnings from continuing operations to fixed charges is
computed by dividing earnings from continuing operations 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>
Exhibit (ii)
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/99
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,665
<SECURITIES> 0
<RECEIVABLES> 3,547,578
<ALLOWANCES> (116,675)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,160,355
<CURRENT-LIABILITIES> 1,413,743
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 1,193,534
<TOTAL-LIABILITY-AND-EQUITY> 5,160,355
<SALES> 0
<TOTAL-REVENUES> 167,622
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,136
<LOSS-PROVISION> 12,299
<INTEREST-EXPENSE> 29,890
<INCOME-PRETAX> 63,297
<INCOME-TAX> 18,850
<INCOME-CONTINUING> 44,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,447
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
