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, 2000
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 May 12, 2000 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. ("PBI"), 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.
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PITNEY BOWES CREDIT CORPORATION
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
Consolidated Statements of Income:
Three Months Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets:
As of March 31, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings 14
Item 5. - Other information 14
Item 6. - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Exhibit (i) - Computation of Ratio of Earnings
from Continuing Operations to Fixed Charges 17
Exhibit (ii) - Financial Data Schedule 18
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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars)
Three Months Ended March 31,
---------------------------
2000 1999
<S> <C> <C>
Revenue
Finance income $142,106 $135,124
------- -------
Expenses
Selling,general and administrative 31,172 25,871
Interest 28,749 31,780
Depreciation and amortization 3,604 7,717
Provision for credit losses 16,918 12,299
------- -------
Total expenses 80,443 77,667
------- -------
Income from continuing operations
before income taxes 61,663 57,457
Provision for income taxes 16,224 16,710
------- -------
Income from continuing operations 45,439 40,747
Discontinued operations
(net of taxes of $2,140 in 1999) - 3,700
------- -------
Net income $45,439 $ 44,447
======= =======
Ratio of earnings from continuing
operations to fixed charges 3.14X 2.80X
======= =======
See Notes to Consolidated Financial Statements
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PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(Unaudited)
March 31, December 31,
2000 1999
<S> <C> <C>
---------- ----------
Assets
Cash and cash equivalents $ 109,526 $ 132,914
--------- ---------
Investments:
Finance assets 3,122,458 2,984,246
Investment in leveraged leases 862,454 850,000
Investment in operating leases,
net of accumulated depreciation 41,011 45,607
Allowance for credit losses (78,370) (80,655)
--------- ---------
Net investments 3,947,553 3,799,198
--------- ---------
Assets held for sale 141,697 342,934
Investment in partnership 167,578 167,071
Loans and advances to affiliates 361,092 362,012
Net assets of discontinued operations - 491,763
Other assets 80,164 87,084
--------- ---------
Total assets $4,807,610 $5,382,976
========= =========
Liabilities
Senior notes payable within one year $ 411,917 $1,044,573
Short-term notes payable to affiliates 76,850 37,000
Accounts payable to affiliates 182,201 227,503
Accounts payable and accrued liabilities 296,326 283,361
Deferred taxes 548,725 526,838
Senior notes payable after one year 1,374,101 1,332,000
Long-term notes payable to affiliates 296,000 333,000
Subordinated notes payable 299,892 299,892
--------- ---------
Total liabilities 3,486,012 4,084,167
--------- ---------
Stockholder's Equity
Common stock 46,000 46,000
Capital surplus 41,725 41,725
Retained earnings 1,233,873 1,211,084
--------- ---------
Total stockholder's equity 1,321,598 1,298,809
--------- ---------
Total liabs. and stockholder's equity $ 4,807,610 $5,382,976
========= =========
See Notes to Consolidated Financial Statements
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PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
Three Months Ended March 31,
----------------------------
2000 1999
Operating Activities
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Net income $ 45,439 $ 44,447
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 16,918 12,299
Depreciation and amortization 3,604 24,812
Increase in deferred taxes 21,887 19,286
(Increase) decrease in other receivables 1,213 4,455
Increase in discontinued other assets - (17,186)
Decrease in accounts payable to affiliates (45,302) (93,381)
Increase (decrease) in accounts payable
and accrued liabilities (8,052) (1,865)
Other, net 4,259 (3,552)
-------- --------
Net cash provided by (used in)
operating activities 39,966 (10,685)
-------- --------
Investing Activities
Proceeds and cash receipts from sale
of discontinued operations 512,780 -
Investment in net finance assets (856,594) (646,802)
Investment in leveraged leases (5,019) (3,445)
Investment in assets held for sale (53,618) (128,497)
Cash receipts collected under finance
contracts, net of finance inc. recognized 948,309 657,958
Investment in mortgage service rights - (7,380)
Loans and advances to affiliates, net 1,268 239,007
Additions to equipment and leasehold
improvements (125) (2,085)
--------- ---------
Net cash used in investing activities 547,001 108,756
--------- ---------
Financing Activities
Change in short-term debt, net (633,823) 20,590
Proceeds from senior notes 43,268 -
Short-term loans from affiliates 2,850 (96,900)
Dividends paid to Pitney Bowes Inc. (22,650) (21,250)
--------- ---------
Net cash used in financing activities (610,355) (97,560)
--------- ---------
(Decrease) increase in cash (23,388) 511
Cash at beginning of period 132,914 19,154
-------- ---------
Cash at end of period $ 109,526 $ 19,665
========= =========
Interest paid $ 36,287 $ 35,367
========= =========
Income taxes refunded, net $ (13,357) $ (34,193)
========= =========
See Notes to Consolidated Financial Statements
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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 adjustments) necessary to present fairly the financial position
of the Company at March 31, 2000 and December 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 2000 and 1999
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, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. 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, 1999.
Note 2 - Discontinued Operations
On January 14, 2000, the Company sold its mortgage servicing business, Atlantic
Mortgage & Investment Corporation ("AMIC"), a wholly owned subsidiary of the
Company to ABN AMRO North America. The Company received approximately $484
million in cash at closing. The transaction is subject to post-closing
adjustments.
Revenue of AMIC was $32.5 million for the three months ended March 31, 1999. Net
interest expense allocated to AMIC's discontinued operations was $1.8 million
for the three months ended March 31, 1999. Interest has been allocated based on
AMIC's net intercompany borrowing levels charged at the Company's weighted
average borrowing rate, offset by the interest savings the Company realized due
to borrowings against AMIC escrow deposits as opposed to regular commercial
paper borrowings.
Operating results have been segregated and reported as discontinued operations
in the Consolidated Statements of Income for the three months ended March 31,
1999. Net assets of discontinued operations have been separately classified in
the Consolidated Balance Sheets at December 31, 1999. Cash flow impacts of
discontinued operations have not been segregated in the Consolidated Statements
of Cash Flows for the three months ended March 31, 1999.
Note 3 - Finance Assets
The composition of the Company's finance assets is as follows:
March 31, December 31,
(in thousands of dollars) 2000 1999
--------- ---------
Lease finance receivables $2,825,875 $2,713,358
Other finance receivables 551,677 539,499
--------- ---------
Total gross finance receivables 3,377,552 3,252,857
Unguaranteed residual valuation 389,902 415,079
--------- ---------
Total gross finance assets 3,767,454 3,667,936
Initial direct costs deferred 43,434 43,916
Unearned income (688,430) (727,606)
--------- ---------
Total finance assets $3,122,458 $2,984,246
========= =========
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PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Notes Payable
The composition of the Company's notes payable is as follows:
March 31, December 31,
(in thousands of dollars) 2000 1999
--------- ---------
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Senior Notes Payable:
Commercial paper at the weighted average
interest rate of 5.84 % (5.55% in 1999) $ 235,750 $ 404,000
Notes payable against bank lines of credit
and others at a weighted average interest
rate of 1.36% in 1999 - 457,255
Other notes payable at a weighted average
interest rate of 7.51% (7.50% in 1999) 1,167 8,318
Current installment of long-term debt due
within one year at interest rates of
5.95% to 6.11% in both 2000 and 1999 175,000 175,000
--------- ---------
Total senior notes payable due within one
year 411,917 1,044,573
Senior notes payable due after one year
at interest rates of 5.65% to 9.25%
in both 2000 and 1999 1,374,101 1,332,000
--------- ---------
Total senior notes payable 1,786,018 2,376,573
--------- ---------
Notes Payable to Affiliates:
Due within one year at an interest rate
of 5.38% in 2000 and 1999 76,850 37,000
Due after one year at an interest rate
of 5.38% in 2000 and 1999 296,000 333,000
--------- ---------
Total notes payable to affiliates 372,850 370,000
--------- ---------
Subordinated Notes Payable:
Non-interest bearing notes
due Pitney Bowes Inc. 299,892 299,892
--------- ---------
Total notes payable $2,458,760 $3,046,465
========= =========
</TABLE>
On April 19, 2000, certain partnerships controlled by affiliates of the Company
issued a total of $134 million of Series A and Series B Secured Fixed Rate
Senior Notes (the "Notes"). The Notes are due in 2003 and bear interest at 7.443
percent. The proceeds from the Notes were used to purchase subordinated debt
obligations from PBI ("PBI Obligations"). The PBI Obligations have a principal
amount of $134 million and are due in 2010. The PBI Obligations bear an interest
rate of 8.073 percent for the first three years and reset in May 2003 and each
third anniversary of the first reset date.
On March 31, 2000, PBCC issued $43.3 million of 7.515 percent senior notes to
various holders maturing on January 10, 2012. The proceeds from these notes were
used to pay down commercial paper.
In July 1998, the Company filed a shelf registration statement on Form S-3 with
the Securities and Exchange Commission ("SEC") to offer, in one or more series,
its unsecured debt securities at an aggregate initial offering price not to
exceed $750 million. As part of this shelf registration statement in August
1999, PBCC established a medium- term note program for the issuance from time to
time of up to $500 million aggregate principal amount of Medium-Term Notes,
Series D. Under this program in September 1999, the Company issued $125 million
of 5.95 percent unsecured notes. The proceeds of these unsecured notes were used
for general corporate purposes including the repayment of short-term debt. At
March 31, 2000, $625 million was available under the shelf registration and $375
million was available under the related medium-term note program.
7
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PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Business Segment Information
The composition of the Company's segment revenue and operating profit is as
follows:
(in thousands of dollars) Revenue
-----------------------
<S> <C> <C>
Quarter Ended March 31 2000 1999
Internal Financing Division $ 109,924 $100,482
Capital Services Division 32,182 34,642
------- -------
Total revenue for reportable segments $ 142,106 $135,124
======= =======
(in thousands of dollars) Operating Profit
-----------------------
Quarter Ended March 31 2000 1999
------- -------
Internal Financing Division $ 55,892 $ 53,903
Capital Services Division 5,771 3,554
------- -------
Total operating profit for reportable
segments $ 61,663 $ 57,457
======= =======
</TABLE>
In March 2000, the Company changed the way it allocates corporate interest and
expenses from a non-allocated to a fully allocated basis.
Note 6 - Accounting Pronouncements
In June 1999, Statement of Financial Accounting Standards ("SFAS") No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," was issued. This statement defers the effective date of SFAS No. 133 one
year (January 1, 2001 for the Company). SFAS No. 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Changes in the fair value of those instruments will be reflected as gains or
losses. The accounting for the gains and losses depends on the intended use of
the derivative and the resulting designation. The Company is currently
evaluating the impact of this statement.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," summarizing certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. This guidance is provided due, in part, to
the large number of revenue recognition issues that SEC registrants encounter.
Although the Company believes it is in compliance with this guidance in all
material respects, the Company is currently evaluating its current revenue
recognition policies to determine the impact of SAB No. 101. SAB No. 101 is
effective for the second quarter of 2000.
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PITNEY BOWES CREDIT CORPORATION
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Continuing Operations - First Quarter of 2000 Compared to
First Quarter of 1999
Finance income in the first quarter of 2000 increased 5.2 percent to $142.1
million compared to $135.1 million in 1999. Finance income for Internal
Financing Division programs increased 9.4 percent to $109.9 million from $100.5
million primarily due to higher fee-based income from mail financing and Small
Business Solutions programs and higher investment levels for the mailing and
copier programs. Finance income for Capital Services Division programs decreased
7.1 percent to $32.2 million from $34.6 million primarily due to lower
investment and assets held for sale balances, offset by higher gains on asset
syndications.
Selling, general and administrative ("SG&A") expenses increased 20.5 percent
to $31.2 million in the first quarter of 2000 compared to $25.9 million in 1999.
SG&A for Internal Financing Division programs increased to $21.9 million from
$19.1 million in 1999 principally due to higher professional fees and
outsourcing expenses related to Small Business Solutions programs, higher
consulting services in support of strategic initiatives such as improvements to
information technology and customer service, in addition to set-up costs
associated with increased investment in the mailing systems portfolio. SG&A for
Capital Services Division programs increased to $9.3 million in 2000 from $6.7
million in 1999 mainly due to higher legal and other professional costs
associated with the portfolio and business development, combined with higher
sales commissions on investment and syndication business volume.
Depreciation on operating leases increased marginally to $1.5 million in the
first quarter of 2000 compared to $1.3 million in 1999.
The provision for credit losses was $16.9 million for the first quarter of
2000 compared with $12.3 million in 1999. The provision for Internal Financing
Division programs increased to $15.2 million from $10.5 million resulting from
proportionately higher provision levels to support higher Small Business
Solution receivable levels. The provision for Capital Services Division programs
marginally decreased to $1.7 million in the first quarter of 2000 from $1.8
million in 1999.
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 1.74 percent at March 31,
2000 compared to 1.83 percent at December 31, 1999. The first quarter decrease
is due to proportionately higher write-offs in relationship to higher investment
in finance asset balances. PBCC charged $19.2 million and $10.9 million against
the allowance for credit losses through the first quarters of 2000 and 1999,
respectively, due to higher write-offs recorded on higher receivable balances in
the Small Business Solutions and mailing programs.
In the first quarter of 2000, interest expense decreased by 9.5 percent to
$28.8 million compared to $31.8 million in 1999. The decrease in 2000 reflects
lower average borrowings resulting from the sale of the Company's mortgage
servicing subsidiary, which were used to reduce its outstanding balance of
commercial paper offset by higher short-term and long-term interest rates. The
effective interest rate on average borrowings was 6.40 percent for the first
quarter of 2000 compared to 5.55 percent for the same period of 1999. The
Company does not match fund financing investments in any of its business
segments.
The effective tax rate for the first quarter of 2000 was 26.3 percent compared
with 29.1 percent for the same period of 1999. The lower effective tax rate is
principally due to the impact of certain Capital Services Division partnership
leasing transactions.
The Company's ratio of earnings from continuing operations to fixed charges
was 3.14 times for the first quarter of 2000 compared with 2.80 times for the
same period of 1999. The increase reflects lower interest expense resulting from
the sale of its mortgage servicing subsidiary in the first quarter of 2000.
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PITNEY BOWES CREDIT CORPORATION
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Discontinued Operations
On January 14, 2000, the Company sold its mortgage servicing business,
Atlantic Mortgage & Investment Corporation ("AMIC"), a wholly owned subsidiary
of the Company to ABN AMRO North America. The company received approximately
$484 million in cash at closing. The transaction is subject to post-closing
adjustments. See Note 2 to the Consolidated Financial Statements.
Accounting Pronouncements
In June 1999, Statement of Financial Accounting Standards ("SFAS") No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," was issued. This statement defers the effective date of SFAS No. 133 one
year (January 1, 2001 for the Company). SFAS No. 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Changes in the fair value of those instruments will be reflected as gains or
losses. The accounting for the gains and losses depends on the intended use of
the derivative and the resulting designation. The Company is currently
evaluating the impact of this statement.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," summarizing certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. This guidance is provided due, in part, to
the large number of revenue recognition issues that SEC registrants encounter.
Although the Company believes it is in compliance with this guidance in all
material respects, the Company is currently evaluating its current revenue
recognition policies to determine the impact of SAB No. 101. SAB No. 101 is
effective for the second quarter of 2000.
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PITNEY BOWES CREDIT CORPORATION
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
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 33 percent short-term and 67
percent long-term at March 31, 2000 and 45 percent short-term and 55 percent
long-term at December 31, 1999. PBCC's swap-adjusted variable-rate versus
fixed-rate debt mix was 18 percent variable-rate and 82 percent fixed-rate at
March 31, 2000 and 39 percent variable-rate and 61 percent fixed-rate at
December 31, 1999. 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, 2000,
largely supporting its commercial paper borrowings.
On April 19, 2000, certain partnerships controlled by affiliates of PBCC
issued a total of $134 million of Series A and Series B Secured Fixed Rate
Senior Notes (the "Notes"). The Notes are due in 2003 and bear interest at 7.443
percent. The proceeds from the Notes were used to purchase subordinated debt
obligations from PBI ("PBI Obligations"). The PBI Obligations have a principal
amount of $134 million and are due in 2010. The PBI Obligations bean an interest
rate of 8.073 percent for the first three years and reset in May 2003 and each
third anniversary of the first reset date. The proceeds from the PBI Obligations
were used for general corporate purposes, including the repayment of commercial
paper.
On March 31, 2000, PBCC issued $43.3 million of 7.515 percent Senior Notes to
various holders maturing on January 10, 2012. The proceeds from these notes were
used to pay down commercial paper.
In July 1998, the Company filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission ("SEC") to offer, in one or more
series, its unsecured debt securities at an aggregate initial offering price not
to exceed $750 million. As part of this shelf registration statement in August
1999, PBCC established a medium- term note program for the issuance from time to
time of up to $500 million aggregate principal amount of Medium-Term Notes,
Series D. Under this program in September 1999, the Company issued $125 million
of 5.95 percent unsecured notes. The proceeds of these unsecured notes were used
for general corporate purposes including the repayment of short-term debt. At
March 31, 2000, $625 million was available under the shelf registration and $375
million was available under the related medium-term note program.
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 periodically enters into foreign currency contracts for the
purpose of minimizing its risk of loss from fluctuations in exchange rates in
connection with certain intercompany transactions. When in effect 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. At March 31, 2000 there were no foreign currency
contracts outstanding.
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 2000 increased 2.7
percent from December 31, 1999. The increase is principally due to higher
asset-based investments in the mailing and copier programs along with higher
Small Business Solutions receivable balances. Overall levels of lease
receivables are in line with management's expectations.
11
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PITNEY BOWES CREDIT CORPORATION
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company continues to actively pursue a strategy of Capital Services
Division 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 3.6 times at March 31, 2000 and
1.80 times at December 31, 1999. The increase in the liquidity ratio is due to
lower debt resulting from the application of the proceeds received from the
mortgage servicing subsidiary sale mentioned previously.
The Company will continue to use cash to invest in finance assets with
emphasis on internal leasing transactions and select investment in Capital
Services Division 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
dependent upon the level of equipment purchases from Pitney Bowes Inc., the
level of Capital Services Division financing activity, capital requirements for
new business initiatives, intercompany loans, 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 and intercompany
funds, when available. 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.
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PITNEY BOWES CREDIT CORPORATION
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year 2000
The Company experienced no significant Year 2000 issues on its business
systems, products and supporting infrastructure. Minor issues noted in the early
days of the year were fully addressed and remedied during the first week of
January 2000. The Company has not noted or been notified by any third party of
any significant concerns or impacts on its many business and information
technology systems, products, services and infrastructure or the failure of any
third party on which the Company relies, to make timely changes to their own
systems and processes.
While the Company has not been notified of any specific product or system
failure as a result of the Year 2000 issue, it will continue its monitoring
activity into the second quarter of 2000 to ensure that any problems that may
arise are promptly addressed.
Regulatory Matters
In January 2000, the U.S. Postal Service ("U.S.P.S.") issued a
proposed schedule for the phaseout of manually reset electronic meters
in the U.S. as follows:
As of February 1, 2000, new placements of manually reset electronic meters
are no longer permitted. Current users of manually reset electronic meters can
continue to use these meters for the term of their current rental and lease
agreements.
Based on the proposed schedule, the Company believes that the phaseout of
manually reset electronic meters will not cause a material adverse financial
impact on the Company.
In May 1995, the U.S.P.S. publicly announced its concept of its Information
Based Indicia Program ("IBIP") for future postage evidencing devices. As
initially stated by the U.S.P.S., the purpose of the program was to develop a
new standard for future digital postage evidencing devices which significantly
enhanced postal revenue security and supported expanded U.S.P.S. value-added
services to mailers.
During the period from May 1995 through May, 2000, PBI has submitted extensive
comments to a series of proposed IBIP specifications issued by the U.S.P.S. In
March 2000, the U.S.P.S. issued the latest set of proposed specifications,
entitled "Performance Criteria for Information Based Indicia and Security
Architecture for Open IBI Postage Evidencing Systems" (the "IBI Performance
Criteria"). PBI has submitted comments to the IBI Performance Criteria.
In March 2000, PBI received approval from the U.S.P.S. for the commercial
launch of the Internet version of a product which satisfies the proposed IBI
Performance Criteria, ClickStampT Online. The personal computer version of this
product is currently in the final phase of beta testing and is expected to be
ready for market upon final approval from the U.S.P.S.
Forward - Looking Statements
The Company wants to caution readers that any forward-looking statements
(those which talk about the Company's or management's current expectations as to
the future) in this Form 10-Q or made by the Company management involve risks
and uncertainties which may change based on various important factors. Words
such as "estimate", "project", "plan", "believe", "expect" and similar
expressions may identify such forward-looking statements. Some of the factors
which could cause future financial performance to differ materially from the
expectations as expressed in any forward-looking statement made by or on behalf
of the Company include:
changes in postal regulations
timely development and acceptance of new products
success in gaining product approval in new markets where
regulatory approval is required
successful entry into new markets
mailers' utilization of alternative means of communication or
competitors' products
our success at managing customer credit risk
changes in interest rates
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In the course of normal business, the Company and its parent, are occasionally
party to lawsuits. These may involve litigation by or against the Company and/or
PBI relating to, among other things:
contractual rights under vendor, insurance or other contracts
intellectual property or patent rights
equipment, service or payment disputes with customers
disputes with employees
The Company is currently a plaintiff or 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.
In June 1999, PBI was served with a Civil Investigative Demand ("CID") from
the U.S. Justice Department's Antitrust Division. A CID is a tool used by the
Antitrust Division for gathering information and documents. PBI believes that
the Justice Department may be reviewing its efforts to protect its intellectual
property rights. PBI believes it has complied fully with the antitrust laws and
is cooperating fully with the department's investigation.
Item 5- Other information
PricewaterhouseCoopers ("PwC") has informed PBI and its Board of Directors
that it has notified the SEC that there was a delay in the transfer from PwC's
control of certain retirement and other benefits which were due to the chair of
the Audit Committee of the Board of Directors of PBI, as a former partner of
Coopers & Lybrand, a predecessor of PwC. PwC has informed PBI that these
transfers should have occurred in May 1999, but were completed on March 23,
2000. The SEC has advised PBI that because of this delay, PwC was not in
compliance with its auditor independence regulations. The SEC has further
advised the company that it does not intend to take any action against PBI with
respect to PBI's financial statements as a result of PwC's noncompliance. The
PBI Board of Directors, which is composed of nine non-employee and two employee
members, has reviewed this situation and has concluded, based on its examination
and review, that the delayed transfer of these benefits did not affect the
quality or integrity of PwC's audit of the PBI's financial statements.
14
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits (numbered in accordance with Item 601 of Regulation S-K).
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 17
(27) Financial Data Schedule See Exhibit (ii)
on page 18
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, 2000.
15
<PAGE>
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 12, 2000
By/s/ R. Jeffrey Macartney
----------------------
R. Jeffrey Macartney
Controller
(Principal Accounting Officer)
Dated: May 12, 2000
16
<PAGE>
<TABLE>
Exhibit (i)
Computation of Ratio of Earnings from Continuing Operations to
Fixed Charges
(in thousands of dollars)
Three Months Ended
March 31,
--------------------
2000 1999(2)
<S> <C> <C>
Income from continuing operations before income taxes $ 61,663 $ 57,457
------- -------
Fixed charges:
Interest on debt 28,749 31,780
One-third of rent expense 100 151
------- -------
Total fixed charges 28,849 31,931
------- -------
Earnings from continuing operations before fixed charges $ 90,512 $ 89,388
======= =======
Ratio of earnings from continuing ops. to fixed charges(1) 3.14X 2.80X
======= =======
<FN>
(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.
(2) Amounts have been reclassified to reflect AMIC as discontinued operations.
Interest expense and the portion of rent representative of the interest factor
of this discontinued operation have been excluded from fixed charges in the
computation. Including these amounts in fixed charges, the ratio of earnings
to fixed charges would have been 3.10 for the first quarter of 1999.
</FN>
17
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit (ii)
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/00
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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 109,526
<SECURITIES> 0
<RECEIVABLES> 4,025,923
<ALLOWANCES> (78,370)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,807,610
<CURRENT-LIABILITIES> 967,294
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 1,275,598
<TOTAL-LIABILITY-AND-EQUITY> 4,807,610
<SALES> 0
<TOTAL-REVENUES> 142,106
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,776
<LOSS-PROVISION> 16,918
<INTEREST-EXPENSE> 28,749
<INCOME-PRETAX> 61,663
<INCOME-TAX> 16,224
<INCOME-CONTINUING> 45,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,439
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
