10-Q 1 pbcc30110q.txt PBCC 10-Q 3/31/01 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 ------------------ FORM 10-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, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------ Commission file number 0-13497 PITNEY BOWES CREDIT CORPORATION Incorporated pursuant to the Laws of the State of Delaware ------------------ Internal Revenue Service-- Employer Identification No. 06-0946476 27 Waterview Drive, Shelton, CT 06484-4361 (203) 922-4000 ------------------ 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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of April 30, 2001, 460 shares of common stock, no par value, with a stated value of $100,000 per share, were outstanding, all of which were owned by Pitney Bowes Inc., the parent of the Registrant. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. PITNEY BOWES CREDIT CORPORATION Part I -- FINANCIAL INFORMATION ITEM 1.-- FINANCIAL STATEMENTS Consolidated Statements of Income: Three Months Ended March 31, 2001 and 2000.......................................... 3 Consolidated Balance Sheets: At March 31, 2001 and December 31, 2000............................................. 4 Consolidated Statements of Cash Flow: Three Months Ended March 31, 2001 and 2000.......................................... 5 Notes to Consolidated Financial Statements............................................ 6 ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................... 10 Part II -- OTHER INFORMATION ITEM 1.-- LEGAL PROCEEDINGS............................................................... 15 ITEM 6.-- EXHIBITS AND REPORTS ON FORM 8-K................................................ 15 SignatureS................................................................................ 16 Exhibit (i)-- Computation of Ratio of Earnings to Fixed Charges....................... 17

Part I -- FINANCIAL INFORMATION ITEM 1. -- FINANCIAL STATEMENTS PITNEY BOWES CREDIT CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands of dollars)

See Notes to Consolidated Financial Statements PITNEY BOWES CREDIT CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands of dollars)

See Notes to Consolidated Financial Statements PITNEY BOWES CREDIT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (in thousands of dollars)

See Notes to Consolidated Financial Statements PITNEY BOWES CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 -- General The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Pitney Bowes Credit Corporation (the "Company" or "PBCC"), all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company at March 31, 2001 and December 31, 2000, and the results of operations for the three months ended March 31, 2001 and 2000, and the cash flows for the three months ended March 31, 2001 and 2000 have been included. Certain amounts from prior periods have been reclassified to conform to current period presentation. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note 2 -- Discontinued Operations On January 14, 2000, the Company sold its mortgage servicing business, Atlantic Mortgage & Investment Corporation ("AMIC"), a wholly owned subsidiary of the Company to ABN AMRO North America. The Company received approximately $484 million in cash at closing. The effect of the sale was included in 1999 operating results and the transaction is subject to post-closing adjustments. Note 3 -- Finance Assets The composition of the Company's finance assets is as follows: March 31, December 31, (in thousands of dollars) 2001 2000 --------- --------- Lease finance receivables...................................... $2,787,274 $2,831,418 Other finance receivables ..................................... 275,254 343,108 --------- --------- Total gross finance receivables.............................. 3,062,528 3,174,526 Unguaranteed residual valuation................................ 349,513 356,831 --------- --------- Total gross finance assets .................................. 3,412,041 3,531,357 Initial direct costs deferred.................................. 42,846 43,845 Unearned income................................................ (723,966) (732,970) --------- --------- Total finance assets......................................... $2,730,921 $2,842,232 ========= =========

PITNEY BOWES CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 4 -- Notes Payable The composition of the Company's notes payable is as follows: March 31, December 31, (in thousands of dollars) 2001 2000 --------- --------- Senior Notes Payable: Commercial paper at the weighted average interest rate of 5.34% (6.37% in 2000).......................... $ 647,000 $ 526,300 Other notes payable at a weighted average interest rate of 7.51% in both 2001 and 2000.................................. 1,726 1,649 Current installment of long-term debt due within one year at an interest rate of 6.78% to 6.80% (6.78% to 7.23% in 2000).... 200,000 477,000 --------- --------- Total senior notes payable due within one year................... 848,726 1,004,949 Senior notes payable due after one year at interest rates of 5.65% to 9.25% in both 2001 and 2000........................... 1,254,332 1,224,819 --------- --------- Total senior notes payable....................................... 2,103,058 2,229,768 --------- --------- Notes Payable to Affiliates: Due within one year at an interest rate of 5.38% in 2001 and 2000 120,564 119,464 Due after one year at an interest rate of 5.38% in 2001 and 2000. 259,000 259,000 --------- --------- Total notes payable to affiliates................................ 379,564 378,464 --------- --------- Subordinated Notes Payable: Non-interest bearing notes due Pitney Bowes Inc. ("PBI")......... 362,926 362,926 --------- --------- Total notes payable................................................. $2,845,548 $2,971,158 ========= =========

Interest, net, as reported on the consolidated statements of income is net of interest income earned on loans made to the Company's parent, Pitney Bowes Inc. ("PBI") and to other affiliates. Total interest income, including income from loans to Pitney Bowes, was $17.0 million and $8.7 million for the three months ended March 31, 2001 and 2000, respectively. PBCC has $425 million of unissued debt securities available at March 31, 2001 from a shelf registration statement filed with the SEC in July 1998. As part of this shelf registration statement, in August 1999, PBCC established a medium-term note program for the issuance from time to time of up to $500 million aggregate principal amount of Medium-Term-Notes, Series D, of which $175 million remained available at March 31, 2001. In December 2000, PBCC issued $100 million of unsecured floating rate notes maturing in April 2002 and $100 million of unsecured floating rate notes maturing in June 2004, available under the medium-term note program. These notes bear interest at floating rates of LIBOR plus 5 basis points and 25 basis points, respectively, which are set as of the quarterly interest payment dates. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper. In April 2000, certain partnerships controlled by affiliates of the Company issued a total of $134 million of Series A and Series B Secured Fixed Rate Senior Notes (the "Notes"). The Notes are due in 2003 and bear interest at 7.443 percent. The proceeds from the Notes were used to purchase subordinated debt obligations from PBI ("PBI Obligations"). The PBI Obligations have a principal amount of $134 million and are due in 2010. The PBI Obligations bear an interest rate of 8.073 percent for the first three years and reset in May 2003 and each third anniversary of the first reset date. In March 2000, PBCC issued $43.3 million of 7.515 percent senior notes to various holders maturing 2002 through 2012. The proceeds from these notes were used to pay down commercial paper. PITNEY BOWES CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 5 -- Business Segment Information The Company operates in two reportable segments: Internal Financing and Capital Services. Internal Financing provides marketing support to PBI and includes financing of mailing, paper handling and shipping equipment and scales. Internal Financing also includes convenient financing alternatives for the purchase of postage and other services targeted toward the small business owner. Capital Services primarily provides large-ticket financing and fee-based programs covering a broad range of products and other financial services. In December 2000, Pitney Bowes announced that its board of directors approved a formal plan to spin-off its Office Systems business to stockholders as an independent, publicly-traded company. The transaction is expected to be completed by the end of the third quarter 2001. Office Systems includes the copier and facsimile businesses, financing for which had been included as a component of PBCC's Internal Financing segment. For the three months ended March 31, 2001 operating results of Office Systems have been segregated and treated as discontinued operations by PBI. Accordingly, copier and facsimile financing is being reported as a component of Capital Services. Prior years' information has been reclassified to conform to current year presentation. Segmental revenue and income before income taxes for the three months ended March 31, 2001 and 2000 are presented below. Revenue generated outside of the United States is not considered material.

The Company fully allocates corporate expenses to its individual divisions. Note 6 -- Adoption of New Accounting Standard The Company adopted Statement of Financial Accounting Standards ("SFAS") 133, as amended by SFAS 138, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. SFAS 133 requires that all derivatives be recorded on the consolidated balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in earnings or Other Comprehensive Income (Loss) ("OCI") depending on the type of hedging instrument and the effectiveness of those hedges. All of the derivatives used by the Company as hedges are highly effective as defined by SFAS 133 because all of the critical terms of the derivatives match those of the hedged items. The derivatives used by the Company have been designated as either cash flow or fair value hedges at the time of adoption of SFAS 133. Derivatives designated as cash flow hedges consist of interest rate swaps related to variable-rate debt. Derivatives designated as fair value hedges consist of interest rate swaps related to fixed-rate debt. All derivatives are adjusted to their fair market values at the end of each quarter. Unrealized net gains and losses for cash flow hedges are recorded in OCI. The Company periodically enters into interest rate swaps to manage the risk associated with changes in interest rates. During the quarter ended March 31, 2001, the Company recorded unrealized net losses after taxes totaling $8.5 million, including a one-time cumulative effect of accounting change which reduced OCI by $7.0 million. PITNEY BOWES CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 7 -- Accounting Pronouncements During 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", summarizing certain guidance in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted the provisions of SAB No. 101 in the fourth quarter 2000, retroactive to January 1, 2000. Adoption of this standard did not have a material impact on the Company. During 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued, replacing SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral, as well as requiring certain additional disclosures. However, it carries over most of the provisions contained in SFAS No. 125. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. However, it is effective for the recognition and reclassification of collateral and for disclosures relating to those transactions for the three months ended March 31, 2001. The Company does not expect implementation of this statement to have a material effect on results of operations, financial position or cash flows. Note 8 -- Stockholder's Equity The following is a reconciliation of stockholder's equity:

At March 31, 2001, 10,000 shares of common stock, no-par with a stated value of $100,000 per share were authorized and 460 shares were issued and outstanding and amounted to $46.0 million at March 31, 2001 and December 31, 2000. All of the Company's stock is owned by Pitney Bowes. Note 9 -- Other Matters As part of a strategic alliance with U.S. Bank, a division of U.S. Bancorp, on June 30, 2000 PBCC sold its PitneyWorksSM Business RewardsSM Visa(R) and Business Visa(R) card operations, including credit card receivables of approximately $322 million. The Company expects to earn fees in connection with the strategic alliance with U.S. Bank. However, the Company will no longer originate credit card receivables and as a result will not earn finance income on those balances. The transaction is subject to post-closing adjustments. PITNEY BOWES CREDIT CORPORATION ITEM 2.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Net income for the three months ending March 31, 2001 increased $6.2 million (13.6%) to $51.6 million compared with $45.4 million for the same period of 2000. The improvement was attributable to growth in the Company's Internal Financing segment; higher fee- and service-based income and higher earnings in the leveraged lease portfolio. Net income was also affected by lower costs due to the sale of the Company's credit card operations in June 2000 offset by an increased tax provision over the prior year. As part of a strategic alliance with U.S. Bank, a division of U.S. Bancorp, on June 30, 2000 PBCC sold its PitneyWorksSM Business RewardsSM Visa(R) and Business Visa(R) card operations, including credit card receivables of approximately $322 million. The Company expects to earn fees in connection with the strategic alliance with U.S. Bank. However, the Company is no longer originating credit card receivables and as a result will not be earning finance income on those balances. The transaction is subject to post-closing adjustments. On January 14, 2000, the Company sold its mortgage servicing business, Atlantic Mortgage & Investment Corporation ("AMIC"), a wholly-owned subsidiary of the Company, to ABN AMRO North America. The Company received approximately $484 million in cash at closing. The transaction is subject to post-closing adjustments. Operating Results Finance income from all sources increased $3.6 million (2.5%) to $145.7 million for the first three months of 2001 compared to $142.1 million for the first three months of 2000. The increase primarily reflects a combination of portfolio growth in the internal leasing business coupled with higher fee- and service-based revenue from the Company's postage payment programs, partly offset by the impact of the sale of the Company's credit card operations in June 2000. Selling, general and administrative ("SG&A") expenses decreased $3.2 million (10.1%) to $28.0 million for the first three months of 2001 compared to $31.2 for the first three months of 2000. The decrease primarily reflects the sale of the credit card portfolio in June 2000 and fees associated with certain Capital Services partnership leasing transactions during the first three months of 2000. Net interest expense decreased $0.5 million (1.9%) to $28.2 million for the first three months of 2001 compared to $28.7 million for the first three months of 2000. The decrease in 2001 was due to lower average borrowings required to support lower earning asset levels related to the sale of the credit card operations, partly offset by higher interest rates in 2001. The effective interest rate on average borrowings was 6.80 percent in 2001 compared to 6.54 percent in 2000. The Company does not match fund its financing investments. The provision for credit losses decreased $3.8 million (22.5%) to $13.1 million for the first three months of 2001 compared to $16.9 million for the first three months of 2000. The decrease is primarily due to the sale of the credit card portfolio in 2000 partly offset by growth in the Company's postage payment programs. Depreciation and amortization decreased $0.7 million (20.9%) to $2.9 million for the three months ended March 31, 2001 compared to $3.6 million in 2000. This reflects a lower operating lease investment balance at March 31, 2001 compared to the prior year. Provisions for income taxes were $21.8 million (an effective tax rate of 29.7%) for the first three months of 2001 compared to $16.2 million (an effective tax rate of 26.3%) for the first three months of 2000. The increase in the effective tax rate is primarily due to the decreased impact of certain Capital Services partnership leasing transactions entered into in prior years. PITNEY BOWES CREDIT CORPORATION ITEM 2.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Segments In December 2000, Pitney Bowes announced that its board of directors approved a formal plan to spin-off its Office Systems business to stockholders as an independent, publicly-traded company. The transaction is expected to be completed by the end of the third quarter 2001. Office Systems includes the copier and facsimile businesses, financing for which had been included as a component of PBCC's Internal Financing segment. For the three months ended March 31, 2001 operating results of Office Systems have been segregated and treated as discontinued operations by PBI. Accordingly, copier and facsimile financing is being reported as a component of Capital Services. Prior years' information has been reclassified to conform to current year presentation. Revenue and income before taxes for the Company, by business segment, for the three months ended March 31, 2001 and 2000 are summarized below. Three Months Ended March 31, ---------------------------- 2001 2000 ---- ---- (in thousands of dollars) Revenue: Internal Financing.......................................... $ 102,052 $ 101,470 Capital Services............................................ 43,604 40,636 ------- ------- Total revenue.......................................... $ 145,656 $ 142,106 ======= ======= (in thousands of dollars) Income before income taxes: Internal Financing.......................................... $ 59,412 $ 51,949 Capital Services............................................ 14,046 9,714 ------- ------- Total income before income taxes....................... $ 73,458 $ 61,663 ======= =======

Internal Financing revenue increased 0.6 percent and income before income taxes increased 14.4 percent for the first three months of 2001 compared to the first three months of 2000. The increase in revenue was mainly due to higher earning asset levels and higher fee-based income attributable to postage payment programs offset by the impact of the sale of the Company's credit card operations in June 2000. The increase in income before taxes was mainly due to a lower credit loss provision and lower interest costs, both related to the credit card operations referred to above. Capital Services revenue increased 7.3 percent and income before income taxes increased 44.6 percent for the first three months of 2001 compared to the first three months of 2000. The increase in revenue is driven by higher fee income and higher earnings in the leveraged lease portfolio. The increase in income before income taxes reflects these revenue improvements as well as lower interest costs. The Company continues to pursue a strategy of selective asset sales and limited new investments. Portfolio Quality Finance assets represent the Company's largest asset and its primary source of revenue. The Company's finance assets at March 31, 2001 decreased $111.3 million to approximately $2.7 billion from approximately $2.8 billion at the end of 2000. The decrease was primarily due to the Company's ongoing effort to reduce Capital Services asset levels and a lower investment in the Company's postage payment and revolving credit products. Lease finance receivables represent the Company's expected future rental payments on its finance leases and amounted to approximately $2.8 billion at both March 31, 2001 and December 31, 2000. Other finance receivables are primarily comprised of amounts invested in the Company's postage payment and revolving credit products, and as of March 31, 2000 included the PitneyWorksSM Business RewardsSM Visa(R) and Business Visa(R) card operations that were sold in June 2000. The balance of other finance receivables at March 31, 2001 was $275.3 million compared to $343.1 million at December 31, 2000. The decrease reflects the seasonality of postage purchases, as well as the impact of the postal rate increase in January 2001. The Company's allowance for credit losses as a percentage of net lease receivables (net investments before allowance for credit losses plus the uncollected principal balance of receivables sold) was 1.72 percent at March 31, 2001 and 1.71 percent at December 31, 2000. PBCC charged $13.9 million against the allowance for credit losses for the three months ended March 31, 2001 compared to $19.2 million in 2000. PITNEY BOWES CREDIT CORPORATION ITEM 2.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Company's principal sources of funds are from operations and borrowings. It has been PBCC's practice to use a balanced mix of debt maturities, variable- and fixed-rate debt and interest rate swap agreements to control sensitivity to interest rate volatility. PBCC's debt mix was 34 percent short-term and 66 percent long-term at March 31, 2001 compared to 38 percent short-term and 62 percent long-term at December 31, 2000. PBCC's swap-adjusted variable-rate versus fixed-rate debt mix was 38 percent variable-rate and 62 percent fixed-rate at March 31, 2001 compared to 42 percent variable-rate and 58 percent fixed-rate at December 31, 2000. The Company may borrow through the issuance of commercial paper, under its confirmed bank lines of credit, and by private and public offerings of intermediate- or long-term debt securities. Together with its parent, PBI, the Company had unused lines of credit and revolving credit facilities totaling $1.45 billion at March 31, 2001, largely supporting its commercial paper borrowings. More detailed information regarding the Company's debt is contained in Note 4 to the CONSOLIDATED FINANCIAL STATEMENTS. PBCC has $425 million of unissued debt securities available at March 31, 2001 from a shelf registration statement filed with the SEC in July 1998. As part of this shelf registration statement, in August 1999, PBCC established a medium-term note program for the issuance from time to time of up to $500 million aggregate principal amount of Medium-Term-Notes, Series D, of which $175 million remained available at March 31, 2001. In December 2000, PBCC issued $100 million of unsecured floating rate notes maturing April 2002 and $100 million of unsecured floating rate notes maturing June 2004, under the medium-term note program. These notes bear interest at floating rates of LIBOR plus 5 basis points and 25 basis points, respectively, set as of the quarterly interest payment dates. The proceeds from these notes were used for general corporate purposes, including the repayment of commercial paper. In April 2000, certain partnerships controlled by affiliates of PBCC issued a total of $134 million of Series A and Series B Secured Floating Rate Senior Notes. The notes are due in 2003 and bear interest at 7.44 percent. The proceeds from the notes were used to purchase subordinated debt obligations from PBI ("PBI Obligations"). The PBI Obligations have a principal amount of $134 million and bear interest at 8.073 percent for the first three years and reset in May 2003 and each third anniversary of the first reset date. In March 2000, PBCC issued $43.3 million of 7.52 percent Senior Notes maturing 2002 through 2012. The proceeds from these notes were used to pay down commercial paper. The Company's utilization of derivative instruments is normally limited to interest rate swap agreements ("Interest Rate Swaps") and foreign currency exchange forward contracts ("Foreign Currency Contracts"). The Company periodically enters into interest rate swaps as a means of managing interest rate exposure. The interest rate differential paid or received over the life of the agreements is recognized as an adjustment to interest expense. The Company is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swaps to the extent of the differential between fixed- and variable-rates; such exposure is considered minimal. At March 31, 2001 the Company was counterparty to interest rate swaps with a total notional amount of $550 million. The Company periodically enters into foreign currency contracts for the purpose of minimizing its risk of loss from fluctuations in exchange rates in connection with certain intercompany transactions. The Company is exposed to credit loss in the event of non-performance by the counterparties to the foreign currency contracts to the extent of the difference between the spot rate at the date of the contract delivery and the contracted rate; such exposure is also considered minimal. At March 31, 2001 there were no foreign currency contracts outstanding. Since the Company normally enters into derivative transactions only with members of its banking group, the credit risk of these transactions is monitored as part of the normal credit review of the banking group. The Company monitors the market risk of derivative instruments through periodic review of fair market values. Under the Finance Agreement between Pitney Bowes and the Company, Pitney Bowes is obligated on a quarterly basis to make payments, to the extent necessary, so that the Company's earnings available for fixed charges for the preceding one year period shall not be less than 1.25 times its fixed charges. Pitney Bowes has also agreed to make any past due principal, interest or premium payments on behalf of PBCC in respect to all approved debt and/or commercial paper, in the event that PBCC is unable to make such payments. To date, no such payments from Pitney Bowes have been required. PITNEY BOWES CREDIT CORPORATION ITEM 2.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (continued) The Company will continue to use cash to invest in finance assets with emphasis on Internal Financing transactions and select investment in Capital Services programs. The Company believes that cash generated from operations and collections on existing lease contracts will provide the majority of cash needed for such investment activities. Borrowing requirements will be dependent upon the level of equipment purchases from Pitney Bowes Inc., the level of Capital Services financing activity, capital requirements for new business initiatives, intercompany loans, and the refinancing of maturing debt. Additional cash, to the extent needed, is expected to come from commercial paper and intermediate- or long-term debt securities and intercompany funds, when available. While the Company expects that market acceptance of its debt will continue to be strong, additional liquidity is available under revolving credit facilities and credit lines. Regulatory Matters During 2000, the U.S. Postal Services ("USPS") issued a proposed schedule for the phase out of manually reset electronic meters in the U.S. As of February 1, 2000 new placements of manually reset electronic meters are no longer permitted. Current users of manually reset electronic meters can continue to use these meters for the term of their current rental and lease agreements. Leases or rentals due to expire in the year 2000 can be extended to December 31, 2001. In August 2000, the USPS also issued a proposal to cease placements of non-digital, or letterpress, meters as follows: new placements of non-digital meters with a "timeout" feature that enable the meters to be automatically disabled, if not reset within a specified time period are no longer permitted after December 2003; new placements of non-digital meters without the "timeout" feature are no longer permitted after June 2001. PBI has submitted comments to the USPS proposed schedules described above. Based on the proposed schedule, the company believes that the phase out of manually reset electronic meters will not cause a material adverse financial impact on the company. PBI is working with the USPS to meet the non-digital meter phase out schedule and is currently evaluating the potential financial impact on the company. As a result of PBI's aggressive efforts to meet the USPS mechanical meter migration phase out schedule combined with PBI's ongoing and continuing investment in advanced postage evidencing technologies, mechanical meters represented less than 1 percent of PBI's installed U.S. meter base at December 31, 2000 and 1999, respectively. PBI continues to work in close cooperation with the USPS to convert those mechanical meter customers who have not migrated to digital or electronic meters. In May 1995, the USPS publicly announced its concept of its Information Based Indicia Program (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 devises which significantly enhance postal revenue security and support expended USPS value-added services to mailers. The program would consist of the development of four separate specifications; (i) the indicium specification: the technical specifications for the indicium to be printed; (ii) a Postal Security Device specification: the technical specification for the device that would contain the accounting and security features of the system; (iii) a Host specification; and (iv) a Vendor Infrastructure specification. During the period from May 1995 through December 2000, PBI has submitted extensive comments to a series of proposed IBIP specifications issued by the USPS. In March 2000, the USPS issued the latest set of proposed specifications, entitled "Performance Criteria for Information Based Indicia and Security Architecture for Open IBI Postage Evidencing Systems" (the IBI Performance Criteria). PBI has submitted comments to the IBI Performance Criteria. In September and October 2000, the USPS issued further proposed regulations regarding postage evidencing systems using Information Based Indicia, titled "Refunds and Exchanges" and "Production, Distribution and Information Based Indicia." PBI has submitted comments regarding those proposed regulations. In March 2000, PBI received approval from the USPS for the commercial launch of the Internet version of a product which satisfies the proposed IBI Performance Criteria, ClickStampTM Online. PITNEY BOWES CREDIT CORPORATION ITEM 2.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward - Looking Statements The Company wants to caution readers that any forward-looking statements with the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (those which talk about the company's or management's current expectations as to the future) in this Form 10-K or any other filing by the Company, or made by the Company's management involve risks and uncertainties which may change based on various factors. Words such as "estimate", "project", "plan", "believe", "expect" and similar expressions may identify such forward-looking statements. Some of the factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on behalf of the Company include, but are not limited to: 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 and residual value risks o changes in interest rates o terms and timing of the spin-off of Office Systems from Pitney Bowes o terms and timing of Pitney Bowes restructuring plan PART II - OTHER INFORMATION ITEM 1. -- LEGAL PROCEEDINGS In the normal course of business, the Company and PBI, its parent, are occasionally party to lawsuits. These may involve litigation by or against the Company relating to, among other things: o contractual rights under vendor, insurance or other contracts o intellectual property or patent rights o equipment, service or payment disputes with customers o disputes with employees The Company is currently a plaintiff or defendant in a number of lawsuits, none of which should have, in the opinion of management and legal counsel, a material adverse effect on the Company's financial position or results of operations. ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K a. Financial Statements - see index on page 2 Exhibits (numbered in accordance with Item 601 of Regulation S-K)

There are no unregistered debt instruments in which the total amount of securities authorized thereunder exceeds 10 percent of the total assets of the Company. Copies of all instruments defining the rights of securities holders are available on request. b. No reports on Form 8-K were filed during the quarter ended March 31, 2001. 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 CREDIT CORPORATION By /s/ DAVID KLEINMAN ---------------------- David Kleinman Vice President, Finance and Chief Administrative Officer (Principal Financial Officer) Dated: May 14, 2001 By /s/ MICHAEL C. COSTELLO ------------------------ Michael C. Costello Controller (Principal Accounting Officer) Dated: May 14, 2001 Exhibit (i) Computation of Ratio of Earnings to Fixed Charges (in thousands of dollars)

(1) The ratio of earnings to fixed charges is computed by dividing earnings before fixed charges by fixed charges. Fixed charges consist of interest on debt and one third of rent expense as representative of the interest portion.

PITNEY BOWES CREDIT CORP 10-Q