PITNEY BOWES INC /DE/
10-Q, 2000-08-14
OFFICE MACHINES, NEC
Previous: PIONEER STANDARD ELECTRONICS INC, 10-Q, EX-27, 2000-08-14
Next: PITNEY BOWES INC /DE/, 10-Q, EX-12, 2000-08-14




                                  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, 2000

                                       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, 2000
is 255,279,513.




<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
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, 2000 and 1999......................        3

     Consolidated Balance Sheets - June 30, 2000
         and December 31, 1999....................................        4

     Consolidated Statements of Cash Flows -
         Six Months Ended June 30, 2000 and 1999 .................        5

     Notes to Consolidated Financial Statements...................    6 - 9

   Item 2: Management's Discussion and Analysis of
                  Financial Condition and Results of Operations...  10 - 15

Part II - Other Information:

   Item 1:  Legal Proceedings.....................................       16

   Item 4:  Submission of Matters to a Vote of
                     Security Holders ............................       16

   Item 5:  Other Information.....................................       17

   Item 6:  Exhibits and Reports on Form 8-K......................       17

Signatures........................................................       18


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
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,
                                                                     ---------------------------        --------------------------
                                                                            2000            1999               2000           1999
                                                                     -----------     -----------        -----------    -----------
<S>                                                                  <C>             <C>                <C>            <C>
Revenue from:
    Sales.....................................................       $   571,538     $   546,370        $ 1,091,580    $ 1,056,752
    Rentals and financing.....................................           443,801         418,773            879,967        824,498
    Support services..........................................           145,695         140,289            291,454        273,506
                                                                     -----------     -----------        -----------    -----------

        Total revenue.........................................         1,161,034       1,105,432          2,263,001      2,154,756
                                                                     -----------     -----------        -----------    -----------

Costs and expenses:
    Cost of sales.............................................           321,814         306,351            622,647        603,070
    Cost of rentals and financing.............................           119,598         117,443            241,209        228,376
    Selling, service and administrative.......................           389,763         373,132            768,076        734,160
    Research and development..................................            30,528          27,698             60,039         53,602
    Interest, net.............................................            53,361          46,938            100,523         92,438
                                                                     -----------     -----------        -----------    -----------

        Total costs and expenses..............................           915,064         871,562          1,792,494      1,711,646
                                                                     -----------     -----------        -----------    -----------


Income from continuing operations before income taxes.........           245,970         233,870            470,507        443,110
Provision for income taxes....................................            80,013          76,462            152,997        147,131
                                                                     -----------     -----------        -----------    -----------

Income from continuing operations.............................           165,957         157,408            317,510        295,979
(Loss) income from discontinued operations (Note 2)...........                 -          (2,729)                 -            971
Loss on disposal of discontinued operations (Note 2)..........                 -         (24,938)                 -       (24,938)
                                                                     -----------     -----------        -----------    -----------

Net income....................................................       $   165,957     $   129,741        $   317,510    $   272,012
                                                                     ===========     ===========        ===========    ===========

Basic earnings per share:.....................................
  Continuing operations.......................................       $       .64     $       .58        $      1.22    $      1.10
  Discontinued operations.....................................                 -            (.10)                 -           (.09)
                                                                     -----------     -----------        -----------    -----------

  Net income..................................................       $       .64     $       .48        $      1.22    $      1.01

Diluted earnings per share:...................................
  Continuing operations.......................................       $       .64     $       .58        $      1.21    $      1.08
  Discontinued operations.....................................                 -            (.10)                 -           (.09)
                                                                     -----------     -----------        -----------    -----------

  Net income..................................................       $       .64     $       .48        $      1.21    $       .99
                                                                     ===========     ===========        ===========    ===========



Dividends declared per share of common stock..................       $      .285     $      .255        $       .57    $       .51
                                                                     ===========     ===========        ===========    ===========

Ratio of earnings to fixed charges............................              4.37            4.71               4.39           4.56
                                                                     ===========     ===========        ===========    ===========
Ratio of earnings to fixed charges
    excluding minority interest...............................              4.65            5.00               4.68           4.85
                                                                     ===========     ===========        ===========    ===========

</TABLE>

                                See Notes to Consolidated Financial Statements


<PAGE>



Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 4
<TABLE>

                                Pitney Bowes Inc.
                           Consolidated Balance Sheets
                           ---------------------------
<CAPTION>

                                                                      June 30,    December 31,
(Dollars in thousands, except share data)                                 2000            1999
                                                                 -------------    ------------
                                                                   (unaudited)
Assets
------
<S>                                                              <C>              <C>
Current assets:
    Cash and cash equivalents.................................   $     296,695    $    254,270
    Short-term investments, at cost which
        approximates market...................................           2,811           2,414
    Accounts receivable, less allowances:
        6/00, $25,767; 12/99, $28,716.........................         435,749         432,224
    Finance receivables, less allowances:
        6/00, $40,927; 12/99, $48,056.........................       1,431,588       1,779,696
    Inventories (Note 3)......................................         260,668         257,452
    Other current assets and prepayments......................         173,013         128,662
    Net assets of discontinued operations.....................               -         487,856
                                                                 -------------    ------------

        Total current assets..................................       2,600,524       3,342,574

Property, plant and equipment, net (Note 4)...................         486,140         484,181
Rental equipment and related inventories, net (Note 4)........         789,369         810,788
Property leased under capital leases, net (Note 4)............           2,640          11,140
Long-term finance receivables, less allowances:
    6/00, $58,777; 12/99, $56,665.............................       1,983,529       1,907,431
Investment in leveraged leases................................       1,043,118         969,589
Goodwill, net of amortization:
    6/00, $58,426; 12/99, $54,848.............................         229,039         226,764
Other assets..................................................         624,830         470,205
                                                                 -------------    ------------

Total assets..................................................   $   7,759,189    $  8,222,672
                                                                 =============    ============

Liabilities and stockholders' equity
------------------------------------
Current liabilities:
    Accounts payable and accrued liabilities..................   $     825,341    $    915,826
    Income taxes payable......................................         217,665         255,201
    Notes payable and current portion of
        long-term obligations ................................         956,925       1,320,332
    Advance billings..........................................         376,022         381,405
                                                                 -------------    ------------

        Total current liabilities.............................       2,375,953       2,872,764

Deferred taxes on income......................................       1,182,766       1,082,019
Long-term debt (Note 5).......................................       2,201,591       1,997,856
Other noncurrent liabilities..................................         326,588         334,423
                                                                 -------------    ------------

        Total liabilities.....................................       6,086,898       6,287,062
                                                                 -------------    ------------

Preferred stockholders' equity in a subsidiary company........         310,000         310,000

Stockholders' equity:
    Cumulative preferred stock, $50 par
        value, 4% convertible.................................              29              29
    Cumulative preference stock, no par
        value, $2.12 convertible..............................           1,796           1,841
    Common stock, $1 par value................................         323,338         323,338
    Capital in excess of par value............................          11,067          17,382
    Retained earnings.........................................       3,606,430       3,437,185
    Accumulated other comprehensive income (Note 8)...........        (114,798)        (93,015)
    Treasury stock, at cost...................................      (2,465,571)     (2,061,150)
                                                                 -------------    ------------

        Total stockholders' equity............................       1,362,291       1,625,610
                                                                 -------------    ------------

Total liabilities and stockholders' equity....................   $   7,759,189    $  8,222,672
                                                                 =============    ============


                 See Notes to Consolidated Financial Statements
</TABLE>


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 5
<TABLE>

                                               Pitney Bowes Inc.
                                     Consolidated Statements of Cash Flows
                                               (Unaudited)
                                     -------------------------------------
<CAPTION>
(Dollars in thousands)
                                                                     Six Months Ended June 30,
                                                                          2000          1999*
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Cash flows from operating activities:
    Net income .................................................   $   317,510    $   272,012
    Loss on sale of discontinued operations.....................             -         24,938
    Adjustments to reconcile net income to
        net cash provided by operating activities:
           Depreciation and amortization........................       161,090        206,304
           Increase in deferred taxes on income.................        98,526        106,823
           Pension plan investment..............................             -        (67,000)
           Change in assets and liabilities:
               Accounts receivable..............................        (8,804)       (35,000)
               Net investment in internal finance receivables...         2,651        (53,206)
               Inventories......................................        (7,303)         7,590
               Other current assets and prepayments.............        (5,483)        13,868
               Accounts payable and accrued liabilities.........       (67,184)       (45,595)
               Income taxes payable.............................       (34,211)         8,030
               Advance billings.................................        (2,602)        20,648
               Other, net.......................................        (4,367)       (17,790)
                                                                   ------------   -----------

               Net cash provided by operating activities........      449,823         441,622
                                                                   ------------   -----------

Cash flows from investing activities:
    Short-term investments......................................       (42,915)         2,192
    Net investment in fixed assets..............................      (126,069)      (173,318)
    Net investment in finance receivables.......................       (69,664)       (99,196)
    Net investment in capital and mortgage services.............       (20,580)       172,421
    Investment in leveraged leases..............................       (73,320)      (123,393)
    Investment in mortgage servicing rights.....................             -         (9,719)
    Proceeds and cash receipts from the sale of
     discontinued operations....................................       512,780              -
    Net proceeds from the sale of credit card portfolio.........       321,746              -
    Net investment in insurance contracts.......................      (130,049)         4,782
    Other investing activities..................................       (26,915)       (33,386)
                                                                   ------------   -----------

               Net cash provided by (used in) investing activities     345,014       (259,617)
                                                                   ------------   -----------

Cash flows from financing activities:
    (Decrease) increase in notes payable, net...................      (300,688)         2,948
    Proceeds from long-term obligations.........................       181,102        208,106
    Principal payments on long-term obligations.................       (69,243)       (14,385)
    Proceeds from issuance of stock.............................        21,582         34,695
    Stock repurchases...........................................      (432,363)      (266,090)
    Dividends paid..............................................      (148,265)      (137,799)
                                                                   ------------   -----------

               Net cash used in financing activities............      (747,875)      (172,525)
                                                                   ------------   -----------

Effect of exchange rate changes on cash.........................        (4,537)        (2,471)
                                                                   ------------   -----------

Increase in cash and cash equivalents...........................        42,425          7,009

Cash and cash equivalents at beginning of period................       254,270        125,684
                                                                   -----------    -----------

Cash and cash equivalents at end of period......................   $   296,695    $   132,693
                                                                   ===========    ===========

Interest paid...................................................   $   132,022    $    92,728
                                                                   ===========    ===========

Income taxes paid, net..........................................   $    79,044    $    36,163
                                                                   ===========    ===========
<FN>
* Certain  prior year  amounts have been  reclassified  to conform with the 2000
  presentation.
</FN>
</TABLE>

                 See Notes to Consolidated Financial Statements


<PAGE>


Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
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 at June 30,
2000 and December 31, 1999,  the results of its  operations for the three months
and six  months  ended  June 30,  2000 and 1999 and its cash  flows  for the six
months ended June 30, 2000 and 1999 have been  included.  Operating  results for
the three and six months ended June 30, 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  1999 Annual Report to  Stockholders  on Form
10-K.

Note 2:
-------

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 $30.0 million and $62.5 million for the three and six months
ended June 30,  1999,  respectively.  Net interest  expense  allocated to AMIC's
discontinued  operations was $1.8 million and $3.7 million for the three and six
months ended June 30, 1999,  respectively.  Interest has been allocated based on
AMIC's net intercompany  borrowing  levels with Pitney Bowes Credit  Corporation
(PBCC),  a wholly-owned  subsidiary of the company,  charged at PBCC's  weighted
average  borrowing  rate,  offset by the interest  savings PBCC  realized due to
borrowings against AMIC's escrow deposits as opposed to regular commercial paper
borrowings.  On  June  30,  1999  the  company  recorded  an  expected  loss  of
approximately  $34.2 million (net of taxes of $22.8  million) on the disposal of
AMIC.

In the second quarter of 1999, the company recorded a gain of approximately $9.3
million (net of taxes of $5.7 million) representing the excess proceeds received
over the book value of the net Colonial Pacific Leasing  Corporation assets sold
to General  Electric  Capital  Corporation,  net of related  transaction  costs.

Operating  results of AMIC have been  segregated  and  reported as  discontinued
operations in the Consolidated Statements of Income for the three and six months
ended June 30, 1999. Net assets of discontinued  operations have been separately
classified in the  Consolidated  Balance  Sheet at December 31, 1999.  Cash flow
impacts of discontinued  operations have not been segregated in the Consolidated
Statement of Cash Flows for the six months ended June 30,  1999.  (Loss)  income
from discontinued operations, related to AMIC for the three and six months ended
June 30, 1999 was approximately $(2.7) million and $1.0 million, respectively.

<TABLE>
<CAPTION>
Note 3:
-------

Inventories are comprised of the following:

(Dollars in thousands)                                                   June 30,        December 31,
                                                                             2000                1999
                                                                   --------------      --------------
<S>                                                                <C>                 <C>
Raw materials and work in process.............................     $       39,051      $       41,149
Supplies and service parts....................................            123,120             122,726
Finished products.............................................             98,497              93,577
                                                                   --------------      --------------

Total ........................................................     $      260,668      $      257,452
                                                                   ==============      ==============
</TABLE>

Note 4:
-------
<TABLE>

Fixed assets are comprised of the following:
<CAPTION>

(Dollars in thousands)                                                   June 30,        December 31,
                                                                             2000                1999
                                                                   --------------      --------------
<S>                                                                <C>                 <C>
Property, plant and equipment.................................     $    1,182,351      $    1,187,198
Accumulated depreciation......................................           (696,211)           (703,017)
                                                                   --------------      --------------

Property, plant and equipment, net............................     $      486,140      $      484,181
                                                                   ==============      ==============

Rental equipment and related inventories......................     $    1,598,315      $    1,706,306
Accumulated depreciation......................................           (808,946)           (895,518)
                                                                   --------------      --------------

Rental equipment and related inventories, net.................     $      789,369      $      810,788
                                                                   ==============      ==============

Property leased under capital leases..........................     $       19,087      $       27,217
Accumulated amortization......................................            (16,447)            (16,077)
                                                                   --------------      --------------

Property leased under capital leases, net.....................     $        2,640      $       11,140
                                                                   ==============      ==============


<FN>
In connection  with the U.S.P.S.  meter  migration,  the company wrote off fully
depreciated rental equipment in the first quarter of 2000.
</FN>
</TABLE>



<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 7

Note 5:
-------

The company has a medium-term  note facility,  which was  established as part of
the company's shelf registrations, permitting issuances of up to $500 million in
debt  securities with a minimum  maturity of nine months,  of which $300 million
remained available at June 30, 2000.

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
the company (PBI  Obligations).  The PBI Obligations  have a principal amount of
$134 million and are due in 2010.  The PBI  Obligations  bear  interest at 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.

PBCC has $625  million of unissued  debt  securities  available at June 30, 2000
from a shelf  registration  statement  filed with the  Securities  and  Exchange
Commission (SEC) in July 1998. 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, of which $375 million remained available at June 30, 2000.

Note 6:
-------
<TABLE>

A reconciliation  of the basic and diluted  earnings per share  computations for
the three  months  ended  June 30,  2000 and 1999 is as follows  (in  thousands,
except per share data):

                                              2000                                       1999
                             ------------------------------------       ------------------------------------

                                                              Per                                        Per
                                  Income        Shares      Share            Income         Shares     Share
-----------------------------------------------------------------       ------------------------------------
<S>                          <C>               <C>        <C>           <C>                <C>       <C>
Income from continuing
  operations                 $   165,957                                $   157,408
Less:
    Preferred stock
     dividends                         -                                          -
    Preference stock
     dividends                       (36)                                       (38)
-----------------------------------------------------------------       ------------------------------------

Basic earnings per
 share                       $   165,921       257,605    $   .64       $   157,370        268,088   $   .58
-----------------------------------------------------------------       ------------------------------------

Effect of dilutive
 securities:
    Preferred stock                    -            14                            -             15
    Preference stock                  36         1,065                           38          1,160
    Stock options                                  892                                       3,365
    Other                                          126                                         389
-----------------------------------------------------------------       ------------------------------------

Diluted earnings per
 share                       $   165,957       259,702    $   .64       $   157,408        273,017   $   .58
=================================================================       ====================================
</TABLE>

<TABLE>

A reconciliation  of the basic and diluted  earnings per share  computations for
the six months ended June 30, 2000 and 1999 is as follows (in thousands,  except
per share data):

                                              2000                                       1999
                             ------------------------------------       ------------------------------------

                                                              Per                                        Per
                                  Income        Shares      Share            Income         Shares     Share
-----------------------------------------------------------------       ------------------------------------
<S>                          <C>               <C>        <C>           <C>                <C>       <C>
Income from continuing
  operations                 $   317,510                                $   295,979
Less:
    Preferred stock
     dividends                         -                                          -
    Preference stock
     dividends                       (71)                                       (77)
-----------------------------------------------------------------       ------------------------------------

Basic earnings per
 share                       $   317,439       260,323    $  1.22       $   295,902        269,007   $  1.10
-----------------------------------------------------------------       ------------------------------------

Effect of dilutive
 securities:
    Preferred stock                    -            14                            -             16
    Preference stock                  71         1,072                           77          1,169
    Stock options                                1,081                                       3,463
    Other                                          134                                         419
-----------------------------------------------------------------       ------------------------------------

Diluted earnings per
 share                       $   317,510       262,624    $  1.21       $   295,979        274,074   $  1.08
=================================================================       ====================================

</TABLE>



<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 8

Note 7:
-------

Revenue and  operating  profit by business  segment for the three and six months
ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>

                                               Three Months Ended June 30,         Six Months Ended June 30,
(Dollars in thousands)                                 2000           1999                2000          1999
                                               ------------   ------------         -----------   -----------
<S>                                               <C>            <C>                <C>           <C>
Revenue:
   Mailing and Integrated Logistics...........  $   789,218    $   746,952          $1,531,059    $1,445,581
   Office Solutions...........................      333,615        316,753             657,604       631,333
                                               ------------   ------------         -----------   -----------

   Total Messaging Solutions..................    1,122,833      1,063,705           2,188,663     2,076,914

   Capital Services...........................       38,201         41,727              74,338        77,842
                                               ------------   ------------         -----------   -----------

Total revenue.................................  $ 1,161,034    $ 1,105,432          $2,263,001    $2,154,756
                                               ============   ============         ===========   ===========


Operating Profit: (1)
   Mailing and Integrated Logistics...........  $   225,937    $   197,294(2)       $  422,041    $  368,638(2)
   Office Solutions...........................       55,287         60,656             108,279       119,201
                                               ------------   ------------         -----------   -----------

   Total Messaging Solutions..................      281,224        257,950             530,320       487,839

   Capital Services...........................       11,131         12,784              19,692        20,966
                                               ------------   ------------         -----------   -----------

Total operating profit.......................   $   292,355    $   270,734          $  550,012    $  508,805


Unallocated amounts:
   Net interest (corporate interest expense,
    net of intercompany transactions).........      (18,474)       (11,443)            (33,269)      (22,204)
   Corporate expense.......................         (27,911)       (25,421)(2)         (46,236)      (43,491)(2)
                                               ------------   ------------         -----------   -----------

Income from continuing operations before
 Income taxes.................................  $   245,970    $   233,870          $  470,507    $  443,110
                                               ============   ============         ===========   ===========

<FN>
(1) Operating profit excludes general corporate  expenses,  income taxes and net
    interest other than that related to finance operations.

(2) Prior year  amounts  have been  reclassified  to conform  with  current year
    presentation.
</FN>
</TABLE>

Note 8:
-------
<TABLE>

Comprehensive  income for the three and six months  ended June 30, 2000 and 1999
was as follows:

<CAPTION>
(Dollars in thousands)

                                               Three Months Ended June 30,       Six Months Ended June 30,
                                               ---------------------------   -----------------------------
                                                     2000             1999           2000             1999
                                               ----------     ------------   ------------     ------------
<S>                                            <C>            <C>             <C>             <C>
Net income...................................  $  165,957     $    129,741    $   317,510     $    272,012
Other comprehensive income:
  Foreign currency translation
    adjustments..............................     (22,993)           2,814        (21,783)           2,366
                                               -----------    ------------    ------------    ------------

Comprehensive income.........................  $  142,964     $    132,555    $   295,727     $    274,378
                                               ==========     ============    ===========     ============
</TABLE>

Note 9:
-------

In June 1998,  Statement  of  Financial  Accounting  Standards  (SFAS) No.  133,
"Accounting for Derivative Instruments and Hedging Activities",  amended in June
2000 by SFAS No. 138, was issued. 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 or losses depends on the intended use of the derivative
and the resulting designation. The company is currently evaluating the impact of
this statement.  SFAS No. 133, as amended,  is effective January 1, 2001 for the
company.

In  December  1999,  the SEC issued  Staff  Accounting  Bulletin  (SAB) No. 101,
"Revenue Recognition in Financial Statements,"  summarizing guidance in applying
generally  accepted  accounting  principles to revenue  recognition in financial
statements. 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 fourth quarter of 2000.


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 9


Note 10:
--------

As part of a strategic  alliance with U.S. Bank, a division of U.S. Bancorp,  on
June 30, 2000, the company, through its PBCC subsidiary,  sold its PitneyWorksSM
Business  RewardsSM  Visa(R) and  Business  Visa(R) card  operations,  including
credit card  receivables of approximately  $322 million.  The company expects to
earn fees in connection with the strategic alliance with U.S. Bank. However, the
company will no longer  originate  credit card  receivables and as a result will
not earn finance income on those  balances.  The alliance  expands the company's
capabilities  to capture a greater share of the growing small  business  market.
The new alliance  will allow  PitneyWorks.com,  a division of the company  which
focuses on small  business  solutions,  to continue to market the credit card to
small business  owners,  while  providing  cardholders  with full access to U.S.
Bank's respected network of financial  resources.  The transaction is subject to
post-closing adjustments.

<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 10


Item 2.         Management's Discussion and Analysis of Financial
                       Condition and Results of Operations
                -------------------------------------------------


Results of Continuing Operations - second  quarter of 2000 vs. second quarter of
--------------------------------------------------------------------------------
1999
----

Revenue increased five percent in the second quarter of 2000 to $1,161.0 million
compared  with  $1,105.4  million in the second  quarter  of 1999.  Income  from
continuing  operations  increased  five  percent to $166.0  million  from $157.4
million for the same period in 1999.  Diluted earnings per share from continuing
operations grew to 64 cents, a 10.7 percent  increase from the second quarter of
1999.

Second quarter 2000 revenue  included $571.5 million from sales, up five percent
from $546.4 million in the second  quarter of 1999;  $443.8 million from rentals
and  financing,  up six percent  from $418.8  million;  and $145.7  million from
support services, up four percent from $140.3 million.

Total Messaging  Solutions,  the combined  results of the Mailing and Integrated
Logistics  segment and Office  Solutions  segment,  reported six percent revenue
growth and nine percent operating profit growth.

The Mailing and  Integrated  Logistics  segment  includes  revenues  and related
expenses from the rental,  sale and financing of mailing and shipping equipment,
related supplies and service,  and software.  During the second quarter of 2000,
revenue grew six percent and operating profit increased 15 percent. Contributors
to growth  included:  improving  rental and  financing  margins in our core mail
finishing  business,  double-digit  revenue and  operating  profit growth at our
international  operations driven by increasing market share, developing existing
and new markets, increasing the value of business per customer and expanding the
customer base and strong demand for  worldwide  production  mail as large volume
mailers   turned  to  Pitney  Bowes   software-based   solutions   for  enhanced
functionality, speed and accuracy.

The Office  Solutions  segment  includes  Pitney Bowes Office Systems and Pitney
Bowes Management Services.  During the second quarter of 2000, revenue grew five
percent while operating profit declined nine percent.

Office  Systems,  comprised of Copier and  Facsimile,  grew revenues six percent
while  operating  profit  declined due to adverse  currency  impacts and ongoing
strategic business initiatives. Strong copier rental revenue growth demonstrates
the  success  of the  company's  strategy  to place  copier  fleets in  national
accounts.  The relative value of the yen and margin impacts  associated with the
ongoing  transition to a rental revenue model for large national accounts in the
copier business negatively impacted operating profit.

Pitney  Bowes  Management  Services'  revenue  grew five  percent as the company
continues to pursue disciplined,  profitable growth through providing high value
services,  to  both  new and  existing  customers.  This  strategy  resulted  in
substantially higher operating profit growth.



<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 11


The Capital  Services  segment  includes  primarily  asset- and fee-based income
generated  by large  ticket  non-core  asset  transactions.  During the quarter,
revenue decreased eight percent and operating profit decreased 13 percent.  This
performance  is consistent  with the  company's  previously  stated  strategy to
concentrate on fee-based income opportunities.

Cost of sales  increased to 56.3 percent of sales revenue in the second  quarter
of 2000 compared with 56.1 percent in the second  quarter of 1999.  This was due
primarily to the impact of the stronger yen.

Cost of rentals and financing  decreased to 26.9 percent of related  revenues in
the second  quarter of 2000 compared with 28.0 percent in the second  quarter of
1999. This was due primarily to lower depreciation of rental equipment.

Selling, service and administrative expenses were 33.6 percent of revenue in the
second quarter of 2000 compared with 33.8 percent in the second quarter of 1999.
This  improvement  was due  primarily  to the  company's  continued  emphasis on
controlling  operating  expenses,   partially  offset  by  costs  for  Internet,
enterprise-wide resource planning and other new business initiatives.

Research and development expenses increased 10.2 percent to $30.5 million in the
second  quarter of 2000  compared  with $27.7  million in the second  quarter of
1999. The increase reflects the company's continued commitment to developing new
technologies and other mailing and software products.

Net interest  expense  increased to $53.4 million in the second  quarter of 2000
from $46.9 million in the second  quarter of 1999. The increase is due mainly to
increased  interest  associated  with  borrowings  to fund the share  repurchase
program.

The effective tax rate for the second quarter of 2000 was 32.5 percent  compared
with 32.7  percent in 1999.  The  decrease in the  effective  tax rate  reflects
continued tax benefits from partnership leasing transactions,  lower state taxes
and lower taxes attributable to international sourced income.

Income from continuing operations and diluted earnings per share from continuing
operations increased 5.4 percent and 10.7 percent,  respectively,  in the second
quarter of 2000 compared to the same period in 1999 due to the factors discussed
above.  The reason for the increase in diluted  earnings per share outpacing the
increase from continuing operations was the company's share repurchase program.


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 12


Results of Continuing Operations - six months of 2000 vs. six months of 1999
----------------------------------------------------------------------------

For the first six months of 2000 compared with the same period of 1999,  revenue
increased  five  percent  to  $2,263.0  million,   and  income  from  continuing
operations  increased 7.3 percent to $317.5  million.  The factors that affected
revenue and earnings  performance included those cited for the second quarter of
2000 versus 1999.

Discontinued Operations
-----------------------

On January 14, 2000, the company sold 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 1998,  Statement  of  Financial  Accounting  Standards  (SFAS) No.  133,
"Accounting for Derivative Instruments and Hedging Activities",  amended in June
2000 by SFAS No. 138, was issued. 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 or losses depends on the intended use of the derivative
and the resulting designation. The company is currently evaluating the impact of
this statement.  SFAS No. 133, as amended,  is effective January 1, 2001 for the
company.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  summarizing  guidance in applying  generally  accepted  accounting
principles to revenue recognition in financial statements.  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 fourth
quarter of 2000.




<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 13

Liquidity and Capital Resources
-------------------------------

The ratio of current assets to current liabilities is 1.09 to 1 at June 30, 2000
compared with 1.16 to 1 at December 31, 1999.  The decrease was due primarily to
the sale of AMIC's net assets in January 2000.

As part of a strategic  alliance with U.S. Bank, a division of U.S. Bancorp,  on
June 30, 2000, the company, through its PBCC subsidiary,  sold its PitneyWorksSM
Business  RewardsSM  Visa(R) and  Business  Visa(R) card  operations,  including
credit card  receivables of approximately  $322 million.  The company expects to
earn fees in connection with the strategic alliance with U.S. Bank. However, the
company will no longer  originate  credit card  receivables and as a result will
not earn finance income on those  balances.  The alliance  expands the company's
capabilities  to capture a greater share of the growing small  business  market.
The new alliance  will allow  PitneyWorks.com,  a division of the company  which
focuses on small  business  solutions,  to continue to market the credit card to
small business  owners,  while  providing  cardholders  with full access to U.S.
Bank's respected network of financial  resources.  The transaction is subject to
post-closing adjustments.

The company has a medium-term note facility which was established as part of the
company's  shelf  registrations,  permitting  issuances of up to $500 million in
debt  securities with a minimum  maturity of nine months,  of which $300 million
remained available at June 30, 2000.

On April 19, 2000, certain partnerships controlled by affiliates of Pitney Bowes
Credit Corporation  (PBCC), a wholly-owned  subsidiary 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
the company (PBI  Obligations).  The PBI Obligations  have a principal amount of
$134 million and are due in 2010.  The PBI  Obligations  bear  interest at 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.

PBCC has $625  million of unissued  debt  securities  available at June 30, 2000
from a shelf registration  statement filed with the SEC in July 1998. 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, of which $375 million remained
available at June 30, 2000.

The company  believes that its financing needs for the next 12 months can be met
with cash generated  internally,  money from existing  credit  agreements,  debt
issued  under  new and  existing  shelf  registration  statements  and  existing
commercial and medium-term note programs.

<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 14

The ratio of total debt to total debt and  stockholders'  equity  including  the
preferred  stockholders'  equity in a subsidiary  company in total debt was 71.8
percent at June 30, 2000 compared  with 69.1 percent at December 31, 1999.  Book
value  per  common  share  decreased  to $5.33 at June 30,  2000  from  $6.13 at
December 31, 1999 driven  primarily by the repurchase of common  shares.  During
the quarter  ended June 30,  2000,  the company  repurchased  approximately  5.4
million common shares for $214.1 million.

To control the impact of interest rate risk 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.

Capital Investments
-------------------

In the first six months of 2000, net  investments in fixed assets included $47.2
million in net  additions to property,  plant and equipment and $78.8 million in
net additions to rental  equipment and related  inventories  compared with $43.0
million and $130.3  million,  respectively,  in the same  period in 1999.  These
additions include expenditures for normal plant and manufacturing  equipment. 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, 2000,  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.

Regulatory Matters
------------------

In 2000,  the U.S.P.S.  issued a proposed  schedule for the phaseout of manually
reset electronic meters in the U.S. as follows:

o   As of February 1, 2000, new placements of manually  reset electronic  meters
    are no longer permitted.
o   Current users of manually reset electronic  meters can continue to use these
    meters for the term of their  current rental and lease agreements. Leases or
    rentals due to expire in the year 2000 can be extended to December 31, 2001.

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.


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 15


During the period  from May 1995  through May 2000,  the  company 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). The company has submitted comments to the IBI Performance
Criteria.

In  March  2000,  the  company  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,  ClickStampTM Online. The PC 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:

o  changes in postal regulations
o  timely development and acceptance of new products
o  success in gaining product  approval in new markets where regulatory approval
   is required
o  successful entry into new markets
o  mailers' utilization  of alternative  means of communication  or competitors'
   products
o  the company's success at managing customer credit risk
o  changes in interest rates


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 16

                           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:

o   contractual rights under vendor, insurance or other contracts
o   intellectual property or patent rights
o   equipment, service or payment disputes with customers
o   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,  the company 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.  The company
believes that the Justice  Department may be reviewing the company's  efforts to
protect its intellectual  property rights.  The company believes it has complied
fully with the antitrust  laws and is  cooperating  fully with the  department's
investigation.

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 8, 2000:

Proposal 1 - Election of Directors

               Nominee                For                 Withheld
          -----------------       -----------           -----------
          William E. Butler       218,521,014             6,567,337
          Colin G. Campbell       223,468,745             1,619,606
          Jessica P. Einhorn      218,529,925             6,558,426
          James H. Keyes          223,562,157             1,526,194

Proposal 2 - Appointment of PricewaterhouseCoopers LLP as Independent
             Accountants

            For                 Against                   Abstain
        -----------           ----------                 ----------
        223,831,163             415,260                    841,928


The following  other  directors  continued their term of office after the Annual
Meeting:

    Linda G. Alvarado                             Herbert L. Henkel
    Marc C. Breslawsky                            Michael I. Roth
    Michael J. Critelli                           Phyllis Shapiro Sewell
    Ernie Green

In July 2000,  the board of directors  elected  John S.  McFarlane to the board,
effective October 1, 2000.


<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 17

Item 5:    Other Information

PricewaterhouseCoopers  LLP  (PwC) has  informed  the  company  and the 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 the company,  as a
former partner of Coopers & Lybrand,  a predecessor of PwC. PwC has informed the
company  that  these  transfers  should  have  occurred  in May  1999,  but were
completed  on March 23,  2000.  The SEC has advised the company  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 the company with respect to the company's financial statements as
a result of PwC's  noncompliance.  The Board of  Directors,  which is  currently
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 company's financial statements.

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

      On July 21, 2000,  the company filed a current report on Form 8-K pursuant
      to Item 5 thereof, reporting the Press Release dated July 18, 2000 for the
      quarter ended June 30, 2000.

      On April 26, 2000, the company filed a current report on Form 8-K pursuant
      to Item 5 thereof,  correcting  the data that  appears in Table III of the
      company's Notice of 2000 Annual Meeting and Proxy Statement.

      On April 20, 2000, the company filed a current report on Form 8-K pursuant
      to Item 5 thereof,  reporting  the Press  Release dated April 18, 2000 for
      the quarter ended March 31, 2000.



<PAGE>

Pitney Bowes Inc. - Form 10-Q
Six Months Ended June 30, 2000
Page 18



                                   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, 2000




                                 /s/ B. P. Nolop
                                 ------------------------------------------
                                 B. P. Nolop
                                 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





© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission