SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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 September 30, 1994
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
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, $2 par value, outstanding as of
September 30, 1994 is 155,874,794.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 2 of 19
Pitney Bowes Inc.
Index
Page Number
Part I - Financial Information:
Consolidated Statement of Income - Three and
Nine Months Ended September 30, 1994 and 1993 3
Consolidated Balance Sheet - September 30, 1994
and December 31, 1993 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Part II - Other Information:
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit (i) - Computation of Earnings per Share 17
Exhibit (ii) - Computation of Ratio of Earnings
to Fixed Charges 18
Exhibit (iii) - Financial Data Schedule 19
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 3 of 19
Part I - Financial Information
Pitney Bowes Inc.
Consolidated Statement of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
1994 1993* 1994 1993*
Revenue from:
Sales $ 341,070 $ 298,032 $ 1,002,514 $ 871,358
Rentals and financing 359,896 323,270 1,058,538 986,841
Support services 105,475 102,623 309,052 308,370
Total revenue 806,441 723,925 2,370,104 2,166,569
Costs and expenses:
Cost of sales 201,719 166,955 585,424 491,768
Cost of rentals and financing 110,132 98,014 342,256 316,433
Selling, service and administrative 297,281 273,560 851,599 807,691
Research and development 20,005 18,876 57,691 59,265
Interest, net 47,851 42,016 136,118 136,168
Nonrecurring items, net (25,366) - (25,366) -
Total costs and expenses 651,622 599,421 1,947,722 1,811,325
Income from continuing operations before
income taxes 154,819 124,504 422,382 355,244
Provision for income taxes 69,498 66,117 168,367 150,752
Income from continuing operations 85,321 58,387 254,015 204,492
Discontinued operations 10,706 10,644 32,492 33,905
Income before effect of a change in accounting
for postemployment benefits 96,027 69,031 286,507 238,397
Effect of a change in accounting for
postemployment benefits - - (119,532) -
Net income $ 96,027 $ 69,031 $ 166,975 $ 238,397
Income per common and common equivalent share:
Income from continuing operations $ .54 $ .37 $ 1.60 $ 1.29
Discontinued operations .07 .06 .20 .21
Effect of a change in accounting for
postemployment benefits - - (.75) -
Net income $ .61 $ .43 $ 1.05 $ 1.50
Average common and common equivalent shares
outstanding 158,029,162 159,310,258 158,874,016 159,064,360
Dividends declared per share of
common stock $ .26 $ .225 $ .78 $ .675
Ratio of earnings to fixed charges 3.52 3.31 3.43 3.11
* Restated to reflect discontinued operations.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 4 of 19
Pitney Bowes Inc.
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands) September 30, December 31,
1994 1993
Assets
Current assets:
Cash and cash equivalents $ 65,017 $ 54,653
Short-term investments, at cost which
approximates market 699 1,153
Accounts receivable, less allowances:
9/94, $19,183; 12/93, $16,691 393,826 411,810
Finance receivables, less allowances:
9/94, $36,204; 12/93, $39,488 988,744 994,998
Inventories (Note 2) 432,914 394,744
Other current assets and prepayments 86,363 79,391
Total current assets 1,967,563 1,936,749
Property, plant and equipment,
net (Note 3) 561,062 555,038
Rental equipment and related
inventories, net (Note 3) 664,006 641,588
Property leased under capital
leases, net (Note 3) 13,046 15,451
Long-term finance receivables, less allowances:
9/94, $78,843; 12/93, $77,024 2,936,046 2,895,952
Goodwill, net of amortization:
9/94, $39,303; 12/93, $33,640 221,259 231,309
Other assets 608,784 517,729
Total assets $6,971,766 $6,793,816
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and
accrued liabilities (Note 4) $ 660,784 $ 675,559
Income taxes payable 216,046 200,110
Notes payable and current portion of
long-term obligations (Note 4) 2,269,909 2,081,872
Advance billings 319,422 315,840
Total current liabilities 3,466,161 3,273,381
Deferred taxes on income 413,717 409,660
Long-term debt 803,235 847,316
Other noncurrent liabilities (Note 5) 456,536 391,864
Total liabilities 5,139,649 4,922,221
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible 53 68
Cumulative preference stock, no par
value, $2.12 convertible 2,819 2,969
Common stock, $2 par value 323,338 323,338
Capital in excess of par value 34,752 36,762
Retained earnings 1,718,331 1,674,168
Cumulative translation adjustments (41,310) (47,319)
Treasury stock, at cost (205,866) (118,391)
Total stockholders' equity 1,832,117 1,871,595
Total liabilities and stockholders' equity $6,971,766 $6,793,816
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 5 of 19
Pitney Bowes Inc.
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands) Nine Months Ended September 30,
1994 1993*
Cash flows from operating activities:
Net income $ 166,975 $ 238,397
Effect of a change in accounting for
postemployment benefits 119,532 -
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 199,670 183,238
Nonrecurring items, net (25,710) (1,719)
Increase in deferred taxes on
income 78,152 69,997
Change in assets and liabilities:
Accounts receivable 17,723 24,862
Sales-type lease receivables (71,471) (57,095)
Inventories (48,658) (42,338)
Other current assets and
prepayments (4,614) (14,967)
Accounts payable and accrued
liabilities (99,996) (43,323)
Income taxes payable 21,516 (9,541)
Advance billings 3,039 (4,214)
Other, net (50,726) (36,921)
Net cash provided by operating
activities 305,432 306,376
Cash flows from investing activities:
Short-term investments 454 1,429
Net investment in fixed assets (227,705) (190,393)
Net investment in direct-finance lease
receivables 43,945 146,714
Investment in leveraged leases (45,369) 7,283
Net cash used in investing
activities (228,675) (34,967)
Cash flows from financing activities:
Increase in notes payable 210,094 47,483
Proceeds from long-term obligations 200,000 -
Principal payments on long-term
obligations (262,635) (204,619)
Proceeds from issuance of stock 20,283 19,863
Stock repurchases (111,708) (5,144)
Dividends paid (122,812) (106,410)
Net cash used in financing
activities (66,778) (248,827)
Effect of exchange rate changes on cash 385 (1,687)
Increase in cash and cash equivalents 10,364 20,895
Cash and cash equivalents at beginning
of period 54,653 71,016
Cash and cash equivalents at end
of period $ 65,017 $ 91,911
Interest paid $ 151,641 $ 153,280
Income taxes paid $ 85,768 $ 105,946
* Restated to reflect discontinued operations.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 6 of 19
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 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 September 30, 1994 and the results of its operations and
cash flows for the nine months ended September 30, 1994 and 1993 have been
included. Operating results for the nine months ended September 30, 1994
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1994. These statements should be read in
conjunction with the financial statements and notes thereto included in the
company's Annual Report to Stockholders and Form 10-K Annual Report for the
year ended December 31, 1993.
Note 2:
Inventories are comprised of the following:
(Dollars in thousands) September 30, December 31,
1994 1993
Raw materials and work in process $ 120,907 $ 98,647
Supplies and service parts 110,587 98,773
Finished products 201,420 197,324
Total $ 432,914 $ 394,744
Note 3:
Fixed assets are comprised of the following:
(Dollars in thousands) September 30, December 31,
1994 1993
Property, plant and equipment $1,195,471 $1,136,849
Accumulated depreciation (634,409) (581,811)
Property, plant and equipment, net $ 561,062 $ 555,038
Rental equipment and related
inventories $1,439,505 $1,426,395
Accumulated depreciation (775,499) (784,807)
Rental equipment and related
inventories, net $ 664,006 $ 641,588
Property leased under capital
leases $ 40,838 $ 48,792
Accumulated amortization (27,792) (33,341)
Property leased under capital
leases, net $ 13,046 $ 15,451
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 7 of 19
Note 4:
Current liabilities include the following:
(Dollars in thousands) September 30, December 31,
1994 1993
Accounts payable and accrued liabilities:
Accounts payable - trade $ 130,706 $ 187,480
Accrued salaries, wages
and commissions 78,179 94,092
Accrued pension benefits 99,723 80,898
Miscellaneous accounts payable
and accrued liabilities 352,176 313,089
Total $ 660,784 $ 675,559
Notes payable and current portion
of long-term obligations:
Notes payable and overdrafts $2,211,163 $2,000,364
Current portion of long-term debt 56,196 78,222
Current portion of capital lease
obligations 2,550 3,286
Total $2,269,909 $2,081,872
Note 5:
Other noncurrent liabilities include the following:
(Dollars in thousands) September 30, December 31,
1994 1993
Accrued nonpension postretirement
benefits $ 359,205 $ 362,402
Accrued postemployment benefits 70,111 -
Long-term capital lease obligations 27,220 29,462
Total $ 456,536 $ 391,864
Note 6:
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January
1, 1994. FAS 112 requires that postemployment benefits be recognized on
the accrual basis of accounting for fiscal years beginning after December
15, 1993. Postemployment benefits include primarily company provided
medical benefits to disabled employees and company provided life insurance
as well as other disability- and death- related benefits to former or
inactive employees, their beneficiaries and covered dependents.
The one-time effect of adopting FAS 112 was a non-cash, after-tax charge of
$119.5 million (net of approximately $80.5 million of income taxes), or 75
cents per share.
Since the first quarter of 1994, as part of the company's employee work-
life initiatives, employee input was actively sought about benefits and it
was concluded that employees prefer benefits more closely related to their
changing work-life needs. As a result, the
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 8 of 19
company significantly reduced or eliminated certain postemployment
benefits, specifically service-related company-subsidized life insurance,
salary continuance and medical benefits, resulting in an after-tax credit
to income of $70.9 million (net of approximately $47.7 million of income
taxes). The company also instituted, effective January 1, 1995, certain
enhancements to its deferred investment plan, including an increase in
the company's match of employee contributions.
Note 7:
The company has refined its strategic focus, with the intent to capitalize
on its strengths and competitive position. Based on an extensive review,
the company decided to concentrate its energies and resources on products
and services which facilitate the preparation, organization, movement,
delivery, tracking, storage and retrieval of documents, packages, letters
and other materials, in hard copy and digital form for its customers.
Accordingly, the company announced its intent to seek buyers for its
Dictaphone Corporation (Dictaphone) and Monarch Marking Systems, Inc.
(Monarch) subsidiaries. The sales of Dictaphone and Monarch are expected
to result in gains at closings expected to occur in 1995. Dictaphone and
Monarch have been classified in the Consolidated Statement of Income as
discontinued operations.
Summary results of Dictaphone and Monarch operations prior to their sales,
which have been classified separately, were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Revenue $144,526 $137,242 $412,501 $402,379
Income before income taxes $ 17,751 $ 16,931 $ 53,666 $ 55,323
Provision for income taxes 7,045 6,287 21,174 21,418
Income from discontinued
operations $ 10,706 $ 10,644 $ 32,492 $ 33,905
Note 8:
During the third quarter of 1994, the company adopted a formal plan
designed to address the impact of technology on work force requirements and
to further refine its strategic focus on core businesses worldwide. The
company established a $93.2 million reserve to cover the costs of such
actions.
The phase-out of older products lines, introduction of new, advanced
products and increased need for higher employee skill levels to deliver and
service these products will require a work force reduction of approximately
2,000 employees worldwide over the next year, and the future hiring of
approximately 850 new employees with these requisite enhanced skills.
Severance and benefit related costs approximating $61 million were included
in this reserve for work force reduction. All costs associated with hiring
of new employees were excluded from the plan and will be recognized
appropriately in the period incurred.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 9 of 19
Current and future advanced product offerings require a smaller, but more
highly skilled engineering, manufacturing and service work force to take
full advantage of design, production, diagnostic and service strategies.
These disciplines account for a work force reduction of more than 850
employees. Other strategic actions include reengineering and streamlining
of order flow, logistics and other administrative processes in the U.S.,
Europe and the Asia Pacific region which will result in an additional work
force reduction of more than 800 employees. The decisions to phase out of
non-mailing products in Germany and the cessation of further development
and marketing of shipping products which cannot be cost-effectively
upgraded to new technologies will account for the remaining work force
reductions.
Included in the plan to refine the strategic business focus of the company
are exit costs approximating $32 million for certain additional actions.
Consistent with a refinement of focus on our core businesses, the actions
include phasing-out non-mailing products in Germany. This decision
requires the write down to the realizable value of inventories, accounts
receivable, rental contracts and other assets; such impacts have been
accrued in the reserve. In addition, anticipated lease buyback exposure
and expected future losses during the phase-out of the non-mail businesses
have been accrued. The decision to cease development and marketing of
certain shipping products as noted above has resulted in further inventory
and other asset write-offs. As part of the administrative reengineering
actions, the adoption of a centralized organizational structure in the
European financial service businesses will result in the early termination
of a facility lease, the cost of which, is included in the reserve.
Finally, the company has decided to transition a software-based business
with its own product offering to a product development support function.
As a result, the remaining goodwill related to the acquisition of this
business has been written-off.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 10 of 19
Pitney Bowes Inc.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Continuing Operations - third quarter of 1994 vs. third quarter
of 1993
Revenue for the third quarter was $806.4 million compared to $723.9 million
for the prior year period and income from continuing operations increased
46 percent to $85.3 million from $58.4 million in 1993. Third quarter 1994
results include the effect of a nonrecurring $25.4 million pre-tax credit.
The credit is the result of a $118.6 million credit to income due to
changes made in certain postemployment benefits offset, in part, by the
establishment of a $93.2 million reserve covering strategic actions
designed to address the impact of technology on work force requirements and
the continued refinement of the company's strategic focus outlined in Note
8 to the financial statements. This net credit added only $3.5 million, or
two cents per share to net income primarily because some of the strategic
actions will occur in countries where the company is unable to recognize
associated tax benefits. In addition, in the third quarter of 1993 the
company recorded $19.4 million of additional tax expense applicable to
income generated in prior periods against continuing operations as a result
of the enactment of the U.S. Omnibus Budget Reconciliation Act of 1993.
Excluding the effect of the nonrecurring net credit in 1994 and the tax
adjustment in 1993, income from continuing operations would have been five
percent above the prior year.
Sales revenue increased 14 percent in 1994 including 13 percent from volume
growth and less than one percent from each of price and foreign currency
exchange rate impacts. Volume growth resulted primarily from the fourth
quarter 1993 acquisition of Ameriscribe Corporation, a nationwide provider
of on-site reprographics, mailroom and other office services. The sales
revenue of the business equipment and services segment, which includes the
mailing, shipping and weighing, facsimile, copier and facilities management
businesses, was also favorably impacted by strong growth in U.S. facsimile
supplies to support the growing plain paper equipment base, U.S. copier and
production mail product placements and improved performance in the mailing
operations in the U.K. and Australia. These factors were offset, in part,
by a decline in the shipping and weighing business, largely as a result of
reduced shipping system sales in the low-end market segment as well as
lower sales revenue in the mailing businesses in Germany and Canada. It is
expected that shipping system sales in the low-end segment will continue to
be weak due to competitive pressures. In Germany, last year's results
included record third-quarter sales due to equipment upgrades necessitated
by consolidation of the East and West German postal zones. Additionally,
last year's results included sales of non-mailing products which are being
phased out as part of the company's formal plan of strategic focus
refinement.
Rentals and financing revenue increased 11 percent. Rental revenue growth
reflects higher numbers of postage meters on rental, especially higher
yielding Postage By Phone(R) and electronic meters and plain paper facsimile
machines in service, as well as, price increases. The financial services
segment revenue reflects portfolio growth and higher
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 11 of 19
fee-based income as well as a greater contribution from sales of finance
assets this year than in the third quarter of 1993. In the third quarter
of 1994, approximately $55 million of net finance assets were sold which
produced approximately $8.7 million in revenue. Financing revenue growth
in 1994 continues to be impacted by the company's 1993 decision to phase
out the business of financing non-Pitney Bowes equipment outside of the
United States.
Support services revenue, which is derived from the business equipment and
services segment, was three percent above the prior year. Expansion of the
U.S. mailing and shipping service bases was offset, in part, by lower
service revenue in most of the European mailing businesses. Price increases
added one percent to support services revenue growth.
The cost of sales to sales revenue ratio grew to 59.1 percent in 1994 from
56.0 percent in 1993 primarily due to the continually increasing
significance of the company's facilities management business which includes
most of its expenses in cost of sales. Additionally, the ratio was
impacted by higher copier costs due to the stronger yen and lower shipping
and Canadian mailing equipment margins offset, in part, by favorable
overhead absorption in the mailing business. The cost of rentals and
financing to rentals and financing revenue ratio increased to 30.6 percent
from 30.3 percent in 1993 primarily due to the third quarter 1994 asset
sale offset, in part, by a favorable U.S. mailing cost of rental rate
driven by price increases.
Selling, service and administrative expenses were 36.9 percent of revenue
in 1994 compared with 37.8 percent in 1993. This improvement reflects the
increased significance of the company's facilities management business
which includes most of its expenses in cost of sales coupled with favorable
benefit costs and cost containment initiatives throughout the company.
Research and development expenses increased six percent to $20.0 million in
1994 from $18.9 million in 1993. This increase reflects higher
expenditures for new products approaching the end of their development
cycle, as well as continued investment in advanced product development with
emphasis on electronic technology and software development. This increase
is partially offset by higher engineering support for recently introduced
products which costs are included in cost of sales.
Net interest expense increased 14 percent to $47.9 million in 1994 from
$42.0 million in 1993 due to higher short-term interest rates and average
borrowing levels in 1994. It is anticipated that this unfavorable
comparison will continue as interest rates rise and debt is used to fund
actions taken in connection with the formal plan to refine the strategic
focus and anticipated treasury share repurchases.
Nonrecurring items, net totalled $25.4 million in the third quarter 1994,
as a result of a $118.6 million credit to income resulting from changes
made to certain postemployment benefits. In addition, during the third
quarter of 1994 the decision was made to undertake certain strategic
actions which are outlined in Note 8 to the financial
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 12 of 19
statements. As a result a reserve of $93.2 million was established to
cover the cost of such initiatives.
The third quarter 1994 effective tax rate was 44.9 percent compared with
53.1 percent in the third quarter of 1993. The third quarter 1994
effective tax rate was negatively impacted by a number of strategic actions
totalling $28 million for which the company could not realize associated
tax benefits. The third quarter 1994 effective tax rate was favorably
impacted by tax benefits associated with a company owned life insurance
program. In the third quarter of 1993, the company recorded $19.4 million
of additional tax expense against income from continuing operations
applicable to income generated in prior periods as a result of the
enactment of the U.S. Omnibus Budget Reconciliation Act of 1993.
Results of Continuing Operations - first nine months of 1994 vs. first nine
months of 1993
For the first nine months of 1994 compared with the same period of 1993,
revenue increased nine percent while income from continuing operations
increased 24 percent to $254.0 million from $204.5 million in 1993.
The factors that affected revenue and earnings performance included those
cited for the third quarter 1994 versus 1993. Additionally, in the first
quarter of 1993, the business equipment and services segment's performance
was enhanced by PROM sales primarily resulting from parcel rate changes.
The second quarter of 1994 included the sale of operating lease assets
which produced approximately $27 million in revenue, but which increased
the cost of rentals and financing to rentals and financing revenue ratio
due to inclusion of $25.2 million of related costs. In the second quarter
of 1993, gains on sales of finance assets substantially offset additional
loss provisions of $14.4 million required for the company's German leasing
business.
The current year net income reflects the impact of adopting Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112) as of January 1, 1994. FAS 112 requires
that postemployment benefit costs be recognized on the accrual basis of
accounting for fiscal years beginning after December 15, 1993.
Postemployment benefits include primarily company provided medical benefits
to disabled employees and company provided life insurance as well as other
disability- and death-related benefits to former and inactive employees,
their beneficiaries and covered dependents. The one-time effect of adopting
FAS 112 was a non-cash, after-tax charge of $119.5 million, or 75 cents per
share.
Liquidity and Capital Resources
Working capital and the current ratio have declined from year-end 1993 as a
result of increased short-term borrowings which funded the repurchase of
shares of common stock, increased investment in finance assets and the
redemption of long-term debt. The ratio was also impacted by an increase
in inventory levels. The company continues to utilize a balanced mix of
debt maturities to fund finance assets. The
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 13 of 19
current ratio at September 30, 1994 was .57 to 1 compared to .59 to 1 at
year-end 1993.
As part of the company's non-financial services shelf registrations, a
medium-term note facility was established permitting issuance of up to
$100 million in debt securities with maturities ranging from more than
one year up to 30 years of which $32 million remain available at September
30, 1994. The company also has an additional $300 million remaining on
shelf registrations filed with the Securities and Exchange Commission.
Pitney Bowes Credit Corporation (PBCC) has $400 million available from a
$500 million shelf registration statement filed with the Securities and
Exchange Commission. This registration statement should meet PBCC's long-
term financing needs for the next two years. In March 1994, PBCC issued
$200 million of 5.625 percent notes due in February 1997. In April 1994,
PBCC redeemed $100 million of 10.65 percent notes due in April 1999. PBCC
had previously sold an option on a notional principal amount of $100
million to enable a counterparty to require PBCC to pay a fixed rate of
10.67 percent for five years starting April 1, 1994. The counterparty has
exercised that option. In September 1994, PBCC redeemed $100 million of
10.125 percent notes due in 1997. The company continues to use a balanced
mix of debt maturities, variable- and fixed-rate debt and interest rate
swaps to control the sensitivity of interest rate volatility.
In the third quarter of 1994, the company sold approximately $55 million of
finance assets with recourse in a privately-placed transaction with a third-
party investor. Proceeds from the sale of these assets were used to repay a
portion of the company's commercial paper borrowings. This transaction had
no material effect on the company's results.
The ratio of total debt to total debt and stockholders' equity was 62.9
percent at September 30, 1994 compared to 61.3 percent at year-end 1993.
This ratio was unfavorably impacted primarily by the company's required
first quarter 1994 adoption of FAS 112 and the repurchase of approximately
three million shares of common stock for $111.7 million. These factors
were partially offset by the sale of certain finance assets and the
issuance of approximately 700,000 treasury shares primarily under the
company's various stock purchase, option and compensation programs. Book
value per common share decreased to $11.74 at September 30, 1994 from
$11.81 at year-end 1993 principally due to the first quarter 1994 adoption
of FAS 112.
During the period October 31, to November 10, 1994, the company repurchased
approximately 1.9 million additional shares of its common stock at a total
cost approximating $65 million. On November 14, 1994 the board authorized
the purchase of up to two million additional shares of the company's common
stock. It is anticipated that the board of directors will consider further
authorization to repurchase the company's common stock, as appropriate, in
expectation of the sales of Dictaphone and Monarch.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 14 of 19
As a part of the company's strategic refocus, it is expected that
approximately $71 million in cash will be required to pay severance and
benefit related costs as well as certain exit costs principally over the
next twelve months. Asset write-downs and other provisions of
approximately $22 million included in the strategic refocus will not
require cash expenditures. Amounts available under credit agreements,
shelf registrations and medium-term note programs in addition to
cash generated internally, are expected to be sufficient to provide for
financing needs for the next year. Additional financing will be arranged
as deemed necessary.
Capital Investments
In the first nine months of 1994, net investments in fixed assets included
$82.5 million in net additions to property, plant and equipment and $140.8
million in net additions to rental equipment and related inventories
compared with $70.3 million and $118.1 million, respectively, in the same
period in 1993. These additions included expenditures for a new facility
the company is building to house its Shipping and Weighing Division in
Shelton, Connecticut as well as normal plant and manufacturing equipment.
In the case of rental equipment, the additions included the production of
postage meters and the purchase of facsimile and copier equipment for both
new placement and upgrade programs.
At September 30, 1994, commitments for the acquisition of property, plant
and equipment included plant and manufacturing equipment improvements as
well as rental equipment for new and replacement programs. Also, it
includes the above mentioned new Shipping and Weighing facility which is
expected to be completed in 1995.
As previously reported, the company's financial services segment has made
senior secured loans and commitments in connection with acquisition,
leveraged buyout and recapitalization financing. At September 30, 1994, the
company had a total of $2.5 million of such senior secured loans and
commitments outstanding compared to $13.9 million at December 31, 1993. In
March 1994, the company sold $11.3 million of its senior secured loan and
commitment with a company that had previously filed under Chapter 11 of the
Federal Bankruptcy Code and recovered 100 percent of its carrying value.
The company has not participated in unsecured or subordinated debt
financing in any highly leveraged transactions.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 15 of 19
Part II - Other Information
Item 5: Other Information.
On November 14, 1994 the board of directors of Pitney Bowes Inc. elected
Michael J. Critelli and Marc C. Breslawsky to the board, expanding the
total number of directors to twelve. Mr. Critelli's and Mr. Breslawsky's
board terms expire at the company's next annual meeting scheduled for May,
1995, at which time they will be up for re-election.
In October 1994, Mr. Critelli and Mr. Breslawsky were named
Vice-Chairmen of the company, reporting to Chairman and President George
B. Harvey. As Vice-Chairmen each has responsibility for specific business
areas, as well as accountability for the success of their joint efforts.
It is expected that upon Mr. Harvey's retirement, Mr. Critelli will assume
the role of Chairman and Chief Executive Officer, and Mr. Breslawsky will
assume the role of President and Chief Operating Officer.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Reg. S-K Status or Incorporation
Exhibits Description by Reference
(11) Computation of earnings See Exhibit (i)
per share. on page 17.
(12) Computation of ratio of See Exhibit (ii)
earnings to fixed charges. on page 18.
(27) Financial Data Schedule See Exhibit (iii)
on page 19.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the three months ended
September 30, 1994.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 16 of 19
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.
November 14,1994
/s/ C. F. Adimando
C. F. Adimando
Vice President - Finance and
Administration, and Treasurer
(Principal Financial Officer)
/s/ S. J. Green
S. J. Green
Vice President - Controller
(Principal Accounting Officer)
Pitney Bowes Inc. - Form 10-Q Pitney Bowes Inc.
Nine Months Ended September 30, 1994 Computation of Earnings per Share Exhibit (i)
Page 17 of 19
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) 1994 1993(1) 1994 1993(1)
Primary
Income from continuing operations (2) $ 85,320 $ 58,386 $ 254,013 $ 204,489
Discontinued operations 10,706 10,644 32,492 33,905
Effect of accounting change - - (119,532) -
Net income $ 96,026 $ 69,030 $ 166,973 $ 238,394
Weighted average number of
common shares outstanding 156,825,702 157,805,764 157,519,505 157,421,291
Preference stock, $2.12 cumulative convertible 838,086 895,740 852,922 912,372
Stock option and purchase plans 365,374 608,754 501,589 730,697
Total common and common equivalent
shares outstanding 158,029,162 159,310,258 158,874,016 159,064,360
Income per common and common equivalent share - primary:
Income from continuing operations $ .54 $ .37 $ 1.60 $ 1.29
Discontinued operations .07 .06 .20 .21
Effect of accounting change - - (.75) -
Net income $ .61 $ .43 $ 1.05 $ 1.50
Fully Diluted
Income from continuing operations $ 85,321 $ 58,387 $ 254,015 $ 204,492
Discontinued operations 10,706 10,644 32,492 33,905
Effect of accounting change - - (119,532) -
Net income $ 96,027 $ 69,031 $ 166,975 $ 238,397
Weighted average number of
common shares outstanding 156,825,702 157,805,764 157,519,505 157,421,291
Preference stock, $2.12 cumulative convertible 838,086 895,740 852,922 912,372
Stock option and purchase plans 387,410 615,865 524,984 738,183
Preferred stock, 4% cumulative convertible 12,774 23,016 14,895 24,761
Total common and common equivalent
shares outstanding 158,063,972 159,340,385 158,912,306 159,096,607
Income per common and common equivalent share -
fully diluted:
Income from continuing operations $ .54 $ .37 $ 1.60 $ 1.29
Discontinued operations .07 .06 .20 .21
Effect of accounting change - - (.75) -
Net income $ .61 $ .43 $ 1.05 $ 1.50
(1) Restated to reflect discontinued operations.
(2) Income from continuing operations was adjusted for preferred
dividends.
Pitney Bowes Inc. - Form 10-Q
Nine Months Ended September 30, 1994
Page 18 of 19
Exhibit (ii)
Pitney Bowes Inc.
Computation of Ratio of Earnings to Fixed Charges (1)
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993(2) 1994 1993(2)
Income from continuing
operations before income
taxes $154,819 $124,504 $422,382 $355,244
Add:
Interest expense 50,031 45,402 141,301 143,558
Portion of rents
representative of the
interest factor 11,157 8,486 32,545 25,277
Amortization of capitalized
interest 228 228 685 685
Income as adjusted $216,235 $178,620 $596,913 $524,764
Fixed charges:
Interest expense 50,031 45,402 141,301 143,558
Capitalized interest 200 - 372 -
Portion of rents
representative of the
interest factor 11,157 8,486 32,545 25,277
$ 61,388 $ 53,888 $174,218 $168,835
Ratio of earnings to fixed
charges 3.52 3.31 3.43 3.11
(1) The computation of the ratio of earnings to fixed
charges has been computed by dividing income from
continuing operations before income taxes and fixed
charges by fixed charges. Included in fixed charges is
one-third of rental expense as the representative
portion of interest.
(2) Restated to reflect discontinued operations.
5
1,000
9-MOS
DEC-31-1994
SEP-30-1994
65,017
699
413,009
19,183
432,914
1,967,563
1,195,471
634,409
6,971,766
3,466,161
803,235
323,338
0
2,872
1,505,907
6,971,766
1,002,514
2,370,104
585,424
927,680
883,924
0
136,118
422,382
168,367
254,015
32,492
0
(119,532)
166,975
1.05
1.05
Includes a change in accounting for postemployment benefits.
