PITNEY BOWES CREDIT CORP, 10-K, 1998-03-30

PITNEY BOWES CREDIT CORP
10-K, 1998-03-30
FINANCE LESSORS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

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FORM 10-K

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x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 1997

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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Commission file number 0-13497

PITNEY BOWES CREDIT CORPORATION
Incorporated pursuant to the Laws of the State of Delaware

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Internal Revenue Service -- Employer Identification No. 06-0946476

27 Waterview Drive, Shelton, CT 06484-4361
(203) 922-4000

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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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 27, 1998: None

As of March 27, 1998, 460 shares of common stock, no par value, with a stated
value of $100,000 per share, were outstanding, all of which were owned by Pitney
Bowes Inc., the parent of the Registrant

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT

<PAGE>
PITNEY BOWES CREDIT CORPORATION

Part I

Item 1.-- Business............................................................ 3
Item 2.-- Properties.......................................................... 7
Item 3.-- Legal proceedings................................................... 7
Item 4.-- Submission of matters to a vote of security holders................. 7

Part II

Item 5.-- Market for the registrant's common equity and related
stockholder matters................................................. 7
Item 6.-- Selected financial data............................................. 8
Item 7.-- Management's discussion and analysis of financial
condition and results of operations................................. 9
Item 8.-- Financial statements and supplementary data........................ 14
Item 9.-- Changes in and disagreements with accountants on
accounting and financial disclosure................................ 34

Part III

Item 10.-- Directors and executive officers of the registrant................ 34
Item 11.-- Executive compensation............................................ 34
Item 12.-- Security ownership of certain beneficial owners and
management ........................................................34
Item 13.-- Certain relationships and related transactions.................... 34

Part IV

Item 14.-- Exhibits, financial statements and reports on Form 8-K............ 35
Index to exhibits............................................................ 36
Signatures................................................................... 37

<PAGE>
Page - 3
PITNEY BOWES CREDIT CORPORATION

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.
Equipment leased or financed for these Internal Division programs include
mailing, paper handling and shipping equipment, scales, copiers, and facsimile
units. 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. As part of the
Company's focus on new business initiatives, the Company launched in August,
1996, a revolving credit product called Purchase Power(SM) This product allows
Pitney Bowes customers to finance postage as well as mailing, copier and
facsimile supplies. The Company earns income on balances from customers who
elect to use this credit facility.

PBCC's Capital Services Division (formally the 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. Sales of lease transactions are part of the Company's ongoing
strategy to shift the foundation of the external large-ticket financing business
from asset-based to service-based revenues. During 1997, the Company reduced
external large-ticket finance assets by approximately $1 billion, which
represents approximately 50% of the portfolio balance before the reductions.
(See Note 2 to CONSOLIDATED FINANCIAL STATEMENTS.) Products financed through the
Capital Services 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 $27 million for
non-commercial aircraft and up to $43 million for commercial aircraft. Lease
terms are generally from three to 12 years for non-commercial aircraft and from
12 to 25 years for commercial aircraft. The Company has also participated in
seven commercial aircraft leveraged lease transactions with a net investment of
$293.5 million at December 31, 1997. The Company's Capital Services Division
also participates, on a select basis, in certain other types of financial
transactions including: sales of lease transactions, senior secured loans in
connection with acquisition, leveraged buyout and recapitalization financings,
and certain project financings.

PBCC's Capital Services 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.

Colonial Pacific Leasing Corporation ("CPLC"), a wholly-owned subsidiary of
PBCC, located in Portland, 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 $1
million, with lease terms generally from 24 to 72 months.

CPLC, and equipment financed for former PBI subsidiaries Dictaphone and Monarch,
and the Customer Vendor Finance ("CVF") operations which PBCC sold in 1996, are
reported as "external small-ticket programs" in this Annual Report. Prior to
January 1, 1996, Dictaphone and Monarch had been reported as part of the
Company's internal small-ticket financing programs.

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 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"), located in Bermuda, is a wholly-owned and
independent subsidiary of PBCC. FSL, together with its subsidiary Financial
Structures Insurance Company, provide residual value insurance to unaffiliated
third parties, including manufacturers, financial institutions and leasing
companies involved in financing transactions. Residual risk is mitigated by
diversification of the portfolios by both asset type and maturity date.

<PAGE>
Page - 4

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 syndicated, leveraged and operating lease structures.

The Company's gross finance assets (contracts receivable plus estimated residual
values) outstanding for the internal and external financing programs at December
31, 1993 through 1997 are presented in ITEM 6 SELECTED FINANCIAL DATA. Total
Company gross finance assets at December 31, 1997 were $4.4 billion of which
approximately 42 percent were related to mailing, paper handling and shipping
products, nine percent to commercial aircraft, four percent to railcars, eight
percent to copier and office equipment, nine percent to both data processing
equipment and manufacturing products and three percent to over-the-road trucks
and trailers. Total gross finance contracts acquired amounted to $1.9 billion in
both 1997 and 1996. External large-ticket programs accounted for 15 percent of
gross finance contracts acquired in 1997 compared to 17 percent in 1996.

As of December 31, 1997, PBCC had approximately 682,000 active accounts compared
with 648,000 active accounts at December 31, 1996.

At December 31, 1997, PBCC's largest customer accounted for $87.1 million, or
2.2 percent of gross finance receivables, and the Company's ten largest
customers accounted for $439.0 million in gross finance receivables, or 11.2
percent of the receivable portfolio.

CREDIT EXPERIENCE

The percentage of receivables over 30 days delinquent was 3.7 percent at
December 31, 1997 compared to 2.9 percent at December 31, 1996 and 2.3 percent
at December 31, 1995. Total Company delinquency at December 31, 1997 increased
over the prior year mainly due to an increased number of bankruptcies in the
external small-ticket portfolio.

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.

LOSS EXPERIENCE

PBCC has charged against the allowance for credit losses $60.5 million, $69.2
million and $52.5 million in 1997, 1996 and 1995, respectively. The decrease in
write-offs in 1997 was primarily due to lower write-offs related to assets
originated by the Company's German affiliate, which totaled $0.7 million in
recoveries in 1997, versus write-offs of $20.9 million in 1996 and $14.2 million
in 1995. This was offset by write-offs at CPLC of $33.4 million in 1997, $23.4
million in 1996 and $13.0 million in 1995. Excluding the losses related to
assets purchased from the Company's German affiliate, losses as a percentage of
average net lease receivables were 1.24 percent for 1997 and .94 and .81 percent
for 1996 and 1995, respectively. For further information see Notes 5 and 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 in
1997, 1996 and 1995 resulted from 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.

<PAGE>
Page - 5

Operating Agreement
An operating agreement with PBI was initiated on March 3, 1977 and was
subsequently amended. This agreement was terminated in its entirety and
superseded with the successor agreement on November 6, 1996 as the First Amended
and Restated Operating Agreement ("Operating Agreement"). The Operating
Agreement can be modified or canceled on a prospective basis by either party
upon 90 days prior written notice. PBI and PBCC have entered into detailed
written operating procedures ("Operating Procedures") which govern 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.

Pursuant to the Operating Procedures, 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 provision of the Operating Procedures, PBCC has
the option to request a buyback from PBI for non-copier equipment subject to a
lease which is terminated or canceled, 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 Dictaphone and Monarch
subsidiaries in June 1995 and August 1995, respectively. For the purpose of this
Annual Report, Dictaphone and Monarch are included as part of the internal
small-ticket financing program results prior to December 31, 1995 and are
classified as part of the external small-ticket financing programs for 1996 and
thereafter. 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 Dictaphone and Monarch.

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
the trustee (Sun Trust Bank effective December 16, 1996 replacing 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 it would not default under the Finance
Agreement nor terminate the Finance Agreement without the consent of the holders
of a majority in principal amount of the outstanding securities issued under the
Indenture.

Tax Sharing Agreement
The Company's taxable results are included in the consolidated Federal and
certain state income tax returns of Pitney Bowes. Under the Tax Sharing
Agreement, dated April 1, 1977, between the Company and Pitney Bowes (the "Tax
Sharing Agreement"), 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 canceled by either PBI or PBCC upon
twelve months written notice.
<PAGE>
Page - 6

Real Estate Transactions
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 have been no capital contributions
received since 1993.

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
29,900 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 consists of four product, supplies and service
classes: mailing, copier systems, facsimile systems and related financing. The
products are sold, rented or financed by PBI, while supplies and services are
sold. 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 financial services operations provide global lease financing
for PBI's products.

The business services segment consists of facilities management and mortgage
servicing. Facilities management services are provided for a variety of business
support and processing functions. Mortgage servicing is administered by AMIC.

The commercial and industrial financing segment, which is shifting its strategic
focus to fee-based financial services, provides large-ticket financing programs
covering a broad range of products and other financial services to the
commercial and industrial markets in the United States. It also provides
small-ticket lease financing services to small- and medium-sized businesses
throughout the United States through a nationwide network of brokers and
independent lessors.

At December 31, 1997, PBI and its consolidated subsidiaries had total assets of
$7.9 billion and stockholders' equity of $1.9 billion. For the year ended
December 31, 1997, PBI's consolidated revenue and net income were $4.1 billion
and $526.0 million, respectively, compared with $3.9 billion and $469.4 million
for 1996.

COMPETITION AND REGULATION

The finance business is highly competitive with aggressive rate competition.
Leasing companies, commercial finance companies, commercial banks and other
financial institutions compete in varying degrees in the several markets in
which PBCC does business and range from very large diversified financial
institutions to many small, specialized firms. In view of the market
fragmentation and absence of any dominant competitors which result from such
competition, it is not possible to provide a meaningful description of PBCC's
competitive position in its markets. While financing rates are generally
considered by customers to be the principal factor in choosing a financing
source, the Company believes there are additional important factors related to a
customer's decision, including simplicity of documentation, flexibility and ease
of doing business over the duration of the contract. PBCC seeks to distinguish
itself from its competition by providing excellent service to its customers.
PBCC considers its documentation and systems to be among the best in the
industry. The Company has an established communication network in its 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, all segments have strong competition from a number of companies. In
particular, PBI is facing competition in many countries 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. Pitney Bowes believes that its long experience
and reputation for product quality, and its sales and support service
organizations, along with PBCC, are 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.
<PAGE>
Page - 7
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. (See ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS for information regarding market
risk.) The Company may borrow through the sale of commercial paper, under its
confirmed bank lines of credit and by private and public offerings of
intermediate- or long-term debt securities. The Company may also issue debt
securities having maturities ranging from nine months to 30 years through a
medium-term note program.

While the Company's funding strategy of balancing short-term and longer-term
borrowings and variable- and fixed-rate debt may reduce sensitivity to interest
rate changes over the long-term, effective interest costs have been and will
continue to be impacted by interest rate changes. The Company periodically
adjusts prices on its new leasing and financing transactions to reflect changes
in interest rates; however, the impact of these rate changes on revenue is
usually less immediate than the impact on borrowing costs.

EMPLOYEE RELATIONS

At December 31, 1997, there were 1,079 individuals 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

PBCC's executive and administrative offices are located in Shelton, Connecticut,
which it leases from its parent, PBI. The lease term is for 15 years, cancelable
upon mutual agreement. Except for its executive offices, all of the Company's
remaining office space is occupied under operating leases with original terms
ranging from one to ten years. PBCC has three regional offices located
throughout the United States and seven district sales offices located in or near
major metropolitan areas. Colonial Pacific Leasing Corporation's executive and
administrative offices are located in Portland, 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 condition or results of operations.

ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I.

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
$78.0 million in 1997, $71.2 million in 1996 and $62.0 million in 1995. The
Company intends to continue to pay dividends to PBI in 1998.

<PAGE>
Page - 8
PITNEY BOWES CREDIT CORPORATION
ITEM 6. -- SELECTED FINANCIAL DATA

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.

<TABLE>

(Dollars in thousands) December 31
------------------------------------------------------------------------

For the Year 1997 1996 1995 1994 1993
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross finance contracts acquired............. $ 1,879,084 $ 1,908,105 $ 2,158,549 $ 1,627,974 $ 1,405,516
======== ======== ======== ======== ========

Finance income............................... $ 778,610 $ 745,998 $ 673,014 $ 560,216 $ 513,454
Equipment sales.............................. - 26,666 2,687 45,747 -
Selling, general and administrative expenses. 183,292 175,235 149,483 113,453 99,332
Depreciation and amortization................ 42,648 40,447 32,031 26,497 16,545
Cost of equipment sales...................... - 22,821 2,214 43,039 -
Provision for credit losses.................. 78,320 66,529 58,549 56,133 70,245
Interest expense............................. 197,234 201,543 202,090 151,239 137,372
Nonrecurring items, net...................... - - - (3,311) -
-------- -------- -------- -------- --------
Income before income taxes................... 277,116 266,089 231,334 218,913 189,960
Provision for income taxes................... 82,283 86,855 72,678 71,820 66,475
-------- -------- -------- -------- --------
Income before effect of accounting changes... 194,833 179,234 158,656 147,093 123,485
Effect of accounting changes (1)............. - - - (2,820) -
-------- -------- -------- -------- --------
Net income................................... $ 194,833 $ 179,234 $ 158,656 $ 144,273 $ 123,485
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (2)....... 2.39X 2.31X 2.14X 2.43X 2.37X

At Year End
Gross finance assets
Internal small-ticket programs............... $ 2,222,735 $ 2,039,567 $ 1,872,593 $ 1,697,890 $ 1,497,678
External large-ticket programs............... 1,072,695 2,433,450 2,574,338 2,485,419 2,415,370
External small-ticket programs............... 1,077,292 1,054,120 1,003,702 746,689 670,771
-------- -------- -------- -------- --------
Total gross finance assets................... 4,372,722 5,527,137 5,450,633 4,929,998 4,583,819
Unearned income.............................. (909,280) (1,285,778) (1,333,280) (1,234,928) (1,173,297)
-------- -------- -------- -------- --------
Finance assets............................... $ 3,463,442 $ 4,241,359 $ 4,117,353 $ 3,695,070 $ 3,410,522
======== ======== ======== ======== ========

Investment in leveraged leases............... $ 667,779 $ 617,970 $ 562,500 $ 478,650 $ 298,914
======== ======== ======== ======== ========

Investment in operating leases, net.......... $ 32,112 $ 86,634 $ 114,587 $ 95,684 $ 63,899
======== ======== ======== ======== ========

Allowance for credit losses.................. $ (116,588) $ (98,721) $ (101,355) $ (95,271) $ (98,311)
======== ======== ======== ======== ========

Total assets................................. $ 5,328,340 $ 5,347,002 $ 5,057,874 $ 4,451,837 $ 3,931,462
======== ======== ======== ======== ========
Senior notes payable
Within one year.............................. $ 1,970,110 $ 1,901,581 $ 2,122,880 $ 2,075,591 $ 1,735,607
After one year............................... 1,050,000 1,275,000 1,020,500 745,500 775,295
-------- -------- -------- -------- --------
Total senior notes payable................... $ 3,020,110 $ 3,176,581 $ 3,143,380 $ 2,821,091 $ 2,510,902
======== ======== ======== ======== ========

Short-term notes payable to affiliates....... $ - $ 139,400 $ 149,709 $ - $ -
======== ======== ======== ======== ========

Subordinated notes payable................... $ 270,487 $ 229,154 $ 170,857 $ 133,735 $ 108,834
======== ======== ======== ======== ========

Stockholder's equity......................... $ 1,094,861 $ 978,028 $ 869,994 $ 773,338 $ 671,065
======== ======== ======== ======== ========

Debt to equity............................... 3.01:1 3.62:1 3.98:1 3.82:1 3.90:1
</TABLE>

(1) Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits."
(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.

<PAGE>
Page - 9
PITNEY BOWES CREDIT CORPORATION
ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

EVENTS IMPACTING COMPARABILITY

On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." The adoption of this statement did not have
a material impact on the Company's financial condition or results of operations.

RESULTS OF OPERATIONS

The Company's finance income increased 4.4 percent to $778.6 million in 1997
compared with $746.0 million in 1996, which was up 10.8 percent from 1995.
Finance income for internal small-ticket financing programs increased 7.7
percent to $331.8 million in 1997 compared with $308.1 million in 1996, which
was up 2.5 percent from 1995. These increases are primarily due to higher
investment levels for the mailing and copier portfolios and higher income from
fee-based programs, partially offset in 1996 by the transfer of the Dictaphone
and Monarch portfolios to external small-ticket financing programs subsequent to
the sale of these entities by Pitney Bowes in 1995. Finance income for external
large-ticket financing programs decreased 8.3 percent to $183.1 million in 1997
compared with $199.7 million in 1996, which was up 1.9 percent from 1995. The
decrease in 1997 is due to substantially lower investment levels from the
transfer of finance assets totaling approximately $1.0 billion during 1997 (See
Note 2 to CONSOLIDATED FINANCIAL STATEMENTS.), partly offset by higher revenue
from income- and fee-based programs. The 1996 increase resulted from higher
income from fee-based programs and the sale of $139 million of finance assets,
largely offset by lower investment levels. Both 1997 and 1996 growth rates were
affected by lower lease rates on new business. Finance income for external
small-ticket financing programs increased 2.9 percent to $190.5 million in 1997
compared with $185.2 million in 1996, which was up 32.9 percent from 1995. These
revenues include gains on asset sales of $25.7 million, $24.5 million and $18.8
million in 1997, 1996 and 1995, respectively. These revenues also include $9.9
million in 1997 and $14.3 million in 1996 from the Dictaphone and Monarch
portfolios. Aside from these effects, revenues increased in both 1997 and 1996
due to higher new lease volume and higher income from fee-based programs.
Revenue generated from mortgage servicing increased 38.2 percent to $73.2
million in 1997 compared with $53.0 million in 1996, which was up 42.7 percent
from 1995. The increases for the current and prior year are due to a growing
mortgage servicing portfolio and is consistent with the Company's strategy to
increase its fee-based programs.

The Company had no equipment sales in 1997 compared to $26.7 million in 1996 and
$2.7 million in 1995. The book value of such equipment sold was $22.8 million in
1996 and $2.2 million in 1995.

Selling, general and administrative ("SG&A") expenses increased 4.6 percent to
$183.3 million in 1997 compared with $175.2 million in 1996, which was up 17.2
percent from 1995. SG&A expenses for internal small-ticket financing programs
increased 7.8 percent to $65.2 million in 1997 compared to $60.4 million in
1996, which was 7.7 percent above 1995. These increases are principally due to
higher personnel, professional and other startup expenses related to new
business and strategic initiatives. SG&A expenses for external large-ticket
financing programs increased 33.6 percent to $28.7 million in 1997 compared with
$21.5 million in 1996, up 22.0 percent from 1995. SG&A for 1997 includes $5.0
million of costs related to the transfer of certain external large-ticket assets
made during the year. (See Note 2 to CONSOLIDATED FINANCIAL STATEMENTS.)
Excluding this amount, increases in SG&A expenses were due to higher personnel
related costs and higher utilization of corporate systems and support personnel
and resources. SG&A expenses for external small-ticket financing programs
decreased 10.6 percent to $66.5 million in 1997 compared with $74.4 million in
1996, which was up 20.5 percent from 1995. These expenses include asset sale
costs of $12.7 million, $10.5 million and $12.2 million in 1997, 1996 and 1995,
respectively. Beginning in 1996, these expenses also include expenses related to
the Dictaphone and Monarch portfolios of $0.9 million in 1997 and $1.2 million
in 1996. Aside from these effects, increases in expenses resulted from portfolio
growth and higher marketing fees paid to brokers, while decreases in expenses,
principally in 1997, resulted from reduced expenses related to the liquidation
of assets purchased from the Company's German affiliate, Adrema Leasing
Corporation ("Adrema"), and lower legal and consulting expenses. SG&A expenses
related to mortgage servicing increased 21.3 percent to $22.9 million in 1997
compared with $18.9 million in 1996, which was up 35.1 percent from 1995
primarily due to a growing mortgage servicing portfolio.

Depreciation on operating leases was $11.6 million in 1997 and $15.4 million in
1996 reflecting a lower operating lease average investment balance during 1997.
Amortization of mortgage servicing rights and acquisition fees was $28.3 million
in 1997 compared to $22.2 million in 1996. This increase is principally due to a
larger mortgage servicing portfolio in 1997. The amortization of fees incurred
in connection with the 1993 majority-owned commercial aircraft partnership was
$2.6 million in 1997 and $2.5 million in 1996.
<PAGE>
Page - 10

The provision for credit losses in 1997 increased 17.7 percent to $78.3 million
compared to $66.5 million for 1996, which increased 13.6 percent from 1995. The
provision for the internal small-ticket financing programs increased 2.4 percent
to $31.7 million in 1997 compared to $31.0 million in 1996, which had decreased
9.5 percent from 1995. These provisions reflect increased portfolio growth
offset by continuing favorable collection experience. The provision for external
large-ticket financing programs was $0.5 million in 1997 compared with $.7
million in 1996, reflective of the continuing minimal credit losses experienced
in this portfolio. The provision for the external small-ticket financing
programs increased 32.4 percent to $46.1 million in 1997 compared with $34.8
million in 1996, which increased 32.9 percent from 1995. Provisions for external
small-ticket asset sales were $8.9 million, $6.6 million and $5.4 million for
1997, 1996 and 1995, respectively, while provisions for the Dictaphone and
Monarch portfolios were $1.8 million in 1997 and $2.6 million in 1996. Exclusive
of these effects, the higher provision levels are reflective of higher earning
asset levels, increasing levels of bankruptcies in this portfolio, and
management's evaluations of expected losses.

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, exclusive of assets held for
sale) was 2.55 percent at December 31, 1997, 1.88 percent at December 31, 1996
and 2.03 percent at December 31, 1995. PBCC charged $60.5 million, $69.2 million
and $52.5 million against the allowance for credit losses in 1997, 1996 and
1995, respectively. These included recoveries of $0.7 million in 1997 and
write-offs of $20.9 million and $14.2 million in 1996 and 1995, respectively,
which were related to assets purchased from Adrema.

Interest expense was $197.2 million in 1997 compared with $201.6 million in
1996, a decrease of 2.1 percent. The decrease in 1997 reflects lower average
borrowings partly offset by higher short-term interest rates. The effective
interest rate on short-term average borrowings was 5.00 percent in 1997 compared
to 4.89 percent in 1996 and 5.50 percent in 1995. The Company does not match
fund its financing investments and does not apply different interest rates to
its various financing programs.

The effective tax rate for 1997 was 29.7 percent compared to 32.6 percent for
1996 and 31.4 percent in 1995. The lower effective tax rate is principally due
to lower state tax requirements related to certain leveraged lease transactions
as well as a higher level of tax exempt income.

Net income increased 8.7 percent to $194.8 million in 1997 compared with $179.2
million in 1996, which was up 13.0 percent from 1995. The increase in 1997 is
primarily attributable to higher Internal Financing Division investment levels,
additional fee-based income and lower borrowing levels partly offset by higher
SG&A and depreciation and amortization expenses.

The Company's ratio of earnings to fixed charges was 2.39 times for 1997
compared with 2.31 times for 1996 and 2.14 times for 1995. The increase reflects
the disposition of external large-ticket assets, proceeds from which, were used
for debt reduction.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are from operations and borrowings. It
has been PBCC's practice to use a balanced mix of debt maturities, variable-and
fixed-rate debt and interest rate swap agreements to control its sensitivity to
interest rate volatility. PBCC's debt mix was 60 percent short-term and 40
percent long-term at December 31, 1997 and 58 percent short-term and 42 percent
long-term at December 31, 1996. 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 interest rate debt mix was 47 percent variable rate
and 53 percent fixed rate at December 31, 1997 and 43 percent variable rate and
57 percent fixed rate at December 31, 1996. 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 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 CONSOLIDATED FINANCIAL STATEMENTS.)

At December 31, 1997, the Company had $250 million of unissued debt securities
remaining under a shelf registration statement filed with the Securities and
Exchange Commission in September 1995. In January 1998, PBCC issued $250 million
of debt securities available under the shelf registration. Proceeds from the
debt issuance will be used to help meet the Company's financing needs for the
next year. (See Note 19 to CONSOLIDATED FINANCIAL STATEMENTS.) The Company
intends to file a new shelf registration statement during 1998. The Company also
entered into a interest rate swap agreement for $125 million to better control
its sensitivity to interest rate volatility. Including the new debt and the
interest rate swap, PBCC's swap-adjusted interest rate debt mix at December 31,
1997 would have been 41 percent variable rate and 59 percent fixed rate. The
Company also had unused lines of credit and revolving credit facilities totaling
$1.5 billion at December 31, 1997, largely supporting its commercial paper
borrowings.
<PAGE>
Page - 11

The Company continues to actively pursue a strategy of external large-ticket
asset sales, thereby allowing the Company to focus on fee- and service-based
revenue rather than asset-based income. In keeping with this strategy, during
1997 the Company entered into a transaction with GATX Capital Corporation which
reduced external large-ticket finance assets by approximately $1 billion. As
part of this same transaction, the Company holds approximately $158 million of
equity investment in a limited liability company. (See Note 2 to CONSOLIDATED
FINANCIAL STATEMENTS.) During 1997, 1996 and 1995, the Company sold
approximately $178 million, $270 million and $100 million, respectively, of
external small-ticket finance assets. The Company also sold $86 million and $139
million of external large-ticket finance assets during 1997 and 1996. Sales of
these asset portfolios were made with limited recourse in privately-placed
transactions with third-party investors. The proceeds from the sales 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, 1997 and 1996 was $391 million and $270 million, respectively.

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 .89 and .78 times at December 31, 1997 and 1996,
respectively.

Under the Finance Agreement between Pitney Bowes and the Company, Pitney Bowes
is obligated on a quarterly basis to make payments, to the extent necessary, so
that the Company's earnings available for fixed charges for the preceding one
year period shall not be less than 1.25 times its fixed charges. Pitney Bowes
has also agreed to make any past due principal, interest or premium payments on
behalf of PBCC in respect to all approved debt and/or commercial paper, in the
event that PBCC is unable to make such payments. To date, no such payments from
Pitney Bowes have been required.

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 transactions. The Company believes
that cash generated from operations and collections on existing lease contracts
will provide the majority of cash needed for such investment activities.
Borrowing requirements will be dependent on the level of equipment purchases
from PBI, the level of external financing activity, capital requirements for new
business initiatives, intercompany loans and the refinancing of maturing debt.
Additional cash, to the extent needed, is expected to be provided from
commercial paper, intermediate- or long-term debt securities and intercompany
funds, when available. 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.

MARKET RISK

In the normal course of business, PBCC is exposed to the impact of changes in
interest rates and fluctuations in foreign currency exchange rates. As part of
its established policies and procedures, the Company uses financial instruments
in an attempt to better manage this exposure.

The Company's objectives with regard to managing its interest rate exposure are
to limit the impact of interest rate changes on earnings and cash flow and to
lower its overall borrowing costs. To achieve these objectives the Company uses
a balanced mix of debt maturities and variable- and fixed-rate debt and by
entering into interest rate swaps.

PBCC's objective with regard to managing its foreign currency exposure, which
principally involve loans to foreign affiliates, is to reduce the volatility in
earnings and cash flow associated with foreign currency exchange rate changes.
Accordingly, the Company enters into foreign currency contracts in connection
with certain intercompany loans and certain transfers to the Company by foreign
affiliates of foreign currency denominated lease receivables. The principal
currencies hedged are the British pound, the Canadian dollar and the Australian
dollar. The gains and losses on these contracts offset changes in the value of
the related exposures.

It is the Company's policy to use financial instruments only to the extent
necessary to meet the above stated objectives, and not for speculative purposes.

PBCC uses a Value-at-Risk ("VaR") model to determine the maximum potential
one-day loss in the fair value of its interest rate and foreign exchange
sensitive financial instruments. The VaR model estimates were made assuming
normal market conditions and a 95% confidence level. The Company's computations
are based on the interrelationships between movements in various currencies and
interest rates. The model includes all of the Company's debt as well as interest
rate swaps and foreign currency exchange rate contracts. Anticipated
transactions, firm commitments and accounts receivable and payable denominated
in foreign currencies, which certain of these instruments are intended to hedge,
were excluded from the model.

The VaR model is a risk analysis tool and does not purport to represent actual
losses in fair value that will be incurred by PBCC, nor does it consider the
potential effect of favorable changes in market factors. At December 31, 1997,
the Company's maximum potential one-day loss in fair value on the interest rate
swaps and foreign currency contracts, using a variance/co-variance technique,
was not material to the Company's financial position, results of operations or
cash flows.
<PAGE>
Page - 12
YEAR 2000
The Company is working to resolve the potential impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems. As part of its ongoing investment in advanced information
technology, the Company's systems and applications acquired in recent years are
year 2000 compliant. The Company has committed internal and external resources
to identify systems and applications that are not year 2000 compliant, has
developed a plan and timetable for implementation and testing, and continuously
monitors its progress in ensuring timely resolution of year 2000 issues. A
substantial portion of this work is planned to be completed in 1998 with
remaining work expected to be completed in 1999.

At this time, the Company is not aware of any reason or situation that would
impede the achievement of its plan and timetable, nor does it anticipate that
the cost of addressing this issue will have a material adverse impact on its
financial condition, results of operations or cash flows in future periods.
However, the Company recognizes its limitations in influencing third-party
constituents (i.e., vendors, customers, financial institutions, etc.) and the
complexity of the year 2000 issue. There can be no assurance that such third
parties will convert their systems in a timely manner nor that such failure to
do so will not have a material effect on the Company's financial condition,
results of operations or cash flows.

LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

Pitney Bowes is subject to Federal, state and local laws and regulations related
to the environment, and is currently named as a member of various groups of
potentially responsible parties in administrative or court proceedings. Based on
facts presently known, PBI believes that the outcome of any current proceeding
will not have a material adverse effect on its financial condition, results of
operations or cash flows.

In June 1995, the United States Postal Service ("USPS") finalized and issued
regulations governing the manufacture, distribution and use of postage meters.
These regulations cover four general categories: meter security, administrative
controls, Computerized Meter Resetting Systems and other issues. Pitney Bowes
continues to comply with these regulations in its ongoing postage meter
operations.

In May 1996, the USPS issued a proposed schedule for the phaseout of mechanical
meters in the United States. Between May 1996 and March 1997, PBI worked with
the USPS to negotiate a revised mechanical meter migration schedule which better
reflected the needs of existing mechanical meter users and minimized any
potential negative financial impact. The final schedule agreed to with the USPS
is as follows:

as of June 1, 1996, new placements of mechanical meters would no longer be
permitted; replacements of mechanical meters previously licensed to customers
would be permitted prior to the applicable suspension date for that category of
mechanical meter

- -as of March 1, 1997, use of mechanical meters by persons or firms who process
mail for a fee would be suspended and would have to be removed from service

- -as of December 31, 1998, use of mechanical meters that interface with mail
machines or processors ("systems meters") would be suspended and would have to
be removed from service

- -as of March 1, 1999, use of all other mechanical meters ("stand-alone meters")
would be suspended and have to be removed from service

Based on the foregoing schedule, PBI believes that the phaseout of mechanical
meters will not have a material adverse financial impact.

As a result of the PBI's aggressive efforts to meet the USPS mechanical meter
migration schedule combined with its ongoing and continuing investment in
advanced postage evidencing technologies, mechanical meters represent 25% of
PBI's installed U.S. meter base as of December 31, 1997, compared with 40% as of
December 31, 1996. At December 31, 1997, 75% of PBI's installed U.S. meter base
is electronic or digital, as compared to 60% at December 31, 1996.

<PAGE>
Page - 13

In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program ("IBIP") for future postage evidencing devices. As initially
stated by the USPS, the purpose of the program was to develop a new standard for
future digital postage evidencing devices which significantly enhanced postal
revenue security and supported expanded USPS value-added services to mailers.
The program would consist of the development of four separate specifications:

- -the Indicium specification- the technical specifications for the Indicium to be
printed

- -a Postal Security Device specification- the technical specification for the
device that would contain the accounting and security features of the system

- -a Host specification

- -a Vendor Infrastructure specification

In July 1996, the USPS published for public comment draft specifications for the
Indicium, Postal Security Device and Host specifications. Pitney Bowes submitted
extensive comments to these specifications in November 1996. Revised
specifications were then published in 1997 which incorporated many of the
changes recommended by PBI in its prior comments, including the recommendation
that IBIP apply only to the personal computer ("PC") environment and not apply
at the present time to other digital postage evidencing systems. Pitney Bowes
submitted comments to these revised specifications. Also, in March 1997 the USPS
published for public comment the Vendor Infrastucture specification to which PBI
responded on June 27, 1997. As of December 31, 1997, the USPS had not yet
finalized the four IBIP specifications; however PBI has developed a PC product
which satisfies the proposed IBIP specifications. This product is currently
undergoing testing by the USPS and is expected to be ready for market when final
approval of the specifications is issued.

- --------------------------------------------------------------------------------
The Company wishes to caution readers that any forward-looking statements (those
which talk about the Company's or management's current expectations as to the
future), in this Form 10-K or made by Company management involve risks and
uncertainties which may change based on various important factors. Some of the
factors which could cause future financial performance to differ materially from
the expectations as expressed in any forward-looking statement made by or on
behalf of the Company include: the level of business and financial performance
of Pitney Bowes, including the impact of changes in postal regulations in the
United States; 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
success of the Company at managing customer credit risk and associated
collection and asset management efforts.

<PAGE>
Page - 14
PITNEY BOWES CREDIT CORPORATION
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 page 35 present fairly, in all material
respects, the financial position of Pitney Bowes Credit Corporation and its
subsidiaries (the "Company") at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, 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.

PRICE WATERHOUSE LLP

Stamford, Connecticut
January 26, 1998

<PAGE>
Page - 15
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands of dollars)

<TABLE>

Years Ended December 31 1997 1996 1995
---- ---- ----
Revenue:
<S> <C> <C> <C>
Finance income...................................... $ 778,610 $ 745,998 $ 673,014
Equipment sales..................................... - 26,666 2,687
------- ------- -------

Total revenue..................................... 778,610 772,664 675,701
------- ------- -------

Expenses:
Selling, general and administrative................. 183,292 175,235 149,483
Depreciation and amortization....................... 42,648 40,447 32,031
Cost of equipment sales............................. - 22,821 2,214
Provision for credit losses......................... 78,320 66,529 58,549
Interest............................................ 197,234 201,543 202,090
------- ------- -------
Total expenses.................................... 501,494 506,575 444,367
------- ------- -------
Income before income taxes............................ 277,116 266,089 231,334
Provision for income taxes............................ 82,283 86,855 72,678
------- ------- -------

Net income............................................ $ 194,833 $ 179,234 $ 158,656
======= ======= =======

</TABLE>

CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands of dollars)

<TABLE>

Years Ended December 31 1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Retained earnings at beginning of year................ $ 890,303 $ 782,269 $ 685,613
Net income for the year............................... 194,833 179,234 158,656
Dividends paid to Pitney Bowes Inc.................... (78,000) (71,200) (62,000)
-------- ------- -------

Retained earnings at end of year...................... $ 1,007,136 $ 890,303 $ 782,269
======== ======= =======

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
Page - 16
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
<TABLE>

December 31,

1997 1996
---- ----
Assets:
<S> <C> <C>
Cash..................................................................... $ 36,320 $ 20,937
--------- ---------
Investments:
Finance assets......................................................... 3,463,442 4,241,359
Investment in leveraged leases......................................... 667,779 617,970
Assets transferred from affiliate...................................... 12,096 32,825
Investment in operating leases, net of accumulated depreciation........ 32,112 86,634
Allowance for credit losses............................................ (116,588) (98,721)
--------- ---------
Net investments...................................................... 4,058,841 4,880,067
--------- ---------

Mortgage servicing rights, net of accumulated amortization............. 220,912 138,146
Assets held for sale................................................... 305,228 140,420
Investment in partnership.............................................. 158,327 -
Loans and advances to affiliates....................................... 290,488 8,711
Other assets........................................................... 258,224 158,721
--------- ---------
Total assets........................................................ $ 5,328,340 $ 5,347,002
========= =========

Liabilities:
Senior notes payable within one year................................... $ 1,970,110 $ 1,901,581
Short-term notes payable to affiliates................................. - 139,400
Accounts payable to affiliates......................................... 232,917 168,558
Accounts payable and accrued liabilities............................... 199,905 176,657
Deferred taxes......................................................... 510,060 478,624
Senior notes payable after one year.................................... 1,050,000 1,275,000
Subordinated notes payable............................................. 270,487 229,154
--------- ---------
Total liabilities.................................................. 4,233,479 4,368,974
--------- ---------
Stockholder's Equity:
Common stock........................................................... 46,000 46,000
Capital surplus........................................................ 41,725 41,725
Retained earnings...................................................... 1,007,136 890,303
--------- ---------
Total stockholder's equity.......................................... 1,094,861 978,028
--------- ---------
Total liabilities and stockholder's equity.......................... $ 5,328,340 $ 5,347,002
========= =========

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
Page - 17
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)

<TABLE>

Years Ended December 31 1997 1996 1995
---- ---- ----

Operating Activities
<S> <C> <C> <C>
Net income........................................................... $ 194,833 $ 179,234 $ 158,656
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses........................................ 78,320 66,529 58,549
Depreciation and amortization...................................... 42,648 40,447 32,031
Cost of equipment sales............................................ - 22,821 2,214
Increase in deferred taxes.......................................... 31,436 37,300 99,290
Increase in other receivables....................................... (37,782) (8,315) (3,936)
Increase in foreclosure claims receivable........................... (24,155) (3,673) (3,783)
Increase in advances and deposits................................... (23,351) (6,168) (4,702)
Increase (decrease) in accounts payable to affiliates............... 64,359 41,551 (26,353)
Increase (decrease) in accounts payable and accrued liabilities..... 23,248 21,054 (72,676)
Increase in assets transferred from affiliates...................... (6,202) (6,226) (35,582)
Other, net.......................................................... (65) (18,748) (2,326)
--------- --------- --------
Net cash provided by operating activities 343,289 365,806 201,382
--------- --------- --------
Investing Activities
Investment in net finance assets................................... (1,414,207) (1,488,380) (1,527,065)
Investment in leveraged leases..................................... (46,390) (22,446) (43,509)
Investment in operating leases..................................... (16,023) (20,348) (35,067)
Investment in assets held for sale................................. (650,951) (326,691) (151,640)
Cash receipts collected under lease contracts, net of finance
income recognized............................................... 2,538,321 1,557,822 1,142,254
Investment in mortgage service rights.............................. (110,014) (50,407) (64,310)
Loans and advances to affiliated companies, net.................... (281,777) (2,001) 38,991
Additions to equipment and leasehold improvements.................. (14,327) (12,536) (9,277)
--------- --------- --------
Net cash provided by (used in) investing activities.................. 4,632 (364,987) (649,623)
--------- --------- --------
Financing Activities
Increase (decrease) in short-term debt............................ 89,029 (466,799) 76,789
Short-term loans from affiliates.................................. (139,400) (10,309) 149,709
Proceeds from issuance of senior notes payable after one year..... - 500,000 275,000
Proceeds from issuance of subordinated debt....................... 41,333 58,297 37,862
Settlement of long-term debt...................................... (245,500) - (29,500)
Payments to settle subordinated debt.............................. - - (740)
Dividends paid to Pitney Bowes, Inc............................... (78,000) (71,200) (62,000)
--------- --------- --------
Net cash (used in) provided by financing activities.................. (332,538) 9,989 447,120
--------- --------- --------

Increase (decrease) in cash.......................................... 15,383 10,808 (1,121)
Cash at beginning of year............................................ 20,937 10,129 11,250
--------- --------- --------
Cash at end of year.................................................. $ 36,320 $ 20,937 $ 10,129
========= ========= ========

Interest paid........................................................ $ 196,968 $ 197,256 $ 199,346
========= ========= ========
Income taxes refunded, net........................................... $ (21,773) $ (44,397) $ (36,360)
========= ========= ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
Page - 18
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and balances 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 from prior years have been reclassified in order to conform to
current year presentation.

Basis of accounting for financing transactions
At the time a financing 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. Beginning
January 1, 1997, the Company adopted Statement of Financial Accounting Standards
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", to account for the sale of these assets. All
assets obtained or liabilities incurred in consideration are recognized as
proceeds of the sale and any resulting gain or loss is recognized in income
currently. Prior to January 1, 1997, the Company followed Statement of Financial
Accounting Standards No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse", when accounting for its sale of finance assets.

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. Finance receivables are charged to the allowance for credit losses after
the account is deemed uncollectible. (See Note 6 to CONSOLIDATED FINANCIAL
STATEMENTS.)

The Company's general policy is to discontinue income recognition for finance
receivables contractually past due for over 90 to 120 days depending on the
nature of the transaction. Resumption of income recognition occurs when payments
reduce the account to 60 days or less past due. Large-ticket external
transactions are reviewed on an individual basis. Income recognition is
discontinued when it is apparent an obligor will not be making payment in
accordance with lease terms and is resumed when the Company has sufficient
experience on resumption of payments to be satisfied that such payments will
continue in accordance with contract terms.

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.
<PAGE>
Page - 19
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. - Summary of Significant Accounting Policies (continued)

Mortgage servicing rights
The Company recognizes as separate assets - mortgage servicing rights ("MSRs") -
rights to service mortgage loans for others, whether those servicing rights are
originated or purchased. Servicing rights originated by others purchased
separately from loans are recorded at cost The Company assesses impairment of
MSRs based on the fair value of those rights. The Company estimates the fair
value of MSRs based on estimated future net servicing income, using a valuation
model which considers such factors as market discount rates and loan repayments.
The Company's policy for evaluating MSRs is based on the predominant risk
characteristics of the underlying loans, which for the Company's MSRs includes
adjustable rate versus fixed rate, segregated into strata by loan type and
interest rate bands. The amount of impairment recognized is the amount by which
the capitalized MSRs for a stratum exceed estimated fair value. Impairment is
recognized through a valuation allowance.

MSRs are amortized in proportion to and over the period of the estimated future
net servicing income stream of the underlying mortgages. The Company may adjust
amortization prospectively in response to changes in actual and anticipated
prepayments, foreclosure, delinquency and cost experience.

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.

Note 2. - Finance Assets

The composition of the Company's finance assets is as follows:

<TABLE>
December 31 1997 1996
---- ----
(in thousands of dollars)
<S> <C> <C>
Gross finance receivables.................................. $ 3,911,671 $ 4,826,361
Unguaranteed residual valuation............................ 461,051 700,776
Initial direct costs deferred.............................. 85,497 91,588
Unearned income............................................ (994,777) (1,377,366)
--------- ---------
Total finance assets..................................... $ 3,463,442 $ 4,241,359
========= =========
</TABLE>

Gross finance receivables represent earning assets held by the Company which are
generally due in monthly, quarterly or semi-annual installments over original
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 original lease terms up to 25 years and other non-commercial
jet aircraft transactions with lease terms ranging from three to 12 years. The
balance due at December 31, 1997, including estimated residual value realizable
at the end of the lease term, is payable as follows:

<TABLE>
Gross Finance Assets
--------------------------------------------------------------------------
Internal External External
small-ticket large-ticket small-ticket
programs programs programs Total

<S> <C> <C> <C> <C> <C>
1998 $ 897,215 $ 118,870 $ 430,908 $1,446,993
1999 608,844 89,930 303,376 1,002,150
2000 433,251 93,304 203,941 730,496
2001 225,156 89,062 104,971 419,189
2002 54,300 101,589 33,896 189,785
Thereafter 3,969 579,940 200 584,109
-------- -------- -------- --------

Total $2,222,735 $1,072,695 $1,077,292 $4,372,722
======== ======== ======== ========
</TABLE>

<PAGE>
Page - 20
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. - Finance Assets (continued)

Net equipment financed for Pitney Bowes products were $611.2 million, $571.6
million and $545.6 million in 1997, 1996, and 1995, respectively.

During 1997, the Company entered into an agreement with GATX Capital Corporation
which reduced external large-ticket finance assets by approximately 50%, or $958
million. This was accomplished through a sale of approximately $800 million of
assets and an investment of approximately $158 million in a limited liability
company.

In addition, PBCC sold finance assets with limited recourse, of approximately
$264 million, $409 million and $100 million in 1997, 1996 and 1995,
respectively. The uncollected principal balance of receivables sold at December
31, 1997 and 1996 was $391 million and $270 million, respectively. 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 become uncollectible.

As of December 31, 1997, $373.7 million (10.8 percent) of the Company's finance
assets and $521.0 million (11.9 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 3. - Net Investment in Leveraged Leases

The Company's net investment in leveraged leases is composed of the following
elements:

<TABLE>
December 31 1997 1996
---- ----
(in thousands of dollars)
<S> <C> <C>
Net rents receivable....................................... $ 627,655 $ 532,205
Unguaranteed residual valuation............................ 599,741 640,978
Unearned income............................................ (559,617) (555,213)
--------- ---------
Investment in leveraged leases............................. 667,779 617,970
Deferred taxes arising from
leveraged leases (1) ..................................... (308,746) (257,760)
--------- ---------
Net investment in leveraged leases......................... $ 359,033 $ 360,210
========= =========
</TABLE>

(1) Includes amounts reclassified to subordinated debt.

Following is a summary of the components of income from leveraged leases:

<TABLE>
Year Ended December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Pretax leveraged lease income............... $ 4,467 $ 7,145 $ 11,236
Income tax benefit.......................... 17,110 7,080 4,609
------- ------- -------
Net income from leveraged leases........... $ 21,577 $ 14,225 $ 15,845
======= ======= =======
</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.

<PAGE>
Page - 21
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. - Net Investment in Leveraged Leases (continued)

Leveraged lease investments totaling $289.2 million (43.3 percent) are related
to commercial real estate facilities, with original lease terms ranging up to 25
years. Also included are seven aircraft transactions with major commercial
airlines, with a total investment of $293.5 million (43.9 percent) and with
original lease terms ranging from 22 to 25 years; one transaction involving
locomotives with a total investment of $35.3 million (5.3 percent) with an
original lease term of 38 years and three transactions involving rail and bus
facilities with a total investment of $48.6 million (7.3 percent) and original
lease terms of 37 to 44 years.

Note 4. - Transfer of Assets from Affiliate

As disclosed in previous filings, in December 1992, as part of the restructuring
of the Company's 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.

Note 5. - 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 $2.1 million in 1998, $1.2 million in
1999, $0.8 million in 2000, $0.4 million in 2001, $0.2 million in 2002 and $0.4
million thereafter.

Note 6. - Allowance for Credit Losses

The following is a summary of the allowance for credit losses, substantially all
of which relates to lease financing:

<TABLE>
December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Beginning balance.......................... $ 98,721 $ 101,355 $ 95,271

Additions charged to operations............ 78,320 66,529 58,549

Amounts written-off:
Internal small-ticket programs.......... (27,182) (22,879) (24,330)
External large-ticket programs.......... 40 (101) (356)
External small-ticket programs.......... (33,311) (46,183) (27,779)
------- ------- -------
Total write-offs.................... (60,453) (69,163) (52,465)
------- ------- -------

Ending balance............................. $ 116,588 $ 98,721 $ 101,355
======= ======= =======
</TABLE>

The increase in the amount of additions charged to operations in 1997, 1996 and
1995 is the result of higher investment levels in all of PBCC's financing
programs and the impact of finance asset sales in 1997, 1996 and 1995, partially
offset by favorable adjustments to the internal small-ticket and external
large-ticket financing programs provisions reflecting management's current
evaluation of expected losses.

Recoveries related to assets purchased from Adrema totaled $0.7 million in 1997,
and write-offs of $20.9 million and $14.2 million in 1996 and 1995,
respectively. Excluding the impact of the recoveries and write-offs related to
assets purchased from Adrema, external small-ticket write-offs increased $9.8
million. This increase is due to a 10.6 percent increase in the lease portfolio
at Colonial Pacific Leasing Corporation ("CPLC") combined with a 51.6 percent
increase in bankruptcies. The Company has implemented various measures to
control this increase including modifying new credit policies and improving
collection and recovery procedures.

<PAGE>
Page - 22
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. - Allowance for Credit Losses (continued)

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.

The carrying values of non-performing and troubled finance assets are outlined
below. There are no leveraged leases classified under these categories.
<TABLE>
December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
Non-performing (non-accrual) transactions
<S> <C> <C> <C>
Internal small-ticket programs.......... $ 11,394 $ 12,614 $ 12,248
External large-ticket programs.......... 1,148 1,248 1,448
External small-ticket programs.......... 38,579 25,161 8,874
------- ------- -------
Total............................... $ 51,121 $ 39,023 $ 22,570
======= ======= =======
Troubled (potential problem) transactions
External large-ticket programs.......... $ 13,446 $ 13,810 $ 5,892
======= ======= =======
</TABLE>

The increase in non-performing transactions in 1997 and 1996 in the external
small-ticket programs reflects higher volumes together with an increase in
bankruptcy levels among lease customers. Management has taken various measures
to counter non-performing growth such as revalidating credit scorecards,
modifying audit procedures and improving transaction verification processes. The
increase in troubled/potential problem transactions for the external
large-ticket programs is due to a real estate transaction which is currently in
the process of being restructured. The Company believes it has sufficient
reserves to provide for any losses which may result from the final resolution of
the above transactions.

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.

<PAGE>
Page - 23
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. - Allowance for Credit Losses (continued)

However, for non-performing external large-ticket financing transactions, the
Company has adjusted the face value of these receivables through the following
adjustments:

<TABLE>
December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Face value of receivables.................. $ 2,500 $ 2,500 $ 4,511
Cash collections applied to principal...... (1,352) (1,252) (2,436)
Write-offs to allowance for credit losses.. - - (627)
------- ------- -------
Carrying value............................. $ 1,148 $ 1,248 $ 1,448
======= ======= =======

</TABLE>

Note 7. - Mortgage Servicing Rights

The Company purchased rights to service loans with aggregate unpaid principal
balances of approximately $6.9 billion in 1997, $5.3 billion in 1996, and $4.1
billion in 1995. The costs associated with acquiring these rights were
capitalized and recorded as MSRs.

The following summarizes the Company's capitalized MSR activity:

<TABLE>
December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Beginning balance........................... $ 138,146 $ 108,851 $ 59,506
MSR acquisitions............................ 110,014 50,407 64,310
MSR amortization............................ (27,248) (21,112) (14,965)
------- ------- -------
Ending balance.............................. $ 220,912 $ 138,146 $ 108,851
======= ======= =======
</TABLE>

The fair value of MSRs was approximately $247.5 million at December 31, 1997 and
$158.8 million at December 31, 1996. There were no valuation allowances for MSRs
at December 31, 1997, 1996 or 1995.

Note 8. - Assets Held for Sale

The Company funded transactions totaling $650.9 million in 1997, $326.7 million
in 1996, and $151.6 million in 1995, relating to assets held for sale.
Transactions totaling $445.5 million in 1997 and $257.8 million in 1996, were
sold for a net gain before taxes of $6.3 million in 1997 and $8.5 million in
1996, which is recorded as part of finance income. Twenty-one transactions
relating to assets held for sale remain in inventory with a net carrying value
of $305.2 million at December 31, 1997 compared with fourteen transactions with
a net carrying value of $140.4 million at December 31, 1996.

<PAGE>
Page - 24
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. - Other Assets

<TABLE>
December 31 1997 1996
---- ----
(in thousands of dollars)
<S> <C> <C>
Other receivables........................................... $ 60,191 $ 22,409
Loans held for investment................................... 41,545 29,590
Foreclosure claims receivable, net.......................... 34,057 9,902
Equipment and leasehold improvements, net of accumulated
depreciation and amortization: 1997-$21,975; 1996-$18,123. 30,612 22,873
Billed meter rental receivables ............................ 29,582 23,399
Mortgage escrow advances.................................... 25,634 19,413
Other advances and deposits................................. 19,141 2,011
Deferred partnership fees................................... 5,290 7,250
Deferred debt placement fees................................ 3,308 4,791
Interest discount on commercial paper....................... 2,672 9,603
Goodwill, net of accumulated amortization:
1997-$2,132; 1996-$1,744.................................. 2,518 2,906
Prepaid expenses and other assets........................... 3,674 4,574
-------- --------
Total other assets......................................... $ 258,224 $ 158,721
======== ========
</TABLE>

Other receivables increased over the prior year mainly due to higher billed
receivables at AMIC and proceeds due on syndication transactions.

Loans held for investment consist primarily of purchased mortgage loans, secured
by first real estate mortgages, and are held to maturity. Mortgage loans held
for investment are stated at the lower of cost or market value at the date
acquired. The amount of discount, if any, recorded to reduce the carrying value
of loans to market value is amortized to income over the expected life of the
investment. The Company periodically evaluates the credit risks associated with
these loans. Any provision for possible losses is included in the reserve for
possible losses associated with foreclosure claims receivables.

Foreclosure claims receivable include loans and related advances in the process
of foreclosure. Such loans are insured or guaranteed by either the Federal
Housing Administration, the Veterans Administration or private mortgage
insurance and will be repaid when the foreclosure process is completed. The
Company has established reserves for possible losses in excess of insured or
guaranteed amounts of approximately $5.5 million and $3.1 million at December
31, 1997 and 1996, respectively, which have been netted against the foreclosure
claims receivable balances.

Equipment and leasehold improvements are stated at cost. Equipment is
depreciated on a straight-line basis over the expected useful life generally
ranging from five to ten years. Leasehold improvements are amortized on a
straight-line basis over the remaining lease terms.

Billed meter rental receivables represent uncollected meter rental receivables
billed to customers who have opted to have their meter rental charged on their
lease invoice. PBCC remits these charges to PBI based on billings. There is no
reserve established at PBCC, since any unpaid meter rentals are netted against
future payments due PBI. The increase in billed meter rental receivables
resulted from a larger customer base and higher meter rates.

Mortgage escrow advances include advances made in connection with loan servicing
activities. These advances consist primarily of property taxes and insurance
premiums made before they are collected from mortgagors.

Other advances and deposits include advances made in connection with the
acquisition of new mortgage servicing portfolios.

Deferred partnership fees relate to a transaction whereby the Company
contributed certain commercial aircraft, subject to direct financing leases, to
a majority-owned partnership. Partnership fees incurred in connection with this
transaction are amortized over the term of the transaction.

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.

<PAGE>
Page - 25
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. - Accounts Payable and Accrued Liabilities

<TABLE>
December 31 1997 1996
---- ----
(in thousands of dollars)
<S> <C> <C>
Advances and deposits from customers........................ $ 51,616 $ 45,131
Accounts payable............................................ 48,572 36,653
Accrued interest payable.................................... 23,081 30,488
Sales and use, property and sundry taxes.................... 14,663 12,879
Portfolio purchase price payable............................ 12,800 8,319
Accrued salary and benefits payable......................... 8,662 7,120
Minority interest in partnership............................ 8,130 7,512
Other liabilities........................................... 32,381 28,555
-------- --------
Total accounts payable and accrued liabilities............. $199,905 $176,657
======== ========
</TABLE>

Note 11. - Notes Payable

Short-term notes payable totaled $2.0 billion at December 31, 1997 and $1.9
billion at December 31, 1996. These notes were issued as commercial paper, loans
against bank lines of credit, or to trust departments of banks and others at
rates below the prevailing prime rate.

The composition of the Company's notes payable is as follows:

<TABLE>
December 31 1997 1996
---- ----
(in thousands of dollars)
Senior Notes Payable:
Commercial paper at the weighted average
<S> <C> <C>
interest rate of 5.66% (5.54% in 1996).................... $ 1,361,110 $ 1,359,200
Notes payable against bank lines of credit and others at a
weighted average interest rate of 1.68% (2.11% in 1996)... 384,000 296,881
Current installment of long-term debt due within one year at
interest rates of 5.84% to 6.31% (5.63% to 7.48% in 1996). 225,000 245,500
--------- ---------
Total senior notes payable due within one year............. 1,970,110 1,901,581
Senior notes payable due after one year at interest rates of
6.06% to 9.25% (5.63% to 9.25% in 1996).................. 1,050,000 1,275,000
--------- ---------
Total senior notes payable................................. 3,020,110 3,176,581
--------- ---------
Short-term Notes Payable to Affiliates:
Notes payable to Pitney Bowes Inc. at a weighted
average interest rate of 5.40% in 1996.................... - 139,400
Subordinated Notes Payable:
Non-interest bearing notes due Pitney Bowes Inc............. 270,487 229,154
--------- ---------

Total notes payable........................................ $ 3,290,597 $ 3,545,135
========= =========

</TABLE>

At December 31, 1997, the Company had unused lines of credit and revolving
credit facilities totaling $1.5 billion largely supporting commercial paper
borrowings. The Company recorded commitment fees of $0.6 million, $1.3 million
and $1.4 million in 1997, 1996 and 1995 to maintain its lines of credit. The
reduction in 1997 commitment fees is a result of reductions in commitment fee
rates in January 1997.
<PAGE>
Page - 26
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. - Notes Payable (continued)

Total notes payable at December 31, 1997 mature as follows: approximately $2
billion in 1998, $200 million in 1999, $50 million in 2000, $200 million in
2001; $100 million in 2002 and $770 thereafter.

Lending Arrangements: Under terms of its senior and subordinated loan
agreements, the Company is required to maintain earnings before taxes and
interest charges at prescribed levels. With respect to such loan agreements,
Pitney Bowes will endeavor to have the Company maintain compliance with such
terms and, under certain loan agreements, is obligated, if necessary, to pay to
the Company amounts sufficient to maintain a prescribed ratio of earnings
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.

In July 1996, the Company issued $200 million of medium-term notes due in July
1999 and $100 million of medium-term notes due in July 2001 with coupon rates of
6.54 percent and 6.78 percent, respectively.

In September 1996, the Company issued $100 million of medium-term notes due in
October 1998 and $100 million of medium-term notes due in October 2001 with
coupon rates of 6.31 percent and 6.80 percent, respectively.

At December 31, 1997 the Company had $250 million of unissued debt securities
remaining from a shelf registration statement filed with the Securities and
Exchange Commission in September 1995. On January 16, 1998, PBCC issued the
entire $250 million of debt securities available under the shelf registration.
Proceeds from the debt issuance will be used to meet the Company's financing
needs for the next year. (See Note 19 to CONSOLIDATED FINANCIAL STATEMENTS.)

In 1997 and 1996, the Company issued $41.3 million and $58.3 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 1996 and 1995 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 its 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.

<PAGE>
Page - 27
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. - Derivative Instruments (continued)

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:

<TABLE>
Total
Major Type Notional
of Interest Amount Weighted Average Interest Rates
Rate Swap Hedged Liability (000's) Fixed Variable(1)

<S> <C> <C> <C>
Pay fixed Commercial paper $200,000 8.88% 6.10%

Pay variable Senior notes payable after one year 23,524 7.98% 5.95%
-------- ------ ------
Total $223,524 8.78% 6.08%
======== ====== ======

</TABLE>

(1) The variable rate is indexed from the 30 day Fed AA composite commercial
paper rate. The Fed AA composite rate at December 31, 1997 was used to calculate
the weighted average interest rate.

The aggregate notional amount of interest rate swaps categorized by annual
maturity is reflected below:

<TABLE>
Annual Maturity
---------------------------------------
Pay
-------------------
(in thousands of dollars) Fixed Variable Total
----- -------- -----
<S> <C> <C> <C> <C>
1998....................................... - $ 23,524 $ 23,524
1999....................................... $100,000 - 100,000
2000....................................... - - -
2001....................................... - - -
2002....................................... - - -
Thereafter................................. 100,000 - 100,000
------- ------- -------
Carrying value............................. $200,000 $ 23,524 $ 223,524
======= ======= =======

The following is a reconciliation of interest rate swap activity by major type
of swap:

Annual Maturity
---------------------------------------
Pay
--------------------
(in thousands of dollars) Fixed Variable Total

<S> <C> <C> <C>
Balance December 31, 1995................... $ 305,700 $ 24,100 $ 329,800
New contracts............................... - 26,048 26,048
Expired contracts........................... (5,700) (24,100) (29,800)
-------- -------- --------

Balance December 31, 1996................... 300,000 26,048 326,048
Expired contracts........................... (100,000) (2,524) (102,524)
-------- -------- --------

Balance December 31, 1997................... $ 200,000 $ 23,524 $ 223,524
======== ======== ========
</TABLE>

<PAGE>
Page - 28
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. - Derivative Instruments (continued)

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>
1997 1996 1995
---- ---- ----

<S> <C> <C> <C> <C>
Impact of interest rate swaps on interest expense (000's).............. $ 6,268 $ 7,346 $ 9,376
Weighted average borrowing rate excluding interest rate swaps.......... 5.89% 5.81% 6.14%
Weighted average borrowing rate including interest rate swaps.......... 6.09% 6.03% 6.45%
</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. The Company had no foreign
currency contracts outstanding as of December 31, 1997.

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.

There were no deferred gains or losses relating to terminated interest rate
swaps or foreign currency contracts at December 31, 1997 and 1996. The fair
value of interest rate swaps and foreign currency contracts is presented in Note
15 to the CONSOLIDATED FINANCIAL STATEMENTS.

Note 13. - Stockholder's Equity

The following is a reconciliation of stockholder's equity:
<TABLE>

Total
Common Capital Retained Stockholder's
(in thousands of dollars) Stock Surplus Earnings Equity

<S> <C> <C> <C> <C>
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
Net income - 1996.............. - - 179,234 179,234
Dividends paid to PBI.......... - - (71,200) (71,200)
-------- -------- -------- --------
Balance December 31, 1996...... 46,000 41,725 890,303 978,028
Net income - 1997.............. - - 194,833 194,833
Dividends paid to PBI.......... - - (78,000) (78,000)
-------- -------- -------- --------
Balance December 31, 1997...... $ 46,000 $ 41,725 $1,007,136 $1,094,861
======== ======== ======== ========

</TABLE>

At December 31, 1997, 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, 1997 and 1996. All of the
Company's stock is owned by Pitney Bowes.

When the Company entered into real estate lease financing, PBI made capital
contributions to provide a portion of the financing for such transactions. A
total of $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 have been received since 1993.

<PAGE>
Page - 29
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Due to the short maturity of these instruments, the carrying amounts
approximate fair value.

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 recourse obligations in
connection with certain mortgages it services, as well as certain finance asset
sales to third-parties. Aggregate exposure at December 31, 1997 and 1996 was
$213 million and $115 million respectively. The fair value of the guarantees
under these obligations represents the estimate of expected future losses.

Residual and conditional commitment guarantee contracts. The fair value of
residual and conditional commitment guarantee contracts is based on the
projected fair market value of the collateral as compared to the guaranteed
amount plus a commitment fee generally required by the counterparty to assume
the guarantee.

Commitments to extend credit. The fair value of commitments to extend credit is
estimated by comparing current market conditions taking into account the
remaining terms of existing agreements and the creditworthiness of the
counterparties.

The estimated fair value of the Company's financial instruments is as follows:

<TABLE>
December 31 1997 1996
------------------------ -----------------------
(in thousands of dollars) Carrying Fair Carrying Fair
Value (1) Value Value (1) Value

<S> <C> <C> <C> <C>
Investment securities $ 15,822 $ 15,715 $ 1,031 $ 1,031
Loans receivable (2) 357,227 358,941 381,789 365,560
Senior notes payable after one year (1,068,662) (1,143,402) (1,298,074) (1,346,255)
Interest rate swaps (935) (24,524) (1,327) (25,435)
Foreign currency contracts - - - 15
Transfers of receivables
with recourse (7,765) (7,765) (10,489) (10,489)
Financial guarantee contracts (1,656) (3,265) (601) (601)
Residual and conditional
commitment guarantee contracts (4,750) (4,253) (3,759) (4,694)
</TABLE>

(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.

<PAGE>
Page - 30
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. - Taxes on Income

Income before income taxes and the provision for income taxes were as follows:

<TABLE>

Year Ended December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Income before income taxes................. $ 277,116 $ 266,089 $ 231,334
======== ======== ========
Provision for income taxes:
Federal:
Current................................. $ (6,212) $ (22,772) $ (70,605)
Deferred................................ 87,880 92,908 130,521
------- ------- -------
Total federal....................... 81,668 70,136 59,916
------- ------- -------
State and local:
Current................................. 13,565 (8,120) (9,302)
Deferred................................ (12,950) 24,839 22,064
------- ------- -------
Total state and local............... 615 16,719 12,762
------- ------- -------

Total...................................... $ 82,283 $ 86,855 $ 72,678
======= ======= =======

Deferred tax liabilities and (assets):

December 31 1997 1996 1995
---- ---- ----
(in thousands of dollars)
Deferred tax liabilities:
<S> <C> <C> <C>
Lease revenue and related depreciation.... $531,195 $553,206 $491,467

Deferred tax assets:
Alternative minimum tax
credit carryforwards.................... (21,135) (74,582) (50,143)
-------- -------- --------
Total...................................... $510,060 $478,624 $441,324
======== ======== ========

A reconciliation of the U.S. Federal statutory rate to the Company's effective
income tax rate follows:

Year Ended December 31 1997 1996 1995
---- ---- ----
(Percent of pretax income)
<S> <C> <C> <C>
U.S. Federal statutory rate................. 35.0% 35.0% 35.0%

State and local income taxes ............... 0.1 4.0 3.9
Partnership tax benefits.................... (0.8) (0.9) (1.1)
Tax-exempt foreign trade income............. (1.9) (2.2) (2.7)
Tax-exempt finance income .................. (0.6) (0.5) (0.8)
Residual portfolio acquisition.............. (0.5) (0.6) (1.1)
Other, net ................................. (1.6) (2.2) (1.8)
-------- -------- --------
Effective income tax rate ................. 29.7% 32.6% 31.4%
======== ======== ========
</TABLE>

<PAGE>
Page - 31
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 for 1997 and 1996 remained constant at 7.25
percent for the discount rate, 4.25 percent for the expected rate of increase in
future compensation levels and 9.50 percent for the expected long-term rate of
return on plan assets. The Company's pension expense was $0.4 million in 1997,
$1.6 million in 1996 and $1.3 million in 1995.

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.

Note 17. - 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: $3.3 million in 1998, $2.1 million in 1999, $1.4 million in 2000, $1.3
million in 2001, $1.2 million in 2002 and $6.2 million thereafter. Rental
expense under operating leases was $4.7 million, $4.6 million and $4.7 million
in 1997, 1996 and 1995, respectively.

At December 31, 1997, the Company had no unfunded commitments 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.

- -as of June 1, 1996, new placements of mechanical meters would no longer be
permitted; replacements of mechanical meters previously licensed to customers
would be permitted prior to the applicable suspension date for that category of
mechanical meter

- -as of March 1, 1997, use of mechanical meters by persons or firms who process
mail for a fee would be suspended and would have to be removed from service

- -as of December 31, 1998, use of mechanical meters that interface with mail
machines or processors ("systems meters") would be suspended and would have to
be removed from service

- -as of March 1, 1999, use of all other mechanical meters ("stand-alone meters")
would be suspended and have to be removed from service

<PAGE>
Page - 32
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. - Commitments, Contingencies and Regulatory Matters (continued)

Based on the foregoing schedule, PBI believes that the phaseout of mechanical
meters will not have a material adverse financial impact.

- -the Indicium specification- the technical specifications for the Indicium to be
printed

- -a Postal Security Device specification- the technical specification for the
device that would contain the accounting and security features of the system

- -a Host specification

- -a Vendor Infrastructure specification

<PAGE>
Page - 33
PITNEY BOWES CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. - Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for 1997 and 1996 follows (in thousands of
dollars):
<TABLE>

Three Months Ended
----------------------------------------------

1997 March 31 June 30 Sept. 30 Dec. 31
---- -------- ------- -------- -------

<S> <C> <C> <C> <C>
Total revenue $ 183,394 $ 183,159 $ 189,445 $ 222,612
-------- -------- -------- --------
Expenses:
Selling, general and administrative 41,601 42,140 47,902 51,649
Depreciation and amortization 10,504 9,833 11,556 10,755
Provision for credit losses 15,055 15,911 13,386 33,968
Interest 49,895 51,098 51,172 45,069
Provision for income taxes 21,101 19,391 17,940 23,851
-------- -------- -------- --------
Total expenses 138,156 138,373 141,956 165,292
-------- -------- -------- --------
Net income $ 45,238 $ 44,786 $ 47,489 $ 57,320
======== ======== ======== ========

1996

Total revenue $ 177,276 $ 179,991 $ 191,475 $ 223,922
-------- -------- -------- --------
Expenses:
Selling, general and administrative 39,282 38,982 47,814 49,157
Depreciation and amortization 8,927 10,186 10,563 10,771
Cost of equipment sales - 283 - 22,538
Provision for credit losses 16,695 13,875 17,547 18,412
Interest 50,315 48,954 50,394 51,880
Provision for income taxes 20,489 22,636 21,081 22,649
-------- -------- -------- --------
Total expenses 135,708 134,916 147,399 175,407
-------- -------- -------- --------
Net income $ 41,568 $ 45,075 $ 44,076 $ 48,515
======== ======== ======== ========

</TABLE>

Note 19. - Subsequent Events

During January 1998, the Company issued $250 million of 5.65% unsecured notes
(the "Notes") available under a shelf registration filed with the Securities and
Exchange Commission in September 1995. The Notes are due January 15, 2003, with
interest payable on January 15 and July 15 of each year, commencing July 15,
1998. The Notes are not redeemable at the option of the Company or repayable at
the option of any holder prior to maturity. The net proceeds of these Notes will
be used for general corporate purposes including the repayment of short-term
debt, the acquisition of finance contracts and to reduce or retire from time to
time other indebtedness of the Company. (See Note 12 to CONSOLIDATED FINANCIAL
STATEMENTS.) The Company also entered into an interest rate swap for a notional
amount of $125 million, at a fixed interest rate of 5.83% and a floating rate
equal to the Money Market Yield of Commercial Paper-Nonfinancial. Under the
terms of the interest rate swap the Company is the fixed rate payer. The
interest rate swap is effective through February 2, 2005.

<PAGE>
Page - 34
PITNEY BOWES CREDIT CORPORATION

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 I.

ITEM 11. -- EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I.

ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I.

ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I.

<PAGE>
Page - 35
PITNEY BOWES CREDIT CORPORATION

PART IV

ITEM 14. -- EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>

(a) Index of documents filed as part of this report: Page(s)

1. Consolidated financial statements
Included in Part II of this report
<S> <C>
Report of independent accountants................................................. 14
Consolidated statements of income and of retained earnings for each of
the three years in the period ended December 31, 1997............................. 15
Consolidated balance sheet at December 31, 1997 and 1996.......................... 16
Consolidated statement of cash flows for each of the three years in
the period ended December 31, 1997................................................ 17
Notes to consolidated financial statements........................................ 18-33
2. Financial statement schedules
Valuation and qualifying accounts and reserves (Schedule II)........................ 38

The additional financial data should be read in conjunction with the
financial statements included in Item 8 to this Form 10-K. Schedules
not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in
the financial statements or notes thereto.

3. Index to Exhibits (numbered in accordance with Item 601 of Regulation S-K)

REG S-K STATE OR INCORPORATION
EXHIBITS DESCRIPTION BY REFERENCE
-------- -------------------------------------------- ----------------------------
(3) 1. Certificate of Incorporation, as amended Incorporated by reference to
Exhibit (3.1) to Form 10-K
(No. 01-13497) as filed with
the Commission on
March 21, 1996.

2. By-Laws, as amended Incorporated by reference to
Exhibit (3.2) to Form
10 on Registration Statement
(No. 01-13497) as filed with the
Commission on May 1, 1985.

(4) (a) Form of Indenture dated as of May 1, 1985 Incorporated by reference to
between the Company and Bankers Trust Exhibit (4a) to Registration
Company, as Trustee Statement on Form S-3
(No. 2-97411) as filed with the
Commission on May 1, 1985.

(b) Form of First Supplemental Indenture Incorporated by reference to
dated as of December 1, 1986 between Exhibit (4b) to Registration
the Company and Bankers Trust Company, Statement on Form S-3 (No.
as Trustee. 33-10766) as filed with the
Commission on December 12, 1986.

(c) Form of Second Supplemental Indenture Incorporated by reference to
dated as of February 15, 1989 between Exhibit (4c) to Registration
the Company and Bankers Trust Company, Statement on Form S-3 (No.
as Trustee. 33-27244) as filed with the
Commission on February 24, 1989.
</TABLE>

<PAGE>
Page - 36
PITNEY BOWES CREDIT CORPORATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C>

3. Index to Exhibits (numbered in accordance with Item 601 of Regulation S-K) [continued]

REG S-K STATE OR INCORPORATION
EXHIBITS DESCRIPTION BY REFERENCE
-------- ------------------------------------------ ------------------------------

(d) Form of Third Supplemental Indenture Incorporated by reference to
dated as of May 1, 1989 between the Exhibit (1) on Form 8-K
Company and Bankers Trust Company, (No. 0-13497) as filed with
as Trustee. the Commission on May 16, 1989.

(e) Letter Agreement between Pitney Bowes Inc. Incorporated by reference to
and Bankers Trust Company, as Trustee. Exhibit (4b) to Registration
Statement on Form S-3 (No.
2-97411) as filed with the
Commission on May 1, 1985.

(f) Indenture dated as of November 1, 1995 Incorporated by reference to
between the Company and Chemical Bank, Exhibit (4a) to Amendment
as Trustee. No.1 to Registration statement
on Form S-3 (No. 33-62485) as
filed with the Commission on
November 2, 1995.

(10) Material Contracts
1. First Amended and Restated Operating Incorporated by reference to
Agreement dated November 6, 1996, Exhibit (i) on Form 10-Q
between the Company and Pitney Bowes Inc. (No. 01-13497) as filed with
the Commission on
November 13, 1996.

2. Tax Sharing Agreement dated April 1, 1977 Incorporated by reference to
between the Company and Pitney Bowes Inc. Exhibit (10.3) to Form 10 as
filed with the Commission
on May 1, 1985.

3. Amended and Restated Finance Agreement, Incorporated by reference to
dated June 12, 1995 between the Company Exhibit (i) on Form 8-K
and Pitney Bowes Inc. (No. 01-13497) as filed
with the Commission on
June 12, 1995.

(12) Computation of ratio of earnings to fixed charges Exhibit (i)

(21) Subsidiaries of the registrant Exhibit (ii)

(27) Financial Data Schedule Exhibit (iii)

</TABLE>

(b) A report on Form 8-K was filed during the first quarter of fiscal 1998. Such
report related to the issuance during January 1998, of the Company's 5.65% Notes
due January 15, 2003.

<PAGE>
Page - 37
SIGNATURES

Pursuant to the requirements of the 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

Dated: March 27, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

By /s/ MATTHEW S. KISSNER Dated: March 27, 1998
-----------------------
Matthew S. Kissner
President and Chief Executive Officer

By /s/ G. KIRK HUDSON Dated: March 27, 1998
----------------------
G. Kirk Hudson
Vice President-Finance
(Principal Financial and Accounting Officer)

By /s/ MARC C. BRESLAWSKY Dated: March 27, 1998
-----------------------
Marc C. Breslawsky
Director

By /s/ MICHAEL J. CRITELLI Dated: March 27, 1998
-------------------------
Michael J. Critelli
Director

By /s/ SARA E. MOSS Dated: March 27, 1998
----------------------
Sara E. Moss
Director

By /s/ MURRAY L. REICHENSTEIN Dated: March 27, 1998
---------------------------
Murray L. Reichenstein
Director

By /s/ HARRY W. NEINSTEDT Dated: March 27, 1998
-----------------------
Harry W. Neinstedt
Director

By /s/ DOUGLAS A. RIGGS Dated: March 27, 1998
----------------------
Douglas A. Riggs
Director

By /s/ JOHN N.D. MOODY Dated: March 27, 1998
----------------------
John N.D. Moody
Director

By /s/ ARLEN F. HENOCK Dated: March 27, 1998
----------------------
Arlen F. Henock
Director

<PAGE>
Page - 38
PITNEY BOWES CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995 TO 1997

<TABLE>

Allowance for credit loss (shown on balance sheet as deduction from
net investments)
------------------------------------------------------------------------------
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> <C>
1997 $ 98,721 $ 78,320 $ 60,453 $ 116,588

1996 $ 101,355 $ 66,529 $ 69,163 $ 98,721

1995 $ 95,271 $ 58,549 $ 52,465 $ 101,355

</TABLE>
<PAGE>
Page - 39
PITNEY BOWES CREDIT CORPORATION

Exhibit (i)
Computation of Ratio of Earnings to Fixed Charges

(in thousands of dollars)

<TABLE>
Years Ended December 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Income before income taxes.......... $ 277,116 $ 266,089 $ 231,334 $ 218,913 $ 189,960
------- ------- ------- ------- -------
Fixed charges:
Interest on debt.................. 197,234 201,543 202,090 151,239 137,372
One-third of rent expense......... 1,686 1,530 1,519 1,463 1,575
------- ------- ------- ------- -------
Total fixed charges................. 198,920 203,073 203,609 152,702 138,947
------- ------- ------- ------- -------

Earnings before fixed charges....... $ 476,036 $ 469,162 $ 434,943 $ 371,615 $ 328,907
======= ======= ======= ======= =======

Ratio of earnings to
fixed charges (1)................. 2.39X 2.31X 2.14X 2.43X 2.37X
======= ======= ======= ======= =======
</TABLE>

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

<PAGE>
Page - 40
PITNEY BOWES CREDIT CORPORATION

Exhibit (ii)
Subsidiaries of the Registrant

The Registrant, Pitney Bowes Credit Corporation, a Delaware corporation, is a
subsidiary of Pitney Bowes Inc.

The following are subsidiaries of the Registrant as of December 31, 1997:
<TABLE>
Country or State
Company Name of Incorporation

<S> <C> <C> <C> <C> <C> <C>
Atlantic Mortgage & Investment Corporation (AMIC) Florida
RE Properties Management Corporation (Subsidiary of AMIC) Delaware
Colonial Pacific Leasing Corporation (CPLC) Massachusetts
Colonial Asset Funding Company I, Inc. (Subsidiary of CPLC)
FSL Holdings Inc. Connecticut
FSL Risk Managers (Subsidiary of FSL Holdings Inc.) New York
FSL Valuation Services Inc. (Subsidiary of FSL Holdings Inc.) Connecticut
Financial Structures Limited (Subsidiary of FSL Holdings Inc.) Bermuda
Financial Structures Insurance Company (Subsidiary of Financial Structures Limited) New York
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
The Pitney Bowes Bank, Inc. Utah
Pitney Bowes Insurance Agency, Inc. Connecticut
PB Public Finance Inc. Delaware
Pitney Bowes Business to Business Inc. Delaware
Pitney Structured Funding I Inc. Delaware
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 III Inc. (Subsidiary of PREFCO) Delaware
PREFCO III LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO V Inc. (Subsidiary of PREFCO) Delaware
PREFCO V LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO VIII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IX Inc. (Subsidiary of PREFCO) Delaware
PREFCO IX LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO X Inc. (Subsidiary of PREFCO) Delaware
PREFCO 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
</TABLE>

<PAGE>
Page - 41
PITNEY BOWES CREDIT CORPORATION

Exhibit (ii)
Subsidiaries of the Registrant (continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>

Country or State
Company Name of Incorporation

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
PREFCO XIX Inc. (Subsidiary of PREFCO) Delaware
PREFCO XX Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXI Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXII LP Inc. (Subsidiary of PREFCO) Delaware

</TABLE>

Page - 42
Exhibit (iii)
Financial Data Schedule

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/97
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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,320
<SECURITIES> 0
<RECEIVABLES> 4,175,429
<ALLOWANCES> 116,588
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,328,340
<CURRENT-LIABILITIES> 2,402,932
<BONDS> 0
<COMMON> 46,000
0
0
<OTHER-SE> 1,048,861
<TOTAL-LIABILITY-AND-EQUITY> 5,328,340
<SALES> 0
<TOTAL-REVENUES> 778,610
<CGS> 0
<TOTAL-COSTS> 225,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78,320
<INTEREST-EXPENSE> 197,234
<INCOME-PRETAX> 277,116
<INCOME-TAX> 82,283
<INCOME-CONTINUING> 194,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194,833
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>