-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vi57M2PbwYRU0cMzwKi9eV8JftjaQJZaw7PkNCih1TU0ligrBBIccb96rMQq0m5J KPA4xMpXUvL88CfHBctxXg== /in/edgar/work/20000814/0000078814-00-000009/0000078814-00-000009.txt : 20000921 0000078814-00-000009.hdr.sgml : 20000921 ACCESSION NUMBER: 0000078814-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PITNEY BOWES INC /DE/ CENTRAL INDEX KEY: 0000078814 STANDARD INDUSTRIAL CLASSIFICATION: [3579 ] IRS NUMBER: 060495050 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03579 FILM NUMBER: 698236 BUSINESS ADDRESS: STREET 1: WORLD HEADQUARTERS 61-11 STREET 2: ONE ELMCROFT ROAD CITY: STAMFORD STATE: CT ZIP: 06926 BUSINESS PHONE: 2033565000 10-Q 1 0001.txt QUARTERLY REPORT FOR PITNEY BOWES INC. 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. 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 Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 2000 Page 3 Part I - Financial Information Item 1. Financial Statements. Pitney Bowes Inc. Consolidated Statements of Income (Unaudited) --------------------------------- (Dollars in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 2000 Page 4 Pitney Bowes Inc. Consolidated Balance Sheets ---------------------------
June 30, December 31, (Dollars in thousands, except share data) 2000 1999 ------------- ------------ (unaudited) Assets - ------ 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
Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 2000 Page 5 Pitney Bowes Inc. Consolidated Statements of Cash Flows (Unaudited) -------------------------------------
(Dollars in thousands) Six Months Ended June 30, 2000 1999* ----------- ----------- 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 =========== =========== * Certain prior year amounts have been reclassified to conform with the 2000 presentation.
See Notes to Consolidated Financial Statements 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.
Note 3: - ------- Inventories are comprised of the following: (Dollars in thousands) June 30, December 31, 2000 1999 -------------- -------------- 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 ============== ==============
Note 4: - ------- Fixed assets are comprised of the following:
(Dollars in thousands) June 30, December 31, 2000 1999 -------------- -------------- 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 ============== ============== In connection with the U.S.P.S. meter migration, the company wrote off fully depreciated rental equipment in the first quarter of 2000.
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: - ------- 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 - ----------------------------------------------------------------- ------------------------------------ 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 ================================================================= ====================================
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 - ----------------------------------------------------------------- ------------------------------------ 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 ================================================================= ====================================
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:
Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2000 1999 2000 1999 ------------ ------------ ----------- ----------- 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 ============ ============ =========== =========== (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.
Note 8: - ------- Comprehensive income for the three and six months ended June 30, 2000 and 1999 was as follows:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ----------------------------- 2000 1999 2000 1999 ---------- ------------ ------------ ------------ 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 ========== ============ =========== ============
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. 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. 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. 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. 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. 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. 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. 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 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. 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. 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) Exhibit Index ------------- Reg. S-K Exhibits Description -------- ----------- (12) Computation of ratio of earnings to fixed charges (27) Financial Data Schedule EX-12 2 0002.txt STATEMENT RE COMPUTATION OF RATIOS Exhibit (12) Pitney Bowes Inc. Computation of Ratio of Earnings to Fixed Charges (1) ----------------------------------------------------- (Dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999(2) 2000 1999(2) ------------ ------------ ------------ ----------- Income from continuing operations before income taxes........................... $ 245,970 $ 233,870 $ 470,507 $ 443,110 Add: Interest expense............................. 55,415 48,108 104,408 94,167 Portion of rents representative of the interest factor........................... 10,714 10,412 21,517 21,194 Amortization of capitalized interest.................................. 243 243 486 486 Minority interest in the income of subsidiary with fixed charges........................ 3,543 2,792 6,825 5,665 ------------ ------------ ------------ ----------- Income as adjusted.............................. $ 315,885 $ 295,425 $ 603,743 $ 564,622 ============ ============ ============ =========== Fixed charges: Interest expense............................. $ 55,415 $ 48,108 $ 104,408 $ 94,167 Capitalized interest......................... 974 - 1,513 - Portion of rents representative of the interest factor........................... 10,714 10,412 21,517 21,194 Minority interest, excluding taxes, in the income of subsidiary with fixed charges............. 5,252 4,149 10,114 8,481 ------------ ------------ ------------ ----------- Total fixed charges...................... $ 72,355 $ 62,669 $ 137,552 $ 123,842 ============ ============ ============ =========== 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 ============ ============ ============ =========== (1) The computation of the ratio of earnings to fixed charges has been computed by dividing income from continuing operations before income taxes as adjusted by fixed charges. Included in fixed charges is one-third of rental expense as the representative portion of interest. (2) Interest expense and the portion of rents representative of the interest factor of the discontinued operations of AMIC have been excluded from fixed charges in the computation for the three and six months ended June 30, 1999. Including these amounts in fixed charges, the ratio of earnings to fixed charges would be 4.61 and 4.45 for the three and six months ended June 30, 1999, respectively. The ratio of earnings to fixed charges excluding minority interest would be 4.88 and 4.72 for the three and six months ended June 30, 1999, respectively.
EX-27 3 0003.txt ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM PITNEY BOWES INC. CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, CORRESPONDING FOOTNOTE #4 FIXED ASSETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 296,695 2,811 1,934,031 66,694 260,668 2,600,524 2,780,666 1,505,157 7,759,189 2,375,953 2,201,591 323,338 310,000 1,825 1,037,128 7,759,189 1,091,580 2,263,001 622,647 863,856 60,039 0 104,408 470,507 152,997 317,510 0 0 0 317,510 1.22 1.21 Receivables are comprised of gross trade receivables of $461,516 and short-term finance receivables of $1,472,515. Allowances are comprised of allowances for trade receivables of $25,767 and for short-term finance receivables of $40,927. Property, plant and equipment are comprised of gross fixed assets of $1,182,351 and rental equipment and related inventories of $1,598,315. Depreciation is comprised of depreciation on fixed assets of $696,211 and on rental equipment and related inventories of $808,946.
-----END PRIVACY-ENHANCED MESSAGE-----