UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
F O R M 1 0 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 1-3579
PITNEY BOWES INC.
State of Incorporation IRS Employer Identification No.
Delaware 06-0495050
World Headquarters
Stamford, Connecticut 06926-0700
Telephone Number: (203) 356-5000
The Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Number of shares of common stock, $2 par value, outstanding as of July 31, 1997
is 144,281,005.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 2 of 19
Pitney Bowes Inc.
Index
Page Number
Part I - Financial Information:
Consolidated Statement of Income - Three and Six
Months Ended June 30, 1997 and 1996 .......................... 3
Consolidated Balance Sheet - June 30, 1997
and December 31, 1996 ........................................ 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 ...................... 5
Notes to Consolidated Financial Statements ........................ 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 8-13
Part II - Other Information:
Item 1: Legal Proceedings ........................................ 14
Item 4: Submission of Matters to a Vote of Security Holders ...... 14-15
Item 6: Exhibits and Reports on Form 8-K ......................... 15
Signatures .............................................................. 16
Exhibit (i) - Computation of Earnings per Share ......................... 17
Exhibit (ii) - Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends .................. 18
Exhibit (iii) - Financial Data Schedule ................................. 19
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 3 of 19
Part I - Financial Information
Pitney Bowes Inc.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenue from:
<S> <C> <C> <C> <C>
Sales ............................................. $ 449,757 $ 410,649 $ 867,579 $ 794,653
Rentals and financing ............................. 436,141 415,266 860,703 824,344
Support services .................................. 120,213 117,022 239,199 230,205
------------ ------------ ------------ ------------
Total revenue ................................. 1,006,111 942,937 1,967,481 1,849,202
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales ..................................... 269,490 258,039 523,298 496,803
Cost of rentals and financing ..................... 128,041 114,575 255,715 240,327
Selling, service and administrative ............... 335,682 320,091 661,791 631,107
Research and development .......................... 21,835 20,637 42,483 39,347
Interest, net ..................................... 50,953 47,399 100,449 95,983
------------ ------------ ------------ ------------
Total costs and expenses ...................... 806,001 760,741 1,583,736 1,503,567
------------ ------------ ------------ ------------
Income before income taxes ............................. 200,110 182,196 383,745 345,635
Provision for income taxes ............................. 69,039 63,663 132,729 120,593
------------ ------------ ------------ ------------
Net income ............................................. $ 131,071 $ 118,533 $ 251,016 $ 225,042
============ ============ ============ ============
Net income common and common equivalent share ..... $ .89 $ .79 $ 1.70 $ 1.49
============ ============ ============ ============
Average common and common equivalent shares
outstanding ....................................... 146,935,086 150,945,114 148,030,688 151,171,536
============ ============ ============ ============
Dividends declared per share of common stock ........... $ .40 $ .345 $ .80 $ .69
============ ============ ============ ============
Ratio of earnings to combined fixed charges
and preferred stock dividends ..................... 3.89 3.83 3.83 3.66
============ ============ ============ ============
Ratio of earnings to fixed charges
excluding minority interest ....................... 4.13 3.99 4.02 3.82
============ ============ ============ ============
</TABLE>
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 4 of 19
Pitney Bowes Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1997 1996
------------- ----------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................. $ 130,743 $ 135,271
Short-term investments, at cost which approximates market............. 1,474 1,500
Accounts receivable, less allowances: 6/97, $17,423; 12/96, $16,160.. 322,679 340,730
Finance receivables, less allowances: 6/97, $43,514; 12/96, $40,176.. 1,423,859 1,339,286
Inventories (Note 2).................................................. 255,791 281,942
Other current assets and prepayments.................................. 131,776 123,337
------------- ----------------
Total current assets.............................................. 2,266,322 2,222,066
Property, plant and equipment, net (Note 3)................................ 484,882 486,029
Rental equipment and related inventories, net (Note 3)..................... 821,851 815,306
Property leased under capital leases, net (Note 3)......................... 4,751 5,848
Long-term finance receivables, less allowances:
6/97, $76,527; 12/96, $73,561......................................... 3,442,412 3,450,231
Investment in leveraged leases............................................. 661,036 633,682
Goodwill, net of amortization: 6/97, $37,629; 12/96, $34,372.............. 202,092 205,802
Other assets ............................................................. 405,151 336,758
------------- ----------------
Total assets ............................................................ $ 8,288,497 $ 8,155,722
============= ================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities.............................. $ 827,394 $ 849,789
Income taxes payable.................................................. 162,378 212,155
Notes payable and current portion of long-term obligations............ 2,173,450 1,911,481
Advance billings...................................................... 351,059 331,864
------------- ----------------
Total current liabilities......................................... 3,514,281 3,305,289
Deferred taxes on income................................................... 831,480 720,840
Long-term debt............................................................. 1,172,053 1,300,434
Other noncurrent liabilities............................................... 381,852 390,113
------------- ----------------
Total liabilities................................................. 5,899,666 5,716,676
------------- ----------------
Preferred stockholders' equity in a subsidiary company ................... 300,000 200,000
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible............. 46 46
Cumulative preference stock, no par value, $2.12 convertible.......... 2,291 2,369
Common stock, $2 par value............................................ 323,338 323,338
Capital in excess of par value........................................ 27,852 30,260
Retained earnings..................................................... 2,583,936 2,450,294
Cumulative translation adjustments.................................... (52,477) (31,297)
Treasury stock, at cost............................................... (796,155) (535,964)
------------- ----------------
Total stockholders' equity........................................ 2,088,831 2,239,046
------------- ----------------
Total liabilities and stockholders' equity ................................ $ 8,288,497 $ 8,155,722
============= ================
</TABLE>
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 5 of 19
Pitney Bowes Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Six Months Ended June 30,
----------------------------
1997 1996*
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................... $ 251,016 $ 225,042
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................... 146,426 135,337
Net change in the strategic focus initiative .... -- (9,871)
Increase in deferred taxes on income ............ 111,193 41,748
Change in assets and liabilities:
Accounts receivable ......................... 17,115 29,588
Sales-type lease receivables ................ (55,575) (23,534)
Inventories ................................. 25,219 21,449
Other current assets and prepayments ........ (8,213) 3,487
Accounts payable and accrued liabilities .... (21,847) (66,059)
Income taxes payable ........................ (49,523) 3,548
Advance billings ............................ 19,783 13,336
Other, net ...................................... (53,490) (34,820)
--------- ---------
Net cash provided by operating activities ... 382,104 339,251
--------- ---------
Cash flows from investing activities:
Short-term investments ................................... 26 2,161
Net investment in fixed assets ........................... (133,373) (134,749)
Net investment in direct-finance lease receivables ....... (25,848) (13,163)
Investment in leveraged leases ........................... (28,786) (22,391)
Investment in mortgage servicing rights .................. (64,125) (22,847)
Other investing activities ............................... 12,892 13,266
--------- ---------
Net cash used in investing activities ....... (239,214) (177,723)
--------- ---------
Cash flows from financing activities:
Increase in notes payable ................................ 385,374 12,117
Principal payments on long-term obligations .............. (252,794) (8,114)
Proceeds from issuance of stock .......................... 22,460 21,251
Stock repurchases ........................................ (285,465) (75,339)
Proceeds from preferred stock issued by a subsidiary ..... 100,000 --
Dividends paid ........................................... (117,374) (103,510)
--------- ---------
Net cash used in financing activities ....... (147,799) (153,595)
--------- ---------
Effect of exchange rate changes on cash ....................... 381 (498)
--------- ---------
(Decrease) increase in cash and cash equivalents .............. (4,528) 7,435
Cash and cash equivalents at beginning of period .............. 135,271 85,352
--------- ---------
Cash and cash equivalents at end of period .................... $ 130,743 $ 92,787
========= =========
Interest paid ................................................. $ 116,527 $ 103,700
========= =========
Income taxes paid ............................................. $ 73,688 $ 77,075
========= =========
<FN>
*Certain prior year amounts have been reclassified to conform to the 1997 presentation.
</FN>
</TABLE>
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 6 of 19
Pitney Bowes Inc.
Notes to Consolidated Financial Statements
Note 1:
- -------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Pitney Bowes Inc. ("the
company"), all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the company as of June 30,
1997 and the results of its operations and cash flows for the six months ended
June 30, 1997 and 1996 have been included. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. These statements should be read
in conjunction with the financial statements and notes thereto included in the
company's Annual Report to Stockholders and Form 10-K Annual Report for the year
ended December 31, 1996.
Note 2:
- -------
Inventories are comprised of the following:
(Dollars in thousands) June 30, December 31,
1997 1996
---------- ------------
Raw materials and work in process ................ $ 54,284 $ 58,536
Supplies and service parts ....................... 101,291 103,182
Finished products ................................ 100,216 120,224
---------- ------------
Total ............................................ $ 255,791 $ 281,942
========== ============
Note 3:
- -------
Fixed assets are comprised of the following:
(Dollars in thousands) June 30, December 31,
1997 1996
----------- -----------
Property, plant and equipment .................... $ 1,093,043 $ 1,093,501
Accumulated depreciation ......................... (608,161) (607,472)
----------- -----------
Property, plant and equipment, net ............... $ 484,882 $ 486,029
=========== ===========
Rental equipment and related inventories ......... $ 1,642,727 $ 1,634,111
Accumulated depreciation ......................... (820,876) (818,805)
----------- -----------
Rental equipment and related inventories, net .... $ 821,851 $ 815,306
=========== ===========
Property leased under capital leases ............. $ 20,419 $ 24,124
Accumulated amortization ......................... (15,668) (18,276)
----------- -----------
Property leased under capital leases, net ........ $ 4,751 $ 5,848
=========== ===========
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 7 of 19
Note 4:
- -------
Revenue and operating profit by business segment for the three and six months
ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
(Dollars in thousands) 1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Business equipment ....................... $ 779,364 $ 728,489 $ 1,524,484 $ 1,429,426
Business services ........................ 137,461 120,534 266,451 232,424
Commercial and industrial financing
Large-ticket external .................. 50,074 48,654 99,625 103,077
Small-ticket external .................. 39,212 45,260 76,921 84,275
------------ ------------ ------------ ------------
Total .................................. 89,286 93,914 176,546 187,352
------------ ------------ ------------ ------------
Total revenue ............................... $ 1,006,111 $ 942,937 $ 1,967,481 $ 1,849,202
============ ============ ============ ============
Operating Profit: (1)
Business equipment ....................... $ 186,617 $ 162,413 $ 356,028 $ 313,099
Business services ........................ 11,791 9,728 22,279 18,567
Commercial and industrial financing ...... 18,723 21,786 35,234 40,113
------------ ------------ ------------ ------------
Total operating profit ...................... $ 217,131 $ 193,927 $ 413,541 $ 371,779
============ ============ ============ ============
<FN>
(1)Operating profit excludes general corporate expenses, income taxes, and net
interest other than that related to the financial services businesses.
</FN>
</TABLE>
Note 5:
- -------
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
per Share" was issued. It specifies the computation, presentation and disclosure
requirements for earnings per share and is effective for financial statements
for both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. On a pro-forma basis, basic and diluted earnings
per share would have been as follows:
1997 1996
-------------------- --------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
Quarter ended March 31 ..... $ .81 $ .81 $ .71 $ .70
Quarter ended June 30 ...... .90 .89 .79 .79
-------- -------- -------- --------
Year to date June 30 ....... $ 1.71 $ 1.70 $ 1.50 $ 1.49
======== ======== ======== ========
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was issued. It will require the company to disclose, in
financial statement format, all non-owner changes in equity. This statement is
effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
The company expects to adopt this statement beginning with its 1998 consolidated
financial statements.
Also in June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" was
issued. It establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The company is currently evaluating its
options for disclosure and will adopt the statement for the fiscal year
commencing January 1, 1998.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 8 of 19
Pitney Bowes Inc.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - second quarter of 1997 vs. second quarter of 1996
- -------------------------------------------------------------------------
Revenue increased seven percent to $1,006.1 million compared to $942.9 million
in the second quarter of 1996. Net income increased 11 percent to $131.1 million
from $118.5 million in the same period in 1996. Per share earnings grew to 89
cents, a 13.6 percent increase from second quarter 1996. Revenue growth was
eight percent, excluding revenue from large-ticket external financing as well as
prior-year revenue from businesses in Australia from which, as previously
announced, the company exited in 1996.
Second quarter 1997 revenue included $449.8 million from sales, up 10 percent
from $410.6 million in the second quarter of 1996; $436.1 million from rentals
and financing, up five percent from $415.3 million; and $120.2 million for
support services, up three percent from $117.0 million.
In the Business Equipment segment, which includes mailing, facsimile and copying
systems and related financing, revenue grew seven percent and operating profit
increased 15 percent during the second quarter.
Mailing Systems' six percent revenue increase during the quarter was driven by
strong equipment sales in the U.S. Mailing and Production Mail businesses. The
conversion of U.S. Mailing Systems' customers to more advanced technology
continued during the quarter, with electronic and digital meters comprising 67
percent of the installed base up from 60 percent in December 1996 and 52 percent
in June 1996. See Regulatory Matters Update below. Growth in Mailing Systems'
revenue for the quarter has been partially offset by last year's strategic
decision to exit non-profitable businesses in Australia, currency translation
impacts in Japan and lower equipment placements in Germany.
Revenue from Facsimile Systems grew 11 percent in second quarter 1997 driven by
steady increases in the installed base of rental machines and supply sales.
Copier Systems revenue increased eight percent in the second quarter driven by
solid equipment sales. Rental revenue was also strong, resulting from new
product introductions and geographic expansion.
In the Business Services segment second-quarter revenue grew 14 percent and
operating profit grew 21 percent. The segment includes Pitney Bowes Management
Services (PBMS) and Atlantic Mortgage and Investment Corporation (AMIC). Revenue
for PBMS grew due to continued expansion of its commercial contract base and its
increased presence in the U.K. AMIC achieved excellent growth through aggressive
expansion of its fee-based revenue. These service businesses have maintained
profitable double-digit revenue growth by bringing Pitney Bowes innovation and
expertise to key market segments.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 9 of 19
In accordance with management's previously announced strategy to concentrate on
fee-based rather than asset-based income, the company is actively pursuing a
strategy to reduce the level of external large-ticket investment and related
debt. In line with such strategy, the Commercial and Industrial Financing
segment's revenue and operating profit declined five percent and 14 percent,
respectively. This segment includes large-ticket and small-ticket external
financing. The comparison to second quarter 1996 also reflects the effect of
past asset sales in both the large and small ticket external portfolios,
including the sale of the Custom Vendor Financing portfolio in June 1996.
The ratio of cost of sales to sales revenue decreased from 62.8 percent in the
second quarter 1996 to 59.9 percent in 1997. The improvement was due to the
product mix at U.S. Mailing towards higher-margin products, favorable purchase
and maintenance variances and higher margin supply sales in the Facsimile
business. The improvement was offset, in part, by the continued growth of the
facilities management business which includes most of its expenses in cost of
sales.
The ratio of cost of rentals and financing to rentals and financing revenue
increased to 29.4 percent in the second quarter 1997 from 27.6 percent in the
same prior year period. The company had ceased placing mechanical meters in 1996
as a result of the meter migration requirements, resulting in lower related
costs in that period. Since then, the increased new placements of electronic and
digital meters has led to additional depreciation expense, impacting this ratio.
The 1996 ratio was also favorably impacted by the sale of the Custom Vendor
Financing portfolio mentioned above.
Selling, service and administrative expenses as a percentage of revenue improved
to 33.4 percent in the second quarter 1997 from 33.9 percent in the same period
in 1996. The improvement in this ratio is primarily due to the continued
emphasis on controlling operating expenditures and reduced expense levels in
Australia as a result of exiting certain businesses in 1996.
Research and development expenses increased six percent to $21.8 million in the
second quarter of 1997 compared to the second quarter of the previous year. The
increase reflects the company's continued commitment to developing new
technologies for its digital meters and other mailing and software products.
Net interest expense increased to $51.0 million in the second quarter of 1997
from $47.4 million in the second quarter of 1996. The increase is due to higher
average borrowings in 1997 to fund the previously approved stock repurchase
program coupled with higher interest rates.
The second quarter effective tax rate was 34.5 percent in 1997 compared to 34.9
percent in the second quarter of 1996.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 10 of 19
Results of Operations - six months of 1997 vs. six months of 1996
- -----------------------------------------------------------------
For the first six months of 1997 compared with the same period of 1996, revenue
increased six percent to $1,967.5 million while net income increased 12 percent
to $251.0 million. The factors that affected revenue and earnings performance
included those cited for the second quarter of 1997 versus 1996.
Liquidity and Capital Resources
- -------------------------------
The current ratio decreased to .64 to 1 as of June 30, 1997 from .67 to 1 as of
December 31, 1996. The decrease is primarily due to the reclassification of $125
million of notes due in June 1998 to current portion of long term debt plus
increased borrowing at the company's financial services subsidiaries.
In April 1997, Pitney Bowes International Holdings, Inc., a subsidiary of the
company, issued an additional $100 million of variable term voting preferred
stock to institutional investors in a private placement transaction. The
preferred stock, $.01 par value, is entitled to cumulative dividends at rates
set at auction, generally at 49 day intervals. The proceeds of the issuance were
used to repay short-term borrowings. The Consolidated Statement of Income
reflects the dividends as a minority interest in selling, service and
administrative expense.
As part of the company's non-financial services shelf registrations, a
medium-term note facility exists permitting issuance of up to $100 million in
debt securities with maturities ranging from more than one year up to 30 years
of which $32 million remain available at June 30, 1997. The company also has an
additional $300 million remaining on its non-financial services shelf
registrations filed with the Securities and Exchange Commission (SEC). Amounts
available under credit agreements, shelf registrations and commercial paper and
medium-term note programs, in addition to cash generated internally are expected
to be sufficient to provide for financing needs in the next several years.
Pitney Bowes Credit Corporation (PBCC) has $250 million of unissued debt
securities available from a shelf registration statement filed with the SEC in
September 1995. Up to $250 million of medium-term notes may be offered under
this registration statement. The $250 million available under this shelf
registration statement should meet PBCC's financing needs for the next two
years. PBCC also had unused lines of credit and revolving credit facilities
totaling $1.5 billion at June 30, 1997, largely supporting its commercial paper
borrowings.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 11 of 19
The ratio of total debt to total debt and stockholders' equity, including the
preferred stockholders' equity in a subsidiary company in total debt, was 63.6
percent at June 30, 1997 compared to 60.5 percent at December 31, 1996. This
ratio was affected by the repurchase of 4,351,600 shares of common stock for
$285.5 million in the first half of 1997. Book value was $14.47 per common share
at June 30, 1997 compared to $15.11 at year-end 1996 principally as a result of
the stock repurchase.
The company enters into interest rate swap agreements principally through its
financial services businesses. It has been the practice and objective of the
company to use a balanced mix of debt maturities, variable- and fixed-rate debt
and interest rate swap agreements to control the company's sensitivity to
interest rate volatility. The company utilizes interest rate swap agreements
when it considers the economic benefits to be favorable. Swap agreements have
been principally utilized to fix interest rates on commercial paper and/or
obtain a lower cost on debt than would otherwise be available absent the swap.
Capital Investments
- -------------------
In the first half of 1997, net investments in fixed assets included $42.2
million in net additions to property, plant and equipment and $90.4 million in
net additions to rental equipment and related inventories compared with $40.8
million and $93.5 million, respectively, in the same period in 1996. In the case
of rental equipment, the additions included the production of postage meters and
the purchase of facsimile equipment for both new placements and upgrade
programs.
As of June 30, 1997, commitments for the acquisition of property, plant and
equipment included plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs.
Regulatory Matters Update
- -------------------------
In May 1996 the United States Postal Service (U.S.P.S.) issued a proposed
schedule for the phase-out of mechanical meters in the U.S. marketplace. In
accordance with the schedule, the company voluntarily halted new placements of
mechanical meters in the U.S. as of June 1, 1996. The company is also actively
pursuing removal from the market of all mechanical meters used by persons or
firms who process mail for a fee. Further, the company agreed, in March 1997, to
use its best efforts to remove from the market mechanical systems meters (meters
that interface with mail machines or processors) by a revised target date of
December 31, 1998. The company continues to make satisfactory progress in
meeting the proposed withdrawal date of March 31, 1999 for stand-alone
mechanical meters.
As of June 30, 1997, electronic and digital meters represented 67 percent of the
company's U.S. installed base, up from 60 percent in December 1996. Based on the
announced U.S.P.S. mechanical meter migration schedule and agreements reached to
date with the U.S.P.S., the company believes that the plan will not cause a
material adverse financial impact on the company.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 12 of 19
In 1996 the U.S.P.S. announced proposed changes in future metering technology
that would include the use of a digital, information-based indicia standard.
Initial specifications for the information-based indicia standard were proposed
in July 1996. Since then, the U.S.P.S. has invited public comment on the
proposal, which remains under discussion and has not been finalized. At some
undetermined date in the future, the U.S.P.S. believes that digital metering
will eventually replace electronic metering in the U.S. The company supports a
digital product migration strategy, and the company anticipates working with the
U.S.P.S. to achieve a timely and effective substitution plan. However, until the
U.S.P.S. finalizes standards for a digital information-based indicia (and
clarifies transition to the new standard), the impact of this proposal, if any,
on the company cannot be determined. The company has taken the lead in deploying
digital meters in the marketplace.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 13 of 19
Forward-looking Statements
- --------------------------
The company cautions readers that any forward-looking statements (those which
discuss the company's or management's current expectations as to the future) in
this Form 10-Q or made by company management involve risks and uncertainties
which may change based on various important factors. 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
- the company's success at managing customer credit risk.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 14 of 19
Part II - Other Information
- ---------------------------
Item 1: Legal Proceedings
In the course of normal business, the company is occasionally party to lawsuits.
These may involve litigation by or against the company 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 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 4: Submission of Matters to a Vote of Security Holders.
Below are the final results of the voting at the annual meeting of shareholders
held on May 12, 1997:
Proposal 1 - Election of Directors
Nominee For Withheld
- ----------------- ----------- --------
William E. Butler 122,494,177 718,322
Colin G. Campbell 122,494,738 717,761
David T. Kimball 122,515,529 696,970
Proposal 2 - Appointment of Price Waterhouse LLP as Independent Accountants
For Against Abstain
----------- ------- --------
122,721,020 178,531 312,948
Proposal 3 - Stockholder Proposal Relating to Coalition for Environmentally
Responsible Economies Principles*
For Against Abstain
--------- ---------- ---------
9,202,174 95,771,073 9,469,668
*This proposal had 8,769,584 Broker No Votes.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 15 of 19
The following other directors continued their term of office after the Annual
Meeting:
Linda G. Alvarado Charles E. Hugel
Marc C. Breslawsky Michael I. Roth
Michael J. Critelli Phyllis Shapiro Sewell
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Reg. S-K Status or Incorporation
Exhibits Description by Reference
-------- ----------- -------------
(11) Computation of earnings See Exhibit (i)
per share.
(12) Computation of ratio of See Exhibit (ii)
earnings to combined fixed
charges and preferred stock
dividends.
(27) Financial data schedule. See Exhibit (iii)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 16 of 19
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 INC.
August 14, 1997
/s/ M. L. Reichenstein
----------------------------------------
M. L. Reichenstein
Vice President - Chief Financial Officer
(Principal Financial Officer)
/s/ A. F. Henock
----------------------------------------
A. F. Henock
Vice President - Controller
and Chief Tax Counsel
(Principal Accounting Officer)
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 17 of 19
Exhibit (i)
Pitney Bowes Inc.
Computation of Earnings per Share
---------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
(Dollars in thousands, except per share data) 1997 1996 1997 1996
------------ ------------ ------------ ------------
Primary
- -------
<S> <C> <C> <C> <C>
Net income applicable to common stock (1) .............. $ 131,071 $ 118,533 $ 251,015 $ 225,042
============ ============ ============ ============
Weighted average number of common shares outstanding ... 145,195,125 149,444,335 146,326,746 149,655,627
Preference stock, $2.12 cumulative convertible ......... 682,324 731,416 688,408 738,887
Stock option and purchase plans ........................ 1,057,637 769,363 1,015,534 777,022
------------ ------------ ------------ ------------
Total common and common equivalent shares outstanding .. 146,935,086 150,945,114 148,030,688 151,171,536
============ ============ ============ ============
Income per common and common equivalent share -
primary:
Net income ........................................ $ .89 $ .79 $ 1.70 $ 1.49
============ ============ ============ ============
Fully Diluted
- -------------
Net income ............................................. $ 131,071 $ 118,533 $ 251,016 $ 225,042
============ ============ ============ ============
Weighted average number of common shares outstanding ... 145,195,125 149,444,335 146,326,746 149,655,627
Preference stock, $2.12 cumulative convertible ......... 682,324 731,416 688,408 738,887
Stock option and purchase plans ........................ 1,122,023 803,981 1,071,351 846,838
Preferred stock, 4% cumulative convertible ............. 11,187 11,490 11,187 11,490
------------ ------------ ------------ ------------
Total common and common equivalent shares outstanding .. 147,010,659 150,991,222 148,097,692 151,252,842
============ ============ ============ ============
Income per common and common equivalent share-
fully diluted:
Net income ........................................ $ .89 $ .79 $ 1.69 $ 1.49
============ ============ ============ ============
<FN>
(1) Net income applicable to common stock was adjusted for preferred dividends.
</FN>
</TABLE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 18 of 19
Exhibit (ii)
Pitney Bowes Inc.
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (1)
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before income taxes ..................... $200,110 $182,196 $383,745 $345,635
Add:
Interest expense .......................... 52,692 48,971 104,597 98,883
Portion of rents representative of the
interest factor ....................... 11,385 11,250 22,514 22,311
Amortization of capitalized
interest .............................. 244 229 487 457
Minority interest in the income of
subsidiary with fixed charges ......... 3,065 1,991 5,031 4,110
-------- -------- -------- --------
Income as adjusted ............................. $267,496 $244,637 $516,374 $471,396
======== ======== ======== ========
Fixed charges:
Interest expense .......................... $ 52,692 $ 48,971 $104,597 $ 98,883
Capitalized interest ...................... -- 599 -- 1,201
Portion of rents
representative of the
interest factor ....................... 11,385 11,250 22,514 22,311
Minority interest excluding
taxes, in the income of
subsidiary with fixed charges ......... 4,715 3,087 7,800 6,372
-------- -------- -------- --------
$ 68,792 $ 63,907 $134,911 $128,767
======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
stock dividends ........................... 3.89 3.83 3.83 3.66
======== ======== ======== ========
Ratio of earnings to fixed
charges excluding minority
interest .................................. 4.13 3.99 4.02 3.82
======== ======== ======== ========
<FN>
(1) The computation of the ratio of earnings to combined fixed charges and
preferred stock dividends has been computed by dividing income as adjusted by
fixed charges and preferred stock dividends. Included in fixed charges is
one-third of rental expense as the representative portion of interest.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1997
Page 19 of 19
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, CORRESPONDING
FOOTNOTE #3 FIXED ASSETS AND STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 130,743
<SECURITIES> 1,474
<RECEIVABLES> <F1> 1,807,475
<ALLOWANCES> <F1> 60,937
<INVENTORY> 255,791
<CURRENT-ASSETS> 2,266,322
<PP&E> <F2> 2,735,770
<DEPRECIATION> <F2> 1,429,037
<TOTAL-ASSETS> 8,288,497
<CURRENT-LIABILITIES> 3,514,281
<BONDS> 1,172,053
<COMMON> 323,338
300,000
2,337
<OTHER-SE> 1,763,156
<TOTAL-LIABILITY-AND-EQUITY> 8,288,497
<SALES> 867,579
<TOTAL-REVENUES> 1,967,481
<CGS> 523,298
<TOTAL-COSTS> 779,013
<OTHER-EXPENSES> 42,483
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,597
<INCOME-PRETAX> 383,745
<INCOME-TAX> 132,729
<INCOME-CONTINUING> 251,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251,016
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.69
<FN>
<F1> Receivables are comprised of trade receivables of $340,102 and short-term
finance receivables of $1,467,373. Allowances are comprised of allowances for
trade receivables of $17,423 and for short-term finance receivables of $43,514.
<F2> Property, plant and equipment are comprised of fixed assets of $1,093,043
and rental equipment and related inventories of $1,642,727. Depreciation is
comprised of depreciation on fixed assets of $608,161 and on rental equipment
and related inventories of $820,876.
</FN>
</TABLE>
