UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Year Ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------- -------
Commission file number 0-13497
PITNEY BOWES CREDIT CORPORATION
State of Incorporation IRS Employer Identification No.
Delaware 06-0946476
201 Merritt Seven
Norwalk, Connecticut 06856-5151
Telephone Number: (203) 846-5600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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
----- ------
The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 11, 1994: None.
As of March 11, 1994, 460 shares of common stock with no par value 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 J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
-1-
<PAGE>
PITNEY BOWES CREDIT CORPORATION
FORM 10-K
1993 INDEX
-------------------------------
Part I
Item Page
- ---- ----
1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . 10
3. Legal proceedings . . . . . . . . . . . . . . . . . . 10
4. Submission of matters to a vote of security holders . 10
Part II
5. Market for the registrant's common equity and related
stockholder matters . . . . . . . . . . . . . . . . . 10
6. Selected financial data . . . . . . . . . . . . . . . 11
7. Management's discussion and analysis of financial
condition and results of operations . . . . . . . . . 12
8. Financial statements and supplementary data . . . . . 18
9. Changes in and disagreements with accountants on
accounting and financial disclosure . . . . . . . . . 40
Part III
10. Directors and executive officers of the Registrant . . 40
11. Executive compensation . . . . . . . . . . . . . . . . 40
12. Security ownership of certain beneficial owners and
management . . . . . . . . . . . . . . . . . . . . . 40
13. Certain relationships and related transactions . . . . 40
Part IV
14. Exhibits, financial statement schedules and reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . 40
Index to Exhibits . . . . . . . . . . . . . . . . . . 41
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 43
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<PAGE>
Part I
Item 1. Business
--------
GENERAL
-------
Pitney Bowes Credit Corporation (the Company or PBCC) operates primarily
in the United States and is a wholly-owned subsidiary of Pitney Bowes
Inc. (PBI or Pitney Bowes). The Company is principally engaged in the
business of providing lease financing for PBI products as well as other
financial services for the commercial and industrial markets.
The Internal Financing Division of PBCC provides marketing support to PBI
and PBI subsidiaries, including Dictaphone Corporation (Dictaphone) and
Monarch Marking Systems, Inc. (Monarch). Equipment leased or financed
for these Internal Division programs include mailing, paper handling and
shipping equipment, scales, copiers, facsimile units, voice processing
systems and retail price marking and identification equipment. The
transaction size for this equipment generally ranges from $1,000 to
$500,000, although historically most transactions occur in the $5,000 to
$10,000 range, with lease terms generally from 36 to 60 months. Since
1991, a significant portion of new business transactions for equipment
costing approximately $1,000 were completed under a program designed for
entry-level mailing customers.
PBCC's External Financing Division operates in the large-ticket external
market by offering financial services to its customers for products not
manufactured or sold by PBI or its subsidiaries. Products financed
through these External Division programs include both commercial and
non-commercial aircraft, over-the-road trucks and trailers, railcars and
high-technology equipment such as data processing and communications
equipment. Transaction sizes (other than aircraft leases) range from
$50,000 to several million dollars, with lease terms generally from 36 to
180 months. Aircraft transaction sizes range from $1 million to $27
million for non-commercial aircraft and up to $43 million for commercial
aircraft. Lease terms are generally between two and 13 years for
non-commercial aircraft and from 10 to 24 years for commercial aircraft.
The Company has also participated in five commercial aircraft leveraged
lease transactions. The Company's investment in these transactions
totaled $122.2 million at December 31, 1993. The Company's External
Financing Division has also participated, on a select basis, in certain
other types of financial transactions including syndication of certain
lease transactions which do not satisfy PBCC's investment criteria,
senior secured loans in connection with acquisition, leveraged buyout and
recapitalization financings, and certain project financings.
PBCC's External Financing Division is also responsible for managing
Pitney Bowes Real Estate Financing Corporation (PREFCO), a wholly-owned
subsidiary of PBCC providing lease financing for commercial real estate
properties. Both PBCC and Pitney Bowes provide capital for PREFCO's
investments.
-3-
<PAGE>
Colonial Pacific Leasing Corporation (Colonial Pacific or CPLC), a
wholly-owned subsidiary of PBCC, located near Portland, Oregon operates
in the small-ticket external market. Colonial Pacific provides lease
financing services to small- and medium-sized businesses throughout the
United States, marketing exclusively through a nationwide network of
brokers and independent lessors. Transaction sizes range from $2,000 to
$250,000, with lease terms generally from 24 to 60 months.
In January 1993, the Company announced a change in management
responsibility for its Vendor Investment Program (VIP). VIP, which
provided sales-aid and funding source financing programs for
non-affiliated vendors selling equipment with a cost, generally in the
range of $5,000 to $100,000, was previously managed and reported as part
of the Internal small-ticket financing programs. This operation was
reorganized with the funding source programs consolidated into the
operations of the Company's External Financing Division and the name
changed to Custom Vendor Finance (CVF); the sales-aid programs were
consolidated into the operations of Colonial Pacific Leasing Corporation.
This change was made to improve efficiency through the elimination of
redundant processes.
CPLC and CVF are reported as "External small-ticket programs" in this
report.
Atlantic Mortgage & Investment Corporation (AMIC), a wholly-owned
subsidiary of PBCC, located in Jacksonville, Florida, specializes in
servicing residential first mortgages for a fee. AMIC does not
originate, or generally hold or assume the credit risk on mortgages it
services. In return for a servicing fee, AMIC provides billing services
and collects principal, interest and tax and insurance escrow payments
for mortgage investors such as Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation, Government National Mortgage
Association and private investors.
Substantially all lease financing is done through full payout leases or
security agreements whereby PBCC recovers its costs plus a return on
investment over the initial, noncancelable term of the contract. The
Company has also entered into a limited amount of leveraged and operating
lease structures.
The Company's gross finance assets (contracts receivable plus estimated
residual values) outstanding for Internal and External financing programs
at December 31, 1989 through 1993 are presented in Item 6, Selected
Financial Data. Total Company gross finance assets at December 31, 1993
were $4.6 billion of which approximately 27 percent were related to
mailing, paper handling and shipping products, 21 percent were commercial
aircraft, 12 percent were railcars, eight percent were data processing
equipment products and five percent were over-the-road trucks and
trailers. In 1993, total gross finance contracts acquired amounted to
$1.406 billion compared to $1.425 billion in 1992. External large-ticket
programs accounted for 22 percent of gross finance contracts acquired in
1993 compared to 23 percent in 1992. The decrease in External
large-ticket volume is consistent with the Company's strategy to control
growth in large-ticket, longer-term finance assets and debt levels.
-4-
<PAGE>
As of December 31, 1993, PBCC had approximately 516,000 active accounts
compared with 474,000 active accounts at December 31, 1992.
At December 31, 1993, PBCC's largest customer accounted for $186.4
million, or 4.6 percent of gross finance receivables, and the Company's
ten largest customers accounted for $939.7 million in gross finance
receivables, or 23.0 percent of the receivable portfolio.
CREDIT EXPERIENCE
-----------------
At December 31, 1993, 1.9 percent of gross finance receivables were over
30 days delinquent compared with 2.2 percent at December 31, 1992 and 2.6
percent at December 31, 1991. Delinquency levels decreased in 1993,
principally as a result of continued strong collection efforts and an
improving economy.
CREDIT POLICIES
---------------
PBCC's management and Board of Directors establish credit approval limits
at region, division, subsidiary and corporate levels based on the credit
quality of the customer and the type of equipment financed. The Company
and PBI have established an Automatic Approval Program (AAP) for certain
products within the Internal Financing Division. The AAP dictates the
criteria under which PBCC will accept a customer without performing the
Company's usual credit investigation. The AAP considers criteria such as
maximum equipment cost, a customer's time in business and current payment
experience with PBCC.
PBCC bases credit decisions primarily on a customer's financial strength.
However, with the Company's External Financing Division programs,
collateral values may also be considered.
LOSS EXPERIENCE
---------------
PBCC has charged against the allowance for credit losses $51.1 million,
$46.5 million and $43.7 million in 1993, 1992 and 1991, respectively.
The increase in write-offs in 1993 was due to $11.2 million of write-offs
related to assets purchased from the Company's German affiliate, Adrema
Leasing Corporation (Adrema). Excluding the losses related to assets
purchased from Adrema, losses as a percentage of average net lease
receivables (net investments before allowance for credit losses and
deferred investment tax credits plus the uncollected principal balance of
receivables sold) were 1.03 percent for 1993, 1.27 percent for 1992 and
1.29 percent for 1991. For further information see Note 5 and Note 7 to
the Company's consolidated financial statements.
RELATIONSHIP WITH PITNEY BOWES INC.
-----------------------------------
PBCC is PBI's domestic finance subsidiary and the largest part of PBI's
Financial Services segment. Approximately 13 percent of PBI's
consolidated revenue in 1993, and 11 percent in 1992 and 1991 resulted
from sales made to PBCC for lease to third parties.
-5-
<PAGE>
Business relationships between PBCC and PBI are defined by several
agreements including an Operating Agreement, Finance Agreement and Tax
Sharing Agreement.
Operating Agreement: The Operating Agreement with PBI, dated March 3,
1977, as amended (the Operating Agreement), which can be modified or
cancelled on a prospective basis by either party upon 90 days prior
written notice, governs among other things: the terms and prices of
equipment purchases by PBCC for lease to third parties; computation and
payment of fees for referrals and services provided by PBI sales
personnel; the AAP for PBI equipment; buyback allowances; and the
handling of contract terminations, cancellations, trade-ups and
trade-ins.
In connection with the sales of finance assets of the Internal
small-ticket financing programs referred to in Note 3 to the Company's
consolidated financial statements, PBI agreed not to cancel or modify, in
any material respect, its obligations under the Operating Agreement
concerning the sold receivables, without the prior written consent of
PBCC and the transferee.
Pursuant to the Operating Agreement, the purchase of equipment by the
Company is contingent upon a lessee entering into a full payout lease
with the Company and delivery to and acceptance of the equipment by the
lessee. Service and maintenance of the equipment leased is the
responsibility of the lessee and is generally arranged through a separate
equipment maintenance agreement between the lessee and PBI.
In connection with the buyback provisions of the Operating Agreement,
PBCC has the option to request a buyback from PBI for non-copier
equipment leased which is terminated or cancelled, provided the equipment
is available for repossession. Following such buyback, PBI is
responsible for the repossession and disposition of equipment. The
buyback provision sets forth a stipulated amount that is payable by PBI
to PBCC for certain terminated leases; such amount is calculated on the
basis of a declining percentage, based upon the passage of time, of the
original total invoice value to PBCC. The difference between the buyback
amount received from PBI and the remaining value of the lease usually
results in a loss that is charged against PBCC's allowance for credit
losses.
PBCC has similar operating agreements with Pitney Bowes subsidiaries,
Dictaphone and Monarch, for the financing of certain products.
In September 1990, Pitney Bowes Inc. changed its copier marketing
strategy and announced plans to discontinue the remanufacture of used
copier equipment. The copier organization now concentrates on new,
higher-margin equipment consistent with its marketing strategy directed
at serving larger corporations and multi-unit installations. In
connection with this change in strategy, buyback provisions for copier
equipment leased after December 31, 1990 were eliminated. In addition,
for copier equipment leases, PBCC eliminated the Automatic Approval
Program and performs the Company's standard credit review investigation.
-6-
<PAGE>
Finance Agreement: Under the Finance Agreement, dated July 5, 1978, PBI
has agreed to make payments to PBCC, if necessary, to enable PBCC to
maintain a ratio of income available for fixed charges as defined to such
fixed charges of 1.25 to 1 as of the end of each fiscal year. No such
payments have ever been required.
The Finance Agreement, or any term, covenant, agreement or condition
thereof, may be amended or compliance may be waived (either generally or
in a particular instance and either retroactively or prospectively) by
either PBI or PBCC, with the written consent of the other party, at any
time. The agreement may be terminated (i) by PBCC on five days notice or
(ii) by PBI prior to the end of any fiscal year of PBCC and following the
making of the determination and payment, if any, required pursuant to the
provisions of the Finance Agreement, as described in the preceding
paragraph, with respect to the fiscal year of PBCC most recently ended.
In connection with certain financing agreements, PBI has agreed with
PBCC's lenders that PBI will not modify or terminate the Finance
Agreement unless approval is received from holders of 66 2/3 percent of
the principal amount of the notes outstanding under each such note
agreement.
Under the Indenture dated as of May 1, 1985 (together with all
Supplemental Indentures as noted in Part IV Item 14 (a) 3, the Indenture)
between PBCC and Bankers Trust Company as Trustee (the Trustee), PBCC
agreed that it would not waive compliance with, or amend in any material
respect, the Finance Agreement without the consent of the holders of a
majority in principal amount of the outstanding securities of each series
of debt securities issued under the Indenture. In addition, PBI has
entered into a Letter Agreement with the Trustee pursuant to which it
agreed, among other things, that it would not default under the Finance
Agreement nor terminate the Finance Agreement without the consent of the
holders of a majority in principal amount of the outstanding securities
issued under the Indenture.
Tax Sharing Agreement: The Company's taxable results are included in the
consolidated Federal and certain state income tax returns of Pitney
Bowes. Under the Tax Sharing Agreement, dated April 1, 1977, between the
Company and Pitney Bowes, the Company makes payment to Pitney Bowes for
its share of consolidated income taxes, or receives cash equal to the
benefit of tax losses utilized in consolidated returns in exchange for
which it issues non-interest bearing subordinated notes with a maturity
one day after all senior debt is repaid. PBCC is also reimbursed for
investment tax credits utilized in PBI's consolidated Federal income tax
return. The Tax Sharing Agreement can be cancelled by either PBI or PBCC
upon twelve months written notice.
Real Estate Transactions: During 1993, PBCC received $2.4 million from
PBI representing a contribution to capital surplus of the Company in
connection with investments in real estate financing projects. When the
Company entered into real estate lease financing, PBI agreed to make
capital contributions up to a maximum of $15.0 million to provide a
portion of the financing for such transactions, of which $13.8 million
has been received to date. There is no formal agreement in place and PBI
is under no obligation to continue to make capital contributions.
-7-
<PAGE>
PITNEY BOWES INC.
-----------------
PBI, a Delaware corporation organized in 1920, is listed on the New York
Stock Exchange. Headquartered in Stamford, Connecticut, PBI employs
approximately 32,500 people throughout the United States, Europe, Canada
and other countries. PBI manufactures and markets products, and provides
services in two industry segments: Business Equipment, and Business
Supplies and Services; and provides financing in a third industry
segment: Financial Services.
Business Equipment includes: postage meters and mailing, shipping and
facsimile systems, copying systems and supplies, and voice processing
systems which include dictating systems, automatic telephone answering
systems and voice communications recorders. In accordance with postal
regulations, postage meters may not be sold in the United States; they
are rented to users and therefore are not subject to lease by PBCC.
Business Supplies and Services includes: equipment and supplies used to
encode and track price, content, item identification and other
merchandise information and mailroom, reprographics and related
facilities management services.
The Financial Services segment, of which PBCC is the largest individual
component, provides lease financing for PBI products as well as other
financial services for the commercial and industrial markets.
As of December 31, 1993, PBI and its consolidated subsidiaries had total
assets of $6.8 billion and stockholders' equity of $1.9 billion. For the
year ended December 31, 1993, PBI's consolidated revenue and income
before effect of a change in accounting for nonpension postretirement
benefits were $3.5 billion and $353.2 million, respectively, compared
with $3.4 billion and $314.9 million for 1992.
COMPETITION AND REGULATION
--------------------------
The finance business is highly competitive with aggressive rate
competition. Leasing companies, commercial finance companies, commercial
banks and other financial institutions compete in varying degrees in the
several markets in which PBCC does business and range from very large
diversified financial institutions to many small, specialized firms. In
view of the market fragmentation and absence of any dominant competitors
which result from such competition, it is not possible to provide a
meaningful description of PBCC's competitive position in its markets.
While financing rates are generally considered by customers to be the
principal factor in choosing a financing source, the Company believes
there are additional important factors related to a customer's decision,
including simplicity of documentation, flexibility and ease of doing
business over the duration of the contract. PBCC seeks to distinguish
itself from its competition by providing excellent service to its
customers. PBCC considers its documentation and systems to be among the
best in the industry. The Company has an established communication
network in its region offices to eliminate costly delays and to increase
the quality of service offered to vendors and customers.
-8-
<PAGE>
PBI has historically been a leading supplier of certain products and
services in its business segments, particularly postage meters and
mailing equipment, price marking supplies and equipment, and voice
processing systems. However, in all segments it has strong competition
from a number of companies. In the United States, PBI is facing
competition for new placements from several postage meter and mailing
equipment vendors, and its mailing systems products face competition from
products and services offered as alternative means of message
communications. PBI's long experience and reputation for product
quality, and its sales and support service organizations, along with
PBCC, are believed to be important factors in influencing customer
choices with respect to its products and services.
Several states have ceilings on interest rates which may be charged to
commercial customers on secured lending transactions. These limitations
have been mitigated by a provision in 1980 Federal legislation permitting
business financing in such states at a rate five percent higher than the
Federal Reserve Bank's discount rate plus any surcharge assessed. The
legislation permits each state to preempt this provision; however, as of
December 31, 1993, no state in which PBCC has or expects to have a
material amount of business has exercised its right of preemption.
Nevertheless, as a result of state preemption, PBCC may, in the future,
be required to charge lower interest rates in certain jurisdictions than
it charges elsewhere, or to cease offering secured lending transactions
in such states. PBCC does not extend consumer credit as defined in the
Federal Consumer Credit Protection Act. Accordingly, PBCC's financing
transactions are not subject to that Act.
FUNDING POLICY
--------------
PBCC's borrowing strategy is to use a balanced mix of debt maturities,
variable- and fixed-rate debt and interest rate swap agreements to
control its sensitivity to interest rate volatility. The Company may
borrow through the sale of commercial paper, under its confirmed bank
lines of credit and by private and public offerings of intermediate- or
long-term debt securities. The Company may also issue debt securities
having maturities ranging from nine months to 30 years through a
medium-term note program.
While the Company's funding strategy of balancing short-term and
longer-term borrowings and variable- and fixed-rate debt may reduce
sensitivity to interest rate changes over the long-term, effective
interest costs have been and will continue to be impacted by interest
rate changes. The Company periodically adjusts prices on its new leasing
and financing transactions to reflect changes in interest rates; however,
the impact of these rate changes on revenue is usually less immediate
than the impact on borrowing costs.
EMPLOYEE RELATIONS
------------------
At December 31, 1993, 749 people were employed by PBCC and its
subsidiaries. Employee relations are considered highly satisfactory.-
-9-
<PAGE>
Item 2. Properties
----------
All of the Company's office space is occupied under operating leases with
original terms ranging from one to ten years. PBCC's executive and
administrative offices are located in Norwalk, Connecticut. PBCC has
seven regional offices located throughout the United States and five
district sales offices located in or near major metropolitan areas.
Colonial Pacific's executive and administrative offices are located in
Tualatin, Oregon. Atlantic Mortgage & Investment Corporation's executive
and administrative offices are located in Jacksonville, Florida.
Item 3. Legal proceedings
-----------------
The Company is not currently involved in any material litigation.
Item 4. Submission of matters to a vote of security holders
---------------------------------------------------
Omitted pursuant to General Instruction J.
Part II
Item 5. Market for the registrant's common equity and related
stockholder matters
-----------------------------------------------------
All of the Company's common stock is owned by PBI. Accordingly, there is
no public trading market for the Company's common stock. The Board of
Directors declared and the Company paid dividends to PBI of $36.0 million
in 1993, $31.0 million in 1992, and $27.0 million in 1991. The Company
intends to continue to pay dividends to PBI in 1994.
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<PAGE>
Item 6. Selected financial data
-----------------------
<TABLE>
The following tables summarize selected financial data for the Company, and should be read in conjunction with the more
detailed financial statements and related notes thereto included under Item 8 of this report.
<CAPTION>
(Dollars in thousands) December 31
-----------------------------------------------------------------------
For the Year 1993 1992 1991 1990 1989
- ---------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross finance contracts acquired $ 1,405,516 $ 1,425,450 $ 1,472,575 $ 1,388,091 $ 1,654,935
========== ========== ========== ========== ==========
Finance income $ 513,454 $ 494,494 $ 460,644 $ 405,384 $ 347,264
Selling, general and administrative expenses 99,332 90,079 82,969 67,198 53,598
Depreciation and amortization 16,545 13,936 12,750 5,284 -
Provision for credit losses 70,245 58,181 48,943 36,621 27,130
---------- ---------- ---------- ---------- ----------
Operating income 327,332 332,298 315,982 296,281 266,536
Interest expense 137,372 146,594 167,236 164,699 161,267
Provision for income taxes 66,475 64,942 55,589 48,406 36,908
---------- ---------- ---------- ---------- ----------
Income before effect of accounting changes 123,485 120,762 93,157 83,176 68,361
Effect of accounting changes (1) - (1,866) - - 12,507
---------- ---------- ---------- ---------- ----------
Net income $ 123,485 $ 118,896 $ 93,157 $ 83,176 $ 80,868
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges (2) 2.37X 2.25X 1.88X 1.79X 1.65X
At Year End
- ----------------
Gross finance assets
Internal small-ticket programs $ 1,497,678 $ 1,342,622 $ 1,294,852 $ 1,144,035 $ 1,038,574
External large-ticket programs 2,415,370 2,399,918 2,310,174 2,196,916 2,207,090
External small-ticket programs 670,771 623,403 541,837 470,517 360,874
---------- ---------- ---------- ---------- ----------
Total gross finance assets 4,583,819 4,365,943 4,146,863 3,811,468 3,606,538
Unearned income (1,173,297) (1,204,261) (1,159,214) (1,101,682) (1,067,334)
---------- ---------- ---------- ---------- ----------
Finance assets $ 3,410,522 $ 3,161,682 $ 2,987,649 $ 2,709,786 $ 2,539,204
========== ========== ========== ========== ==========
Investment in leveraged leases $ 298,914 $ 274,846 $ 197,338 $ 135,224 $ 58,211
========== ========== ========== ========== ==========
Investment in operating leases, net $ 63,899 $ 45,432 $ 58,213 $ 43,306 $ -
========== ========== ========== ========== ==========
Allowance for credit losses $ (98,311) $ (79,177) $ (67,515) $ (62,259) $ (56,332)
========== ========== ========== ========== ==========
Total assets $ 3,931,462 $ 3,618,164 $ 3,233,056 $ 2,864,516 $ 2,563,595
========== ========== ========== ========== ==========
Senior notes payable
Within one year $ 1,735,607 $ 1,475,630 $ 1,457,600 $ 1,246,515 $ 893,826
After one year 775,295 857,278 775,000 727,000 906,000
---------- ---------- ---------- ---------- ----------
Total senior notes payable $ 2,510,902 $ 2,332,908 $ 2,232,600 $ 1,973,515 $ 1,799,826
========== ========== ========== ========== ==========
Subordinated notes payable $ 108,834 $ 86,734 $ 75,487 $ 67,248 $ 74,242
========== ========== ========== ========== ==========
Stockholder's equity $ 671,065 $ 581,138 $ 489,914 $ 419,507 $ 358,907
========== ========== ========== ========== ==========
Debt to equity 3.90:1 4.16:1 4.71:1 4.86:1 5.22:1
<FN>
(1) Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106 entitled "Employers'
Accounting for Postretirement Benefits Other Than Pensions." For further discussion, see Note 14 to the Company's consolidated
financial statements. Also, effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No.
109 (FAS 109) entitled "Accounting for Income Taxes." FAS 109 superceded Statement of Financial Accounting Standards No. 96,
which was adopted by the Company as of January 1, 1989. For further discussion see Note 13 to the Company's consolidated
financial statements.
(2) In computing the ratio of earnings to fixed charges, earnings have been calculated by adding to earnings before income taxes
the amount of fixed charges. Fixed charges consist of interest on debt and a portion of net rental expense deemed to represent
interest.
</TABLE>
-11-
<PAGE>
Item 7. Management's discussion and analysis of financial condition and
results of operations
-----------------------------------------------------------------
Overview
- --------
During 1993, PBCC achieved earnings growth for the sixteenth consecutive year
despite the impact of $12.3 million of additional tax expense, a result of
the enactment of the Omnibus Budget Reconciliation Act of 1993 (the Tax Act),
which increased U.S. corporate income tax rates from 34 percent to 35
percent. Compared with 1992, the major factors that affected PBCC's
operations in 1993 were lower short-term interest rates and higher levels of
earning assets. Gross finance contracts acquired in 1993 amounted to $1.406
billion, down 1.4 percent from $1.425 billion in 1992. The decrease is due
to lower investment levels generated in the External large-ticket financing
programs, which represented 22 percent of gross finance contracts acquired in
1993 compared with 23 percent in 1992. This is consistent with PBCC's
strategy to control growth in large-ticket, longer-term finance assets and
debt levels.
Accounting Changes
- ------------------
In the fourth quarter of 1992, the Company adopted retroactively to January
1, 1992, Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), which
addresses health care and other welfare benefits provided to retirees. FAS
106 required a change from the cash basis of accounting to the accrual basis
of accounting for nonpension postretirement benefits. The transition effect
of adopting this standard on the immediate recognition basis, which was
recorded in the first quarter of 1992, was a one-time, after-tax charge of
$1.9 million; the 1992 incremental after-tax cost amounted to $.4 million.
In early 1993, Pitney Bowes announced several changes to its health care
plans which are expected to significantly reduce the ongoing incremental
impact of FAS 106 on future earnings. Among these changes was the
establishment of plan cost maximums in order to more effectively control
future health care costs. Additional information with respect to accounting
for nonpension postretirement benefits is disclosed in Note 14 to the
Company's consolidated financial statements.
The Company also adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", in 1992, which did not significantly affect
the Company's reported results.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), was issued
addressing benefits provided by an employer to former or inactive employees
after employment but before retirement. FAS 112 requires that postemployment
benefit costs be recognized on the accrual basis of accounting effective for
fiscal years beginning after December 15, 1993. Postemployment benefits
include the continuation of salary, health care, life insurance and
disability-related benefits to former or inactive employees, their
beneficiaries and covered dependents. The Company will adopt FAS 112 during
the first quarter of 1994, as required. Upon adoption, Pitney Bowes
anticipates recognizing a one-time, non-cash after-tax charge of
approximately $60 to $120 million for the cumulative effect on prior years of
such adoption, some of which may be allocated back to the Company.
-12-
<PAGE>
In May 1993, Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", which must be adopted by January 1,
1995, and Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", which must be adopted
by January 1, 1994, were issued. These pronouncements are not expected to
materially affect the Company.
Results of Operations
- ---------------------
The Company's finance income increased 3.8 percent to $513.5 million in 1993
compared with $494.5 million in 1992, which was up 7.3 percent from 1991.
Finance income for Internal small-ticket financing programs increased 5.6
percent to $262.0 million in 1993 compared with $248.1 million in 1992, which
was up 16.5 percent from 1991. The increase in 1993 is primarily due to
higher levels of earning assets and a greater impact from the sale of
Internal small-ticket finance assets in 1993 as compared to asset sales in
1992, partly offset by lower lease rates on new business. Finance income for
External large-ticket financing programs decreased 6.3 percent to $148.2
million in 1993 compared with $158.3 million in 1992, which was up 1.9
percent from 1991. The decrease in 1993 compared with 1992 is consistent
with the Company's strategy to control growth in large-ticket, longer-term
finance assets. The decrease was also the result of lower lease rates on new
business in 1993. Finance income for External small-ticket financing programs
increased 5.2 percent to $86.6 million in 1993 compared with $82.4 million in
1992, which was down 10.8 percent from 1991. The increase in 1993 is due to
higher levels of earning assets, while the decrease in 1992 was primarily due
to a greater impact from the sale of External small-ticket finance assets in
1991 as compared to asset sales in 1992. Revenue generated from mortgage
servicing was $16.7 million in 1993 compared to $5.7 million in 1992. The
increase is due to the acquisition of Atlantic Mortgage & Investment
Corporation (AMIC), a mortgage servicing company, on July 1, 1992 and to a
lesser extent, a larger mortgage servicing portfolio in 1993.
Selling, general and administrative (SG&A) expenses increased 10.3 percent to
$99.3 million in 1993 compared with $90.1 million in 1992, which was up 8.6
percent from 1991. SG&A expenses for Internal small-ticket financing
programs decreased 3.0 percent to $52.9 million in 1993 compared to $54.5
million in 1992, an increase of 20.4 percent from 1991. The decrease in 1993
is primarily due to lower marketing fees paid to Pitney Bowes and cost
savings related to organizational changes made to the Company's Vendor
Investment Program in January 1993. VIP, which provided sales-aid and
funding source financing programs for non-affiliated vendors, was previously
managed and reported as part of the Internal small-ticket financing programs.
This operation was reorganized with funding source programs consolidated into
the operations of the Company's External Financing Division and the sales-aid
programs consolidated into the operations of Colonial Pacific Leasing
Corporation. This change was made to improve efficiency through the
elimination of redundant processes. The increase in 1992 was primarily due
to higher marketing fees paid to Pitney Bowes and higher personnel related
costs.
-13-
<PAGE>
SG&A expenses for External large-ticket financing programs decreased 3.7
percent to $12.8 million in 1993 compared with $13.3 million in 1992, which
were up .9 percent from 1991. The decrease in 1993 is due to lower personnel
related costs. SG&A expenses for External small-ticket financing programs
increased 32.8 percent to $25.7 million in 1993 compared with $19.4 million
in 1992, which were down 21.1 percent from 1991. The increase in 1993 is
primarily due to higher marketing fees paid to brokers and higher
amortization of deferred initial direct costs together with costs incurred in
connection with the assets transferred from the Company's German affiliate,
which is further discussed in the following paragraphs. The decrease in 1992
was primarily due to a greater impact from the sale of External small-ticket
finance assets in 1991. SG&A expenses related to mortgage servicing were
$7.9 million in 1993 compared to $2.9 million in 1992. The increase in SG&A
expenses related to mortgage servicing are primarily due to the acquisition
of AMIC on July 1, 1992 and a larger mortgage servicing portfolio in 1993.
The Company entered the operating lease business on a limited basis in 1990.
Depreciation on operating leases was $8.8 million in 1993 and $12.1 million
in 1992 reflecting a lower average operating lease investment balance during
1993. Amortization of purchased mortgage servicing rights was $7.7 million
in 1993 compared to $1.9 million in 1992. This increase is principally due
to the acquisition of AMIC on July 1, 1992 and a larger mortgage servicing
portfolio in 1993.
The provision for credit losses for 1993 increased 20.7 percent to $70.2
million compared to $58.2 million for 1992, which was up 18.9 percent from
1991. The provision for credit losses for the Internal small-ticket
financing programs decreased 5.3 percent to $30.7 million in 1993 compared
with $32.5 million in 1992. The decrease is due to a greater impact from the
sale of Internal small-ticket finance assets in 1992. The provision for
credit losses for the External large-ticket financing programs was $4.5
million in 1993 compared with $4.6 million in 1992. The provision for credit
losses for the External small-ticket financing programs was $35.0 million in
1993 compared with $21.1 million in 1992. The increase in 1993 is due to
provisions recorded in connection with assets purchased from the Company's
German affiliate, which is further discussed in the following paragraphs.
In December 1992, as part of the restructuring and reincorporation of its
German affiliate, Adrema Leasing Corporation (Adrema), the Company purchased
certain finance receivables and other assets from Adrema. In connection with
these assets, Pitney Bowes and the Company are continuing an inquiry and
evaluation of the conduct by former management personnel of the German
leasing business. The results of this inquiry to date indicate that former
management caused the German leasing operation to enter into transactions
which were not consistent with Company policy and guidelines and, in certain
cases, lacked appropriate documentation and collateral. Additionally, in
certain instances, Pitney Bowes and the Company are continuing to locate,
repossess and remarket collateral where possible. These circumstances,
together with deteriorating economic conditions in Germany, caused
management, in the second quarter of 1993, to conclude that losses would be
larger than previously anticipated. Accordingly, at that time, the Company
recorded additional loss provisions of $14.4 million, the effect of which was
substantially offset by a gain on the sale of finance assets.
-14-
<PAGE>
At the current time, the Company believes that with the additional loss
provisions taken in the second quarter of 1993, sufficient reserves for
expected losses are in place. As the inquiry continues, the Company may
determine that additional loss provisions are necessary. If such additional
provisions are required, it is anticipated that resulting charges against
income would be offset by gains on additional asset sales. Pitney Bowes and
the Company expect to complete their inquiry by the end of the second quarter
of 1994.
The Company's allowance for credit losses as a percentage of net lease
receivables (net investments before allowance for credit losses and deferred
investment tax credits plus the uncollected principal balance of receivables
sold) was 2.44 percent at December 31, 1993, 2.05 percent at December 31,
1992 and 1.90 percent at December 31, 1991. PBCC charged $51.1 million,
$46.5 million and $43.7 million against the allowance for credit losses in
1993, 1992 and 1991, respectively. The increase in write-offs in 1993 was
due to $11.2 million of write-offs related to assets purchased from Adrema.
Interest expense was $137.4 million in 1993 compared with $146.6 million in
1992, a decrease of 6.3 percent. The decrease reflects lower short-term
interest rates in 1993, partly offset by higher average borrowings required
to fund additional investment in earning assets. The effective interest rate
on short-term average borrowings was 3.05 percent in 1993 compared to 3.80
percent in 1992. The Company does not match fund its financing investments
and does not apply different interest rates to its various financing
programs.
Excluding ITC amortization, which is included in finance income, and
excluding the impacts of the partnership transaction and the tax law changes
described below, the effective income tax rate for 1993 was 35.2 percent
compared with 35.6 percent for 1992. In the fourth quarter of 1993, the
Company completed a transaction whereby it contributed certain commercial
aircraft, subject to direct finance leases, to a majority owned partnership.
The partnership transaction had the effect of reducing the Company's
obligation for previously accrued deferred taxes, resulting in after-tax
earnings of $8.4 million after provision for certain costs associated with
the transaction. The reduction in deferred taxes has been recognized as a
reduction in 1993 income tax expense. On August 10, 1993, the Tax Act was
enacted increasing U.S. corporate income tax rates from 34 percent to 35
percent, retroactive to January 1, 1993. The liability method of accounting
for income taxes requires the effect of a change in tax laws or rates on
current or accumulated deferred income taxes to be reflected in the period
that includes the enactment date of the new legislation. Accordingly, in the
third quarter of 1993, the Company recorded additional tax expense reflecting
the retroactive tax law changes, $9.3 million of which represented the effect
of the rate change on deferred tax balances at January 1, 1993.
Income before effect of a change in accounting for nonpension postretirement
benefits was $123.5 million in 1993 compared with $120.8 million in 1992, an
increase of 2.3 percent. The increase in 1993 is primarily attributable to
lower short-term interest rates and higher investment levels, partly offset
by additional tax expense recorded in 1993 as a result of the Tax Act.
Excluding the impact of the Tax Act, income before effect of a change in
accounting for nonpension postretirement benefits would have increased 11.0
percent.
-15-
<PAGE>
The Company's ratio of earnings to fixed charges was 2.37 times for 1993
compared with 2.25 times for 1992, reflecting a lower short-term interest
rate environment in 1993.
Liquidity and Capital Resources
- -------------------------------
The 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
its sensitivity to interest rate volatility. PBCC's swap adjusted debt mix
was 58 percent short-term and 42 percent long-term at December 31, 1993 and
50 percent short-term and 50 percent long-term at December 31, 1992. The
Company may borrow through the sale of commercial paper, under its confirmed
bank lines of credit, and by private and public offerings of intermediate- or
long-term debt securities.
In October 1992, the Company filed a $500 million shelf registration
statement with the Securities and Exchange Commission. This registration
statement, together with the carryover of $100 million from a previous shelf
registration, should be sufficient to meet the Company's long-term financing
needs for the next two years. The Company also had unused lines of credit
and revolving credit facilities totaling $1.525 billion at December 31, 1993,
largely supporting commercial paper borrowings. This includes an $825
million five year revolving credit facility arranged in 1991 and a $700
million five year revolving credit facility arranged in 1992.
In March 1993, the Company redeemed $75 million of 8.75 percent notes due in
1996. The Company has also exercised the option to redeem $100 million of
10.65 percent notes due in 1999, on April 1, 1994. The Company had
previously sold an option on a notional principal amount of $100 million to
enable a counterparty to require the Company to pay a fixed rate of 10.67
percent for five years starting April 1, 1994. The counterparty has
exercised that option. The Company also received $2.4 million from Pitney
Bowes Inc. representing a contribution to capital surplus of the Company in
connection with investments in real estate financing projects.
During 1993, the Company sold approximately $26 million of Internal
small-ticket finance assets with recourse in a privately-placed transaction
with a third-party investor. In 1992 and 1991, the Company sold
approximately $92 million and $90 million, respectively, of finance assets in
similarly structured transactions. The uncollected principal balance of
receivables sold at December 31, 1993 and 1992 was $168 million and $281
million, respectively.
The proceeds from the sale of receivables were used to repay a portion of the
Company's commercial paper borrowings. The Company continues to develop
strategies in support of ongoing debt level management. Emphasis on
fee-based transactions and consideration of the sale of certain financing
transactions are expected to continue to slow growth in finance assets and
debt levels.
-16-
<PAGE>
Additional financing will continue to be arranged as deemed necessary.
Borrowing requirements will be primarily dependent upon the level of
equipment purchases from Pitney Bowes and its subsidiaries, the level of
External Division financing activity and the refinancing of maturing debt.
As previously reported, the Company has made senior secured loans and
commitments in connection with acquisition, leveraged buyout and
recapitalization financings. At December 31, 1993, the Company had a total
of $13.9 million of such senior secured loans and commitments outstanding
compared to $25.2 million at December 31, 1992. In April 1993, the Company
sold its $6.6 million senior secured loan with a company that had previously
filed under Chapter 11 of the Federal Bankruptcy Code and recovered 100
percent of its investment. The Company has not participated in unsecured or
subordinated debt financing in any highly leveraged transactions.
The Company's liquidity ratio (finance contracts receivable, including
residuals, expected to be realized in cash over the next 12 months to current
maturities of debt over the same period) was .66 times and .69 times at
December 31, 1993 and 1992, respectively. In some instances, the Company has
entered into interest rate swap agreements to convert interest payments on
variable-rate debt to a fixed-rate payment. On a swap adjusted basis, the
liquidity ratio is .76 times at December 31, 1993 and .83 times at December
31, 1992.
Under the Finance Agreement between Pitney Bowes and the Company, Pitney
Bowes is obligated to make payments to the extent necessary, so that the
Company's income available for fixed charges shall not be less than 1.25
times its fixed charges. No such payments have ever been required.
The Company will continue to use cash to invest in finance assets with
emphasis on Internal and External small-ticket leasing transactions and
controlled investment in External large-ticket financing 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. Additional cash, to the extent needed, is expected to
be provided from commercial paper and intermediate- or long-term debt
securities. While the Company expects that market acceptance of its short-
and long-term debt will continue to be strong, additional liquidity is
available, if needed, under revolving credit facilities and credit lines.
-17-
<PAGE>
Item 8. Financial statements and supplementary data
-------------------------------------------
Report of Independent Accountants
To the Stockholder and Board of Directors of
Pitney Bowes Credit Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on pages 40 and 41 present fairly,
in all material respects, the financial position of Pitney Bowes Credit
Corporation and its subsidiaries at December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 14 to the consolidated financial statements, the
Company elected to adopt a new accounting standard for postretirement
benefits other than pensions in 1992.
PRICE WATERHOUSE
Stamford, Connecticut
February 1, 1994
-18-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Income
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Finance income $513,454 $494,494 $460,644
------- ------- -------
Expenses
Selling, general and administrative 99,332 90,079 82,969
Depreciation and amortization 16,545 13,936 12,750
Provision for credit losses 70,245 58,181 48,943
Interest 137,372 146,594 167,236
------- ------- -------
Total expenses 323,494 308,790 311,898
------- ------- -------
Income before income taxes 189,960 185,704 148,746
Provision for income taxes 66,475 64,942 55,589
------- ------- -------
Income before effect of a change in
accounting for nonpension
postretirement benefits 123,485 120,762 93,157
Effect of a change in accounting
for nonpension postretirement
benefits - (1,866) -
------- ------- -------
Net income $123,485 $118,896 $ 93,157
======= ======= =======
</TABLE>
<TABLE>
Consolidated Statement of Retained Earnings
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Retained earnings at beginning
of year $495,855 $407,959 $341,802
Net income for the year 123,485 118,896 93,157
Dividends paid to Pitney Bowes Inc. (36,000) (31,000) (27,000)
------- ------- -------
Retained earnings at end of year $583,340 $495,855 $407,959
======= ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
-19-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
December 31 1993 1992
<S> <C> <C>
Assets
Cash $ 6,237 $ 4,855
---------- ----------
Investments:
Finance assets 3,410,522 3,161,682
Investment in leveraged leases 298,914 274,846
Assets transferred from affiliate 82,274 105,388
Investment in operating leases, net of
accumulated depreciation: 1993,
$33,181; 1992, $24,413 63,899 45,432
Allowance for credit losses (98,311) (79,177)
---------- ----------
Net investments 3,757,298 3,508,171
---------- ----------
Other assets 167,927 105,138
---------- ----------
Total assets $ 3,931,462 $ 3,618,164
========== ==========
Liabilities
Senior notes payable within one year $ 1,735,607 $ 1,475,630
Short-term notes payable to
Pitney Bowes Inc. - 31,025
Accounts payable to affiliates 162,914 108,896
Accounts payable and accrued liabilities 183,253 117,987
Deferred taxes 294,494 254,088
Note payable to affiliate - 105,388
Senior notes payable after one year 775,295 857,278
Subordinated notes payable 108,834 86,734
---------- ----------
Total liabilities 3,260,397 3,037,026
---------- ----------
Stockholder's Equity
Common stock 46,000 46,000
Capital surplus 41,725 39,283
Retained earnings 583,340 495,855
---------- ----------
Total stockholder's equity 671,065 581,138
---------- ----------
Total liabilities and stockholder's equity $ 3,931,462 $ 3,618,164
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
-20-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Operating Activities
Net income $ 123,485 $ 118,896 $ 93,157
Effect of a change in accounting for
nonpension postretirement
benefits - 1,866 -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for credit losses 70,245 58,181 48,943
Depreciation and amortization 16,545 13,936 12,750
Increase in deferred taxes 40,406 37,008 11,101
Increase in accounts payable to
affiliates 54,018 15,738 17,403
Increase (decrease) in accounts
payable and accrued liabilities 65,266 (10,188) 2,305
Decrease in investment tax
credits deferred (1,303) (2,683) (3,974)
Other, net (13,306) (7,817) (12,924)
---------- ---------- ----------
Net cash provided by operating
activities 355,356 224,937 168,761
---------- ---------- ----------
Investing Activities
Investment in net finance
assets (1,041,985) (1,015,498) (1,066,189)
Investment in leveraged leases (15,505) (68,705) (60,051)
Investment in operating leases (26,661) (4,537) (27,289)
Cash receipts collected under
lease contracts net of finance
income recognized 740,183 794,061 746,180
Investment in mortgage servicing
rights (14,218) (14,716) -
Purchase of Atlantic Mortgage &
Investment Corporation
represented by:
Purchased servicing rights
acquired - (18,522) -
Liabilites and debt assumed - 20,115 -
Other assets acquired, net of
$2.7 million of cash acquired - (14,531) -
Loans and advances to affiliated
companies, net (24,165) (7,343) 8,857
Additions to equipment and
leasehold improvements (1,747) (2,657) (4,110)
---------- ---------- ----------
Net cash used in investment
activities (384,098) (332,333) (402,602)
---------- ---------- ----------
</TABLE>
-21-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Financing Activities
Investment in short-term debt 262,310 111,602 213,085
Proceeds from issuance of
medium- and long-term debt - 75,000 150,000
Short-term loans from Pitney Bowes Inc. - 31,025 -
Proceeds from issuance of
subordinated debt 22,810 11,957 8,949
Settlement of long-term debt (84,315) (104,918) (104,000)
Settlement of note payable to
affiliate (105,388) - -
Settlement of short-term loan from
Pitney Bowes Inc. (31,025) - -
Payments to settle subordinated debt (710) (710) (710)
Capital contribution from Pitney Bowes
Inc. 2,442 3,328 4,250
Dividends paid to Pitney Bowes Inc. (36,000) (31,000) (27,000)
---------- --------- ---------
Net cash provided by financing
activities 30,124 96,284 244,574
---------- --------- ---------
Increase (decrease) in cash 1,382 (11,112) 10,733
Cash at beginning of year 4,855 15,967 5,234
---------- --------- ---------
Cash at end of year $ 6,237 $ 4,855 $ 15,967
========== ========= =========
Interest paid $ 143,031 $ 145,899 $ 150,633
========== ========= =========
Net income taxes (refunded) paid $ (11,680) $ 34,709 $ 34,850
========== ========= =========
</TABLE>
-22-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 1. - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of
Pitney Bowes Credit Corporation and all of its subsidiaries (the Company).
All significant intercompany transactions have been eliminated.
Basis of accounting for financing transactions: At the time a finance
transaction is consummated, the Company records on its balance sheet the
total receivable, unearned income and the estimated residual value of leased
equipment. Unearned income represents the excess of the total receivable
plus the estimated residual value and deferred investment tax credits over
the cost of equipment or contract acquired. Unearned income is recognized as
finance income under the interest method over the term of the transaction.
Initial direct costs incurred in consummating transactions, including fees
paid to Pitney Bowes, are accounted for as part of the investment in a direct
financing lease and amortized to income using the interest method over the
term of the lease. Deferred investment tax credits are amortized ($1.3
million, $3.3 million and $5.5 million in 1993, 1992 and 1991, respectively)
on a straight-line basis over the depreciable life of equipment manufactured
by Pitney Bowes and under the interest method for products not manufactured
by Pitney Bowes.
The Company has, from time-to-time, sold selected finance assets. The
Company follows Statement of Financial Accounting Standards No. 77,
"Reporting by Transferors for Transfers of Receivables with Recourse", when
accounting for its sale of finance assets. The difference between the sale
price and the net receivable, exclusive of residuals, is recognized as a gain
or loss.
Allowance for credit losses: The Company evaluates the collectibility of its
net investment in finance assets based upon its loss experience and
assessment of prospective risk, and does so through ongoing reviews of its
exposures to net asset impairment. The Company adjusts the carrying value of
its net investment in finance assets to the estimated collectible amount
through adjustments to the allowance for credit losses. Losses are charged
against the allowance for credit losses. For further information see Note 7.
Income taxes: The Company's taxable results are included in the consolidated
Federal and certain state income tax returns of Pitney Bowes. For tax
purposes, income from leases is recognized under the operating method and
represents the difference between gross rentals billed and operating
expenses. Under a tax-sharing agreement between the Company and Pitney
Bowes, the Company makes payment to Pitney Bowes for its share of
consolidated income taxes, or receives cash equal to the benefit of tax
losses utilized in consolidated returns in exchange for which it issues
non-interest bearing subordinated notes. Deferred taxes reflected in the
Company's balance sheet represent the difference between Federal and state
income taxes reported for financial and tax reporting purposes, less
non-interest bearing subordinated notes issued, including those capitalized.
-23-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Investment in operating leases: Equipment under operating leases is
depreciated over the firm term of the lease to its estimated residual value.
Rental revenue is recognized on a straight-line basis over the related lease
term.
Note 2. - Business Combination
In July 1992, the Company purchased 100 percent of the common stock of
Atlantic Mortgage & Investment Corporation (AMIC) for a total purchase price
of $15.6 million. On a pro forma basis, had the two companies been combined
at the beginning of 1992, total revenue and net income for the year ending
December 31, 1992, would have been $499.6 million and $119.3 million,
respectively.
Note 3. - Finance Assets
<TABLE>
The composition of the Company's finance assets is as follows:
<CAPTION>
December 31 1993 1992
---------- ----------
<S> <C> <C>
Gross finance receivables $ 4,086,739 $ 3,913,843
Unguaranteed residual valuation 497,080 452,100
Initial direct cost deferred 67,802 62,154
Unearned income (1,240,090) (1,264,103)
Investment tax credits deferred (1,009) (2,312)
---------- ----------
Finance assets $ 3,410,522 $ 3,161,682
========== ==========
</TABLE>
Gross finance receivables are generally due in monthly, quarterly or semi-
annual installments over periods ranging from 36 to 180 months. In addition,
gross finance receivables for the Company's External large-ticket programs
include commercial jet aircraft transactions with lease terms up to 24 years
and other non-commercial jet aircraft transactions with lease terms ranging
from two to 13 years. The balance due at December 31, 1993, including
estimated residual realizable at the end of the lease term, is payable as
follows:
<TABLE>
<CAPTION>
Gross Finance Assets
------------------------------------------------------------------------------------
Internal External External
small-ticket large-ticket small-ticket
programs programs programs Total
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
1994 $ 573,164 $ 278,221 $297,849 $1,149,234
1995 451,403 277,832 191,611 920,846
1996 296,733 212,810 113,478 623,021
1997 139,802 175,326 51,870 366,998
1998 35,284 170,252 15,843 221,379
Thereafter 1,292 1,300,929 120 1,302,341
--------- --------- ------- ---------
Total $1,497,678 $2,415,370 $670,771 $4,583,819
========= ========= ======= =========
</TABLE>
-24-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Net equipment financed for Pitney Bowes and its subsidiaries' products were
$533.2 million, $447.7 million, and $416.9 million in 1993, 1992, and 1991,
respectively.
During 1993, the Company sold approximately $26 million of Internal
small-ticket finance assets with recourse in a privately-placed transaction
with a third-party investor. In 1992 and 1991, the Company sold
approximately $92 million and $90 million, respectively of finance assets in
similarly structured transactions. The uncollected principal balance of
receivables sold at December 31, 1993 and 1992 was $168 million and $281
million, respectively.
As of December 31, 1993, $588 million (17 percent) of the Company's finance
assets and $947.5 million (21 percent) of the Company's gross finance assets
were related to aircraft leased to commercial airlines. The Company
considers its credit risk for these leases to be minimal since all commercial
aircraft lessees are making payments in accordance with lease agreements.
The Company believes any potential exposure in commercial aircraft investment
is mitigated by the value of the collateral as the Company retains a security
interest in the leased aircraft.
The Company has issued a conditional commitment to guarantee the lease
payments of a third party for a corporate aircraft. In the event of default
under the lease by the third party, the Company has the right to take title
to the aircraft and to assume the obligation under the lease. The Company's
maximum exposure under the guarantee is $15.2 million. In addition, the
Company has sold receivables while retaining residual value exposure of $18.9
million. The Company does not anticipate any exposure in connection with
these financial agreements.
Note 4. - Net Investment in Leveraged Leases
<TABLE>
The Company's net investment in leveraged leases is composed of the following
elements:
<CAPTION>
December 31 1993 1992
-------- --------
<S> <C> <C>
Net rents receivable $ 182,389 $ 184,078
Unguaranteed residual valuation 422,483 378,283
Unearned income (305,958) (287,515)
-------- --------
Investment in leveraged leases 298,914 274,846
Deferred taxes arising from leveraged leases (1) (110,959) (82,722)
-------- --------
Net investment in leveraged leases $ 187,955 $ 192,124
======== ========
<FN>
(1) Includes amounts reclassed to subordinated debt.
</TABLE>
-25-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Leveraged lease assets acquired by the Company are financed primarily through
nonrecourse loans from third-party debt participants. These loans are
secured by the lessee's rental obligations and the leased property. Net
rents receivable represent gross rents less the principal and interest on the
nonrecourse debt obligations. Unguaranteed residual values are principally
based on independent appraisals of the values of leased assets remaining at
the expiration of the lease.
Leveraged lease investments totaling $176.7 million are related to commercial
real estate facilities, with original lease terms ranging from 17 to 24
years. Also included are five aircraft transactions with major commercial
airlines, with a total investment of $122.2 million and with original lease
terms ranging from 22 to 24 years.
Note 5. - Transfer of Assets from Affiliate
In December 1992, as part of the restructuring and reincorporation of its
German affiliate, Adrema Leasing Corporation (Adrema), the Company purchased
certain finance receivables and other assets from Adrema. In connection with
these assets, Pitney Bowes and the Company are continuing an inquiry and
evaluation of the conduct by former management personnel of the German
leasing business. The results of this inquiry to date indicate that former
management caused the German leasing operation to enter into transactions
which were not consistent with Company policy and guidelines and, in certain
cases, lacked appropriate documentation and collateral. Additionally, in
certain instances, Pitney Bowes and the Company are continuing to locate,
repossess and remarket collateral where possible. These circumstances,
together with deteriorating economic conditions in Germany, caused
management, in the second quarter of 1993, to conclude that losses would be
larger than previously anticipated. Accordingly, at that time, the Company
recorded additional loss provisions of $14.4 million in the second quarter of
1993, the effect of which was substantially offset by a gain on the sale of
finance assets.
At the current time, the Company believes that with the additional loss
provisions taken in the second quarter of 1993, sufficient reserves for
expected losses are in place. As the inquiry continues, the Company may
determine that additional loss provisions are necessary. If such additional
provisions are required, it is anticipated that resulting charges against
income would be offset by gains on additional asset sales. Pitney Bowes and
the Company expect to complete their inquiry by the end of the second quarter
of 1994.
Note 6. - Investment in Operating Leases, Net
The Company is the lessor of various types of equipment under operating
leases including data processing, transportation and production equipment.
-26-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Minimum future rental payments to be received in each of the next five years
under noncancelable operating leases are $14.1 million in 1994, $10.1 million
in 1995, $8.9 million in 1996, $7.5 million in 1997, $5.9 million in 1998 and
$19.2 million in later years.
Note 7. - Allowance for Credit Losses
<TABLE>
The following is a summary of the allowance for credit losses substantially
all of which relates to lease financing:
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period $79,177 $67,515 $62,259
------ ------ ------
Additions charged to operations 70,245 58,181 48,943
------ ------ ------
Amounts written-off:
Internal small-ticket programs 24,255 28,712 27,693
External large-ticket programs 724 1,594 1,611
External small-ticket programs 26,132 16,213 14,383
------ ------ ------
Total write-offs 51,111 46,519 43,687
------ ------ ------
Balance at end of period $98,311 $79,177 $67,515
====== ====== ======
</TABLE>
The increase in the amount of additions charged to operations in 1993 versus
1992 is due to provisions for losses totaling $14.4 million recorded in the
second quarter of 1993 relating to assets purchased from the Company's German
affiliate, Adrema Leasing Corporation, partly offset by provisions recorded
in 1992 in conjunction with the sale of Internal small-ticket finance assets.
The increase in the amounts written-off in 1993 compared to 1992 reflect
$11.2 million of write-offs related to assets purchased from Adrema.
Excluding the impact of the write-offs related to assets purchased from
Adrema, the lower level of write-offs is due to continued strong collection
and asset management efforts and an improving economy.
-27-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
In establishing the provision for credit losses, the Company utilizes an
asset based percentage. This percentage varies depending on the nature
of the asset, recent historical experience, vendor recourse, management
judgement, and for large-ticket external transactions, the credit rating
assigned by Moody's and Standard & Poor's. In evaluating the adequacy of
reserves, estimates of expected losses, again by nature of the asset, are
utilized. While historical experience is the principal factor in
determining loss percentages, adjustments will also be made for current
economic conditions, deviations from historical aging patterns, seasonal
write-off patterns and levels of non-earning assets. If the resulting
evaluation of expected losses differs from the actual aggregate reserve,
adjustments are made to the reserve.
For transactions in the Internal Financing Division, the Company
discontinues income recognition for finance receivables past due over 120
days. The Company has utilized this period because historically internal
collection efforts have continued for this time period. In large-ticket
external financing, income recognition is discontinued as soon as it is
apparent, such as in the event of bankruptcy, that the obligor will not
be making payments in accordance with lease terms. In small-ticket
external financing, income recognition is discontinued when accounts are
past due over 90 days.
Finance receivables are charged to the allowance for credit losses (i.e.
written-off) after collection efforts are exhausted and the account is
deemed uncollectible. For internal and external small-ticket
transactions, this usually occurs near the point in time when the
transaction is placed in a non-earning status. For large-ticket external
transactions, write-offs are normally made after efforts are made to
repossess the underlying collateral, the repossessed collateral is sold
and efforts to recover remaining balances are exhausted. On large-ticket
external transactions, periodic adjustments also may be made and/or a
cost recovery approach for cash proceeds utilized to reduce the face
value to an estimated present value of future expected recovery. All
write-offs and adjustments are performed on a transaction by transaction
basis.
Resumption of income recognition on internal and external small-ticket
non-earning accounts occurs when payments are reduced to 60 days or less
past due. On large-ticket external transactions, resumption of income
recognition has occurred after the Company has had sufficient experience
on resumption of payments to be satisfied that such payments will
continue in accordance with the original or restructured contract terms.
-28-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
The carrying values of non-performing, restructured and troubled finance
assets are outlined below. There are no leveraged leases falling under
these categories.
<TABLE>
<CAPTION>
December 31 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Non-performing (non-accrual) transactions
- -----------------------------------------
Internal small-ticket programs $ 6,107 $ 6,567 $ 7,809
External large-ticket programs 1,934 11,102 27,007
External small-ticket programs 24,371 9,274 7,473
------ ------ ------
Total $32,412 $26,943 $42,289
====== ====== ======
Restructured transactions
- -------------------------
Internal small-ticket programs $ - $ - $ -
External large-ticket programs 5,869 9,942 10,948
External small-ticket programs - - -
------ ------ ------
Total $ 5,869 $ 9,942 $10,948
====== ====== ======
Troubled (potential problem) transactions
- -----------------------------------------
Internal small-ticket programs $ - $ - $ -
External large-ticket programs 8,129 6,110 7,997
External small-ticket programs 8,819 - -
------ ------ ------
Total $16,948 $ 6,110 $ 7,997
====== ====== ======
</TABLE>
The increase in non-performing and troubled transactions in 1993 relates to
assets purchased from Adrema in December 1992, which is further discussed in
Note 5.
For non-performing (non-accrual) transactions, the amount of finance income
that would have been recorded in 1993 if the transactions had been current in
accordance with their original contract terms was $2.8 million.
-29-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Historically, the Company has not allocated a specific amount of credit loss
reserve to non-performing and troubled transactions. This is due to the
historically low level of write-offs in the large-ticket external area and
the limited number of transactions with material credit loss exposure in
other areas. As stated above, the Company evaluates its aggregate reserve
position in comparison to estimates of aggregate expected losses. However,
for certain non-performing large-ticket external transactions, the Company
has adjusted the face value of these receivables through the following
adjustments:
<TABLE>
<CAPTION>
December 31 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Face value of receivables $2,862 $13,353 $31,715
Interest payments applied
to principal (501) (1,824) (1,969)
Charge-off to allowance for
credit losses (427) (427) (2,739)
------ ------ ------
Carrying value $1,934 $11,102 $27,007
====== ====== ======
</TABLE>
<TABLE>
Note 8. - Other Assets
<CAPTION>
December 31 1993 1992
------- -------
<S> <C> <C>
Purchased mortgage servicing rights, net $ 41,313 $ 31,417
Loans and advances to affiliated companies 34,776 10,611
Mortgage receivables 19,566 853
Deferred partnership fees 13,388 -
Net equipment and leasehold improvements
(accumulated depreciation was $11,012
in 1993 and $8,743 in 1992) 7,751 8,657
Investment securities 4,550 13,381
Deferred debt placement fees 3,803 4,920
Interest discount on commercial paper 3,319 2,976
Prepaid expenses and other assets 35,392 27,867
Goodwill, net of amortization: 1993, $387;
1992, $194 4,069 4,456
------- -------
Total other assets $167,927 $105,138
======= =======
</TABLE>
Purchased mortgage servicing rights are recorded at cost and are being
amortized in proportion to, and over the period of, estimated net servicing
income.
Mortgage receivables represent loans in the process of payoff and are
recorded at cost.
-30-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
In the fourth quarter of 1993, the Company completed a transaction
whereby it contributed certain commercial aircraft, subject to direct
finance leases, to a majority-owned partnership. Partnership fees
incurred in connection with this transaction are amortized on a straight-
line basis over the term of the transaction.
Equipment and leasehold improvements are stated at cost. Leasehold
improvements are amortized on a straight-line basis over the remaining
lease terms. Equipment is depreciated on a straight-line basis over the
anticipated useful life generally ranging from 5 to 10 years.
Deferred debt placement fees incurred in connection with placing senior
and subordinated notes are amortized on a straight-line basis over the
term of the notes.
Note 9. - Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
December 31 1993 1992
------- -------
<S> <C> <C>
Accounts payable $ 41,958 $ 21,148
Accrued interest payable 23,472 26,091
Sales and use, property and sundry taxes 8,696 8,117
Advances and deposits from customers 31,147 21,106
Accrued salary and benefits payable 6,232 5,873
Minority interest in partnership 20,758 -
Other liabilities 50,990 35,652
------- -------
Total accounts payable and accrued liabilities $183,253 $117,987
======= =======
</TABLE>
Note 10. - Notes Payable
Short-term notes payable at December 31, 1993 and 1992 totaled $1.7
billion and $1.5 billion, respectively. These notes were issued as
commercial paper, loans against bank lines of credit, or to trust
departments of banks and others at below the prevailing prime rate.
At year-end 1993, the Company had unused lines of credit and revolving
credit facilities totaling $1.525 billion largely supporting commercial
paper borrowings. The Company paid fees of $2.5 million, $1.8 million
and $1.2 million in 1993, 1992 and 1991 to maintain its lines of credit.
-31-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
The composition of the Company's notes payable is as follows:
<CAPTION>
December 31 1993 1992
<S> --------- ---------
Senior Notes Payable <C> <C>
Commercial paper at a weighted average interest
rate of 3.27% (3.46% in 1992) $1,574,999 $1,389,876
Notes payable against bank lines of credit and
others at a weighted average interest rate
of 2.13% (3.31% in 1992) 159,687 82,500
Current installment of long-term debt due within
one year at interest rates of 2.00% to 10.50% 921 3,254
--------- ---------
Total senior notes payable within one year 1,735,607 1,475,630
Senior notes payable after one year at interest
rates of 2.00% to 10.65% through 2009 775,295 857,278
--------- ---------
Total senior notes payable $2,510,902 $2,332,908
========= =========
Subordinated Notes Payable
Non-interest bearing notes due
Pitney Bowes $ 108,094 $ 85,284
12.75% note due through 1994 740 1,450
--------- ---------
Total subordinated notes payable $ 108,834 $ 86,734
========= =========
</TABLE>
Senior and subordinated notes payable at December 31, 1993 mature as follows:
$1,736.3 million in 1994, $29.8 million in 1995, $145.5 million in 1997 and
$708.1 million thereafter.
Lending Arrangements: Under terms of its senior and subordinated loan
agreements, the Company is required to maintain earnings before taxes and
interest charges at prescribed levels. With respect to such loan agreements,
Pitney Bowes will endeavor to have the Company maintain compliance with such
terms and, under certain loan agreements, is obligated, if necessary, to pay
to the Company amounts sufficient to maintain a prescribed ratio of income
available for fixed charges. No such payments have ever been required to
maintain income available for fixed charge coverage.
In March 1993, the Company redeemed $75 million of 8.75 percent notes due in
1996. The Company has also exercised the option to redeem $100 million of
10.65 percent notes due in 1999, on April 1, 1994. The Company had
previously sold an option on a notional principal amount of $100 million to
enable a counterparty to require the Company to pay a fixed rate of 10.67
percent for five years starting April 1, 1994. The counterparty has
exercised that option.
-32-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
In October 1992, the Company filed a $500 million shelf registration
statement with the Securities and Exchange Commission. This registration
statement, together with the carryover of $100 million from a previous shelf
registration, should meet the Company's long-term financing needs for the
next two years.
The Company has entered into interest rate swap agreements as a means of
managing interest rate exposure. The interest differential to be paid or
received is recognized over the life of the agreements as an adjustment to
interest expense. At December 31, 1993, outstanding notional principal
amounts were $621 million for interest rate swap agreements. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate swap agreements to the extent of the differential between
the fixed- and variable-rates; such exposure is considered minimal.
In 1993 and 1992, the Company issued $22.8 million and $12.0 million,
respectively, of non-interest bearing subordinated notes to Pitney Bowes in
exchange for funds equal to tax losses generated by the Company and utilized
by Pitney Bowes in the 1992 and 1991 consolidated tax returns. Any
non-interest bearing subordinated notes payable to Pitney Bowes mature after
all senior notes now outstanding and executed hereafter are paid.
Note 11. - Stockholder's Equity
<TABLE>
The following is a reconciliation of stockholder's equity:
<CAPTION> Total
Common Capital Retained Stockholder's
Stock Surplus Earnings Equity
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Balance January 1, 1991 $46,000 $31,705 $341,802 $419,507
Net income - 1991 93,157 93,157
Dividends paid to PBI (27,000) (27,000)
Capital contribution from PBI 4,250 4,250
------ ------ ------- -------
Balance December 31, 1991 46,000 35,955 407,959 489,914
Net income - 1992 118,896 118,896
Dividends paid to PBI (31,000) (31,000)
Capital contribution from PBI 3,328 3,328
------ ------ ------- -------
Balance December 31, 1992 46,000 39,283 495,855 581,138
Net income - 1993 123,485 123,485
Dividend paid to PBI (36,000) (36,000)
Capital contribution from PBI 2,442 2,442
------ ------ ------- -------
Balance December 31, 1993 $46,000 $41,725 $583,340 $671,065
====== ====== ======= =======
</TABLE>
At December 31, 1993, 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 December 31, 1993 and 1992. All
of the Company's stock is owned by Pitney Bowes.
-33-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Contributions to capital surplus from PBI for 1991 to 1993 were made in
connection with investments in real estate financing projects. When the
Company entered into real estate lease financing, PBI agreed to make capital
contributions up to a maximum of $15.0 million to provide a portion of the
financing for such transactions, of which $13.8 million has been received to
date. There is no formal agreement in place and PBI is under no obligation
to continue with capital contributions.
Note 12. - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, accounts payable and senior notes payable with original maturities less
than one year. The carrying amounts approximate fair value because of the
short maturity of these instruments.
Investment securities. The fair value of investment securities is estimated
based on quoted market prices, dealer quotes and other estimates.
Loans receivable. The fair value of loans receivable is estimated based on
quoted market prices, dealer quotes or by discounting the future cash flows
using current interest rates at which similar loans would be made to
borrowers with similar credit ratings and similar remaining maturities.
Senior notes payable with original maturities greater than one year. The
fair value of long-term debt is estimated based on quoted dealer prices for
the same or similar issues.
Interest rate swap and swap option agreements and foreign currency exchange
contracts. The fair values of interest rate swaps, swap options and foreign
currency exchange contracts are obtained from dealer quotes. These values
represent the estimated amount the Company would receive or pay to terminate
the agreements taking into consideration current interest rates, the credit
worthiness of the counterparties and current foreign currency exchange rates.
Transfers of receivables with recourse. The fair value of the recourse
liability represents the estimate of expected future losses. The Company
periodically evaluates the adequacy of reserves and estimates of expected
losses, if the resulting evaluation of expected losses differs from the
actual reserve, adjustments are made to the reserve.
Financial guarantee contracts. The Company has provided standby guarantees
for its foreign affiliates under a $250 million European commercial paper
program, a $100 million revolving line of credit, and in connection with
receivable transfers with recourse. Aggregate exposure under the guarantees
at December 31, 1993 and 1992 was $153 million and $349 million,
respectively. The fair value of the European Commercial Paper program and
the revolving letter of credit is based on the cost to the Company for
obtaining a letter of credit to support performance under the guarantees.
The fair value of the guarantees under the receivable transfers with recourse
represents the estimate of expected future losses. In certain instances,
reserves established in connection with these receivable transfers have been
established on the affiliated companies financial statements approximately
equal to the fair value disclosures presented below.
-34-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Residual and conditional commitment guarantee contracts. The fair value of
residual and conditional commitment guarantee contracts is based on the
projected fair market value of the collateral as compared to the guaranteed
amount plus a commitment fee generally required by the counterparty to assume
the guarantee.
Commitments to extend credit. The fair value of commitments to extend credit
is estimated by comparing current market conditions taking into account the
remaining terms of existing agreements and the present credit worthiness of
the counterparties.
<TABLE>
The estimated fair values of the Company's financial instruments are as
follows:
<CAPTION>
December 31 1993 1992
--------------------- ---------------------
Carrying Fair Carrying Fair
Value(1) Value Value(1) Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment securities $ 4,550 $ 4,668 $ 13,381 $ 13,445
Loans receivable (2) 206,630 213,509 180,850 185,953
Senior notes payable with
original maturities greater
than one year (795,727) (880,397) (882,927) (925,781)
Interest rate swap options - - (10,950) (10,950)
Interest rate swaps (13,781) (64,846) (3,399) (32,594)
Foreign currency exchange
contracts - 2,247 - 2,932
Transfers of receivables
with recourse (6,060) (6,060) (8,742) (8,742)
Residual and conditional
commitment guarantee
contracts (2,679) (2,687) (2,431) (3,692)
Commitments to extend credit - (2,003) (61) (2,166)
<FN>
(1) Carrying value includes accrued interest and deferred fee income, where
applicable.
(2) Carrying value for loans receivable and other debt financing is net of
applicable allowance for credit losses.
</TABLE>
-35-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 13. - Taxes on Income
In 1992, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109), effective retroactively to
January 1, 1992. Application of FAS 109 required no cumulative effect
adjustment primarily due to the Company's previous use of the liability
method of accounting for income taxes. The adoption of this standard had no
significant effect on the Company's tax provision for 1992.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted
increasing U.S. corporate income tax rates from 34 percent to 35 percent,
retroactive to January 1, 1993. The liability method of accounting for
income taxes requires the effect of a change in tax laws or rates on current
or accumulated deferred income taxes to be reflected in the period that
includes the enactment date of the new legislation. Accordingly, in the
third quarter of 1993, the Company recorded additional tax expense reflecting
the retroactive tax law changes, $9.3 million of which was the effect of the
rate change on deferred tax balances at January 1, 1993.
In the fourth quarter of 1993, the Company completed a transaction whereby it
contributed certain commercial aircraft, subject to direct finance leases, to
a majority owned partnership. The partnership transaction had the effect of
reducing the Company's obligation for previously accrued deferred taxes. The
reduction in deferred taxes has been recognized as a reduction in 1993 income
tax expense.
<TABLE>
Income before income taxes and the provision for income taxes were as
follows:
<CAPTION>
Years ended December 31 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Income before income taxes $189,960 $185,704 $148,746
======= ======= =======
Provisions for income taxes:
Federal:
Current $ 5,424 $ 12,809 $ 28,956
Deferred 47,141 38,415 15,282
------- ------- -------
Total Federal 52,565 51,224 44,238
------- ------- -------
State and Local:
Current 3,605 1,522 192
Deferred 10,305 12,196 11,159
------- ------- -------
Total state and local 13,910 13,718 11,351
------- ------- -------
Total $ 66,475 $ 64,942 $ 55,589
======= ======= =======
</TABLE>
-36-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
Deferred tax liabilities and (assets):
<CAPTION>
December 31 1993 1992 1991
------- ------- -------
Deferred tax liabilities:
<S> <C> <C> <C>
Lease revenue and related
depreciation $359,013 $338,972 $303,150
------- ------- -------
Gross deferred tax
liabilities 359,013 338,972 303,150
------- ------- -------
Deferred tax assets:
Alternative minimum tax (AMT)
credit carryforwards (64,519) (84,884) (84,884)
------- ------- -------
Gross deferred tax assets (64,519) (84,884) (84,884)
------- ------- -------
Total $294,494 $254,088 $218,266
======= ======= =======
</TABLE>
<TABLE>
A reconciliation of the U.S. federal statutory rate to the Company's effective
income tax rate follows:
<CAPTION>
Percent of Pretax Income 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 34.0% 34.0%
State and local income taxes 4.8 4.9 5.1
Investment tax credits .1 .1 .3
Rate adjustment for deferred
taxes 4.9 - -
Partnership tax benefits (6.1) - -
Tax-exempt foreign trade income (3.9) (3.3) (1.0)
Tax-exempt finance income (.3) (.5) (.6)
Other .5 (.2) (.4)
---- ---- ----
Effective income tax rate 35.0% 35.0% 37.4%
==== ==== ====
</TABLE>
Note 14. - Retirement Plan and Nonpension Postretirement Benefit Plan
The Company participates in the Pitney Bowes retirement plan which covers
substantially all PBCC employees. Colonial Pacific employees are covered
under a separate plan. The assets of these plans fully fund vested benefits.
Pitney Bowes' plan assumptions were 7.50 percent in 1993 and 8.50 percent in
1992 for the discount rate, 5.00 percent in 1993 and 6.00 percent in 1992 for
the expected rate of increase in future compensation levels and 9.50 percent
in 1993 and 1992 for the expected long-term rate of return on plan assets.
The Company's pension expense was $1.4 million in 1993, $1.0 million in 1992
and $.9 million in 1991.
-37-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
The Company also participates in the Pitney Bowes nonpension postretirement
benefit plan which provides certain health care and life insurance benefits to
eligible retirees and their dependents. In the fourth quarter of 1992, the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS
106). This statement requires that the cost of these benefits be recognized
over the period the employee provides credited service to the Company rather
than recognized on a cash basis, when incurred.
The transition effect of adopting FAS 106 on the immediate recognition basis,
as of January 1, 1992, was a one-time, after-tax charge of $1.9 million (net
of approximately $1.2 million of income taxes). In the first quarter of 1993,
Pitney Bowes announced certain changes to its health care plans, including plan
cost maximums, which should significantly reduce the ongoing incremental impact
of FAS 106 on future earnings.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), was issued
addressing benefits provided by an employer to former or inactive employees
after employment but before retirement. FAS 112 requires that postemployment
benefit costs be recognized on the accrual basis of accounting effective for
fiscal years beginning after December 15, 1993. Postemployment benefits
include the continuation of salary, health care, life insurance and
disability-related benefits to former or inactive employees, their
beneficiaries and covered dependents. The Company will adopt FAS 112 during
the first quarter of 1994, as required. Upon adoption, Pitney Bowes
anticipates recognizing a one-time, non-cash after-tax charge of approximately
$60 to $120 million for the cumulative effect on prior years of such adoption,
some of which may be allocated back to the Company.
Note 15. - Legal Proceedings
The Company is not currently involved in any material litigation.
Note 16. - Commitments and Contingent Liabilities
The Company is the lessee under noncancelable operating leases for office space
and automobiles. Future minimum lease payments under these leases are as
follows: $4.8 million in 1994, $4.5 million in 1995, $4.0 million in 1996,
$3.3 million in 1997, $3.0 million in 1998, and $8.7 million thereafter.
Rental expense under operating leases was $4.7 million, $4.5 million and $4.2
million in 1993, 1992 and 1991, respectively.
The Company has $10.8 million in unfunded loan commitments. The Company has
also entered into agreements with another leasing company to guarantee a
portion of the leasing company's residual position in lease contracts. In
consideration for these guarantees, the Company received a fee. The aggregate
exposure under these guarantees is $22.8 million.
-38-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 17. - Quarterly Financial Information
<TABLE>
Summarized quarterly financial information for 1993 and 1992 follows:
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------- --------------------- --------------------- ----------------------
1993 1992 1993 1992 1993 1992 1993 1992
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total finance income $ 125,469 $ 116,100 $ 138,000 $ 120,518 $ 125,626 $ 124,760 $ 124,359 $ 133,116
-------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Interest 36,510 36,768 33,930 36,914 33,383 37,407 33,549 35,505
Selling, general and
administrative 25,224 21,081 25,749 21,060 24,799 23,717 23,560 24,221
Depreciation and
amortization 3,576 3,682 3,929 3,517 3,752 3,386 5,288 3,351
Provision for credit
losses 13,964 12,100 27,854 13,315 14,157 13,503 14,270 19,263
Provision for income
taxes 15,638 15,159 15,822 15,810 27,942 16,248 7,073 17,725
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses 94,912 88,790 107,284 90,616 104,033 94,261 83,740 100,065
-------- -------- -------- -------- -------- -------- -------- --------
Income before effect of
a change in accounting
for nonpension
postretirement
benefits 30,557 27,310 30,716 29,902 21,593 30,499 40,619 33,051
Effect of a change in
accounting for nonpension
postretirement
benefits - (1,866) - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 30,557 $ 25,444 $ 30,716 $ 29,902 $ 21,593 $ 30,499 $ 40,619 $ 33,051
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
-39-
<PAGE>
Item 9. Changes in and disagreements with accountants on accounting and
---------------------------------------------------------------
financial disclosure
--------------------
None.
Part III
Item 10. Directors and executive officers of the Registrant
--------------------------------------------------
Omitted pursuant to General Instruction J.
Item 11. Executive compensation
----------------------
Omitted pursuant to General Instruction J.
Item 12. Security ownership of certain beneficial owners and management
--------------------------------------------------------------
Omitted pursuant to General Instruction J.
Item 13. Certain relationships and related transactions
----------------------------------------------
Omitted pursuant to General Instruction J.
Part IV
Item 14. Exhibits, financial statement schedules and reports on Form 8-K
---------------------------------------------------------------
(a) Index of documents filed as part of this report:
1. Consolidated Financial Statements Page(s)
--------------------------------- -------
Included in Part II of this report:
Report of Independent Accountants 18
Consolidated Statements of Income and of
Retained Earnings for each of the three years
in the period ended December 31, 1993 19
Consolidated Balance Sheet at December 31, 1993
and 1992 20
Consolidated Statement of Cash Flows for each of
the three years in the period ended
December 31, 1993 21-22
Notes to Consolidated Financial Statements 23-39
-40-
<PAGE>
2. Financial Statement Schedules
-----------------------------
Valuation and qualifying accounts and reserves
(Schedule VIII) 44
Short-term borrowings (Schedule IX) 45
The additional financial data should be read in conjunction with the
financial statements included in Item 8 to this Form 10-K. Schedules
not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in
the financial statements or notes thereto.
3. Index to Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
---------------------------------------------------------------------
Reg. S-K State or Incorporation
Exhibits Description by Reference
-------- ----------------------------- --------------------------
(3) .1 Articles of Incorporation, Incorporation by reference
as amended to Exhibits (3.1) and (3.2)
.2 By-Laws, as amended respectively, to Form 10
on Registration Statement
No. 0-13497 as filed with
the Commission on May 1,
1985.
(4) (a) Form of Indenture dated as Incorporated by reference
of May 1, 1985 between the to Exhibit (4a) to
Company and Bankers Trust Registration Statement on
Company, as Trustee Form S-3 (No. 2-97411) as
filed with the Commission
on May 1, 1985.
(b) Form of First Supplemental Incorporated by reference
Indenture dated as of to Exhibit (4b) to
December 1, 1986 between Registration Statement on
the Company and Bankers Form S-3 (No. 33-10766)
Trust Company, as Trustee as filed with the
Commission on December 12,
1986.
(c) Form of Second Supplemental Incorporated by reference
Indenture dated as of to Exhibit (4c) to
February 15, 1989 between Registration Statement on
the Company and Bankers Form S-3 (No. 33-27244)
Trust Company, as Trustee as filed with the
Commission on February 24,
1989.
(d) Form of Third Supplemental Incorporated by reference
Indenture dated as of May 1, to Exhibit (1) on Form 8-K
1989 between the Company and as filed with the
Bankers Trust Company, as Commission on May 16,
Trustee. 1989.
-41-
<PAGE>
(e) Letter Agreement between Incorporated by reference
Pitney Bowes Inc. and to Exhibit (4b) to
Bankers Trust Company, Registration Statement on
as Trustee Form S-3 (No. 2-97411) as
filed with the
Commission on May 1, 1985.
(10) Material contracts
.1 Operating Agreement dated Incorporated by reference
March 3, 1977, as amended, to Exhibits (10.1),
between Pitney Bowes (10.2), and (10.3),
Credit Corporation and respectively, to
Pitney Bowes Inc. Form 10 as filed with the
Commission on May 1, 1985.
.2 Finance Agreement, dated
July 5, 1978 between Pitney
Bowes Credit Corporation and
Pitney Bowes Inc.
.3 Tax Sharing Agreement, dated
April 1, 1977 between Pitney
Bowes Credit Corporation and
Pitney Bowes Inc.
(12) Computation of ratio of earnings
to fixed charges Exhibit (i)
(21) Subsidiaries of the registrant Exhibit (ii)
(23) Consent of independent Exhibit (iii)
accountants
(b) No reports on Form 8-K were filed for the three months ended
December 31, 1993.
-42-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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/ Michael J. Critelli
--------------------------------
Michael J. Critelli
President and Chief Executive Officer
Date March 11, 1994
-------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ Michael J. Critelli Date 3/11/94 Michael J. Critelli
-------------------------- ------- Director, President and
Chief Executive Officer
By /s/ G. Kirk Hudson Date 3/11/94 G. Kirk Hudson
-------------------------- ------- Vice President-Finance
(principal financial officer)
By /s/ Thomas P. Santora Date 3/11/94 Thomas P. Santora
-------------------------- ------- Controller
(principal accounting officer)
By /s/ George B. Harvey Date 3/11/94 George B. Harvey-Director
-------------------------- -------
By /s/ Carmine F. Adimando Date 3/11/94 Carmine F. Adimando-Director
-------------------------- -------
By /s/ Marc C. Breslawsky Date 3/11/94 Marc C. Breslawsky-Director
-------------------------- -------
By /s/ Douglas A. Riggs Date 3/11/94 Douglas A. Riggs-Director
-------------------------- -------
By /s/ Hiro R. Hiranandani Date 3/11/94 Hiro R. Hiranandani-Director
-------------------------- -------
By Date Harry W. Neinstedt-Director
-------------------------- -------
-43-
<PAGE>
<TABLE>
PITNEY BOWES CREDIT CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1991 TO 1993
(Dollars in thousands)
<CAPTION>
Additions Deductions -
Balance at charged to uncollectible
beginning costs and accounts Balance at
of year expenses written off end of year
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for credit
losses (shown on
balance sheet as
deduction from net
investments)
1993 $79,177 $70,245 $51,111 $98,311
1992 $67,515 $58,181 $46,519 $79,177
1991 $62,259 $48,943 $43,687 $67,515
</TABLE>
-44-
<PAGE>
<TABLE>
PITNEY BOWES CREDIT CORPORATION
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1991 TO 1993
(Dollars in thousands)
<CAPTION>
Maximum Average Weighted
Category of Weighted amount amount average
aggregate average outstanding outstanding interest
short-term Balance at interest during during rate during
borrowings December 31, rate the year the year (1) the year (1)
---------- ------------ -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
- ----
Senior notes
due banks - - $ 12,500 $ 4,041 1.4%
Commercial
paper $1,574,999 3.3% 1,574,999 1,454,391 3.2
Notes
w/trust
departments
of banks 159,687 2.1 168,267 118,525 2.3
--------- ---- --------- --------- ----
Total $1,734,686 3.2% $1,755,766 $1,576,957 3.1%
========= ==== ========= ========= ====
1992
- ----
Senior notes
due banks $ 12,500 2.7% $ 12,500 $ 4,399 2.0%
Commercial
paper 1,389,876 3.5 1,544,556 1,408,605 3.8
Notes
w/trust
departments
of banks 70,000 3.6 85,000 82,500 3.7
--------- ---- --------- --------- ----
Total $1,472,376 3.5% $1,642,056 $1,495,504 3.7%
========= ==== ========= ========= ====
1991
- ----
Senior notes
due banks - - $ 15,000 $ 164 6.3%
Commercial
paper $1,270,600 4.8% 1,270,600 1,050,477 6.0
Notes
w/trust
departments
of banks 85,000 4.8 110,000 99,176 5.8
--------- ---- --------- --------- ----
Total $1,355,600 4.8% $1,395,600 $1,149,817 6.0%
========= ==== ========= ========= ====
<FN>
(1) Average borrowings were determined by dividing the sum of the daily weighted average outstanding principal balances
by the actual number of days in the year. The weighted average interest rate during the year was computed by
dividing the actual interest expense on borrowings by the average amount outstanding during the year.
</TABLE>
-45-
Exhibit (i)
-----------
Pitney Bowes Credit Corporation
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
Years Ended December 31
--------------------------------------------
1993 1992 1991 1990 1989
-------- ------- ------- ------- -------
Income before
income taxes $189,960 $185,704 $148,746 $131,582 $105,269
------- ------- ------- ------- -------
Fixed charges:
Interest on debt 137,372 146,594 167,236 164,699 161,267
1/3 rental expense 1,575 1,491 1,389 1,321 1,159
------- ------- ------- ------- -------
Total fixed charges 138,947 148,085 168,625 166,020 162,426
------- ------- ------- ------- -------
Total $328,907 $333,789 $317,371 $297,602 $267,695
======= ======= ======= ======= =======
Ratio of earnings
to fixed charges (1) 2.37X 2.25X 1.88X 1.79X 1.65X
======= ======= ======= ======= =======
(1) The ratio of earnings to fixed charges has been computed by
dividing income before income taxes and fixed charges by fixed
charges. Fixed charges consist of interest on debt and one-third
rental expense as representative of the interest portion of
rentals.
Exhibit (ii)
------------
Subsidiaries of the Registrant
------------------------------
The Registrant, Pitney Bowes Credit Corporation, a Delaware corporation, is a
subsidiary of Pitney Bowes Inc.
The following are subsidiaries of the Registrant as of December 31, 1993:
Country or State
Company Name of Incorporation
- ------------------------- ----------------
Colonial Pacific Leasing Corporation Massachusetts
Atlantic Mortgage & Investment Corporation Florida
Pitney Bowes Real Estate Financing Corporation (PREFCO) Delaware
PREFCO I Inc. (Subsidiary of PREFCO) Delaware
PREFCO I LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO II Inc. (Subsidiary of PREFCO) Delaware
PREFCO II LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO III Inc. (Subsidiary of PREFCO) Delaware
PREFCO III LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO V Inc. (Subsidiary of PREFCO) Delaware
PREFCO V LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO VIII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IX Inc. (Subsidiary of PREFCO) Delaware
PREFCO IX LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO X Inc. (Subsidiary of PREFCO) Delaware
PREFCO X LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XI Inc. (Subsidiary of PREFCO) Delaware
PREFCO XI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIII LP Inc. (Subsidiary of PREFCO) Delaware
PB Funding Corporation Delaware
PB Global Holdings Inc. Connecticut
PBA Foreign Sales
Corporation (Subsidiary of PB Global Holdings Inc.) Barbados
PB Global Holdings II Inc. Connecticut
Tower FSC Ltd. (Subsidiary of PB Global Holdings II Inc.) Bermuda
PB Global Holdings III Inc. Connecticut
PB Nikko FSC Ltd. (Subsidiary of PB Global Holdings III Inc.) Bermuda
PB Global Holdings IV Inc. Connecticut
PB Nihon FSC Ltd. (Subsidiary of PB Global Holdings IV Inc.) Bermuda
PBL Holdings Inc. Nevada
PB Leasing Services Inc. Nevada
Exhibit (iii)
-------------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No.
33-27244 and No. 33-53736) of Pitney Bowes Credit Corporation of our
report dated February 1, 1994 appearing on page 18 of this Form 10-K.
PRICE WATERHOUSE
Stamford, Connecticut
March 11, 1994
