-----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, KFdgcCFX/OdW72rcZ+n251Se3nTiEO9DOi3Eqva67lyolVwH7Z/YQgPi90P6xXbE nTi6bhh+HA4U1ILa6X5rBQ== 0000078814-98-000005.txt : 19980814 0000078814-98-000005.hdr.sgml : 19980814 ACCESSION NUMBER: 0000078814-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE 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: SEC FILE NUMBER: 001-03579 FILM NUMBER: 98685695 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 QUARTERLY REPORT FOR PITNEY BOWES INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the quarterly period ended June 30, 1998 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-3579 PITNEY BOWES INC. State of Incorporation IRS Employer Identification No. Delaware 06-0495050 World Headquarters Stamford, Connecticut 06926-0700 Telephone Number: (203) 356-5000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of common stock, $1 par value, outstanding as of July 31, 1998 is 274,445,810. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 2 Pitney Bowes Inc. Index ----------------- Page Number ----------- Part I - Financial Information: Item 1: Financial Statements Consolidated Statements of Income - Three and Six Months Ended June 30, 1998 and 1997........................ 3 Consolidated Balance Sheets - June 30, 1998 and December 31, 1997...................................... 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997.................... 5 Notes to Consolidated Financial Statements...................... 6 - 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.... 9 - 14 Part II - Other Information: Item 1: Legal Proceedings...................................... 15 Item 4: Submission of Matters to a Vote of Security Holders............................ 15- 16 Item 6: Exhibits and Reports on Form 8-K....................... 16 Signatures ........................................................... 17 Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 3 Part I - Financial Information ------------------------------ Item 1. Financial Statements Pitney Bowes Inc. Consolidated Statements of Income (Unaudited) --------------------------------- (Dollars in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue from: Sales ................................................. $ 492,310 $ 449,757 $ 942,735 $ 867,579 Rentals and financing ................................. 458,753 436,141 896,913 860,703 Support services ...................................... 128,455 120,213 251,444 239,199 ---------- ---------- ---------- ---------- Total revenue ..................................... 1,079,518 1,006,111 2,091,092 1,967,481 ---------- ---------- ---------- ---------- Costs and expenses: Cost of sales ......................................... 289,983 269,490 564,983 523,298 Cost of rentals and financing ......................... 145,831 128,041 284,210 255,715 Selling, service and administrative ................... 352,916 335,682 683,898 661,791 Research and development .............................. 25,065 21,835 48,696 42,483 Interest, net ......................................... 48,870 50,953 94,455 100,449 ---------- ---------- ---------- ---------- Total costs and expenses .......................... 862,665 806,001 1,676,242 1,583,736 ---------- ---------- ---------- ---------- Income before income taxes ................................. 216,853 200,110 414,850 383,745 Provision for income taxes ................................. 74,836 69,039 143,146 132,729 ---------- ---------- ---------- ---------- Net income ................................................. $ 142,017 $ 131,071 $ 271,704 $ 251,016 ========== ========== ========== ========== Basic earnings per share ................................... $ .52 $ .45 $ .98 $ .86 ========== ========== ========== ========== Diluted earnings per share ................................. $ .51 $ .45 $ .97 $ .85 ========== ========== ========== ========== Dividends declared per share of common stock ............... $ .225 $ .20 $ .45 $ .40 ========== ========== ========== ========== Ratio of earnings to fixed charges ......................... 4.00 3.89 4.06 3.83 ========== ========== ========== ========== Ratio of earnings to fixed charges excluding minority interest ........................... 4.23 4.13 4.31 4.02 ========== ========== ========== ==========
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 4 Pitney Bowes Inc. Consolidated Balance Sheets ---------------------------
June 30, December 31, (Dollars in thousands, except share data) 1998 1997 --------------- ---------------- (unaudited) Assets - ------ Current assets: Cash and cash equivalents............................................. $ 115,322 $ 137,073 Short-term investments, at cost which approximates market............................................... 1,943 1,722 Accounts receivable, less allowances: 6/98, $21,883; 12/97, $21,129..................................... 367,409 348,792 Finance receivables, less allowances: 6/98, $61,867; 12/97, $54,170..................................... 1,681,062 1,546,542 Inventories (Note 2).................................................. 240,045 249,207 Other current assets and prepayments.................................. 165,834 180,179 --------------- ---------------- Total current assets.............................................. 2,571,615 2,463,515 Property, plant and equipment, net (Note 3)................................ 491,552 497,261 Rental equipment and related inventories, net (Note 3)..................... 823,530 788,035 Property leased under capital leases, net (Note 3)......................... 4,080 4,396 Long-term finance receivables, less allowances: 6/98, $77,755; 12/97, $78,138......................................... 2,327,915 2,581,349 Investment in leveraged leases............................................. 776,930 727,783 Goodwill, net of amortization: 6/98, $44,208; 12/97, $40,912......................................... 208,946 203,419 Other assets ............................................................. 868,400 627,631 --------------- ---------------- Total assets ............................................................. $ 8,072,968 $ 7,893,389 =============== ================ Liabilities and stockholders' equity - ------------------------------------- Current liabilities: Accounts payable and accrued liabilities.............................. $ 845,562 $ 878,759 Income taxes payable.................................................. 139,867 147,921 Notes payable and current portion of long-term obligations ............................................ 1,761,162 1,982,988 Advance billings...................................................... 376,871 363,565 --------------- ---------------- Total current liabilities......................................... 3,123,462 3,373,233 Deferred taxes on income................................................... 925,837 905,768 Long-term debt (Note 4).................................................... 1,627,127 1,068,395 Other noncurrent liabilities............................................... 368,039 373,416 --------------- ---------------- Total liabilities................................................. 6,044,465 5,720,812 --------------- ---------------- Preferred stockholders' equity in a subsidiary company..................... 300,000 300,000 Stockholders' equity: Cumulative preferred stock, $50 par value, 4% convertible............................................. 34 39 Cumulative preference stock, no par value, $2.12 convertible.......................................... 2,112 2,220 Common stock, $1 par value............................................ 323,338 323,338 Capital in excess of par value........................................ 21,864 28,028 Retained earnings..................................................... 2,892,080 2,744,929 Accumulated other comprehensive income (Note 7)....................... (74,630) (63,348) Treasury stock, at cost............................................... (1,436,295) (1,162,629) --------------- ---------------- Total stockholders' equity........................................ 1,728,503 1,872,577 --------------- ---------------- Total liabilities and stockholders' equity ............................ $ 8,072,968 $ 7,893,389 =============== ================
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 5 Pitney Bowes Inc. Consolidated Statements of Cash Flows (Unaudited) -------------------------------------
(Dollars in thousands) Six Months Ended June 30, -------------------------------- 1998 1997 ------------- ------------- Cash flows from operating activities: Net income .............................................................. $ 271,704 $ 251,016 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................... 166,446 146,426 Increase in deferred taxes on income............................ 66,949 111,193 Change in assets and liabilities: Accounts receivable......................................... (20,439) 17,115 Sales-type lease receivables................................ (73,811) (55,575) Inventories................................................. 9,850 25,219 Other current assets and prepayments........................ 13,814 (8,213) Accounts payable and accrued liabilities.................... (30,530) (21,847) Income taxes payable........................................ (8,097) (49,523) Advance billings............................................ 14,942 19,783 Other, net...................................................... (34,696) (53,490) ------------- ------------- Net cash provided by operating activities................... 376,132 382,104 ------------- ------------- Cash flows from investing activities: Short-term investments................................................... (257) 26 Net investment in fixed assets........................................... (169,504) (133,373) Net investment in finance receivables.................................... 56,384 (25,848) Investment in leveraged leases........................................... (52,272) (28,786) Investment in mortgage servicing rights.................................. (155,261) (64,125) Other investing activities............................................... (793) 12,892 ------------- ------------- Net cash used in investing activities....................... (321,703) (239,214) ------------- ------------- Cash flows from financing activities: (Decrease)increase in notes payable, net................................. (92,698) 385,374 Proceeds from issuance of long-term obligations.......................... 554,123 - Principal payments on long-term obligations.............................. (130,993) (252,794) Proceeds from issuance of stock.......................................... 26,666 22,460 Stock repurchases........................................................ (307,377) (285,465) Proceeds from preferred stock issued by a subsidiary..................... - 100,000 Dividends paid........................................................... (124,553) (117,374) ------------- ------------- Net cash used in financing activities....................... (74,832) (147,799) ------------- ------------- Effect of exchange rate changes on cash....................................... (1,348) 381 ------------- ------------- Decrease in cash and cash equivalents......................................... (21,751) (4,528) Cash and cash equivalents at beginning of period.............................. 137,073 135,271 ------------- ------------- Cash and cash equivalents at end of period.................................... $ 115,322 $ 130,743 ============= ============= Interest paid ................................................................ $ 86,830 $ 116,527 ============= ============= Income taxes paid, net........................................................ $ 85,386 $ 73,688 ============= =============
See Notes to Consolidated Financial Statements Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 6 Pitney Bowes Inc. Notes to Consolidated Financial Statements ------------------------------------------ Note 1: - ------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Pitney Bowes Inc. ("the company"), all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the company as of June 30, 1998, the results of its operations for the three months and six months ended June 30, 1998 and 1997 and its cash flows for the six months ended June 30, 1998 and 1997 have been included. Operating results for the three and six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. These statements should be read in conjunction with the financial statements and notes thereto included in the company's 1997 Annual Report to Stockholders on Form 10-K. Note 2: - ------- Inventories are comprised of the following: (Dollars in thousands) June 30, December 31, 1998 1997 ------------ ------------ Raw materials and work in process ...... $ 60,208 $ 51,429 Supplies and service parts ............. 99,080 93,064 Finished products ...................... 80,757 104,714 ------------ ------------ Total .................................. $ 240,045 $ 249,207 ============ ============ Note 3: - ------- Fixed assets are comprised of the following: (Dollars in thousands) June 30, December 31, 1998 1997 ------------ ------------ Property, plant and equipment ................. $ 1,145,367 $ 1,120,325 Accumulated depreciation ...................... (653,815) (623,064) ------------ ------------ Property, plant and equipment, net ............ $ 491,552 $ 497,261 ============ ============ Rental equipment and related inventories....... $ 1,666,188 $ 1,577,370 Accumulated depreciation ...................... (842,658) (789,335) ------------ ------------ Rental equipment and related inventories, net.. $ 823,530 $ 788,035 ============ ============ Property leased under capital leases .......... $ 19,354 $ 20,507 Accumulated amortization ...................... (15,274) (16,111) ------------ ------------ Property leased under capital leases, net...... $ 4,080 $ 4,396 ============ ============ Note 4: - ------- On July 15, 1998, Pitney Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the company filed a shelf registration with the Securities and Exchange Commission (SEC) which permits issuance of up to $750 million in debt securities. On April 29, 1998, the company filed a non-financial services shelf registration with the SEC which combined with $32 million remaining under an existing medium-term note facility permits issuance of up to $500 million in debt securities with maturities ranging from more than one year to 30 years. At June 30, 1998, the entire $500 million remained available. On January 22, 1998, the company issued notes amounting to $300 million remaining under a non-financial services shelf registration filed with the SEC. These unsecured notes bear annual interest at 5.95% and mature in February 2005. The net proceeds from these notes were used for general corporate purposes, including the repayment of short-term debt. On January 16, 1998, PBCC issued notes amounting to $250 million remaining under a shelf registration filed with the SEC. These unsecured notes bear annual interest at 5.65% and mature in January 2003. The proceeds from these notes are being used for PBCC's financing needs during 1998. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 7 Note 5: - ------- A reconciliation of the basic and diluted earnings per share computations for the three months ended June 30, 1998 and 1997 is as follows (in thousands, except per share data):
1998 1997 -------------------------------------------- -------------------------------------------- Per Per Income Shares Share Income Shares Share - -------------------------------------------------------------------------------- -------------------------------------------- Net income $ 142,017 $ 131,071 Less: Preferred stock dividends - - Preference stock dividends (42) (45) - -------------------------------------------------------------------------------- -------------------------------------------- Basic earnings per share $ 141,975 274,924 $ .52 $ 131,026 290,390 $ .45 - -------------------------------------------------------------------------------- -------------------------------------------- Effect of dilutive securities: Preferred stock - 17 - 22 Preference stock 42 1,259 45 1,365 Stock options 2,822 1,885 Employee stock purchase plan shares 473 230 - -------------------------------------------------------------------------------- -------------------------------------------- Diluted earnings per share $ 142,017 279,495 $ .51 $ 131,071 293,892 $ .45 ================================================================================ ============================================
A reconciliation of the basic and diluted earnings per share computations for the six months ended June 30, 1998 and 1997 is as follows (in thousands, except per share data):
1998 1997 -------------------------------------------- -------------------------------------------- Per Per Income Shares Share Income Shares Share - -------------------------------------------------------------------------------- -------------------------------------------- Net income $ 271,704 $ 251,016 Less: Preferred stock dividends - - Preference stock dividends (84) (91) - -------------------------------------------------------------------------------- -------------------------------------------- Basic earnings per share $ 271,620 276,930 $ .98 $ 250,925 292,653 $ .86 - -------------------------------------------------------------------------------- -------------------------------------------- Effect of dilutive securities: Preferred stock - 17 - 22 Preference stock 84 1,276 91 1,377 Stock options 2,740 1,782 Employee stock purchase plan shares 450 250 - -------------------------------------------------------------------------------- -------------------------------------------- Diluted earnings per share $ 271,704 281,413 $ .97 $ 251,016 296,084 $ .85 ================================================================================ ============================================
Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 8 Note 6: - ------- Revenue and operating profit by business segment for the three and six months ended June 30, 1998 and 1997 were as follows:
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- (Dollars in thousands) 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Revenue Business equipment ....................... $ 831,578 $ 779,364 $ 1,616,242 $ 1,524,484 Business services ........................ 169,691 137,461 325,761 266,451 Commercial and industrial financing Large-ticket external .................. 40,218 50,074 73,966 99,625 Small-ticket external .................. 38,031 39,212 75,123 76,921 -------------- -------------- -------------- -------------- 78,249 89,286 149,089 176,546 -------------- -------------- -------------- -------------- Total revenue ............................... $ 1,079,518 $ 1,006,111 $ 2,091,092 $ 1,967,481 ============== ============== ============== ============== Operating Profit: (1) Business equipment ....................... $ 212,914 $ 186,617 $ 402,783 $ 356,028 Business services ........................ 18,917 11,791 32,840 22,279 Commercial and industrial financing ...... 16,467 18,723 29,270 35,234 -------------- -------------- -------------- -------------- Total operating profit ...................... $ 248,298 $ 217,131 $ 464,893 $ 413,541 ============== ============== ============== ============== (1) Operating profit excludes general corporate expenses, income taxes, and net interest other than that related to the finance operations.
Note 7: - ------- Comprehensive income for the three and six months ended June 30, 1998 and 1997 was as follows: (Dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Net income .................................. $ 142,017 $ 131,071 $ 271,704 $ 251,016 Other comprehensive income: Foreign currency translation adjustments ............................ (1,243) 1,611 (11,282) (21,180) -------------- -------------- -------------- -------------- Comprehensive income ........................ $ 140,774 $ 132,682 $ 260,422 $ 229,836 ============== ============== ============== ==============
Note 8: - ------- In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999 (January 1, 2000 for the company) and requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of those instruments will be reflected as gains or losses. The accounting for the gains and losses depends on the intended use of the derivative and the resulting designation. The company is currently evaluating the impact of this statement. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------- Results of Operations - second quarter of 1998 vs. second quarter of 1997 - ------------------------------------------------------------------------- Revenue increased seven percent in the second quarter of 1998 to $1,079.5 million compared with $1,006.1 million in the second quarter of 1997. Net income increased eight percent to $142.0 million from $131.1 million for the same period in 1997. Diluted earnings per share grew to 51 cents, a 13.9 percent increase from the second quarter of 1997. Revenue growth was nine percent, excluding revenue from the Commercial and Industrial Financing segment. The decrease in Commercial and Industrial Financing revenue resulted from the planned reductions in the external lease financing portfolio. Second quarter 1998 revenue included $492.3 million from sales, up nine percent from $449.8 million in the second quarter of 1997; $458.8 million from rentals and financing, up five percent from $436.1 million; and $128.5 million from support services, up seven percent from $120.2 million. In the Business Equipment segment, which includes Mailing Systems and Office Systems operations, revenue grew seven percent and operating profit increased 14 percent during the second quarter. Mailing Systems' revenue grew six percent during the quarter; however, excluding the impact of foreign currency exchange rates primarily in Canada, Germany, Australia and Japan, revenue would have increased seven percent. This growth was led by strong placements of advanced equipment solutions in all market segments, including high volume production mail systems at the upper end of the market. The company continued to lead the market conversion to more advanced technology, with electronic and digital meters comprising 81 percent of the company's installed U.S. meter base at June 30, 1998 compared with 67 percent at June 30, 1997. Office Systems' revenue grew nine percent which was driven by growth in both the facsimile and copier product lines. The company strengthened its solid positioning as the preeminent provider of advanced office systems with the recent introductions of the Smart Finish(TM) feature set of four copier models, and the latest 33.6 kps facsimile--Model 9930. In the Business Services segment, second quarter revenue grew 23 percent and operating profit grew 60 percent. The segment includes Pitney Bowes Management Services and Atlantic Mortgage and Investment Corporation. Both businesses in this segment continued to successfully broaden service offerings to existing customers and add new customers to their respective bases. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 10 As planned, revenue and operating profit in the Commercial and Industrial Financing segment were both down 12 percent as compared with the second quarter of 1997. The segment includes Pitney Bowes Capital Services and Colonial Pacific Leasing Corporation. The strategic disposition of earning assets at both units during 1997 and continued reduction in 1998 resulted in the anticipated declines in revenue and operating profit. These reductions are part of the company's ongoing strategy to reduce the level of capital committed to asset financing while maintaining the ability to provide a full range of financial services to customers. Cost of sales decreased to 58.9% of sales revenue in the second quarter of 1998 compared with 59.9% in the second quarter of 1997. This was due primarily to lower product costs at U.S. Mailing Systems and increased sales of high margin supplies at Office Systems. The improvement was achieved despite the offsetting effect of increased revenue and costs of the lower-margin management services business which includes most of its expenses in cost of sales. Cost of rentals and financing increased to 31.8% of related revenues in the second quarter of 1998 compared with 29.4% in the second quarter of 1997. This was due mainly to reduced revenues from the Commercial and Industrial Financing segment, the impact of increased revenues from the relatively lower-margin mortgage servicing business, a service-based business with a higher cost to revenue ratio, and higher depreciation expense from increased placements of digital and electronic meters. Selling, service and administrative expenses were 32.7% of revenue in the second quarter of 1998 compared with 33.4% in the second quarter of 1997. This improvement was due primarily to the company's continued emphasis on controlling operating expenses. Research and development expenses increased 15 percent to $25.1 million in the second quarter of 1998 compared with $21.8 million in the second quarter of 1997. The increase reflects the company's continued commitment to developing new technologies for its digital meters and other mailing and software products. Net interest expense decreased to $48.9 million in the second quarter of 1998 from $51.0 million in the second quarter of 1997. The decrease is due mainly to lower average borrowings in 1998 compared with 1997 resulting from the transaction with GATX Capital Corporation during 1997, and lower interest rates. The effective tax rate for the second quarter of 1998 and 1997 was 34.5 percent. Net income and diluted earnings per share increased eight percent and 13.9 percent, respectively, in the second quarter of 1998 due to the factors discussed above. The reason for the increase in diluted earnings per share outpacing the increase in net income was the company's share repurchase program. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 11 Results of Operations - six months of 1998 vs. six months of 1997 - ----------------------------------------------------------------- For the first six months of 1998 compared with the same period of 1997, revenue increased six percent to $2,091.1 million while net income increased eight percent to $271.7 million. The factors that affected revenue and earnings performance included those cited for the second quarter of 1998 versus 1997. New Pronouncements - ------------------ In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999 (January 1, 2000 for the company) and requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of those instruments will be reflected as gains or losses. The accounting for the gains and losses depends on the intended use of the derivative and the resulting designation. The company is currently evaluating the impact of this statement. Liquidity and Capital Resources - ------------------------------- The ratio of current assets to current liabilities improved to .82 to 1 at June 30, 1998 compared with .73 to 1 at December 31, 1997. The improvement was due primarily to an increase in short-term finance receivables and from the repayment of short-term debt. On April 29, 1998, the company filed a non-financial services shelf registration with the SEC which combined with $32 million remaining under an existing medium-term note facility permits issuance of up to $500 million in debt securities with maturities ranging from more than one year to 30 years. At June 30, 1998, the entire $500 million remained available. On July 15, 1998 Pitney Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the company filed a shelf registration with the Securities and Exchange Commission (SEC) which permits issuance of up to $750 million in debt securities. On January 22, 1998, the company issued notes amounting to $300 million remaining under a non-financial services shelf registration filed with the SEC. These unsecured notes bear annual interest at 5.95% and mature in February 2005. The net proceeds from these notes were used for general corporate purposes, including the repayment of short-term debt. On January 16, 1998, PBCC issued notes amounting to $250 million remaining under a shelf registration filed with the SEC. These unsecured notes bear annual interest at 5.65% and mature in January 2003. The proceeds from these notes are being used for PBCC's financing needs during 1998. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 12 The company believes that its financing needs for the next few years can be met with cash generated internally, money from existing credit agreements, debt issued under new shelf registration statements and existing commercial and medium-term note programs. The ratio of total debt to total debt and stockholders' equity including the preferred stockholders' equity in a subsidiary company in total debt was 68.1 percent at June 30, 1998 compared with 64.2 percent at December 31, 1997. Book value per common share decreased to $6.31 at June 30, 1998 from $6.69 at December 31, 1997 driven primarily by the repurchase of common shares. During the quarter ended June 30, 1998, the company repurchased 5.4 million common shares for $250.9 million. To control the impact of interest rate swings on its business, the company uses a balanced mix of debt maturities, variable and fixed rate debt and interest rate swap agreements. The company enters into interest rate swap agreements primarily through its financial services business. Swap agreements are used to fix interest rates on commercial paper and/or obtain a lower interest cost on debt than the company otherwise would have been able to get without the swap. Capital Investments - ------------------- In the first six months of 1998, net investments in fixed assets included $42.2 million in net additions to property, plant and equipment and $127.3 million in net additions to rental equipment and related inventories compared with $42.2 million and $91.2 million, respectively, in the same period in 1997. In the case of rental equipment, the additions included the production of postage meters and the purchase of facsimile and copier equipment for both new placements and upgrade programs. As of June 30, 1998, commitments for the acquisition of property, plant and equipment reflected plant and manufacturing equipment improvements as well as rental equipment for new and replacement programs. Pitney Bowes Inc. - Form 10Q Six Months Ended June 30, 1998 Page 13 Regulatory Matters - ------------------ In May 1996, the United States Postal Service (USPS) issued a proposed schedule for the phaseout of mechanical meters in the United States. In accordance with the schedule, the company voluntarily halted new placements of mechanical meters in the U.S. as of June 1, 1996. As a result of the company's aggressive efforts to meet the USPS mechanical meter migration schedule combined with the company's ongoing and continuing investment in advanced postage evidencing technologies, at June 30, 1998, electronic and digital meters represented approximately 81 percent of the company's U.S. installed base, up from 75 percent at December 31, 1997 and 67 percent at June 30, 1997. Based on the announced USPS mechanical meter migration schedule, the company believes that the phaseout of mechanical meters will not cause a material adverse financial impact on the company. In May 1995, the USPS publicly announced its concept of its Information Based Indicia Program (IBIP), the purpose of which was to develop a new standard for future digital postage evidencing devices. In July 1996, the USPS published for public comment draft specifications for the Indicium, Postal Security Device and Host specifications. The company submitted extensive comments to these specifications in November 1996. Revised specifications were then published in 1997 which incorporated many of the changes recommended by the company in its prior comments. The company submitted comments to these revised specifications. Also, in March 1997 the USPS published for public comment the Vendor Infrastructure specification to which the company responded on June 27, 1997. As of June 30, 1998, the USPS had not yet finalized the four IBIP specifications; however, the company is in the process of finalizing the development of a PC product which satisfies the proposed IBIP specifications. This product is currently undergoing testing by the USPS and is expected to be ready for market upon final approval from the USPS. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 14 Forward-looking Statements - -------------------------- The company wants to caution readers that any forward-looking statements (those which talk about the company's or management's current expectations as to the future) in this Form 10-Q or made by the company management involve risks and uncertainties which may change based on various important factors. Some of the factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on behalf of the company include: -changes in postal regulations -timely development and acceptance of new products -success in gaining product approval in new markets where regulatory approval is required -successful entry into new markets -mailers' utilization of alternative means of communication or competitors' products -the company's success at managing customer credit risk Pitney Bowes Inc. - Form 10Q Six Months Ended June 30, 1998 Page 15 Part II - Other Information --------------------------- Item 1: Legal Proceedings In the course of normal business, the company is occasionally party to lawsuits. These may involve litigation by or against the company relating to, among other things: -contractual rights under vendor, insurance or other contracts -intellectual property or patent rights -equipment, service or payment disputes with customers -disputes with employees The company is currently a defendant in a number of lawsuits, none of which should have, in the opinion of management and legal counsel, a material adverse effect on the company's financial position or results of operations. Item 4: Submission of Matters to a Vote of Security Holders Below are the final results of the voting at the annual meeting of shareholders held on May 11, 1998: Proposal 1 - Election of Directors Nominee For Withheld ------------------ ----------- --------- Linda G. Alvarado 242,813,000 4,368,125 Marc C. Breslawsky 244,612,262 2,568,863 Ernie Green 242,691,245 4,489,880 Charles E. Hugel 244,632,116 2,549,009 Proposal 2 - Appointment of Price Waterhouse LLP (effective July 1, 1998, PricewaterhouseCoopers LLP) as Independent Accountants For Against Abstain ----------- ----------- --------- 246,304,743 335,286 541,096 Proposal 3 - Amendment to the 1991 Stock Plan for the authorization of an additional 18 million shares available for issuance under the Plan* For Against Abstain ----------- ----------- --------- 218,933,579 9,366,253 1,479,234 * This proposal had 17,402,059 Broker Non-Votes Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 16 Proposal 4 - Stockholder proposal relating to Coalition for Environmentally Responsible Economies Principles** For Against Abstain ----------- ------------ ---------- 13,421,112 207,385,081 8,038,893 ** This proposal had 18,336,039 Broker Non-Votes The following other directors continued their term of office after the Annual Meeting: William E. Butler James H. Keyes Colin G. Campbell Michael I. Roth Michael J. Critelli Phyllis Shapiro Sewell Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits Reg. S-K Exhibits Description -------- ------------------------- (12) Computation of ratio of earnings to fixed charges (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1998. Pitney Bowes Inc. - Form 10-Q Six Months Ended June 30, 1998 Page 17 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PITNEY BOWES INC. August 13, 1998 /s/ M. L. Reichenstein ------------------------------------------ M. L. Reichenstein Vice President and Chief Financial Officer (Principal Financial Officer) /s/ A. F. Henock ------------------------------------------ A. F. Henock Vice President - Controller and Chief Tax Counsel (Principal Accounting Officer) Exhibit Index ------------- Reg. S-K Exhibits Description -------- ------------------------- (12) Computation of ratio of earnings to fixed charges (27) Financial Data Schedule EX-12 2 STATEMENT RE COMPUTATION OF RATIOS Exhibit (12) Pitney Bowes Inc. Computation of Ratio of Earnings to Fixed Charges (1) -----------------------------------------------------
(Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- --------------- -------------- Income before income taxes .................. $ 216,853 $ 200,110 $ 414,850 $ 383,745 Add: Interest expense ........................ 54,776 52,692 102,675 104,597 Portion of rents representative of the interest factor ...................... 12,373 11,385 22,680 22,514 Amortization of capitalized interest ............................. 243 244 486 487 Minority interest in the income of subsidiary with fixed charges ................... 3,070 3,065 6,129 5,031 -------------- -------------- -------------- -------------- Income as adjusted .......................... $ 287,315 $ 267,496 $ 546,820 $ 516,374 ============== ============== ============== ============== Fixed charges: Interest expense ........................ $ 54,776 $ 52,692 $ 102,675 $ 104,597 Portion of rents representative of the interest factor ...................... 12,373 11,385 22,680 22,514 Minority interest, excluding taxes, in the income of subsidiary with fixed charges ........ 4,687 4,715 9,357 7,800 -------------- -------------- -------------- -------------- $ 71,836 $ 68,792 $ 134,712 $ 134,911 ============== ============== ============== ============== Ratio of earnings to fixed charges ........................... 4.00 3.89 4.06 3.83 ============== ============== ============== ============== Ratio of earnings to fixed charges excluding minority interest................................. 4.23 4.13 4.31 4.02 ============== ============== ============== ==============
(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. EX-27 3 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM PITNEY BOWES INC. CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, CORRESPONDING FOOTNOTE #3 FIXED ASSETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 115,322 1,943 2,132,221 83,750 240,045 2,571,615 2,811,555 1,496,473 8,072,968 3,123,462 1,627,127 323,338 300,000 2,146 1,403,019 8,072,968 942,735 2,091,092 564,983 849,193 48,696 0 102,675 414,850 143,146 271,704 0 0 0 271,704 0.98 0.97 Receivables are comprised of gross trade receivables of $389,292 and short-term finance receivables of $1,742,929. Allowances are comprised of allowances for trade receivables of $21,883 and for short-term finance receivables of $61,867. Property, plant and equipment are comprised of gross fixed assets of $1,145,367 and rental equipment and related inventories of $1,666,188. Depreciation is comprised of depreciation on fixed assets of $653,815 and on rental equipment and related inventories of $842,658.
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