-----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, TyWFNSS9GLvtnGKf6e8xRLc5ZKiY7oKIRDo7Yg+m6x05MO6xAqIZZvH2eiy7i1PH E6PMW0P+vvXV3kJh5NfJTw== 0000078814-03-000011.txt : 20030512 0000078814-03-000011.hdr.sgml : 20030512 20030512172852 ACCESSION NUMBER: 0000078814-03-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PITNEY BOWES INC /DE/ CENTRAL INDEX KEY: 0000078814 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE MACHINES, NEC [3579] IRS NUMBER: 060495050 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03579 FILM NUMBER: 03693588 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 ed10q051203.txt Q1 2003 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 March 31, 2003 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 --- --- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes X No --- --- Number of shares of common stock, $1 par value, outstanding as of April 30, 2003 is 234,223,029. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 2 Pitney Bowes Inc. Index ---------------- Page Number ----------- Part I - Financial Information: Item 1: Financial Statements Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2003 and 2002.......................... 3 Consolidated Balance Sheets - March 31, 2003 (Unaudited) and December 31, 2002.................................. 4 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2003 and 2002............. 5 Notes to Consolidated Financial Statements.................. 6 - 13 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14 - 24 Item 3: Quantitative and Qualitative Disclosures about Market Risk....................................... 24 Item 4: Controls and Procedures............................... 24 Part II - Other Information: Item 1: Legal Proceedings..................................... 24 Item 6: Exhibits and Reports on Form 8-K...................... 25 Signatures ....................................................... 26 Certification pursuant to Section 302 of the Sarbanes-Oxley Act... 27 - 28 Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 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 March 31, --------------------------------- 2003 2002 ---------------- -------------- Revenue from: Sales...................................... $ 290,850 $ 306,802 Rentals.................................... 214,301 203,783 Core financing............................. 134,361 130,701 Non-core financing......................... 29,756 35,668 Business services.......................... 272,620 234,397 Support services........................... 148,921 138,157 ---------------- -------------- Total revenue............................ 1,090,809 1,049,508 ---------------- -------------- Costs and expenses: Cost of sales.............................. 139,927 146,419 Cost of rentals............................ 41,608 43,105 Cost of core financing..................... 35,193 36,486 Cost of non-core financing................. 11,267 11,076 Cost of business services.................. 222,793 187,851 Cost of support services................... 78,299 71,603 Selling, general and administrative........ 295,150 285,065 Research and development................... 35,751 34,069 Restructuring charge (Note 9).............. 21,265 - Interest, net.............................. 43,281 45,298 ---------------- -------------- Total costs and expenses................. 924,534 860,972 ---------------- -------------- Income before income taxes................... 166,275 188,536 Provision for income taxes................... 52,372 59,019 ---------------- -------------- Net income................................... $ 113,903 $ 129,517 ================ ============== Basic earnings per share..................... $ .48 $ .54 ================ ============== Diluted earnings per share................... $ .48 $ .53 ================ ============== Dividends declared per share of common stock............................... $ .300 $ .295 ================ ============== Ratio of earnings to fixed charges........... 3.91 4.11 ================ ==============
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 4 Pitney Bowes Inc. Consolidated Balance Sheets ---------------------------
March 31, December 31, (Dollars in thousands, except share data) 2003 2002 ---------------- ----------------- (Unaudited) Assets - ------ Current assets: Cash and cash equivalents......................... $ 375,653 $ 315,156 Short-term investments, at cost which approximates market........................... 8,411 3,491 Accounts receivable, less allowances: 3/03, $37,191; 12/02, $35,139................. 428,340 404,366 Finance receivables, less allowances: 3/03, $70,538; 12/02, $71,373................. 1,433,848 1,446,460 Inventories (Note 3) ............................. 230,009 210,888 Other current assets and prepayments.............. 179,347 172,264 ---------------- ----------------- Total current assets.......................... 2,655,608 2,552,625 Property, plant and equipment, net (Note 4)............ 638,152 622,244 Rental equipment and related inventories, net (Note 4). 421,841 422,717 Property leased under capital leases, net (Note 4)..... 2,057 1,974 Long-term finance receivables, less allowances: 3/03, $80,839; 12/02, $82,635................. 1,651,509 1,686,168 Investment in leveraged leases......................... 1,530,720 1,559,915 Goodwill (Note 11)..................................... 892,096 827,241 Other assets ......................................... 1,056,956 1,059,430 ---------------- ----------------- Total assets ......................................... $ 8,848,939 $ 8,732,314 ================ ================= Liabilities and stockholders' equity - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities.......... $ 1,280,359 $ 1,248,337 Income taxes payable.............................. 155,301 98,897 Notes payable and current portion of long-term obligations ........................ 1,533,078 1,647,338 Advance billings.................................. 375,799 355,737 ---------------- ----------------- Total current liabilities..................... 3,344,537 3,350,309 Deferred taxes on income............................... 1,522,996 1,535,618 Long-term debt (Note 5)................................ 2,422,424 2,316,844 Other noncurrent liabilities........................... 353,373 366,216 ---------------- ----------------- Total liabilities............................. 7,643,330 7,568,987 ---------------- ----------------- Preferred stockholders' equity in a subsidiary company. 310,000 310,000 Stockholders' equity: Cumulative preferred stock, $50 par value, 4% convertible......................... 24 24 Cumulative preference stock, no par value, $2.12 convertible...................... 1,417 1,432 Common stock, $1 par value........................ 323,338 323,338 Capital in excess of par value.................... - - Retained earnings................................. 3,889,447 3,848,562 Accumulated other comprehensive income (Note 8)... (81,736) (121,615) Treasury stock, at cost........................... (3,236,881) (3,198,414) ---------------- ----------------- Total stockholders' equity.................... 895,609 853,327 ---------------- ----------------- Total liabilities and stockholders' equity............. $ 8,848,939 $ 8,732,314 ================ =================
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 5 Pitney Bowes Inc. Consolidated Statements of Cash Flows (Unaudited) ------------------------------------- (Dollars in thousands)
Three Months Ended March 31, --------------------------------- 2003 2002 -------------- -------------- Cash flows from operating activities: Net income.................................................. $ 113,903 $ 129,517 Restructuring charges, net.................................. 13,610 - Restructuring and other special payments.................... (12,835) (20,641) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 67,482 65,616 Increase in deferred taxes on income................. 24,430 3,426 Change in assets and liabilities: Accounts receivable.............................. (13,789) 11,952 Net investment in internal finance receivables... 23,933 13,307 Inventories...................................... (11,814) (10,693) Other current assets and prepayments............. (3,226) 2,317 Accounts payable and accrued liabilities......... (22,333) (17,456) Income taxes payable............................. 24,549 42,932 Advance billings................................. 14,178 (12,374) Other, net....................................... (1,240) 874 -------------- ------------- Net cash provided by operating activities........ 216,848 208,777 -------------- ------------- Cash flows from investing activities: Short-term investments...................................... (4,655) (8,765) Net investment in fixed assets.............................. (68,342) (40,541) Net investment in finance receivables....................... (3,454) (4,262) Net investment in capital services.......................... 56,168 63,583 Investment in leveraged leases.............................. 34,353 (32,281) Net investment in insurance contracts....................... - 1,048 Reserve account deposits.................................... 12,828 (461) Other investing activities.................................. (42,123) - -------------- ------------- Net cash used in investing activities............ (15,225) (21,679) -------------- ------------- Cash flows from financing activities: Increase (decrease) in notes payable, net................... 267,699 (233,595) Proceeds from long-term obligations......................... 110,358 217,938 Principal payments on long-term obligations................. (411,700) (1,532) Proceeds from issuance of stock............................. 8,983 7,150 Stock repurchases........................................... (50,016) (72,301) Dividends paid.............................................. (70,467) (71,385) -------------- ------------- Net cash used in financing activities............ (145,143) (153,725) -------------- ------------- Effect of exchange rate changes on cash.......................... 4,017 (638) -------------- ------------- Increase in cash and cash equivalents............................ 60,497 32,735 Cash and cash equivalents at beginning of period................. 315,156 231,588 -------------- ------------- Cash and cash equivalents at end of period....................... $ 375,653 $ 264,323 ============== ============= Interest paid ................................................... $ 51,840 $ 54,074 ============== ============= Income taxes (refunded) paid, net................................ $ (2,356) $ 3,774 ============== =============
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 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 the management 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 March 31, 2003 and December 31, 2002, and the results of its operations and cash flows for the three months ended March 31, 2003 and 2002 have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2003. These statements should be read in conjunction with the financial statements and notes thereto included in the company's 2002 Annual Report to Stockholders on Form 10-K. Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the current year presentation. Note 2: - ------ In 2001, Statement of Financial Accounting Standards (FAS) No. 141, "Business Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets" were issued requiring business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and refining the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles are evaluated against this new criterion and result in certain intangibles being included in goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. FAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and indefinite-lived intangibles. Under a nonamortization approach, goodwill and indefinite-lived intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and charged against results of operations only in the periods in which the recorded value of goodwill and indefinite-lived intangibles is more than its fair value. In 2001, the company adopted the provisions of each statement, which apply to business combinations completed after June 30, 2001. On January 1, 2002, the company adopted the provisions of each statement, which apply to goodwill and intangible assets acquired prior to June 30, 2001. The adoption of these standards reduced the amortization of intangible assets commencing January 1, 2002 by approximately 2 cents per diluted share. Goodwill is reviewed for impairment on an annual basis or as circumstances warrant. In 2001, FAS No. 143, "Accounting for Asset Retirement Obligations" was issued, amending FAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and applies to all entities. FAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS No. 143 is effective January 1, 2003 for the company. The adoption of this statement did not impact the company's financial position, results of operations or cash flows. In 2001, FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued, replacing FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles Board (APB) Opinion 30, "Reporting the Results of Operations." FAS No. 144 provides a single accounting model for long-lived assets to be disposed of and changes the criteria that would have to be met to classify an asset as held-for-sale. FAS No. 144 retains the requirement of APB Opinion 30, to report discontinued operations separately from continuing operations and extends that reporting to separate components of an entity. FAS No. 144 is effective January 1, 2002 for the company. The adoption of this statement did not impact the company's financial position, results of operations or cash flows. In 2002, FAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction," was issued. Under FAS No. 145, gains and losses related to the extinguishment of debt should no longer be segregated on the income statement as extraordinary items. Instead, such gains and losses should be included as a component of income from continuing operations. The provisions of FAS No. 145 are effective for fiscal years beginning after May 15, 2002. The adoption of this statement did not impact the company's financial position, results of operations or cash flows. In 2002, FAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued. This statement nullifies the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of FAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002. See Note 9 to the consolidated financial statements. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 7 In 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the requirements of FAS No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for and disclosure of, the issuance of certain types of guarantees. FIN No. 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor's obligations does not apply to product warranties or to guarantees accounted for as derivatives. The recognition provisions of FIN No. 45 are effective for the company beginning January 1, 2003. The adoption of this interpretation did not impact the company's financial position, results of operations or cash flows. See Note 12 to the consolidated financial statements. In 2002, FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends FAS No. 123, "Accounting for Stock-Based Compensation," was issued. FAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires more prominent and more frequent disclosures in the financial statements of the effects of stock-based compensation. The provisions of FAS No. 148 are effective for fiscal years ending after December 15, 2002. The company adopted FAS No. 123, "Accounting for Stock-Based Compensation," on January 1, 1996. Under FAS No. 123, companies can, but are not required to, elect to recognize compensation expense for all stock-based awards using a fair value methodology. The company has adopted the disclosure-only provisions, as permitted by FAS No. 123. The company applies APB Opinion No. 25 and related interpretations in accounting for its stock-based plans. Accordingly, no compensation expense has been recognized for its U.S. and U.K. Stock Option Plans (ESP) or its U.S. and U.K. Employee Stock Purchase Plans (ESPP), except for the compensation expense recorded for its performance-based awards under the ESP and the Directors' Stock Plan as discussed herein. If the company had elected to recognize compensation expense based on the fair value method as prescribed by FAS No. 123, net income and earnings per share for the three months ended March 31, 2003 and 2002 would have been reduced to the following pro forma amounts: (Dollars in thousands, except per share data)
Three Months Ended March 31, 2003 2002 ------------ ------------- Net Income As reported $ 113,903 $ 129,517 Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (5,152) (5,628) ------------ ------------- Pro forma $ 108,751 $ 123,889 ============ ============= Basic earnings per share As reported $ .48 $ .54 Pro forma $ .46 $ .51 Diluted earnings per share As reported $ .48 $ .53 Pro forma $ .46 $ .51
In accordance with FAS No. 123, the fair value method of accounting has not been applied to awards granted prior to January 1, 1995. Therefore, the resulting pro forma impact may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended March 31, 2003 2002 ------------ ------------- Expected dividend yield 3.4% 3.1% Expected stock price volatility 31% 30% Risk-free interest rate 3% 4% Expected life (years) 5 5
Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 8 In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to pre-existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The company is currently evaluating the provisions of FIN No. 46 including the impact, if any, on our equity investment in PBG. The company does not believe that the adoption of these provisions will have a material impact on our financial position, results of operations or cash flows. In April 2003, FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" was issued. FAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The company is currently evaluating the provisions of FAS No. 149. Note 3: - ------ Inventories are composed of the following: (Dollars in thousands)
March 31, December 31, 2003 2002 ------------ ------------ Raw materials and work in process................ $ 97,354 $ 80,075 Supplies and service parts....................... 56,494 54,849 Finished products................................ 76,161 75,964 ------------ ------------ Total .......................................... $ 230,009 $ 210,888 ============ ============
Note 4: - ------ Fixed assets are composed of the following: (Dollars in thousands)
March 31, December 31, 2003 2002 ------------ ------------ Property, plant and equipment.................... $ 1,476,937 $ 1,426,522 Accumulated depreciation......................... (838,785) (804,278) ------------ ------------ Property, plant and equipment, net............... $ 638,152 $ 622,244 ============ ============ Rental equipment and related inventories......... $ 1,109,987 $ 1,095,345 Accumulated depreciation......................... (688,146) (672,628) ------------ ------------ Rental equipment and related inventories, net.... $ 421,841 $ 422,717 ============ ============ Property leased under capital leases............. $ 15,242 $ 14,513 Accumulated amortization......................... (13,185) (12,539) ------------ ------------ Property leased under capital leases, net........ $ 2,057 $ 1,974 ============ ============ Depreciation expense was $61.2 million and $58.6 million for the three months ended March 31, 2003 and 2002, respectively.
Note 5: - ------ In April 2003, the company issued $350 million of unsecured fixed rate notes maturing in May 2018. These notes bear interest at an annual rate of 4.75% and pay interest semi-annually beginning November 2003. In connection with this issuance, the company entered into a $350 million swap maturing in May 2018, converting this obligation to a floating rate note. The proceeds from these notes will be used for general corporate purposes, including the repayment of commercial paper and the repurchase of company stock. On March 31, 2003, $1.4 billion remained available under the shelf registration statement filed in October 2001 with the SEC, permitting issuances of up to $2 billion in debt securities, preferred stock and depositary shares. In April 2003, as part of this shelf registration statement, the company established a medium-term note program for the issuance of up to $1.4 billion in aggregate principal, representing the remaining amount available on the shelf. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 9 In February 2003, the company sold 6.45% Preferred Stock in a subsidiary of Pitney Bowes Credit Corporation to an outside institutional investor for approximately A$191 million ($110 million). As part of this transaction, the company agreed to repurchase the stock in 10 years. Additionally, the company entered into a cross currency interest rate swap with the same institutional investor, effectively converting the obligation to a $110 million note that bears interest at a floating rate of approximately LIBOR minus 50 basis points. The proceeds from this transaction were used for general corporate purposes, including the repayment of commercial paper, financing acquisitions and the repurchase of company stock. In September 2002, the company issued $400 million of unsecured fixed rate notes maturing in October 2012. These notes bear interest at an annual rate of 4.625% and pay interest semi-annually beginning April 2003. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper in anticipation of 2003 debt maturities. In February 2002, the company completed an offering of Euros 250 million of senior unsecured notes. These notes bear interest at a floating rate of EURIBOR plus 20 basis points, set two Euro business days preceding the quarterly interest payment dates and mature in August 2003. The notes are listed on the Luxembourg Stock Exchange and have been designated as a hedge of Euro denominated net investments held by the company. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper, financing acquisitions and the repurchase of company stock. Note 6: - ------ A reconciliation of the basic and diluted earnings per share computations for the three months ended March 31, 2003 and 2002 is as follows (in thousands, except per share data): 2003 2002 -------------------------------------------- -------------------------------------------- Per Per Income Shares Share Income Shares Share - -------------------------------------------------------------------------- -------------------------------------------- Net income $ 113,903 $ 129,517 Less: Preferred stock dividends - - Preference stock dividends (28) (30) - -------------------------------------------------------------------------- -------------------------------------------- Basic earnings per share $ 113,875 234,795 $ .48 $ 129,487 241,601 $ .54 - -------------------------------------------------------------------------- -------------------------------------------- Effect of dilutive securities: Preferred stock - 12 - 12 Preference stock 28 869 30 951 Stock options 843 1,630 Other 3 94 - -------------------------------------------------------------------------- -------------------------------------------- Diluted earnings per share $ 113,903 236,522 $ .48 $ 129,517 244,288 $ .53 ========================================================================== ============================================ In accordance with FAS No. 128, "Earnings per Share," 5.8 million and 1.8 million common stock equivalent shares issuable upon the exercise of stock options were excluded from the above computation, in the first quarter of 2003 and 2002, respectively, because the exercise prices of such options were greater than the average market price of the common stock and therefore the impact of these shares would be antidilutive.
Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 10 Note 7: - ------ Revenue and operating profit by business segment for the three months ended March 31, 2003 and 2002 were as follows:
Three Months Ended March 31, (Dollars in thousands) 2003 2002 ------------- ------------- Revenue: Global Mailing....................................... $ 747,941 $ 712,091 Enterprise Solutions................................. 303,209 291,390 ------------- ------------- Total Messaging Solutions............................ 1,051,150 1,003,481 Non-core............................................. 29,756 35,668 Core................................................. 9,903 10,359 ------------- ------------- Capital Services..................................... 39,659 46,027 ------------- ------------- Total revenue........................................... $ 1,090,809 $ 1,049,508 ============= ============= Operating Profit: (1) Global Mailing....................................... $ 220,577 $ 201,581 Enterprise Solutions................................. 11,364 17,581 ------------- ------------- Total Messaging Solutions............................ 231,941 219,162 Non-core............................................. 12,025 15,380 Core................................................. 5,071 4,327 ------------- ------------- Capital Services..................................... 17,096 19,707 ------------- ------------- Total operating profit.................................. 249,037 238,869 Unallocated amounts: Net interest (corporate interest expense, net of intercompany transactions)................... (26,193) (20,245) Corporate expense.................................... (35,304) (30,088) Restructuring charge................................. (21,265) - ------------- ------------- Income before income taxes.............................. $ 166,275 $ 188,536 ============= ============= (1) Operating profit excludes general corporate expenses, income taxes and net interest other than that related to finance operations.
Net interest expense included in business segment operating profit was as follows:
Three Months Ended March 31, (Dollars in thousands) 2003 2002 ------------- ------------- Global Mailing....................................... $ 8,374 $ 13,492 Enterprise Solutions................................. 282 225 ------------- ------------- Total Messaging Solutions............................ 8,656 13,717 Non-core............................................. 6,463 9,212 Core................................................. 1,969 2,124 ------------- ------------- Capital Services..................................... 8,432 11,336 ------------- ------------- Total net interest expense for reportable segments ..... 17,088 25,053 Net interest (corporate interest expense, net of intercompany transactions)...................... 26,193 20,245 ------------- ------------- Consolidated net interest expense....................... $ 43,281 $ 45,298 ============= =============
Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 11 Note 8: - ------ Comprehensive income for the three months ended March 31, 2003 and 2002 was as follows:
(Dollars in thousands) Three Months Ended March 31, 2003 2002 ------------- ------------- Net income................................................ $ 113,903 $ 129,517 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments................ 42,467 (1,894) Net unrealized (losses) gains on derivative instruments. (2,588) 2,970 ------------- ------------- Comprehensive income...................................... $ 153,782 $ 130,593 ============= =============
Note 9: - ------ In January 2003, the company announced that it would undertake restructuring initiatives related to realigned infrastructure requirements and reduced manufacturing needs for digital equipment. The company expects that the pre-tax cost of these restructuring initiatives will be about $160 million ($100 million after tax) over a two-year period as the various initiatives take effect. In connection with this plan, the company recorded a pre-tax restructuring charge of $21.3 million during the three months ended March 31, 2003. The pre-tax restructuring charge was composed of:
(Dollars in millions) Three Months Ended March 31, 2003 ------------------- Severance and benefit costs $ 18.4 Asset impairments 0.5 Other exit costs 2.4 ------------------- $ 21.3 ===================
All restructuring charges, except for the asset impairments, will result in cash outflows. The severance and benefit costs relate to a reduction in workforce of approximately 600 employees worldwide. The workforce reductions relate to actions across several of our businesses resulting from infrastructure and process improvements and our continuing efforts to streamline operations, and include managerial, professional, clerical and technical roles. Approximately 70% of the workforce reductions are in the U.S. The majority of the international workforce reductions are in Europe and Canada. Asset impairments relate primarily to the write-off of property, plant & equipment, resulting from the closure or streamlining of certain facilities. Other exit costs relate primarily to lease termination costs, non-cancelable lease payments, consolidation of excess facilities and other costs associated with exiting business activities. Accrued restructuring charges at March 31, 2003 are composed of the following:
(Dollars in millions) Total 2003 Ending restructuring 2003 cash non-cash balance at charges payments charges March 31, 2003 ------------- ---------- -------- -------------- Severance and benefit costs $ 18.4 $ 7.8 $ - $ 10.6 Asset impairments 0.5 - 0.5 - Other exit costs 2.4 0.8 - 1.6 ------------- ---------- -------- --------------- $ 21.3 $ 8.6 $ 0.5 $ 12.2 ============= ========== ======== ===============
Note 10: - ------- On August 1, 2002, the company completed the acquisition of PSI, the nation's largest mail presort company, for approximately $127 million in cash and $39 million in debt assumed. The results of PSI's operations have been included in the consolidated financial statements since the date of acquisition. PSI prepares, sorts and aggregates mail to earn postal discounts and expedite delivery for its customers. As a wholly owned subsidiary of the company, PSI will operate under its current management and continue to focus on providing presort mail services. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 12 The following table summarizes the preliminary estimated fair values of the major assets acquired and liabilities assumed at the date of acquisition:
(Dollars in thousands) Intangible assets $ 42,286 Goodwill 113,247 Other, net 10,967 Debt (39,445) ------------- Purchase price $ 127,055 =============
Intangible assets relate primarily to customer relationships and have a weighted-average useful life of approximately 15 years. The goodwill was assigned to the Global Mailing segment. Consolidated impact of acquisitions - ----------------------------------- The acquisition of PSI increased the company's operating profit, but including related financing costs, did not materially impact earnings either on a per share or aggregate basis. The following unaudited pro forma consolidated results have been prepared as if the acquisition of PSI had occurred on January 1, 2002:
(Dollars in thousands) Three Months Ended March 31, 2003 2002 ------------ ----------- Total revenue......................................$ 1,090,809 $ 1,069,508
The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisition been completed on January 1, 2002, nor do they purport to be indicative of the results that will be obtained in the future. The pro forma earning results of this acquisition was not material to earnings on either a per share or an aggregate basis. During 2003 and 2002, the company also completed several smaller acquisitions. During 2003, the company acquired one of its address printing suppliers and one of its international dealerships. During 2002, the company acquired the remaining 43% ownership interest of MailCode Inc., some of its international dealerships and presort businesses. The cost of these acquisitions was in the aggregate less than $50 million in each year. These acquisitions did not have a material impact on the company's financial results either individually or on an aggregate basis. Note 11: - ------- At March 31, 2003, acquired intangibles assets was composed of the following:
(Dollars in thousands) March 31, 2003 ------------------------- Gross Average Carrying Accumulated Amortization Amount Amortization Period ---------- ------------ ------------ Amortized intangible assets: Customer relationships $ 130,414 $ 9,428 15.0 years Mailing technology 38,359 4,527 12.2 years Trademark and trade names 6,900 2,150 4.4 years Non-compete agreements 2,986 960 4.1 years ---------- ------------ ------------ Weighted average $ 178,659 $ 17,065 13.8 years ========== ============
The aggregate intangible asset amortization expense for the three months ended March 31, 2003 was $3.7 million. Estimated intangible amortization expense is as follows: (Dollars in thousands) For year ending 12/31/03 $ 14,780 For year ending 12/31/04 $ 14,300 For year ending 12/31/05 $ 14,131 For year ending 12/31/06 $ 13,711 For year ending 12/31/07 $ 12,261 Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 13 Changes in the carrying amount of goodwill by business segment for the three months ended March 31, 2003 are as follows:
(Dollars in thousands) Global Enterprise Mailing Solutions Total ---------- ---------- ---------- Balance at January 1, 2003 $ 405,291 $ 421,950 $ 827,241 Goodwill acquired during the period 35,674 - 35,674 Other 21,550 7,631 29,181 ---------- ---------- ---------- Balance at March 31, 2003 $ 462,515 $ 429,581 $ 892,096 ========== ========== ==========
Note 12: - ------- In connection with its Capital Services programs, the company has sold finance receivables and entered into guarantee contracts with varying amounts of recourse in privately-placed transactions with unrelated third-party investors. The uncollected principal balance of receivables sold and guarantee contracts totaled $193.2 million and $183.0 million at March 31, 2003 and December 31, 2002, respectively. In accordance with generally accepted accounting principles, the company does not record these amounts as liabilities on its consolidated balance sheet. In connection with the sale of certain businesses, the company has agreed to indemnify the buyer for certain losses related to assets acquired by the buyer. The company's consolidated balance sheet included a liability of approximately $9 million, at March 31, 2003 and December 31, 2002, respectively, for these indemnifications, which reflects the company's maximum probable exposure. The company provides product warranties in conjunction with certain product sales, generally for a period of 90 days from the date of installation. The company's product warranty liability reflects management's best estimate of probable liability under its product warranties based on historical claim experience, which has not been significant, and other currently available evidence. Accordingly, the company's product warranty liability at March 31, 2003 and December 31, 2002, respectively, was not material. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------- Results of Continuing Operations - first quarter of 2003 vs. first quarter of - ----------------------------------------------------------------------------- 2002 - ---- Revenue increased 4 percent in the first quarter of 2003 to $1,090.8 million compared with $1,049.5 million in the first quarter of 2002 driven by the acquisition of PSI and the favorable impact of foreign exchange. Net income decreased to $113.9 million in the first quarter of 2003 compared to $129.5 million in the first quarter of 2002. Diluted earnings per share decreased to 48 cents in the first quarter of 2003 from 53 cents in the first quarter of 2002. During the first quarter of 2003, we took several actions related to our previously announced initiatives to support our long-term growth strategies. Net income for first quarter of 2003 was reduced by a pre-tax restructuring charge of $21 million ($14 million after tax) or 6 cents per diluted share relating to these actions. As previously announced, we expect to record approximately $160 million of pre-tax ($100 million after tax) restructuring charges over the next two years. First quarter 2003 revenue included $290.9 million from sales, down 5 percent from $306.8 million in the first quarter of 2002 due to delayed decision-making for upgrades and new equipment purchases at the high end of our product line; $214.3 million from rentals, up 5 percent from $203.8 million due to strong placements of our standalone meters and new digital meters; $134.4 million from core financing, up 3 percent from $130.7 million; $29.8 million from non-core financing, down 17 percent from $35.7 million due to our decision to cease originating large-ticket, structured, third-party financing of non-core assets; $272.6 million from business services, up 16 percent from $234.4 million due mainly to our acquisition of PSI; and $148.9 million from support services, up 8 percent from $138.2 million due primarily to an increased service contract base and the favorable impact of foreign exchange. Our Global Mailing segment includes worldwide revenues and related expenses from the rental of postage meters and the sale, rental and financing of mailing equipment, including mail finishing and software-based mail creation equipment. We also include in this segment, software-based shipping, transportation and logistics systems, related supplies and services, presort mail services, postal payment and supply chain solutions such as order management and fulfillment support. During the first quarter of 2003, Global Mailing revenue increased 5 percent and operating profit increased 9 percent. Global Mailing continued to experience good customer demand for its revolutionary digital mailing systems and related value-added services. Global Mailing benefited from strong growth in its small business operations, although the economy caused some delayed decision-making for upgrades and new equipment purchases at the high end of the product line. Additionally, PSI added operations and customers during the quarter as the company's presort or work sharing service network continued to expand in terms of reach and revenue contribution. Non-U.S. revenue grew at a double-digit rate as a result of favorable foreign currency exchange rates. Canada and Australia had good revenue growth in local currency, helped by the introduction of new digital mailing systems. France also experienced good revenue growth on a local currency basis, helped by the results of Secap. In many other European countries revenue declined on a local currency basis due to economic weakness and reduced demand after meter migration. Economic conditions also caused a revenue decline in Japan during the period. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 15 Our Enterprise Solutions segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). PBMS includes revenue and related expenses from facilities management contracts for advanced mailing, secure mail services, reprographic, document management and other value-added services to large enterprises. DMT includes revenue and related expenses from the sale, service and financing of high speed, software-enabled production mail systems, sorting equipment, incoming mail systems, electronic statement, billing and payment solutions, and mailing software. During the first quarter of 2003, revenue grew 4 percent, and operating profit declined 35 percent. PBMS revenue grew 4 percent to $244 million, while operating profit declined 37 percent. Contraction in the telecommunications, financial services and transaction-based legal services industries had an adverse impact on PBMS's revenue growth and margins. PBMS remains focused on diversifying its customer base and providing higher value services to its existing customers, while enacting cost reduction and containment measures to address these margin pressures. DMT reported revenue of $59 million for the quarter, an increase of 3 percent for the first quarter of 2003. Operating profit also rose 3 percent during the quarter. DMT continued to be adversely impacted by reduced capital spending by businesses. Total Messaging Solutions, the combined results of the Global Mailing segment and Enterprise Solutions segment, reported 5 percent revenue growth and 6 percent operating profit growth. Our Capital Services segment consists of external financing of third-party equipment. It comprises primarily asset- and fee-based income generated by financing or arranging transactions of critical large-ticket customer assets. During the first quarter of 2003, revenue decreased 14 percent and operating profit decreased 13 percent in the Capital Services segment which is consistent with our previously announced decision to cease originating large-ticket, structured, third-party financing of non-core assets. Core revenue decreased 4 percent in the quarter and operating profit increased 17 percent. Non-core revenue decreased 17 percent in the quarter and operating profit decreased 22 percent. During the quarter, we liquidated approximately $80 million of non-core assets, including $29 million of our assets held for sale, and continued to pursue the sale of other non-core lease assets on an economically advantageous basis. Cost of sales increased to 48.1 percent of sales revenue in the first quarter of 2003 compared with 47.7 percent in the first quarter of 2002. The increase was mainly driven by the initial costs associated with the transition to outsourcing of parts for digital equipment. Cost of rentals decreased to 19.4 percent of related revenues in the first quarter of 2003 compared with 21.2 percent in the first quarter of 2002 due primarily to lower repair costs resulting from the shift from electronic to digital meters. Cost of core financing decreased to 26.2 percent of related revenues in the first quarter of 2003 compared with 27.9 percent in the first quarter of 2002 due to cost reduction initiatives in our financial services business. Cost of non-core financing increased to 37.9 percent of related revenues in the first quarter of 2003 compared with 31.1 percent in the first quarter of 2002 due to our decision to cease originating large-ticket, structured, third party financing of non-core assets and sell non-core lease assets on an economically advantageous basis. Cost of business services increased to 81.7 percent of related revenues in the first quarter of 2003 compared with 80.1 percent in the first quarter of 2002 due to initial lower margins, higher start-up costs and delayed implementation associated with new accounts, and the loss of higher margin business with long-term customers as they continue to downsize. Cost of support services increased to 52.6 percent of related revenues in the first quarter of 2003 compared with 51.8 percent in the first quarter of 2002 partly due to the increase in mix of lower margin international support services revenue. Selling, general and administrative expenses were 27.1 percent of revenue in the first quarter of 2003 compared with 27.2 percent in the first quarter of 2002 reflecting continuing emphasis on controlling operating expenses. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 16 Research and development expenses increased 5 percent to $35.8 million in the first quarter of 2003 compared with $34.1 million in the first quarter of 2002. The increase reflects our continued commitment to develop new technologies and enhanced mailing and software products. Net interest expense decreased to $43.3 million in the first quarter of 2003 from $45.3 million in the first quarter of 2002. The decrease was due to lower average interest rates during 2003 compared to 2002 associated with borrowings to fund our investment in leasing and rental products, acquisitions, dividends and the stock repurchase program. The effective tax rate for the first quarter of 2003 was 31.5 percent compared to 31.3 percent in the first quarter of 2002. The effective tax rate for the first quarter of 2003 includes a .5 percent tax benefit from the restructuring charge recorded in the first quarter of 2003. The increase in the 2003 effective tax rate reflects the impact of our strategy to cease originating large-ticket, structured, third-party financing of non-core assets. Accounting Pronouncements - ------------------------- In 2001, Statement of Financial Accounting Standards (FAS) No. 141, "Business Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets" were issued requiring business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and refining the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles have been evaluated against this new criterion and resulted in certain intangibles being included in goodwill, or alternatively, amounts initially recorded as goodwill being separately identified and recognized apart from goodwill. FAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and indefinite-lived intangibles. Under a nonamortization approach, goodwill and indefinite-lived intangibles have not been amortized into results of operations, but instead will be reviewed for impairment and charged against results of operations only in the periods in which the recorded value of goodwill and indefinite-lived intangibles is more than its fair value. In 2001, we adopted the provisions of each statement, which apply to business combinations completed after June 30, 2001. The provisions of each statement, which apply to goodwill and intangible assets acquired prior to June 30, 2001 were adopted effective January 1, 2002. The adoption of these standards reduced the amortization of intangible assets commencing January 1, 2002 by approximately 2 cents per diluted share. Goodwill will be reviewed for impairment on an annual basis or as circumstances warrant. In 2001, FAS No. 143, "Accounting for Asset Retirement Obligations" was issued, amending FAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and applies to all entities. FAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS No. 143 is effective January 1, 2003. The adoption of this statement did not impact our financial position, results of operations or cash flows. In 2001, FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued, replacing FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles Board (APB) Opinion 30, "Reporting the Results of Operations." FAS No. 144 provides a single accounting model for long-lived assets to be disposed of and changes the criteria that would have to be met to classify an asset as held-for-sale. FAS No. 144 retains the requirement of APB Opinion 30, to report discontinued operations separately from continuing operations and extends that reporting to separate components of an entity. FAS No. 144 is effective January 1, 2002. The adoption of this statement did not impact our financial position, results of operations or cash flows. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 17 In 2002, FAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction," was issued. Under FAS No. 145, gains and losses related to the extinguishment of debt should no longer be segregated on the income statement as extraordinary items. Instead, such gains and losses should be included as a component of income from continuing operations. The provisions of FAS No. 145 are effective for fiscal years beginning after May 15, 2002. The adoption of this statement did not impact our financial position, results of operations or cash flows. In 2002, FAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued. This statement nullifies the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of FAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002. See Note 9 to the consolidated financial statements. In December 2002, FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends FAS No. 123, "Accounting for Stock-Based Compensation," was issued. FAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires more prominent and more frequent disclosures in the financial statements of the effects of stock-based compensation. The provisions of FAS No. 148 are effective for fiscal years ending after December 15, 2002. See Note 2 to the consolidated financial statements. In April 2003, FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" was issued. FAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." We are currently evaluating the provisions of FAS No. 149. In 2002, the Financial Accounting Standards Board issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the requirements of FAS No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for and disclosure of, the issuance of certain types of guarantees. FIN No. 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor's obligations does not apply to product warranties or to guarantees accounted for as derivatives. The recognition provisions of FIN No. 45 are effective January 1, 2003. The adoption of this interpretation did not impact our financial position, results of operations or cash flows. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. We are currently evaluating the provisions of FIN No. 46 including the impact, if any, on our equity investment in PBG. We do not believe that the adoption of these provisions will have a material impact on our financial position, results of operations or cash flows. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 18 Restructuring Charges - --------------------- In January 2003, we announced that we would undertake restructuring initiatives related to realigned infrastructure requirements and reduced manufacturing needs for digital equipment. We expect that the pre-tax cost of these restructuring initiatives will be about $160 million ($100 million after tax) over a two-year period as the various initiatives take effect. The cash outflows related to restructuring charges will be funded primarily by cash from operating activities. The restructuring charges are expected to increase our operating efficiency and effectiveness in 2003 and beyond while enhancing growth, primarily as a result of reduced personnel related expenses. In connection with this plan, we recorded a pre-tax restructuring charge of $21.3 million during the three months ended March 31, 2003. The pre-tax restructuring charge was composed of:
(Dollars in millions) Three Months Ended March 31, 2003 ------------------- Severance and benefit costs $ 18.4 Asset impairments 0.5 Other exit costs 2.4 ------------------- $ 21.3 ===================
All restructuring charges, except for the asset impairments, will result in cash outflows. The severance and benefit costs relate to a reduction in workforce of approximately 600 employees worldwide. The workforce reductions relate to actions across several of our businesses resulting from infrastructure and process improvements and our continuing efforts to streamline operations, and include managerial, professional, clerical and technical roles. Approximately 70% of the workforce reductions are in the U.S. The majority of the international workforce reductions are in Europe and Canada. Asset impairments relate primarily to the write-off of property, plant and equipment, resulting from the closure or streamlining of certain facilities. Other exit costs relate primarily to lease termination costs, non-cancelable lease payments, consolidation of excess facilities and other costs associated with exiting business activities. Accrued restructuring charges at March 31, 2003 are composed of the following:
(Dollars in millions) Total 2003 Ending restructuring 2003 cash non-cash balance at charges payments charges March 31, 2003 ------------- ---------- -------- -------------- Severance and benefit costs $ 18.4 $ 7.8 $ - $ 10.6 Asset impairments 0.5 - 0.5 - Other exit costs 2.4 0.8 - 1.6 ------------- ---------- -------- --------------- $ 21.3 $ 8.6 $ 0.5 $ 12.2 ============= ========== ======== ===============
Acquisitions - ------------ In August 2002, we completed the acquisition of PSI, the nation's largest mail presort company, for approximately $127 million in cash and $39 million debt assumed. PSI prepares, sorts and aggregates mail to earn postal discounts and expedite delivery for its customers. We accounted for the acquisition of PSI under the purchase method and accordingly, the operating results of PSI have been included in our consolidated financial statements since the date of acquisition. The acquisition of PSI did not materially affect net income for the three months ended March 31, 2003. During 2003 and 2002, we also completed several smaller acquisitions. During 2003, we acquired one of our address printing suppliers and one of our international dealerships. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 19 During 2002 we acquired the remaining 43% ownership interest of MailCode Inc., some of our international dealerships and presort businesses. The cost of these acquisitions was in the aggregate less than $50 million in each year. These acquisitions did not have a material impact on our financial results either individually or on an aggregate basis. Liquidity and Capital Resources - ------------------------------- Our ratio of current assets to current liabilities increased to .79 to 1 at March 31, 2003 compared with .76 to 1 at December 31, 2002. The increase in this ratio was primarily due to increases in cash and cash equivalents, accounts receivable, inventories and the exchange of short-term debt for long-term debt. Cash increased $60.5 million to $375.7 million at March 31, 2003 from $315.2 million at December 31, 2002 due primarily to the sale of non-core capital services assets on the last day of the quarter. Inventory increased $19.1 million to $230.0 million at March 31, 2003 from $210.9 million at December 31, 2002 due mainly to an increase in raw materials and work in process associated with our new DM line of digital, networked mailing systems and new production mail products. Our cash and cash equivalents increased to $375.7 million at March 31, 2003, from $315.2 million at December 31, 2002. The increase resulted from $216.8 million provided by operating activities, offset in part by $15.2 million and $145.1 million used in investing and financing activities, respectively. Net cash of $216.8 million provided by operating activities consisted primarily of net income adjusted for non-cash items and changes in working capital. Net cash of $15.2 million used in investing activities consisted primarily of investments in fixed assets and other investing activities, partially offset by cash generated from asset sales at capital services. Other investing activities included the acquisitions of one of our address printing suppliers and one of our international dealerships. Net cash of $145.1 million used in financing activities consisted primarily of stock repurchases, dividends paid to stockholders and a net decrease in total debt. The ratio of total debt to total debt and stockholders' equity was 81.6% and 82.3% at March 31, 2003 and December 31, 2002, respectively. Including the preferred stockholders' equity in a subsidiary company as debt, the ratio of total debt to total debt and stockholders' equity was 82.7% and 83.4% at March 31, 2003 and December 31, 2002, respectively. The decrease in this ratio was driven by favorable foreign currency translation adjustments and a net reduction of total debt in the first quarter of 2003. We generated $149 million of free cash flow (defined as net cash provided by operating activities less net investment in fixed assets) for the first quarter of 2003. Free cash flow for the first quarter of 2003 was reduced by approximately $13 million of payments associated with the restructuring initiative. Free cash flow is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with GAAP, but is presented because we believe it is widely accepted indicator of our ability to incur and service debt. The following table reconciles the reported consolidated results to adjusted results for the three months ended March 31, 2003:
(Dollars in thousands) Three months ended March 31, 2003 ------------------ GAAP net cash provided by operating activities, as reported $ 216,848 Net investment in fixed assets (68,342) ------------------ Free cash flow $ 148,506 ==================
Financings and Capitalization - ----------------------------- In April 2003, we issued $350 million of unsecured fixed rate notes maturing in May 2018. These notes bear interest at an annual rate of 4.75% and pay interest semi-annually beginning November 2003. In connection with this issuance, we entered into a $350 million swap maturing in May 2018, converting this obligation to a floating rate note. The proceeds from these notes will be used for general corporate purposes, including the repayment of commercial paper and the repurchase of company stock. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 20 On March 31, 2003, $1.4 billion remained available under the shelf registration statement filed in October 2001 with the SEC, permitting issuances of up to $2 billion in debt securities, preferred stock and depositary shares. In April 2003, as part of this shelf registration statement, we established a medium-term note program for the issuance of up to $1.4 billion in aggregate principal, representing the remaining amount available on the shelf. In February 2003, we sold 6.45% Preferred Stock in a subsidiary of Pitney Bowes Credit Corporation (PBCC) to an outside institutional investor for approximately A$191 million ($110 million). As part of this transaction, we agreed to repurchase the stock in 10 years. Additionally, we entered into a cross currency interest rate swap with the same institutional investor, effectively converting the obligation to a $110 million note that bears interest at a floating rate of approximately LIBOR minus 50 basis points. The proceeds from this transaction were used for general corporate purposes, including the repayment of commercial paper and the repurchase of company stock. In September 2002, we issued $400 million of unsecured fixed rate notes maturing in October 2012. These notes bear interest at an annual rate of 4.625% and pay interest semi-annually beginning April 2003. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper in anticipation of 2003 debt maturities. In February 2002, we completed an offering of Euros 250 million of senior unsecured notes. These notes bear interest at a floating rate of EURIBOR plus 20 basis points, set two Euro business days preceding the quarterly interest payment dates and mature in August 2003. The notes are listed on the Luxembourg Stock Exchange and have been designated as a hedge of Euro denominated net investments held by the company. The proceeds from these notes were used for general corporate purposes including the repayment of commercial paper, financing acquisitions and the repurchase of company stock. We believe that our 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 paper and medium-term note programs. Capital Investments - ------------------- In the first quarter of 2003, net investments in fixed assets included $41.8 million in net additions to property, plant and equipment and $26.5 million in net additions to rental equipment and related inventories compared with $34.3 million and $6.2 million, respectively, in the same period in 2002. These additions include expenditures for normal plant and manufacturing equipment as well as increased investments associated with new accounts at PBMS. In the case of rental equipment, the additions included the production of postage meters. We expect net investments in fixed assets for the remainder of 2003 to be slightly higher than the prior year. These investments will also be affected by the timing of our customers' transition to digital meters. At March 31, 2003, 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. Investment in commercial passenger and cargo aircraft leasing transactions - -------------------------------------------------------------------------- At March 31, 2003, our net investment in commercial passenger and cargo aircraft leasing transactions was $326.1 million, which is composed of transactions with U.S. and foreign airlines of $46.3 million and $279.7 million, respectively. This portfolio is diversified across 13 airlines and 30 aircraft and is financed through investments in leveraged lease transactions, direct financing lease transactions and through our equity investment in PBG Capital Partners LLC (PBG). Risk of loss under these transactions is primarily related to: (1) the inability of the airline to make underlying lease payments; (2) our inability to generate sufficient cash flows either through the sale of the aircraft or secondary lease transactions to recover our net investment; and/or (3) in the case of the leveraged lease portfolio, the absence of an equity defeasance or other third party credit arrangements. Approximately 38% of our remaining net investment in commercial passenger and cargo aircraft leasing investments is further secured by approximately $124 million of equity defeasance accounts or third party credit arrangements. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 21 At March 31, 2003, our net investment in commercial passenger and cargo aircraft leasing transactions was composed of the following:
(Dollars in thousands) % of total Net investment Aircraft investment March 31, 2003 ---------- ------------ -------------- Airline U.S. - ---- United and subsidiary 5 5.4 $ 17,728 Delta 5 11.8 38,474 America West 1 6.4 20,934 American 6 4.9 15,988 Southwest 2 2.9 9,421 Northwest 1 1.3 4,158 Alaska 1 0.3 1,095 Federal Express 1 6.3 20,514 Credit loss reserves (82,000) ---------- ------------ -------------- 22 14.2 46,312 ---------- ------------ -------------- Foreign - ------- KLM 2 33.0 107,680 Qantas 2 20.2 65,954 Japan 2 15.5 50,493 Air France 1 10.2 33,301 Lufthansa 1 6.9 22,314 ---------- ------------ -------------- 8 85.8 279,742 ---------- ------------ -------------- 30 100.0 $ 326,054 ========== ============ ==============
Capital Services portfolio - -------------------------- Our investment in Capital Services lease related assets included in our Consolidated Balance Sheet was composed of the following: (Dollars in millions) March 31, 2003 -------------- Leveraged leases $ 1,530 Finance receivables 639 Other assets 58 Rental equipment 21 -------------- Total $ 2,248 ============== The $1.5 billion investment in leveraged leases on our Consolidated Balance Sheet is diversified across the following types of assets: o $290 million related to commercial real estate facilities. o $316 million for postal equipment with international postal authorities. o $312 million related to locomotives and railcars. o $300 million related to nine commercial passenger and cargo aircraft. o $135 million for telecommunications equipment. o $131 million for rail and bus facilities. o $46 million for shipping and handling equipment. Our leveraged lease investment in telecommunications equipment represents leases to three highly rated international telecommunication entities. Approximately 86 percent of this portfolio is further secured by equity defeasance accounts or other third party credit arrangements. Additionally, our leveraged lease investment in commercial real estate facilities includes approximately $85 million related to leases of corporate facilities to four U.S. telecommunication entities, of which $70 million is with lessees that are highly rated. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 22 Overall, approximately 47 percent of our $1.5 billion leveraged lease portfolio is further secured by equity defeasance accounts or other third party credit arrangements. In addition, approximately 18 percent of the remaining leveraged lease portfolio represents leases to highly rated government related organizations which have guarantees or supplemental credit enhancements upon the occurrence of certain events. Finance receivables are composed of the following: (Dollars in millions) March 31, 2003 -------------- Assets held for sale $ 167 Single investor leases: Non-core 220 Core 252 -------------- Total $ 639 ============== In the first quarter 2003, we liquidated approximately $80 million of non-core assets, including $29 million of our assets held for sale, and continued to pursue the sale of other non-core lease assets on an economically advantageous basis. As previously disclosed, we expect to phase out our assets held for sale portfolio by the end of 2003. Our Consolidated Statement of Income includes financing revenue of $1.5 million and $6.3 million for the quarters ended March 31, 2003 and 2002, respectively, attributable to our assets held for sale portfolio. Other assets represent our 50% equity interest in PBG. We formed PBG with GATX Corporation during 1997 for the purposes of financing and managing certain leasing related assets. We account for our investment in PBG under the equity method. Regulatory Matters - ------------------ In 2000, the U.S. Postal Service (USPS) issued a 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 were no longer permitted. o The current users of manually reset electronic meters could continue to use these meters for the term of their rental and lease agreements. Leases or rentals due to expire in 2000 could be extended to December 31, 2001. On November 15, 2001, the USPS issued a rule as follows: o New placements of non-digital meters without the "timeout" feature that enables the meters to be automatically disabled, if not reset within a specified time period are no longer permitted after December 31, 2002. These meters must be off the market by December 31, 2006. o New placements of non-digital meters with a "timeout" feature are no longer permitted after June 30, 2004. These meters must be off the market by December 31, 2008. We adopted a formal meter transition plan in the second quarter of 2001 to transition to the next generation of networked mailing technology. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 23 USPS Information Based Indicia Program (IBIP) In May 1995, the USPS publicly announced its concept of its IBIP for future postage evidencing devices. As initially stated by the USPS, the purpose of the program was to develop a new standard for future digital postage evidencing devices which would significantly enhance postal revenue security and support expanded USPS value-added services to mailers. The program would consist of the development of four separate specifications: (i) the Indicium specification; (ii) a Postal Security Device specification; (iii) a Host specification; and (iv) a Vendor Infrastructure specification. During the period from May 1995 through December 31, 2001, we submitted extensive comments to a series of proposed IBIP specifications issued by the USPS, including comments on the IBI Performance Criteria. Other regulatory matters - ------------------------ In June 2002, we received an examination report from the Internal Revenue Service (IRS) showing proposed income tax adjustments for the 1992 to 1994 tax years. The total additional tax proposed by the IRS for the 1992 through 1994 tax years is about $24 million. In August 2002, we filed a protest with the IRS to challenge most of the proposed deficiencies asserted by the IRS. We believe that we have meritorious defenses to those deficiencies and that the ultimate outcome will not result in a material effect on our results of operations, financial position or cash flows. However, if the IRS prevails on its asserted deficiencies, additional tax may be due for 1995 and future tax years, which could materially affect our future results of operations, financial position or cash flows. At any time, our provision for taxes could be affected by changes in tax law and interpretations by governments or courts. Forward-Looking Statements - -------------------------- We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 in this Form 10-Q, other reports or press releases or made by our management involve risks and uncertainties which may change based on various important factors. These forward-looking statements are those which talk about the company's or management's current expectations as to the future and include, but are not limited to, statements about the amounts, timing and results of possible restructuring charges and future earnings. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," 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 our behalf include: o changes in international or national political conditions, including any terrorist attacks o negative developments in economic conditions, including adverse impacts on customer demand 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, including risks associated with commercial passenger and cargo aircraft leasing transactions o changes in interest rates o foreign currency fluctuations o timing and execution of the restructuring plan o timing and execution of the meter transition plan o regulatory approvals and satisfaction of other conditions to consummation of any acquisitions and integration of recent acquisitions o impact on mail volume resulting from current concerns over the use of the mail for transmitting harmful biological agents o third-party suppliers' ability to provide product components Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 24 o negative income tax adjustments for prior audit years and changes in tax laws or regulations o terms and timing of actions to reduce exposures and disposal of assets in Capital Services segment o continuing developments in the U.S. and foreign airline industry o changes in pension and retiree medical costs. Item 3. Quantitative and Qualitative Disclosures about Market Risk There were no material changes to the disclosures made in the Annual Report on Form 10-K for the year ended December 31, 2002 regarding this matter. Item 4. Controls and Procedures (a) Explanation of Disclosure Controls and Procedures Our chief executive officer and our chief financial officer, after evaluating the effectiveness of the company's "disclosure controls and procedures" (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days of the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities. (b) Changes in Internal Controls There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date, including any corrective actions with regard to significant deficiencies and material weaknesses. Part II - Other Information --------------------------- Item 1: Legal Proceedings In the ordinary course of normal business, we are routinely defendants in or parties to a number of pending and threatened legal actions including proceedings purportedly brought on behalf of classes of claimants. These may involve litigation by or against us relating to, among other things: o contractual rights under vendor, insurance or other contracts o intellectual property or patent rights o equipment, service, payment or other disputes with customers o disputes with employees Included among these cases are two patent actions, one with Stamps.com and one with Ricoh Company, Ltd. in which allegations of infringement have been made against our DM SeriesTM of products. In addition we are defendants in several state court actions relating to a program PBCC offers to some of its leasing customers to replace the leased equipment if it is lost, stolen or destroyed. Of the current actions, four are purportedly brought on behalf of state-based classes of customers and the others are brought on behalf of individual customers. No court has ruled on whether or not the cases may proceed on a class basis. We have previously prevailed at the summary judgment stage in two similar litigations, including one federal court decision affirmed by the United States Court of Appeals for the Fifth Circuit. In those cases where we are the defendant, plaintiffs may seek to recover large and sometimes unspecified amounts of damages or other types of relief and some matters may remain unresolved for several years. Although we cannot predict the outcome of such matters, based on current knowledge, management does not believe that the ultimate outcome of the litigations referred to in this section will have a material adverse effect on our financial position, results of operations or cash flows. However, if the plaintiffs do prevail, the result may have a material effect on our financial position, future results of operations or cash flows. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 25 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 (99.1) Certification of Chief Executive Officer (99.2) Certification of Chief Financial Officer (b) Reports on Form 8-K On March 19, 2003, the company furnished a current report on Form 8-K pursuant to Item 9 thereof, reporting the 2003 Analyst Day web-cast presentation held on March 18, 2003 for the investment community to review growth strategies and business opportunities. On January 30, 2003, the company filed a current report on Form 8-K pursuant to Item 5 thereof, reporting the Press Release dated January 28, 2003 for the quarter and year ended December 31, 2002. Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 26 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. May 12, 2003 /s/ B. P. Nolop ----------------------------- B. P. Nolop Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ A. F. Henock ------------------------------ A. F. Henock Vice President - Finance (Principal Accounting Officer) Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 27 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael J. Critelli, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pitney Bowes Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ Michael J. Critelli - ----------------------- Michael J. Critelli Chief Executive Officer Pitney Bowes Inc. - Form 10-Q Three Months Ended March 31, 2003 Page 28 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Bruce P. Nolop, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pitney Bowes Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ Bruce P. Nolop - ----------------------- Bruce P. Nolop Chief Financial Officer Exhibit Index ------------- Reg. S-K Exhibits Description -------- ------------------------------------------------- (12) Computation of ratio of earnings to fixed charges (99.1) Certification of Chief Executive Officer (99.2) Certification of Chief Financial Officer Exhibit (12) -----------
Pitney Bowes Inc. Computation of Ratio of Earnings to Fixed Charges (1) ----------------------------------------------------- (Dollars in thousands) Three Months Ended March 31, ---------------------------- 2003 2002 ----------- ------------ Income before income taxes.......... $ 166,275 $ 188,536 Add: Interest expense.................. 43,799 48,391 Portion of rents representative of the interest factor................. 11,665 10,279 Amortization of capitalized interest........................ 368 243 Minority interest in the income of subsidiary with fixed charges................... 1,097 1,238 ----------- ------------ Income as adjusted.................. $ 223,204 $ 248,687 =========== ============ Fixed charges: Interest expense.................. $ 43,799 $ 48,391 Portion of rents representative of the interest factor................. 11,665 10,279 Minority interest, excluding taxes, in the income of subsidiary with fixed charges......................... 1,601 1,802 ----------- ------------ Total fixed charges................. $ 57,065 $ 60,472 =========== ============ Ratio of earnings to fixed charges.......................... 3.91 4.11 =========== ============ (1) The computation of the ratio of earnings to fixed charges has been computed by dividing income before income taxes as adjusted by fixed charges. Included in fixed charges is one-third of rental expense as the representative portion of interest.
Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Pitney Bowes Inc. (the "company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, Michael J. Critelli, Chief Executive Officer of the company, certify that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. /s/ Michael J. Critelli - ----------------------- Michael J. Critelli Chief Executive Officer May 12, 2003 A signed original of this written statement required by Section 906 has been provided to Pitney Bowes Inc. and will be retained by Pitney Bowes Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Pitney Bowes Inc. (the "company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, Bruce P. Nolop, Chief Financial Officer of the company, certify that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. /s/ Bruce P. Nolop - ----------------------- Bruce P. Nolop Chief Financial Officer May 12, 2003 A signed original of this written statement required by Section 906 has been provided to Pitney Bowes Inc. and will be retained by Pitney Bowes Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----