<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-3579
PITNEY BOWES INC.
State of Incorporation IRS Employer Identification No.
Delaware 06-0495050
World Headquarters
Stamford, Connecticut 06926-0700
Telephone Number: (203) 356-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock ($2 par value) New York Stock Exchange
$2.12 Convertible Cumulative New York Stock Exchange
Preference Stock (no par value)
Preference Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
4% Convertible Cumulative Preferred Stock ($50 par value)
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
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. [ ]
The Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
The aggregate market value of voting stock (common stock and $2.12
preference stock) held by non-affiliates of the Registrant as of March
11, 1994 is $7,065,115,458.
Number of shares of common stock, $2 par value, outstanding as of March
11, 1994 is 158,164,139.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
1. Only the following portions of the Pitney Bowes Inc. 1993 Annual
Report to Stockholders are incorporated by reference into Parts I,
II and IV of this Form 10-K Annual Report.
(a) Financial Statements, pages 27 to 39.
(b) Management's Discussion and Analysis and Summary of Selected
Financial Data on pages 21 to 26 excluding the information on
page 25 relating to Dividend Policy.
(c) Stock Information and Stock Exchanges, on the inside back cover.
2. Pitney Bowes Inc. Notice of the 1994 Annual Meeting and Proxy
Statement dated March 25, 1994 pages 3, 4, 7, 10 to 12, 18 and portions
of pages 2, 5, 6, 8, 9, 13, 17 and 19 are incorporated by reference into
Part III of this Form 10-K Annual Report.
PART I
Item 1. Business
Pitney Bowes Inc. and its subsidiaries (the "company") operates in three
industry segments: business equipment, business supplies and services,
and financial services. The company's operations are in the following
geographic areas: the United States, Europe, and Canada and other
countries. Financial information concerning revenue, operating profit
and identifiable assets by industry segment and geographic area appears
on page 21 of the Pitney Bowes Inc. 1993 Annual Report to Stockholders
and is incorporated herein by reference.
Business Equipment. Business equipment consists of three product
classes: mailing systems, copying systems and voice processing systems.
These products are sold, rented or leased (see "Financial Services") by
the company and through dealers. Revenue for each product class is
included in the financial information incorporated herein by reference.
Mailing systems include postage meters, parcel registers, mailing
machines, manifest systems, letter and parcel scales, mail openers,
mailroom furniture, folders, paper handling and shipping equipment, and
facsimile machines.
Copying systems include a wide range of copying systems and
supplies.
Voice processing systems include small work group and central
dictation and voice processing systems, communications recorders and
portable and desktop dictation units of the company's Dictaphone
subsidiary.
Business Supplies and Services. Business supplies and services includes
equipment and supplies used to encode and track price, content, item
identification and other merchandise information manufactured and
marketed by the company's Monarch Marking Systems, Inc. ("Monarch")
subsidiary. In addition, this segment includes facilities management
services for a variety of business support functions, including
correspondence mail and reprographics management, high volume automated
mail center management and related activities such as facsimile, supplies
<PAGE>
distribution and records management provided by the company's Pitney
Bowes Management Services subsidiary.
In October 1993, the company acquired all outstanding shares of
Ameriscribe Corporation ("Ameriscribe"). Ameriscribe is a nationwide
provider of on-site reprographics, mailroom and other office services to
industrial corporations and professional service firms on a contract
basis. The company consolidated this unit with its facilities management
business operated through its wholly-owned subsidiary, Pitney Bowes
Management Services, Inc.
In 1992, the company sold its Wheeler Group Inc. ("Wheeler")
subsidiary, a direct mail marketer of office supplies. Wheeler has been
classified in the Consolidated Statement of Income as a discontinued
operation. (See Note 11, "Acquisitions and discontinued operations", of
the Notes to Consolidated Financial Statements in the Pitney Bowes Inc.
1993 Annual Report to Stockholders which information is incorporated
herein by reference).
Financial Services. The financial services segment includes the
company's worldwide financing operations. The company provides lease
financing for its products as well as other financial services for the
commercial and industrial markets. Lease financing transactions and
other financial services are executed through the company's wholly-owned
subsidiaries: Pitney Bowes Credit Corporation, including Colonial
Pacific Leasing Corporation, Pitney Bowes Real Estate Financing
Corporation and Atlantic Mortgage & Investment Corporation in the United
States; Pitney Bowes Finance PLC in the U.K.; Adrema Leasing in Germany;
Pitney Bowes Finance S.A. in France and Pitney Bowes Credit Australia
Ltd. The company's subsidiary, Pitney Bowes of Canada Ltd., also has a
financing division through which leasing arrangements are made available
to its customers. The finance operations financed 34 percent, 33 percent
and 32 percent of consolidated sales in 1993, 1992 and 1991,
respectively.
Since the first quarter of 1993, the company has continued to phase
out the business of financing non-Pitney Bowes equipment outside the
United States. The company is also continuing an inquiry and evaluation
of the conduct by former management personnel of its German leasing
business. The company expects to complete its inquiry by the end of the
second quarter of 1994. (See Management's Discussion and Analysis in the
Pitney Bowes Inc. 1993 Annual Report to Stockholders which information is
incorporated herein by reference). In the United States the company
continues to lease a broad range of other commercial and industrial
products. Products financed include both commercial and non-commercial
aircraft, over-the-road trucks and trailers, rail cars, and high-
technology equipment such as data processing and communications equipment
as well as commercial real estate properties. The finance operations
have also participated, on a select basis, in certain other types of
financing activities including syndication of certain lease transactions
which do not satisfy financial services' investment criteria, senior
secured loans in connection with acquisition, leveraged buyout and
recapitalization financing and certain project financings as well as
mortgage servicing.
Financial services' borrowing strategy is to use a balanced mix of
debt maturities, variable- and fixed-rate debt and interest rate swap
agreements to control its sensitivity to interest rate volatility. The
<PAGE>
financial services segment 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. While the
company's funding strategy 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.
Nonrecurring Charges. In December 1989, the company announced a series
of transition initiatives designed to improve the company's
competitiveness, enhance business focus and allow for the transition to
a new generation of advanced systems products. In support of these
initiatives, the company recorded a one-time, pretax charge of $110
million against fourth-quarter 1989 earnings. The three-year transition
program included a reduction in the company's worldwide workforce
approximating 1,500 positions, a change of employee skill mix, a
reduction in the number of product distribution centers and a
streamlining of administrative systems and equipment service
organizations. The company also established a dedicated United States
Copier Division responsible for sourcing, selling, marketing, servicing
and supporting the company's copier products.
In September 1990, the company changed its copier marketing strategy
and announced plans to discontinue the remanufacture of used copier
equipment. The copier organization now concentrates on new, higher-
margin copiers consistent with its marketing strategy directed at serving
large corporations and multi-unit installations. Due to this change in
strategy and the resultant discontinuance of the equipment
remanufacturing process, the company adjusted the estimated useful life
of copiers from five years to three years and established a reserve for
the disposal of copiers which previously would have been remanufactured,
employee severance payments and facility closing costs. The aggregate
one-time, pretax charge against 1990 third-quarter earnings was $86.5
million.
Support Services. The company maintains extensive field service
organizations in the United States and certain other countries to provide
support services to customers who have rented, leased or purchased
equipment. Such support services, provided primarily on the basis of
annual maintenance contracts, accounted for 15 percent of revenue in each
of the last three years.
Marketing. The company's products and services are marketed through an
extensive network of offices in the United States, and through a number
of subsidiaries and independent distributors and dealers in many
countries throughout the world as well as through direct marketing and
outbound telemarketing. The company sells to a variety of business,
governmental, institutional and other organizations. It has a broad base
of customers, and is not dependent upon any one customer or type of
customer for a significant part of its business. The company does not
have significant backlog or seasonality relating to its businesses.
Operations Outside the United States. The company's manufacturing
operations outside the United States are in Australia, Canada, Hong Kong,
Mexico, Switzerland, Singapore and the United Kingdom.
<PAGE>
Competition. The company has historically been a leading supplier of
certain products and services in its business segments, particularly
postage meters and mailing machines, price marking supplies and
equipment, and voice processing systems. However, in all three segments
it has strong competition from a number of companies. In particular, it
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. Also, the facilities
management business, a market leader in providing mail and related
support services to the corporate, financial services, and professional
services markets, competes against national, regional and local firms
specializing in facilities management. The company believes that its
long experience and reputation for product quality, and its sales and
support service organizations are important factors in influencing
customer choices with respect to its products and services.
The financing 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 the finance operations do 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 the finance operations'
competitive position in these markets.
Research and Development/Patents. The company has research and
development programs that are directed towards developing new products
and improving the economy and efficiency of its operations, including its
production and service methods. Expenditures on research and development
totaled $99.0 million, $101.6 million and $114.0 million in 1993, 1992
and 1991, respectively.
As a result of its research and development efforts, the company has
been awarded a number of patents with respect to several of its existing
and planned products. However, the company believes its businesses are
not materially dependent on any one patent or any group of related
patents. The company also believes its businesses are not materially
dependent on any one license or any group of related licenses.
Material Supplies and Environmental Protection. The company believes it
has adequate sources for most parts and materials for the products it
manufactures. However, products manufactured by the company rely to an
increasing extent on microelectronic components, and temporary shortages
of these components have occurred from time to time due to the demands by
many users of such components.
The company purchases copying, facsimile, scales, desktop dictating
and transcribing machines, and portable dictating machines primarily from
Japanese suppliers. The company believes that it has adequate sources
available to it for the foreseeable future for such products.
The company is subject to extensive and changing federal, state,
local and other countries environmental laws and regulations, including
those relating to the operations or ownership of real property and to the
use, handling, storage, discharge and disposal of hazardous substances.
Expenditures relating to environmental laws and regulations do not have,
<PAGE>
and are not expected to have, a material adverse effect on capital
expenditures, or on the company's financial position or results of
operations.
Employee Relations. At December 31, 1993, 32,539 persons were employed
by the company, 26,523 in the United States and 6,016 outside the United
States. Employee relations are considered to be very satisfactory. The
great majority of employees are not represented by any labor union.
Management follows the policy of keeping employees informed of its
decisions, and encourages and implements employee suggestions whenever
practicable.
Item 2. Properties
The company's World Headquarters and certain other office and
manufacturing facilities are located in Stamford, Connecticut. The
company maintains research and development operations in Stratford,
Connecticut as well as near Dayton, Ohio and a corporate engineering and
technology center in Shelton, Connecticut. A sales and service training
center is located near Atlanta, Georgia. The company is building a new
facility to house its Shipping and Weighing Systems Division in Shelton,
Connecticut, which is expected to be completed in 1995. The company
believes that its current and planned manufacturing, administrative and
sales office properties are adequate for the needs of all three of its
business segments.
Business Equipment. Business equipment products are manufactured in a
number of plants principally in Connecticut, as well as in: Melbourne,
Florida; Harlow, England; Pickering, Ontario, Canada; and Killwangen,
Switzerland. Most of these facilities are owned by the company. Sales
and support services offices, substantially all of which are leased, are
located throughout the United States and in a number of other countries.
Business Supplies and Services. The company's Monarch subsidiary has
executive offices and production facilities near Dayton, Ohio and
facilities in: Pickering, Ontario, Canada; Mexico City, Mexico; Sydney,
Australia; Singapore and Hong Kong. Production facilities of the Pitney
Bowes Marking Systems Ltd. subsidiary are located in a leased office and
manufacturing building in Harlow, England. A number of Monarch sales and
support services offices, substantially all of which are leased, are
located throughout the United States and in a number of other countries.
The company's Pitney Bowes Management Services subsidiary is
headquartered in Stamford, Connecticut and leases facilities in 25 cities
located throughout the United States as well as one leased facility in
Toronto, Ontario, Canada.
Financial Services. Pitney Bowes Credit Corporation leases executive and
administrative offices in Norwalk, Connecticut; Jacksonville, Florida;
and Tualatin, Oregon. Executive and administrative offices of the
financing operations outside the United States are maintained in London,
England; Heppenheim, Germany; Paris, France; Mississauga, Ontario,
Canada; and Chatswood, Australia. A number of leased regional and
district sales offices are located throughout the United States, Canada
and Germany.
<PAGE>
Item 3. Legal Proceedings
The company is a defendant in a number of lawsuits, none of which will,
in the opinion of management and legal counsel, have a material adverse
effect on the company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Executive
Officer
Name Age Title Since
George B. Harvey 62 Chairman, President and 1967
Chief Executive Officer
Carmine F. Adimando 49 Vice President - Finance 1982
and Administration,
and Treasurer
Marc C. Breslawsky 51 President, Pitney Bowes 1985
Office Systems, a division
Michael J. Critelli 45 President - Pitney Bowes 1988
Financial Services,
a division
Steven J. Green 42 Vice President - Controller 1988
Hiro R. Hiranandani 56 President - Pitney Bowes 1981
Mailing Systems, a division
Paul Reece 57 Vice President - Operations 1987
and Technology
Douglas A. Riggs 49 Vice President - Communications, 1988
Planning, Secretary and
General Counsel
Carole F. St. Mark 51 President - Pitney Bowes 1985
Logistics Systems and Business
Services, a division
Johnna G. Torsone 43 Vice President - Personnel 1993
There is no family relationship among the above officers, all of whom
have served in various corporate, division or subsidiary positions with
the company for at least the past five years except for Johnna G.
Torsone. Prior to joining the company in October 1990, Ms. Torsone was
a partner with the New York law firm of Parker, Chapin, Flattau & Klimpl
where she practiced employment and labor law for 14 years.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholders' Matters
The sections entitled "Stock Information" and "Stock Exchanges" on the
inside back cover of the Pitney Bowes Inc. 1993 Annual Report to
Stockholders are incorporated herein by reference. At December 31, 1993,
the company had 31,189 common stockholders of record.
Item 6. Selected Financial Data
The section entitled "Summary of Selected Financial Data" on page 26 of
the Pitney Bowes Inc. 1993 Annual Report to Stockholders is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section entitled "Management's Discussion and Analysis" on pages 21
to 25 of the Pitney Bowes Inc. 1993 Annual Report to Stockholders is
incorporated herein by reference, except for the section on page 25
relating to "Dividend Policy."
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse dated February 1, 1994, appearing on pages 27 to 39 of the
Pitney Bowes Inc. 1993 Annual Report to Stockholders are incorporated
herein by reference.
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
Except for the information regarding the company's executive officers
(see "Executive Officers of the Registrant" on page 7), the information
called for by this Item is incorporated herein by reference to the
sections entitled "Election of Directors" and "Security Ownership of
Directors and Executive Officers" on pages 2 to 6 of the Pitney Bowes
Inc. Notice of the 1994 Annual Meeting and Proxy Statement.
Item 11. Executive Compensation
The sections entitled "Directors' Compensation", "Executive Officer
Compensation", "Severance and Change of Control Arrangements" and
"Pension Benefits" on pages 7 to 13, and 17 to 19 of the Pitney Bowes
Inc. Notice of the 1994 Annual Meeting and Proxy Statement are
incorporated herein by reference.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership of Directors and Executive
Officers" on pages 6 and 7 of the Pitney Bowes Inc. Notice of the 1994
Annual Meeting and Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements - see Item 8 on page 8 and "Index to
Financial Statements and Schedules" on page 16.
2. Financial statement schedules - see "Index to Financial
Statements and Schedules" on page 16.
3. Exhibits (numbered in accordance with Item 601 of Regulation
S-K).
Reg. S-K Status or Incorporation
Exhibits Description by Reference
(3)(a) Restated Certificate of Incorporated by reference to
Incorporation, as amended Exhibit (3a) to Form 10-K as
filed with the Commission on
March 30, 1993. (Commission
file number 1-3579)
(b) By-laws Incorporated by reference to
Exhibit (1) to Form 8-K as
filed with the Commission on
March 13, 1993. (Commission
file number 1-3579)
(4)(a) Form of Indenture dated as Incorporated by reference to
of November 15, 1987 Exhibit (4a) to Form 10-K as
between the company and filed with the Commission on
Chemical Bank, as trustee March 24, 1988. (Commission
file number 1-3579)
(b) Form of Debt Securities Incorporated by reference to
Exhibit (4b) to Form 10-K as
filed with the Commission on
March 24, 1988. (Commission
file number 1-3579)
(c) Form of First Supplemental Incorporated by reference to
Indenture dated as of Exhibit (1) to Form 8-K as
June 1, 1989 between the filed with the Commission on
company and Chemical Bank, June 16, 1989. (Commission
as Trustee file number 1-3579)
<PAGE>
(d) Form of Indenture dated as Incorporated by reference to
of April 15, 1990 between Exhibit (4.1) to Registration
the company and Chemical Statement on Form S-3
Bank, as successor to (No. 33-33948) as filed with
Manufacturers Hanover the Commission on March 28,
Trust Company, as Trustee 1990.
(e) Forms of Debt Securities Incorporated by reference to
Exhibit (4) to Form 10-Q as
filed with the Commission on
May 14, 1990. (Commission
file number 1-3579)
(f) Form of Indenture dated as Incorporated by reference to
of May 1, 1985 between Exhibit (4a) to Registration
Pitney Bowes Credit Statement on Form S-3
Corporation and Bankers (No. 2-97411) as filed with the
Trust Company, as Trustee Commission on May 1, 1985.
(g) Letter Agreement between Incorporated by reference to
Pitney Bowes Inc. and Exhibit (4b) to Registration
Bankers Trust Company, as Statement on Form S-3
Trustee (No. 2-97411) as filed with the
Commission on May 1, 1985.
(h) Form of First Supplemental Incorporated by reference to
Indenture dated as of Exhibit (4b) to Registration
December 1, 1986 between Statement on Form S-3
Pitney Bowes Credit (No. 33-10766) as filed with the
Corporation and Bankers Commission on December 12, 1986.
Trust Company, as Trustee
(i) Form of Second Incorporated by reference to
Supplemental Indenture Exhibit (4c) to Registration
dated as of February 15, Statement on Form S-3
1989 between Pitney Bowes (No. 33-27244) as filed with the
Credit Corporation and Commission on February 24, 1989.
Bankers Trust Company,
as Trustee
(j) Form of Third Supplemental Incorporated by reference to
Indenture dated as of Exhibit (1) to Form 8-K as
May 1, 1989 between Pitney filed with the Commission on
Bowes Credit Corporation May 16, 1989. (Commission
and Bankers Trust Company, file number 1-3579)
as Trustee
The company has outstanding certain other long-term
indebtedness. Such long-term indebtedness does not exceed 10%
of the total assets of the company; therefore, copies of
instruments defining the rights of holders of such indebtedness
are not included as exhibits. The company agrees to furnish
copies of such instruments to the Securities and Exchange
Commission upon request.
<PAGE>
Executive Compensation Plans:
(10)(a) Retirement Plan for Incorporated by reference to
Directors of Pitney Exhibit (10a) to Form 10-K as
Bowes Inc. filed with the Commission on
March 30, 1993. (Commission
file number 1-3579)
(b) Deferred Compensation Incorporated by reference to
Plan for Directors Exhibit (10b) to Form 10-K as
filed with the Commission on
March 30, 1993. (Commission
file number 1-3579)
(c) Pitney Bowes Inc. Incorporated by reference to
Directors' Stock Plan Exhibit (10a) to Form 10-K as
filed with the Commission on
March 25, 1992. (Commission
file number 1-3579)
(d) Pitney Bowes 1991 Stock Incorporated by reference to
Plan Exhibit (10b) to Form 10-K as
filed with the Commission on
March 25, 1992. (Commission
file number 1-3579)
(e) Pitney Bowes Inc. Key Incorporated by reference to
Employees' Incentive Plan Exhibit (10c) to Form 10-K as
(as amended and restated) filed with the Commission on
March 25, 1992. (Commission
file number 1-3579)
(f) 1979 Pitney Bowes Stock Incorporated by reference to
Option Plan (as amended Exhibit (10d) to Form 10-K as
and restated) filed with the Commission on
March 25, 1992. (Commission
file number 1-3579)
(g) Pitney Bowes Severance Incorporated by reference to
Plan, as amended, dated Exhibit (10) to Form 10-K as
December 12, 1988 filed with the Commission on
March 23, 1989. (Commission
file number 1-3579)
(11) Statement re computation Exhibit (i)
of per share earnings
(12) Computation of ratio of Exhibit (ii)
earnings to fixed charges
(13) Portions of annual report Exhibit (iii)
to security holders
(21) Subsidiaries of the Exhibit (iv)
registrant
<PAGE>
(23) Consent of experts and Exhibit (v)
counsel
(b) No reports on Form 8-K were filed for the three months ended
December 31, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Pitney Bowes Inc.
By /s/ George B. Harvey
(George B. Harvey)
Chairman, President and Chief
Executive Officer
Date March 30, 1994
<PAGE>
SIGNATURES
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.
Signature Title Date
/s/ George B. Harvey Chairman, President March 30, 1994
George B. Harvey and Chief Executive
Officer - Director
/s/ Carmine F. Adimando Vice President-Finance March 30, 1994
Carmine F. Adimando and Administration, and
Treasurer (principal
financial officer)
/s/ Steven J. Green Vice President-Controller March 30, 1994
Steven J. Green (principal accounting
officer)
/s/ Linda G. Alvarado Director March 30, 1994
Linda G. Alvarado
/s/ William E. Butler Director March 30, 1994
William E. Butler
/s/ Colin G. Campbell Director March 30, 1994
Colin G. Campbell
/s/ John C. Emery, Jr. Director March 30, 1994
John C. Emery, Jr.
/s/ Charles E. Hugel Director March 30, 1994
Charles E. Hugel
/s/ David T. Kimball Director March 30, 1994
David T. Kimball
<PAGE>
Signature Title Date
Director March 30, 1994
Leroy D. Nunery
/s/ Phyllis S. Sewell Director March 30, 1994
Phyllis S. Sewell
/s/ Arthur R. Taylor Director March 30, 1994
Arthur R. Taylor
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The additional financial data should be read in conjunction with the
financial statements in the Pitney Bowes Inc. 1993 Annual Report to
Stockholders. 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. Also,
separate financial statements of less than 100 percent owned companies,
which are accounted for by the equity method, have been omitted because
they do not constitute significant subsidiaries.
ADDITIONAL FINANCIAL DATA
Page
Pitney Bowes Inc.:
Report of independent accountants on financial
statement schedules 17
Financial statement schedules for the years 1991 - 1993:
Valuation and qualifying accounts and
reserves (Schedule VIII) 18
Short-term borrowings (Schedule IX) 19
Supplementary income statement information
(Schedule X) 20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Pitney Bowes Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 1, 1994 appearing on page 39 of the Pitney Bowes
Inc. 1993 Annual Report to Stockholders (which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K) also included an audit of the financial statement
schedules listed by reference in Item 14(a)2 of this Form 10-K. In our
opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Price Waterhouse
Stamford, Connecticut
February 1, 1994
<PAGE>
PITNEY BOWES INC.
SCHEDULE VIII - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1991 TO 1993
<TABLE>
<CAPTION>
(Dollars in thousands)
Additions
Balance at charged to Balance
beginning of costs and at end
Description year expenses Deductions of year
Allowance for doubtful accounts
<S> <C> <C> <C> <C>
1993 $16,578 $ 9,024(1) $ 8,911(2) $ 16,691
1992 $17,786 $ 4,364 $ 5,572(2) $ 16,578
1991 $14,352 $10,741 $ 7,307(2) $ 17,786
Allowance for credit losses on finance receivables
1993 $96,975 $84,524 $64,987(2) $116,512
1992 $88,703 $85,642 $77,370(2) $ 96,975
1991 $84,514 $70,760 $66,571(2) $ 88,703
Reserve for transition costs(4)
1993 $ 1,627 $ - $ 1,283(3) $ 344
1992 $ 8,835 $ - $ 7,208(3) $ 1,627
1991 $30,130 $ - $21,295(3) $ 8,835
Valuation allowance for deferred tax asset(4)
1993 $28,800 $ 2,059 $ 4,884 $ 25,975
1992 $ - $29,365 $ 565 $ 28,800
<FN>
(1) Includes $1,300 of additions applicable to a business at
acquisition.
(2) Principally uncollectible accounts written off.
(3) Amounts paid.
(4) Included in balance sheet as a liability.
</TABLE>
<PAGE>
PITNEY BOWES INC.
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1991 TO 1993
<TABLE>
<CAPTION>
(Dollars in thousands)
Weighted
Weighted average
Balance average Maximum Average interest
at end interest amount amount rate during
Description of year rate outstanding outstanding(1) the year (1)
Overdrafts-banks
<S> <C> <C> <C> <C> <C>
1993 $ 9,369 7.8% $ 25,824 $ 9,398 8.4%
1992 $ 14,536 9.5% $ 14,787 $ 7,540 9.7%
1991 $ 7,940 9.6% $ 22,432 $ 10,459 7.8%
Notes payable
1993 $1,990,995 3.2% $1,990,995 $1,870,972 3.4%
1992 $1,794,709 4.5% $1,944,780 $1,773,607 4.5%
1991 $1,620,446 5.2% $1,620,446 $1,457,174 6.7%
<FN>
(1) The average amount outstanding and weighted average interest rate
during the year were calculated based on daily or monthly borrowings
outstanding.
</TABLE>
<PAGE>
PITNEY BOWES INC.
SCHEDULE X - SUPPLEMENTARY INCOME
STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991 TO 1993
(Dollars in thousands)
Charged to costs and expenses
Item 1993 1992 1991
Maintenance (1) $53,279 $47,387 $41,736
(1) Excludes costs associated with equipment maintenance agreements sold
to customers.
<PAGE>
PITNEY BOWES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE> EXHIBIT (i)
<CAPTION>
(Dollars in thousands, except share data)
Years Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Income from continuing operations* . . . . . . . . $ 353,185 $ 312,165 $ 287,857 $ 206,646 $ 180,104
Discontinued operations. . . . . . . . . . . . . . - 2,700 7,440 6,646 6,609
Effect of accounting changes . . . . . . . . . . . - (214 631) - - 66,048
Net income . . . . . . . . . . . . . . . . . . . . $ 353,185 $ 100,234 $ 295,297 $ 213,292 $ 252,761
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . . . 157,766,700 157,562,020 158,180,010 157,379,940 156,268,512
Preference stock, $2.12 cumulative convertible . . 905,231 1,085,684 1,386,566 1,613,714 1,824,008
Stock option and purchase plans. . . . . . . . . . 696,721 581,782 371,838 232,180 520,650
Convertible loan stock . . . . . . . . . . . . . . - 5,926 16,266 23,926 32,922
Total common and common equivalent
shares outstanding. . . . . . . . . . . . . . . . 159,368,652 159,235,412 159,954,680 159,249,760 158,646,092
Income per common and common equivalent share - primary:
Continuing operations . . . . . . . . . . . . . . $ 2.22 $ 1.96 $ 1.80 $ 1.30 $ 1.14
Discontinued operations . . . . . . . . . . . . . - .02 .05 .04 .04
Effect of accounting changes. . . . . . . . . . . - (1.35) - - .41
Net income. . . . . . . . . . . . . . . . . . . . $ 2.22 $ .63 $ 1.85 $ 1.34 $ 1.59
Income from continuing operations* . . . . . . . . $ 353,189 $ 312,169 $ 287,861 $ 206,654 $ 180,116
Discontinued operations. . . . . . . . . . . . . . - 2,700 7,440 6,646 6,609
Effect of accounting changes . . . . . . . . . . . - (214,631) - - 66,048
Net income . . . . . . . . . . . . . . . . . . . . $ 353,189 $ 100,238 $ 295,301 $ 213,300 $ 252,773
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . . . 157,766,700 157,562,020 158,180,010 157,379,940 156,268,512
Preference stock, $2.12 cumulative convertible . . 905,231 1,085,684 1,386,566 1,613,714 1,824,008
Stock option and purchase plans. . . . . . . . . . 706,981 606,915 410,102 245,294 541,098
Convertible loan stock . . . . . . . . . . . . . . - 5,926 16,266 23,926 32,922
Preferred stock, 4% cumulative convertible . . . . 23,464 26,409 28,930 37,862 63,970
Convertible debentures . . . . . . . . . . . . . . - - - 15,800 15,800
Total common and common equivalent
shares outstanding. . . . . . . . . . . . . . . . 159,402,376 159,286,954 160,021,874 159,316,536 158,746,310
Income per common and common equivalent share - fully diluted:
Continuing operations . . . . . . . . . . . . . . $ 2.22 $ 1.96 $ 1.80 $ 1.30 $ 1.14
Discontinued operations . . . . . . . . . . . . . - .02 .05 .04 .04
Effect of accounting changes. . . . . . . . . . . (1.35) - - .41
Net income. . . . . . . . . . . . . . . . . . . . $ 2.22 $ .63 $ 1.85 $ 1.34 $ 1.59
<FN>
* Income from continuing operations was adjusted for preferred dividends and interest on convertible debt.
</TABLE>
<PAGE>
PITNEY BOWES INC. EXHIBIT (ii)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes. . . . . . . . $574,807 $495,352 $461,589 $327,644 $261,057
Add:
Interest expense. . . . . . 187,439 227,257 258,116 264,473 238,375
Portion of rents
representative of
the interest factor . . . 38,712 38,338 36,757 33,672 24,427
Amortization of
capitalized interest. . . 927 927 927 862 839
Income as adjusted . . . . . $801,885 $761,874 $757,389 $626,651 $524,698
Fixed charges:
Interest expense. . . . . . $187,439 $227,257 $258,116 $264,473 $238,375
Capitalized interest. . . . - - - 1,567 1,056
Portion of rents
representative of
the interest factor . . . 38,712 38,338 36,757 33,672 24,427
$226,151 $265,595 $294,873 $299,712 $263,858
Ratio of earnings to
fixed charges. . . . . . . . 3.55 2.87 2.57 2.09 1.99
<FN>
(1) The computation of the ratio of earnings to fixed charges has been
computed by dividing income from continuing operations before income
taxes and fixed charges by fixed charges. Included in fixed charges
is one-third of rental expense as the representative portion of
interest.
</TABLE>
<PAGE>
PITNEY BOWES INC. EXHIBIT (iii)
1993 ANNUAL REPORT TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEGMENTS
Pitney Bowes manufactures and markets products, and provides services in two
industry segments: business equipment and business supplies and services; and
provides financing in a third industry segment: financial services.
Business equipment includes: postage meters and mailing, shipping and
facsimile systems; copying systems and supplies; and voice processing systems
which include small work group and central dictation and voice processing
systems, communications recorders and portable and desktop dictation units.
Business supplies and services includes: equipment and supplies used to
encode and track price, content, item identification and other merchandise
information and mailroom, reprographics and related facilities management
services.
The financial services segment includes the worldwide financing operations of
the company. This segment provides lease financing for the company's products as
well as other financial services for the commercial and industrial markets.
Revenue and operating profit by business segment and geographic area for the
years 1991 to 1993 were as follows:
<TABLE>
<CAPTION>
Revenue
-------------------------------------
(in millions) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Industry segments:
Business equipment:
Mailing systems $1,908 $1,810 $1,777
Copying systems 280 285 276
Voice processing
systems 311 306 300
------ ------ ------
2,499 2,401 2,353
Business supplies
and services 430 400 365
Financial services 614 633 614
------ ------ ------
Total $3,543 $3,434 $3,332
====== ====== ======
Geographic areas:
United States $2,990 $2,786 $2,647
Europe 376 432 423
Canada and other 306 319 336
Inter-area revenue (129) (103) (74)
------ ------ ------
Total $3,543 $3,434 $3,332
====== ====== ======
<CAPTION>
Operating profit
-------------------------------------
(in millions) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Industry segments:
Business equipment $ 417 $ 362 $ 363
Business supplies
and services 27 34 20
Financial services 209 201 178
------ ------ ------
Total $ 653 $ 597 $ 561
====== ====== ======
Geographic areas:
United States $ 584 $ 520 $ 457
Europe 35 34 51
Canada and other 39 45 56
Inter-area profit (5) (2) (3)
------ ------ ------
Total $ 653 $ 597 $ 561
====== ====== ======
</TABLE>
Identifiable assets by business segment and geographic area for the years
1991 to 1993 were as follows:
<TABLE>
<CAPTION>
Identifiable assets
-------------------------------------
(in millions) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Industry segments:
Business equipment $1,816 $1,706 $1,713
Business supplies
and services 359 240 240
Financial services 4,441 4,352 4,116
------ ------ ------
Total $6,616 $6,298 $6,069
====== ====== ======
Geographic areas:
United States $5,967 $5,330 $4,883
Europe 404 526 625
Canada and other 537 641 609
------ ------ ------
Total $6,908 $6,497 $6,117
====== ====== ======
</TABLE>
RESULTS OF CONTINUING OPERATIONS
Revenue increased three percent to $3.5 billion in 1993 primarily as a result of
growth in the United States, especially in the mailing, shipping and facilities
management businesses. Revenue growth in 1993 was slowed by the continuing
sluggish economies worldwide, particularly in Germany, Canada and the United
Kingdom, as well as by significant unfavorable foreign currency impacts in these
countries. Additionally, revenue growth was slowed by the company's first-
quarter 1993 decision to phase out the business of financing non-Pitney Bowes
equipment outside of the U.S. In 1992, revenue increased three percent as a
result of strong growth in the facilities management business and moderate
growth in the U.S. mailing business partly offset by worldwide economic
weakness. Income per share from continuing operations increased 13 percent to
$2.22 per share in 1993 compared with a nine percent increase to $1.96 per share
in 1992. In 1993, the company recorded $21.8 million of additional U.S. tax
expense as a result of the Omnibus Budget Reconciliation Act of 1993 (the Tax
Act). Excluding the effect of the Tax Act, income per share from continuing
operations was $2.35 per share in 1993, an increase of 20 percent from the prior
year.
Sales revenue increased seven percent in 1993 and three percent in 1992. The
1993 increase included strong growth in mailing, shipping, copier and facsimile
product placements from the business equipment segment in the U.S. Sales growth
in 1993 was partly offset by significant unfavorable foreign currency impacts as
well as price declines on certain shipping, facsimile and copier equipment. The
growth in U.S. mailing was stimulated by further market acceptance of
Paragon/TM/, the company's top-of-the-line mail processor, and Spectrum/TM/, the
company's newest tabletop inserter, which were both introduced in 1992. Foreign
currency impacts lowered 1993 sales growth outside the U.S., primarily in the
U.K., Canada and Germany by nine percent. Strong sales revenue growth from the
business supplies
21
<PAGE>
and services segment was recorded in both 1993 and 1992. This segment benefitted
from the continued expansion of the company's facilities management business in
both years including the 1993 acquisition of Ameriscribe Corporation
(Ameriscribe). Ameriscribe is a nationwide provider of on-site reprographics,
mailroom and other office services to industrial corporations and professional
service firms on a contract basis. See note 11 to the consolidated financial
statements. The 1993 increase was offset to a degree by unfavorable volume and
foreign currency impacts on the company's marking systems products. In 1992,
sales revenue of the business supplies and services segment also grew as a
result of increased retail demand for marking systems products.
Rentals and financing revenue, substantially all of which is in the business
equipment and financial services segments, decreased marginally in 1993 compared
with a three percent increase in 1992. Excluding foreign currency impacts
primarily attributable to weakening of the British pound, Canadian dollar and
German mark, 1993 rentals and financing revenue increased one percent. Rental
revenue increased in 1993 and 1992 primarily due to worldwide mailing price
increases, higher numbers of postage meters on rental, especially higher
yielding Postage By Phone(R) and electronic meters, as well as a greater mix of
plain paper facsimile equipment placements partly offset, in 1993, by the
unfavorable foreign currency impacts noted above. Financing revenue decreased
three percent in 1993 primarily as a result of the company's first-quarter
decision to phase out the business of financing non-Pitney Bowes equipment
outside of the U.S. As part of this strategy, the company sold approximately
$120 million of external finance assets in Canada in the second quarter.
Financing revenue also decreased as a result of unfavorable revenue impacts
associated with a partnership lease transaction (discussed below). In 1992,
financing revenue increased three percent resulting from an increase in the
company's leasing portfolio.
Support services revenue, most of which is derived from the business
equipment segment, increased one percent in 1993 and two percent in 1992
primarily due to price increases, as well as the continued expansion of the
inserter, shipping, dictation and facsimile service bases in both years. These
increases were partly offset by negative currency swings in 1993 and a decline
in the copier and mailing service agreement bases in both 1993 and 1992.
The cost of sales to sales revenue ratio increased to 53.4 percent in 1993
from 52.6 percent in 1992 and 52.2 percent in 1991. These ratio increases were
due to the increasing significance of the company's facilities management
business which includes most of its expenses in cost of sales and, in 1993,
increased engineering support on the company's many new products and reduced
margins on certain of the company's mailing, shipping and facsimile products.
These factors were partly offset by favorable LIFO effects and improved margins
at the company's copier operation for all periods and, in 1992, in the company's
German business equipment operation. High-margin PROM and scale chart sales,
lower voice processing product costs and a reduction of costs resulting from
settlement of a foreign sales tax refund claim also benefitted 1991 results. The
company believes that its facilities management business will continue to
increase in significance with the recent acquisition of Ameriscribe and, as a
result, the cost of sales to sales revenue ratio is also expected to continue to
increase.
The cost of rentals and financing to rentals and financing revenue ratio was
31.7 percent in 1993, 30.7 percent in 1992 and 29.1 percent in 1991. The
increased cost ratio in 1993 reflects the increased credit loss provisions
established in the financial services segment during the year. This includes an
approximately $14 million second quarter charge for potential losses in Germany
and the impact of amortization of purchased mortgage servicing rights associated
with the company's mortgage servicing subsidiary. The increased cost ratio in
1992 resulted from higher credit loss provisions in the financial services
segment partly offset by improved copier rental margins.
Selling, service and administrative expenses as a percentage of revenue were
38.5 percent in 1993 and 40.1 percent in both 1992 and 1991. In 1993, this ratio
benefitted from lower expenses related to the facilities management business,
tightening of overall U.S. medical costs and the continued benefit from cost
containment programs throughout the company, including expense reductions from
the establishment of retiree medical coverage maximums. In 1992, this ratio was
unfavorably impacted by $26 million due to the adoption of the accounting
standard for nonpension postretirement benefits which largely offset the
favorable impact of the company's cost reduction programs.
Research and development expenses declined three percent in 1993 and 11
percent in 1992. These declines were caused by the completion of the primary
development cycle for certain of the company's major new mailing products. These
products were successfully launched in 1992 and currently use ongoing
engineering support to improve functionality and increase manufacturing
efficiencies. This support is recorded in cost of sales. In addition, the
company has continued its cost containment programs while continuing to
significantly invest in new product development focusing on electronic
technology and software development.
Net interest expense decreased 18 percent in 1993 and 12 percent in 1992. The
continued decline in interest expense resulted from lower short- and long-term
interest rates on the company's debt as well as a gradual shift in borrowings to
lower interest bearing short-term notes payable. On a swap adjusted basis, the
ratio of notes payable to the sum of notes payable and long-term debt was 57
percent in 1993 compared to 48 percent in 1992. The company's practice is to
manage its interest rate risk, most of
22
<PAGE>
which is in the financial services segment, through the use of a balanced mix of
debt maturities, variable- and fixed-rate debt and interest rate swap
agreements.
Industry segment operating profit reflects the factors discussed above and in
the Financial Services discussion below. Operating profit of the business
equipment segment increased 15 percent in 1993 compared to a marginal decline in
operating profit in 1992. The 1993 results compared favorably to 1992 which
included an incremental cost of over $20 million for the adoption of the
accounting standard for nonpension postretirement benefits. Excluding the effect
of the accounting change, operating profit of this segment increased nine
percent in 1993 reflecting strong performances by the mailing, shipping,
dictation, copier and facsimile businesses in the U.S. partly offset by weakness
in the Canadian and European mailing operations. In the business supplies and
services segment, operating profit declined 21 percent in 1993 compared with a
73 percent increase in 1992. The 1993 results reflect unfavorable volume and
foreign currency impacts on marking systems products partly offset by continuing
strong growth at the company's facilities management business. Factors affecting
1992 results included improved sales of marking systems products as well as
strong growth in the facilities management business. The significant cost
reduction programs implemented at the end of 1991 in the facilities management
business continued to be reflected in this segment's performance in 1993 and
1992. The financial services segment continued to benefit from a lower interest
rate environment. This benefit was offset in part by commensurately lower new
lease rates, increased relative credit loss provisions and the decision to phase
out the external financing business outside of the U.S. As a result, operating
profit in 1993 increased four percent compared to a 13 percent increase in
1992.
The effective tax rate was 38.6 percent in 1993, 37.0 percent in 1992 and
37.6 percent in 1991. The 1993 effective tax rate reflects an additional $21.8
million charge resulting from the August 10, 1993, enactment of the Tax Act
which increased U.S. corporate income tax rates from 34% to 35%, retroactive to
January 1, 1993. The liability method of accounting for income taxes requires
the effect of the change in tax laws or rates on current earnings ($6 million)
and accumulated deferred income taxes ($15.8 million) to be reflected in the
period when the new legislation is enacted. Excluding the impact of the new tax
legislation, the effective tax rate for 1993 was 34.8 percent. Further affecting
this rate was the tax impact of a partnership lease transaction (further
discussed below) and research and development tax credits. The 1992 effective
tax rate was favorably affected by higher levels of tax exempt income, both
inside and outside the U.S., and research and development credits offset, in
part, by reduced investment tax credits.
In the fourth quarter of 1993, Pitney Bowes Credit Corporation (PBCC)
completed a transaction whereby PBCC contributed certain commercial aircraft,
subject to direct finance leases, to a majority owned partnership. The
partnership transaction had the effect of reducing PBCC's obligation for
previously accrued deferred taxes, resulting in a 1993 net after-tax benefit
of approximately $8 million after provision for certain costs associated with
the transaction. The reduction in deferred taxes has been recognized as a
reduction in 1993 income tax expense.
Although not affecting income, deferred translation losses amounted to $20
million, $60 million and $4 million in 1993, 1992 and 1991, respectively.
Throughout the periods, losses resulted primarily from the continued weakening
of the British pound and, in both 1993 and 1992, the Canadian dollar.
FINANCIAL SERVICES
The financial services operations provide lease financing for Pitney Bowes
products in the U.S., Canada, the U.K., Germany, France and Australia. Since the
first quarter of 1993, the company has continued to phase out the business of
financing non-Pitney Bowes equipment outside the U.S. These actions included
the second quarter 1993 sale of approximately $120 million of finance assets in
Canada. The company is also continuing an inquiry and evaluation of the conduct
by former management personnel of its German leasing business. The results of
this inquiry to date indicate that former management caused the company's German
leasing operation to enter into transactions which were not consistent with
company policy and guidelines and, in certain cases, lacked appropriate
documentation and collateral. Additionally, in certain instances, the company is
continuing to locate, repossess and remarket collateral where possible. These
circumstances, together with deteriorating economic conditions in Germany,
caused management, in the second quarter of 1993, to conclude that losses would
be larger than previously anticipated. Accordingly, at that time the company
recorded additional loss provisions of approximately $14 million, the effect of
which was substantially offset by gains on the sales of certain finance assets.
At the current time, the company believes that with the additional loss
provisions taken in the second quarter of 1993, sufficient reserves for expected
losses are in place. As the company's inquiry continues it may determine that
additional loss provisions are necessary. If such additional loss provisions are
required, it is anticipated that the resulting charges against income would be
offset by gains on additional asset sales by the financial services segment. The
company expects to complete its inquiry by the end of the second quarter of
1994. The company's management believes there are sufficient opportunities for
profitable growth in its domestic external financing business and plans to make
future external investments solely in the U.S. market. Prior to the first
quarter announcement noted above,
23
<PAGE>
the company had offered financial services to the commercial and industrial
markets in the U.S., Canada, the U.K., Germany, France and Australia.
Condensed financial information of the company's consolidated finance operations
is disclosed in note 14 to the consolidated financial statements. The finance
operations financed 34 percent of consolidated sales in 1993, 33 percent in 1992
and 32 percent in 1991.
Total financial services revenue amounted to $614 million in 1993, down three
percent from 1992. Total financial services assets increased to $4.5 billion at
year-end 1993, up two percent from $4.4 billion in 1992 which was up five
percent from $4.1 billion in 1991. To fund finance assets, borrowings were $2.9
billion in 1993, $3.0 billion in 1992 and $2.9 billion in 1991. Borrowing
requirements for the funding of new business were reduced by the proceeds
received from the sale of approximately $160 million, $200 million and $260
million of finance assets during 1993, 1992 and 1991, respectively. In addition
to the $600 million of borrowings available under shelf registration statements,
the financial services segment had approximately $1.6 billion of unused lines of
credit outstanding at year-end 1993 largely supporting commercial paper
borrowings.
DISCONTINUED OPERATIONS
In 1992, the company sold its Wheeler Group Inc. (Wheeler) subsidiary, a direct
mail marketer of office supplies. The sale of Wheeler for approximately $80
million in cash resulted in a $2.7 million after-tax gain. Wheeler has been
classified in the Consolidated Statement of Income as a discontinued operation;
revenue and income from continuing operations exclude the results of Wheeler for
all periods presented.
ACCOUNTING CHANGES
In the fourth quarter of 1992, the company adopted retroactively to January 1,
1992, Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), which
addresses health care and other welfare benefits provided to retirees. FAS 106
required a change from the cash basis of accounting to the accrual basis of
accounting for nonpension postretirement benefits. The transition effect of
adopting this standard on the immediate recognition basis, which was recorded in
the first quarter of 1992, was a one-time, after-tax charge of $215 million
or $1.35 per share; the 1992 incremental after-tax cost on 1992 income from
continuing operations amounted to $16 million or $.10 per share. In early 1993,
the company announced several changes to its health care plans which are
expected to significantly reduce the ongoing incremental impact of FAS 106 on
future earnings. Among these changes was the establishment of plan cost maximums
in order to more effectively control future medical costs. Additional
information with respect to accounting for nonpension postretirement benefits is
disclosed in note 10 to the consolidated financial statements.
The company also adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in 1992, which did not significantly affect the
company's reported results.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), was issued
addressing benefits provided by an employer to former or inactive employees
after employment but before retirement. FAS 112 requires that postemployment
benefit costs be recognized on the accrual basis of accounting effective for
fiscal years beginning after December 15, 1993. Postemployment benefits include
the continuation of salary, health care, life insurance and disability-related
benefits to former or inactive employees, their beneficiaries and covered
dependents. The company will adopt FAS 112 during the first quarter of 1994, as
required. Upon adoption, the company anticipates recognizing a one-time, non-
cash after-tax charge approximating $60 to $120 million for the cumulative
effect on prior years of such adoption.
In May 1993, Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" which must be adopted by January 1, 1995
and Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which must be adopted by January 1,
1994 were issued. Neither of these pronouncements is expected to materially
affect the company.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio reflects the company's practice of utilizing a balanced mix of
debt maturities to fund finance assets. The current ratio was .59 to 1 at both
December 31, 1993 and December 31, 1992.
The ratio of total debt to the total of such debt and stockholders' equity
was 61.3 percent at December 31, 1993 compared to 64.5 percent at December 31,
1992. The change in this ratio was due to reduced borrowings at the company's
financial services operation as a result of sales of finance assets and the
strategic decision to phase out the business of financing non-Pitney Bowes
equipment outside of the U.S. as well as the company's strong operating
performance. These factors were partially offset by the 1993 repurchase of
approximately 2.1 million shares of common stock at a cost approximating $87
million. Such repurchases were funded through increased commercial paper
borrowings. Emphasis on fee-based financial services' transactions and the
continuing consideration of the sale of certain financing transactions as well
as phasing out the non-U.S. external business are expected to continue to slow
the growth in finance assets and related debt levels.
24
<PAGE>
As part of the company's non-financial services shelf registrations, a
medium-term note facility was established permitting issuance of up to $100
million in debt securities with maturities ranging from more than one year up to
30 years of which $32 million remained available at December 31, 1993. The
company also has an additional $300 million remaining on shelf registrations
filed with the Securities and Exchange Commission. In January 1993, the company
repaid $100 million of 8.875 percent notes which matured and were previously
issued under these shelf registrations.
In 1992, PBCC filed a $500 million shelf registration statement with the
Securities and Exchange Commission. This registration statement, together with
the carryover of $100 million from a previous registration, should meet PBCC's
long-term financing needs for the next two years. In the first quarter of
1993, PBCC redeemed $75 million of 8.75 percent notes due in 1996. PBCC has also
exercised the option to redeem $100 million of 10.65 percent notes due in 1999
on April 1, 1994. PBCC had previously sold an option on a notional principal
amount of $100 million to enable a counterparty to require PBCC to pay a fixed
rate of 10.67 percent for five years starting April 1, 1994. The counterparty
has exercised that option.
At year-end 1993, the company had unused lines of credit and revolving credit
facilities totaling $1.8 billion in the U.S. and $143 million outside the U.S.
largely supporting commercial paper borrowings. Amounts available under credit
agreements, shelf registrations and commercial paper and medium-term note
programs in addition to cash generated internally are expected to be sufficient
to provide for financing needs in the next two years. Information with respect
to debt maturities is disclosed in note 5 to the consolidated financial
statements.
CAPITAL INVESTMENT
During 1993, net investments in fixed assets included $96 million in net
additions to property, plant and equipment and $193 million in net additions to
rental equipment and related inventories compared with $76 million and $134
million, respectively, in 1992. These additions included expenditures for normal
plant and manufacturing equipment. In the case of rental equipment, the
additions included the production of postage meters and the purchase of
facsimile equipment for both new placements and upgrade programs.
At December 31, 1993, commitments for the acquisition of property, plant and
equipment reflected plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs. The company is also building
a new facility to house its Shipping and Weighing Systems Division in Shelton,
Connecticut, which is expected to be completed in 1995.
As previously reported, the company's financial services segment has made
senior secured loans and commitments in connection with acquisition, leveraged
buyout and recapitalization financings. At December 31, 1993, the company had a
total of $13.9 million of such senior secured loans and commitments outstanding
compared to $25.2 million at December 31, 1992. In April 1993, the company sold
its $6.6 million senior secured loan with a company that had previously filed
under Chapter 11 of the Federal Bankruptcy Code and recovered 100 percent of its
investment. The company has not participated in unsecured or subordinated debt
financing in any highly leveraged transactions.
EFFECTS OF INFLATION
Inflation, even though moderate in recent years, continues to have an effect on
worldwide economies and the way companies operate. In addition to increasing
labor costs and operating expenses, the company is also impacted by the higher
costs associated with replacement of fixed assets and especially rental
equipment assets. In the face of increasing costs, the company has generally
been able to maintain profit margins through productivity and efficiency
improvements, continual review of both manufacturing capacity and operating
expense levels and, to an extent, price increases.
DIVIDEND POLICY
It is the policy of the Pitney Bowes board of directors to pay a cash dividend
on common stock each quarter when feasible. In setting dividend payments, the
board considers the dividend rate in relation to the company's recent and
projected earnings and its capital investment opportunities and requirements.
Pitney Bowes has paid a dividend each year since 1934.
25
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
Pitney Bowes Inc.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Years ended December 31 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total revenue $3,542,881 $3,434,124 $3,332,497 $3,195,550 $2,875,685
Costs and expenses 2,968,074 2,938,772 2,870,908 2,781,406 2,504,628
Nonrecurring charges - - - 86,500 110,000
---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes 574,807 495,352 461,589 327,644 261,057
Provision for income taxes 221,618 183,184 173,730 120,995 80,947
---------- ---------- ---------- ---------- ----------
Income from continuing operations 353,189 312,168 287,859 206,649 180,110
Discontinued operations - 2,700 7,440 6,646 6,609
Effect of accounting changes - (214,631) - - 66,048
---------- ---------- ---------- ---------- ----------
Net income $ 353,189 $ 100,237 $ 295,299 $ 213,295 $ 252,767
========== ========== ========== ========== ==========
Income per common and common equivalent share:
Continuing operations $2.22 $ 1.96 $1.80 $1.30 $1.14
Discontinued operations - .02 .05 .04 .04
Effect of accounting changes - (1.35) - - .41
---------- ---------- ---------- ---------- ----------
Net income $2.22 $ .63 $1.85 $1.34 $1.59
========== ========== ========== ========== ==========
Total dividends on common, preference and
preferred stock $142,142 $123,112 $107,948 $94,819 $81,718
Dividends per share of common stock $.90 $.78 $.68 $.60 $.52
Average common and common equivalent
shares outstanding 159,368,652 159,235,412 159,954,680 159,249,760 158,646,092
BALANCE SHEET AT DECEMBER 31
Total assets $6,793,816 $6,498,752 $6,380,580 $6,060,545 $5,611,115
Long-term debt $847,316 $1,015,401 $1,058,763 $1,099,396 $1,369,338
Capital lease obligations $29,462 $32,161 $35,755 $36,560 $42,002
Stockholders' equity $1,871,595 $1,652,881 $1,800,683 $1,589,414 $1,428,327
Book value per common share $11.81 $10.50 $11.31 $10.07 $9.07
RATIOS
Profit margin-continuing operations:
Pretax earnings 16.2% 14.4% 13.9% 10.3% 9.1%
After-tax earnings 10.0% 9.1% 8.6% 6.5% 6.3%
Return on stockholders' equity -
continuing operations 18.9% 18.9% 16.0% 13.0% 12.6%
Debt to total capital 61.3% 64.5% 62.8% 65.4% 66.3%
OTHER
Common stockholders of record 31,189 30,828 29,588 31,323 31,383
Total employees 32,539 28,958 29,421 29,942 31,404
Postage meters in service, U.S., U.K.
and Canada 1,445,689 1,413,448 1,393,774 1,386,387 1,354,501
</TABLE>
See notes, pages 31 through 39
26
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Pitney Bowes Inc.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Years ended December 31 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenue from:
Sales $1,706,504 $1,593,956 $1,546,685
Rentals and financing 1,311,759 1,321,364 1,277,551
Support services 524,618 518,804 508,261
---------- ---------- ----------
Total revenue 3,542,881 3,434,124 3,332,497
---------- ---------- ----------
Costs and expenses:
Cost of sales 911,222 838,734 806,649
Cost of rentals and financing 416,337 405,307 371,609
Selling, service and administrative 1,365,577 1,377,959 1,334,906
Research and development 98,968 101,620 113,973
Interest expense 187,439 227,257 258,116
Interest income (11,469) (12,105) (14,345)
---------- ---------- ----------
Total costs and expenses 2,968,074 2,938,772 2,870,908
---------- ---------- ----------
Income from continuing operations before
income taxes 574,807 495,352 461,589
Provision for income taxes 221,618 183,184 173,730
---------- ---------- ----------
Income from continuing operations 353,189 312,168 287,859
Discontinued operations - 2,700 7,440
---------- ---------- ----------
Income before effect of a change in accounting
for nonpension postretirement benefits 353,189 314,868 295,299
Effect of a change in accounting
for nonpension postretirement benefits - (214,631) -
---------- ---------- ----------
Net income $ 353,189 $ 100,237 $ 295,299
========== ========== ==========
Income per common and common equivalent share:
Continuing operations $2.22 $ 1.96 $1.80
Discontinued operations - .02 .05
Effect of a change in accounting
for nonpension postretirement benefits - (1.35) -
---------- ---------- ----------
Net income $2.22 $ .63 $1.85
========== ========== ==========
</TABLE>
See notes, pages 31 through 39
27
<PAGE>
CONSOLIDATED BALANCE SHEET
Pitney Bowes Inc.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54,653 $ 71,016
Short-term investments, at cost which approximates market 1,153 2,043
Accounts receivable, less allowances:
1993, $16,691; 1992, $16,578 411,810 381,992
Finance receivables, less allowances:
1993, $39,488; 1992, $30,145 994,998 980,392
Inventories 394,744 344,382
Other current assets and prepayments 79,391 58,903
---------- ----------
Total current assets 1,936,749 1,838,728
Property, plant and equipment, net 555,038 552,697
Rental equipment and related inventories, net 641,588 599,867
Property leased under capital leases, net 15,451 16,596
Long-term finance receivables, less allowances:
1993, $77,024; 1992, $66,830 2,895,952 2,901,393
Goodwill, net of amortization:
1993, $33,640; 1992, $27,704 231,309 142,106
Other assets 517,729 447,365
---------- ----------
Total assets $6,793,816 $6,498,752
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 675,559 $ 614,936
Income taxes payable 200,110 213,757
Notes payable and current portion of long-term obligations 2,081,872 1,953,993
Advance billings 315,840 313,856
---------- ----------
Total current liabilities 3,273,381 3,096,542
Deferred taxes on income 409,660 336,933
Long-term debt 847,316 1,015,401
Other noncurrent liabilities 391,864 396,995
---------- ----------
Total liabilities 4,922,221 4,845,871
---------- ----------
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 68 107
Cumulative preference stock, no par value, $2.12 convertible 2,969 3,161
Common stock, $2 par value (240,000,000 shares authorized;
161,668,956 shares issued) 323,338 323,338
Capital in excess of par value 36,762 -
Retained earnings 1,674,168 1,463,121
Cumulative translation adjustments (47,319) (27,211)
Treasury stock, at cost (3,495,200 shares) (118,391) (109,635)
---------- ----------
Total stockholders' equity 1,871,595 1,652,881
---------- ----------
Total liabilities and stockholders' equity $6,793,816 $6,498,752
========== ==========
</TABLE>
See notes, pages 31 through 39
28
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Pitney Bowes Inc.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 353,189 $ 100,237 $ 295,299
Effect of a change in accounting for nonpension
postretirement benefits - 214,631 -
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 262,980 250,773 238,107
Nonrecurring charges, net (1,283) (7,208) (21,295)
Increase (decrease) in deferred taxes on income 81,811 (8,679) 46,758
Change in assets and liabilities:
Accounts receivable (11,346) 9,791 10,664
Sales-type lease receivables (136,667) (99,528) (125,587)
Inventories (51,286) (19,370) 37,698
Other current assets and prepayments (17,012) (2,298) (26,340)
Accounts payable and accrued liabilities 48,451 32,808 42,468
Income taxes payable (13,085) 64,830 (12,938)
Advance billings 3,102 977 16,821
Other, net (78,867) (36,861) (15,284)
--------- --------- ---------
Net cash provided by operating activities 439,987 500,103 486,371
--------- --------- ---------
Cash flows from investing activities:
Short-term investments 537 2,900 (4,081)
Net investment in fixed assets (291,783) (224,563) (250,412)
Net investment in direct-finance lease receivables 108,991 (115,077) (105,746)
Investment in leveraged leases (8,174) (60,964) (55,157)
Proceeds from sale of subsidiary - 80,000 -
Net investment in companies acquired (8,428) (15,639) -
--------- --------- ---------
Net cash used in investing activities (198,857) (333,343) (415,396)
--------- --------- ---------
Cash flows from financing activities:
Increase in notes payable 195,024 202,666 99,027
Proceeds from long-term obligations - 100,200 195,000
Principal payments on long-term obligations (244,503) (318,540) (239,920)
Proceeds from issuance of stock 22,544 23,827 18,654
Stock repurchases (86,861) (89,392) -
Dividends paid (142,142) (123,112) (107,948)
--------- --------- ---------
Net cash used in financing activities (255,938) (204,351) (35,187)
--------- --------- ---------
Effect of exchange rate changes on cash (1,555) (4,921) (1,318)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (16,363) (42,512) 34,470
Cash and cash equivalents at beginning of year 71,016 113,528 79,058
--------- --------- ---------
Cash and cash equivalents at end of year $ 54,653 $ 71,016 $ 113,528
========= ========= =========
Interest paid $ 199,176 $ 226,892 $ 237,639
========= ========= =========
Income taxes paid $ 124,034 $ 126,865 $ 146,996
========= ========= =========
</TABLE>
See notes, pages 31 through 39
29
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Pitney Bowes Inc.
<TABLE>
<CAPTION>
(Dollars in thousands)
Capital in Cumulative Treasury
Preferred Preference Common excess of Retained translation stock,
stock stock stock par value earnings adjustments at cost
--------- ---------- -------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991 $136 $ 5,163 $161,669 $153,356 $1,307,421 $ 36,946 $ (75,277)
Net income - 1991 295,299
Cash dividends:
Preferred ($2.00 per share) (4)
Preference ($2.12 per share) (364)
Common ($.68 per share) (107,580)
Issuances under dividend
reinvestment and stock plans 6,531 19,973
Conversions to common stock (23) (746) (3,194) 3,963
Conversions of debt (59) 84
Issuance for company acquired 213 312
Translation adjustments (3,738)
Tax credits relating to stock options 602
---- ------- -------- -------- ---------- -------- ---------
Balance, December 31, 1991 113 4,417 161,669 157,449 1,494,772 33,208 (50,945)
Net income - 1992 100,237
Cash dividends:
Preferred ($2.00 per share) (4)
Preference ($2.12 per share) (277)
Common ($.78 per share) (122,831)
Issuances under dividend
reinvestment and stock plans 244 867 21,444
Conversions to common stock (6) (1,256) (2,460) (4,514) 8,236
Conversions of debt (250) 320
Issuance for company acquired 12 195 702
Repurchase of common stock (89,392)
Translation adjustments (60,419)
Tax credits relating to stock options 1,350
Two-for-one stock split 161,669 (156,345) (5,324)
---- ------- -------- -------- ---------- -------- ---------
Balance, December 31, 1992 107 3,161 323,338 - 1,463,121 (27,211) (109,635)
Net income - 1993 353,189
Cash dividends:
Preferred ($2.00 per share) (3)
Preference ($2.12 per share) (239)
Common ($.90 per share) (141,900)
Issuances under dividend
reinvestment and stock plans 5,987 20,071
Conversions to common stock (39) (192) (1,539) 1,770
Issuance for company acquired 31,329 56,264
Repurchase of common stock (86,861)
Translation adjustments (20,108)
Tax credits relating to stock options 985
---- ------- -------- -------- ---------- -------- ---------
Balance, December 31, 1993 $ 68 $ 2,969 $323,338 $ 36,762 $1,674,168 $(47,319) $(118,391)
==== ======= ======== ======== ========== ======== =========
</TABLE>
See notes, pages 31 through 39
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pitney Bowes Inc.
(Dollars in thousands, except per share data or as otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements include the accounts of
Pitney Bowes Inc. and all of its subsidiaries (the company). All significant
intercompany transactions have been eliminated.
CASH EQUIVALENTS. Cash equivalents include short-term, highly liquid
investments with a maturity of three months or less from date of acquisition.
INVENTORY VALUATION. Inventories are valued at the lower of cost or market. Cost
is determined on the last-in, first-out (LIFO) basis for most U.S.
inventories, and the first-in, first-out (FIFO) basis for most non-U.S.
inventories.
FIXED ASSETS AND DEPRECIATION. Property, plant and equipment are stated at cost.
Major improvements which add to productive capacity or extend the life of an
asset are capitalized while repairs and maintenance are charged to expense as
incurred. Rental equipment is depreciated on the straight-line method. Other
depreciable assets are depreciated using either the straight-line method or
accelerated methods. Properties leased under capital leases are amortized on a
straight-line basis over the primary lease terms.
RENTAL ARRANGEMENTS AND ADVANCE BILLINGS. The company rents equipment to its
customers, primarily postage meters and mailing, shipping, copier and facsimile
systems under short-term rental agreements, generally for periods of three
months to three years. Charges for equipment rental and maintenance contracts
are billed in advance; the related revenue is included in advance billings and
taken into income as earned.
FINANCING TRANSACTIONS. At the time a finance transaction is consummated, the
company's finance operations record the gross finance receivable, unearned
income and the estimated residual value of leased equipment. Unearned income
represents the excess of the gross finance receivable plus the estimated
residual value over the cost of equipment or contract acquired. Unearned income
is recognized as financing income using the interest method over the term of the
transaction and is included in rentals and financing revenue in the Consolidated
Statement of Income. Initial direct costs incurred in consummating a transaction
are accounted for as part of the investment in a lease and amortized to income
using the interest method over the term of the lease.
In establishing the provision for credit losses, the company has successfully
utilized an asset based percentage. This percentage varies depending on the
nature of the asset, recent historical experience, vendor recourse, management
judgement and the credit rating of the respective customer. The company
evaluates the collectibility of its net investment in finance receivables based
upon its loss experience and assessment of prospective risk, and does so through
ongoing reviews of its exposures to net asset impairment. The carrying value of
its net investment in finance receivables is adjusted to the estimated
collectible amount through adjustments to the allowance for credit losses.
Finance receivables are charged to the allowance for credit losses after
collection efforts are exhausted and the account is deemed uncollectible.
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
are reduced to 60 days or less past due. However, large-ticket external
transactions are reviewed on an individual basis. Income recognition is normally
discontinued as soon as it is apparent that the obligor will not be making
payments in accordance with lease terms and resumed after the company has
sufficient experience on resumption of payments to be satisfied that such
payments will continue in accordance with the original or restructured contract
terms.
GOODWILL. Goodwill represents the excess of cost over the value of net tangible
assets acquired in business combinations and is amortized using the straight-
line method over appropriate periods, principally 40 years.
REVENUE. Sales revenue is primarily recognized when a product is shipped.
COSTS AND EXPENSES. Operating expenses of field sales and service offices are
included in selling, service and administrative expenses because no meaningful
allocation of such expenses to cost of sales, rentals and financing or support
services is practicable.
INCOME TAXES. The deferred tax provision is determined under the liability
method. Deferred tax assets and liabilities are recognized based on differences
between the book and tax bases of assets and liabilities using presently enacted
tax rates. The provision for income taxes is the sum of the amount of income tax
paid or payable for the year as determined by applying the provisions of enacted
tax laws to the taxable income for that year and the net change during the year
in the company's deferred tax assets and liabilities.
Deferred taxes on income result principally from expenses not currently
recognized for tax purposes, the excess of tax over book depreciation, deferral
of lease revenue and gross profits on sales to finance subsidiaries.
For tax purposes, income from leases is recognized under the operating method
and represents the difference between gross rentals billed and operating
expenses.
It has not been necessary to provide for income taxes on $444 million of
cumulative undistributed earnings of subsidiaries outside the U.S. These
earnings will be either indefinitely reinvested or remitted substantially free
of additional tax. Determination of the liability that would result in the event
all of these earnings were remitted to the U.S. is not practicable. It is
estimated, however, that withholding taxes on such remittances would approximate
$28 million.
NONPENSION POSTRETIREMENT BENEFITS. The company provides certain health care and
life insurance benefits to eligible retirees and their dependents. It is the
company's practice to fund amounts for these nonpension postretirement benefits,
primarily health care, as incurred. Substantially all of the company's U.S. and
Canadian employees become eligible for retiree health care benefits after
reaching age 55 and with the completion of the required service period.
INCOME PER SHARE. Income per share is based on the weighted average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares include preference stock, stock option and purchase plan
shares and convertible debt.
DEPOSITS IN TRUST. The company's customers electing the use of the Pitney Bowes
Postage By Phone(R) meter setting system, a computerized system developed by
the company for the resetting of postage meters
31
<PAGE>
via telephone, are required to make deposits with a trustee to cover expected
postage usage. Such funds, which are not available to the company, are
transferred to the respective postal services upon resettings of meters for
which the company receives fees. Deposits in trust are not included in the
company's Consolidated Balance Sheet.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of subsidiaries operating
outside the U.S. are translated at rates in effect at the end of the period, and
revenues and expenses were translated at average rates during the period. Net
deferred translation gains and losses are accumulated in stockholders' equity.
The company enters into foreign exchange contracts primarily to hedge certain
firm foreign currency commitments. Gains and losses are deferred and recognized
as part of the cost of the underlying transaction being hedged. Gains and losses
related to changes in the value of speculative contracts are recognized in
income currently. At December 31, 1993, the company had approximately $163.2
million of foreign exchange contracts outstanding, maturing through 1996, to buy
or sell various currencies.
Foreign currency transaction and translation (losses) and gains were $(1.7)
million, $4.0 million and $0.6 million in 1993, 1992 and 1991, respectively.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
-------- --------
<S> <C> <C>
Raw materials and work in process $ 98,647 $ 91,730
Supplies and service parts 98,773 92,961
Finished products 197,324 159,691
-------- --------
Total $394,744 $344,382
======== ========
</TABLE>
Had all inventories valued at LIFO been stated at current costs, inventories
would have been $41.4 million and $46.2 million higher than reported at December
31, 1993 and 1992, respectively.
3. FIXED ASSETS
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
<S> <C> <C>
Land $ 38,171 $ 38,251
Buildings 306,384 300,305
Machinery and equipment 792,294 736,712
---------- ----------
1,136,849 1,075,268
Accumulated depreciation (581,811) (522,571)
---------- ----------
Property, plant and equipment, net $ 555,038 $ 552,697
========== ==========
Rental equipment and related inventories $1,426,395 $1,323,702
Accumulated depreciation (784,807) (723,835)
---------- ----------
Rental equipment and related inventories, net $ 641,588 $ 599,867
========== ==========
Property leased under capital leases $ 48,792 $ 47,827
Accumulated amortization (33,341) (31,231)
---------- ----------
Property leased under capital leases, net $ 15,451 $ 16,596
========== ==========
</TABLE>
4. CURRENT LIABILITIES
Accounts payable and accrued liabilities and notes payable and current portion
of long-term obligations are comprised as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
<S> <C> <C>
Accounts payable-trade $ 187,480 $ 150,435
Accrued salaries, wages and commissions 94,092 89,841
Accrued pension benefits 80,898 93,960
Accrued nonpension postretirement benefits 15,500 15,500
Miscellaneous accounts payable
and accrued liabilities 297,589 265,200
---------- ----------
Accounts payable and accrued liabilities $ 675,559 $ 614,936
========== ==========
Notes payable and overdrafts $2,000,364 $1,809,245
Current portion of long-term debt 78,222 141,649
Current portion of capital lease obligations 3,286 3,099
---------- ----------
Notes payable and current portion
of long-term obligations $2,081,872 $1,953,993
========== ==========
</TABLE>
In countries outside the U.S., banks generally lend to non-finance
subsidiaries of the company on an overdraft or term-loan basis. These
overdraft arrangements and term loans, for the most part, are extended on an
uncommitted basis by banks, and do not require compensating balances or
commitment fees.
Notes payable of the company's U.S. operations and financial services segment
were issued as commercial paper, loans against bank lines of credit, or to trust
departments of banks and others at below prevailing prime rates. Fees paid to
maintain lines of credit were $2.8 million, $2.3 million and $1.5 million in
1993, 1992 and 1991, respectively.
At December 31, 1993, notes payable and overdrafts outside the U.S. totaled
$85.8 million and U.S. notes payable totaled $1.9 billion. Unused credit
facilities outside the U.S. totaled $143.1 million at December 31, 1993 of which
$113.9 million were for finance operations. In the U.S., the company had $1.8
billion of unused credit facilities in place at December 31, 1993 largely in
support of commercial paper borrowings of which $1.5 billion were for the
finance operations.
The company periodically enters into interest rate swap and swap option
agreements as a means of managing interest rate exposure on both its U.S. and
non-U.S. debt. At December 31, 1993, the company had outstanding interest rate
swap agreements with notional principal amounts of $792.3 million. Under the
agreements, with terms expiring at various dates from 1994 to 2004, the company
exchanges rates between fixed-rate debt with rates ranging from 5.38% to
11.63% and commercial paper rates. The interest differential to be paid or
received under swap agreements is recorded on the accrual basis as an adjustment
to interest expense.
32
<PAGE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31 1993 1992
-------- ----------
<S> <C> <C>
Non-financial services debt:
7.55% to 8.72% notes due 1994-1995 $ 9,000 $ 41,250
Other, various due dates (5.5% to 9.0%) 807 917
-------- ----------
9,807 42,167
Financial services debt:
Senior notes:
6.56% to 7.48% notes due 1995-1997 75,000 75,000
8.75% notes due 1996 - 75,000
10.13% notes due 1997 100,000 100,000
10.65% notes due 1999 100,000 100,000
8.80% notes due 2003 150,000 150,000
8.63% notes due 2008 100,000 100,000
9.25% notes due 2008 100,000 100,000
8.55% notes due 2009 150,000 150,000
Subordinated debt:
12.75% notes due through 1994 - 740
Canadian dollar notes due 1994-2000
(8.47% to 12.50%) 58,055 103,990
German mark notes due 1994
(9.50%) - 891
French franc notes due 1994
(10.30%) - 5,225
Other, various due dates
(2.00% to 10.50%) 4,454 12,388
-------- ----------
Total long-term debt $847,316 $1,015,401
======== ==========
</TABLE>
The company has a medium-term note facility which was established as a part of
the company's shelf registrations, permitting issuance of up to $100 million in
debt securities of which $32 million remain available. Securities issued under
this medium-term note facility would have maturities ranging from more than
one year up to 30 years. The company also has an additional $300 million
remaining on shelf registrations filed with the Securities and Exchange
Commission.
In 1992, Pitney Bowes Credit Corporation (PBCC) filed a $500 million shelf
registration statement with the Securities and Exchange Commission. In addition,
PBCC has a carryover of $100 million from a previous registration. In the first
quarter of 1993, PBCC redeemed $75 million of 8.75 percent notes due in 1996.
PBCC has also exercised the option to redeem $100 million of 10.65 percent notes
due in 1999 on April 1, 1994.
The annual maturities of the outstanding debt during each of the next five
years are as follows: 1994, $78.2 million; 1995, $67.3 million; 1996, $5.8
million; 1997, $151.5 million and 1998, $5.6 million.
Under terms of their senior and subordinated loan agreements, certain of the
finance operations are required to maintain earnings before taxes and interest
charges at prescribed levels. With respect to such loan agreements, the company
will endeavor to have these finance operations maintain compliance with such
terms and, under certain loan agreements, is obligated, if necessary, to pay to
these finance operations amounts sufficient to maintain a prescribed ratio of
income available for fixed charges. The company has not been required to make
any such payments to maintain income available for fixed charge coverage. The
company does not guarantee payment of any of the finance operations'
obligations.
6. CAPITAL STOCK AND CAPITAL IN EXCESS OF PAR VALUE
At December 31, 1993, 240,000,000 shares of common stock, 600,000 shares of
cumulative preferred stock, and 5,000,000 shares of preference stock were
authorized, and 158,173,756 shares of common stock (net of 3,495,200 shares of
treasury stock), 1,367 shares of 4% Convertible Cumulative Preferred Stock (4%
preferred stock) and 109,645 shares of $2.12 Convertible Preference Stock ($2.12
preference stock) were issued and outstanding. The balance of unreserved and
unissued preferred stock (598,633 shares) and preference stock (4,890,355
shares) may be issued in the future by the board of directors, which will
determine the dividend rate, terms of redemption, terms of conversion (if any)
and other pertinent features. Unreserved and unissued common stock (exclusive of
treasury stock) at December 31, 1993 amounted to 66,240,859 shares.
In October 1993, the company acquired all outstanding shares and options of
Ameriscribe Corporation in exchange for 2,257,792 shares of Pitney Bowes common
stock. See note 11 to the consolidated financial statements.
The 4% preferred stock outstanding, which is entitled to cumulative dividends
at the rate of $2 per year, is redeemable at the option of the company, in whole
or in part at any time, at the price of $50 per share, plus dividends accrued to
the redemption date. Each share of the 4% preferred stock is convertible into
12.12 shares of common stock, subject to adjustment in certain events.
The $2.12 preference stock is entitled to cumulative dividends at the rate of
$2.12 per year and is redeemable at the option of the company at the rate of $28
per share. Each share of the $2.12 preference stock is convertible into eight
shares of common stock, subject to adjustment in certain events.
At December 31, 1993, an aggregate of 893,728 shares of common stock was
reserved for issuance upon conversion of the 4% preferred stock (16,568 shares)
and $2.12 preference stock (877,160 shares). In addition, 1,734,788 shares of
common stock were reserved for issuance under the company's dividend
reinvestment and other corporate plans.
Each share of common stock outstanding has attached one preference share
purchase right. The rights, which are subject to certain anti-dilution
adjustments, become exercisable in certain circumstances, after which they will
entitle the holder to purchase 1/400 of a share of Series A Junior Participating
Preference Stock. If, after the rights become exercisable, the company is
involved in a merger or certain other transactions, the holder will be entitled
to buy stock in the surviving company at a 50 percent discount.
33
<PAGE>
7. STOCK PLANS
Transactions under the company's stock plans are summarized below:
<TABLE>
<CAPTION>
Price per
Common stock Shares share
--------- ---------
<S> <C> <C>
January 1, 1992, shares reserved 2,195,062 $ 4-$30
Shares offered 1992 (price approximates
market value at date of grant) 1,041,175 $29-$38
Shares issued 1992 (817,303) $ 4-$38
Shares canceled 1992 (131,170) $24-$31
--------- -------
December 31, 1992, shares reserved 2,287,764 $ 7-$36
Shares offered 1993 (price approximates
market value at date of grant) 842,231 $38-$43
Shares issued 1993 (705,462) $ 7-$31
Shares canceled 1993 (132,506) $22-$42
--------- -------
December 31, 1993, shares reserved 2,292,027 $ 7-$43
========= =======
</TABLE>
Of the common shares reserved at December 31, 1993, options for 985,913 are
exercisable. At December 31, 1993, there remain 1,780,734 common shares for
which rights to purchase may be granted under the stock purchase plans. In
addition, stock-based awards representing up to 5,388,908 common shares may be
granted under other stock plans.
8. TAXES ON INCOME
In 1992, the company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109), effective retroactively to January
1, 1992. Application of FAS 109 required no cumulative effect adjustment
primarily due to the company's previous use of the liability method of
accounting for income taxes. The adoption of this new standard had no
significant effect on the company's tax provision for 1992.
Income from continuing operations before income taxes and the provision for
income taxes consist of the following:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Income from continuing operations
before income taxes:
U.S. $496,376 $400,509 $346,939
Outside the U.S. 78,431 94,843 114,650
-------- -------- --------
Total $574,807 $495,352 $461,589
======== ======== ========
Provision for income taxes:
U.S. federal:
Current $ 98,761 $ 66,703 $ 57,336
Deferred 52,030 50,057 43,678
-------- -------- --------
150,791 116,760 101,014
-------- -------- --------
U.S. state and local:
Current 24,850 16,556 10,444
Deferred 14,834 15,532 18,097
-------- -------- --------
39,684 32,088 28,541
-------- -------- --------
Outside the U.S.:
Current 47,697 32,536 41,704
Deferred (16,554) 1,800 2,471
-------- -------- --------
31,143 34,336 44,175
-------- -------- --------
Total current 171,308 115,795 109,484
Total deferred 50,310 67,389 64,246
-------- -------- --------
Total $221,618 $183,184 $173,730
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Deferred tax liabilities and (assets)
December 31 1993 1992
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 42,789 $ 40,229
Deferred profit (for tax purposes) on sales
to finance subsidiaries 308,897 256,077
Lease revenue and related depreciation 520,110 510,599
Other 30,561 19,935
--------- ---------
Gross deferred tax liabilities 902,357 826,840
--------- ---------
Deferred tax assets:
Nonpension postretirement benefits (147,183) (150,101)
Pension liability (26,051) (26,213)
Inventory and equipment capitalization (25,214) (21,225)
Net operating loss carryforwards (32,543) (29,365)
Alternative minimum tax (AMT)
credit carryforwards (71,571) (84,884)
Other (98,414) (53,419)
Valuation allowance 25,975 28,800
--------- ---------
Gross deferred tax assets (375,001) (336,407)
--------- ---------
Total $ 527,356 $ 490,433
========= =========
</TABLE>
Total deferred taxes include $117.7 million and $153.5 million for 1993 and
1992, respectively, of current deferred taxes which are included in income taxes
payable in the Consolidated Balance Sheet.
During 1993, the deferred tax asset for net operating losses and related
valuation allowance changed primarily due to acquired loss carryforwards
attributable to Ameriscribe Corporation and the utilization of loss
carryforwards in foreign jurisdictions. As of December 31, 1993, approximately
$75.7 million of net operating loss carryforwards were available to the company.
Most of these losses as well as the company's alternative minimum tax credit can
be carried forward indefinitely.
In 1993, the company completed a transaction whereby it contributed certain
commercial aircraft, subject to direct finance leases, to a partnership. The
partnership transaction had the effect of reducing the company's obligation for
previously accrued deferred taxes. The reduction in deferred taxes has been
recognized as a reduction in 1993 income tax expense. Also in 1993, the company
recorded additional tax expense as a result of the Omnibus Budget Reconciliation
Act of 1993 in the U.S.
A reconciliation of the U.S. federal statutory rate to the company's effective
tax rate follows:
<TABLE>
<CAPTION>
Percent of pretax income 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 34.0% 34.0%
State and local income taxes 4.5 4.3 4.1
Rate adjustment for deferred taxes 2.8 - -
Partnership tax benefits (2.0) - -
Other (1.7) (1.3) (0.5)
---- ---- ----
Effective income tax rate 38.6% 37.0% 37.6%
==== ==== ====
</TABLE>
34
<PAGE>
9. RETIREMENT PLANS
The company has several defined benefit and defined contribution pension plans
covering substantially all employees worldwide. Benefits are primarily based on
employees' compensation and years of service. Company contributions are
determined based on the funding requirements of U.S. federal and other
governmental laws and regulations.
Total pension expense amounted to $50.9 million in 1993, $44.8 million in 1992
and $33.1 million in 1991. Net pension expense for defined benefit plans for
1993, 1992 and 1991 included the following components:
<TABLE>
<CAPTION>
United States Foreign
----------------------------- ------------------------------
1993 1992 1991 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during period $ 30,797 $ 27,319 $ 25,843 $ 5,971 $ 6,913 $ 7,943
Interest cost on projected benefit obligations 62,241 56,133 46,452 9,163 10,005 9,736
Actual return on assets (85,971) (37,861) (100,173) (31,494) (2,684) (21,211)
Net amortization and (deferral) 30,804 (11,085) 55,368 19,896 (10,978) 8,092
-------- -------- -------- -------- -------- --------
Net periodic defined benefit pension expense $ 37,871 $ 34,506 $ 27,490 $ 3,536 $ 3,256 $ 4,560
======== ======== ======== ======== ======== ========
</TABLE>
The funded status at December 31, 1993 and 1992 for the company's defined
benefit plans was:
<TABLE>
<CAPTION>
United States Foreign
----------------- --------------------
1993 1992 1993 1992
------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $561,874 $442,606 $ 97,471 $ 85,619
======== ======== ======== ========
Accumulated benefit obligations $632,317 $495,766 $ 97,714 $ 85,663
======== ======== ======== ========
Projected benefit obligations $854,589 $707,685 $124,286 $107,970
-------- -------- -------- --------
Plan assets at fair value, primarily stocks
and bonds, adjusted by: 689,622 584,078 136,900 112,289
Unrecognized net loss (gain) 90,078 35,597 (10,889) (1,003)
Unrecognized net asset (23,236) (26,566) (20,281) (23,160)
Unamortized prior service costs from plan amendments 30,159 35,807 10,952 11,551
-------- -------- -------- --------
786,623 628,916 116,682 99,677
-------- -------- -------- --------
Net pension liability $ 67,966 $ 78,769 $ 7,604 $ 8,293
======== ======== ======== ========
Assumptions for defined benefit plans*:
Discount rate 7.50% 8.50% 6.7%- 9.5% 8.0%- 9.5%
Rate of increase in future compensation levels 5.00% 6.00% 4.0%- 7.0% 4.0%- 7.0%
Expected long-term rate of return on plan assets 9.50% 9.50% 8.5%-10.0% 8.5%-10.0%
</TABLE>
*Pension costs are determined using assumptions as of the beginning of the year
while the funded status of the plans is determined using assumptions as of the
end of the year.
35
<PAGE>
10. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In the fourth quarter of 1992, the company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (FAS 106). This statement requires that the cost of these
benefits be recognized over the period the employee provides credited service to
the company rather than recognized on a cash basis, when incurred.
The transition effect of adopting FAS 106 on the immediate recognition basis
was retroactively reflected as of January 1, 1992, as a one-time, after-tax
charge of $214.6 million (net of approximately $139.7 million of income taxes),
or $1.35 per share. Application of this standard resulted in additional 1992
annual expenses, which totaled $26.0 million before taxes and $15.6 million
after taxes, or $0.10 per share. In the first quarter of 1993, the company
announced certain changes to its health care plans, including plan cost
maximums, which should significantly reduce the ongoing incremental impact of
FAS 106 on future earnings.
Net nonpension postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992
-------- -------
<S> <C> <C>
Service cost-benefits earned during the period $ 9,249 $12,554
Interest cost on accumulated postretirement
benefit obligations 21,146 28,035
Net (deferral) and amortization (18,647) -
-------- -------
Net periodic postretirement benefit costs $ 11,748 $40,589
======== =======
</TABLE>
Prior to the company's adoption of FAS 106, net nonpension postretirement
benefit costs for 1991 were $11.9 million.
The company's nonpension postretirement benefit plans are not funded. The
status of the plans was as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees and dependents $174,999 $168,024
Fully eligible active plan participants 54,583 43,187
Other active plan participants 76,229 169,123
Unrecognized net (loss) gain (28,215) -
Unrecognized prior service cost 100,306 -
-------- --------
Accrued nonpension postretirement benefits $377,902 $380,334
======== ========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 12% and 14% in 1993 and 1992,
respectively. This was assumed to gradually decline to 5% and 6% by the year
2000 and remaining at that level thereafter for 1993 and 1992, respectively. A
one-percentage-point increase in the assumed health care cost trend rate
would increase the year-end accumulated postretirement benefit obligations by
6% as of December 31, 1993 and the net periodic postretirement health care cost
by 5% for 1993.
The assumed weighted average discount rate used in determining the
accumulated postretirement benefit obligations was 7.5% and 8.5% in 1993 and
1992, respectively.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), was issued
addressing benefits provided by an employer to former or inactive employees
after employment but before retirement. FAS 112 requires that postemployment
benefit costs be recognized on the accrual basis of accounting effective for
fiscal years beginning after December 15, 1993. Postemployment benefits include
the continuation of salary, health care, life insurance and disability-related
benefits to former or inactive employees, their beneficiaries and covered
dependents. Upon adoption, the company anticipates recognizing a one-time,
non-cash after-tax charge approximating $60 to $120 million for the cumulative
effect on prior years of such adoption.
11. ACQUISITIONS AND DISCONTINUED OPERATIONS
In October 1993, the company acquired all outstanding shares of Ameriscribe
Corporation (Ameriscribe) in exchange for approximately $83 million of Pitney
Bowes common stock, plus approximately $5 million of additional shares for
outstanding Ameriscribe options. Ameriscribe, a nationwide provider of on-site
reprographics, mailroom and other office services to industrial corporations and
professional service firms on a contract basis, had revenue of $114 million in
1992. The company consolidated this unit with its facilities management business
operated through its wholly-owned subsidiary, Pitney Bowes Management
Services, Inc. The transaction was accounted for by the purchase method and the
proforma effect on the company's results was not significant.
In 1992, the company sold its Wheeler Group Inc. (Wheeler) subsidiary for
approximately $80 million in cash to a group consisting of the subsidiary's
management and Butler Capital Corporation. As part of the transaction, the
company also invested $4 million in preferred stock with warrants to purchase up
to 16 percent of the common stock of the new entity. The sale resulted in a gain
of $2.7 million, net of $13.5 million of income taxes.
The Wheeler divestiture was expected to result in a gain at closing,
accordingly, the 1992 quarterly seasonal losses Wheeler incurred on $25.9
million of revenue for the seven months ended July 31, 1992 were deferred and
offset against the gain on the sale. For the year ended December 31, 1991,
Wheeler had revenue of $70.3 million and net income of $7.4 million, net of $4.8
million of income taxes.
12. COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the company's finance subsidiaries had unfunded
commitments of $10.8 million to extend credit to customers. The company
evaluates each customer's credit worthiness 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 company is a defendant in a number of lawsuits, none of which will, in
the opinion of management, have a material adverse effect on the company's
financial position or results of operations.
13. LEASES
In addition to factory and office facilities owned, the company leases similar
properties, as well as sales and service offices, equipment and other
properties, generally under long-term lease agreements extending from three to
25 years. Certain of these leases have been capitalized at the present value of
the net lease payments at inception. Amounts included under liabilities
represent the present value of remaining lease payments.
36
<PAGE>
Future minimum lease payments under both capital and operating leases as of
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31 leases leases
------- ---------
<S> <C> <C>
1994 $ 6,862 $ 90,173
1995 6,406 64,847
1996 6,040 39,529
1997 5,227 25,459
1998 4,932 19,609
Later years 28,314 70,888
------- -------
Total minimum lease payments 57,781 $310,505
========
Less amount representing interest (25,033)
-------
Present value of net
minimum lease payments $32,748
=======
</TABLE>
Rental expense was $116.1 million, $115.0 million and $110.3 million in 1993,
1992 and 1991, respectively.
14. FINANCIAL SERVICES
The company has several consolidated finance operations which are engaged in
lease financing of the company's products as well as other commercial and
industrial transactions in the U.S., Canada, the U.K., Germany, France and
Australia. In the first quarter of 1993, the company began phasing out the
business of financing non-Pitney Bowes equipment outside of the U.S. Condensed
financial data for the consolidated finance operations follows:
<TABLE>
<CAPTION>
Condensed summary of operations
Years ended December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenue $614,265 $633,351 $613,716
-------- -------- --------
Costs and expenses 233,491 230,608 205,946
Interest, net 171,982 201,421 229,683
-------- -------- --------
Total expenses 405,473 432,029 435,629
-------- -------- -------
Income before income taxes 208,792 201,322 178,087
Provision for income taxes 75,012 69,954 61,284
-------- -------- -------
Income before effect of a
change in accounting for
nonpension postretirement
benefits 133,780 131,368 116,803
Effect of a change in accounting
for nonpension postretirement
benefits - (1,866) -
-------- -------- --------
Net income $133,780 $129,502 $116,803
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Condensed balance sheet at
December 31 1993 1992
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 8,325 $ 6,563
Finance receivables, net 994,998 980,392
Other current assets and
prepayments 43,760 33,778
---------- ----------
Total current assets 1,047,083 1,020,733
Long-term finance receivables, net 2,895,952 2,901,393
Investment in leveraged leases 301,645 277,659
Other assets 210,616 163,960
---------- ----------
Total assets $4,455,296 $4,363,745
========== ==========
Accounts payable and
accrued liabilities $ 376,634 $ 305,448
Income taxes payable 105,986 133,783
Notes payable and current portion
of long-term obligations 1,889,902 1,852,926
---------- ----------
Total current liabilities 2,372,522 2,292,157
Deferred taxes on income 232,728 194,937
Long-term debt 997,448 1,112,396
Other noncurrent liability 3,705 3,676
---------- ----------
Total liabilities 3,606,403 3,603,166
---------- ----------
Equity 848,893 760,579
---------- ----------
Total liabilities and equity $4,455,296 $4,363,745
========== ==========
</TABLE>
Finance receivables are generally due in monthly, quarterly or semi-annual
installments over periods ranging from three to seven years. In addition, 23
percent of the company's net finance receivables represent secured commercial
and private jet aircraft transactions with lease terms ranging from two to 24
years. Maturities of gross finance receivables and notes payable for the finance
operations are as follows:
<TABLE>
<CAPTION>
Gross finance Notes payable and
Years ending December 31 receivables subordinated debt
------------- ------------------
<S> <C> <C>
1994 $1,375,734 $1,889,902
1995 1,063,351 58,222
1996 673,353 5,761
1997 403,158 151,535
1998 225,583 5,616
Thereafter 1,062,698 776,314
---------- ----------
Total $4,803,877 $2,887,350
========== ==========
</TABLE>
Finance operations' net purchases of Pitney Bowes equipment amounted to $585.1
million, $524.4 million and $499.9 million in 1993, 1992 and 1991, respectively.
37
<PAGE>
The components of net finance receivables were as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
----------- -----------
<S> <C> <C>
Gross finance receivables $ 4,803,877 $ 4,904,296
Residual valuation 522,566 477,467
Initial direct cost deferred 68,633 64,604
Allowance for credit losses (116,512) (96,975)
Unearned income (1,387,614) (1,467,607)
----------- -----------
Net finance receivables $ 3,890,950 $ 3,881,785
=========== ===========
</TABLE>
The company has sold net finance receivables with varying amounts of recourse
in privately-placed transactions with third-party investors. The uncollected
principal balance of receivables sold and residual guarantee contracts totaled
$342.3 million and $551.0 million at December 31, 1993 and 1992, respectively.
These contracts are supported by the underlying equipment value and credit
worthiness of customers. Adequate provisions have been made for sold receivables
which may be uncollectible.
The company has invested in various types of equipment under operating leases;
the net investment at December 31, 1993 and 1992 was not significant.
15. BUSINESS SEGMENT INFORMATION
For a description of the company's segments and financial information relating
to revenue, operating profit and identifiable assets by business segment for the
years 1993, 1992 and 1991, see "Segments" on page 21. That information is
incorporated herein by reference. The information set forth below should be read
in conjunction with such information. Operating profit of each segment is
determined by deducting from revenue the related costs and operating expenses
directly attributable to the segment. Segment operating profit excludes general
corporate expenses, which amounted to $74.4 million in 1993, $88.3 million in
1992 and $85.6 million in 1991, income taxes and net interest other than that
related to the financial services segment. Additional segment information is as
follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Depreciation and amortization:
Business equipment $212,094 $205,178 $196,466
Business supplies and services 13,593 12,202 11,944
Financial services 22,849 19,875 17,259
-------- -------- --------
Total $248,536 $237,255 $225,669
======== ======== ========
Net additions to property,
plant and equipment
and rental equipment and related
inventories:
Business equipment $246,232 $189,193 $203,758
Business supplies and services 12,671 8,350 10,552
Financial services 28,863 1,958 32,006
-------- -------- --------
Total $287,766 $199,501 $246,316
======== ======== ========
</TABLE>
Identifiable assets are those used in the company's operations in each segment
and exclude cash and cash equivalents and short-term investments. Identifiable
assets of geographic areas include intercompany profits on inventory and rental
equipment transferred between segments and intercompany accounts. A
reconciliation of identifiable assets to consolidated assets is as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
<S> <C> <C>
Identifiable assets by geographic area $6,907,984 $6,496,614
Inter-area profits (23,435) (19,684)
Intercompany accounts (268,585) (178,645)
---------- ----------
Identifiable assets by industry segment 6,615,964 6,298,285
Cash and cash equivalents and short-term investments 55,806 73,059
General corporate assets 122,046 127,408
---------- ----------
Consolidated assets $6,793,816 $6,498,752
========== ==========
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, ACCOUNTS RECEIVABLE, ACCOUNTS
PAYABLE AND NOTES PAYABLE. The carrying amounts approximate fair value because
of the short maturity of these instruments.
INVESTMENT SECURITIES. The fair value of investment securities is estimated
based on quoted market prices, dealer quotes and other estimates.
LOAN RECEIVABLES. The fair value of loan receivables 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.
LONG-TERM DEBT. The fair value of long-term debt is estimated based on
quoted dealer prices for the same or similar issues.
INTEREST RATE SWAP AND SWAP OPTION AGREEMENTS AND FOREIGN CURRENCY EXCHANGE
CONTRACTS. The fair values of interest rate swaps, swap options and foreign
currency exchange contracts are obtained from dealer quotes. These values
represent the estimated amount the company would receive or pay to terminate
agreements taking into consideration current interest rates, the credit
worthiness of the counterparties and current foreign currency exchange rates.
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 assuming 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 present credit worthiness of the
counterparties.
TRANSFER 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.
38
<PAGE>
The estimated fair value of the company's financial instruments is as follows:
<TABLE>
<CAPTION>
Carrying Fair
December 31, 1993 value* value
----------- -----------
<S> <C> <C>
Investment securities $8,550 $12,068
Loan receivables $206,630 $213,509
Long-term debt $(947,553) $(1,040,286)
Interest rate swaps $(15,365) $(75,591)
Foreign currency exchange contracts $265 $2,645
Residual and conditional commitment
guarantee contracts $(3,733) $(3,741)
Commitments to extend credit - $(2,003)
Transfer of receivables with recourse $(30,526) $(30,526)
<CAPTION>
Carrying Fair
December 31, 1992 value* value
----------- -----------
<S> <C> <C>
Investment securities $17,381 $17,445
Loan receivables $180,850 $185,953
Long-term debt $(1,185,728) $(1,231,980)
Interest rate swaps $(5,858) $(45,202)
Interest rate swap options $(10,998) $(10,998)
Foreign currency exchange contracts $76 $1,056
Residual and conditional commitment
guarantee contracts $(2,431) $(3,692)
Commitments to extend credit $(61) $(2,166)
Transfer of receivables with recourse $(11,141) $(11,141)
</TABLE>
* Carrying value includes accrued interest and deferred fee income.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in millions of dollars, except for per
share data) for 1993 and 1992 follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
1993 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenue $834 $874 $861 $974
Cost of sales and rentals
and financing $309 $333 $319 $367
Net income $ 82 $ 87 $ 69 $115
Net income per common and
common equivalent share $.52 $.55 $.43 $.72
<CAPTION>
Three Months Ended
-----------------------------------------
1992 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenue $ 811 $834 $861 $928
Cost of sales and rentals
and financing $ 293 $302 $314 $335
Income from continuing operations $ 67 $ 74 $ 76 $ 95
Discontinued operations - - 3 -
Effect of a change in accounting for
nonpension postretirement benefits (215) - - -
------ ---- ---- ----
Net income $(148) $ 74 $ 79 $ 95
====== ==== ==== ====
Income per common and
common equivalent share:
Continuing operations $ .42 $.46 $.48 $.60
Discontinued operations - - .02 -
Effect of a change in
accounting for nonpension
postretirement benefits (1.35) - - -
------ ---- ---- ----
Net income $(.93) $.46 $.50 $.60
====== ==== ==== ====
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LOGO MARK
To the Stockholders and Board of Directors of Pitney Bowes Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Pitney Bowes
Inc. and its subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 10 to the consolidated financial statements, the company
elected to adopt a new accounting standard for postretirement benefits other
than pensions in 1992.
SIGNATURE HERE
Stamford, Connecticut
February 1, 1994
39
<PAGE>
STOCK EXCHANGES
Pitney Bowes common stock is traded under the symbol "PBI." It is listed on
the New York Stock Exchange and traded on the New York, Chicago, Philadelphia
and Boston exchanges.
STOCK INFORMATION
DIVIDENDS PER COMMON SHARE
- - - -----------------------------------------------
QUARTER 1993 1992
- - - -----------------------------------------------
FIRST $.225 $.195
- - - -----------------------------------------------
SECOND .225 .195
- - - -----------------------------------------------
THIRD .225 .195
- - - -----------------------------------------------
FOURTH .225 .195
- - - -----------------------------------------------
TOTAL $ .90 $ .78
- - - -----------------------------------------------
QUARTERLY PRICE RANGES OF COMMON STOCK
- - - -----------------------------------------------
1993
- - - -----------------------------------------------
QUARTER HIGH LOW
- - - -----------------------------------------------
FIRST 43 3/8 38 3/4
- - - -----------------------------------------------
SECOND 44 1/2 39 5/8
- - - -----------------------------------------------
THIRD 44 37 1/4
- - - -----------------------------------------------
FOURTH 43 3/4 36 1/4
- - - -----------------------------------------------
1992
- - - -----------------------------------------------
QUARTER HIGH LOW
- - - -----------------------------------------------
FIRST 35 3/16 30 7/8
- - - -----------------------------------------------
SECOND 33 1/4 28
- - - -----------------------------------------------
THIRD 36 1/8 28 7/8
- - - -----------------------------------------------
FOURTH 41 32 3/4
- - - -----------------------------------------------
<PAGE> EXHIBIT (iv)
Page 1 of 3
PITNEY BOWES INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant, Pitney Bowes Inc., a Delaware Corporation, has no parent.
The following are subsidiaries of the Registrant
(as of December 31, 1993)
Country or
state of
Company name incorporation
Adrema Leasing Corporation Delaware
Adrema Maschinen- und Auto-Leasing GmbH Germany
Adrema Maschinenbau Inc. Delaware
Adrema Mobilien Leasing GmbH Germany
Atlantic Mortgage & Investment Corporation Florida
B. Williams Corp. Delaware
Colonial Pacific Leasing Corporation Massachusetts
Dictaphone Canada Ltd./Ltee. Canada
Dictaphone Company Ltd. England
Dictaphone Corporation Delaware
Dictaphone Deutschland GmbH Germany
Dictaphone International A.G. Switzerland
Dictaphone Netherlands B.V. Netherlands
Dodwell Pitney Bowes K.K. (50% owned) Japan
DSP Inc. Connecticut
Elmcroft Road Realty Corporation Connecticut
Harlow Aircraft Inc. Delaware
Monarch Marking Systems Australia Pty. Ltd. Australia
Monarch Marking Systems de Mexico S.A. de C.V. Mexico
Monarch Marking Systems, Inc. Delaware
Monarch Marking Systems Ltd. Canada
Monarch Marking Systems N.Z. Ltd. New Zealand
Monarch Marking (S.E.A.) Pte. Ltd.(55% owned) Singapore
Monarch Service Bureau Limited Hong Kong
Pitney Bowes International Ireland
PB Forms, Inc. Nebraska
PB Funding Corporation Delaware
PB Global Holdings Inc. Connecticut
PB Global Holdings II Inc. Connecticut
PB Global Holdings III Inc. Connecticut
PB Global Holdings IV Inc. Connecticut
PB Leasing Corporation Delaware
PB Leasing International Corporation Delaware
PB Leasing Services Inc. Nevada
PBA Foreign Sales Corp. Barbados
PBL Holdings Inc. Nevada
PB Nikko FSC, Inc. Bermuda
PB Nihon FSC, Inc. Bermuda
Pickering Canada Pty. Limited Australia
Pitney Bowes AG Switzerland
Pitney Bowes Australia Pty. Limited Australia
Pitney Bowes Australia FAS Pty. Ltd Australia
Pitney Bowes Austria Ges.m.b.H Austria
Pitney Bowes of Canada Ltd. Canada
Pitney Bowes Credit Australia Ltd Australia
EXHIBIT (iv)
Page 2 of 3
SUBSIDIARIES OF THE REGISTRANT (continued)
Country or
state of
Company name incorporation
Pitney Bowes Credit Corporation Delaware
Pitney Bowes Deutschland GmbH Germany
Pitney Bowes Espana, S.A. Spain
Pitney Bowes Finance S.A. France
Pitney Bowes Finance PLC England
Pitney Bowes France S.A. France
Pitney Bowes Ges.m.b.H. Austria
Pitney Bowes Holdings Ltd. England
Pitney Bowes Italia S.r.l. Italy
Pitney Bowes (Ireland) Limited Ireland
Pitney Bowes Leasing Ltd. Canada
Pitney Bowes Management Services, Inc. Delaware
Pitney Bowes Management Services Canada, Inc. Canada
Pitney Bowes Marking Systems Ltd. Delaware
Pitney Bowes Marking Systems Ltd. England
Pitney Bowes Oy Finland
Pitney Bowes plc England
Pitney Bowes Properties Inc. Connecticut
Pitney Bowes Real Estate Financing Corporation Delaware
Pitney Bowes Shelton Realty Inc. Connecticut
Pitney Bowes Svenska Aktiebolag Sweden
Pitney Bowes World Trade Corp. (FSC) Virgin Islands
PREFCO I Inc. Delaware
PREFCO I LP Inc. Delaware
PREFCO II Inc. Delaware
PREFCO II LP Inc. Delaware
PREFCO III Inc. Delaware
PREFCO III LP Inc. Delaware
PREFCO IV Inc. Delaware
PREFCO IV LP Inc. Delaware
PREFCO V Inc. Delaware
PREFCO V LP Inc. Delaware
PREFCO VI Inc. Delaware
PREFCO VI LP Inc. Delaware
PREFCO VII Inc. Delaware
PREFCO VII LP Inc. Delaware
PREFCO VIII Inc. Delaware
PREFCO VIII LP Inc. Delaware
PREFCO IX Inc. Delaware
PREFCO IX LP Inc. Delaware
PREFCO X Inc. Delaware
PREFCO X LP Inc. Delaware
PREFCO XI Inc. Delaware
PREFCO XI LP Inc. Delaware
PREFCO XII Inc. Delaware
PREFCO XII LP Inc. Delaware
PREFCO XIII Inc. Delaware
PREFCO XIII LP Inc. Delaware
Remington Customer Finance Pty. Limited Australia
Remington (Papua New Guinea) Pty. Papua New Guinea
Remington Pty. Limited Australia
ROM Holdings Pty. Limited Australia
ROM Securities Pty. Limited Australia
EXHIBIT (iv)
Page 3 of 3
SUBSIDIARIES OF THE REGISTRANT (continued)
Country or
state of
Company name incorporation
Sales and Service Training Center Inc. Georgia
TECO/Pitney Bowes Co. Ltd. (50% owned) Taiwan
Time-Sensitive Delivery Guide Inc. Delaware
Towers FSC, Ltd. Bermuda
Universal Postal Frankers Ltd. England
Walnut Street Corp. Delaware
<PAGE> EXHIBIT (v)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on:
Form Reference
Form S-8 No. 33-5291
Form S-8 No. 33-4549
Form S-8 No. 33-22238
Form S-8 No. 33-5765
Form S-8 No. 33-41182
Form S-3 No. 33-5289
Form S-3 No. 33-5290
Form S-3 No. 33-18280
Form S-3 No. 33-25730
Form S-3 No. 33-21723
Form S-3 No. 33-27244
Form S-3 No. 33-33948
of Pitney Bowes Inc. of our report dated February 1, 1994 appearing in
the Pitney Bowes Inc. 1993 Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference in the aforementioned Registration Statements
of our report on the financial statement schedules, which appears in this
Form 10-K.
Price Waterhouse
Stamford, Connecticut
March 30, 1994
