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.