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, 1995
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 21, 1996: None.
As of March 21, 1996, 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.
<PAGE>
PITNEY BOWES CREDIT CORPORATION
FORM 10-K
1995 INDEX
-------------------------------
Part I
Item Page
- ---- ----
1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . 11
3. Legal proceedings . . . . . . . . . . . . . . . . . . 11
4. Submission of matters to a vote of security holders . 12
Part II
5. Market for the registrant's common equity and related
stockholder matters . . . . . . . . . . . . . . . . . 12
6. Selected financial data . . . . . . . . . . . . . . . 13
7. Management's discussion and analysis of financial
condition and results of operations . . . . . . . . . 14
8. Financial statements and supplementary data . . . . . 22
9. Changes in and disagreements with accountants on
accounting and financial disclosure . . . . . . . . . 50
Part III
10. Directors and executive officers of the Registrant . . 50
11. Executive compensation . . . . . . . . . . . . . . . . 50
12. Security ownership of certain beneficial owners and
management . . . . . . . . . . . . . . . . . . . . . 50
13. Certain relationships and related transactions . . . . 50
Part IV
14. Exhibits, financial statement schedules and reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . 50
Index to Exhibits . . . . . . . . . . . . . . . . . . 51
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 53
-2-
<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 in the
commercial and industrial, and mortgage servicing markets.
The Internal Financing Division of PBCC provides marketing support
to PBI and its discontinued subsidiaries Dictaphone Corporation
(Dictaphone) and Monarch Marking Systems, Inc. (Monarch), both of
which were sold in 1995. 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 $500 to $500,000, although historically most
transactions have occurred in the $1,000 to $10,000 range, with
lease terms generally from 36 to 60 months.
PBCC's External Financing Division operates in the commercial and
industrial market by offering financial services to its customers
for products not manufactured or sold by PBI or its subsidiaries.
Products financed through the External Financing Division large-
ticket financing programs include both commercial and
non-commercial aircraft, over-the-road trucks and trailers,
railcars and locomotives, 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 $24 million for
non-commercial aircraft and up to $43 million for commercial
aircraft. Lease terms are generally between five and 12 years for
non-commercial aircraft and from ten to 25 years for commercial
aircraft. The Company has also participated in ten commercial
aircraft leveraged lease transactions with a total investment of
$266.8 million at December 31, 1995. The Company's External
Financing Division has also participated, on a select basis, in
certain other types of financial transactions including: sale of
certain lease transactions, senior secured loans in connection with
acquisition, leveraged buyout and recapitalization financings, and
certain project financings.
-3-
<PAGE>
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 have
provided capital for PREFCO's investments.
The Company's External Financing Division is also responsible for
managing the Custom Vendor Finance (CVF) programs. CVF provides
funding source financing programs for non-affiliated vendors
selling equipment with a cost generally in the range of $5,000 to
$250,000.
Colonial Pacific Leasing Corporation (CPLC), a wholly-owned
subsidiary of PBCC, located in Tualatin, Oregon operates in the
small-ticket external market. CPLC 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.
CPLC and CVF are reported as "External small-ticket programs" in
this Annual 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.
Financial Structures Limited (FSL), a wholly-owned and independent
subsidiary of PBCC, was incorporated in Bermuda in June, 1995. FSL
provides residual value insurance to unaffiliated third parties,
including manufacturers, financial institutions and leasing
companies involved in financing transactions. FSL plans on
mitigating its guaranteed residual risk by diversifying its
portfolio by both asset type and maturity date.
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.
-4-
<PAGE>
The Company's gross finance assets (contracts receivable plus
estimated residual values) outstanding for Internal and External
financing programs at December 31, 1991 through 1995 are presented
in Item 6, Selected Financial Data. Total Company gross finance
assets at December 31, 1995 were $5.5 billion of which
approximately 29 percent were related to mailing, paper handling
and shipping products, 16 percent were commercial aircraft, 12
percent were railcars, seven percent were data processing equipment
products, six percent were copier and office equipment and four
percent were over-the-road trucks and trailers. In 1995, total
gross finance contracts acquired excluding assets held for sale
amounted to $2.2 billion compared to $1.6 billion in 1994.
External large-ticket programs accounted for 26 percent of gross
finance contracts acquired in 1995 compared to 23 percent in 1994.
As of December 31, 1995, PBCC had approximately 606,000 active
accounts compared with 548,000 active accounts at December 31,
1994.
At December 31, 1995, PBCC's largest customer accounted for $167.7
million, or 3.5 percent of gross finance receivables, and the
Company's ten largest customers accounted for $840.8 million in
gross finance receivables, or 17.5 percent of the receivable
portfolio.
CREDIT EXPERIENCE
-----------------
The percent of receivables over 30 days delinquent was 2.3 percent
at both December 31, 1995 and 1994, respectively, compared to 1.9
percent at December 31, 1993.
CREDIT POLICIES
---------------
PBCC's management and Board of Directors establish credit approval
limits at regional, divisional, 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.
-5-
<PAGE>
LOSS EXPERIENCE
---------------
PBCC has charged against the allowance for credit losses $52.5
million, $59.2 million and $51.1 million in 1995, 1994 and 1993,
respectively. The decrease in write-offs in 1995 was primarily due
to lower write-offs related to assets purchased from the Company's
German affiliate, which totaled $14.2 million in 1995 compared to
$25.2 million in 1994, partially offset by higher write-offs in the
Internal Financing Division. Excluding the losses related to
assets purchased from the Company's German affiliate, losses as a
percentage of average net lease receivables (net investments before
allowance for credit losses plus the uncollected principal balance
of receivables sold) were .81 percent for both 1995 and 1994 and
1.03 percent for 1993. 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 provides the largest
financing support of PBI's business equipment, business services
and commercial and industrial segments. Approximately 13 percent
of PBI's consolidated revenue from continuing operations in both
1995 and 1994 and 14 percent in 1993 resulted from continuing
operations' equipment sales made to PBCC for lease to third
parties.
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, 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.
-6-
<PAGE>
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.
The Pitney Bowes Copier Division does not remanufacture used copier
equipment; therefore copier equipment is excluded from the buyback
arrangement described above. There is no AAP for copier equipment.
All copier equipment lease transactions are subject to the
Company's standard credit review investigation.
In 1994, Pitney Bowes announced that it had refined its strategic
focus to capitalize on its strengths and competitive position by
concentrating its energies and resources on products and services
which facilitate the preparation, organization, movement, delivery,
tracking, storage and retrieval of documents, packages, letters and
other materials, in hard copy and digital form for its customers.
As a result, it sold its Monarch and Dictaphone subsidiaries in
June 1995 and August 1995, respectively. For the purpose of this
Annual Report, Monarch and Dictaphone are still included as part of
the Internal Financing Division results and are classified as part
of PBI's discontinued operations. In connection with this change
in PBI's business focus, Dictaphone paid PBCC $11.2 million in
January 1995 to terminate its obligations under the buyback
agreement. Under modified operating agreements, PBCC continues to
provide uninterrupted financing programs to both Monarch and
Dictaphone.
-7-
<PAGE>
Finance Agreement: Pursuant to the Amended and Restated Finance
Agreement (the Finance Agreement) dated June 12, 1995, between PBI
and PBCC, PBI has agreed to retain, directly or indirectly,
ownership of the majority of the outstanding shares of capital
stock of the Company having voting power in the election of
directors, to make payments, if necessary, to enable the Company 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
quarter, and to provide or cause to be provided funds sufficient to
make timely payment of any principal, interest or premium in
respect of any of the Company's indebtedness for borrowed money
that has the benefit of the Finance Agreement if the Company is
unable to make such payment.
Under the terms of the Finance Agreement and the Indenture dated as
of November 1, 1995, between the Company and Chemical Bank, as
Trustee (the 1995 Indenture), the Finance Agreement may not be
amended, in any material respect, or terminated while the Company
has any series of debt securities issued under the 1995 Indenture
or any series of other debt outstanding that is, by its express
terms, entitled to the provisions of the Finance Agreement unless
at least two nationally recognized statistical rating agencies that
have been rating such series of debt, confirm that their ratings
for such series of debt will not be downgraded as a result or the
holders of at least a majority of the outstanding principal amount
of such series of debt have consented in writing.
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 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 if 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. The Tax Sharing Agreement can be cancelled by
either PBI or PBCC upon twelve months written notice.
-8-
<PAGE>
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. There were
no capital contributions made in 1995 or 1994.
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 27,700 people throughout the United States,
Europe, Canada, Australia and other countries. PBI operates within
three industry segments: business equipment, business services and
commercial and industrial financing.
The business equipment segment includes: postage meters and mailing
equipment, production mail systems, shipping and facsimile systems,
copiers and copier supplies and related financing. 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.
The business services segment includes: mailroom, reprographics and
related facilities management services, and mortgage servicing.
The commercial and industrial financing segment provides financial
services for the domestic commercial and industrial markets.
As of December 31, 1995, PBI and its consolidated subsidiaries had
total assets of $7.8 billion and stockholders' equity of $2.1
billion. For the year ended December 31, 1995, PBI's consolidated
revenue and income from continuing operations were $3.6 billion and
$407.7 million, respectively, compared with $3.3 billion and $348.4
million for 1994.
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.
-9-
<PAGE>
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
regional offices to eliminate costly delays and to increase the
quality of service offered to customers and vendors.
PBI has historically been a leading supplier of certain products
and services in its business segments, particularly postage meters
and mailing machines. However, it has strong competition in all
segments from a number of companies. In the United States, PBI is
facing competition for new placements from several postage meter
and mailing machine suppliers, and its mailing systems products
face some 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. PBCC may
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 (interest rate swaps) to control its sensitivity to
interest rate volatility. The Company utilizes interest rate swaps
when it considers the economic benefits to be favorable. Interest
rate swaps have been principally utilized to fix interest rates on
commercial paper and/or obtain a lower cost on debt than would
otherwise be available absent the swap. 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.
-10-
<PAGE>
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, 1995, 885 people were employed by the Company and
its subsidiaries. Employee relations are considered to be highly
satisfactory. Management follows the policy of keeping employees
informed of its decisions, and encourages and implements
suggestions whenever practicable.
Item 2. Properties
----------
All of the Company's office space is occupied under operating
leases with original terms ranging from one to eight years. PBCC's
executive and administrative offices are located in Norwalk,
Connecticut. PBCC has three regional offices located throughout
the United States and six district sales offices located in or near
major metropolitan areas. Colonial Pacific Leasing Corporation'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
-----------------
From time to time, the Company is a party to lawsuits that arise in
the ordinary course of its business. These lawsuits may involve
litigation by or against the Company to enforce contractual rights
under vendor, insurance or other contracts; lawsuits by or against
the Company relating to equipment, service or payment disputes with
customers; disputes with employees; or other matters. The Company
is currently a defendant in a number of lawsuits, none of which
should have, in the opinion of management and legal counsel, a
material adverse effect on the Company's financial position or
results of operations.
Pitney Bowes has been advised that the Antitrust Division of the
U.S. Department of Justice is conducting a civil investigation of
its postage equipment business (including subsidiaries) to
determine whether there is, has been, or may be a violation of the
surviving provisions of the 1959 consent decree between Pitney
Bowes and the U.S. Department of Justice, and/or the antitrust
laws. The Company intends to cooperate with the Department's
investigation.
-11-
<PAGE>
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 Pitney Bowes Inc.
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 in amounts totaling $62.0 million in 1995, $42.0
million in 1994 and $36.0 million in 1993. The Company intends to
continue to pay dividends to PBI in 1996.
-12-
<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 1995 1994 1993 1992 1991
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross finance contracts acquired $ 2,158,549 $ 1,627,974 $ 1,405,516 $ 1,425,450 $ 1,472,575
========== ========== ========== ========== ==========
Finance income $ 673,014 $ 560,216 $ 513,454 $ 494,494 $ 460,644
Equipment sales 2,687 45,747 - - -
Selling, general and administrative expenses 149,483 113,453 99,332 90,079 82,969
Depreciation and amortization 32,031 26,497 16,545 13,936 12,750
Cost of equipment sales 2,214 43,039 - - -
Provision for credit losses 58,549 56,133 70,245 58,181 48,943
Interest expense 202,090 151,239 137,372 146,594 167,236
Nonrecurring items, net - (3,311) - - -
---------- ---------- ---------- ---------- ----------
Income before income taxes 231,334 218,913 189,960 185,704 148,746
Provision for income taxes 72,678 71,820 66,475 64,942 55,589
---------- ---------- ---------- ---------- ----------
Income before effect of accounting changes 158,656 147,093 123,485 120,762 93,157
Effect of accounting changes (1) - (2,820) - (1,866) -
---------- ---------- ---------- ---------- ----------
Net income $ 158,656 $ 144,273 $ 123,485 $ 118,896 $ 93,157
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges (2) 2.14X 2.43X 2.37X 2.25X 1.88X
At Year End
- -----------
Gross finance assets
Internal small-ticket programs $ 1,872,593 $ 1,697,890 $ 1,497,678 $ 1,342,622 $ 1,294,852
External large-ticket programs 2,574,338 2,485,419 2,415,370 2,399,918 2,310,174
External small-ticket programs 1,003,702 746,689 670,771 623,403 541,837
---------- ---------- ---------- ---------- ----------
Total gross finance assets 5,450,633 4,929,998 4,583,819 4,365,943 4,146,863
Unearned income (1,333,280) (1,234,928) (1,173,297) (1,204,261) (1,159,214)
---------- ---------- ---------- ---------- ----------
Finance assets $ 4,117,353 $ 3,695,070 $ 3,410,522 $ 3,161,682 $ 2,987,649
========== ========== ========== ========== ==========
Investment in leveraged leases $ 562,500 $ 478,650 $ 298,914 $ 274,846 $ 197,338
========== ========== ========== ========== ==========
Investment in operating leases, net $ 114,587 $ 95,684 $ 63,899 $ 45,432 $ 58,213
========== ========== ========== ========== ==========
Allowance for credit losses $ (101,355) $ (95,271) $ (98,311) $ (79,177) $ (67,515)
========== ========== ========== ========== ==========
Total assets $ 5,057,874 $ 4,451,837 $ 3,931,462 $ 3,618,164 $ 3,233,056
========== ========== ========== ========== ==========
Senior notes payable
Within one year $ 2,122,880 $ 2,075,591 $ 1,735,607 $ 1,475,630 $1,457,600
After one year 1,020,500 745,500 775,295 857,278 775,000
---------- ---------- ---------- ---------- ----------
Total senior notes payable $ 3,143,380 $ 2,821,091 $ 2,510,902 $ 2,332,908 $ 2,232,600
========== ========== ========== ========== ==========
Subordinated notes payable $ 170,857 $ 133,735 $ 108,834 $ 86,734 $ 75,487
========== ========== ========== ========== ==========
Stockholder's equity $ 869,994 $ 773,338 $ 671,065 $ 581,138 $ 489,914
========== ========== ========== ========== ==========
Debt to equity 3.81:1 3.82:1 3.90:1 4.16:1 4.71:1
<FN>
(1) Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112 entitled "Employers'
Accounting for Postemployment Benefits" (FAS 112). Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 entitled "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106).
For further discussion, see Note 17 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>
-13-
<PAGE>
Item 7. Management's discussion and analysis of financial condition
and results of operations
-----------------------------------------------------------
Events Impacting Comparability
- ------------------------------
The Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" (FAS 112), as
of January 1, 1994. FAS 112 requires that postemployment benefits be
recognized on the accrual basis of accounting. The effect of adopting
FAS 112 in the first quarter of 1994 was a one-time non-cash, after-
tax charge of $2.8 million (net of approximately $1.9 million of
income taxes). Additional information with respect to accounting for
postemployment benefits is disclosed in Note 17 to the Company's
consolidated financial statements.
The Omnibus Budget Reconciliation Act of 1993 (the Tax Act), enacted
August 10, 1993, increased 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 earnings or accumulated deferred
income taxes to be reflected in the period when the new legislation is
enacted. Consequently, the Company recorded $12.3 million of
additional tax expense in 1993, $9.3 million of which was the effect
of the rate change on deferred tax balances at January 1, 1993.
Accounting Changes
- ------------------
In addition to the adoption of FAS 112 in 1994, as discussed in Events
Impacting Comparability, the Company also adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" in 1994. In May
1993, Statement of Financial Accounting Standards No. 114, (FAS 114)
"Accounting by Creditors for Impairment of a Loan" was issued.
Subsequently, in October 1994 an amendment of FAS 114, Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" was issued.
Both statements were adopted by the Company in 1995 with no material
effect to the Company's reported results. In 1995, Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
Statement of Financial Accounting Standards No. 122,"Accounting for
Mortgage Servicing Rights" were issued and will be adopted as required
beginning January 1, 1996. Neither of these pronouncements is
expected to materially affect the Company's financial position or
results of operations.
-14-
<PAGE>
Results of Operations
- ---------------------
The Company's finance income increased 20.1 percent to $673.0 million
in 1995 compared with $560.2 million in 1994, which was up 9.1 percent
from 1993. Finance income for Internal small-ticket financing
programs increased 12.8 percent to $300.7 million in 1995 compared
with $266.5 million in 1994, which was up 1.7 percent from 1993. The
increase in 1995 is primarily due to higher investment levels and
higher income from fee-based programs. Finance income for Internal
small-ticket financing programs for 1993 included the impact of the
sale of finance assets which increased finance income $11.2 million.
Excluding the sale of finance assets in 1993, finance income for
Internal small-ticket financing programs would have increased 6.3
percent in 1994. Finance income for External large-ticket financing
programs increased 17.4 percent to $195.9 million in 1995 compared
with $166.9 million in 1994, which was up 12.6 percent from 1993. The
increase in 1995 compared with 1994 is primarily due to higher income
from fee-based programs and slightly higher investment levels partly
offset by lower lease rates on new business. Finance income for
External small-ticket financing programs increased 36.8 percent to
$139.3 million in 1995 compared with $101.8 million in 1994, which was
up 17.6 percent from 1993. The increase in 1995 as compared to 1994
is due to higher investment levels, higher lease rates on new business
and higher income from fee-based programs. Income from fee-based
programs include the gain from the sale of $100 million and $55
million of External small-ticket finance assets in 1995 and 1994,
respectively. Excluding the sale of finance assets, finance income
for External small-ticket financing programs would have increased 29.5
percent in 1995 and 7.4 percent in 1994. Revenue generated from
mortgage servicing increased 48.4 percent to $37.1 million in 1995
compared with $25.0 million in 1994, which was up 50.3 percent from
1993. The increases for the current and prior years are due to a
growing mortgage servicing portfolio and is consistent with the
Company's strategy to increase its fee-based programs.
During 1995, the Company sold operating lease assets which
generated $2.7 million in revenue compared to $45.7 million in
1994. The cost of such equipment sales was $2.2 million in 1995
and $43.0 million in 1994.
-15-
<PAGE>
Selling, general and administrative (SG&A) expenses increased 31.8
percent to $149.5 million in 1995 compared with $113.5 million in
1994, which was up 14.2 percent from 1993. SG&A expenses for
Internal small-ticket financing programs increased 3.9 percent to
$56.2 million in 1995 compared to $54.1 million in 1994, which was
2.3 percent above 1993. The increase over the last two years is
principally due to higher personnel related costs and to a lesser
degree higher sales assistance fees paid to PBI in 1995. SG&A
expenses for External large-ticket financing programs increased
24.9 percent to $17.3 million in 1995 compared with $13.8 million
in 1994, which was up 8.2 percent from 1993. The increase in 1995
is due to higher personnel related costs and higher utilization of
Corporate systems and legal resources and support. SG&A expenses
for External small-ticket financing programs increased 74.6 percent
to $61.7 million in 1995 compared with $35.4 million in 1994, which
was up 37.4 percent from 1993. The increases in 1995 and 1994 are
primarily due to higher marketing fees paid to brokers and impact
of the sales of finance assets in both years. Excluding the sale
of finance assets, SG&A for External small-ticket financing
programs would have increased 58.6 percent in 1995 and 21.3 percent
in 1994. SG&A expenses related to mortgage servicing increased
37.2 percent to $14.0 million in 1995 compared with $10.2 million
in 1994, which was up 28.4 percent from 1993 primarily due to a
growing mortgage servicing portfolio. SG&A expenses related to the
start-up of residual value operations in 1995 were $.3 million.
The Company entered the operating lease business on a limited basis
in 1990. Depreciation on operating leases was $13.5 million in
1995 and $11.6 million in 1994 reflecting a higher operating lease
investment balance during 1995. Amortization of purchased mortgage
servicing rights was $16.1 million in 1995 compared to $11.2
million in 1994. This increase is principally due to a larger
mortgage servicing portfolio in 1995. 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 over the term of the
transaction. Amortization of such fees was $2.4 million in 1995
compared to $3.7 million in 1994.
The provision for credit losses in 1995 increased 4.3 percent to
$58.5 million compared to $56.1 million for 1994, which decreased
20.1 percent from 1993. The provision for credit losses for the
Internal small-ticket financing programs increased 5.4 percent to
$34.2 million in 1995 compared with a provision of $32.5 million in
1994, which had increased 5.6 percent from 1993. The provision for
credit losses for the External small-ticket financing programs
increased 18.4 percent to $26.2 million in 1995 compared with $22.1
million in 1994, which decreased 36.8 percent from 1993. The
increase for both small-ticket financing programs in 1995 is
principally due to higher earning asset levels and the impact of
finance asset sales in 1995 and 1994. Excluding the impact of
asset sales, the provision for credit losses for the External
small-ticket programs would have increased 6.3 percent in 1995.
The provision for credit losses for the External large-ticket
financing programs was a credit of $1.9 million in 1995 compared
with a provision of $1.5 million in 1994, reflecting adjustments
for management's current evaluation of expected losses.
-16-
<PAGE>
As disclosed in previous filings, in December 1992, as part of the
restructuring of its German affiliate, Adrema Leasing Corporation
(Adrema), the Company purchased certain finance receivables and
other assets from Adrema. Based on the evaluation of these assets,
Pitney Bowes and the Company believe that sufficient reserves for
credit losses are in place to provide for currently expected
losses. As part of the orderly liquidation of assets from leasing
non-Pitney Bowes products in Germany, Adrema continues to bill and
collect accounts and repossess and remarket collateral where
possible over the remainder of the lease terms. The Company
continues to scrutinize the circumstances surrounding the losses
and evaluate actions that can be taken against former Adrema
management and other related parties.
The Company's allowance for credit losses as a percentage of net
lease receivables (net investments before allowance for credit
losses plus the uncollected principal balance of receivables sold)
was 2.00 percent at December 31, 1995, 2.12 percent at December 31,
1994 and 2.44 percent at December 31, 1993. PBCC charged $52.5
million, $59.2 million and $51.1 million against the allowance for
credit losses in 1995, 1994 and 1993, respectively. These write-
offs included $14.2 million, $25.2 million and $11.2 million in
1995, 1994 and 1993, respectively, which were related to assets
purchased from Adrema.
Interest expense was $202.1 million in 1995 compared with $151.2
million in 1994, an increase of 33.6 percent. The increases in
both 1995 and 1994 reflect higher weighted average short-term
interest rates, together with higher average borrowings required to
fund additional investment in earning assets. The effective
interest rate on short-term average borrowings was 5.50 percent in
1995 compared to 4.19 percent in 1994 and 3.05 percent in 1993.
The Company does not match fund its financing investments and does
not apply different interest rates to its various financing
programs.
During the third quarter of 1994, the Company recorded a
nonrecurring $3.3 million pretax credit resulting mainly from a
$3.5 million credit to income due to changes made by the Company's
parent, Pitney Bowes, related to certain postemployment benefits
partly offset by charges related to Pitney Bowes' continued
refinement of its strategic focus as outlined in Note 18 to the
Company's consolidated financial statements.
The effective tax rate for 1995 was 31.4 percent compared to 32.8
percent for 1994 and 35.0 percent in 1993. The lower effective tax
rate is primarily due to the reduction in current period tax
liabilities associated with the purchase of a lease portfolio in
the fourth quarter of 1994, combined with higher tax-exempt finance
income and lower state and local income tax payments.
-17-
<PAGE>
Income before effect of accounting change increased 7.9 percent to
$158.7 million in 1995 compared with $147.1 million in 1994, which
excluding the impact of the Tax Act was up 10.8 percent from 1993.
The increase in 1995 is primarily attributable to higher investment
levels and additional fee-based income, partly offset by higher
short-term interest rates and higher SG&A, depreciation and
amortization expenses. The marginal increase in income before
effect of accounting change between 1994 and 1993 reflects the
impact of the Tax Act in 1993.
The Company's ratio of earnings to fixed charges was 2.14 times for
1995 compared with 2.43 times for 1994 and 2.37 times for 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 (interest rate swaps) to control its sensitivity to
interest rate volatility. PBCC's debt mix was 66 percent short-
term and 34 percent long-term at December 31, 1995 and 70 percent
short-term and 30 percent long-term at December 31, 1994. The
Company utilizes interest rate swaps when it considers the economic
benefits to be favorable. Interest rate swaps have been
principally utilized to fix interest rates on commercial paper
and/or obtain a lower cost on debt than would otherwise be
available without the interest rate swap. PBCC's swap-adjusted
fixed rate versus variable rate debt mix was 57 percent variable
rate and 43 percent fixed rate at December 31, 1995 and 59 percent
variable rate and 41 percent fixed rate at December 31, 1994. 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 May 1995, the Company issued $100 million of 6.250 percent notes
due in June 1998 and $100 million of 6.625 percent notes due in
June 2002. In June 1995, the Company also issued $25 million of
medium-term notes due in June 1998 and $50 million due in June 2000
with a weighted average coupon rate of 6.014 percent.
The Company has $750 million of unissued debt securities available
from a shelf registration statement filed with the Securities and
Exchange Commission in September 1995. Up to $500 million of
medium-term notes may be offered under this registration statement.
The $750 million available under this shelf registration statement
should meet the Company's financing needs for the next two years.
The Company also had unused lines of credit and revolving credit
facilities totaling $1.62 billion at December 31, 1995, largely
supporting its commercial paper borrowings.
-18-
<PAGE>
In January 1994, the Company sold approximately $88 million of
assets with recourse in a privately-placed transaction with a
third-party investor. These assets, representing finance
receivables and other assets, were previously transferred in
December 1992 from the Company's German affiliate, Adrema Leasing
Corporation. This transaction had no material effect on the
Company's results. Additionally, during 1995, 1994 and 1993, the
Company sold approximately $100 million, $55 million and $26
million, respectively, of External small-ticket finance assets with
recourse in privately-placed transactions with third-party
investors. The proceeds from the sale of these assets were used to
repay a portion of the Company's commercial paper borrowings. The
uncollected principal balance of receivables sold at December 31,
1995 and 1994 was $149 million and $160 million, respectively.
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 control the growth of External large-ticket
investments and debt levels.
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,
capitalization of any fee-based business initiatives and the
refinancing of maturing debt.
The Company's utilization of derivative instruments is currently
limited to interest rate swap agreements (interest rate swaps) and
foreign currency exchange forward contracts (foreign currency
contracts). The Company periodically enters into interest rate
swaps as a means of managing interest rate exposure. The interest
rate differential to be paid or received is recognized over the
life of the agreements as an adjustment to interest expense. The
Company is exposed to credit loss in the event of non-performance
by the counterparties to the interest rate swaps to the extent of
the differential between fixed- and variable-rates; such exposure
is considered minimal. The Company has entered into foreign
currency contracts for the purpose of minimizing its risk of loss
from fluctuations in exchange rates in connection with certain
intercompany loans and certain transfers to the Company by foreign
affiliates of foreign currency denominated lease receivables. The
Company is exposed to credit loss in the event of non-performance
by the counterparties to the foreign currency contracts to the
extent of the difference between the spot rate at the date of the
contract delivery and the contracted rate; such exposure is
considered minimal. See Note 12 to the Company's consolidated
financial statements for further information regarding derivative
instruments.
The Company's liquidity ratio (finance contracts receivable plus
residuals expected to be realized in cash over the next 12 months
to current maturities of debt over the same period) was .61 times
at both December 31, 1995 and 1994, respectively.
-19-
<PAGE>
Under the Finance Agreement between Pitney Bowes and the Company,
Pitney Bowes is obligated on a quarterly basis to make payments to
the extent necessary, so that the Company's income available for
fixed charges for the preceding one year period shall not be less
than 1.25 times its fixed charges. Pitney Bowes has also agreed to
make any past due principal, interest or premium payments on behalf
of PBCC in respect to all approved debt and/or commercial paper, in
the event that PBCC is unable to make such payments. To date, no
such payments from Pitney Bowes have been required.
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.
Legal, Environmental and Regulatory Matters
- -------------------------------------------
From time to time, the Company is a party to lawsuits that arise in
the ordinary course of its business. These lawsuits may involve
litigation by or against the Company to enforce contractual rights
under vendor, insurance or other contracts; lawsuits by or against
the Company relating to equipment, service or payment disputes with
customers; disputes with employees; or other matters. The Company
is currently a defendant in a number of lawsuits, none of which
should have, in the opinion of management and legal counsel, a
material adverse effect on the Company's financial position or
results of operations.
Pitney Bowes has been advised that the Antitrust Division of the
U.S. Department of Justice is conducting a civil investigation of
its postage equipment business (including subsidiaries) to
determine whether there is, has been, or may be a violation of the
surviving provisions of the 1959 consent decree between Pitney
Bowes and the U.S. Department of Justice, and/or the antitrust
laws. The Company intends to cooperate with the Department's
investigation.
Pitney Bowes is subject to Federal, state and local laws and
regulations concerning the environment, and is currently
participating in administrative or court proceedings, which are at
various stages of activity, as a participant in various groups of
potentially responsible parties. Based on facts presently known to
it, PBI does not believe that the outcome of these proceedings will
have a material adverse effect on its financial condition.
-20-
<PAGE>
On June 9, 1995, the United States Postal Service (U.S.P.S.) issued
final regulations addressing the manufacture, distribution and use
of postage meters. The regulations cover four general categories:
meter security, administrative controls, Computerized Meter
Resetting Systems (C.M.R.S.) and other issues. In general, the
regulations impose reporting and performance obligations on meter
manufacturers, prescribe potential administrative sanctions for
failure to meet these obligations and require a restructuring of
the fund management system of C.M.R.S., such as PBI's Postage by
Phone(R) System, to give the U.S.P.S. more direct control over meter
licensee deposits. PBI is working with the U.S.P.S. to ensure that
the implementation of these regulations provides mailing customers
and the U.S.P.S. with the intended benefits, and that Pitney Bowes
also benefits. PBI believes that the financial impact resulting
from the implementation of these regulations will not be material.
Pitney Bowes is also currently working with the U.S.P.S. to devise
a multi-year migration schedule to phase out mechanical meters and
replace them with electronic meters in a manner that is most
beneficial and least disruptive to the operations of PBI's
customers. This is consistent with Pitney Bowes' strategy of
introducing new technology into the market place to add value to
customer operations and meet postal needs. This strategy and PBI's
long-term focus has resulted in an increase in the percentage of
the electronic meter base in the U.S. from six percent of the
overall base in 1986 to nearly 50 percent of the installed meter
base in 1995. Until such time as a final meter migration schedule
is promulgated, the financial impact, if any, on PBI cannot be
determined; but, it is currently the belief of PBI that the
migration plan will not cause a material adverse financial impact.
- ------------------------------------------------------------------
The Company wishes to caution readers that any forward-looking
statements contained in this Form 10-K or made by the management of
the Company involve risks and uncertainties, and are subject to
change based on various important factors. The following factors,
among others, could affect the Company's financial results and
could cause the Company's financial performance to differ
materially from the expectations expressed in any forward-looking
statement made by or on behalf of the Company - the level of
business and financial performance of Pitney Bowes; the impact of
governmental financing regulations; the success of the Company in
developing strategies to manage debt levels, including the ability
of the Company to access the capital markets; the strength of
worldwide economies; the effects of and changes in trade, monetary
and fiscal policies and laws, and inflation and monetary
fluctuations, including changes in interest rates; the willingness
of customers to substitute financing sources; and the level of
write-offs and the Company's associated collection and asset
management efforts.
-21-
<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 50 and 51
present fairly, in all material respects, the financial position of
Pitney Bowes Credit Corporation and its subsidiaries (the
"Company") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995, 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 17 to the consolidated financial statements,
the Company adopted a new accounting standard for postemployment
benefits in 1994.
PRICE WATERHOUSE LLP
Stamford, Connecticut
January 29, 1996
-22-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Income
(Dollars in thousands)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Revenue
Finance income $673,014 $560,216 $513,454
Equipment sales 2,687 45,747 -
------- ------- -------
Total revenue 675,701 605,963 513,454
------- ------- -------
Expenses
Selling, general and administrative 149,483 113,453 99,332
Depreciation and amortization 32,031 26,497 16,545
Cost of equipment sales 2,214 43,039 -
Provision for credit losses 58,549 56,133 70,245
Interest 202,090 151,239 137,372
Nonrecurring items, net - (3,311) -
------- ------- -------
Total expenses 444,367 387,050 323,494
------- ------- -------
Income before income taxes 231,334 218,913 189,960
Provision for income taxes 72,678 71,820 66,475
------- ------- -------
Income before effect of accounting
change 158,656 147,093 123,485
Effect of accounting change - (2,820) -
------- ------- -------
Net income $158,656 $144,273 $123,485
======= ======= =======
</TABLE>
<TABLE>
Consolidated Statement of Retained Earnings
(Dollars in thousands)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Retained earnings at beginning
of year $685,613 $583,340 $495,855
Net income for the year 158,656 144,273 123,485
Dividends paid to Pitney Bowes Inc. (62,000) (42,000) (36,000)
------- ------- -------
Retained earnings at end of year $782,269 $685,613 $583,340
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-23-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Balance Sheet
(Dollars in thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31 1995 1994
Assets
<S> <C> <C>
Cash $ 10,129 $ 11,250
---------- ----------
Investments:
Finance assets 4,117,353 3,695,070
Investment in leveraged leases 562,500 478,650
Assets transferred from affiliate 53,717 30,033
Investment in operating leases, net of
accumulated depreciation: 1995,
$51,657; 1994, $40,500 114,587 95,684
Allowance for credit losses (101,355) (95,271)
---------- ----------
Net investments 4,746,802 4,204,166
---------- ----------
Assets held for sale 71,917 37,720
Other assets 229,026 198,701
---------- ----------
Total assets $ 5,057,874 $ 4,451,837
========== ==========
Liabilities
Senior notes payable within one year $ 2,122,880 $ 2,075,591
Short-term notes payable to affiliates 149,709 -
Accounts payable to affiliates 127,007 153,360
Accounts payable and accrued liabilities 155,603 228,279
Deferred taxes 441,324 342,034
Senior notes payable after one year 1,020,500 745,500
Subordinated notes payable 170,857 133,735
---------- ----------
Total liabilities 4,187,880 3,678,499
---------- ----------
Stockholder's Equity
Common stock 46,000 46,000
Capital surplus 41,725 41,725
Retained earnings 782,269 685,613
---------- ----------
Total stockholder's equity 869,994 773,338
---------- ----------
Total liabilities and stockholder's equity $ 5,057,874 $ 4,451,837
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-24-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1995 1994 1993
Operating Activities
<S> <C> <C> <C>
Net income $ 158,656 $ 144,273 $ 123,485
Effect of accounting change - 2,820 -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for credit losses 58,549 56,133 70,245
Depreciation and amortization 32,031 26,497 16,545
Cost of equipment sales 2,214 43,039 -
Increase in deferred taxes 99,290 49,420 40,406
(Decrease) increase in accounts
payable to affiliates (26,353) (9,554) 54,018
(Decrease) increase in accounts
payable and accrued liabilities (72,676) 40,326 65,266
(Increase) decrease in assets
transferred from affiliate (35,582) (61,255) 23,114
Other, net (15,524) (4,639) (37,723)
---------- ---------- ----------
Net cash provided by operating
activities 200,605 287,060 355,356
---------- ---------- ----------
Investing Activities
Investment in net finance
assets (1,527,065) (1,180,025) (1,041,985)
Investment in leveraged leases (43,509) (174,622) (15,505)
Investment in operating leases (35,067) (85,435) (26,661)
Investment in assets held for sale (151,640) (37,703) -
Cash receipts collected under
lease contracts net of finance
income recognized 1,142,254 944,274 740,183
Investment in mortgage servicing
rights (63,533) (27,003) (14,218)
Investment in affiliate - (2,160) -
Loans and advances to affiliated
companies, net 38,991 (8,462) (24,165)
Additions to equipment and
leasehold improvements (9,277) (4,001) (1,747)
---------- ---------- ----------
Net cash used in investment
activities (648,846) (575,137) (384,098)
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-25-
<PAGE>
<TABLE>
Pitney Bowes Credit Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1995 1994 1993
Financing Activities
<S> <C> <C> <C>
Increase in short-term debt 76,789 311,405 262,310
Short-term loans from affiliates 149,709 - (105,388)
Proceeds from issuance of senior
notes payable after one year 275,000 200,000 -
Proceeds from issuance of
subordinated debt 37,862 24,901 22,810
Settlement of long-term debt (29,500) (201,216) (84,315)
Settlement of short-term loan from
Pitney Bowes Inc. - - (31,025)
Payments to settle subordinated debt (740) - (710)
Capital contribution from Pitney Bowes
Inc. - - 2,442
Dividends paid to Pitney Bowes Inc. (62,000) (42,000) (36,000)
---------- --------- ---------
Net cash provided by financing
activities 447,120 293,090 30,124
---------- --------- ---------
(Decrease) increase in cash (1,121) 5,013 1,382
Cash at beginning of year 11,250 6,237 4,855
---------- --------- ---------
Cash at end of year $ 10,129 $ 11,250 $ 6,237
========== ========= =========
Interest paid $ 199,346 $ 164,181 $ 143,031
========== ========= =========
Income taxes refunded, net $ (36,360) $ (9,900) $ (11,680)
========== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-26-
<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 or PBCC). All significant intercompany transactions have
been eliminated.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications: Certain amounts have been reclassified to conform
with current year presentation.
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 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 Inc. (Pitney Bowes or PBI), 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.
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 - Allowance for Credit Losses.
-27-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
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 with a maturity
one day after all senior debt is repaid. 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.
Investment in operating leases: Equipment under operating leases is
depreciated over the initial term of the lease to its estimated residual
value. Rental revenue is recognized on a straight-line basis over the
related lease term.
Purchased mortgage servicing rights: Purchased mortgage servicing rights
are recorded at the lower of cost or the present value of the estimated
future net servicing income and are being amortized in proportion to, and
over the period of, estimated net servicing income. The Company employs
the aggregate discounted method to evaluate the recoverability of the
cost of the purchased mortgage servicing rights. The portfolio is
reevaluated periodically for further amortization due to actual and
anticipated prepayment, foreclosure, delinquency and cost experience.
This evaluation is made at an aggregate level by discounting the
projected net future income stream using market discount rates. Upon
reevaluation, adjustments are made if the portfolio is deemed impaired.
Assets held for sale: Certain high quality External large-ticket
transactions are funded and held for a short period of time pending sale
to prospective buyers. Assets held for sale are segregated from the
Company's net investment amounts and are recorded at net carrying value
(cost plus accrued interest less finance receipts). Income is recognized
when the contract for the sale of the asset is executed, representing the
excess of sale proceeds over net asset carrying value. The Company does
not maintain a separate loss reserve for assets held for sale due to
their relatively short holding period and valuation method.
-28-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 2. - New Business Initiative
In December 1995, the Company invested $25.0 million for 100 percent of
the common stock of Financial Structures Limited (FSL). This wholly-
owned and independent subsidiary provides residual value insurance to
unaffiliated third parties. Residual value insurance typically
guarantees a lessor that a physical asset with significant market
liquidity will not sell for less than the asset's pre-agreed price on its
scheduled lease termination date. The Company's liability is limited to
the deficiency, if any, between actual price and the guaranteed price on
the asset's specified scheduled lease termination date. Gross policy
premiums are collected at lease inception and amortized on a straight-
line basis over the life of the policy.
Note 3. - Finance Assets
<TABLE>
The composition of the Company's finance assets is as follows:
<CAPTION>
December 31 1995 1994
---------- ----------
<S> <C> <C>
Gross finance receivables $ 4,801,084 $ 4,356,106
Unguaranteed residual valuation 649,549 573,892
Initial direct cost deferred 89,173 76,322
Unearned income (1,422,453) (1,311,250)
---------- ----------
Finance assets $ 4,117,353 $ 3,695,070
========== ==========
</TABLE>
Gross finance receivables represent earning assets held by the Company
which 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 25 years and
other non-commercial jet aircraft transactions with lease terms ranging
from five to 12 years. The balance due at December 31, 1995, including
estimated residual value 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>
1996 $ 683,366 $ 336,105 $ 385,158 $1,404,629
1997 539,659 265,620 273,048 1,078,327
1998 386,423 235,393 183,671 805,487
1999 201,429 231,690 108,371 541,490
2000 57,135 219,228 45,314 321,677
Thereafter 4,581 1,286,302 8,140 1,299,023
--------- --------- --------- ---------
Total $1,872,593 $2,574,338 $1,003,702 $5,450,633
========= ========= ========= =========
</TABLE>
-29-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Net equipment financed for Pitney Bowes and its subsidiaries' products
were $573.5 million, $551.8 million and $533.2 million in 1995, 1994, and
1993, respectively.
During 1995, the Company sold approximately $100 million of External
small-ticket finance assets with recourse in a privately-placed
transaction with a third-party investor. In 1994 and 1993, the Company
sold approximately $55 million and $26 million, respectively, of finance
assets in similarly structured transactions. The uncollected principal
balance of receivables sold at December 31, 1995 and 1994 was $149
million and $160 million, respectively. In addition, the Company has
sold receivables while retaining residual value exposure of $19.7
million. The maximum risk of loss in these transactions arises from the
possible non-performance of lessees to meet the terms of their contracts
and from changes in the value of the underlying equipment. Conversely,
these contracts are supported by the underlying equipment value and
creditworthiness of customers. As part of the review of its exposure to
risk, the Company believes adequate provisions have been made for sold
receivables which may be uncollectible.
As of December 31, 1995, $565.4 million (13.5 percent) of the Company's
finance assets and $853.1 million (15.7 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.
Note 4. - Net Investment in Leveraged Leases
The Company's net investment in leveraged leases is composed of the
following elements:
December 31 1995 1994
-------- --------
Net rents receivable $ 519,306 $ 476,369
Unguaranteed residual valuation 584,456 550,516
Unearned income (541,262) (548,235)
-------- --------
Investment in leveraged leases 562,500 478,650
Deferred taxes arising from
leveraged leases (1) (216,873) (165,341)
-------- --------
Net investment in leveraged leases $ 345,627 $ 313,309
======== ========
(1) Includes amounts reclassified to subordinated debt.
-30-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
Following is a summary of the components of income from leveraged leases:
<CAPTION>
December 31 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Pretax leveraged lease income $11,236 $ 6,606 $ 3,795
Income tax benefit 4,609 5,091 5,376
------ ------ ------
Income from leveraged leases $15,845 $11,697 $ 9,171
====== ====== ======
</TABLE>
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 $265.2 million (47.2 percent) are
related to commercial real estate facilities, with original lease terms
ranging up to 25 years. Also included are ten aircraft transactions with
major commercial airlines, with a total investment of $266.8 million
(47.4 percent) and with original lease terms ranging from 22 to 25 years
and one transaction involving locomotives with a total investment of
$30.5 million (5.4 percent) with an original lease term of 38 years.
Note 5. - Transfer of Assets from Affiliate
As disclosed in previous filings, in December 1992, as part of the
restructuring of its German affiliate, Adrema Leasing Corporation
(Adrema), the Company purchased certain finance receivables and other
assets from Adrema. Based on the evaluation of these assets, Pitney
Bowes and the Company believe that sufficient reserves for credit losses
are in place to provide for currently expected losses. As part of the
orderly liquidation of assets from leasing non-Pitney Bowes products in
Germany, Adrema continues to bill and collect accounts and repossess and
remarket collateral where possible over the remainder of the lease terms.
The Company continues to scrutinize the circumstances surrounding the
losses and evaluate actions that can be taken against former Adrema
management and other related parties.
-31-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
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.
Minimum future rental payments to be received in each of the next five
years under noncancelable operating leases are $19.8 million in 1996,
$18.8 million in 1997, $17.4 million in 1998, $13.2 million in 1999,
$11.0 million in 2000 and $27.5 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>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of period $ 95,271 $98,311 $79,177
------- ------ ------
Additions charged to operations 58,549 56,133 70,245
------- ------ ------
Amounts written-off:
Internal small-ticket programs 24,330 20,177 24,255
External large-ticket programs 356 668 724
External small-ticket programs 27,779 38,328 26,132
------- ------ ------
Total write-offs 52,465 59,173 51,111
------- ------ ------
Balance at end of period $101,355 $95,271 $98,311
======= ====== ======
</TABLE>
The increase in the amount of additions charged to operations in 1995
compared to 1994 of $2.4 million is the result of higher investment
levels in all of PBCC's financing programs and the impact of finance
asset sales in 1995 and 1994, offset by favorable adjustments to the
External large-ticket financing program provision reflecting management's
current evaluation of expected losses. The decrease in the provision for
credit losses between 1994 and 1993 reflects the additional provisions
for losses totaling $14.4 million recorded in 1993, relating to assets
purchased from the Company's German affiliate, Adrema Leasing
Corporation.
Write-offs related to assets purchased from Adrema totaled $14.2 million
in 1995, $25.2 million in 1994 and $11.2 million in 1993. 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 improved U.S. economy.
-32-
<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 External large-ticket financing transactions, the
credit ratings 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 small-ticket programs, 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 External
large-ticket programs, income recognition is discontinued as soon as it
is apparent that the obligor will not be making payments in accordance
with lease terms, such as in the event of bankruptcy. In External
small-ticket programs, income recognition is discontinued when accounts
are past due over 90 days.
Finance receivables are written-off to the allowance for credit losses
after collection efforts are exhausted and the account is deemed
uncollectible. For Internal and External small-ticket financing
transactions, this usually occurs near the point in time when the
transaction is placed in a non-earning status. For External large-ticket
financing 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
External large-ticket financing 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 the future
expected recovery. All write-offs and adjustments are recorded on a
transaction by transaction basis.
Resumption of income recognition on Internal and External small-ticket
program non-earning accounts occurs when payments are reduced to 60 days
or less past due. On External large-ticket financing transactions,
resumption of income recognition occurs after the Company has had
sufficient experience on resumption of payments and is satisfied that
such payments will continue in accordance with the original or
restructured contract terms.
-33-
<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 classified under
these categories.
<TABLE>
<CAPTION>
December 31 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Non-performing (non-accrual) transactions
- -----------------------------------------
Internal small-ticket programs $12,248 $10,148 $ 6,107
External large-ticket programs 1,448 1,998 1,934
External small-ticket programs 8,874 9,240 24,371
------ ------ ------
Total $22,570 $21,386 $32,412
====== ====== ======
Restructured transactions
- -------------------------
External large-ticket programs $ - $ 2,642 $ 5,869
------ ------ ------
Total $ - $ 2,642 $ 5,869
====== ====== ======
Troubled (potential problem) transactions
- -----------------------------------------
External large-ticket programs $ 5,892 $ 6,991 $ 8,129
External small-ticket programs - - 8,819
------ ------ ------
Total $ 5,892 $ 6,991 $16,948
====== ====== ======
</TABLE>
The increase in non-performing transactions in 1995 is principally
attributable to the Internal small-ticket mailing and copier programs. For
non-performing (non-accrual) transactions, the amount of finance income
that would have been recorded in 1995 if the transactions had been current
in accordance with their original contract terms was $2.1 million.
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 External large-ticket
financing programs and the limited number of transactions with material
credit loss exposure in other areas. As stated previously, the Company
evaluates its aggregate reserve position in comparison to estimates of
aggregate expected losses. However, for non-performing External
large-ticket financing transactions, the Company has adjusted the face
value of these receivables through the following adjustments:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
------ ------ ------
<C> <C> <C>
Face value of receivables $ 4,511 $ 4,512 $ 2,862
Cash collections applied to principal (2,436) (2,087) (501)
Write-offs to allowance for credit losses (627) (427) (427)
------ ------ ------
Carrying value $ 1,448 $ 1,998 $ 1,934
====== ====== ======
</TABLE>
-34-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 8. - Assets Held for Sale
The Company funded 16 transactions totaling $151.6 million in 1995 and two
transactions totaling $37.7 million in 1994, relating to assets held for
sale. Seven of these transactions totaling $117.4 million, including the
two transactions funded in 1994, were sold for a net gain before taxes of
$10.3 million, which is recorded as part of finance income. Eleven
transactions remain in inventory as of December 31, 1995 with a net
carrying value of $71.9 million.
<TABLE>
Note 9. - Other Assets
<CAPTION>
December 31 1995 1994
------- -------
<S> <C> <C>
Purchased mortgage servicing rights, net of
accumulated amortization: 1995, $45,702;
1994, $29,635 $106,996 $ 58,317
Loans and advances to affiliated companies 6,199 45,367
Mortgage receivables 10,255 12,085
Deferred partnership fees 9,209 11,429
Equipment and leasehold improvements,
net of accumulated depreciation
and amortization: 1995, $12,966;
1994, $13,233 14,831 8,930
Investment securities - 3,490
Deferred debt placement fees 4,324 3,364
Interest discount on commercial paper 6,934 7,408
Billed meter rental receivables 17,747 13,922
Prepaid expenses and other assets 49,237 30,707
Goodwill, net of accumulated amortization:
1995, $1,356; 1994, $969 3,294 3,682
------- -------
Total other assets $229,026 $198,701
======= =======
</TABLE>
Amortization of purchased mortgage servicing rights for the years 1995,
1994 and 1993 was $16.1 million, $11.2 million and $7.7 million,
respectively.
Mortgage receivables represent loans in the process of payoff and are
recorded at cost, which approximates fair market value.
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 over the term of the
transaction.
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated on a straight-line basis over the anticipated useful life
generally ranging from 5 to 10 years. Leasehold improvements are amortized
on a straight-line basis over the remaining lease terms.
-35-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Deferred debt placement fees incurred in connection with placing senior and
subordinated notes are amortized on a straight-line basis over the related
terms of the notes.
Note 10. - Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
December 31 1995 1994
------- -------
<S> <C> <C>
Accounts payable $ 41,919 $102,228
Accrued interest payable 28,474 31,030
Sales and use, property and sundry taxes 10,499 11,665
Advances and deposits from customers 33,650 32,981
Accrued salary and benefits payable 6,800 6,672
Minority interest in partnership 7,024 8,804
Other liabilities 27,237 34,899
------- -------
Total accounts payable and accrued liabilities $155,603 $228,279
======= =======
</TABLE>
The decrease in accounts payable is principally due to $51.4 million of
additional investment accrued in connection with certain financing
transactions completed in 1994 and paid in the first quarter of 1995.
Note 11. - Notes Payable
Short-term notes payable totaled $2.1 billion at both December 31, 1995 and
1994. 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 1995, the Company had unused lines of credit and revolving
credit facilities totaling $1.62 billion largely supporting commercial
paper borrowings. The Company recorded fees of $1.4 million, $2.2 million
and $2.5 million in 1995, 1994 and 1993 to maintain its lines of credit.
The reduction in 1995 facility fees is a direct result of the Company's
renegotiation of its revolving credit facilities with its smaller banking
group initiated in the fourth quarter of 1994.
-36-
<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 1995 1994
--------- ---------
<S> <C> <C>
Senior Notes Payable
Commercial paper at a weighted average interest
rate of 5.69% (5.84% in 1994) $1,864,000 $1,865,110
Notes payable against bank lines of credit and
others at a weighted average interest rate
of 2.35% (3.63% in 1994) 258,880 180,981
Current installment of long-term debt due within
one year at interest rates of 6.56% to 6.66% - 29,500
--------- ---------
Total senior notes payable within one year 2,122,880 2,075,591
Senior notes payable after one year at interest
rates of 5.63% to 10.65% through 2009 1,020,500 745,500
--------- ---------
Total senior notes payable $3,143,380 $2,821,091
========= =========
Subordinated Notes Payable
Non-interest bearing notes due Pitney Bowes $ 170,857 $ 132,995
12.75% note due in 1995 - 740
--------- ---------
Total subordinated notes payable $ 170,857 $ 133,735
========= =========
</TABLE>
Senior and subordinated notes payable at December 31, 1995 mature as
follows: $2,122.9 million in 1996, $245.5 million in 1997, $125.0 million
in 1998, $50.0 million in 2000, and $770.8 million beyond 2001.
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 or make
approved debt/commercial paper principal, interest or premium payments in
the event that PBCC is unable to. To date, no such payments have been
required to maintain income available for fixed charge coverage or to
maintain the Company's contractual liquidity obligations.
-37-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
In May 1995, the Company issued $100 million of 6.250 percent notes due in
June 1998 and $100 million of 6.625 percent notes due in June 2002. In
June 1995, the Company also issued $25 million of medium-term notes due in
June 1998 and $50 million due in June 2000 with a weighted average coupon
rate of 6.014 percent.
The Company has $750 million of unissued debt securities available from a
shelf registration statement filed with the Securities and Exchange
Commission in September 1995. Up to $500 million of medium-term notes may
be offered under this registration statement. The $750 million available
under this shelf registration statement should meet the Company's financing
needs for the next two years.
In 1995 and 1994, the Company issued $37.9 million and $24.9 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 1994 and 1993 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 12. - Derivative Instruments
The Company's utilization of derivative instruments is currently limited to
interest rate swap agreements (interest rate swaps) and foreign currency
exchange forward contracts (foreign currency contracts). The Company
periodically enters into interest rate swaps as a means of managing
interest rate exposure. The interest rate differential to be paid or
received is recognized over the life of the agreements as an adjustment to
interest expense. The Company is exposed to credit loss in the event of
non-performance by the counterparties to the interest rate swaps to the
extent of the differential between fixed- and variable-rates; such exposure
is considered minimal. The Company has entered into foreign currency
contracts for the purpose of minimizing its risk of loss from fluctuations
in exchange rates in connection with certain intercompany loans and certain
transfers to the Company by foreign affiliates of foreign currency
denominated lease receivables. The Company is exposed to credit loss in
the event of non-performance by the counterparties to the foreign currency
contracts to the extent of the difference between the spot rate at the date
of the contract delivery and the contracted rate; such exposure is
considered minimal.
-38-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
The aggregate amount of interest rate swaps categorized by type, and the
related weighted average interest rate paid and received assuming current
market conditions is reflected below:
<CAPTION>
Weighted Average
Major Type Total Interest Rates
of Interest Hedged Notional ------------------------
Rate Swap Liability Amount Fixed Variable(A)
- ----------- --------- -------- ----- --------
<S> <C> <C> <C> <C>
Pay fixed Commercial paper $305,700 8.86% 5.99%
Pay variable Senior notes payable
after one year 24,100 7.94% 6.93%
------- ---- ----
Total $329,800 8.79% 6.06%
======= ==== ====
<FN>
(A) The variable rate is indexed from the 30 day Fed AA composite
commercial paper rate. The Fed AA composite rate at December 31, 1995
was used to calculate the weighted average interest rate.
</TABLE>
The aggregate notional amount of interest rate swaps categorized by annual
maturity is reflected below:
<TABLE>
<CAPTION>
Annual Maturity
----------------------------------------------------------
Pay Fixed Pay Variable Total
--------- ------------ --------
<S> <C> <C> <C>
1996 $ 5,700 $ - $ 5,700
1997 100,000 2,200 102,200
1998 - 21,900 21,900
1999 - - -
2000 - - -
Thereafter 200,000 - 200,000
------- ------ -------
Total $305,700 $24,100 $329,800
======= ====== =======
</TABLE>
-39-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
The following is a reconciliation of interest rate swap activity by major
type of swap:
<CAPTION>
Pay Fixed Pay Variable Total
--------- ------------ ---------
<S> <C> <C> <C>
Balance December 31, 1993 $ 520,700 $ 100,000 $ 620,700
New contracts - 14,000 14,000
Expired contracts (80,000) (100,000) (180,000)
-------- -------- --------
Balance December 31, 1994 440,700 14,000 454,700
New contracts 100,000 24,100 124,100
Expired contracts (235,000) (14,000) (249,000)
-------- -------- --------
Balance December 31, 1995 $ 305,700 $ 24,100 $ 329,800
======== ======== ========
</TABLE>
Interest rate swaps are used in the majority of circumstances to convert
variable rate commercial paper interest payments to fixed rate interest
payments. The impact of interest rate swaps on interest expense and the
weighted average borrowing rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Impact of interest rate swaps
on interest expense $9,376 $13,930 $12,650
Weighted average borrowing rate
excluding interest rate swaps 6.14% 5.44% 5.07%
Weighted average borrowing rate
including interest rate swaps 6.45% 6.01% 5.60%
</TABLE>
The Company has entered into foreign currency contracts for the purpose of
minimizing its risk of loss from fluctuations in exchange rates in
connection with certain intercompany loans and certain sales of receivables
with recourse of foreign currency denominated lease receivables.
<TABLE>
The following summarizes the contractual amount of the Company's foreign
currency contract as of December 31, 1995:
<CAPTION>
Hedged Currency Maturity Contract
Transaction Sold Date Amount
- ------------------ ------------- ------------- --------
<S> <C> <C> <C>
Transfer of receivables
with recourse U.S. Dollar January, 1997 $4,232
</TABLE>
Since the Company normally enters into derivative transactions only with
members of its banking group, the credit risk of these transactions is
monitored as part of the normal credit review of the banking group. The
Company monitors the market risk of derivative instruments through periodic
review of the fair market values.
-40-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
There were no deferred gains or losses relating to terminated interest rate
swaps or foreign currency contracts at December 31, 1995 and 1994. The
fair value of interest rate swaps and foreign currency contracts is
disclosed in Note 14 - Fair Value of Financial Instruments.
Note 13. - 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 December 31, 1992 $46,000 $39,283 $495,855 $581,138
Net income - 1993 123,485 123,485
Dividends 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
Net income - 1994 144,273 144,273
Dividends paid to PBI (42,000) (42,000)
------ ------ ------- -------
Balance December 31, 1994 46,000 41,725 685,613 773,338
Net income - 1995 158,656 158,656
Dividends paid to PBI (62,000) (62,000)
------ ------ ------- -------
Balance December 31, 1995 $46,000 $41,725 $782,269 $869,994
====== ====== ======= =======
</TABLE>
At December 31, 1995, 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, 1995 and 1994.
All of the Company's stock is owned by Pitney Bowes.
Contributions to capital surplus from PBI for 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. No capital
contributions were made in 1995 or 1994.
Note 14. - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, assets held for sale, accounts payable and senior notes payable
within one year. The carrying amounts approximate fair value because of
the short maturity of these instruments.
-41-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
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 after one year. The fair value of long-term debt is
estimated based on quoted dealer prices for the same or similar issues.
Interest rate swaps and foreign currency contracts. The fair values of
interest rate swaps and foreign currency 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 creditworthiness 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 and in connection with receivable transfers with
recourse. The Company also has recourse obligations in connection with
certain mortgages it services. Aggregate exposure under the guarantees
at December 31, 1995 and 1994 was $88 million and $74 million,
respectively. The fair value of the European Commercial Paper program is
based on the cost to the Company for obtaining a letter of credit to
support performance under the guarantee. The fair value of the
guarantees under the receivable transfers with recourse and the recourse
obligations on certain mortgages serviced 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 on the following page.
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.
-42-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
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 creditworthiness of the
counterparties.
The estimated fair value of the Company's financial instruments is as follows:
December 31 1995 1994
---------------------- ---------------------
Carrying Fair Carrying Fair
Value(1) Value Value(1) Value
-------- -------- -------- -------
Investment securities $ - $ - $ 3,490 $ 3,553
Loans receivable (2) 288,361 288,485 265,795 268,342
Senior notes payable after
one year (1,039,441) (1,130,182) (788,819) (782,453)
Interest rate swaps (1,050) (41,538) (2,822) (15,948)
Foreign currency contracts - (420) - 1,120
Transfers of receivables
with recourse (12,929) (12,929) (27,056) (27,056)
Financial guarantee
contracts (4,420) (4,420) (4,206) (4,341)
Residual and conditional
commitment guarantee
contracts (3,341) (4,454) (2,729) (2,657)
Commitments to extend credit - (165) - (450)
(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.
-43-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 15. - Taxes on Income
<TABLE>
Income before income taxes and the provision for income taxes were as
follows:
<CAPTION>
Years ended December 31 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income before income taxes $231,334 $218,913 $189,960
======= ======= =======
Provisions for income taxes:
Federal:
Current $(70,605) $(29,325) $ 5,424
Deferred 130,521 86,169 47,141
------- ------- -------
Total Federal 59,916 56,844 52,565
------- ------- -------
State and Local:
Current (9,302) (4,215) 3,605
Deferred 22,064 19,191 10,305
------- ------- -------
Total state and local 12,762 14,976 13,910
------- ------- -------
Total $ 72,678 $ 71,820 $ 66,475
======= ======= =======
Deferred tax liabilities and (assets):
December 31 1995 1994 1993
-------- -------- --------
Deferred tax liabilities:
Lease revenue and related
depreciation $491,467 $400,468 $359,013
Deferred tax assets:
Alternative minimum tax (AMT)
credit carryforwards (50,143) (58,434) (64,519)
------- ------- -------
Total $441,324 $342,034 $294,494
======= ======= =======
</TABLE>
In 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 was recognized as a reduction in
1993 income tax expense. Tax benefits from this transaction have also
been recognized in 1995 and 1994.
-44-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Also in 1993, the Company recorded additional tax expense as a result of
the Omnibus Budget Reconciliation Act of 1993, which increased U.S.
corporate income tax rates from 34 percent to 35 percent.
In the fourth quarter of 1994, the Company completed the purchase of a
lease portfolio whereby it receives all rights to the value of the
underlying equipment at lease termination. The transaction will have the
effect of reducing the current period tax liabilities and associated
effective tax rates over the portfolio life.
A reconciliation of the U.S. Federal statutory rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
Percent of Pretax Income 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 3.9 4.4 4.8
Rate adjustment for deferred taxes - - 4.9
Partnership tax benefits (1.1) (1.6) (6.1)
Tax-exempt foreign trade income (2.7) (3.0) (3.9)
Tax-exempt finance income (.8) (.3) (.3)
Residual portfolio acquisition (1.1) (.4) -
Other (1.8) (1.3) .6
----- ----- -----
Effective income tax rate 31.4% 32.8% 35.0%
===== ===== =====
</TABLE>
Note 16. - Retirement Plan
The Company participates in the Pitney Bowes retirement plan which covers
the majority of PBCC employees. The assets of this plan fully fund vested
benefits. Pitney Bowes' plan assumptions were 7.25 percent in 1995 and
8.75 percent in 1994 for the discount rate, 4.25 percent in 1995 and 5.75
percent in 1994 for the expected rate of increase in future compensation
levels and 9.50 percent in 1995 and 1994 for the expected long-term rate of
return on plan assets. The Company's pension expense was $1.3 million in
1995, $1.6 million in 1994 and $1.4 million in 1993.
-45-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 17. - Nonpension Postretirement and Postemployment Benefits
The Company 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 Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January
1, 1994. FAS 112 requires that postemployment benefits be recognized on
the accrual basis of accounting. The effect of adopting FAS 112 in the
first quarter of 1994 was a one-time non-cash, after-tax charge of $2.8
million (net of approximately $1.9 million of income taxes).
Note 18. - Nonrecurring Items, Net
In the third quarter of 1994, a net nonrecurring credit of $3.3 million
resulted from a $3.5 million credit to income for changes made to certain
postemployment benefits and Pitney Bowes' decision to undertake certain
strategic actions which resulted in the Company's establishment of a $.2
million reserve.
Since the first quarter of 1994, the Company's parent Pitney Bowes, as part
of its employee work-life initiatives, has actively sought employee input
regarding benefits and it was concluded that employees prefer benefits more
closely related to their changing work-life needs. As a result, in the
third quarter of 1994, Pitney Bowes significantly reduced or eliminated
certain postemployment benefits, specifically service-related company-
subsidized life insurance, salary continuance and medical benefits,
resulting in an after-tax credit to income of $2.1 million (net of
approximately $1.4 million of income taxes).
Note 19. - Commitments, Contingencies and Regulatory Matters
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 1996, $4.2 million in 1997, $3.8 million
in 1998, $3.0 million in 1999, $2.5 million in 2000 and $4.7 million
thereafter. Rental expense under operating leases was $4.7 million, $4.4
million and $4.7 million in 1995, 1994 and 1993, respectively.
-46-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
At December 31, 1995, the Company had unfunded commitments of $1.1 million
to extend credit to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. Upon extension of credit, the
amount and type of collateral obtained, if deemed necessary by the Company,
is based on management's credit assessment of the customer. Fees received
under the agreements are recognized over the commitment period. The maximum
risk of loss arises from the possible non-performance of the customer to meet
the terms of the credit agreement. As part of the Company's review of its
exposure to risk, adequate provisions are made for finance assets which may
be uncollectible.
The Company 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 $5.3 million.
The Company is currently a defendant in a number of lawsuits arising in the
ordinary course of business, none of which should have, in the opinion of
management and legal counsel, a material adverse effect on the Company's
financial position or results of operations.
Pitney Bowes has been advised that the Antitrust Division of the U.S.
Department of Justice is conducting a civil investigation of its postage
equipment business (including subsidiaries) to determine whether there is,
has been, or may be a violation of the surviving provisions of the 1959
consent decree between Pitney Bowes and the U.S. Department of Justice,
and/or the antitrust laws. The Company intends to cooperate with the
Department's investigation.
Pitney Bowes is subject to Federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative
or court proceedings, which are at various stages of activity, as a
participant in various groups of potentially responsible parties. Based on
facts presently known to it, PBI does not believe that the outcome of these
proceedings will have a material adverse effect on its financial condition.
On June 9, 1995, the United States Postal Service (U.S.P.S.) issued final
regulations addressing the manufacture, distribution and use of postage
meters. The regulations cover four general categories: meter security,
administrative controls, Computerized Meter Resetting Systems (C.M.R.S.) and
other issues. In general, the regulations impose reporting and performance
obligations on meter manufacturers, prescribe potential administrative
sanctions for failure to meet these obligations and require a restructuring
of the fund management system of C.M.R.S., such as PBI's Postage by Phone(R)
System, to give the U.S.P.S. more direct control over meter licensee
deposits. PBI is working with the U.S.P.S. to ensure that the implementation
of these regulations provides mailing customers and the U.S.P.S. with the
intended benefits, and that Pitney Bowes also benefits. PBI believes that
the financial impact resulting from the implementation of these regulations
will not be material.
-47-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Pitney Bowes is also currently working with the U.S.P.S. to devise a multi-
year migration schedule to phase out mechanical meters and replace them with
electronic meters in a manner that is most beneficial and least disruptive
to the operations of PBI's customers. This is consistent with Pitney Bowes'
strategy of introducing new technology into the market place to add value to
customer operations and meet postal needs. This strategy and PBI's long-term
focus has resulted in an increase in the percentage of the electronic meter
base in the U.S. from six percent of the overall base in 1986 to nearly 50
percent of the installed meter base in 1995. Until such time as a final
meter migration schedule is promulgated, the financial impact, if any, on PBI
cannot be determined; but, it is currently the belief of PBI that the
migration plan will not cause a material adverse financial impact.
-48-
<PAGE>
Pitney Bowes Credit Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands)
Note 20. - Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for 1995 and 1994 follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue $152,170 $159,735 $168,768 $195,028
------- ------- ------- -------
Expenses:
Interest 48,549 50,918 51,236 51,387
Selling, general and
administrative 32,018 33,313 34,831 49,321
Depreciation and
amortization 6,870 6,956 9,238 8,967
Cost of equipment sales - - 2,163 51
Provision for credit losses 12,268 13,050 13,315 19,916
Provision for income taxes 16,496 17,684 17,984 20,514
------- ------- ------- -------
Total expenses 116,201 121,921 128,767 150,156
------- ------- ------- -------
Net Income $ 35,969 $ 37,814 $ 40,001 $ 44,872
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
1994 March 31 June 30 Sept. 30 Dec. 31
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue $130,186 $162,041 $147,984 $165,752
------- ------- ------- -------
Expenses:
Interest 33,324 36,806 39,825 41,284
Selling, general and
administrative 26,365 26,635 31,582 28,871
Depreciation and
amortization 5,863 6,533 6,762 7,339
Cost of equipment sales - 25,217 - 17,822
Nonrecurring items, net - - (3,311) -
Provision for credit losses 14,097 13,877 16,108 12,051
Provision for income taxes 16,912 17,958 19,122 17,828
------- ------- ------- -------
Total expenses 96,561 127,026 110,088 125,195
------- ------- ------- -------
Income before effect of
accounting change 33,625 35,015 37,896 40,557
Effect of accounting change (2,820) - - -
------- ------- ------- -------
Net Income $ 30,805 $ 35,015 $ 37,896 $ 40,557
======= ======= ======= =======
</TABLE>
-49-
<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 22
Consolidated Statements of Income and of
Retained Earnings for each of the three years
in the period ended December 31, 1995 23
Consolidated Balance Sheet at December 31, 1995
and 1994 24
Consolidated Statement of Cash Flows for each of
the three years in the period ended
December 31, 1995 25-26
Notes to Consolidated Financial Statements 27-49
-50-
<PAGE>
2. Financial Statement Schedules
-----------------------------
Valuation and qualifying accounts and reserves
(Schedule II) 54
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.
<TABLE>
3. Index to Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
--------------------------------------------------------------------------------------------------
<CAPTION>
Reg. S-K State or Incorporation
Exhibits Description by Reference
--------- -------------------------------- ----------------------------
<S> <C> <C>
(3) 1. Certificate of
Incorporation, as amended Exhibit 3.1
2. By-Laws, as amended Incorporated by reference
to Exhibit (3.2) to Form
10 on Registration Statement
No. 0-13497 as filed with
the Commission on May 1,
1985.
(4) (a) Form of Indenture dated Incorporated by reference
as of May 1, 1985 between to Exhibit (4a) to
the Company and Bankers Registration Statement on
Trust 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 (File No. 0-13497).
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(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.
(f) Indenture dated as of Incorporated by reference
November 1, 1995 to Exhibit (4a) to
between the Company Amendment No. 1 to
and Chemical Bank, Registration Statement on
as Trustee. Form S-3 (No. 33-62485) as
filed with the Commission
on November 2, 1995.
(10) Material contracts
1. Operating Agreement dated Incorporated by reference
March 3, 1977, as amended, to Exhibit (10.1),
between Pitney Bowes to Form 10 as filed with
Credit Corporation and the Commission on May 1,
Pitney Bowes Inc. 1985. (File No. 0-13497).
2. Tax Sharing Agreement, dated Incorporated by reference
April 1, 1977 between Pitney to Exhibit (10.3) to Form
Bowes Credit Corporation and 10 as filed with the
Pitney Bowes Inc. Commission on May 1, 1985.
3. Amended and Restated Finance Incorporated by reference
Agreement, dated June 12, to Exhibit (i) on Form 8-K
1995 between Pitney Bowes as filed with the
Credit Corporation and Commission on June 12, 1995
Pitney Bowes Inc. (File No. 0-13497).
(12) Computation of ratio of earnings
to fixed charges Exhibit (i)
(21) Subsidiaries of the registrant Exhibit (ii)
(23) Consent of independent
accountants Exhibit (iii)
(27) Financial Data Schedule Exhibit (iv)
(b) No reports on Form 8-K were filed for the three months ended
December 31, 1995.
</TABLE>
-52-
<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/ Matthew S. Kissner
--------------------------------
Matthew S. Kissner
President and Chief Executive Officer
Date March 21, 1996
-------------------------------
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.
<TABLE>
<CAPTION>
<S> <C> <C>
By /s/ Matthew S. Kissner Date 3/21/96 Matthew S. Kissner
-------------------------- ------- Director, President and
Chief Executive Officer
By /s/ G. Kirk Hudson Date 3/21/96 G. Kirk Hudson
-------------------------- ------- Vice President-Finance
(principal financial officer)
By /s/ Thomas P. Santora Date 3/21/96 Thomas P. Santora
-------------------------- ------- Controller
(principal accounting officer)
By /s/ Carmine F. Adimando Date 3/21/96 Carmine F. Adimando-Director
-------------------------- -------
By /s/ Marc C. Breslawsky Date 3/21/96 Marc C. Breslawsky-Director
-------------------------- -------
By /s/ Michael J. Critelli Date 3/21/96 Michael J. Critelli-Director
-------------------------- -------
By /s/ George B. Harvey Date 3/21/96 George B. Harvey-Director
-------------------------- -------
By /s/ John N. D. Moody Date 3/21/96 John N. D. Moody-Director
-------------------------- -------
By Date Harry W. Neinstedt-Director
-------------------------- -------
By /s/ Douglas A. Riggs Date 3/21/96 Douglas A. Riggs-Director
-------------------------- -------
</TABLE>
-53-
<PAGE>
PITNEY BOWES CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993 TO 1995
(Dollars in thousands)
<TABLE>
<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)
1995 $95,271 $58,549 $52,465 $101,355
1994 $98,311 $56,133 $59,173 $ 95,271
1993 $79,177 $70,245 $51,111 $ 98,311
</TABLE>
-54-
Exhibit 3.1
Page 1 of 11
CERTIFICATE OF INCORPORATION
OF
PB LEASING CORPORATION
THE UNDERSIGNED, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions
of the General Corporation Law of the State of Delaware does hereby
certify as follows:
FIRST: The name of the corporation is
PB Leasing Corporation
SECOND: The address of the corporation's registered
office in the State of Delaware is 100 West Tenth Street,
Wilmington, New Castle County. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in
any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of
stock which the corporation shall have authority to issue is 20,000
shares, of which 10,000 shares shall be Preferred Stock with the
par value of $1 each and 10,000 shares shall be Common Stock with
the par value of $1 each.
FIFTH: The name and mailing address of the incorporator
is:
Edward M. Harris, Jr.
c/o Pitney Bowes Inc.
Walnut and Pacific Streets
Stamford, Connecticut 06904
-55-
<PAGE>
Exhibit 3.1
Page 2 of 11
SIXTH: The Board of Directors of the Corporation is
expressly authorized to make, alter or repeal by-laws of the
Corporation, but the stockholders may make additional by-laws and
may alter or repeal any by-laws whether or not adopted by them.
SEVENTH: Elections of directors need not be by written
ballot except and to the extent provided in the by-laws of the
corporation.
IN WITNESS WHEREOF, I have signed this certificate of
incorporation this 16th day of August, 1976.
/s/ Edward M. Harris, Jr.
-------------------------
Edward M. Harris, Jr.
-56-
<PAGE>
Exhibit 3.1
Page 3 of 11
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PB Leasing Corporation
*********
PB Leasing Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation
duly adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said
corporation:
RESOLVED, that the Certificate of Incorporation of
PB Leasing Corporation be amended by changing the
first Article thereof so that, as amended, said
Article shall be and read as follows:
"FIRST: The name of the corporation is Pitney
Bowes Credit Corporation."
SECOND: That in lieu of a meeting and vote of
stockholders, the stockholders have given unanimous written consent
to said amendment in accordance with the provisions of Section 228
of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228
of the General Corporation Law of the State of Delaware. That this
-57-
<PAGE>
Exhibit 3.1
Page 4 of 11
Certificate of Amendment of the Certificate of Incorporation shall
be effective on June 1, 1979.
IN WITNESS WHEREOF, said PB Leasing Corporation has
caused this certificate to be signed by HARRY W. NEINSTEDT, its
President, and attested by DAVID O'HEARNE, its Secretary, this 31st
day of May, 1979.
PB LEASING CORPORATION
By /s/ Harry W. Neinstedt
-----------------------------
Harry W. Neinstedt, President
ATTEST:
By /s/ David O'Hearne
-------------------------
David O'Hearne, Secretary
-58-
<PAGE>
Exhibit 3.1
Page 5 of 11
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PITNEY BOWES CREDIT CORPORATION
Pitney Bowes Credit Corporation, a corporation organized
and existing under and by virtue of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY.
FIRST: That the Board of Directors of said corporation,
at a meeting duly held, December 5, 1979 adopted a resolution
proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation.
RESOLVED, That the Certificate of Incorporation of Pitney
Bowes Credit Corporation be amended by changing the
fourth Article thereof so that, as amended, said Article
shall be and read as follows:
"FOURTH: The total number of share of all classes of
stock which the corporation shall have authority to issue
is 20,000 shares, of which 10,000 shares shall be
Preferred Stock each to be with no par value and 10,000
shares shall be Common Stock each to be with no par
value."
SECOND: That Pitney Bowes Inc., the sole and only
stockholder of Pitney Bowes Credit Corporation, has given written
consent to said amendment in accordance with the provisions of
section 228 of the General Corporation Law of the State of
Delaware.
-59-
<PAGE>
Exhibit 3.1
Page 6 of 11
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of section 242 and 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Pitney Bowes Credit Corporation
has caused this certificate to be signed by Harry W. Neinstedt, its
President, and attested by John H. McDonald, its Secretary, this
14th day of December, 1979.
PITNEY BOWES CREDIT CORPORATION
By /s/ Harry W. Neinstedt
----------------------
Harry W. Neinstedt
ATTEST:
By /s/ John H. McDonald
--------------------
John H. McDonald
Secretary
-60-
<PAGE>
Exhibit 3.1
Page 7 of 11
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of
the Delaware Code, the undersigned Agent for service of process,
in order to change the address of the registered office of the
corporations for which it is registered agent, hereby certifies
that:
1. The name of the agent is: The Corporation Trust
Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be
changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The names of the corporations represented by said
agent are set forth on the list annexed to this
certificate and made a part hereof by reference.
IN WITNESS WHEREOF, said agent has caused this
certificate to be signed on its behalf by its Vice-President and
Assistant Secretary this 25th day of July, 1984.
The Corporation Trust Company
-----------------------------
(Name of Registered Agent)
By: /s/ Virginia Colrell
--------------------
(Vice-President)
ATTEST:
/s/ Marcy Murray
- --------------------
(Assistant Secretary)
-61-
<PAGE>
Exhibit 3.1
Page 8 of 11
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PITNEY BOWES CREDIT CORPORATION
Pitney Bowes Credit Corporation, a corporation duly organized
and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify that:
I. The amendment to the Corporation's Certificate of
Incorporation set forth below was duly adopted in accordance with
the provisions of Sections 242 and 228 of the General Corporation
Law of the State of Delaware.
II. A new Article 10 shall be added to that of the
Corporation's Certificate of Incorporation to read in its entirety
as follows:
"Section 1. Elimination of Certain Liability of Directors.
A director of the Corporation shall not be personally liable
to the Corporation or it stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent
-62-
<PAGE>
Exhibit 3.1
Page 9 of 11
of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding
is alleged action in an official capacity as a director,
officer, employee or agent, or in any other capacity while
servicing as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader
indemnification rights than said law permitted the corporation
to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgements,
fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the
Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part
thereof) initiated by such person only is such proceeding (or
part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right
to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final
disposition; provided, however, that if the Delaware General
Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a
director or officer, (and not in any other capacity in which service
was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation
may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section is not paid in full by the
Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a defense to
-63-
<PAGE>
Exhibit 3.1
Page 10 of 11
any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he or she has me the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Section
shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may purchase and maintain
insurance at its expense to protect itself and on behalf of
any person who is or was or has agreed to become a director,
officer, employee or agent of the Corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her or on
his or her behalf in any such capacity, or arising out of his
or her status as such, whether or not the Corporation would
have the power to indemnify him or her and incurred by him or
her or on his or her behalf in any such capacity, or arising
out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms,
which determination shall be made by the Board of Directors.
(e) Additional Provisions. Nothing set forth in this
Article 10, Section 2 shall diminish the right of the Board
of Directors to adopt By-laws concerning the indemnification
of officers, directors, employees, and agents of the
Corporation, as authorized by law and not inconsistent with
the provisions of this Article.
Section 3. Amendment and Savings Clause.
(a) Amendment and Repeal. No amendment to or repeal of this
Article 10 shall apply to or have any effect on the liability
or alleged liability or the right to indemnification of any
director, officer, employee or agent of the Corporation for or
with respect to any acts or omissions of such director,
-64-
<PAGE>
Exhibit 3.1
Page 11 of 11
officer, employee or agent occurring prior to such amendment
or repeal.
(b) Savings Clause. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless
indemnify each director, officer, employee and agent of the
Corporation as to costs, charges and expenses (including
attorneys' fees), judgements, fines and amounts paid in
settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative
including any action by or in the right of the Corporation, to
the full extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the full
extent permitted by applicable law."
IN WITNESS WHEREOF, Pitney Bowes Credit Corporation has caused
this Certificate to be executed and acknowledged by John J.
Canning and John H. McDonald, its President and Secretary,
respectively, on this 15th day of August, 1990.
By: /s/ John J. Canning
--------------------
President
Attest:
By: /s/ John H. McDonald
--------------------
Secretary
-65-
<PAGE>
Exhibit (i)
-----------
Pitney Bowes Credit Corporation
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
Years Ended December 31
--------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
Income before
income taxes $231,334 $218,913 $189,960 $185,704 $148,746
------- ------- ------- ------- -------
Fixed charges:
Interest on debt 202,090 151,239 137,372 146,594 167,236
1/3 rental expense 1,519 1,463 1,575 1,491 1,389
------- ------- ------- ------- -------
Total fixed charges 203,609 152,702 138,947 148,085 168,625
------- ------- ------- ------- -------
Total $434,943 $371,615 $328,907 $333,789 $317,371
======= ======= ======= ======= =======
Ratio of earnings
to fixed charges (1) 2.14X 2.43X 2.37X 2.25X 1.88X
======= ======= ======= ======= =======
(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.
-66-
<PAGE>
<TABLE>
Exhibit (ii)
Page 1 of 2
------------
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, 1995:
<CAPTION>
Country or State
Company Name of Incorporation
- ------------------------------------------------------------------------- ----------------
<S> <C>
Atlantic Mortgage & Investment Corporation (AMIC) Florida
RE Properties Management Corporation (Subsidiary of AMIC) Delaware
Colonial Pacific Leasing Corporation (CPLC) Massachusetts
Financial Structures Limited Bermuda
FSL Valuation Services Inc. Connecticut
PB CFSC I Inc. US Virgin Islands
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
PB Leasing Services Inc. Nevada
PBL Holdings Inc. Nevada
Pitney Bowes Insurance Agency, Inc. Connecticut
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
</TABLE>
-67-
<PAGE>
<TABLE>
Exhibit (ii)
Page 2 of 2
------------
<CAPTION>
Country or State
Company Name of Incorporation
- ------------------------------------------------------------------------------ ----------------
<S> <C> <C>
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
PREFCO XIV Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XV Inc. (Subsidiary of PREFCO) Delaware
PREFCO XV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVI Inc. (Subsidiary of PREFCO) Delaware
PREFCO - Dayton Community Urban Redevelopment Corporation
(Subsidiary of PREFCO XVI Inc.) Ohio
PREFCO XVI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVIII LP Inc. (Subsidiary of PREFCO) Delaware
</TABLE>
-68-
<PAGE>
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.
33-62485 and No. 33-53736) of Pitney Bowes Credit Corporation of our
report dated January 29, 1996 appearing on page 22 of this Form 10-K.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 19, 1996
-69-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/95
INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,129
<SECURITIES> 0
<RECEIVABLES> 4,848,157
<ALLOWANCES> 101,355
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,057,874
<CURRENT-LIABILITIES> 2,555,199
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 823,994
<TOTAL-LIABILITY-AND-EQUITY> 5,057,874
<SALES> 2,687
<TOTAL-REVENUES> 675,701
<CGS> 2,214
<TOTAL-COSTS> 183,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 58,549
<INTEREST-EXPENSE> 202,090
<INCOME-PRETAX> 231,334
<INCOME-TAX> 72,678
<INCOME-CONTINUING> 158,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,656
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
</FN>
</TABLE>
