UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998
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
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Number of shares of common stock, $1 par value, outstanding as of July 31, 1998
is 274,445,810.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 2
Pitney Bowes Inc.
Index
-----------------
Page Number
-----------
Part I - Financial Information:
Item 1: Financial Statements
Consolidated Statements of Income - Three and Six
Months Ended June 30, 1998 and 1997........................ 3
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997...................................... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997.................... 5
Notes to Consolidated Financial Statements...................... 6 - 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 9 - 14
Part II - Other Information:
Item 1: Legal Proceedings...................................... 15
Item 4: Submission of Matters to a Vote of
Security Holders............................ 15- 16
Item 6: Exhibits and Reports on Form 8-K....................... 16
Signatures ........................................................... 17
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 3
Part I - Financial Information
------------------------------
Item 1. Financial Statements
<TABLE>
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
---------------------------------
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from:
Sales ................................................. $ 492,310 $ 449,757 $ 942,735 $ 867,579
Rentals and financing ................................. 458,753 436,141 896,913 860,703
Support services ...................................... 128,455 120,213 251,444 239,199
---------- ---------- ---------- ----------
Total revenue ..................................... 1,079,518 1,006,111 2,091,092 1,967,481
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ......................................... 289,983 269,490 564,983 523,298
Cost of rentals and financing ......................... 145,831 128,041 284,210 255,715
Selling, service and administrative ................... 352,916 335,682 683,898 661,791
Research and development .............................. 25,065 21,835 48,696 42,483
Interest, net ......................................... 48,870 50,953 94,455 100,449
---------- ---------- ---------- ----------
Total costs and expenses .......................... 862,665 806,001 1,676,242 1,583,736
---------- ---------- ---------- ----------
Income before income taxes ................................. 216,853 200,110 414,850 383,745
Provision for income taxes ................................. 74,836 69,039 143,146 132,729
---------- ---------- ---------- ----------
Net income ................................................. $ 142,017 $ 131,071 $ 271,704 $ 251,016
========== ========== ========== ==========
Basic earnings per share ................................... $ .52 $ .45 $ .98 $ .86
========== ========== ========== ==========
Diluted earnings per share ................................. $ .51 $ .45 $ .97 $ .85
========== ========== ========== ==========
Dividends declared per share of common stock ............... $ .225 $ .20 $ .45 $ .40
========== ========== ========== ==========
Ratio of earnings to fixed charges ......................... 4.00 3.89 4.06 3.83
========== ========== ========== ==========
Ratio of earnings to fixed charges
excluding minority interest ........................... 4.23 4.13 4.31 4.02
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 4
<TABLE>
Pitney Bowes Inc.
Consolidated Balance Sheets
---------------------------
<CAPTION>
June 30, December 31,
(Dollars in thousands, except share data) 1998 1997
--------------- ----------------
(unaudited)
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 115,322 $ 137,073
Short-term investments, at cost which
approximates market............................................... 1,943 1,722
Accounts receivable, less allowances:
6/98, $21,883; 12/97, $21,129..................................... 367,409 348,792
Finance receivables, less allowances:
6/98, $61,867; 12/97, $54,170..................................... 1,681,062 1,546,542
Inventories (Note 2).................................................. 240,045 249,207
Other current assets and prepayments.................................. 165,834 180,179
--------------- ----------------
Total current assets.............................................. 2,571,615 2,463,515
Property, plant and equipment, net (Note 3)................................ 491,552 497,261
Rental equipment and related inventories, net (Note 3)..................... 823,530 788,035
Property leased under capital leases, net (Note 3)......................... 4,080 4,396
Long-term finance receivables, less allowances:
6/98, $77,755; 12/97, $78,138......................................... 2,327,915 2,581,349
Investment in leveraged leases............................................. 776,930 727,783
Goodwill, net of amortization:
6/98, $44,208; 12/97, $40,912......................................... 208,946 203,419
Other assets ............................................................. 868,400 627,631
--------------- ----------------
Total assets ............................................................. $ 8,072,968 $ 7,893,389
=============== ================
Liabilities and stockholders' equity
- -------------------------------------
Current liabilities:
Accounts payable and accrued liabilities.............................. $ 845,562 $ 878,759
Income taxes payable.................................................. 139,867 147,921
Notes payable and current portion of
long-term obligations ............................................ 1,761,162 1,982,988
Advance billings...................................................... 376,871 363,565
--------------- ----------------
Total current liabilities......................................... 3,123,462 3,373,233
Deferred taxes on income................................................... 925,837 905,768
Long-term debt (Note 4).................................................... 1,627,127 1,068,395
Other noncurrent liabilities............................................... 368,039 373,416
--------------- ----------------
Total liabilities................................................. 6,044,465 5,720,812
--------------- ----------------
Preferred stockholders' equity in a subsidiary company..................... 300,000 300,000
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible............................................. 34 39
Cumulative preference stock, no par
value, $2.12 convertible.......................................... 2,112 2,220
Common stock, $1 par value............................................ 323,338 323,338
Capital in excess of par value........................................ 21,864 28,028
Retained earnings..................................................... 2,892,080 2,744,929
Accumulated other comprehensive income (Note 7)....................... (74,630) (63,348)
Treasury stock, at cost............................................... (1,436,295) (1,162,629)
--------------- ----------------
Total stockholders' equity........................................ 1,728,503 1,872,577
--------------- ----------------
Total liabilities and stockholders' equity ............................ $ 8,072,968 $ 7,893,389
=============== ================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 5
<TABLE>
Pitney Bowes Inc.
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------
<CAPTION>
(Dollars in thousands)
Six Months Ended June 30,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 271,704 $ 251,016
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................................... 166,446 146,426
Increase in deferred taxes on income............................ 66,949 111,193
Change in assets and liabilities:
Accounts receivable......................................... (20,439) 17,115
Sales-type lease receivables................................ (73,811) (55,575)
Inventories................................................. 9,850 25,219
Other current assets and prepayments........................ 13,814 (8,213)
Accounts payable and accrued liabilities.................... (30,530) (21,847)
Income taxes payable........................................ (8,097) (49,523)
Advance billings............................................ 14,942 19,783
Other, net...................................................... (34,696) (53,490)
------------- -------------
Net cash provided by operating activities................... 376,132 382,104
------------- -------------
Cash flows from investing activities:
Short-term investments................................................... (257) 26
Net investment in fixed assets........................................... (169,504) (133,373)
Net investment in finance receivables.................................... 56,384 (25,848)
Investment in leveraged leases........................................... (52,272) (28,786)
Investment in mortgage servicing rights.................................. (155,261) (64,125)
Other investing activities............................................... (793) 12,892
------------- -------------
Net cash used in investing activities....................... (321,703) (239,214)
------------- -------------
Cash flows from financing activities:
(Decrease)increase in notes payable, net................................. (92,698) 385,374
Proceeds from issuance of long-term obligations.......................... 554,123 -
Principal payments on long-term obligations.............................. (130,993) (252,794)
Proceeds from issuance of stock.......................................... 26,666 22,460
Stock repurchases........................................................ (307,377) (285,465)
Proceeds from preferred stock issued by a subsidiary..................... - 100,000
Dividends paid........................................................... (124,553) (117,374)
------------- -------------
Net cash used in financing activities....................... (74,832) (147,799)
------------- -------------
Effect of exchange rate changes on cash....................................... (1,348) 381
------------- -------------
Decrease in cash and cash equivalents......................................... (21,751) (4,528)
Cash and cash equivalents at beginning of period.............................. 137,073 135,271
------------- -------------
Cash and cash equivalents at end of period.................................... $ 115,322 $ 130,743
============= =============
Interest paid ................................................................ $ 86,830 $ 116,527
============= =============
Income taxes paid, net........................................................ $ 85,386 $ 73,688
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 6
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,
1998, the results of its operations for the three months and six months ended
June 30, 1998 and 1997 and its cash flows for the six months ended June 30, 1998
and 1997 have been included. Operating results for the three and six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. These statements should be read
in conjunction with the financial statements and notes thereto included in the
company's 1997 Annual Report to Stockholders on Form 10-K.
Note 2:
- -------
Inventories are comprised of the following:
(Dollars in thousands) June 30, December 31,
1998 1997
------------ ------------
Raw materials and work in process ...... $ 60,208 $ 51,429
Supplies and service parts ............. 99,080 93,064
Finished products ...................... 80,757 104,714
------------ ------------
Total .................................. $ 240,045 $ 249,207
============ ============
Note 3:
- -------
Fixed assets are comprised of the following:
(Dollars in thousands) June 30, December 31,
1998 1997
------------ ------------
Property, plant and equipment ................. $ 1,145,367 $ 1,120,325
Accumulated depreciation ...................... (653,815) (623,064)
------------ ------------
Property, plant and equipment, net ............ $ 491,552 $ 497,261
============ ============
Rental equipment and related inventories....... $ 1,666,188 $ 1,577,370
Accumulated depreciation ...................... (842,658) (789,335)
------------ ------------
Rental equipment and related inventories, net.. $ 823,530 $ 788,035
============ ============
Property leased under capital leases .......... $ 19,354 $ 20,507
Accumulated amortization ...................... (15,274) (16,111)
------------ ------------
Property leased under capital leases, net...... $ 4,080 $ 4,396
============ ============
Note 4:
- -------
On July 15, 1998, Pitney Bowes Credit Corporation (PBCC), a wholly-owned
subsidiary of the company filed a shelf registration with the Securities and
Exchange Commission (SEC) which permits issuance of up to $750 million in debt
securities.
On April 29, 1998, the company filed a non-financial services shelf registration
with the SEC which combined with $32 million remaining under an existing
medium-term note facility permits issuance of up to $500 million in debt
securities with maturities ranging from more than one year to 30 years. At June
30, 1998, the entire $500 million remained available.
On January 22, 1998, the company issued notes amounting to $300 million
remaining under a non-financial services shelf registration filed with the SEC.
These unsecured notes bear annual interest at 5.95% and mature in February 2005.
The net proceeds from these notes were used for general corporate purposes,
including the repayment of short-term debt.
On January 16, 1998, PBCC issued notes amounting to $250 million remaining under
a shelf registration filed with the SEC. These unsecured notes bear annual
interest at 5.65% and mature in January 2003. The proceeds from these notes are
being used for PBCC's financing needs during 1998.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 7
Note 5:
- -------
A reconciliation of the basic and diluted earnings per share computations for
the three months ended June 30, 1998 and 1997 is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------
Per Per
Income Shares Share Income Shares Share
- -------------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 142,017 $ 131,071
Less:
Preferred stock
dividends - -
Preference stock
dividends (42) (45)
- -------------------------------------------------------------------------------- --------------------------------------------
Basic earnings per
share $ 141,975 274,924 $ .52 $ 131,026 290,390 $ .45
- -------------------------------------------------------------------------------- --------------------------------------------
Effect of dilutive
securities:
Preferred stock - 17 - 22
Preference stock 42 1,259 45 1,365
Stock options 2,822 1,885
Employee stock
purchase plan shares 473 230
- -------------------------------------------------------------------------------- --------------------------------------------
Diluted earnings per
share $ 142,017 279,495 $ .51 $ 131,071 293,892 $ .45
================================================================================ ============================================
</TABLE>
A reconciliation of the basic and diluted earnings per share computations for
the six months ended June 30, 1998 and 1997 is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------
Per Per
Income Shares Share Income Shares Share
- -------------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 271,704 $ 251,016
Less:
Preferred stock
dividends - -
Preference stock
dividends (84) (91)
- -------------------------------------------------------------------------------- --------------------------------------------
Basic earnings per
share $ 271,620 276,930 $ .98 $ 250,925 292,653 $ .86
- -------------------------------------------------------------------------------- --------------------------------------------
Effect of dilutive
securities:
Preferred stock - 17 - 22
Preference stock 84 1,276 91 1,377
Stock options 2,740 1,782
Employee stock
purchase plan shares 450 250
- -------------------------------------------------------------------------------- --------------------------------------------
Diluted earnings per
share $ 271,704 281,413 $ .97 $ 251,016 296,084 $ .85
================================================================================ ============================================
</TABLE>
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 8
Note 6:
- -------
Revenue and operating profit by business segment for the three and six months
ended June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
(Dollars in thousands) 1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue
Business equipment ....................... $ 831,578 $ 779,364 $ 1,616,242 $ 1,524,484
Business services ........................ 169,691 137,461 325,761 266,451
Commercial and industrial financing
Large-ticket external .................. 40,218 50,074 73,966 99,625
Small-ticket external .................. 38,031 39,212 75,123 76,921
-------------- -------------- -------------- --------------
78,249 89,286 149,089 176,546
-------------- -------------- -------------- --------------
Total revenue ............................... $ 1,079,518 $ 1,006,111 $ 2,091,092 $ 1,967,481
============== ============== ============== ==============
Operating Profit: (1)
Business equipment ....................... $ 212,914 $ 186,617 $ 402,783 $ 356,028
Business services ........................ 18,917 11,791 32,840 22,279
Commercial and industrial financing ...... 16,467 18,723 29,270 35,234
-------------- -------------- -------------- --------------
Total operating profit ...................... $ 248,298 $ 217,131 $ 464,893 $ 413,541
============== ============== ============== ==============
<FN>
(1) Operating profit excludes general corporate expenses, income taxes, and net
interest other than that related to the finance operations.
</FN>
</TABLE>
Note 7:
- -------
Comprehensive income for the three and six months ended June 30, 1998 and 1997
was as follows:
<TABLE>
(Dollars in thousands)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income .................................. $ 142,017 $ 131,071 $ 271,704 $ 251,016
Other comprehensive income:
Foreign currency translation
adjustments ............................ (1,243) 1,611 (11,282) (21,180)
-------------- -------------- -------------- --------------
Comprehensive income ........................ $ 140,774 $ 132,682 $ 260,422 $ 229,836
============== ============== ============== ==============
</TABLE>
Note 8:
- -------
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", was issued. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999 (January 1, 2000 for the company) and 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.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations - second quarter of 1998 vs. second quarter of 1997
- -------------------------------------------------------------------------
Revenue increased seven percent in the second quarter of 1998 to $1,079.5
million compared with $1,006.1 million in the second quarter of 1997. Net income
increased eight percent to $142.0 million from $131.1 million for the same
period in 1997. Diluted earnings per share grew to 51 cents, a 13.9 percent
increase from the second quarter of 1997. Revenue growth was nine percent,
excluding revenue from the Commercial and Industrial Financing segment. The
decrease in Commercial and Industrial Financing revenue resulted from the
planned reductions in the external lease financing portfolio.
Second quarter 1998 revenue included $492.3 million from sales, up nine percent
from $449.8 million in the second quarter of 1997; $458.8 million from rentals
and financing, up five percent from $436.1 million; and $128.5 million from
support services, up seven percent from $120.2 million.
In the Business Equipment segment, which includes Mailing Systems and Office
Systems operations, revenue grew seven percent and operating profit increased 14
percent during the second quarter.
Mailing Systems' revenue grew six percent during the quarter; however, excluding
the impact of foreign currency exchange rates primarily in Canada, Germany,
Australia and Japan, revenue would have increased seven percent. This growth was
led by strong placements of advanced equipment solutions in all market segments,
including high volume production mail systems at the upper end of the market.
The company continued to lead the market conversion to more advanced technology,
with electronic and digital meters comprising 81 percent of the company's
installed U.S. meter base at June 30, 1998 compared with 67 percent at June 30,
1997.
Office Systems' revenue grew nine percent which was driven by growth in both the
facsimile and copier product lines. The company strengthened its solid
positioning as the preeminent provider of advanced office systems with the
recent introductions of the Smart Finish(TM) feature set of four copier models,
and the latest 33.6 kps facsimile--Model 9930.
In the Business Services segment, second quarter revenue grew 23 percent and
operating profit grew 60 percent. The segment includes Pitney Bowes Management
Services and Atlantic Mortgage and Investment Corporation. Both businesses in
this segment continued to successfully broaden service offerings to existing
customers and add new customers to their respective bases.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 10
As planned, revenue and operating profit in the Commercial and Industrial
Financing segment were both down 12 percent as compared with the second quarter
of 1997. The segment includes Pitney Bowes Capital Services and Colonial Pacific
Leasing Corporation. The strategic disposition of earning assets at both units
during 1997 and continued reduction in 1998 resulted in the anticipated declines
in revenue and operating profit. These reductions are part of the company's
ongoing strategy to reduce the level of capital committed to asset financing
while maintaining the ability to provide a full range of financial services to
customers.
Cost of sales decreased to 58.9% of sales revenue in the second quarter of 1998
compared with 59.9% in the second quarter of 1997. This was due primarily to
lower product costs at U.S. Mailing Systems and increased sales of high margin
supplies at Office Systems. The improvement was achieved despite the offsetting
effect of increased revenue and costs of the lower-margin management services
business which includes most of its expenses in cost of sales.
Cost of rentals and financing increased to 31.8% of related revenues in the
second quarter of 1998 compared with 29.4% in the second quarter of 1997. This
was due mainly to reduced revenues from the Commercial and Industrial Financing
segment, the impact of increased revenues from the relatively lower-margin
mortgage servicing business, a service-based business with a higher cost to
revenue ratio, and higher depreciation expense from increased placements of
digital and electronic meters.
Selling, service and administrative expenses were 32.7% of revenue in the second
quarter of 1998 compared with 33.4% in the second quarter of 1997. This
improvement was due primarily to the company's continued emphasis on controlling
operating expenses.
Research and development expenses increased 15 percent to $25.1 million in the
second quarter of 1998 compared with $21.8 million in the second quarter of
1997. 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 decreased to $48.9 million in the second quarter of 1998
from $51.0 million in the second quarter of 1997. The decrease is due mainly to
lower average borrowings in 1998 compared with 1997 resulting from the
transaction with GATX Capital Corporation during 1997, and lower interest rates.
The effective tax rate for the second quarter of 1998 and 1997 was 34.5 percent.
Net income and diluted earnings per share increased eight percent and 13.9
percent, respectively, in the second quarter of 1998 due to the factors
discussed above. The reason for the increase in diluted earnings per share
outpacing the increase in net income was the company's share repurchase program.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 11
Results of Operations - six months of 1998 vs. six months of 1997
- -----------------------------------------------------------------
For the first six months of 1998 compared with the same period of 1997, revenue
increased six percent to $2,091.1 million while net income increased eight
percent to $271.7 million. The factors that affected revenue and earnings
performance included those cited for the second quarter of 1998 versus 1997.
New Pronouncements
- ------------------
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", was issued. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999 (January 1, 2000 for the company) and 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.
Liquidity and Capital Resources
- -------------------------------
The ratio of current assets to current liabilities improved to .82 to 1 at June
30, 1998 compared with .73 to 1 at December 31, 1997. The improvement was due
primarily to an increase in short-term finance receivables and from the
repayment of short-term debt.
On April 29, 1998, the company filed a non-financial services shelf registration
with the SEC which combined with $32 million remaining under an existing
medium-term note facility permits issuance of up to $500 million in debt
securities with maturities ranging from more than one year to 30 years. At June
30, 1998, the entire $500 million remained available.
On July 15, 1998 Pitney Bowes Credit Corporation (PBCC), a wholly-owned
subsidiary of the company filed a shelf registration with the Securities and
Exchange Commission (SEC) which permits issuance of up to $750 million in debt
securities.
On January 22, 1998, the company issued notes amounting to $300 million
remaining under a non-financial services shelf registration filed with the SEC.
These unsecured notes bear annual interest at 5.95% and mature in February 2005.
The net proceeds from these notes were used for general corporate purposes,
including the repayment of short-term debt.
On January 16, 1998, PBCC issued notes amounting to $250 million remaining under
a shelf registration filed with the SEC. These unsecured notes bear annual
interest at 5.65% and mature in January 2003. The proceeds from these notes are
being used for PBCC's financing needs during 1998.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 12
The company believes that its financing needs for the next few years can be met
with cash generated internally, money from existing credit agreements, debt
issued under new shelf registration statements and existing commercial and
medium-term note programs.
The ratio of total debt to total debt and stockholders' equity including the
preferred stockholders' equity in a subsidiary company in total debt was 68.1
percent at June 30, 1998 compared with 64.2 percent at December 31, 1997. Book
value per common share decreased to $6.31 at June 30, 1998 from $6.69 at
December 31, 1997 driven primarily by the repurchase of common shares. During
the quarter ended June 30, 1998, the company repurchased 5.4 million common
shares for $250.9 million.
To control the impact of interest rate swings on its business, the company uses
a balanced mix of debt maturities, variable and fixed rate debt and interest
rate swap agreements. The company enters into interest rate swap agreements
primarily through its financial services business. Swap agreements are used to
fix interest rates on commercial paper and/or obtain a lower interest cost on
debt than the company otherwise would have been able to get without the swap.
Capital Investments
- -------------------
In the first six months of 1998, net investments in fixed assets included $42.2
million in net additions to property, plant and equipment and $127.3 million in
net additions to rental equipment and related inventories compared with $42.2
million and $91.2 million, respectively, in the same period in 1997. In the case
of rental equipment, the additions included the production of postage meters and
the purchase of facsimile and copier equipment for both new placements and
upgrade programs.
As of June 30, 1998, commitments for the acquisition of property, plant and
equipment reflected plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs.
<PAGE>
Pitney Bowes Inc. - Form 10Q
Six Months Ended June 30, 1998
Page 13
Regulatory Matters
- ------------------
In May 1996, the United States Postal Service (USPS) issued a proposed schedule
for the phaseout of mechanical meters in the United States. In accordance with
the schedule, the company voluntarily halted new placements of mechanical meters
in the U.S. as of June 1, 1996. As a result of the company's aggressive efforts
to meet the USPS mechanical meter migration schedule combined with the company's
ongoing and continuing investment in advanced postage evidencing technologies,
at June 30, 1998, electronic and digital meters represented approximately 81
percent of the company's U.S. installed base, up from 75 percent at December 31,
1997 and 67 percent at June 30, 1997. Based on the announced USPS mechanical
meter migration schedule, the company believes that the phaseout of mechanical
meters will not cause a material adverse financial impact on the company.
In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program (IBIP), the purpose of which was to develop a new standard for
future digital postage evidencing devices. In July 1996, the USPS published for
public comment draft specifications for the Indicium, Postal Security Device and
Host specifications. The company submitted extensive comments to these
specifications in November 1996. Revised specifications were then published in
1997 which incorporated many of the changes recommended by the company in its
prior comments. The company submitted comments to these revised specifications.
Also, in March 1997 the USPS published for public comment the Vendor
Infrastructure specification to which the company responded on June 27, 1997. As
of June 30, 1998, the USPS had not yet finalized the four IBIP specifications;
however, the company is in the process of finalizing the development of a PC
product which satisfies the proposed IBIP specifications. This product is
currently undergoing testing by the USPS and is expected to be ready for market
upon final approval from the USPS.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 14
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. 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 10Q
Six Months Ended June 30, 1998
Page 15
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 11, 1998:
Proposal 1 - Election of Directors
Nominee For Withheld
------------------ ----------- ---------
Linda G. Alvarado 242,813,000 4,368,125
Marc C. Breslawsky 244,612,262 2,568,863
Ernie Green 242,691,245 4,489,880
Charles E. Hugel 244,632,116 2,549,009
Proposal 2 - Appointment of Price Waterhouse LLP (effective July 1, 1998,
PricewaterhouseCoopers LLP) as Independent Accountants
For Against Abstain
----------- ----------- ---------
246,304,743 335,286 541,096
Proposal 3 - Amendment to the 1991 Stock Plan for the authorization of an
additional 18 million shares available for issuance under the Plan*
For Against Abstain
----------- ----------- ---------
218,933,579 9,366,253 1,479,234
* This proposal had 17,402,059 Broker Non-Votes
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 16
Proposal 4 - Stockholder proposal relating to Coalition for Environmentally
Responsible Economies Principles**
For Against Abstain
----------- ------------ ----------
13,421,112 207,385,081 8,038,893
** This proposal had 18,336,039 Broker Non-Votes
The following other directors continued their term of office after the Annual
Meeting:
William E. Butler James H. Keyes
Colin G. Campbell Michael I. Roth
Michael J. Critelli Phyllis Shapiro Sewell
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Reg. S-K
Exhibits Description
-------- -------------------------
(12) Computation of ratio of
earnings to fixed charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
<PAGE>
Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 1998
Page 17
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 13, 1998
/s/ M. L. Reichenstein
------------------------------------------
M. L. Reichenstein
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ A. F. Henock
------------------------------------------
A. F. Henock
Vice President - Controller
and Chief Tax Counsel
(Principal Accounting Officer)
<PAGE>
Exhibit Index
-------------
Reg. S-K
Exhibits Description
-------- -------------------------
(12) Computation of ratio of
earnings to fixed charges
(27) Financial Data Schedule
<TABLE>
Exhibit (12)
Pitney Bowes Inc.
Computation of Ratio of Earnings to Fixed Charges (1)
-----------------------------------------------------
<CAPTION>
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Income before income taxes .................. $ 216,853 $ 200,110 $ 414,850 $ 383,745
Add:
Interest expense ........................ 54,776 52,692 102,675 104,597
Portion of rents
representative of the
interest factor ...................... 12,373 11,385 22,680 22,514
Amortization of capitalized
interest ............................. 243 244 486 487
Minority interest in the
income of subsidiary
with fixed charges ................... 3,070 3,065 6,129 5,031
-------------- -------------- -------------- --------------
Income as adjusted .......................... $ 287,315 $ 267,496 $ 546,820 $ 516,374
============== ============== ============== ==============
Fixed charges:
Interest expense ........................ $ 54,776 $ 52,692 $ 102,675 $ 104,597
Portion of rents
representative of the
interest factor ...................... 12,373 11,385 22,680 22,514
Minority interest, excluding
taxes, in the income of
subsidiary with fixed charges ........ 4,687 4,715 9,357 7,800
-------------- -------------- -------------- --------------
$ 71,836 $ 68,792 $ 134,712 $ 134,911
============== ============== ============== ==============
Ratio of earnings to
fixed charges ........................... 4.00 3.89 4.06 3.83
============== ============== ============== ==============
Ratio of earnings to fixed
charges excluding minority
interest................................. 4.23 4.13 4.31 4.02
============== ============== ============== ==============
</TABLE>
(1) The computation of the ratio of earnings to fixed charges has been computed
by dividing income before income taxes as adjusted by fixed charges.
Included in fixed charges is one-third of rental expense as the
representative portion of interest.
<TABLE> <S> <C>
<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 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 115,322
<SECURITIES> 1,943
<RECEIVABLES> <F1> 2,132,221
<ALLOWANCES> <F1> 83,750
<INVENTORY> 240,045
<CURRENT-ASSETS> 2,571,615
<PP&E> <F2> 2,811,555
<DEPRECIATION> <F2> 1,496,473
<TOTAL-ASSETS> 8,072,968
<CURRENT-LIABILITIES> 3,123,462
<BONDS> 1,627,127
<COMMON> 323,338
300,000
2,146
<OTHER-SE> 1,403,019
<TOTAL-LIABILITY-AND-EQUITY> 8,072,968
<SALES> 942,735
<TOTAL-REVENUES> 2,091,092
<CGS> 564,983
<TOTAL-COSTS> 849,193
<OTHER-EXPENSES> 48,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,675
<INCOME-PRETAX> 414,850
<INCOME-TAX> 143,146
<INCOME-CONTINUING> 271,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,704
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.97
<FN>
<F1> Receivables are comprised of gross trade receivables of $389,292 and
short-term finance receivables of $1,742,929. Allowances are comprised of
allowances for trade receivables of $21,883 and for short-term finance
receivables of $61,867.
<F2> Property, plant and equipment are comprised of gross fixed assets of
$1,145,367 and rental equipment and related inventories of $1,666,188.
Depreciation is comprised of depreciation on fixed assets of $653,815 and on
rental equipment and related inventories of $842,658.
</FN>
</TABLE>
