UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
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, 1996
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 14,
1997 is $9,078,238,584.
Number of shares of common stock, $2 par value, outstanding as of March 14,
1997 is 147,050,608.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
1. Only the following portions of the Pitney Bowes Inc. 1996 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 26 to 46.
(b) Management's Discussion and Analysis of Results of Operations
and Financial Condition and Summary of Selected Financial Data
on pages 17 to 25 excluding the information on page 24 relating
to Dividend Policy.
(c) Stock Information and Stock Exchanges, on page 47.
2. Pitney Bowes Inc. Notice of the 1997 Annual Meeting and Proxy
Statement dated April 3, 1997 pages 3, 4, 7, 8, 9, 11-14, 20 and
portions of pages 2, 5, 6, 15 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) operate within three
industry segments: business equipment, business services, and commercial
and industrial financing. The company operates in two geographic areas:
the United States and outside the U.S. Financial information concerning
revenue, operating profit and identifiable assets by industry segment and
geographic area appears on pages 43 and 44 of the Pitney Bowes Inc. 1996
Annual Report to Stockholders and is incorporated herein by reference.
Business Equipment. Business equipment consists of four products, supplies
and service classes: mailing systems, copying systems, facsimile systems
and related financing. These products and services are sold, rented or
leased by the company while supplies and services are sold. Some of the
company's products are sold through dealers outside the U.S.
Mailing systems include postage meters, mailing machines, address hygiene
software, manifest systems, letter and parcel scales, mail openers,
mailroom furniture, folders, and paper handling and shipping equipment.
Copying systems include a wide range of copying systems and supplies.
Facsimile systems include a wide range of facsimile systems and supplies.
The financial services operations provide lease financing for the company's
products in the U.S., Canada, the United Kingdom, Germany, France, certain
other European countries and Australia.
The company sold its Dictaphone Corporation (Dictaphone) and Monarch
Marking Systems, Inc. (Monarch) subsidiaries in 1995. Dictaphone and
Monarch have been classified in the Consolidated Statement of Income as
discontinued operations; revenue and income from continuing operations
exclude the results of Dictaphone and Monarch for all periods presented.
(See Note 12, Discontinued operations, of the Notes to the Consolidated
Financial Statements in the Pitney Bowes Inc. 1996 Annual Report to
Stockholders).
Business Services. Business services consists of facilities management and
mortgage servicing.
<PAGE>
Facilities management services are provided by the company's Pitney Bowes
Management Services, Inc. subsidiary (P.B.M.S.). P.B.M.S. is a leader in
providing on-and off-site services which help customers manage the
creation, processing, storage, retrieval, distribution and tracking of
documents and messages in both paper and digital form. P.B.M.S. provides
customers with a variety of business support services to manage mail, copy
and repographic centers, facsimile, electronic printing and imaging
services, and records management.
Mortgage servicing is provided by Atlantic Mortgage & Investment
Corporation (A.M.I.C.) a wholly-owned subsidiary of Pitney Bowes Credit
Corporation. A.M.I.C. provides billing, collecting and processing services
for major investors in residential first mortgages for a fee.
Commercial and Industrial Financing. The commercial and industrial
financing segment provides large ticket financing programs, covering a
broad range of products, and other financial services to the commercial and
industrial markets in the U.S. Products financed include both commercial
and non-commercial aircraft, over-the-road trucks and trailers, railcars
and locomotives and high-technology equipment such as data processing and
communications equipment as well as commercial real estate properties. The
finance operations have also participated, on a select basis, in certain
other types of financial transactions including: sale of certain lease
transactions, senior secured loans in connection with acquisitions,
leveraged buyout and recapitalization financings, residual value insurance
and certain project financings. The company also finances a broad range
of other commercial and industrial products to small and medium-sized
businesses throughout the United States, marketing exclusively through a
nationwide network of brokers and independent lessors.
Consolidated financial services operations financed 39 percent of
consolidated sales from continuing operations in 1996 and 1995, and 41
percent in 1994. The lower percentage of sales financed compared to 1994,
is a direct result of the increasing significance of the facilities
management business to the company's revenue. The facilities management
business does not utilize traditional financing services used by the other
businesses within the company.
Financial services' (which includes commercial and industrial, and internal
financing) borrowing strategy is to use a balanced mix of debt maturities,
variable- and fixed-rate debt and interest rate swap agreements to control
its sensitivity to interest rate volatility. The company utilizes interest
rate swap agreements when it considers the economic benefits to be
favorable. Swap agreements have been principally utilized to fix interest
rates on commercial paper and/or obtain a lower cost on debt than would
otherwise be available absent the swap. The financial services businesses
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 Items, Net. Through December 31, 1996, the company
successfully implemented the plan adopted in the third quarter of 1994,
which was designed to address the impact of technology on workforce
requirements and to further refine its strategic focus on core businesses.
The plan resulted in a $93.2 million charge against earnings in 1994. The
details of this plan are discussed in Note 13 to the Consolidated Financial
Statements. The company made severance and benefit payments of
approximately $65 million, the majority of which were paid in 1995 to
employees separated under the strategic focus initiatives.
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Completion of the actions contemplated under the strategic initiatives cost
the company approximately $5 million in excess of that initially provided in
1994. This excess was recorded in selling, service and administrative expense
in 1995. Also, the company has written down assets and incurred certain other
exit costs, as planned, by approximately $19 million and $3 million,
respectively, the majority of which occurred in 1994. As of December 31,
1996, the company has successfully completed its plan.
Support Services. The company maintains extensive field service
organizations in the U.S. 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 12 percent of revenue in 1996 and 1995, and 13
percent in 1994.
Marketing. The company's products and services are marketed through an
extensive network of offices in the U.S. 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 (See Regulatory Matters below). 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 U.S. are in the United Kingdom.
Competition. The company has historically been a leading supplier of
certain products and services in its business segments, particularly
postage meters and mailing machines. However, all segments have strong
competition from a number of companies. In particular, 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. P.B.M.S., 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 $81.7
million, $81.8 million and $78.6 million in 1996, 1995 and 1994,
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.
<PAGE>
Material Supplies. 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 copiers, facsimile equipment and scales, primarily
from Japanese suppliers. The company believes that it has adequate sources
available to it for the foreseeable future for such products.
Environmental Regulation. The company is subject to federal, state and
local laws and regulations relating to the environment and is currently
named as a member of various groups of potentially responsible parties in
administrative or court proceedings. As we previously announced, in 1996
the Environmental Protection Agency (EPA) issued an administrative order
directing the company to be part of a soil cleanup program at the Sarney
Farm site in Amenia, New York. The site was operated as a landfill between
the years 1968 and 1970 by parties unrelated to Pitney Bowes, and wastes
from a number of industrial sources were disposed of there. The company
does not concede liability for the condition of the site, but is working
with the EPA to identify, and then seek reimbursement from, other
potentially responsible parties. The company estimates the total cost of
our remediation effort to be in the range of $3 million to $5 million over
the next 18 months.
The administrative and court proceedings referred to above are in different
states. It is impossible to estimate with any certainty the total cost of
remediating, the timing or extent of remedial actions which may be required
by governmental authorities, or the amount of liability, if any. If and
when it is possible to make a reasonable estimate of the liability in any
of these matters, a provision will be made as appropriate. Based on the
facts presently known, the company believes that the outcome of any current
proceeding will not have a material adverse effect on its financial
condition or results of operations.
Regulatory Matters. In June 1995, the United States Postal Service
(U.S.P.S.) issued final regulations on the manufacture, distribution and
use of postage meters. The regulations cover four general categories:
meter security, administrative controls, Computerized Meter Resetting
Systems (C.M.R.S.) and other issues.
In general, the regulations put reporting and performance obligations on
meter manufacturers, outline potential administrative sanctions for failure
to meet these obligations and require changes in the fund management system
of C.M.R.S. (such as the company's Postage by Phone (R) System) to give the
U.S.P.S. more direct control over meter licensee deposits.
The company is working with the U.S.P.S. to ensure that these regulations
provide mailing customers and the U.S.P.S. with the intended benefits, and
that the company also benefits. The company has begun to implement these
changes, including modifying our Postage by Phone (R) system so that
customers deposit prepayments of postage into a U.S.P.S. account rather
than a trust account. Resetting meters through Postage by Phone (R) still
requires the customer to request an authorization and a reset code from the
company, a service for which it charges a fee. The company continues to
believe that the financial impact of implementing these regulations will
not be material to the company.
<PAGE>
In May 1996, the U.S.P.S. issued a proposed schedule for the phase out of
mechanical meters in the United States marketplace. The schedule proposed
that:
- - as of June 1, 1996, placements of mechanical meters will be available
only as replacements for existing licensed mechanical meters
- - as of March 1, 1997, mechanical meters may not be used by persons or
firms who process mail for a fee
- - as of December 31, 1997, mechanical meters that interface with mail
machines or processors will no longer be approved
- - as of March 1, 1999, all other mechanical meters (stand-alone meters)
will no longer be approved.
The company has voluntarily halted new placements of mechanical meters in
the United States as of June 1, 1996. The company also has been actively
and voluntarily pursuing removal from the market by March 1997, of
mechanical meters used by persons or firms who process mail for a fee as
set forth in the U.S.P.S. proposed schedule for that segment of meter
users. Further, the company agreed, in March 1997, to use its best efforts
to remove from the market mechanical systems meters (meters that interface
with mail machines or processors), by a revised target date of December 31,
1998, in lieu of the December 31, 1997 date specified in the U.S.P.S.
proposed schedule.
The company continues to work with the U.S.P.S. to reach agreement on all
aspects of a mechanical meter migration schedule that reflects the
interests of its customers while minimizing any negative impact on the
company. The company's constant focus on bringing new technologies into
the mailing market has already resulted in a significant shift in the
makeup of the company's meter base. In the last 10 years, 1986 to 1996,
the percentage of electronic meters in the company's U.S. installed base
has risen from 6% to nearly 60%. Until a mechanical meter migration plan
is finalized, the financial impact, if any, on the company cannot be
determined with certainty. However, based on the proposed schedule and
agreements reached to date the company believes that the plan will not
cause a material adverse financial impact on the company.
The May 1996 U.S.P.S. proposed document also discusses a change in metering
technology that would include use of a digital, information-based indicia
standard. This standard has not yet been developed, although initial
specifications were proposed by the U.S.P.S. in July 1996. At some
undetermined date in the future, the U.S.P.S. believes that digital
metering will eventually replace electronic metering in the United States.
The company supports a digital product migration strategy, and the company
anticipates working with the U.S.P.S. to achieve a timely and effective
substitution plan. However, until the U.S.P.S. finalizes standards for a
digital information-based indicia program (and clarifies transition to the
new standard), the impact of this proposal, if any, on the company cannot
be determined. The company has taken the lead in deploying digital meters
in the marketplace, with over 100,000 digital printing meters already
placed into service during 1995 and 1996.
Employee Relations. At December 31, 1996, 24,054 persons were employed by
the company in the U.S. and 4,571 outside the U.S. Employee relations are
considered to be 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.
<PAGE>
Item 2. Properties
The company's World Headquarters and certain other office and manufacturing
facilities are located in Stamford, Connecticut. Additional office
facilities are located in Shelton, Connecticut. The company maintains
research and development operations at a corporate engineering and
technology center in Shelton, Connecticut. A sales and service training
center is located near Atlanta, Georgia. The company believes that its
current manufacturing, administrative and sales office properties are
adequate for the needs of all of its business segments.
Business Equipment. Business equipment products are manufactured in a
number of plants principally in Connecticut, as well as in Harlow, England.
Most of these facilities are owned by the company. There are 153 sales,
support services, and finance offices, substantially all of which are
leased, located throughout the U.S. and in a number of other countries.
Executive and administrative offices of the financing operations within the
U.S. are located in Norwalk, Connecticut. Offices outside the U.S. are
maintained in London, England; Heppenheim, Germany; Paris, France;
Mississauga, Ontario, Canada; North Ryde, Australia; Oslo, Norway; and
Dublin, Ireland.
Business Services. The company's P.B.M.S. subsidiary is headquartered in
Stamford, Connecticut and leases facilities in 39 cities located throughout
the U.S. as well as leased facilities in Montreal, Quebec and Toronto,
Ontario, Canada; and London, England. The Atlantic Mortgage and Investment
Corporation operates in Jacksonville, Florida.
Commercial and Industrial Financing. Pitney Bowes Credit Corporation
leases executive and administrative offices in Norwalk, Connecticut and
Tualatin, Oregon. There are nine leased regional and district sales
offices located throughout the U.S.
Item 3. Legal Proceedings
In the course of normal business, the company is occasionally party to
lawsuits. These may involve litigation by or against the company relating
to, among other things:
- - contractual rights under vendor, insurance or other contracts
- - intellectual property or patent rights
- - equipment, service or payment disputes with customers
- - disputes with employees
The company is currently a defendant in a number of lawsuits, none of which
should have, in the opinion of management and legal counsel, a material
adverse effect on the company's financial position or results of
operations.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Executive
Officer
Name Age Title Since
Michael J. Critelli 48 Chairman and Chief 1988
Executive Officer
Marc C. Breslawsky 54 President and Chief 1985
Operating Officer
Amy C. Corn 43 Corporate Secretary and Senior 1996
Associate General Counsel
Meredith B. Fischer 44 Vice President - Communications, 1996
Marketing and Future Strategy
Arlen F. Henock 40 Vice President - Controller and 1996
Chief Tax Counsel
John N. D. Moody 52 President - U.S. Mailing Systems 1997
Sara E. Moss 50 Vice President - General Counsel 1996
Murray L. Reichenstein 59 Vice President - Chief 1996
Financial Officer
Douglas A. Riggs 52 Vice President - Chief Corporate 1988
Affairs Officer
Carole F. St. Mark 54 President and Chief Executive Officer - 1985
Pitney Bowes Business Services
Johnna G. Torsone 46 Vice President - Personnel 1993
Joseph E. Wall 45 Vice President - Chief Technology Officer1996
There is no family relationship among the above officers, all of which have
served in various corporate, division or subsidiary positions with the
company for at least the past five years except S. E. Moss, M. L.
Reichenstein and J. E. Wall.
Ms. Moss joined the company from the New York law firm of Howard, Darby &
Levin, where she had been a Senior Partner since 1985. Before joining
Howard, Darby & Levin, Ms. Moss was an Assistant United States Attorney in
the Southern District of New York. Ms. Moss served as a law clerk for the
Honorable Constance Baker Motley, United States District Judge, Southern
District of New York.
<PAGE>
Mr. Reichenstein joins the company with over 31 years of experience with
Ford Motor Company. During his time with Ford he held a variety of
positions of increasing responsibility in the U.S. and Europe, including
Director of Manufacturing Services, Vice President, Car Product Planning,
and Chief Financial Officer, Ford Europe; Vice President & Controller of
Ford Automotive Operations Worldwide; and Vice President & Controller of
Ford Motor Company.
Dr. Wall was most recently the Vice President - Technology of Emerson
Electric, which he joined in 1986 as Director of Research and Development
for its since-divested Rosemount Aerospace Division. Prior to joining
Emerson, Dr. Wall held positions of increasing responsibility at Honeywell,
including Section Chief and Senior Principal Research Engineer.
George B. Harvey, former Chairman and Chief Executive Officer, retired at
year end 1996 in accordance with the company's retirement age of 65.
<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 page 47
of the Pitney Bowes Inc. 1996 Annual Report to Stockholders are
incorporated herein by reference. At December 31, 1996, the company had
32,258 common stockholders of record.
Item 6. Selected Financial Data
The section entitled "Summary of Selected Financial Data" on page 25 of the
Pitney Bowes Inc. 1996 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 of Results of
Operations and Financial Condition" on pages 17 to 24 of the Pitney Bowes
Inc. 1996 Annual Report to Stockholders is incorporated herein by
reference, except for the section on page 24 relating to "Dividend Policy".
The section under "Legal, Environmental and Regulatory Matters" titled
"Regulation" on page 23 of the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" incorporated herein by
reference as mentioned above should be read in conjunction with the
discussion under "Regulatory Matters" in Part I, Item 1 on page 5 of this
Annual Report on Form 10-K.
The company cautions readers that any forward-looking statements (those
which talk about the company's or management's current expectations as to
the future) in this Form 10-K or made by company management involve risks
and uncertainties which may change based on various important factors.
Some of the factors which could cause future financial performance to
differ materially from the expectations as expressed in any forward-looking
statement made by or on behalf of the company include:
- - changes in postal regulations
- - timely development and acceptance of new products
- - success in gaining product approval in new markets where regulatory
approval is required
- - successful entry into new markets
- - mailer's utilization of alternative means of communication or
competitor's products
- - the company's success at managing customer credit risk
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse LLP dated January 30, 1997, appearing on pages 26 to 46 of the
Pitney Bowes Inc. 1996 Annual Report to Stockholders are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Except for information regarding the company's executive officers (see
"Executive Officers of the Registrant" on page 8 of this form 10-K), 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 5 and 6 to 8 of the Pitney Bowes Inc.
Notice of the 1997 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 8, 9, 11 to 15, and 19 to 20 of the Pitney Bowes Inc.
Notice of the 1997 Annual Meeting and Proxy Statement are incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership of Directors and Executive
Officers" on pages 6 to 8 of the Pitney Bowes Inc. Notice of the 1997
Annual Meeting and Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements - see Item 8 on page 10 and
"Index to Financial Schedules" on page 19.
2. Financial statement schedules - see "Index to
Financial Schedules" on page 19.
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 Incorporated by reference to Exhibit
of Incorporation, as (3a) to Form 10-K as filed with the
amended Commission on March 30, 1993.
(Commission file number 1-3579)
(b) By-laws, as amended Incorporated by reference to Exhibit
(3b) to Form 10-K as filed with the
Commission on April 1, 1996.
(Commission file number 1-3579)
(4)(a) Form of Indenture Incorporated by reference to Exhibit
dated as of November (4a) to Form 10-K as filed with the
15, 1987 between the Commission on March 24, 1988.
company and Chemical (Commission file number 1-3579)
Bank, as Trustee
(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 Incorporated by reference to Exhibit
Supplemental Indenture (1) to Form 8-K as filed with the
dated as of June 1, Commission on June 16, 1989.
1989 between the (Commission file number 1-3579)
company and Chemical
Bank, as Trustee
(d) Form of Indenture Incorporated by reference to Exhibit
dated as of April 15, (4.1) to Registration Statement on Form
1990 between the S-3(No. 33-33948) as filed with the
company and Chemical Commission on March 28, 1990.
Bank, as successor to
Manufacturers Hanover
Trust Company, as
Trustee
(e) Forms of Debt Incorporated by reference to Exhibit
Securities (4) to Form 10-Q as filed with the
Commission on May 14, 1990. (Commission
file number 1-3579)
(f) Form of Indenture Incorporated by reference to Exhibit
dated as of May 1, (4a) to Registration Statement on Form
1985 between Pitney S-3(No. 2-97411) as filed with the
Bowes Credit Corporation Commission on May 1, 1985.
and Bankers Trust
Company, as Trustee
<PAGE>
(g) Letter Agreement Incorporated by reference to Exhibit
between Pitney Bowes (4b) to Registration Statement on Form
Inc. and Bankers Trust S-3 (No. 2-97411) as filed with the
Company, as Trustee Commission on May 1, 1985.
(h) Form of First Incorporated by reference to Exhibit
Supplemental Indenture (4b) to Registration Statement on Form
dated as of December S-3 (No. 33-10766) as filed with the
1, 1986 between Pitney Commission on December 12, 1986.
Bowes Credit
Corporation and
Bankers Trust Company,
as Trustee
(i) Form of Second Incorporated by reference to Exhibit
Supplemental Indenture (4c) to Registration Statement on Form S-
dated as of February 3(No. 33-27244) as filed with the
15, 1989 between Commission on February 24, 1989.
Pitney Bowes Credit
Corporation and
Bankers Trust Company,
as Trustee
(j) Form of Third Incorporated by reference to Exhibit (1)
Supplemental Indenture to Form 8-K as filed with the Commission
dated as of May 1, on May 16, 1989. (Commission file number
1989 between Pitney 1-3579)
Bowes Credit
Corporation and
Bankers Trust Company,
as Trustee
(k) Indenture dated as of Incorporated by reference to Exhibit
November 1, 1995 (4a) to Amendment No. 1 to Registration
between the company Statement on Form S-3 (No. 33-62485) as
and Chemical Bank, as filed with the Commission on November 2,
Trustee 1995.
(l) Preference Share Incorporated by reference to Exhibit (4)
Purchase Rights to Form 8-K as filed with the Commission
Agreement dated on March 13, 1996. (Commission file
December 11, 1995 number 1-3579)
between the company
and Chemical Mellon
Shareholder Services,
LLC., as Rights Agent
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 Exhibit
Directors of Pitney (10a) to Form 10-K as filed with the
Bowes Inc. Commission on March 30, 1993.
(Commission file number 1-3579)
(b) Pitney Bowes Inc. Exhibit (i)
Directors' Stock Plan.
(as amended and
restated 1997)
(c) Pitney Bowes 1991 Incorporated by reference to Exhibit
Stock Plan (10b) to Form 10-K as filed with the
Commission on March 25,1992 (Commission
file number 1-3579)
(c.1) First Amendment to
Pitney Bowes 1991 Exhibit (ii)
Stock Plan
(d) Pitney Bowes Inc. Key Incorporated by reference to Exhibit
Employees' Incentive (10c) to Form 10-K as filed with the
Plan (as amended and Commission on March 25,1992 (Commission
restated) file number 1-3579)
(d.1) First Amendment to Exhibit (iii)
Pitney Bowes Inc. Key
Employees Incentive
Plan (as Amended and
Restated: June 10,
1991)
(e) 1979 Pitney Bowes Incorporated by reference to Exhibit
Stock Option Plan (as (10d) to Form 10-K as filed with the
amended and restated) Commission on March 25, 1992.
(Commission file number 1-3579)
(f) Pitney Bowes Severance Incorporated by reference to Exhibit
Plan, as amended, (10) to Form 10-K as filed with the
dated December 12, Commission on March 23, 1989.
1988 (Commission file number 1-3579)
(g) Pitney Bowes Executive Incorporated by reference to Exhibit
Severance Policy, (10h) to Form 10-K as filed with the
adopted December 11, Commission on April 1, 1996.
1995. (Commission file number 1-3579)
(h) Pitney Bowes Inc. Exhibit (iv)
Deferred Incentive
Savings Plan for the
Board of Directors.
(i) Pitney Bowes Inc. Exhibit (v)
Deferred Incentive
Savings Plan
(11) Statement re Exhibit (vi)
computation of per
share earnings
(12) Computation of ratio Exhibit (vii)
of earnings to fixed
charges
(13) Portions of annual Exhibit (viii)
report to security
holders
<PAGE>
(21) Subsidiaries of the Exhibit (ix)
registrant
(23) Consent of experts and Exhibit (x)
counsel
(27) Financial Data Schedule Exhibit (xi)
(b) No reports on Form 8-K were filed for the three months ended
December 31, 1996.
<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/ Michael J. Critelli
(Michael J. Critelli)
Chairman and Chief
Executive Officer
Date March 31, 1997
<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/ Michael J. Critelli Chairman and Chief March 31, 1997
Michael J. Critelli Executive Officer - Director
/s/ Marc C. Breslawsky President and Chief March 31, 1997
Marc C. Breslawsky Operating Officer - Director
/s/ Murray L. Reichenstein Vice President - Chief March 31, 1997
Murray L. Reichenstein Financial Officer
/s/ Arlen F. Henock Vice President - Controller March 31, 1997
Arlen F. Henock and Chief Tax Counsel
(principal accounting
officer)
/s/ Linda G. Alvarado Director March 31, 1997
Linda G. Alvarado
/s/ William E. Butler Director March 31, 1997
William E. Butler
/s/ Colin G. Campbell Director March 31, 1997
Colin G. Campbell
<PAGE>
Signature Title Date
/s/ Charles E. Hugel Director March 31, 1997
Charles E. Hugel
/s/ David T. Kimball Director March 31, 1997
David T. Kimball
/s/ Leroy D. Nunery Director March 31, 1997
Leroy D. Nunery
/s/ Michael I. Roth Director March 31, 1997
Michael I. Roth
/s/ Phyllis S. Sewell Director March 31, 1997
Phyllis S. Sewell
/s/ Arthur R. Taylor Director March 31, 1997
Arthur R. Taylor
<PAGE>
INDEX TO FINANCIAL SCHEDULES
The financial schedules should be read in conjunction with the financial
statements in the Pitney Bowes Inc. 1996 Annual Report to Stockholders.
Schedules not included herein 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.
Page
Pitney Bowes Inc.:
Report of independent accountants on financial
statement schedule 20
Financial statement schedule for the years 1994 - 1996:
Valuation and qualifying accounts and
reserves (Schedule II) 21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Pitney Bowes Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 30, 1997 appearing on page 46 of the Pitney Bowes Inc.
1996 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 schedule listed by
reference in Item 14(a)2 of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
Price Waterhouse LLP
Stamford, Connecticut
January 30, 1997
<PAGE>
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994 TO 1996
<TABLE>
(Dollars in thousands)
<CAPTION>
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>
1996 $13,050 $ 9,894 $ 6,784(3) $ 16,160
1995 $16,909 $ 4,126(1) $ 7,985(2)(3) $ 13,050
1994 $16,691 $ 4,262 $ 4,044(3) $ 16,909
Allowance for credit losses on finance receivables
1996 $113,506 $74,785 $74,554(3) $113,737
1995 $113,091 $68,275 $67,860(3) $113,506
1994 $116,512 $64,933 $68,354(3) $113,091
Reserve for transition costs(4)
1996 $ 22,986 $ - $17,258(5) $ 5,728(6)
1995 $ 64,893 $ 5,145 $47,052(5) $ 22,986
1994 $ 344 $93,258 $28,709(5) $ 64,893
Valuation allowance for deferred tax asset(4)
1996 $48,693 $ 3,066 $ 5,158 $ 46,601
1995 $37,532 $12,076 $ 915 $ 48,693
1994 $25,975 $12,867 $ 1,310 $ 37,532
<FN>
(1) Includes $382 of additions applicable to a business at acquisition.
(2) Includes $2,406 of deductions applicable to a business disposition.
(3) Principally uncollectible accounts written off.
(4) Included in balance sheet as a liability.
(5) Includes amounts for asset write downs and amounts paid as well as
reclassifications.
(6) Remaining amount represents $4 million and $2 million for separation
and benefit costs and other.
</TABLE>
<PAGE>
EXHIBIT (i)
PITNEY BOWES INC. DIRECTORS' STOCK PLAN
AMENDED AND RESTATED 1997
1. PURPOSE AND EFFECTIVE DATE OF PLAN: This plan
shall be known as the Pitney Bowes Inc. Directors'
Stock Plan. The purpose of this plan is to enable
Pitney Bowes Inc. (the "Company") to attract and retain
persons of outstanding competence to serve as directors
of the Company by paying such persons a portion of
their compensation in stock of the Company pursuant to
the terms of this plan. The plan shall become
effective on the date the plan is initially approved by
the stockholders of the Company.
2. STOCK AVAILABLE FOR THE PLAN: An aggregate of
200,000 shares of Common Stock, $2 par value per share,
of the Company ("Common Stock"), after giving effect to
the stock split in 1992, shall be available for
issuance pursuant to the provisions of this plan. Such
shares shall be authorized and unissued shares or
shares which have been reacquired by the Company.
3. ELIGIBILITY FOR PARTICIPATION IN PLAN:
Persons who serve as directors of the Company and who
are not "employees" of the Company or its subsidiaries
within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") shall be
considered "Eligible Directors" for purposes of this
plan. It is intended that all Eligible Directors
participate in the plan.
4. AWARDS OF RESTRICTED STOCK: Each Eligible
Director then serving as a director of the Company
shall receive an award of 700 restricted shares of
Common Stock on the date of the first meeting of
directors after each annual stockholders meeting
(including the first meeting of directors after this
plan is approved).
5. TRANSFER RESTRICTIONS, REMOVAL OF
RESTRICTIONS, AND TERMS AND CONDITIONS OF AWARDS OF
RESTRICTED STOCK: (a) Each participant shall have the
right to receive all dividends and other distributions
made with respect to the shares registered in his or
her name and shall have the right to vote or execute
proxies with respect to such registered shares. The
Company may elect to record the ownership of the shares
in book entry form or issue certificates representing
the shares. The Company may elect to have the
Treasurer of the Company retain possession of the
certificates of restricted shares for the benefit of
Eligible Directors, until the provisions of the plan
relating to removal of the restrictions have been
satisfied.
(b) Shares of restricted stock may not be sold,
assigned, pledged or otherwise transferred by the
Eligible Director unless and until all of the transfer
<PAGE>
restrictions imposed by this plan have been removed
pursuant to the provisions of this plan.
(c) Awarded shares shall remain subject to the
plan's restrictions prohibiting sale or transfer of
such shares until the later of (i) the termination of
the Eligible Director's services as a director of the
Company or, if earlier, the occurrence of a "Change of
Control" (as defined below) or (ii) for a period of six
(6) months after the award of such restricted shares.
Notwithstanding any other provision of this plan, the
issuance or delivery of any shares may be postponed for
such period as may be required to comply with any
applicable requirements of any national securities
exchange or any requirements under any other law or
regulation applicable to the issuance or delivery of
such shares, and the Company shall not be obligated to
issue or deliver any such shares if the issuance or
delivery thereof shall constitute a violation of any
provision of any law or of any regulation of any
governmental authority or any national securities
exchange.
6. STOCK OPTIONS. Each Eligible Director who
elects to defer cash compensation for serving as
director in accordance with the terms of the Pitney
Bowes Inc. Deferred Incentive Savings Plan for the
Board of Directors (the "Directors' Deferral Plan"),
and who selects the Pitney Bowes Stock Option return on
such deferred amount, shall be granted a stock option
under the terms of this Section 6 (an "Option").
(a) Each Option shall represent the right to
purchase a number of shares of Common Stock determined
by (i) dividing the deferred amount by the per share
Fair Market Value, as hereinafter defined, of the
Common Stock on the date the deferred compensation
would otherwise have been paid (the "Date of Grant")
and (ii) multiplying the result times two; provided,
however, that the method for determining the number of
shares subject to Options may be modified from time to
time by the Board.
(b) The exercise price of each Option shall be the
per share Fair Market Value on the Date of Grant.
(c) The duration of the Option shall be
coextensive with the deferral period selected by the
Eligible Director in respect of his or her deferred
compensation relating to the Option.
(d) Options will not be exercisable until the
third anniversary of the Date of Grant, at which time
they will become exercisable in full. Notwithstanding
the foregoing, all Options will become exercisable in
full in the event of a Change of Control, as
hereinafter defined.
(e) If an Eligible Director ceases to serve as a
director, all Options held by such Eligible Director
that are not exercisable at the time of such cessation
will be forfeited. Upon termination of service as a
director, any Option held by the
<PAGE>
affected director that
is exercisable at the time of such termination shall be
exercisable for three months following the date of such
termination. Notwithstanding the foregoing, if an
Eligible Director shall die while serving as a director
or during the three month period after termination of
service as a director, any Option held by the deceased
Eligible Director that is exercisable at the time of
death shall remain exercisable by such Eligible
Director's legal representative for one year following
the date of death.
(f) Fair Market Value shall mean fair market
value, as determined by such methods or procedures as
shall be established from time to time by the Board.
7. DEFERRED SHARES. Each Eligible Director who
has elected to defer cash compensation for serving as a
director in accordance with the terms of the Directors'
Deferral Plan, and who has selected the Pitney Bowes
Phantom Share Fund return on such deferred amount,
shall, at the time such deferred amounts are to be paid
or distributed in accordance with the terms of the
Directors' Deferral Plan, receive shares of Common
Stock or the value thereof under the terms of this
Section 7 ("Deferred Shares"). The number of Deferred
Shares distributed to an Eligible Director shall be
equal to the number of shares credited to the Deferral
Account, as defined in the Directors' Deferral Plan, of
such Eligible Director at the time such Eligible
Director becomes entitled to a distribution thereof in
accordance with the terms of the Directors' Deferral
Plan. Each such Deferred Share shall be distributed in
the form of one share of Common Stock, or, at the
election of the Board, an amount in cash equal to the
Fair Market Value thereof at the time of such
distribution, or any combination of shares and cash
value; provided; however, that no fractional shares
shall be distributed in kind. Notwithstanding any
other provision of this Section 7, all Deferred Shares
shall be distributed upon the occurrence of a Change in
Control.
8. CHANGE OF CONTROL. For purposes of this
Plan, a "Change of Control" shall be deemed to have
occurred if:
(a) There is an acquisition, in any one
transaction or a series of transactions, other than
from the Company, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either the then-outstanding
shares of Common Stock of the Company or the combined
voting power of the then-outstanding voting securities
of the Company entitled to vote generally in the
election of directors, but excluding, for this purpose,
any such acquisition by the Company or any of its
subsidiaries; or any employee benefit plan (or related
trust) of the Company or its subsidiaries; or any
corporation with respect to which, following such
acquisition, more than 50% of the then-outstanding
shares of Common Stock of such corporation and the
combined voting power of the then-outstanding voting
securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by the
individuals and entities who were the
<PAGE>
beneficial owners, respectively, of the Common Stock and voting
securities of the Company immediately prior to such
acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition,
of the then-outstanding shares of Common Stock of the
Company or the combined voting power of the then-
outstanding voting securities of the Company entitled
to vote generally in the election of directors, as the
case may be; or
(b) individuals who, as of September 12,
1988 constitute the Board of Directors (as of such
date, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to September 12, 1988, whose election, or
nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office
is in connection with an actual or threatened election
contest relating to the election of the Directors of
the Company (as such terms are used in Rule 14a-11 or
Regulation 14A promulgated under the Exchange Act) or
(c) There is an approval by the stockholders
of the Company of (1) a reorganization, merger or
consolidation, in each case, with respect to which the
individuals and entities who were the respective
beneficial owners of the Common Stock and voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50%
of, respectively, the then-outstanding shares of Common
Stock and the combined voting power of the then-
outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such
reorganization, merger or consolidation, or (2) a
complete liquidation or dissolution of the Company or
of the sale or other disposition of all or
substantially all of the assets of the Company.
"Change of Control" provisions only apply if Pitney
Bowes Inc. is subject to a "Change of Control."
9. AMENDMENT OR TERMINATION OF PLAN: The Company
reserves the right to amend, modify or terminate this
plan at any time by action of its Board of Directors,
provided that such action shall not adversely affect
any Eligible Director's rights under the provisions of
this plan with respect to awards of restricted stock,
Options or Deferred Shares which were made prior to
such action.
10. NONTRANSFERABILITY: Options and Deferred
Shares prior to distribution thereof shall not be
transferable except by will or the laws of descent and
distribution, and during the holder's lifetime, Options
may be exercisable only by such holder.
<PAGE>
11. ADMINISTRATION OF PLAN: This plan shall be
administered by the Nominating and Organization Affairs
Committee of the Board of Directors or any successor
committee having responsibility for the remuneration of
the directors (hereinafter referred to as the
"Administrator"). All decisions which are made by the
Administrator with respect to interpretation of the
terms of the plan, or with respect to any questions or
disputes arising under this plan, shall be final and
binding on the Company and on the Eligible Directors
and their heirs or beneficiaries.
12. RECAPITALIZATION: In the event of any change
in the number or kind of outstanding shares of Common
Stock of the Company by reason of a recapitalization,
merger, consolidation, dividend, combination of shares
or any other change in the corporate structure or
shares of stock of the Company, the Board of Directors
of the Company will make appropriate adjustments in the
number of shares available for delivery pursuant to the
provisions of this plan, the number of shares to be
awarded to each Eligible Director under Section 4, and
in the number of shares, exercise price and any other
affected provisions of any Options or Deferred Shares
outstanding under the plan, to prevent enlargement or
diminution of the benefits intended to be granted under
the plan.
<PAGE>
EXHIBIT (ii)
FIRST AMENDMENT TO
PITNEY BOWES 1991 STOCK PLAN
The Pitney Bowes 1991 Stock Plan (the "Plan") is
hereby amended, effective as of the date set forth below,
as follows:
1. This Amendment shall be effective if and only if it
is approved by the stockholders of Pitney Bowes Inc. (the
"Company") at their annual meeting in 1996, and if so
approved, this Amendment shall be effective as of January
1, 1996.
2. Section 2 of the Plan is hereby amended to add the
following new definitions:
"Covered Award" means an Award, other than an Option
or other Award with an exercise price per Share not less
than the Fair Market Value of a Share on the date of
grant of such Award, to a Covered Employee, if it is
designated as such by the Committee at the time it is
granted. Covered Awards are subject to the provisions
of Section 13 of this Plan.
"Covered Employees" means Participants who are desig
nated by the Committee prior to the grant of an Award
who are, or are expected to be at the time taxable
income will be realized with respect to the Award,
"covered employees" within the meaning of Sec
tion 162(m).
"Performance Goals" means one or more objective
performance goals, established by the Committee at the
time an Award is granted, and based upon the attainment
of targets for one or any combination of the following
criteria: operating income, revenues, return on
operating assets, earnings per share, return on
stockholder equity, stock price, or achievement of cost
control, of the Company or such subsidiary, division or
department of the Company for or within which the
participant is primarily employed. Performance Goals
also may be based upon attaining specified levels of
Company performance based upon one or more of the
criteria described above relative to prior periods or
the performance of other corporations. Performance
Goals shall be set by the Committee within the time
period prescribed by Section 162(m).
"Section 162(m)" means Section 162(m) of the Code or
any successor thereto, and the Treasury Regulations
thereunder.
3. There is added to Section 4(a) of the Plan a new sen
tence at the end thereof, reading in its entirety as
follows:
The maximum number of Shares that may be the subject
of Awards made to a single Participant in any one
calendar year shall be 200,000.
<PAGE>
4. There is added to the Plan a new Section 13, reading
in its entirety as follows:
13. (a) The provisions of this Section 13 shall be
applicable to all Covered Awards. Covered Awards shall
be made subject to the achievement of one or more prees
tablished Performance Goals, in accordance with
procedures to be established by theCommittee from time
to time. Notwithstanding any provision of the Plan to
the contrary, the Committee shall not have discretion to
waive or amend such Performance Goals or to increase the
number of Shares subject to Covered Awards or the amount
payable pursuant to Covered Awards after the Performance
Goals have been established; provided, however, that the
Committee may, in its sole discretion, reduce the number
of Shares subject to Covered Awards or the amount which
would otherwise be payable pursuant to Covered Awards;
and provided, further, that the provisions of Section 8
shall override any contrary provision of this Section
13.
(b) No Shares shall be delivered and no payment
shall be made pursuant to a Covered Award unless and
until the Committee shall have certified in writing that
the applicable Performance Goals have been attained.
(c) The Committee may from time to time
establish procedures pursuant to which Covered Employees
will be permitted or required to defer receipt of
amounts payable under Awards made under the Plan.
(d) Notwithstanding any other provision of the
Plan, for all purposes involving Covered Awards, the
Committee shall consist of at least two members of the
Board of Directors, each of whom is an "outside
director" within the meaning of Section 162(m).
5. Except as provided above, the Plan shall continue in
effect without amendment.
EXHIBIT (iii)
FIRST AMENDMENT TO
PITNEY BOWES INC.
KEY EMPLOYEES' INCENTIVE PLAN
(As Amended and Restated: June 10, 1991)
The Pitney Bowes Inc. Key Employees' Incentive Plan, as
amended and restated June 10, 1991 (the "Plan"), is hereby
amended, effective as of the date set forth below, as
follows:
1. This Amendment shall be effective if and only if it
is approved by the stockholders of Pitney Bowes Inc. (the
"Company") at their annual meeting in 1996, and if so
approved, this Amendment shall be effective as of January
1, 1996.
2. Section 6(E) of the Plan is amended to read in its
entirety as follows:
(E) For purposes of this Plan, a "Change of Control"
shall be deemed to have occurred if:
(i) There is an acquisition, in any one transaction
or a series of transactions, other than from the
Company, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20 percent or more of either the then
outstanding shares of common stock of the Company or the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors, but excluding, for this
purpose, any such acquisition by the Company or any of
its subsidiaries, or any employee benefit plan (or re
lated trust) of the Company or its subsidiaries, or any
corporation with respect to which, following such
acquisition, more than 50 percent of the then
outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors is then benefi
cially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners,
respectively, of the common stock and voting securities
of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the then
outstanding shares of common stock of the Company or the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors, as the case may be; or
(ii) Individuals who, as of September 12, 1988, con
stitute the Board of Directors (as of such date, the
"Incumbent Board") cease for any reason to constitute at
<PAGE>
least a majority of the Board, provided that any
individual becoming a director subsequent to September 12,
1988, whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an
actual or threatened election contest relating to the
election of the Directors of the Company (as such terms
are used in Rule 14a-11 or Regulation 14A promulgated
under the Exchange Act); or
(iii) There is (x) an approval by the shareholders of
the Company of a reorganization, merger or con
solidation, in each case, with respect to which the indi
viduals and entities who were the respective beneficial
owners of the common stock and voting securities of the
Company immediately prior to such reorganization, merger
or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 50 percent of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from
such reorganization, merger or consolidation, or (y) an
approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company or of
the sale or other disposition of all or substantially
all of the assets of the Company.
3. There is added to the Plan a new Section 10, reading
in its entirety as follows:
10. (A) The provisions of this Section 10 shall
be applicable to awards under the Plan to "Covered
Employees" if the Committee so provides at the time
of grant (such awards being referred to as "Covered
Awards"). For purposes of this Section 10, "Covered
Employees" means participants in the Plan who are
designated by the Committee prior to the grant of an
award hereunder who are, or are expected to be at the
time taxable income will be realized with respect to
the award, "covered employees" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986,
as amended, or any successor thereto, and the
Treasury Regulations thereunder ("Section 162(m)").
(B) Covered Awards shall be made subject to
the achievement of one or more preestablished Perfor
mance Goals (as defined below), in accordance with
procedures to be established by the Committee from
time to time. Notwithstanding any provision of the
Plan to the contrary, the Committee shall not have
discretion to waive or amend such Performance Goals
or to increase the amount payable pursuant to Covered
Awards after the Performance Goals have been
established; provided, however, that the Committee
may, in its sole dis
<PAGE>
cretion, reduce the amount which
would otherwise be payable with respect to any
Covered Award; and provided, further, that the
provisions of Section 8 shall override any contrary
provision of this Section 10.
(C) "Performance Goals" means one or more
objective performance goals, established by the
Committee at the time an award is granted, and based
upon the attainment of targets for one or any
combination of the following criteria: operating in
come, revenues, return on operating assets, earnings
per share, return on stockholder equity, stock price,
or achievement of cost control, of the Company or
such subsidiary, division or department of the
Company for or within which the participant is pri
marily employed. Performance Goals also may be based
upon attaining specified levels of Company per
formance based upon one or more of the criteria
described above relative to prior periods or the
performance of other corporations. Performance Goals
shall be set by the Committee within the time period
prescribed by Section 162(m).
(D) No payment shall be made pursuant to a
Covered Award unless and until the Committee shall
have certified in writing that the applicable Per
formance Goals have been attained. The maximum
amount payable pursuant to Covered Awards to a
particular Covered Employee for any fiscal year of
the Company shall be $5,000,000.
(E) The Committee may from time to time
establish procedures pursuant to which Covered
Employees will be permitted or required to defer
receipt of awards under the Plan.
(F) Notwithstanding any other provision of
the Plan, for all purposes involving Covered Awards,
the Committee shall consist of at least two members
of the Board of Directors, each of whom is an
"outside director" within the meaning of Section
162(m).
4. Except as provided above, the Plan shall continue in
effect without amendment.
<PAGE>
EXHIBIT (iv)
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
FOR THE BOARD OF DIRECTORS
Effective as of April 1, 1997
<PAGE>
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
FOR THE BOARD OF DIRECTORS
ARTICLE 1.
<PAGE>
Purpose and Effective Date
The purpose of the Pitney Bowes Inc. Deferred
Incentive Savings Plan for the Board of Directors
(hereinafter referred to as the "Plan") is to aid
Pitney Bowes Inc. in retaining and attracting capable
outside directors by providing them with savings and
tax deferral opportunities. The Plan shall be effective
for deferral elections made hereunder on or after
April 1, 1997.
ARTICLE 2.
<PAGE>
Definitions
For the purposes of this Plan, the following words
and phrases shall have the meanings indicated, unless
the context clearly indicates otherwise:
Section 3. Beneficiary. "Beneficiary" means the
person, persons or entity designated by the Participant
to receive any benefits payable under the Plan pursuant
to Article VIII.
Section 4. Board. "Board" means the Board of
Directors of Pitney Bowes Inc.
Section 5. Change of Control. For purposes of
this Plan, a "Change of Control" shall be deemed to
have occurred if:
0.0.0.1. there is an acquisition, in any one
transaction or a series of transactions, other
than from Pitney Bowes Inc., by any individual,
entity or group (within the meaning of Section 1
3(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), of
beneficial ownership (within the meaning of Rule
13(d)(3) promulgated under the Exchange Act) of
20% or more of either the then outstanding shares
of Common Stock or the combined voting power of
the then outstanding voting securities of Pitney
Bowes Inc. entitled to vote generally in the
election of directors, but excluding, for this
purpose, any such acquisition by Pitney Bowes Inc.
or any of its subsidiaries, or any employee
benefit plan (or related trust) of Pitney Bowes
Inc. or its subsidiaries, or any corporation with
respect to which, following such acquisition, more
than 50% of the then outstanding shares of common
stock of such corporation and the combined voting
power of the then outstanding voting securities of
such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by the individuals and
entities who were the beneficial owners,
respectively, of the common stock and voting
securities of Pitney Bowes Inc. immediately prior
to such acquisition in substantially the same
proportion as their ownership, immediately prior
to such acquisition, of the then outstanding
shares of Common Stock or the combined voting
power of the then outstanding voting securities of
Pitney Bowes Inc. entitled to vote generally in
the election of directors, as the case may be; or
0.0.0.2. individuals who, as of January 1,
1997, constitute the Board (as of such date, the
"Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided that any individual becoming a director
subsequent to such date, whose election, or
nomination for election by Pitney Bowes'
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board,
but excluding, for this purpose, any such
individual whose initial assumption of office is
in connection with an actual or threatened
election contest relating to the election of the
directors of Pitney Bowes Inc. (as such terms are
used in Rule 14(a)(11) or Regulation 14A
promulgated under the Exchange Act); or
<PAGE>
0.0.0.2.1. there occurs either (A) the
consummation of a reorganization, merger or
consolidation, in each case, with respect to which
the individuals and entities who were the
respective beneficial owners of the common stock
and voting securities of Pitney Bowes Inc.
immediately prior to such reorganization, merger
or consolidation do not, following such
reorganization, merger or consolidation,
beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding
shares of common stock and the combined voting
power of the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the corporation
resulting from such reorganization, merger or
consolidation, or (B) an approval by the
shareholders of Pitney Bowes Inc. of a complete
liquidation of dissolution of Pitney Bowes Inc. or
of the sale or other disposition of all or
substantially all of the assets of Pitney Bowes
Inc. Section 0.1.0.2.1.. Committee. "Committee" means the
Nominating and Organization Affairs Committee of
the Board of Directors. Any action authorized
hereunder to be taken by the Committee is also
authorized to be taken by the Board.
Section 0.0.0.2.2. Common Stock. "Common Stock" means the
common stock of Pitney Bowes Inc.
Section 0.0.0.2.3. Company. "Company" means Pitney Bowes
Inc., its successors, and any organization into which
or with which Pitney Bowes Inc. may merge or
consolidate or to which all or substantially all of its
assets may be transferred.
Section 0.0.0.2.4. Deferral Account. "Deferral Account"
means the account maintained on the books of the
Committee for each Participant pursuant to Article 6.
Section 0.0.0.2.5. Deferral Period. "Deferral Period" is
defined in Section 4.02.
Section 0.0.0.2.6. Deferred Amount. "Deferred Amount" is
defined in Section 4.02.
Section 0.0.0.2.7. Eligible Compensation. "Eligible
Compensation" means any cash compensation payable by
the Company to a Participant for service on the Board
or any Committee thereof.
Section 0.0.0.2.8. Fair Market Value. "Fair Market Value"
of a share of Common Stock means the closing price of
the Common Stock on the New York Stock Exchange on the
most recent day on which the Common Stock was so traded
that precedes the date as of which Fair Market Value is
to be determined.
Section 0.0.0.2.9. Option. "Option" means an option to
acquire shares of Common Stock granted pursuant to the
Directors' Stock Plan or any successor thereto.
Section 0.0.0.2.10. Participant. "Participant" means any
director who is eligible to participate in this Plan
and who elects to participate by filing a Participation
Agreement as provided in Article 4.
Section 0.0.0.2.11. Participation Agreement.
"Participation Agreement" means an agreement filed by a
Participant in accordance with Article 4.
Section 0.0.0.2.12. Plan Year. "Plan Year" means a twelve-
month period beginning January 1 and ending the
following December 31; provided, however that the first
Plan Year shall consist of the period from April 1,
1997 through December 31, 1997.
Section 0.0.0.2.13. Termination of Service. "Termination
of Service" means the cessation of a Participant's
services as a director of the Company.
<PAGE>
Section 0.0.0.2.14. Treasury Rate of Return. "Treasury
Rate of Return" means a rate of return equal to (i) the
annualized rate payable on United States Treasury Notes
with a five-year maturity, plus (ii) 100 basis points.
Such Treasury Rate of Return shall be determined for
each month of the Deferral Period based on the monthly
5 year Treasury rates appearing in the Wall Street
Journal, plus 100 basis points and such earnings shall
be compounded monthly.
Section 0.0.0.2.15. Valuation Date. Valuation Date" means
the last day of each calendar month or such other date
as the Committee in its sole discretion may determine.
ARTICLE 0.0.0.2.16.
<PAGE>
Administration
Section 0.0.0.2.17. Committee. (a) This Plan shall be
administered by the Committee. A majority of the
members of the Committee shall constitute a quorum for
the transaction of business. All resolutions or other
action taken by the Committee shall be by a vote of a
majority of its members present at any meeting or,
without a meeting, by an instrument in writing signed
by all its members. Members of the Committee may
participate in a meeting of such committee by means of
a conference telephone or similar communications
equipment that enables all persons participating in the
meeting to hear each other, and such participation in a
meeting shall constitute presence in person at the
meeting.
The Committee shall be responsible for the
administration of this Plan and shall have all powers
necessary to administer this Plan, including
discretionary authority to determine eligibility for
benefits and to decide claims under the terms of this
Plan. The Committee may from time to time establish
rules for the administration of this Plan, and it shall
have the exclusive right to interpret this Plan and to
decide any matters arising in connection with the
administration and operation of this Plan. All rules,
interpretations and decisions of the Committee shall be
conclusive and binding on the Company, Participants and
Beneficiaries.
The Committee may delegate responsibility for
performing certain administrative and ministerial
functions under this Plan, including without
limitation, issues related to eligibility, investment
choices, distribution of Deferred Amounts,
determination of account balances, crediting of
hypothetical earnings and of Deferred Amounts and
debiting of hypothetical losses and of distributions,
in-service withdrawals, deferral elections and any
other duties concerning the day-to-day operation of
this Plan.
No member of the Board nor any member of the
Committee shall be liable for any act or action
hereunder, whether of omission or commission, by any
other member or employee or by any agent to whom duties
in connection with the administration of this Plan have
been delegated or for anything done or omitted to be
done in connection with this Plan. The Committee shall
keep records of all of its proceedings and shall keep
records of all payments made to Participants or
Beneficiaries and payments made for expenses or
otherwise. The Company shall, to the fullest extent
permitted by law, indemnify each director, officer or
employee of the Company (including the heirs,
executors, administrators and other personal
representatives of such person) and each member of the
Committee against expenses (including attorneys' fees),
judgments, fines, amounts paid in settlement, actually
and reasonably incurred by such person in connection
with any threatened, pending or actual suit, action or
proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or
she is or was serving this Plan in any capacity at the
request of the Company.
Any expense incurred by the Company or the
Committee relative to the administration of this Plan
shall be paid by the Company.
<PAGE>
ARTICLE 0.0.0.2.18.
Participation
Section 0.0.0.2.19. Participation. Participation in the
Plan shall be limited to members of the Board who (i)
are not employees of the Company or meet such
eligibility criteria as the Committee shall establish
from time to time, and (ii) elect to participate in
this Plan by filing a Participation Agreement with the
Committee. A Participation Agreement must be filed
prior to the beginning of the Plan Year with respect to
services in which the Eligible Compensation relates.
Section 0.0.0.2.20. Participation Agreement. Subject to
Article 7, each Participation Agreement shall set
forth: (i) the amount of Eligible Compensation for the
Plan Year to which the Participation Agreement relates
that is to be deferred under the Plan (the "Deferred
Amount"), expressed as either a dollar amount or a
percentage of the total Eligible Compensation for such
Plan Year; provided, that the minimum Deferred Amount
for any Plan Year shall not be less than $2,000; (ii)
the period after which payment of the Deferred Amount
is to be made or begin to be made (the "Deferral
Period"), expressed as (A) a number of full years, not
less than three, following the end of the Plan Year to
which the Participation Agreement relates, or (B) the
period ending upon the Termination of Service of the
Participant, or (C) a period ending upon the earlier or
later of (A) or (B); and (iii) the form in which
payments are to be made, which may be a lump sum or in
equal annual installments of five, ten or fifteen
years.
Section 0.0.0.2.21. Changes to Participation Agreement. A
Participation Agreement may not be amended or revoked
after December 31st of the Plan Year in which it is
made, except that the Deferral Period maybe extended
and the form of payment may be altered if an amended
Participation Agreement is filed with the Committee at
least one full calendar year before the Deferral Period
(as in effect before such amendment) ends; provided,
that only one such amended Participation Agreement may
be filed with respect to each Participation Agreement.
Upon a Participant's Termination of Service, the most
recent Participation Agreement received by the
Committee prior to Termination of Service shall
supersede all previous Participation Agreements on file
with regard to Termination of Service elections and the
entire amount in the Participant's Deferral Account
shall be distributed at Termination of Service in
accordance with such elections.
ARTICLE 0.0.0.2.22.
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Deferred Incentive Compensation
Section 0.0.0.2.23. Elective Deferred Incentive
Compensation. Except as provided in Section 6.02(c),
the Deferred Amount of a Participant with respect to
each Plan Year of participation in the Plan shall be
credited by the Committee to the Participant's Deferral
Account as and when such Deferred Amount would
otherwise have been paid to the Participant. To the
extent that the Company is required to withhold any
taxes or other amounts from the Deferred Amount
pursuant to any state, Federal or local law, such
amounts shall first be taken out of compensation to the
Participant that is not deferred under this Plan, if
any.
Section 0.0.0.2.24. Vesting of Deferral Account. Except as
provided in Section 7.04, a Participant shall be 100%
vested in his/her Deferral Account at all times.
ARTICLE 0.0.0.2.25
<PAGE>
Maintenance and Investment of Accounts
Section 0.0.0.2.26. Maintenance of Accounts. Separate
Deferral Accounts shall be maintained for each
Participant. More than one Deferral Account may be
maintained for a Participant as necessary to reflect
(a) various investment choices and/or (b) separate
Participation Agreements specifying different Deferral
Periods and/or forms of payment. A Participant's
Deferral Account(s) shall be utilized solely as a
device for the measurement and determination of the
amounts to be paid to the Participant pursuant to this
Plan, and shall not constitute or be treated as a trust
fund of any kind. The Committee shall determine the
balance of each Deferral Account, as of each Valuation
Date, by adjusting the balance of such Deferral Account
as of the immediately preceding Valuation Date to
reflect changes in the value of the deemed investments
thereof, credits and debits pursuant to Section 5.01
and Section 6.02 and distributions pursuant to Article
7 with respect to such Deferral Account since the
preceding Valuation Date Investment Choices.
Section 0.0.0.2.27. Investment Choices 0.0.0.2.27. Each Participant
shall be entitled to direct the manner in which his/her
Deferral Accounts will be deemed to be invested,
selecting among the investment choices specified in
Appendix A hereto, as amended by the Committee from
time to time, and in accordance with such rules,
regulations and procedures as the Committee may
establish from time to time.
0.0.0.3. The investment choices available for
Deferral Accounts from time to time may include a
"Phantom Share Fund." The Phantom Share Fund shall
consist of deemed investments in shares of Common
Stock. Deferred Amounts that are deemed to be
invested in the Phantom Share Fund shall be
converted into deemed shares based upon the Fair
Market Value of the Common Stock on the date(s) the
Deferred Amounts are to be credited to a Deferral
Account. The portion of any Deferral Account that is
invested in the Phantom Share Fund shall be
credited, as of each Valuation Date, with additional
shares of Common Stock with respect to cash
dividends paid on the Common Stock with record dates
during the period beginning on the day after the
most recent preceding Valuation Date and ending on
such Valuation Date, as follows. The credit shall be
for a number of additional deemed shares of Common
Stock having a Fair Market Value, as of the payment
date for a cash dividend, equal to the dollar amount
of such cash dividend paid with respect to a number
of actual shares of Common Stock equal to the number
of deemed shares in such Deferral Account as of such
Valuation Date minus the number of such deemed
shares that were distributed to the Participant
before such Valuation Date but after the most recent
prior Valuation Date.
0.0.0.4. When a deemed reinvestment or a
distribution of all or a portion of a Deferral
Account that is invested in the Phantom Share Fund
is to be made, the balance in such a Deferral
Account shall be determined by reference to the Fair
Market Value of the Common Stock on the most recent
Valuation Date preceding the date of such
reinvestment or distribution. Upon such a lump sum
distribution, the amounts in the Phantom Share Fund
shall be distributed in the form of cash having a
value equal to the Fair Market Value of the deemed
shares being distributed, actual shares of Common
Stock, or a combination thereof, in accordance with
the terms of the Pitney Bowes Inc. Directors' Stock
Plan (the "Stock Plan").
0.0.0.5. In the event of a stock dividend, split-
up or combination of the Common Stock, merger,
consolidation, reorganization, recapitalization, or
other
<PAGE>
change in the corporate structure or
capitalization affecting the Common Stock, such that
an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits
intended to be made available under this Plan, then
the Committee may make appropriate adjustments to
the number of deemed shares credited to any Deferral
Account. The determination of the Committee as to
such adjustments, if any, to be made shall be
conclusive.
0.0.0.6. Notwithstanding any other provision of
this Plan, the Committee may adopt such procedures
as it may determine are desirable to ensure that,
with respect to any Participant who is subject to
Section 16(b) of the Securities Exchange Act of
1934, as amended, the crediting of deemed shares to,
or the distribution of amounts from, his or her
Deferral Account is not deemed to be a non-exempt
purchase or sale for purposes of such Section 16(b).
0.0.0.6.1. The Committee may authorize Options as an
investment choice under the Plan. The terms and
conditions under which Options may be made available as
an investment choice shall be determined and
communicated by the Committee to Participants from time
to time.
Section 0.0.0.6.2. Statement of Accounts. The Committee
shall submit to each Participant quarterly statements
of his/her Deferral Account(s), in such form as the
Committee deems desirable, setting forth the balance to
the credit of such Participant in his/her Deferral
Account(s) as of the end of the most recently completed
quarter.
ARTICLE 0.0.0.6.3.
<PAGE>
Benefits
Section 0.0.0.6.4. Time and Form of Payment. At the end
of the Deferral Period for each Deferral Account, the
Company shall pay to the Participant the balance of
such Deferral Account at the time or times elected by
the Participant in the applicable Participation
Agreement; provided that if the Participant has elected
to receive payments from a Deferral Account in a lump
sum, the Company shall pay the balance in such Deferral
Account (determined as of the most recent Valuation
Date preceding the end of the Deferral Period) in a
lump sum in cash (plus any shares of Common Stock
distributed in accordance with the Stock Plan in
respect of any investment in the Phantom Share Fund) as
soon as practicable after the end of the Deferral
Period. If the Participant has elected to receive
payments from a Deferral Account in installments, the
Company shall make annual cash only payments from such
Deferral Account, each of which shall consist of an
amount equal to (i) the balance of such Deferral
Account as of the most recent Valuation Date preceding
the payment date times (ii) a fraction, the numerator
of which is one and the denominator of which is the
number of remaining installments (including the
installment being paid). The first such installment
shall be paid as soon as practicable after the end of
the Deferral Period and each subsequent installment
shall be paid on or about the anniversary of such first
payment. Each such installment shall be deemed made on
a pro rata basis from each of the different deemed
investments of the Deferral Account (if there is more
than one such deemed investment).
Section 0.0.0.6.5. Termination of Service. If a
Participant has elected to have the balance of his/her
Deferral Account distributed upon Termination of
Service, the account balance of the Participant
(determined as of the most recent Valuation Date
preceding such Termination of Service) shall be
distributed upon Termination of Service in installments
or a lump sum in accordance with the Plan and as
elected in the Participation Agreement.
Section 0.0.0.6.6. In-Service Distributions. Subject to
Section 7.02 hereof, if a Participant has elected to
defer Eligible Compensation under the Plan for a stated
number of years, the account balance of the Participant
(determined as of the most recent Valuation Date
preceding such Deferral Period) shall be distributed in
installments or a lump sum in accordance with the Plan
and as elected in the Participation Agreement.
Section 0.0.0.6.7. Voluntary Early Withdrawal.
Notwithstanding the provisions of Section 7.01 and any
Participation Agreement, a Participant shall be
entitled to elect to withdraw all of the balance in
his/her Deferral Account(s) in accordance with this
Section 7.04 by filing with the Committee such form, in
accordance with such procedures, as the Committee shall
determine from time to time. As soon as practicable
after receipt of such form by the Committee, the
Company shall pay an amount equal to ninety percent of
the balance in such Participant's Deferral Account(s)
(determined as of the most recent Valuation Date
preceding the date such election is filed) to the
electing Participant in a lump sum in cash, and the
Participant shall forfeit the remainder of such
Deferral Account(s). All Participation Agreements
previously filed by a Participant who elects to make a
withdrawal under this Section 7.04 shall be null and
void after such election is filed (including without
limitation Participation Agreements with respect to
Plan Years or performance periods that have not yet
been completed), and such a Participant shall not
thereafter be entitled to file any Participation
Agreements under the Plan with respect to the first
Plan Year that begins after such election is made.
Section 0.0.0.6.8. Payments in Connection with Change of
Control. Notwithstanding anything contained in this
Plan to the contrary, upon a Change of Control, the
Company shall immediately pay to each Participant in a
lump sum in cash the balance in his/her Deferral
Account(s) (determined as of the most recent Valuation
Date preceding the Change of Control).
Section 0.0.0.6.9. Withholding of Taxes. Notwithstanding
any other provision of this Plan, the Company shall
withhold from payments made hereunder any amounts
required to be so withheld by any applicable law or
regulation.
<PAGE>
ARTICLE 0.0.0.6.10.
<PAGE>
Beneficiary Designation
Section 0.0.0.6.11. Beneficiary Designation. Each
Participant shall have the right, at any time, to
designate any person, persons or entity as his
Beneficiary or Beneficiaries. A Beneficiary designation
shall be made, and may be amended, by the Participant
by filing a written designation with the Committee, on
such form and in accordance with such procedures as the
Committee shall establish from time to time.
Section 0.0.0.6.12. No Beneficiary Designation. If a
Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries
predecease the Participant, then the Participant's
Beneficiary shall be deemed to be the Participant's
estate.
ARTICLE 0.0.0.6.13.
<PAGE>
Amendment and Termination of Plan
Section 0.0.0.6.14. Amendment. The Board or the Committee
may at any time amend this Plan in whole or in part,
provided, however, that no amendment shall be effective
to decrease the balance in any Deferral Account as
accrued at the time of such amendment, nor shall any
amendment otherwise have a retroactive effect.
Section 0.0.0.6.15. Company's Right to Terminate. The
Board or the Committee may at any time terminate the
Plan with respect to future Participation Agreements.
The Board or the Committee may also terminate the Plan
in its entirety at any time for any reason, including
without limitation if, in its judgment, the continuance
of the Plan, the tax, accounting, or other effects
thereof, or potential payments thereunder would not be
in the best interests of the Company, and upon any such
termination, the Company shall immediately pay to each
Participant in a lump sum the accrued balance in his
Deferral Account (determined as of the most recent
Valuation Date preceding the termination date).
ARTICLE 0.0.0.6.16.
<PAGE>
Miscellaneous
Section 0.0.0.6.17. Unfunded Plan. This Plan is intended
to be an unfunded plan. All payments pursuant to the
Plan shall be made from the general funds of the
Company and no special or separate fund shall be
established or other segregation of assets made to
assure payment. No Participant or other person shall
have under any circumstances any interest in any
particular property or assets of the Company as a
result of participating in the Plan. Notwithstanding
the foregoing, the Company may (but shall not be
obligated to) create one or more grantor trusts, the
assets of which are subject to the claims of the
Company's creditors, to assist it in accumulating funds
to pay its obligations under the Plan.
Section 0.0.0.6.18. Nonassignability. Except as
specifically set forth in the Plan with respect to the
designation of Beneficiaries, neither a Participant nor
any other person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be
unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be
subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or
insolvency.
Section 0.0.0.6.19. Validity and Severability. The
invalidity or unenforceability of any provision of this
Plan shall not affect the validity or enforceability of
any other provision of this Plan, which shall remain in
full force and effect, and any prohibition or
unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in
any other jurisdiction.
Section 0.0.0.6.20. Governing Law. The validity,
interpretation, construction and performance of this
Plan shall in all respects be governed by the laws of
the State of Connecticut, without reference to
principles of conflict of law, except to the extent pre-
empted by federal law.
Section 0.0.0.6.21. Status as a Director. This Plan does
not constitute a contract of employment or impose on
the Participant or the Company any obligation for the
Participant to remain a director of the Company or
change the policies of the Company and its affiliates
regarding termination of services as a director.
Section 0.0.0.6.22. Underlying Compensation Arrangements.
Nothing in this Plan shall prevent the Company or the
Board from modifying, amending or terminating the
compensation arrangements for directors of the Company.
<PAGE>
APPENDIX A
Effective as of January 1, 1997, the deemed
investment choices under the Plan are as follows:
Mutual Funds
Merrill Lynch Capital Funds, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Basic Value Fund, Inc.
Other
Merrill Lynch Equity Index Trust
Treasury Rate of Return
Pitney Bowes Phantom Share Fund
Pitney Bowes Stock Options
EXHIBIT (v)
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
Effective as of September 9, 1996
This document constitutes part of a prospectus covering
securities that have been registered under the Securities Act of
1933.
<PAGE>
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
The purpose of the Pitney Bowes Inc. Deferred Incentive
Savings Plan (hereinafter referred to as the "Plan") is to aid
Pitney Bowes Inc. and its subsidiaries in retaining and
attracting executive employees by providing them with savings and
tax deferral opportunities. The Plan shall be effective for
deferral elections made hereunder on or after September 9, 1996.
<PAGE>
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and
phrases shall have the meanings indicated, unless the context
clearly indicates otherwise:
Section 2.01 Administrative Committee. "Administra
tive Committee" means the committee comprised of the Vice
President of Personnel, the Executive Director of Corporate
Compensation and the Executive Director of Corporate Benefits.
Section 2.02 Beneficiary. "Beneficiary" means the
person, persons or entity designated by the Participant to re
ceive any benefits payable under the Plan pursuant to Article
VIII.
Section 2.03 Board. "Board" means the Board of Di
rectors of Pitney Bowes Inc.
Section 2.04 CIU Award. "CIU Award" means any Cash
Incentive Unit Award granted pursuant to the long-term incentive
program under the Pitney Bowes Inc. Key Employees' Incentive Plan
(as amended and restated as of June 10, 1991).
Section 2.05 Change of Control. For purposes of this
Plan, a "Change of Control" shall be deemed to have occurred if:
(i) there is an acquisition, in any one transaction or
a series of transactions, other than from Pitney Bowes Inc.,
by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), of beneficial
ownership (within the meaning of Rule 13(d)(3) promulgated
under the Exchange Act) of 20% or more of either the then
outstanding shares of Common Stock or the combined voting
power of the then outstanding voting securities of Pitney
Bowes Inc. entitled to vote generally in the election of
directors, but excluding, for this purpose, any such
acquisition by Pitney Bowes Inc. or any of its subsidiaries,
or any employee benefit plan (or related trust) of Pitney
Bowes Inc. or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50%
of the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners,
respectively, of the common stock and voting securities of
Pitney Bowes Inc. immediately prior to such acquisition in
substantially the same proportion as their ownership, im
mediately prior to such acquisition, of the then outstanding
shares of Common Stock or the combined voting power of the
then outstanding voting securities of Pitney Bowes Inc.
entitled to vote generally in the election of directors, as
the case may be; or
<PAGE>
(ii) individuals who, as of September 9, 1996,
constitute the Board (as of such date, the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming
a director subsequent to September 9, 1996, whose election,
or nomination for election by Pitney Bowes' shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in
connection with an actual or threatened election contest
relating to the election of the directors of Pitney Bowes
Inc. (as such terms are used in Rule 14(a)(11) or Regulation
14A promulgated under the Exchange Act); or
(iii) there occurs either (A) the consummation of a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of Pitney Bowes Inc. immediately prior to such
reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
reorganization, merger or consolidation, or (B) an approval
by the shareholders of Pitney Bowes Inc. of a complete
liquidation of dissolution of Pitney Bowes Inc. or of the
sale or other disposition of all or substantially all of the
assets of Pitney Bowes Inc.
Section 2.06 Common Stock. "Common Stock" means the
common stock of Pitney Bowes Inc.
Section 2.07 Company. "Company" means Pitney Bowes
Inc., its successors, any subsidiary or affiliated organizations
authorized by the Board or the Executive Committee to participate
in the Plan and any organization into which or with which Pitney
Bowes Inc. may merge or consolidate or to which all or
substantially all of its assets may be transferred.
Section 2.08 Deferral Account. "Deferral Account"
means the account maintained on the books of the Administrative
Committee for each Participant pursuant to Article VI.
Section 2.09 Deferral Period. "Deferral Period" is
defined in Section 4.02.
Section 2.10 Deferred Amount. "Deferred Amount" is
defined in Section 4.02.
Section 2.11 Disability. "Disability" means
eligibility for disability benefits under the terms of the
Company's Long-Term Disability Plan as in effect from time to
time.
Section 2.12 Eligible Compensation. "Eligible Com
pensation" means any cash award otherwise payable as PBC
compensation or a CIU Award by the Company to a Participant
<PAGE>
with respect to a Plan Year or a performance period pursuant to the
Pitney Bowes Inc. Key Employees' Incentive Plan.
Section 2.13 ERISA. "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
Section 2.14 Executive Committee. "Executive Com
mittee" means the Executive Compensation Committee of the Board.
Section 2.15 Fair Market Value. "Fair Market Value"
of a share of Common Stock means the closing price of the Common
Stock on the New York Stock Exchange on the most recent day on
which the Common Stock was so traded that precedes the date as of
which Fair Market Value is to be determined.
Section 2.16 Option. "Option" means an option to
acquire shares of Common Stock granted pursuant to the Pitney
Bowes 1991 Stock Plan or any successor thereto.
Section 2.17 PBC. "PBC" means the Pitney Bowes'
Performance Based Compensation Incentive Program, or any
successor thereto, and the "PBC-like" compensation incentive
program, or any successor thereto.
Section 2.18 Participant. "Participant" means any
individual who is eligible to participate in this Plan and who
elects to participate by filing a Participation Agreement as
provided in Article IV.
Section 2.19 Participation Agreement. "Participation
Agreement" means an agreement filed by a Participant in
accordance with Article IV.
Section 2.20 Plan Year. "Plan Year" means a twelve-
month period beginning January 1 and ending the following
December 31; provided that the first Plan Year shall be the
partial year beginning on September 9, 1996 and ending on
December 31, 1996.
Section 2.21 Retirement. "Retirement" means
retirement of a Participant under the Pitney Bowes Inc.
Retirement Plan after attaining age 65 or age 55 with at least
ten years of Company service, or retirement under the applicable
retirement plan in the case of a Participant employed by a
Company that does not participate in the Pitney Bowes Inc.
Retirement Plan.
Section 2.22 Termination of Employment. "Termination
of Employment" means the cessation of a Participant's services as
a full-time employee of the Company and its affiliates for any
reason other than Retirement.
Section 2.23 Treasury Rate of Return. "Treasury Rate
of Return" means a rate of return equal to (i) the annualized
rate payable on United States Treasury Notes with a five-year
maturity, plus (ii) 100 basis points. Such Treasury Rate of
Return shall be determined for each
<PAGE>
month of the Deferral Period
based on the monthly 5 year Treasury rates appearing in the Wall
Street Journal, plus 100 basis points and such earnings shall be
compounded monthly.
Section 2.24 Unforeseeable Emergency. "Unforeseeable
Emergency" means severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, loss of the
Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant.
Section 2.25 Valuation Date. "Valuation Date" means
the last day of each calendar month or such other date as the
Administrative Committee in its sole discretion may determine.
<PAGE>
ARTICLE III
ADMINISTRATION
Section 3.01 Executive and Administrative Committees;
Duties. (a) This Plan shall be administered by the Executive
Committee, which shall be the named fiduciary of this Plan. A
majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business. All
resolutions or other action taken by the Executive Committee
shall be by a vote of a majority of its members present at any
meeting or, without a meeting, by an instrument in writing signed
by all its members. Members of the Executive Committee may
participate in a meeting of such committee by means of a
conference telephone or similar communications equipment that
enables all persons participating in the meeting to hear each
other, and such participation in a meeting shall constitute
presence in person at the meeting.
The Executive Committee shall be responsible for the
administration of this Plan and shall have all powers necessary
to administer this Plan, including discretionary authority to
determine eligibility for benefits and to decide claims under the
terms of this Plan, except to the extent that any such powers are
vested in any other fiduciary of this Plan by the Executive
Committee. The Executive Committee may from time to time
establish rules for the administration of this Plan, and it shall
have the exclusive right to interpret this Plan and to decide any
matters arising in connection with the administration and
operation of this Plan. All rules, interpretations and decisions
of the Executive Committee shall be conclusive and binding on the
Company, Participants and Beneficiaries.
The Executive Committee has delegated to the
Administrative Committee responsibility for performing certain
administrative and ministerial functions under this Plan. The
Administrative Committee shall be responsible for determining in
the first instance issues related to eligibility, investment
choices, distribution of Deferred Amounts, determination of
account balances, crediting of hypothetical earnings and of
Deferred Amounts and debiting of hypothetical losses and of
distributions, in-service withdrawals, deferral elections and any
other duties concerning the day-to-day operation of this Plan.
The Executive Committee shall have discretion to delegate to the
Administrative Committee such additional duties as it may
determine. The Administrative Committee may designate one of its
members as a chairperson and may retain and supervise outside
providers and professionals (including in-house professionals) to
perform any or all of the duties delegated to it hereunder.
Neither the Executive Committee nor a member of the
Board nor any member of the Administrative Committee shall be
liable for any act or action hereunder, whether of omission or
commission, by any other member or employee or by any agent to
whom duties in connection with the administration of this Plan
have been delegated or for anything done or omitted to be done in
connection with this Plan. The Executive Committee and the
Administrative Committee shall keep records of all of their
respective proceedings and the Administrative Committee shall
keep records of all payments made to Participants or
Beneficiaries and payments made for expenses or otherwise.
<PAGE>
The Company shall, to the fullest extent permitted by
law, indemnify each director, officer or employee of the Company
(including the heirs, executors, administrators and other
personal representatives of such person) each member of the
Executive Committee and Administrative Committee against expenses
(including attorneys' fees), judgments, fines, amounts paid in
settlement, actually and reasonably incurred by such person in
connection with any threatened, pending or actual suit, action or
proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be
involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of the Company.
Any expense incurred by the Company, the Executive
Committee or the Administrative Committee relative to the
administration of this Plan shall be paid by the Company.
Section 3.02 Claim Procedure. If a Participant or Beneficiary
makes a
written request alleging a right to receive payments under this Plan or
alleging a right to receive
an adjustment in benefits being paid under this Plan, such actions shall be
treated as a claim
for benefits. All claims for benefits under this Plan shall be sent to the
Administrative
Committee. If the Administrative Committee determines that any individual who
has
claimed a right to receive benefits, or different benefits, under this Plan is
not entitled
to receive all or any part of the benefits claimed, the Administrative
Committee shall inform
the claimant in writing of such determination and the reasons therefor in
terms calculated to
be understood by the claimant. The notice shall be sent within 90 days of the
claim unless the
Administrative Committee determines that additional time, not exceeding 90
days, is needed.
The notice shall make specific reference to the pertinent Plan provisions on
which the denial is
based, and shall describe any additional material or information that is
necessary. Such notice
shall, in addition, inform the claimant of the procedure that the claimant
should follow to
take advantage of the review procedures set forth below in the event the
claimant desires
to contest the denial of the claim. The claimant may within 90 days
thereafter submit
in writing to the Administrative Committee a notice that the claimant contests
the
denial of his or her claim and desires a further review by the Executive
Committee.
The Executive Committee shall within 60 days thereafter review the claim and
authorize
the claimant to review pertinent documents and submit issues and comments
relating to
the claim to the Executive Committee. The Executive Committee will render a
final
decision on behalf of the Company with specific reasons therefor in writing
and will
transmit it to the claimant within 60 days of the written request for review,
unless
the Chairperson of the Executive Committee determines that additional time,
not exceeding 60 days, is needed, and so notifies the Participant. If the
Committee
fails to respond to a claim filed in accordance with the foregoing within 60
days
or any such extended period, the Company shall be deemed to have denied the
claim.
<PAGE>
ARTICLE IV
PARTICIPATION
Section 4.01 Participation. Participation in the Plan
shall be limited to executives who (i) meet such eligibility
criteria as the Executive Committee shall establish from time to
time, and (ii) elect to participate in this Plan by filing a
Participation Agreement with the Administrative Committee. A
Participation Agreement must be filed (i) with respect to a PBC
award, prior to the December 1st immediately preceding the Plan
Year with respect to which the award relates and (ii) with
respect to a CIU Award, prior to the December 1st that occurs
during the year prior to the last year of the performance period
to which the award relatess; provided, that the Participation ;
provided that the Participation Agreement for deferral of PBC
awards and CIU Awards that are otherwise payable in 1997 must be
filed no later than December 1, 1996. The Administrative
Committee shall have the discretion to establish special
deadlines regarding the filing of Participation Agreements for
specified groups of Participants.
Section 4.02 Contents of Participation Agreement.
Subject to Article VII, each Participation Agreement shall set
forth: (i) the amount of Eligible Compensation for the Plan Year
or performance period to which the Participation Agreement
relates that is to be deferred under the Plan (the "Deferred
Amount"), expressed as either a dollar amount or a percentage of
the total Eligible Compensation for such Plan Year or performance
period; provided, that the minimum Deferred Amount for any Plan
Year or performance period shall not be less than $2,000; (ii)
the period after which payment of the Deferred Amount is to be
made or begin to be made (the "Deferral Period"), which shall be
the earlier of (A) a number of full years, not less than three
and (B) the period ending upon the Retirement of the Participant
and (iii) the form in which payments are to be made, which may be
a lump sum or in equal annual installments of five, ten or
fifteen years.
Section 4.03 Changes to Participation Agreement. A
Participation Agreement may not be amended or revoked after
December 1st of the Plan Year in which it is made, except that
the Deferral Period may be extended and the form of payment may
be altered if an amended Participation Agreement is filed with
the Administrative Committee at least one full calendar year
before the Deferral Period (as in effect before such amendment)
ends; provided, that only one such amended Participation
Agreement may be filed with respect to each Participation
Agreement.
<PAGE>
ARTICLE V
DEFERRED INCENTIVE COMPENSATION
Section 5.01 Elective Deferred Incentive Compensation.
The Deferred Amount of a Participant with respect to each Plan
Year of participation in the Plan shall be credited by the
Administrative Committee to the Participant's Deferral Account as
and when such Deferred Amount would otherwise have been paid to
the Participant. To the extent that the Company is required to
withhold any taxes or other amounts from the Deferred Amount
pursuant to any state, Federal or local law, such amounts shall
be taken out of compensation to the Participant that is not
deferred under this Plan.
Section 5.02 Vesting of Deferral Account. Except as
provided in Section 7.06, a Participant shall be 100% vested in
his/her Deferral Account at all times.
<PAGE>
ARTICLE VI
MAINTENANCE AND INVESTMENT OF ACCOUNTS
Section 6.01 Maintenance of Accounts. Separate
Deferral Accounts shall be maintained for each Participant. More
than one Deferral Account may be maintained for a Participant as
necessary to reflect (a) various investment choices and/or (b)
separate Participation Agreements specifying different Deferral
Periods and/or forms of payment. A Participant's Deferral
Account(s) shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to the
Participant pursuant to this Plan, and shall not constitute or be
treated as a trust fund of any kind. The Administrative
Committee shall determine the balance of each Deferral Account,
as of each Valuation Date, by adjusting the balance of such
Deferral Account as of the immediately preceding Valuation Date
to reflect changes in the value of the deemed investments
thereof, credits and debits pursuant to Section 5.01 and Section
6.02 and distributions pursuant to Article VII with respect to
such Deferral Account since the preceding Valuation Date.
Section 6.02 Investment Choices. (a) Each Participant
shall be entitled to direct the manner in which his/her Deferral
Accounts will be deemed to be invested, selecting among the
investment choices specified in Appendix A hereto, as amended by
the Executive Committee from time to time, and in accordance with
such rules, regulations and procedures as the Executive Committee
may establish from time to time. Notwithstanding anything to the
contrary herein, earnings and losses based on a Participant's
investment elections shall begin to accrue as of the date such
Participant's Deferral Amounts are credited to his/her Deferral
Accounts; provided, however, that with respect to a Participant
who is participating in the Plan as a "PBC-like" employee whose
incentive award is determined on other than an annual basis,
Deferral Amounts shall not be considered to be invested until the
January 1 following the Plan Year to which the Deferral Amounts
relate. Upon the Termination of Employment of a Participant who
is participating in the Plan as a "PBC-like" employee, amounts
credited to his/her Deferral Account for which earnings or losses
have not begun to accrue as provided herein at the time of such
Termination of Employment shall be paid his/her Deferred Amount
in cash in one lump sum without regard to any earnings or losses.
Notwithstanding anything to the contrary in this Plan, if a
distribution is made of Deferred Amounts on account of voluntary
Termination of Employment other than death before the third
anniversary of the crediting of such Deferred Amounts to the
Deferral Account, the net cumulative earnings credited with
respect to such Deferred Amount shall be equal to the Treasury
Rate of Return; provided, however, that if a Change of Control
occurs within three years of such third anniversary and before
such Termination of Employment has occurred, the net cumulative
earnings shall be based on the greater of (i) the rate of return
based on the actual investment elections of the Participant and
(ii) the Treasury Rate of Return.
(b) (i) The investment choices available for Deferral
Accounts from time to time may include a "Phantom Share Fund."
The Phantom Share Fund shall consist of deemed investments in
shares of Common Stock. Deferred Amounts that are deemed to be
invested in the Phantom Share Fund shall be converted into deemed
shares based upon the Fair Market Value of the Common Stock on
the date(s) the Deferred Amounts are to be credited to a Deferral
Account.
<PAGE>
The portion of any Deferral Account that is invested in
the Phantom Share Fund shall be credited, as of each Valuation
Date, with additional shares of Common Stock with respect to cash
dividends paid on the Common Stock with record dates during the
period beginning on the day after the most recent preceding
Valuation Date and ending on such Valuation Date, as follows.
The credit shall be for a number of additional deemed shares of
Common Stock having a Fair Market Value, as of the payment date
for a cash dividend, equal to the dollar amount of such cash
dividend paid with respect to a number of actual shares of Common
Stock equal to the number of deemed shares in such Deferral
Account as of such Valuation Date minus the number of such deemed
shares that were distributed to the Participant before such Valua
tion Date but after the most recent prior Valuation Date.
(ii) When a deemed reinvestment or a distribution of
all or a portion of a Deferral Account that is invested in the
Phantom Share Fund is to be made, the balance in such a Deferral
Account shall be determined by reference to the Fair Market Value
of the Common Stock on the most recent Valuation Date preceding
the date of such reinvestment or distribution. Upon a lump sum
distribution, the amounts in the Phantom Share Fund shall be
distributed in the form of cash having a value equal to the Fair
Market Value of the deemed shares being distributed, actual
shares of Common Stock, or a combination thereof, as determined
by the Executive Committee.
(iii) In the event of a stock dividend, split-up or
combination of the Common Stock, merger, consolidation,
reorganization, recapitalization, or other change in the
corporate structure or capitalization affecting the Common Stock,
such that an adjustment is determined by the Executive Committee
to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available
under this Plan, then the Executive Committee may make
appropriate adjustments to the number of deemed shares credited
to any Deferral Account. The determination of the Executive
Committee as to such adjustments, if any, to be made shall be
conclusive.
(iv) Notwithstanding any other provision of this Plan,
the Executive Committee shall adopt such procedures as it may
determine are necessary to ensure that with respect to any
Participant who is actually or potentially subject to Section
16(b) of the Securities Exchange Act of 1934, as amended, the
crediting of deemed shares to his or her Deferral Account is not
deemed to be a non-exempt purchase for purposes of such Section
16(b), including without limitation requiring that no shares of
Common Stock or cash relating to such deemed shares may be
distributed for six months after being credited to such Deferral
Account.
(c) The Executive Committee may authorize Options as
an investment choice under the Plan. The terms and conditions
under which Options may be made available as an investment choice
shall be determined and communicated by the Executive Committee
to Participants from time to time. Any Options issuable under
the Plan will be made pursuant to the Pitney Bowes 1991 Stock
Plan.
<PAGE>
Section 6.03 Statement of Accounts. The
Administrative Committee shall submit to each Participant
quarterly statements of his/her Deferral Account(s), in such form
as the Administrative Committee deems desirable, setting forth
the balance to the credit of such Participant in his/her Deferral
Account(s) as of the end of the most recently completed quarter.
<PAGE>
ARTICLE VII
BENEFITS
Section 7.01 Time and Form of Payment. (a) At the end
of the Deferral Period for each Deferral Account, the Company
shall pay to the Participant the balance of such Deferral Account
at the time or times elected by the Participant in the applicable
Participation Agreement; provided that if the Participant has
elected to receive payments from a Deferral Account in a lump
sum, the Company shall pay the balance in such Deferral Account
(determined as of the most recent Valuation Date preceding the
end of the Deferral Period) in a lump sum in cash (plus any
shares of Common Stock that the Committee elects to deliver from
any investment in the Phantom Share Fund) as soon as practicable
after the end of the Deferral Period. If the Participant has
elected to receive payments from a Deferral Account in
installments, the Company shall make annual cash only payments
from such Deferral Account, each of which shall consist of an
amount equal to (i) the balance of such Deferral Account as of
the most recent Valuation Date preceding the payment date times
(ii) a fraction, the numerator of which is one and the
denominator of which is the number of remaining installments
(including the installment being paid). The first such
installment shall be paid as soon as practicable after the end of
the Deferral Period and each subsequent installment shall be paid
on or about the anniversary of such first payment. Each such
installment shall be deemed made on a pro rata basis from each of
the different deemed investments of the Deferral Account (if
there is more than one such deemed investment).
(b) The most recent Participation Agreement making
Retirement elections which is filed with the Administrative
Committee at least one year prior to a Participant's Retirement
shall supersede all previous and future Participation Agreements
on file and the entire amount in the Participant's Deferral
Account shall be distributed at Retirement in accordance with
such Retirement elections. If a Participant has never made a
valid affirmative election to defer payment of his/her Deferral
Account until Retirement but nevertheless has a Termination of
Employment following satisfaction of the definition of
Retirement, the remaining account balance of such Participant
(determined as of the most recent Valuation Date preceding such
termination) shall be distributed to him/her in five (5) equal
annual installments following Termination of Employment unless
the balance in his/her Deferral Account is less than $50,000 as
of such date in which case the balance shall then be distributed
in a lump sum.
Section 7.02 Retirement. Subject to Section 7.01(b)
and 7.04 hereof, if a Participant has elected to have the balance
of his/her Deferral Account distributed upon Retirement, the
account balance of the Participant (determined as of the most
recent Valuation Date preceding such Retirement) shall be
distributed upon Retirement in installments or a lump sum in
accordance with the Plan and as elected in the Participant
Agreement.
Section 7.03 In-Service Distributions. Subject to
Section 7.01(b) and Section 7.04 hereof, if a Participant has
elected to defer Eligible Compensation under the Plan for a
stated number of years, the account balance of the Participant
(determined as of the most recent
<PAGE>
Valuation Date preceding such
Deferral Period) shall be distributed in installments or a lump
sum in accordance with the Plan and as elected in the Participant
Agreement.
Section 7.04 Other Than Retirement. Notwithstanding
the provisions of Section 7.02 and Section 7.03 hereof and any
Participation Agreement, if a Participant dies, has a Termination
of Employment or Disability prior to Retirement and prior to
receiving full payment of his/her Deferral Account(s), the
Company shall pay the remaining balance (determined as of the
most recent Valuation Date preceding such event) to the
Participant or the Participant's Beneficiary or Beneficiaries (as
the case may be) in a lump sum in cash only (notwithstanding
Section 7.01 hereof) as soon as practicable following the
occurrence of such event, unless the Administrative Committee in
its sole discretion determines otherwise. Subject to Section
6.02(a) hereof, the amount distributable under the preceding
sentence of this Section 7.04 shall be based on the Participant's
investment elections.
Section 7.05 Hardship Withdrawals. Notwithstanding
the provisions of Section 7.01 and any Participation Agreement, a
Participant shall be entitled to early payment of all or part of
the balance in his/her Deferral Account(s) in the event of an
Unforeseeable Emergency, in accordance with this Section 7.05. A
distribution pursuant to this Section 7.05 may only be made to
the extent reasonably needed to satisfy the Unforeseeable
Emergency need, and may not be made if such need is or may be
relieved (i) through reimbursement or compensation by insurance
or otherwise, (ii) by liquidation of the Participant's assets to
the extent such liquidation would not itself cause severe
financial hardship, or (iii) by cessation of participation in the
Plan. An application for an early payment under this Section
7.05 shall be made to the Administrative Committee in such form
and in accordance with such procedures as the Administrative
Committee shall determine from time to time. The determination
of whether and in what amount and form a distribution will be
permitted pursuant to this Section 7.05 shall be made by the
Administrative Committee.
Section 7.06 Voluntary Early Withdrawal.
Notwithstanding the provisions of Section 7.01 and any
Participation Agreement, a Participant shall be entitled to elect
to withdraw all of the balance in his/her Deferral Account(s) in
accordance with this Section 7.06 by filing with the
Administrative Committee such forms, in accordance with such
procedures, as the Administrative Committee shall determine from
time to time. As soon as practicable after receipt of such form
by the Administrative Committee, the Company shall pay an amount
equal to ninety percent of the balance in such Participant's
Deferral Account(s) (determined as of the most recent Valuation
Date preceding the date such election is filed) to the electing
Participant in a lump sum in cash, and the Participant shall
forfeit the remainder of such Deferral Account(s). All
Participation Agreements previously filed by a Participant who
elects to make a withdrawal under this Section 7.06 shall be null
and void after such election is filed (including without
limitation Participation Agreements with respect to Plan Years or
performance periods that have not yet been completed), and such a
Participant shall not thereafter be entitled to file any
Participation Agreements under the Plan with respect to the first
Plan Year that begins after such election is made.
<PAGE>
Section 7.07 Payments in Connection with Change of
Control. Notwithstanding anything contained in this Plan to the
contrary, upon a Change of Control, the Company shall immediately
pay to each Participant in a lump sum in cash the balance in
his/her Deferral Account(s) (determined as of the most recent
Valuation Date preceding the Change of Control).
Section 7.08 Withholding of Taxes. Notwithstanding
any other provision of this Plan, the Company shall withhold from
payments made hereunder any amounts required to be so withheld by
any applicable law or regulation.
<PAGE>
ARTICLE VIII
BENEFICIARY DESIGNATION
Section 8.01 Beneficiary Designation. Each
Participant shall have the right, at any time, to designate any
person, persons or entity as his Beneficiary or Beneficiaries. A
Beneficiary designation shall be made, and may be amended, by the
Participant by filing a written designation with the
Administrative Committee, on such form and in accordance with
such procedures as the Administrative Committee shall establish
from time to time.
Section 8.02 No Beneficiary Designation. If a
Participant fails to designate a Beneficiary as provided above,
or if all designated Beneficiaries predecease the Participant,
then the Participant's Beneficiary shall be deemed to be the
Participant's estate.
<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
Section 9.01 Amendment. The Board or the Executive
Committee may at any time amend this Plan in whole or in part,
provided, however, that no amendment shall be effective to
decrease the balance in any Deferral Account as accrued at the
time of such amendment, nor shall any amendment otherwise have a
retroactive effect.
Section 9.02 Company's Right to Terminate. The Board
or the Executive Committee may at any time terminate the Plan
with respect to future Participation Agreements. The Board or
the Executive Committee may also terminate the Plan in its
entirety at any time for any reason, including without limitation
if, in its judgment, the continuance of the Plan, the tax,
accounting, or other effects thereof, or potential payments
thereunder would not be in the best interests of the Company, and
upon any such termination, the Company shall immediately pay to
each Participant in a lump sum the accrued balance in his
Deferral Account (determined as of the most recent Valuation Date
preceding the termination date).
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.01 Unfunded Plan. This Plan is intended to
be an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management
or highly compensated employees, within the meaning of Section
401 of ERISA. All payments pursuant to the Plan shall be made
from the general funds of the Company and no special or separate
fund shall be established or other segregation of assets made to
assure payment. No Participant or other person shall have under
any circumstances any interest in any particular property or
assets of the Company as a result of participating in the Plan.
Notwithstanding the foregoing, the Company may (but shall not be
obligated to) create one or more grantor trusts, the assets of
which are subject to the claims of the Company's creditors, to
assist it in accumulating funds to pay its obligations under the
Plan.
Section 10.02 Nonassignability. Except as
specifically set forth in the Plan with respect to the
designation of Beneficiaries, neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt the amounts,
if any, payable hereunder, or any part thereof, which are, and
all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
Section 10.03 Validity and Severability. The inval
idity or unenforceability of any provision of this Plan shall not
affect the validity or enforceability of any other provision of
this Plan, which shall remain in full force and effect, and any
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
Section 10.04 Governing Law. The validity, inter
pretation, construction and performance of this Plan shall in all
respects be governed by the laws of the State of Connecticut,
without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
Section 10.05 Employment Status. This Plan does not
constitute a contract of employment or impose on the Participant
or the Company any obligation for the Participant to remain an
employee of the Company or change the status of the Participant's
employment or the policies of the Company and its affiliates
regarding termination of employment.
Section 10.06 Underlying Incentive Plans and Programs.
Nothing in this Plan shall prevent the Company from modifying,
amending or terminating the compensation or the incentive plans
and programs, including the Pitney Bowes Inc. Key Employees'
Incentive Plan, pursuant to which cash awards are earned and
which are deferred under this Plan.
<PAGE>
Section 10.07 Severance. Notwithstanding anything to
the contrary herein the Executive Committee may, in its sole and
exclusive discretion, determine that the Deferral Account of a
Participant who has incurred a Termination of Employment and who
receives or will receive severance payments from the Company
shall be paid in installments, at such intervals as the Executive
Committee may decide.
<PAGE>
Appendix A
Effective as of September 9, 1996, the deemed investment choices
under the Plan are as follows:
Mutual Funds
Merrill Lynch Capital Funds, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Basic Value Fund, Inc.
Other
Merrill Lynch Equity Index Trust
Treasury Rate of Return
Pitney Bowes Phantom Share Fund
Pitney Bowes Stock Option
<PAGE>
PITNEY BOWES INC. EXHIBIT (vi)
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) Years Ended December 31,
<S> <C> <C> <C> <C> <C>
Primary 1996 1995 1994 1993(1) 1992(1)
Income from continuing operations(2) $ 469,413 $ 407,708 $ 348,428 $ 305,690 $ 260,736(3)
Discontinued operations - 175,431 45,161 47,495 54,129
Effect of accounting changes - - (119,532) - (214,631)
Net income $ 469,413 $ 583,139 $ 274,057 $ 353,185 $ 100,234
Weighted average number of common shares
outstanding 149,116,883 151,140,274 156,459,437 157,766,700 157,562,020
Preference stock, $2.12 cumulative
convertible 726,756 785,355 847,430 905,231 1,085,684
Stock option and purchase plans 796,598 432,845 421,761 696,721 581,782
Convertible loan stock - - - - 5,926
Total common and common equivalent shares
outstanding 150,640,237 152,358,474 157,728,628 159,368,652 159,235,412
Income per common and common equivalent share - primary:
Continuing operations $ 3.12 $ 2.68 $ 2.21 $ 1.92 $ 1.64
Discontinued operations - 1.15 .29 .30 .34
Effect of accounting changes - (.76) - (1.35)
Net income $ 3.12 $ 3.83 $ 1.74 $ 2.22 $ .63
Fully Diluted
Income from continuing operations $ 469,413 $ 407,709 $ 348,430 $ 305,694 $ 260,740(3)
Discontinued operations - 175,431 45,161 47,495 54,129
Effect of accounting changes - - (119,532) - (214,631)
Net income $ 469,413 $ 583,140 $ 274,059 $ 353,189 $ 100,238
Weighted average number of common shares
outstanding 149,116,883 151,140,274 156,459,437 157,766,700 157,562,020
Preference stock, $2.12 cumulative
convertible 726,756 785,355 847,430 905,231 1,085,684
Stock option and purchase plans 851,050 460,348 439,756 706,981 606,915
Convertible loan stock - - - - 5,926
Preferred stock, 4% cumulative convertible 11,441 11,502 14,265 23,464 26,409
Total common and common equivalent shares
outstanding 150,706,130 152,397,479 157,760,888 159,402,376 159,286,954
Income per common and common equivalent share - fully diluted:
Continuing operations $ 3.12 $ 2.68 $ 2.21 $ 1.92 $ 1.64
Discontinued operations - 1.15 .29 .30 .34
Effect of accounting changes - - (.76) - (1.35)
Net income $ 3.12 $ 3.83 $ 1.74 $ 2.22 $ .63
<FN>
(1) Reclassified to reflect discontinued operations.
(2) Income from continuing operations was adjusted for preferred dividends.
(3) Income from continuing operations was adjusted for interest on convertible debt.
</TABLE>
<PAGE>
PITNEY BOWES INC. EXHIBIT (vii)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31,
1996 1995 1994 1993(2) 1992(2)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes $684,383 $618,931 $566,507 $498,860 $411,954
Add:
Interest expense 203,877 226,110 194,115 189,292 230,764
Portion of rents
representative of
the interest factor 40,538 42,064 42,339 33,842 33,786
Amortization of
capitalized interest 914 914 914 914 914
Minority interest in the
income of subsidiary
with fixed charges 8,121 5,013 - - -
Income as adjusted $937,833 $893,032 $803,875 $722,908 $677,418
Fixed charges:
Interest expense $203,877 $226,110 $194,115 $189,292 $230,764
Capitalized interest 1,201 2,178 733 - -
Portion of rents
representative of
the interest factor 40,538 42,064 42,339 33,842 33,786
Minority interest in the
income of subsidiary
with fixed charges 8,121 5,013 - - -
$253,737 $275,365 $237,187 $223,134 $264,550
Ratio of earnings to
fixed charges 3.70 3.24 3.39 3.24 2.56
Ratio of earnings to
fixed charges excluding
minority interest 3.79 3.28 3.39 3.24 2.56
<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.
(2) Reclassified to reflect discontinued operations.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Exhibit (viii)
OVERVIEW
Pitney Bowes continues to build on the core activities that support its strong
competitive position. We concentrate on products and services which facilitate
the preparation and management of documents, packages, letters and messages, in
physical or electronic form, through all phases of customer use.
The company operates within three industry segments: business equipment,
business services, and commercial and industrial financing.
Business equipment consists of four products, supplies and service classes:
mailing, copying and facsimile systems, and related financing. These products
are sold, rented or leased by the company, while supplies and services are sold.
The financial services operations provide lease financing for the company's
products in the United States, Canada, the United Kingdom, Germany, France,
Norway, Ireland and Australia.
Business services consists of facilities management and mortgage servicing.
Facilities management services are provided for a variety of business support
functions. Mortgage servicing provides billing, collecting and processing
services for major investors in residential first mortgages for a fee.
The commercial and industrial financing segment provides large-ticket financing
programs, covering a broad range of products, and other financial services to
the commercial and industrial markets in the U.S. It also provides small-ticket
lease financing services to small and medium-sized businesses throughout the
U.S.
RESULTS OF CONTINUING OPERATIONS 1996 COMPARED TO 1995
In 1996, revenue increased 9%, income from continuing operations grew 15% and
earnings per share from continuing operations increased 16% to $3.12 per share
compared to $2.68 for 1995.
<TABLE>
<CAPTION>
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Dollars 2.21 2.68 3.12
</TABLE>
REVENUE GROWTH came primarily from increased sales of facilities management
services, production mail and high-end mailing equipment and was principally
volume-driven, while prices and exchange rates remained relatively unchanged
from 1995. This growth was achieved despite lower revenue in Canada, where the
new management team was put in place to focus on profitable growth.
Approximately 75% of our total revenue in 1996 is recurring revenue, which we
believe is a good indicator of potential repeat business.
<TABLE>
<CAPTION>
REVENUE Dollars in millions
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Sales 1,418 1,546 1,675
Rentals & Financing 1,441 1,575 1,718
Support Services 411 433 466
</TABLE>
The 15% growth in INCOME FROM CONTINUING OPERATIONS was possible because of
continued emphasis on programs to increase efficiency and reduce operating
expenses, despite the fact that more revenues were coming from the lower-margin
business services sector. The fact that growth in income from continuing
operations significantly outpaced revenue growth is a measure of the success of
our emphasis on operating efficiencies.
SALES REVENUE increased 8% from the prior year, 10% if the comparison excludes
the approximately $30 million in upgrade revenue generated by the first-quarter
1995 United States Postal Service (USPS) rate change. Facilities management led
the company with a 17% sales increase, as it continues to expand its commercial
market contract base. Sales of digital, software-based equipment were strong,
with notable increases in production mail, high-end mailing and copier
placements. In total, financial services financed 39% of all sales in 1996 and
1995. Our facilities management business does not require the same traditional
financing services used by the other parts of the company, and its growth
impacts this percentage.
RENTAL AND FINANCING REVENUE increased 9% from 1995. Rental revenue increased 6%
from 1995. The company voluntarily halted mechanical meter placements in early
1996 to comply with USPS pending guidelines on moving to electronic and digital
meters. This caused a slight decline in this year's installed U.S. meter base.
However, we expect rapid growth in the base of electronic and digital meters to
continue for the next few years, as these prod-
17
<pg$pcn>
ucts attract new categories of customers worldwide, including the small
office/home office (SOHO) market segment. Since the introduction of
PostPerfect(TM) in 1995, the company's first digital meter and the subsequent
introduction of the Personal Post Office(TM) meter in October 1996, more than
100,000 digital meters have been placed in service. During 1996, the USPS took
control of the postal payment trust fund. This significantly lowered the
administrative revenue included in this category during this year. This also
lowered the growth in rental revenue.
FINANCING REVENUE increased 15% in 1996. Increased volume in Pitney Bowes
product leases and small-ticket leases to credit-worthy businesses drove this
growth. A strategic shift to concentrate on fee-based income contributed as
well, though gains were offset by a planned reduction in the external
large-ticket financing business. Excluding the impact of external financial
asset sales, revenue growth would have been 10%.
SUPPORT SERVICE REVENUE grew 7%, driven by volume growth in equipment
maintenance contracts, manned on-site production mail service contracts and
chargeable service calls.
THE RATIO OF COST OF SALES TO SALES REVENUE grew .3 percentage points due to the
change in sales revenue mix toward the lower-margin facilities management
business, which includes most of its expenses in cost of sales. The revenue mix
impact was balanced by lower product costs, increased sales of higher-margin
feature-rich products and the effect of a stronger U.S. dollar on equipment
purchases. The 1995 ratio also benefited from the lower costs associated with
the revenue related to the USPS rate change in the first quarter of 1995.
THE RATIO OF COST OF RENTALS AND FINANCING TO THE RELATED REVENUE increased 1.4
percentage points to 30.8% in 1996. This is due to the effect of the sale of
external finance assets and a change in revenue mix. Excluding asset sales, this
ratio would have increased .8 percentage points. The strong growth in the
mortgage servicing and brokered small-ticket external leasing businesses, both
of which include a majority of their expenses in the cost of financing, also
increased this ratio.
THE RATIO OF SELLING, SERVICE AND ADMINISTRATIVE EXPENSES TO REVENUE remained
relatively unchanged from 1995 at 34.7% despite a $30 million charge (writing
off the remaining goodwill and other related expenses) resulting from the
company's decision to exit the Australian copier business and downsize its
Australian facsimile business. This will enable the company's Australian
operations to concentrate on the more profitable mailing and high-end facsimile
businesses. This charge was almost completely offset by associated tax benefits
and had a minimal impact on the results for the year. Without this charge,
selling, service and administrative expenses would have been reduced to 33.9% of
1996 revenues. Changes in the revenue mix helped to reduce this ratio. Various
reengineering programs within the company have resulted in operating
efficiencies and controlling costs, all of which have lowered the worldwide
expense ratio.
<TABLE>
<CAPTION>
SELLING, SERVICE AND ADMINISTRATIVE RATE
(excluding 1996 Australian charge)
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Percentage of revenue 35.7% 34.6% 33.9%
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES in 1996 matched the previous year's,
demonstrating the company's commitment to providing the global marketplace with
a continuous stream of innovative, high-quality products and services such as
the PostPerfect(TM) meter and the Personal Post Office(TM) meter. Development
spending is expected to increase in the future, as we invest in the new software
and digital products demanded by the marketplace.
NET INTEREST EXPENSE decreased 10% as a result of lower interest rates and lower
average debt. Overall, borrowing levels remained steady with those in the latter
half of 1995. Financial services did borrow more to support more Pitney Bowes
product placements and small-ticket external leases. Future changes in interest
rates could affect our borrowing strategies. We manage our interest rate risk,
most of which is in financial services, with a balanced mix of debt maturities,
variable- and fixed-rate debt and interest rate swap agreements. Our
swap-adjusted variable- versus fixed-rate debt mix was 41% to 59%, respectively,
at December 31, 1996.
OPERATING PROFIT, excluding the Australian charge, grew 14% with 11% coming from
the business equipment segment, 31% from the business services segment and 26%
from the commercial and industrial financing segment. Including the Australian
charge, overall operating profit increased 9% with business equipment
contributing a 6% increase.
The operating profit growth in the business equipment segment came from strong
performances by mailing and facsimile globally, and the copier business in the
U.S. All businesses contributed to the operating profit growth in the business
services segment. In the commercial and industrial financing segment, operating
profit growth was helped by a decreasing interest rate environment and from the
asset sales described earlier.
18
<pg$pcn>
<TABLE>
<CAPTION>
CONTINUING OPERATIONS MARGINS
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Percentage 10.7% 11.5% 12.2%
</TABLE>
THE EFFECTIVE TAX RATE for 1996, including the tax benefits associated with the
company's actions in Australia and the related write-off of its Australian
investment, was 31.4%. Excluding such benefits, the effective tax rates for 1996
and 1995 were 34.3% and 34.1%, respectively.
<TABLE>
<CAPTION>
INCOME FROM CONTINUING OPERATIONS
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Dollars in millions 348 408 469
</TABLE>
INCOME FROM CONTINUING OPERATIONS grew 15% for all of 1996. Strong growth in
income from worldwide mailing and facsimile systems as well as good results from
all other businesses led to the overall increase.
RESULTS OF CONTINUING OPERATIONS 1995 COMPARED TO 1994
REVENUE increased 9% in 1995; income per share from continuing operations
increased 21% to $2.68 per share in 1995 from $2.21 per share in 1994. The 1995
revenue increase was paced by strong double-digit growth in our facilities
management contract base, strong facsimile systems supplies sales in support of
our growing plain paper facsimile base in the U.S., and international mailing
growth led by our U.K. mailing business, which had solid equipment sales
throughout 1995. In addition, sales benefited from the first-quarter USPS rate
change and the mid-1995 acquisition of our former Japanese joint venture. This
was offset, to a degree, by slower performance in the low-end shipping market in
the U.S. In 1995, both price increases and foreign currency fluctuation had less
than a 1% favorable impact on sales growth.
RENTALS AND FINANCING REVENUE increased 9% in 1995. Rental revenue increased 8%
in 1995. This growth was fueled by the gain in placements of electronic and
digital meters including the introduction of PostPerfect,(TM) the company's
first digital meter, and a continued shift to high-yielding electronic and
digital meters utilizing the Postage By Phone(R) meter resetting system. Plain
paper facsimile equipment placements also had strong volume growth.
FINANCING REVENUE increased 10% in 1995, or 16% excluding the impact of
financial asset sales. This growth was achieved by increased activity in the
financing of the company's products and solid increases in creditworthy
small-ticket leases. Financing revenue also benefited from portfolio growth,
fee-based income and increased leveraged lease revenue offset by the decision to
phase out the business of financing non-Pitney Bowes equipment outside the U.S.
19
<pg$pcn>
SUPPORT SERVICES REVENUE included in the business equipment segment grew 5% from
the prior year as a result of volume and price growth. Expansion of the base of
service agreements in the facsimile and copier businesses offset the effect of a
planned competitive pricing strategy. U.S. mailing and shipping and production
mail systems had strong volume gains in the equipment service base;
international mailing and production mail systems also contributed to the growth
with support services pricing gains.
THE RATIO OF COST OF SALES TO SALES in 1995 was 60.9% versus 58.4% in 1994. The
facilities management business includes most of its costs in cost of sales.
Therefore, the growth in its revenue and its increasing significance to total
revenue of the company continues to impact this ratio. The increase in 1995 was
also the result of increased efficiencies associated with longer production runs
in 1994 in U.S. mailing. Offsetting these factors was the favorable gross margin
realized from the 1995 USPS rate change.
THE RATIO OF COST OF RENTALS AND FINANCING TO RELATED REVENUE improved to 29.4%
in 1995 compared with 32.3% in 1994. The improvement was attributable to growth
in fee income, which has minimal costs associated with it; improved equipment
rental margins in the U.S.; a lower cost base supporting higher-earning asset
levels; and fewer sales, in 1995, of lower-margin lease assets. Amortization of
purchased mortgage rights served to partially offset the decrease in the ratio
of costs to related rental and financing revenue.
As a part of the company's direction toward new technology in transitioning to
all-electronic postage meters, and to meet postal needs, the estimated service
lives of postage meters was revised effective January 1, 1995. The meter base
has been segregated according to technology content. Mechanical meters, which at
December 31, 1995 constituted approximately 50% of the meter base, had their
depreciable lives shortened, while electronic meters had their depreciable lives
lengthened due to enhanced security, functionality and limited risk of
technological obsolescence. These changes in depreciable lives were accounted
for as a change in accounting estimate and were not material to 1995 results of
operations.
SELLING, SERVICE AND ADMINISTRATIVE EXPENSES TO REVENUE decreased to 34.6%
compared to 35.7% in 1994. The improvement was a result of more efficient
operations emanating from the strategic focus initiatives commenced in 1994,
which made operations more efficient in 1995. An outgrowth of such initiatives,
in part, was the favorable experience within some of the company's benefit
plans. The improvement in this ratio was achieved despite the inclusion in 1994
of a patent royalty settlement and a special cash payment received relative to
Wheeler, a former subsidiary of the company.
RESEARCH AND DEVELOPMENT EXPENSES increased by 4% as a result of our focus on
advanced product development, with an emphasis on electronic technology and
software, and the required higher expenditure on new products as they approach
the end of their development cycle. In 1995, a smaller portion of our
engineering activities were in support of newly introduced products.
NET INTEREST increased 16% as a result of higher interest rates coupled with
higher average levels of borrowing. The increased borrowing occurred primarily
at the financial services businesses and was used to support continued
investments in finance assets. Borrowings at the corporate level related to
common stock repurchases made in anticipation of the sale proceeds on Monarch
and Dictaphone. Any future changes to the interest rate environment could affect
the company's borrowing strategies. The company's swap-adjusted variable-rate
versus fixed-rate debt mix was 57% and 43%, respectively, at December 31, 1995.
Through December 31, 1995, the company successfully implemented the plan adopted
in the third quarter of 1994, which was designed to address the impact of
technology on workforce requirements and to further refine its strategic focus
on core businesses. The plan resulted in a $93.2 million charge against earnings
in 1994. The details of this plan are discussed in Note 13 to the Consolidated
Financial Statements. The company made severance and benefit payments of
approximately $49 million, the majority of which were paid in 1995, to nearly
1,500 employees separated under the strategic focus initiatives. Completion of
the actions contemplated under the strategic initiatives cost the company
approximately $5 million in excess of that initially provided in 1994. This
excess was recorded in selling, service and administrative expense in 1995.
Also, the company has written down assets and incurred certain other exit costs,
as planned, by approximately $19 million and $3 million, respectively, the
majority of which occurred in 1994. Management believes that the remaining
reserve of approximately $23 million, most of which is committed to severance
and benefit payments to separated employees, is adequate to complete the actions
identified in the plan. Benefits from the strategic focus initiatives (primarily
reduced employee expense) were offset, in part, by increased hiring and training
expenses to obtain employees with requisite skills.
OPERATING PROFIT, excluding the impact of nonrecurring items in 1994, increased
9% with business equipment reflecting growth of 8%, business services 21% and
commercial and industrial financing 16%. The operating profit performance in the
business equipment segment reflects strong performances by mailing and facsimile
businesses in the U.S. and internationally as well as the copier business in the
U.S. In the fourth quarter 1995, incremental installation and service costs
approximating $9 million were paid to our non-U.S. operations by our U.S.
manufacturing organization to support certain new product introductions. All
businesses contributed to the operating profit growth in the business services
segment. Operating profit grew in the commercial and industrial financing
segment despite increasing interest rates
20
<pg$pcn>
and lower contributions from asset sales. Lower credit loss provisions together
with higher fee income also contributed to the growth in operating profit.
Inclusive of the nonrecurring charges, the operating profit growth, overall, was
5% with the business equipment and commercial and industrial financing segments
growing their respective operating profit by 4% and 16%, while the business
services segment reflected a 3% decrease in operating profit.
THE EFFECTIVE TAX RATE was 34.1% in 1995 compared to 38.5% in 1994. The 1994
effective tax rate includes the impact of approximately $28 million of strategic
actions for which we could not realize associated tax benefits. Excluding these
nonrecurring items, the 1994 tax rate was 36.3%. The 1995 effective rate
benefited from tax benefits from a company-owned life insurance investment, as
well as a higher level of tax-exempt income and lower taxes on foreign
operations.
OTHER MATTERS
On June 29, 1995, the company sold Monarch Marking Systems, Inc. (Monarch) for
approximately $127 million in cash, subject to post-closing adjustments, to a
new company jointly formed by Paxar Corporation and Odyssey Partners, L.P. On
August 11, 1995, the company sold Dictaphone Corporation (Dictaphone) for
approximately $450 million in cash, subject to post-closing adjustments, to an
affiliate of Stonington Partners, Inc. The sales of Dictaphone and Monarch
resulted in gains approximating $155 million, net of approximately $130 million
of income taxes. Dictaphone and Monarch have been classified in the Consolidated
Statement of Income as discontinued operations; revenue and income from
continuing operations exclude the results of Dictaphone and Monarch for all
periods presented. See Note 12 to the Consolidated Financial Statements.
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112), was adopted in 1994. The one-time effect of
doing so was a non-cash, after-tax charge of $119.5 million (net of
approximately $80.5 million of income taxes), or 76 cents per share. For
additional information see Note 11 to the Consolidated Financial Statements.
ACCOUNTING CHANGES
The company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (FAS 121), on January 1, 1996. The company periodically reviews
the fair value of long-lived assets, the results of which have had no material
affect on the company's reported results.
The company adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" (FAS 122), on January 1, 1996. FAS
122 requires that capitalized mortgage servicing rights be assessed periodically
for impairment based on the fair value of those rights. Based on evaluations
performed throughout the year, no impairment was recognized in the company's
mortgage servicing rights portfolio.
The company also adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), on January 1, 1996. Under
FAS 123, companies can, but are not required to, elect to recognize compensation
expense for all stock-based awards, using a fair value methodology. The company
has adopted the disclosure only provisions, as permitted by FAS 123. Additional
information with respect to accounting for stock options is disclosed in Note 8
to the Consolidated Financial Statements.
In 1996, Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(FAS 125), was issued. This statement may impact the method used to sell finance
assets on a prospective basis. This statement must be adopted effective January
1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our current ratio of current assets to current liabilities improved from .60 to
1 on December 31, 1995 to .67 to 1 on December 31, 1996 as we reduced our
short-term borrowings in favor of long-term debt. During 1996, we enter into
interest rate swap agreements, primarily through our financial services
business. To mitigate the impact of interest rate swings, our policy is to use a
balanced mix of debt maturities, variable- and fixed-rate debt and, in certain
circumstances, interest rate swap agreements when economic benefits are clear.
As we said earlier, swap agreements are used to fix or lower interest rates on
commercial loans than we would otherwise have been able to get without the swap.
<TABLE>
<CAPTION>
CURRENT RATIO
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
.52 .60 .67
</TABLE>
21
<pg$pcn>
The ratio of total debt to total debt and stockholders' equity was 60.5% on
December 31, 1996, versus 62.2% at the end of 1995. When calculating this ratio
we included preferred stock in a subsidiary company as debt. If you exclude this
preferred stock in the calculation, the ratio of total debt to total debt and
stockholders' equity was 59.0% as of December 31, 1996 versus 60.7% at December
31, 1995. The company's strong results favorably affected this ratio. The $144
million repurchase of approximately 2.9 million shares of common stock and the
investment to support increased Pitney Bowes' product financing partially offset
the improvement in the ratio.
We spent $17 million and $45 million in cash in 1996 and 1995, respectively, on
severance and benefits to support the company's strategic focus initiative
described in Note 13 of the Consolidated Financial Statements. As of December
31, 1996, the company has successfully completed its plan.
The company has a $100 million medium-term note program in place. Under this
program maturity dates can be from more than one year to 30 years. This program
had $32 million still available as of December 31, 1996. We also have another
$300 million available on shelf registration statements filed with the
Securities and Exchange Commission (SEC). Pitney Bowes Credit Corporation
(PBCC), a wholly-owned subsidiary of the company, has $250 million available
under a $625 million shelf registration statement filed with the SEC. We believe
that this amount should cover PBCC's financing needs during 1997.
In July 1996, PBCC issued $300 million of medium-term notes: $200 million at
6.54% due in July 1999, and $100 million at 6.78% due in July 2001. In September
1996, PBCC issued $200 million of medium-term notes: $100 million at 6.305% due
in October 1998, and $100 million at 6.8% due in October 2001.
To better manage our international cash and investments, in June 1995, Pitney
Bowes International Holdings, Inc. (PBIH), a subsidiary of the company, issued
$200 million of variable-term, voting preferred stock (par value $.01)
representing 25% of the combined voting power of all classes of its outstanding
capital stock, to outside institutional investors in a private placement. The
remaining 75% of the voting power is held directly or indirectly by Pitney Bowes
Inc. The preferred stock is recorded on the Consolidated Balance Sheet as
"Preferred Stockholders' Equity in a Subsidiary Company." We used the proceeds
of this transaction to pay down short-term debt. We have an obligation to pay
cumulative dividends on this preferred stock. These rates are set at auction.
The auction periods are generally 49 days, although they may increase in the
future. The weighted average dividend rate in 1996 and 1995 was 4% and 4.3%,
respectively. Dividends are recorded in the Consolidated Statement of Income as
minority interest, and are included in selling, service and administrative
expenses.
As of December 31, 1996, Pitney Bowes, including financial services, had unused
lines of credit and revolving credit facilities of $1.8 billion (including $1.5
billion at the financial services businesses) in the U.S. and $93 million
outside the U.S., largely supporting commercial paper debt. We believe our
financing needs for the next few years can be met with cash generated internally
and with money from existing credit agreements, debt issued under shelf
registration statements and existing commercial and medium-term note programs.
Information on the maturities of these various debts is in Note 5 to the
Consolidated Financial Statements.
Total financial services assets increased to $5.6 billion at year-end 1996, up
5% from $5.4 billion in 1995. To fund finance assets, borrowings were $3.8
billion in 1996 and $3.7 billion in 1995. Approximately $430 million and $100
million in cash was generated from the sale of finance assets in 1996 and 1995,
respectively. We used the money to fund new business development, reducing our
need for borrowings.
CAPITAL INVESTMENT
During 1996, net investments in fixed assets included net additions of $75
million to property, plant and equipment and $200 million to rental equipment
and related inventories compared with $100 million and $225 million,
respectively, in 1995. These additions included expenditures for normal plant
and manufacturing equipment as well as, in 1995, a new facility in Shelton,
Connecticut. In the case of rental equipment, the additions included the
production of postage meters and the purchase of facsimile and copier equipment
for new placements and upgrade programs.
As of December 31, 1996, commitments for the acquisition of property, plant and
equipment reflected plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs.
LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS
LEGAL In the course of normal business, the company is occasionally party to
lawsuits. These may involve litigation by or against the company relating to,
among other things:
- - contractual rights under vendor, insurance or other contracts
- - intellectual property or patent rights
- - equipment, service or payment disputes with customers
- - disputes with employees
We are currently a defendant in a number of lawsuits, none of which should have,
in the opinion of management and legal counsel, a material adverse effect on the
company's financial position or results of operations.
22
<pg$pcn>
ENVIRONMENTAL Pitney Bowes is subject to federal, state and local laws and
regulations relating to the environment and is currently named as a member of
various groups of potentially responsible parties in administrative or court
proceedings. As we previously announced, in 1996 the Environmental Protection
Agency (EPA) issued an administrative order directing us to be part of a soil
cleanup program at the Sarney Farm site in Amenia, New York. The site was
operated as a landfill between the years 1968 and 1970 by parties unrelated to
Pitney Bowes, and wastes from a number of industrial sources were disposed of
there. We do not concede liability for the condition of the site, but are
working with the EPA to identify, and then seek reimbursement from, other
potentially responsible parties. We estimate the total cost of our remediation
effort to be in the range of $3 million to $5 million over the next 18 months.
The administrative and court proceedings referred to above are in different
states. It is impossible for us to estimate with any certainty the total cost of
remediating, the timing or extent of remedial actions which may be required by
governmental authorities, or the amount of liability, if any, we might have. If
and when it is possible to make a reasonable estimate of our liability in any of
these matters, we will make financial provisions as appropriate. Based on the
facts we presently know, we believe that the outcome of any current proceeding
will not have a material adverse effect on our financial condition or results of
operations.
REGULATION In June 1995, the USPS issued final regulations on the manufacture,
distribution and use of postage meters. The regulations cover four general
categories: meter security, administrative controls, Computerized Meter
Resetting Systems (CMRS) and other issues.
In general, the regulations put reporting and performance obligations on meter
manufacturers, outline potential administrative sanctions for failure to meet
these obligations and require changes in the fund management system of CMRS
(such as the company's Postage By Phone(R) system) to give the USPS more direct
control over meter licensee deposits.
We are working with the USPS to ensure that these regulations provide mailing
customers and the USPS with the intended benefits, and that Pitney Bowes also
benefits. We have begun to implement these changes, including modifying our
Postage By Phone(R) system so that customers deposit prepayments of postage into
a USPS account rather than a trust account. Resetting meters through Postage By
Phone(R) still requires the customer to request an authorization and a reset
code from Pitney Bowes, a service for which we charge a fee. We continue to
believe that the financial impact of implementing these regulations will not be
material to the company.
In May 1996, the USPS issued a proposed schedule for the phaseout of mechanical
meters in the United States marketplace. The schedule proposes that:
- - as of June 1, 1996, placements of mechanical meters will be available only as
replacements for existing licensed mechanical meters
- - as of March 1, 1997, mechanical meters may not be used by persons or firms who
process mail for a fee
- - as of December 31, 1997, mechanical meters that interface with mail machines
or processors will no longer be approved
- - as of March 1, 1999, all other mechanical meters (stand-alone meters) will no
longer be approved
The company has voluntarily halted new placements of mechanical meters in the
United States as of June 1, 1996.
We continue to work with the USPS to finalize a mechanical meter migration
schedule that reflects the interests of our customers while minimizing any
negative impact on Pitney Bowes. Our constant focus on bringing new technologies
into the mailing market has already resulted in a significant shift in the
makeup of our meter base. In the last 10 years, 1986 to 1996, the percentage of
electronic meters in our U.S. installed base has risen from 6% to nearly 60%.
Until a mechanical meter migration plan is finalized, the financial impact, if
any, on the company cannot be determined with certainty. However, based on the
proposed schedule we believe that the plan will not cause a material adverse
financial impact on the company.
The May 1996 USPS proposed document also discusses a change in metering
technology that would include use of a digital, information-based indicia
standard. This standard has not yet been developed, although initial
specifications were proposed by the USPS in July 1996. At some undetermined date
in the future, the USPS believes that digital metering will eventually replace
electronic metering in the United States. We support a digital product migration
strategy, and we anticipate working with the USPS to achieve a timely and
effective substitution plan. However, until the USPS finalizes standards for a
digital information-based indicia program (and clarifies transition to the new
standard), the impact of this proposal, if any, on the company cannot be
determined. We have taken the lead in deploying digital meters in the
marketplace, with over 100,000 digital printing meters already placed into
service during 1995 and 1996.
23
<pg$pcn>
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Inflation, although moderate in recent years, continues to affect worldwide
economies and the way companies operate. It increases labor costs and operating
expenses, and raises costs associated with replacement of fixed assets such as
rental equipment. Despite these growing costs and the USPS meter migration
initiatives, 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.
Although not affecting income, deferred translation gains amounted to $16
million and $6 million in 1996 and 1994 versus losses of $1 million in 1995. In
1996, translation gains resulted primarily from the strengthening of the pound
sterling and the Canadian dollar. In 1995, translation losses resulted primarily
due to the weakening of the pound sterling.
The results of the company's international operations are subject to currency
fluctuations, and we enter into foreign exchange contracts (for purposes other
than trading) primarily to minimize our risk of loss from such fluctuations.
Exchange rates can impact settlement of our firm and budgeted intercompany
receivables and payables that result from transfers of finished goods
inventories between our affiliates in different countries, and intercompany
loans.
As of December 31, 1996, the company had approximately $153.1 million of
outstanding foreign exchange contracts to buy or sell various currencies. These
mature through 1997. Risks are possible if counterparties don't meet the terms
of their contracts or if there are movements in securities values, interest
and/or exchange rates. However, because the counterparties are composed of a
number of major international financial institutions, we believe it is unlikely
that they will not meet their contract terms. Our maximum risk of loss on these
contracts is limited to the amount of the difference between the spot rate at
the date of the contract delivery and the contracted rate.
DIVIDEND POLICY
The Pitney Bowes board of directors has a policy to pay a cash dividend on
common stock each quarter when feasible. In setting dividend payments, the board
considers the dividend rate in relation to the company's recent and projected
earnings and its capital investment opportunities and requirements. Pitney Bowes
has paid a dividend each year since 1934.
FORWARD-LOOKING STATEMENTS
Pitney Bowes wants to caution readers that any forward-looking statements (those
which talk about the company's or management's current expectations as to the
future) in this Annual Report or made by company management involve risks and
uncertainties which may change based on various important factors. Some of the
factors which could cause future financial performance to differ materially from
the expectations as expressed in any forward-looking statement made by or on
behalf of the company include:
- - changes in postal regulations
- - timely development and acceptance of new products
- - success in gaining product approval in new markets where regulatory approval
is required
- - successful entry into new markets
- - mailers' utilization of alternative means of communication or competitors'
products
- - our success at managing customer credit risk
24
<pg$pcn>
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 3,858,579 $ 3,554,754 $ 3,270,613 $ 3,000,386 $ 2,887,583
Costs and expenses 3,174,196 2,935,823 2,729,472 2,501,526 2,475,629
Nonrecurring items, net -- -- (25,366) -- --
------------- ------------- ------------- ------------- -------------
Income from continuing operations
before income taxes 684,383 618,931 566,507 498,860 411,954
Provision for income taxes 214,970 211,222 218,077 193,166 151,215
------------- ------------- ------------- ------------- -------------
Income from continuing operations 469,413 407,709 348,430 305,694 260,739
Discontinued operations -- 175,431 45,161 47,495 54,129
Effect of accounting changes -- -- (119,532) -- (214,631)
------------- ------------- ------------- ------------- -------------
Net income $ 469,413 $ 583,140 $ 274,059 $ 353,189 $ 100,237
============= ============= ============= ============= =============
Income per common and common share equivalent:
Continuing operations $ 3.12 $ 2.68 $ 2.21 $ 1.92 $ 1.64
Discontinued operations -- 1.15 .29 .30 .34
Effect of accounting changes -- -- (.76) -- (1.35)
------------- ------------- ------------- ------------- -------------
Net income $ 3.12 $ 3.83 $ 1.74 $ 2.22 $ .63
============= ============= ============= ============= =============
Total dividends on common, preference
and preferred stock $ 206,115 $ 181,657 $ 162,714 $ 142,142 $ 123,112
Dividends per share of common stock $ 1.38 $ 1.20 $ 1.04 $ .90 $ .78
Average common and common share
equivalents outstanding 150,640,237 152,358,474 157,728,628 159,368,652 159,235,412
BALANCE SHEET AT DECEMBER 31
Total assets $ 8,155,722 $ 7,844,648 $ 7,399,720 $ 6,793,816 $ 6,498,752
Long-term debt $ 1,300,434 $ 1,048,515 $ 779,217 $ 847,316 $ 1,015,401
Capital lease obligations $ 12,631 $ 14,241 $ 23,147 $ 29,462 $ 32,161
Stockholders' equity $ 2,239,046 $ 2,071,100 $ 1,745,069 $ 1,871,595 $ 1,652,881
Book value per common share $ 15.11 $ 13.79 $ 11.52 $ 11.81 $ 10.50
RATIOS
Profit margin - continuing operations:
Pre-tax earnings 17.7% 17.4% 17.3% 16.6% 14.3%
After-tax earnings 12.2% 11.5% 10.7% 10.2% 9.0%
Return on stockholders' equity -
before accounting changes 21.0% 28.2% 22.6% 18.9% 19.0%
Debt to total capital 60.5% 62.2% 66.3% 61.3% 64.5%
OTHER
Common stockholders of record 32,258 32,859 31,226 31,189 30,828
Total employees 28,625 27,723 32,792 32,539 28,958
Postage meters in service in the U.S.,
U.K. and Canada 1,494,157 1,517,806 1,480,692 1,445,689 1,413,448
</TABLE>
See notes, pages 30 through 45
25
<pg$pcn>
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue from:
Sales $ 1,675,090 $ 1,546,393 $ 1,418,304
Rentals and financing 1,717,738 1,575,094 1,441,183
Support services 465,751 433,267 411,126
----------- ----------- -----------
Total revenue 3,858,579 3,554,754 3,270,613
----------- ----------- -----------
Costs and expenses:
Cost of sales 1,025,250 941,124 828,221
Cost of rentals and financing 529,740 463,601 466,070
Selling, service and administrative 1,340,276 1,230,671 1,167,422
Research and development 81,726 81,800 78,618
Interest expense 203,877 226,110 194,115
Interest income (6,673) (7,483) (4,974)
Nonrecurring items, net -- -- (25,366)
----------- ----------- -----------
Total costs and expenses 3,174,196 2,935,823 2,704,106
----------- ----------- -----------
Income from continuing operations before
income taxes 684,383 618,931 566,507
Provision for income taxes 214,970 211,222 218,077
----------- ----------- -----------
Income from continuing operations 469,413 407,709 348,430
Income, net of income tax, from
discontinued operations prior to discontinuance -- 21,483 45,161
Net gains on sale of discontinued operations -- 153,948 --
----------- ----------- -----------
Income before effect of a change in
accounting for postemployment benefits 469,413 583,140 393,591
Effect of a change in accounting
for postemployment benefits -- -- (119,532)
----------- ----------- -----------
Net income $ 469,413 $ 583,140 $ 274,059
=========== =========== ===========
Income per common and common share equivalent:
Income from continuing operations $ 3.12 $ 2.68 $ 2.21
Discontinued operations -- 1.15 .29
Effect of a change in accounting
for postemployment benefits -- -- (.76)
----------- ----------- -----------
Net income $ 3.12 $ 3.83 $ 1.74
=========== =========== ===========
</TABLE>
See notes, pages 30 through 45
26
<pg$pcn>
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 135,271 $ 85,352
Short-term investments, at cost which approximates market 1,500 3,201
Accounts receivable, less allowances: 1996, $16,160; 1995, $13,050 340,730 386,727
Finance receivables, less allowances: 1996, $40,176; 1995, $37,699 1,339,286 1,208,532
Inventories 281,942 311,271
Other current assets and prepayments 123,337 106,014
----------- -----------
Total current assets 2,222,066 2,101,097
Property, plant and equipment, net 486,029 495,001
Rental equipment and related inventories, net 815,306 773,337
Property leased under capital leases, net 5,848 7,876
Long-term finance receivables, less allowances: 1996, $73,561; 1995, $75,807 3,450,231 3,390,597
Investment in leveraged leases 633,682 570,008
Goodwill, net of amortization: 1996, $34,372; 1995, $30,504 205,802 208,698
Other assets 336,758 298,034
----------- -----------
Total assets $ 8,155,722 $ 7,844,648
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 849,789 $ 818,122
Income taxes payable 212,155 232,794
Notes payable and current portion of long-term obligations 1,911,481 2,138,065
Advance billings 331,864 312,595
----------- -----------
Total current liabilities 3,305,289 3,501,576
Deferred taxes on income 720,840 612,811
Long-term debt 1,300,434 1,048,515
Other noncurrent liabilities 390,113 410,646
----------- -----------
Total liabilities 5,716,676 5,573,548
----------- -----------
Preferred stockholders' equity in a subsidiary company 200,000 200,000
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 46 47
Cumulative preference stock, no par value, $2.12 convertible 2,369 2,547
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 30,260 30,299
Retained earnings 2,450,294 2,186,996
Cumulative translation adjustments (31,297) (46,991)
Treasury stock, at cost (13,688,769 shares) (535,964) (425,136)
----------- -----------
Total stockholders' equity 2,239,046 2,071,100
----------- -----------
Total liabilities and stockholders' equity $ 8,155,722 $ 7,844,648
=========== ===========
</TABLE>
See notes, pages 30 through 45
27
<pg$pcn>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 469,413 $ 583,140 $ 274,059
Net gains on sale of discontinued operations -- (153,948) --
Effect of a change in accounting for postemployment benefits -- -- 119,532
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 278,168 271,648 268,293
Nonrecurring items, net -- -- (25,710)
Net change in the strategic focus initiative (16,826) (45,078) (3,386)
Increase in deferred taxes on income 106,298 148,828 119,180
Change in assets and liabilities:
Accounts receivable 49,187 (18,696) (8,500)
Sales-type lease receivables (225,565) (146,010) (173,691)
Inventories 35,256 9,788 (43,801)
Other current assets and prepayments (14,467) (7,519) (22,762)
Accounts payable and accrued liabilities 43,125 28,517 14,658
Income taxes payable (21,281) (96,436) (332)
Advance billings 16,715 22,637 12,826
Other, net (80,103) (88,339) (40,827)
--------- --------- ---------
Net cash provided by operating activities 639,920 508,532 489,539
--------- --------- ---------
Cash flows from investing activities:
Short-term investments 548 (2,553) 600
Net investment in fixed assets (271,972) (337,718) (345,593)
Net investment in direct-finance lease receivables 50,494 (316,343) (72,170)
Investment in leveraged leases (63,320) (141,898) (125,775)
Proceeds from sales of subsidiaries -- 577,000 --
Net investment in companies acquired (8,340) -- --
--------- --------- ---------
Net cash used in investing activities (292,590) (221,512) (542,938)
--------- --------- ---------
Cash flows from financing activities:
(Decrease) increase in notes payable (467,838) (432,418) 555,457
Proceeds from long-term obligations 500,000 275,000 200,000
Principal payments on long-term obligations (12,181) (66,734) (275,333)
Proceeds from issuance of stock 31,201 26,999 22,702
Stock repurchases (144,475) (98,038) (268,419)
Proceeds from preferred stock issued by a subsidiary -- 200,000 --
Dividends paid (206,115) (181,657) (162,714)
--------- --------- ---------
Net cash (used in) provided by financing activities (299,408) (276,848) 71,693
--------- --------- ---------
Effect of exchange rate changes on cash 1,997 74 2,159
--------- --------- ---------
Increase in cash and cash equivalents 49,919 10,246 20,453
Cash and cash equivalents at beginning of year 85,352 75,106 54,653
--------- --------- ---------
Cash and cash equivalents at end of year $ 135,271 $ 85,352 $ 75,106
========= ========= =========
Interest paid $ 204,596 $ 228,460 $ 203,747
========= ========= =========
Income taxes paid $ 111,176 $ 163,745 $ 99,379
========= ========= =========
</TABLE>
See notes, pages 30 through 45
28
<pg$pcn>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
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, 1994 $ 68 $ 2,969 $ 323,338 $ 36,762 $1,674,168 $ (47,319) $ (118,391)
Net income - 1994 274,059
Cash dividends:
Preferred ($2.00 per share) (2)
Preference ($2.12 per share) (223)
Common ($1.04 per share) (162,489)
Issuances under dividend
reinvestment and stock plans (801) 23,635
Conversions to common stock (20) (179) (1,813) 2,012
Issuance for company acquired 40 960
Repurchase of common stock (268,419)
Translation adjustments 5,702
Tax credits relating to stock options 1,012
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1994 48 2,790 323,338 35,200 1,785,513 (41,617) (360,203)
Net income - 1995 583,140
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (261)
Common ($1.20 per share) (181,395)
Issuances under dividend
reinvestment and stock plans (4,047) 30,594
Conversions to common stock (1) (243) (2,267) 2,511
Repurchase of common stock (98,038)
Translation adjustments (5,374)
Tax credits relating to stock options 1,413
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 47 2,547 323,338 30,299 2,186,996 (46,991) (425,136)
Net income - 1996 469,413
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (194)
Common ($1.38 per share) (205,920)
Issuances under dividend
reinvestment and stock plans (2,441) 31,649
Conversions to common stock (1) (178) (1,819) 1,998
Repurchase of common stock (144,475)
Translation adjustments 15,694
Tax credits relating to stock options 4,221
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 $ 46 $ 2,369 $ 323,338 $ 30,260 $2,450,294 $ (31,297) $ (535,964)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See notes, pages 30 through 45
29
<pg$pcn>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND ACCOUNTS RECEIVABLE
Cash equivalents include short-term, highly liquid investments with a maturity
of three months or less from date of acquisition. The company places its
temporary cash and short-term investments with financial institutions and limits
the amount of credit exposure with any one financial institution. Concentrations
of credit risk with respect to accounts receivable are limited due to the large
number of customers and relatively small account balances within the majority of
the company's customer base, and their dispersion across different businesses
and geographic areas.
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 and depreciated principally
using the straight-line method over appropriate periods: machinery and equipment
principally three to 15 years and buildings up to 50 years. 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 over appropriate periods,
principally three to ten years. 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.
ASSET VALUATION
The company periodically reviews the fair value of long-lived assets and
capitalized mortgage servicing rights for impairment.
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
judgment 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.
The company has, from time to time, sold selected finance assets. The company
follows Statement of Financial Accounting Standards No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse" (FAS 77), when
accounting for its sale of finance assets. The difference between the sale price
and the net receivable, exclusive of residuals, is recognized as a gain or loss.
30
<pg$pcn>
The company's investment in leveraged leases consists of rentals receivable net
of principal and interest on the related nonrecourse debt, estimated residual
value of the leased property and unearned income. The unearned income is
recognized as leveraged lease revenue in income from investments over the lease
term.
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. The recoverability of
goodwill is assessed by determining whether the unamortized balance can be
recovered from expected future cash flows from the applicable operation.
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 expense 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 currently 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 $449 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
$13 million.
NONPENSION POSTRETIREMENT BENEFITS AND
POSTEMPLOYMENT BENEFITS
The company provides certain health care and life insurance benefits to eligible
retirees and their dependents. The cost of these benefits is recognized over the
period the employee provides credited service to the company. 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. Postemployment benefits include primarily company-provided
medical benefits to disabled employees and company-provided life insurance as
well as other disability- and death-related benefits to former or inactive
employees, their beneficiaries and covered dependents. It is the company's
practice to fund amounts for these nonpension postretirement and postemployment
benefits as incurred.
INCOME PER SHARE
Income per share is based on the weighted average number of common and common
share equivalents outstanding during the year. Common share equivalents include
preference stock and stock option and purchase plan shares.
POSTAGE DEPOSITS
The company's U.S. customers using the Pitney Bowes Postage By Phone(R) meter
setting system, a computerized system developed by the company for the resetting
of postage meters via telephone, can elect to make deposits directly with the
U.S. Postal Service to cover expected postage usage. Such customers can also
elect, for a fee, to have Pitney Bowes pay the postage to the U.S. Postal
Service under a revolving credit product called Purchase Power(SM). The company
earns income on balances from customers who elect to use our credit facilities.
Resetting fees received by the company are not affected by the customers' choice
of payment method.
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 are
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 for purposes other than
trading primarily to minimize its risk of loss from exchange rate fluctuations
on the settlement of firm and budgeted intercompany receivables and payables
arising in connection with transfers of finished goods inventories between
affiliates and certain intercompany loans. Gains and losses on foreign exchange
contracts entered into as hedges are deferred and recognized as part of the cost
of the underlying transaction. Gains and losses related to changes in the value
of speculative contracts are recognized in income currently. At December 31,
1996, the company had approximately $153.1 million of foreign exchange contracts
outstanding, maturing through 1997, to buy or sell various currencies. Risks
arise from the possible non-performance by counterparties in meeting the terms
of their contracts and from movements in securities values and interest and
31
<pg$pcn>
exchange rates. However, the company does not anticipate non-performance by the
counterparties as they are composed of a number of major international financial
institutions. Maximum risk of loss on these contracts is limited to the amount
of the difference between the spot rate at the date of the contract delivery and
the contracted rate.
Foreign currency transaction and translation (losses) and gains net of tax were
$(0.5) million, $1.6 million and $0.1 million in 1996, 1995 and 1994,
respectively.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31 1996 1995
-------- --------
<S> <C> <C>
Raw materials and
work in process $ 58,536 $ 57,203
Supplies and service parts 103,182 87,863
Finished products 120,224 166,205
-------- --------
Total $281,942 $311,271
======== ========
</TABLE>
Had all inventories valued at LIFO been stated at current costs, inventories
would have been $37.3 million and $40.1 million higher than reported at December
31, 1996 and 1995, respectively.
3. FIXED ASSETS
<TABLE>
<CAPTION>
December 31 1996 1995
----------- -----------
<S> <C> <C>
Land $ 34,859 $ 34,860
Buildings 304,631 303,559
Machinery and equipment 754,011 733,810
----------- -----------
1,093,501 1,072,229
Accumulated depreciation (607,472) (577,228)
----------- -----------
Property, plant and equipment, net $ 486,029 $ 495,001
=========== ===========
Rental equipment and
related inventories $ 1,634,111 $ 1,591,321
Accumulated depreciation (818,805) (817,984)
----------- -----------
Rental equipment and
related inventories, net $ 815,306 $ 773,337
=========== ===========
Property leased under
capital leases $ 24,124 $ 25,468
Accumulated amortization (18,276) (17,592)
----------- -----------
Property leased under
capital leases, net $ 5,848 $ 7,876
=========== ===========
</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 1996 1995
---------- ----------
<S> <C> <C>
Accounts payable - trade $ 245,274 $ 216,715
Accrued salaries, wages and
commissions 90,452 86,243
Accrued pension benefits 77,323 97,937
Accrued nonpension
postretirement benefits 15,500 15,500
Accrued postemployment benefits 6,884 6,884
Miscellaneous accounts payable
and accrued liabilities 414,356 394,843
---------- ----------
Accounts payable and
accrued liabilities $ 849,789 $ 818,122
========== ==========
Notes payable and overdrafts $1,656,574 $2,124,044
Current portion of long-term debt 253,190 12,296
Current portion of capital lease
obligations 1,717 1,725
---------- ----------
Notes payable and current portion
of long-term obligations $1,911,481 $2,138,065
========== ==========
</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 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 $1.5 million, $1.8 million and
$2.6 million in 1996, 1995 and 1994, respectively.
At December 31, 1996, notes payable and overdrafts outside the U.S. totaled $1.2
million and U.S. notes payable totaled $1.7 billion. Unused credit facilities
outside the U.S. totaled $96.9 million at December 31, 1996 of which $50.2
million were for finance operations. In the U.S., the company had $1.8 billion
of unused credit facilities in place at December 31, 1996, largely in support of
commercial paper borrowings, of which $1.5 billion were for the finance
operations. The weighted average interest rates were 4.9% and 5.5% on notes
payable and overdrafts outstanding at December 31, 1996 and 1995, respectively.
The company periodically enters into interest rate swap and swap option
agreements as a means of managing interest rate exposure on both its U.S. and
non-U.S. debt. The interest differential to be paid or received is recognized
over the life of the agreements as an adjustment to interest expense. The
company is exposed to credit losses in the event of non-performance by the other
parties
32
<pg$pcn>
to the interest rate swap agreements to the extent of the differential between
the fixed- and variable-rates; such exposure is considered minimal.
The company enters into interest rate swap agreements primarily through its
Pitney Bowes Credit Corporation (PBCC) subsidiary. It has been the policy and
objective of the company to use a balanced mix of debt maturities, variable- and
fixed-rate debt and interest rate swap agreements to control its sensitivity to
interest rate volatility. The Company's variable-rate versus fixed-rate debt mix
was 41% and 59%, respectively, at December 31, 1996. The company utilizes
interest rate swap agreements when it considers the economic benefits to be
favorable. Swap agreements, as noted above, have been principally utilized to
fix interest rates on commercial paper and/or obtain a lower cost on debt than
would otherwise be available absent the swap. At December 31, 1996, the company
had outstanding interest rate swap agreements with notional principal amounts of
$327.8 million and terms expiring at various dates from 1997 to 2004. The
company exchanged variable commercial paper rates on an equal notional amount of
notes payable and overdrafts for fixed rates ranging from 6.5% to 10.75%.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31 1996 1995
---------- ----------
<S> <C> <C>
Non-financial services debt:
Due 1998-2001 (4.75% to 5.5%) $ 3,730 $ 688
Financial services debt:
Senior notes:
7.39% to 7.48% notes due 1997 -- 45,500
5.63% notes due 1997 -- 200,000
5.84% to 6.305% notes due 1998 225,000 125,000
6.54% notes due 1999 200,000 --
6.06% to 6.11% notes due 2000 50,000 50,000
6.78% to 6.80% notes due 2001 200,000 --
6.63% notes due 2002 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
Canadian dollar notes due
1997-2000 (11.05% to 12.50%) 21,020 25,371
Other, due 1997-1998 (9.92%) 684 1,956
---------- ----------
Total long-term debt $1,300,434 $1,048,515
========== ==========
</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 (SEC).
PBCC has $250 million of unissued debt securities available from a $625 million
shelf registration statement filed with the SEC in September 1995.
The annual maturities of the outstanding debt during each of the next five years
are as follows: 1997, $251.5 million; 1998, $231.9 million; 1999, $204.4
million; 2000, $63.0 million; and 2001, $200.6 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.
6. PREFERRED STOCKHOLDERS' EQUITY IN A SUBSIDIARY COMPANY
Preferred stockholders' equity in a subsidiary company represents 2,000,000
shares of the outstanding preferred stock of Pitney Bowes International
Holdings, Inc., a subsidiary of the company, which are owned by certain outside
institutional investors. These preferred shares are entitled to 25% of the
combined voting power of all classes of capital stock. All outstanding common
stock of Pitney Bowes International Holdings, Inc., representing the remaining
75% of the combined voting power of all classes of capital stock, is owned
directly or indirectly by Pitney Bowes Inc. The preferred stock, $.01 par value,
is entitled to cumulative dividends at rates set at auction. The weighted
average dividend rate in 1996 and 1995 was 4.0% and 4.3%, respectively.
Preferred dividends are reflected as a minority interest in the Consolidated
Statement of Income in selling, service and administrative expense. The
preferred stock is subject to mandatory redemption based on certain events, at a
redemption price not less than $100 per share, plus the amount of any dividends
accrued or in arrears. No dividends were in arrears at December 31, 1996 or
1995.
7. CAPITAL STOCK AND CAPITAL IN EXCESS OF PAR VALUE
At December 31, 1996, 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 147,980,187 shares of common stock (net of 13,688,769 shares of
treasury stock), 923 shares of 4% Convertible Cumulative Preferred Stock (4%
preferred stock) and 87,472 shares of $2.12 Convertible Preference Stock ($2.12
preference stock) were issued and outstanding. The balance of unreserved and
unissued preferred stock (599,077 shares) and preference stock (4,912,528
shares) may be issued in the future by the board of directors, which will
determine the dividend rate, terms of redemption, terms of conversion (if any)
and other pertinent features. Unreserved and unissued common stock (exclusive of
treasury stock) at December 31, 1996 amounted to 63,845,604 shares.
33
<pg$pcn>
The 4% preferred stock outstanding, 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, 1996, an aggregate of 710,963 shares of common stock was
reserved for issuance upon conversion of the 4% preferred stock (11,187 shares)
and $2.12 preference stock (699,776 shares). In addition, 1,385,571 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. Each right entitles each holder to purchase 1/100th of a share
of Series A Junior Participating Preference Stock for $195 and will expire in
February 2006. Following a merger or certain other transactions, the rights will
entitle the holder to purchase common stock of the company or the acquirers at a
50% discount.
8. 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, 1994, shares reserved 2,292,027 $ 7 -$43
Shares offered 1994
(price approximates
market value at date of grant) 1,009,102 $32 -$40
Shares issued 1994 (519,765) $ 7 -$38
Shares canceled 1994 (152,398) $30 -$42
---------- ----------
December 31, 1994, shares reserved 2,628,966 $10 -$43
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Weighted
average
price per
Common stock Shares share
---------- ----------
<S> <C> <C>
December 31, 1994, shares reserved 2,628,966 $ 32
Shares offered 1995
(price approximates
market value at date of grant) 939,091 $ 33
Shares issued 1995 (730,199) $ 29
Shares canceled 1995 (124,229) $ 35
---------- ----------
December 31, 1995, shares reserved 2,713,629 $ 33
Shares offered 1996
(price approximates
market value at date of grant) 784,939 $ 49
Shares issued 1996 (709,690) $ 32
Shares canceled 1996 (91,864) $ 40
---------- ----------
December 31, 1996, shares reserved 2,697,014 $ 38
========== ==========
</TABLE>
As of December 31, 1996, the outstanding options had exercise prices ranging
from $20 to $55 per share. The weighted average contractual life of the
outstanding options was 6.8 years. Of the common shares reserved at December 31,
1996, options for 1,008,851 are exercisable with a weighted average exercise
price of $31.
The company has the following three stock plans:
- - The 1991 Stock Plan (ESP), under which certain employees are granted options
to purchase common stock and also awarded restricted stock.
- - The Employee Stock Purchase Plan (ESPP)
- - The Directors' Stock Plan
The company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), on January 1, 1996. Under
FAS 123, companies can, but are not required to, elect to recognize compensation
expense for all stock-based awards, using a fair value methodology. The company
has adopted the disclosure only provisions, as permitted by FAS 123. The company
applies APB Opinion 25 and related Interpretations in accounting for its stock
option plans. Accordingly, no compensation has been
34
<pg$pcn>
recognized for the ESP or the ESPP, except for the compensation cost recorded
for its performance-based awards under the ESP and the Directors' Stock Plan as
discussed herein. If the company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
FAS No. 123, the proforma effect on reported net income and earnings per share
would not have been material.
In accordance with FAS 123, the fair value method of accounting has not been
applied to options granted prior to January 1, 1995. Therefore, the resulting
proforma impact may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield 2.5% 2.5%
Expected stock price volatility 17% 17%
Risk-free interest rate 6% 6%
Expected life of options:
ESP 3 to 5 yrs 3 to 5 yrs
ESPP - U.S. 1 yr 1 yr
ESPP - U.K. 5 yrs 5 yrs
Directors' Stock Plan 10 yrs 10 yrs
</TABLE>
ESP
The company may grant options on up to 4,040,568 shares under the ESP. The
company granted options on 402,895 shares in 1996 and 512,752 shares in 1995.
Under this plan the option exercise price equals the stock's market price on
date of grant. Options become exercisable in three equal installments during the
first three years following their grant and expire after ten years. The weighted
average fair value of the grants was $10 in 1996 and $7 in 1995.
ESPP
The company may grant rights to purchase up to 5,651,324 common shares to its
regular employees under the ESPP. The company granted rights to purchase 382,044
shares in 1996 and 426,339 shares in 1995. In 1996, the offering price was 90%
of the average closing price of Pitney Bowes common stock on the New York Stock
Exchange for the 30 day period preceding the offering date. At no time will the
exercise price be less than the lowest price permitted under Section 423 of the
Internal Revenue Code. The fair value of each right granted was $7 in 1996 and
$5 in 1995 for the U.S. plan and $13 in 1996 and $9 in 1995 for the U.K. plan.
Certain executives are awarded restricted stock under the 1991 Stock Plan.
Restricted stock awards are subject to both tenure and financial performance
over three years. The restrictions on the shares are released, in total or in
part, only if the executive is still employed by the company at the end of the
performance period and if all the performance objectives are achieved. There
were 50,250 shares awarded in 1996 and 56,300 shares awarded in 1995 at no cost
to the executives. The compensation expense for each award is recognized over
the performance period. Compensation expense recorded by the company related to
these awards was $2.0 million and $.8 million in 1996 and 1995, respectively.
The weighted average fair value of each award was $46 in 1996 and $31 in 1995.
DIRECTORS' STOCK PLAN
Under this plan each nonemployee director is granted 400 shares of restricted
common stock annually as part of his or her compensation. Shares granted at no
cost to the director were 3,600 in 1996 and 3,200 in 1995. Compensation cost
recorded by the company was $175,000 and $118,000 for 1996 and 1995,
respectively. The shares carry full voting and dividend rights but may not be
transferred or alienated until the later of (1) termination of service as a
director, or, if earlier, the date of a change of control, or (2) the expiration
of the six month period following the grant of such shares. The fair value of
each share was $38 in 1996 and $29 in 1995.
9. TAXES ON INCOME
Income from continuing operations before income taxes and the provision for
income taxes consist of the following:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income from continuing operations
before income taxes:
U.S. $ 656,862 $ 566,806 $ 565,375
Outside the U.S. 27,521 52,125 1,132
--------- --------- ---------
Total $ 684,383 $ 618,931 $ 566,507
========= ========= =========
Provision for income taxes:
U.S. federal:
Current $ 42,257 $ (17,024) $ 37,644
Deferred 111,943 168,297 123,037
--------- --------- ---------
154,200 151,273 160,681
--------- --------- ---------
U.S. state and local:
Current 11,853 13,691 12,856
Deferred 29,562 26,221 31,295
--------- --------- ---------
41,415 39,912 44,151
--------- --------- ---------
Outside the U.S.:
Current 28,694 28,233 19,342
Deferred (9,339) (8,196) (6,097)
--------- --------- ---------
19,355 20,037 13,245
--------- --------- ---------
Total current 82,804 24,900 69,842
Total deferred 132,166 186,322 148,235
--------- --------- ---------
Total $ 214,970 $ 211,222 $ 218,077
========= ========= =========
</TABLE>
Including discontinued operations, current provisions for 1995 federal, state
and local and outside the U.S. would have been $87.6 million, $39.9 million and
$41.9 million, respectively. Total tax provision would have been $355.7 million.
35
<pg$pcn>
DEFERRED TAX LIABILITIES AND (ASSETS)
<TABLE>
<CAPTION>
December 31 1996 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 72,930 $ 54,469
Deferred profit
(for tax purposes) on
sales to finance subsidiaries 367,490 342,435
Lease revenue and
related depreciation 816,831 707,484
Other 103,471 77,362
----------- -----------
Deferred tax liabilities 1,360,722 1,181,750
----------- -----------
Deferred tax assets:
Nonpension postretirement
benefits (130,422) (112,201)
Pension liability (17,995) (32,219)
Inventory and equipment
capitalization (33,145) (32,775)
Net operating loss carryforwards (47,481) (52,639)
Alternative minimum
tax (AMT) credit
carryforwards (80,773) (57,194)
Postemployment benefits (19,963) (22,804)
Other (124,263) (112,715)
Valuation allowance 46,601 48,692
----------- -----------
Deferred tax assets (407,441) (373,855)
----------- -----------
Net deferred taxes $ 953,281 $ 807,895
=========== ===========
</TABLE>
Net deferred taxes includes $232.4 million and $195.1 million for 1996 and 1995,
respectively, of current deferred taxes, which are included in income taxes
payable in the Consolidated Balance Sheet.
The decrease in the deferred tax asset for net operating losses and related
valuation allowance was due mainly to the utilization of U.S. tax loss
carryforwards and a decrease in Australian tax loss carryforwards as a result of
restructuring the Australian operations. The decrease was partially offset by
losses incurred by certain foreign subsidiaries. As of December 31, 1996 and
1995, approximately $98.1 million and $113.2 million, respectively, of net
operating loss carryforwards were available to the company. Most of these
losses, as well as the company's alternative minimum tax credit, can be carried
forward indefinitely.
In 1994 through 1996, the company recognized a reduction in tax expense on
account of its investment in a life insurance program. In 1996, the company
recognized tax benefits from restructuring its Australian operations and the
related write-off of its investment in Pitney Bowes Australia Pty Limited.
A reconciliation of the U.S. federal statutory rate to the company's effective
tax rate for continuing operations follows:
<TABLE>
<CAPTION>
Percent of pre-tax income 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 3.9 4.2 5.1
Australian write-off (2.4) -- --
Life insurance investment (1.7) (2.1) (.6)
Other (3.4) (3.0) (1.0)
---- ---- ----
Effective income tax rates 31.4% 34.1% 38.5%
==== ==== ====
</TABLE>
The effective tax rate for discontinued operations in 1995 differs from the
statutory rate due primarily to state and local income taxes and nondeductible
goodwill.
36
<pg$pcn>
10. 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 ongoing pension expense amounted to $45.6 million in 1996, $52.2 million
in 1995 and $50.2 million in 1994. Net pension expense for defined benefit plans
for 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
United States Foreign
--------------------------------- ---------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits
earned during period $ 31,952 $ 33,061 $ 35,908 $ 6,046 $ 5,952 $ 5,975
Interest cost on projected benefit
obligations 69,292 68,027 65,745 10,882 10,317 10,090
Actual return on assets (114,641) (124,866) 6,880 (22,512) (17,594) (10,681)
Net amortization and (deferral) 44,574 58,831 (67,094) 9,885 5,237 (1,502)
--------- --------- --------- --------- --------- ---------
Ongoing net periodic defined benefit
pension expense 31,177 35,053 41,439 4,301 3,912 3,882
Curtailment (gain) loss charge (a) -- (13,974) -- -- 2,921 --
--------- --------- --------- --------- --------- ---------
Total pension expense $ 31,177 $ 21,079 $ 41,439 $ 4,301 $ 6,833 $ 3,882
========= ========= ========= ========= ========= =========
</TABLE>
(a) Pitney Bowes merged the pension plans of Monarch Marking Systems, Inc. and
Dictaphone Corporation into the Pitney Bowes Retirement Plan. Benefits ceased to
be accrued for active employees of Monarch and Dictaphone as of the date of the
sales resulting in a net curtailment gain of approximately $14.0 million. There
was a $2.9 million curtailment charge to the Pitney Bowes, Ltd. pension plan due
primarily to actions taken by Pitney Bowes, Ltd.
The funded status at December 31, 1996 and 1995 for the company's defined
benefit plans was:
<TABLE>
<CAPTION>
United States Foreign
---------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $ 777,064 $ 722,282 $ 139,300 $ 103,296
========= ========= ========= =========
Accumulated benefit obligations $ 858,590 $ 802,299 $ 139,569 $ 103,459
========= ========= ========= =========
Projected benefit obligations $ 995,009 $ 946,420 $ 162,613 $ 130,590
--------- --------- --------- ---------
Plan assets at fair value, primarily
stocks and bonds, adjusted by: 868,752 771,000 179,040 141,417
Unrecognized net loss (gain) 49,539 86,281 (12,983) (12,034)
Unrecognized net asset (12,636) (15,815) (11,096) (13,828)
Unamortized prior service costs
from plan amendments 20,655 22,246 7,316 7,605
--------- --------- --------- ---------
926,310 863,712 162,277 123,160
--------- --------- --------- ---------
Net pension liability $ 68,699 $ 82,708 $ 336 $ 7,430
========= ========= ========= =========
Assumptions for defined benefit plans: (a)
Discount rate 7.25% 7.25% 4.0%-8.5% 7.0%-8.5%
Rate of increase in future
compensation levels 4.25% 4.25% 2.0%-5.5% 3.0%-5.5%
Expected long-term rate of return
on plan assets 9.50% 9.50% 4.0%-9.5% 8.0%-9.5%
</TABLE>
(a) 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.
37
<pg$pcn>
11. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Net nonpension postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost -
benefits earned
during the period $ 10,445 $ 8,688 $ 10,140
Interest cost on
accumulated
postretirement
benefit obligations 17,654 18,917 19,379
Net (deferral)
and amortization (15,946) (17,920) (19,143)
-------- -------- --------
Net periodic
postretirement
benefit costs $ 12,153 $ 9,685 $ 10,376
======== ======== ========
</TABLE>
The company's nonpension postretirement benefit plans are not funded. The status
of the plans was as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees and dependents $ 206,114 $ 186,324
Fully eligible active
plan participants 53,810 52,199
Other active plan participants 44,832 63,813
Unrecognized net gain (loss) 2,047 (4,392)
Unrecognized prior service cost 37,463 53,450
--------- ---------
Accrued nonpension
postretirement benefits $ 344,266 $ 351,394
========= =========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 8.25% and 9.25% in 1996 and 1995,
respectively. This was assumed to gradually decline to 3.75% by the year 2000
and remain at that level thereafter for 1996 and 1995. A one percentage point
increase in the assumed health care cost trend rate would increase the year-end
accumulated postretirement benefit obligations by approximately $13.3 million as
of December 31, 1996 and the net periodic postretirement health care cost by
$0.9 million in 1996.
The assumed weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.25% in 1996 and 1995.
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), as of January 1,
1994. FAS 112 required that postemployment benefits be recognized on the accrual
basis of accounting. The effect of adopting FAS 112 was a one-time non-cash,
after-tax charge of $119.5 million (net of $80.5 million of income taxes), or
$.76 per share.
In 1994, as part of the company's employee work-life initiatives, employee input
was actively sought about benefits and it was concluded that employees prefer
benefits more closely related to their changing work-life needs. As a result,
the company significantly reduced or eliminated certain postemployment benefits,
specifically service-related company-subsidized life insurance, salary
continuance and medical benefits, resulting in an after-tax credit to income of
$70.9 million (net of $47.7 million of income taxes). As a further outgrowth of
this study, the company also instituted, effective January 1, 1995, certain
enhancements to its deferred investment plan, including an increase in the
company's match of employee contributions.
12. DISCONTINUED OPERATIONS
During 1995, the company sold its Monarch Marking Systems, Inc. (Monarch) and
Dictaphone Corporation (Dictaphone) subsidiaries. The sales resulted in gains
approximating $155 million, net of approximately $130 million of income taxes,
from $577 million in proceeds. Dictaphone and Monarch have been classified in
the Consolidated Statement of Income as discontinued operations.
For the years ended December 31, 1995 and 1994, Monarch and Dictaphone had
revenues of $306 million and $552 million, respectively. Net income was $21.5
million, net of $14.5 million of income taxes, in 1995 and $45.2 million, net of
$29.7 million of income taxes, in 1994.
13. NONRECURRING ITEMS, NET
During 1994, the company adopted a formal plan designed to address the impact of
technology on workforce requirements and to further refine its strategic focus
on core businesses worldwide. Accordingly, in the third quarter of 1994, the
company recorded a $93.2 million charge to income to cover the costs of such
actions. The charge anticipated $61 million of severance and benefit costs for
workforce reductions, $22 million of asset write downs and $10 million of other
exit costs. As of December 31, 1996, the company has successfully completed its
plan. As of year-end 1996, the company has made severance and benefit payments
of approximately $65 million, including an additional $5 million as discussed
below, to approximately 1,750 employees separated under these strategic focus
initiatives. The majority of these costs were expended in 1995.
The phaseout of older product lines, introduction of new, advanced products and
increased need for higher employee skill levels to deliver and service these
products resulted in a planned workforce reduction of approximately 1,700
employees worldwide and the future hiring of approximately 450 new employees
with these requisite enhanced skills upon completion of these strategic focus
initiatives. As of December 31, 1996, approximately 400 employees with the
requisite skills have been hired to produce and service advanced product
offerings. All costs associated
38
<pg$pcn>
with hiring of new employees were excluded from the charge and have been and
will continue to be recognized appropriately in the period incurred.
Current and future advanced product offerings require a smaller, but more highly
skilled engineering, manufacturing and service workforce to take full advantage
of design, production, diagnostic and service strategies. These disciplines
anticipated a workforce reduction of more than 850 employees with related
severance and benefit costs of $27 million. As of December 31, 1996, the company
has completed its intended actions relative to this portion of the initiative
having cash expenditures of approximately $27 million. Other anticipated
strategic actions included reengineering and streamlining of order flow,
logistics and other administrative processes in the U.S., Europe and the Asia
Pacific region which anticipated an additional workforce reduction of more than
800 employees with related severance and benefit costs of $27 million. As of
December 31, 1996, the actions taken by the company relative to this portion of
the initiative have resulted in cash expenditures of approximately $23 million,
an additional accrual in 1995 of approximately $5 million in separation and
benefit costs and anticipated 1997 expenditures of approximately $4 million. The
additional accrual was recorded in selling, service and administrative expense
in the 1995 Consolidated Statement of Income. The decisions to phase out
non-mailing products in Germany and the cessation of further development and
marketing of shipping products which could not be cost-effectively upgraded to
new technologies accounted for the remaining workforce reductions and related
severance and benefit costs. As of December 31, 1996, the company has completed
its intended actions relative to this portion of the initiative having cash
expenditures of approximately $12 million.
As noted above, included in the plan to refine the strategic business focus of
the company were anticipated asset write downs of $22 million and $10 million of
other exit costs for certain additional actions. Consistent with a refinement of
focus on core businesses, these actions include phasing out non-mailing products
in Germany. This decision anticipated the write down of inventories, lease and
rental contracts and other assets to their net realizable value for which $7.4
million was provided. The decision to cease development and marketing of certain
shipping products, as noted above, anticipated further inventory and other asset
write-offs of $8.6 million. The company decided to transition a software-based
business with its own product offerings to a limited product development and
marketing support function. As a result, $6.3 million of goodwill related to the
acquisition of this business was written off. The $10 million of other exit
costs are primarily due to the adoption of a centralized organizational
structure in the European financial services businesses that anticipated the
early termination of a facility lease. As of December 31, 1996, approximately
$19 million in assets have been written off, $6 million of certain other exit
costs have been incurred, approximately $2 million of the original anticipated
write down associated with the phaseout of non-mailing products in Germany has
been reclassified as other exit costs within the reserve and $5 million
originally provided for the early termination of a facility lease has been
reversed through selling, service and administration expense in the 1995
Consolidated Statement of Income.
Benefits from the strategic focus initiatives (principally reduced employee
expense) have been offset, in part, by increased hiring and training expenses to
obtain employees with requisite skills.
14. COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
The company's finance subsidiaries had no unfunded commitments to extend credit
to customers at December 31, 1996. The company evaluates each customer's
creditworthiness on a case-by-case basis. Upon extension of credit, the amount
and type of collateral obtained, if deemed necessary by the company, is based on
management's credit assessment of the customer. Fees received under the
agreements are recognized over the commitment period. The maximum risk of loss
arises from the possible non-performance of the customer to meet the terms of
the credit agreement. As part of the company's review of its exposure to risk,
adequate provisions are made for finance assets which may be uncollectible.
From time to time, the company is a party to lawsuits that arise in the ordinary
course of its business. These lawsuits may involve litigation by or against the
company to enforce contractual rights under vendor, insurance or other
contracts; lawsuits relating to intellectual property or patent rights;
equipment, services or payment disputes with customers; disputes with employees;
or other matters. The company is currently a defendant in a number of lawsuits,
none of which should have, in the opinion of management and legal counsel, a
material adverse effect on the company's financial position or results of
operations.
The company was advised by the Antitrust Division of the U.S. Department of
Justice that its civil investigation of Pitney Bowes' postage equipment
business, which began in 1995, has been closed. The investigation concluded that
Pitney Bowes had not violated the surviving provisions of the 1959 consent
decree between the company and the U.S. Department of Justice, and/or the
antitrust laws.
The company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative or
court proceedings as a participant in various groups of potentially responsible
parties. As previously announced by the company, in 1996, the Environmental
Protection Agency (EPA) issued an administrative order directing the company to
be part of a soil cleanup program at the Sarney Farm site in Amenia, New York.
The site was operated as a landfill between the years 1968 and 1970 by parties
unrelated to Pitney Bowes, and wastes from a number of industrial sources were
dis-
39
<pg$pcn>
posed there. The company does not concede liability for the condition of the
site, but is working with the EPA to identify and then seek reimbursement from
other potentially responsible parties. The company estimates that the costs of
this remediation effort will range between $3 million and $5 million over the
next 18 months. All of these proceedings are at various stages of activity, and
it is impossible to estimate with any certainty the total cost of remediating,
the timing and extent of remedial actions which may be required by governmental
authorities, or the amount of liability, if any, of the company. If and when it
is possible to make a reasonable estimate of the company's liability with
respect to such a matter, a provision will be made as appropriate. Based on
facts presently known, the company does not believe that the outcome of these
proceedings will have a material adverse effect on its financial condition.
In June 1995, the United States Postal Service (USPS) issued final revised
regulations addressing the manufacture, distribution and use of postage meters.
The regulations cover four general categories: meter security, administrative
controls, Computerized Meter Resetting Systems (C.M.R.S.) and other issues. In
general, the regulations impose reporting and performance obligations on meter
manufacturers, prescribe potential administrative sanctions for failure to meet
these obligations and require a restructuring of the fund management system of
C.M.R.S., such as the company's Postage by Phone(R) system, to give the USPS
more direct control over meter licensee deposits. The company is working with
the USPS to ensure that the implementation of these regulations provides mailing
customers and the USPS with the intended benefits, and that Pitney Bowes also
benefits. The company has undertaken a number of actions to implement these
changes, including modifying its Postage by Phone(R) system. Customers prepaying
for postage now deposit these payments into a USPS account rather than a trust
account. The company's resetting of Postage by Phone(R) meters still requires
the customer to request an authorization and reset code from the company, a
service for which the company charges a fee. The company continues to believe
that the financial impact to the company resulting from implementation of these
regulations will not be material.
In May 1996, the USPS issued a proposed schedule for the phaseout of mechanical
meters in the United States marketplace. The schedule proposes that (i) as of
June 1, 1996, placements of mechanical meters will be available only as
replacements for existing licensed mechanical meters; (ii) as of March 1, 1997,
mechanical meters may not be used by persons or firms who process mail for a
fee; (iii) as of December 31, 1997, mechanical meters that interface with mail
machines or processors will no longer be approved; and (iv) as of March 1, 1999,
all other mechanical meters (stand-alone meters) will no longer be approved. The
company has voluntarily ceased new placements of mechanical meters in the United
States as of June 1, 1996.
The company continues to work with the USPS to devise a final mechanical meter
migration schedule that is most beneficial to our customers and minimizes any
negative impact to the company. This is consistent with the company's strategy
of introducing new technology into the marketplace to add value to customers'
operations and meet postal needs. This strategy and the company's long-term
focus have resulted in an increase in the percentage of the electronic meters in
the current U.S. base from 6% of the overall base in 1986 to nearly 60% of the
installed meter base in 1996. Until such time as a final mechanical meter
migration plan is completed, the financial impact, if any, on the company cannot
be determined with any certainty; but, it is currently the belief of the company
that such migration plan will not cause a material adverse financial impact.
The May 1996 USPS proposal also contemplates the evolution of metering
technology to include a digital information-based indicia standard which has not
yet been developed. In July 1996, the USPS proposed initial specifications for a
digital information-based indicia program. The USPS anticipates that digital
metering would eventually replace electronic metering in the United States at
some undetermined date in the future. The company's long-term strategy also
envisions the use of digital technology in new product offerings, and the
company has taken the lead in deploying digital meters in the marketplace, with
over 100,000 digital printing meters already placed into service during 1995 and
1996. The company anticipates working with the USPS in this effort to achieve a
timely and effective substitution plan. However, until final standards for a
digital information-based indicia program are completed, and transition to the
new standard is clarified by the USPS, the impact of this proposal, if any, on
the company cannot be determined.
15. 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.
40
<pg$pcn>
Future minimum lease payments under both capital and operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31 leases leases
-------- --------
<S> <C> <C>
1997 $ 3,717 $ 66,685
1998 3,473 46,644
1999 3,415 32,378
2000 3,057 23,161
2001 2,916 16,126
Later years 6,945 42,138
-------- --------
Total minimum lease payments $ 23,523 $227,132
========
Less amount representing interest (9,175)
--------
Present value of net minimum
lease payments $ 14,348
========
</TABLE>
Rental expense was $121.6 million, $129.3 million and $127.0 million in 1996,
1995 and 1994, respectively.
16. FINANCIAL SERVICES
The company has several consolidated finance operations which are engaged in
lease financing of the company's products in the U.S., Canada, the U.K.,
Germany, France, Norway, Ireland and Australia, as well as other commercial and
industrial transactions in the U.S. Condensed financial data for the
consolidated finance operations follows:
CONDENSED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 794,819 $ 713,909 $ 659,619
--------- --------- ---------
Costs and expenses 294,147 238,457 256,638
Interest, net 216,220 217,499 175,987
Nonrecurring items, net -- -- 6,096
--------- --------- ---------
Total expenses 510,367 455,956 438,721
--------- --------- ---------
Income before
income taxes 284,452 257,953 220,898
Provision for
income taxes 91,638 81,422 70,398
--------- --------- ---------
Income before
effect of a change
in accounting for
postemployment
benefits 192,814 176,531 150,500
Effect of a change
in accounting for
postemployment
benefits -- -- (2,820)
--------- --------- ---------
Net income $ 192,814 $ 176,531 $ 147,680
========= ========= =========
</TABLE>
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 1996 1995
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 22,506 $ 11,486
Finance receivables, net 1,339,286 1,208,532
Other current assets and
prepayments 52,169 40,170
---------- ----------
Total current assets 1,413,961 1,260,188
Long-term finance receivables, net 3,450,231 3,390,597
Investment in leveraged leases 633,682 570,008
Other assets 143,023 162,347
---------- ----------
Total assets $5,640,897 $5,383,140
========== ==========
Accounts payable and
accrued liabilities $ 199,914 $ 180,243
Income taxes payable 156,340 128,461
Notes payable and
current portion
of long-term obligations 2,181,230 2,398,051
---------- ----------
Total current liabilities 2,537,484 2,706,755
Deferred taxes on income 330,847 334,716
Long-term debt 1,570,549 1,272,700
Other noncurrent liabilities 4,974 4,956
---------- ----------
Total liabilities 4,443,854 4,319,127
---------- ----------
Equity 1,197,043 1,064,013
---------- ----------
Total liabilities and equity $5,640,897 $5,383,140
========== ==========
</TABLE>
Finance receivables are generally due in monthly, quarterly or semiannual
installments over periods ranging from three to seven years. In addition, 18% of
the company's net finance assets represent secured commercial and private jet
aircraft transactions with lease terms ranging from five to 25 years. The
company considers its credit risk for these leases to be minimal since all
aircraft lessees are making payments in accordance with lease agreements. The
company believes any potential exposure in aircraft investment is mitigated by
the value of the collateral as the company retains a security interest in the
leased aircraft.
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>
1997 $1,768,476 $2,181,230
1998 1,180,554 230,549
1999 876,702 203,761
2000 592,597 62,393
2001 273,555 200,001
Thereafter 887,633 873,845
---------- ----------
Total $5,579,517 $3,751,779
========== ==========
</TABLE>
41
<pg$pcn>
Finance operations' net purchases of Pitney Bowes equipment amounted to $645.4
million, $618.6 million and $617.4 million in 1996, 1995 and 1994, respectively.
The components of net finance receivables were as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
----------- -----------
<S> <C> <C>
Gross finance receivables $ 5,579,517 $ 5,483,695
Residual valuation 735,978 680,055
Initial direct cost deferred 99,023 94,571
Allowance for credit losses (113,737) (113,506)
Unearned income (1,511,264) (1,545,686)
----------- -----------
Net finance receivables $ 4,789,517 $ 4,599,129
=========== ===========
</TABLE>
The company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
December 31 1996 1995
--------- ---------
<S> <C> <C>
Net rent receivable $ 556,058 $ 532,153
Unguaranteed residual
valuation 651,385 589,520
Unearned income (573,761) (551,665)
--------- ---------
Investment in leveraged leases 633,682 570,008
Deferred taxes arising from
leveraged leases (239,192) (216,873)
--------- ---------
Net investment in
leveraged leases $ 394,490 $ 353,135
========= =========
</TABLE>
Following is a summary of the components of income from leveraged leases:
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Pre-tax leveraged
lease income $ 8,497 $11,667 $ 6,694
Income tax effect 6,501 4,408 5,050
------- ------- -------
Income from
leveraged leases $14,998 $16,075 $11,744
======= ======= =======
</TABLE>
Leveraged lease assets acquired by the company are financed primarily through
nonrecourse loans from third-party debt participants. These loans are secured by
the lessee's rental obligations and the leased property. Net rents receivable
represent gross rents less the principal and interest on the nonrecourse debt
obligations. Unguaranteed residual values are principally based on independent
appraisals of the values of leased assets remaining at the expiration of the
lease.
Leveraged lease investments totaling $299.6 million are related to
commercial real estate facilities, with original lease terms ranging from five
to 25 years. Also included are ten aircraft transactions with major commercial
airlines, with a total investment of $285.1 million and with original lease
terms ranging from 22 to 25 years and two transactions involving locomotives
with a total investment of $49.0 million with an original lease term ranging
from 25 to 38 years.
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
$441.9 million and $263.3 million at December 31, 1996 and 1995, respectively.
The maximum risk of loss arises from the possible non-performance of lessees to
meet the terms of their contracts and from changes in the value of the
underlying equipment. Conversely, these contracts are supported by the
underlying equipment value and creditworthiness of customers. As part of the
review of its exposure to risk, the company believes adequate provisions have
been made for sold receivables which may be uncollectible.
The company has invested in various types of equipment under operating leases;
the net investment at December 31, 1996 and 1995 was not significant.
42
<pg$pcn>
17. BUSINESS SEGMENT INFORMATION
For a description of the company's segments, see "Overview" on page 17. 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 $79.4 million in 1996, $63.5
million in 1995 and $71.7 million in 1994, income taxes and net interest other
than that related to the financial services businesses. Revenue and operating
profit by business segment and geographic area for the years ended 1994 to 1996
were as follows:
<TABLE>
<CAPTION>
Revenue
---------------------------------------
(in millions) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Industry segments:
Business equipment $ 2,956 $ 2,799 $ 2,592
Business services 482 403 348
Commercial and
industrial financing 421 353 331
------- ------- -------
Total $ 3,859 $ 3,555 $ 3,271
======= ======= =======
Geographic areas:
United States $ 3,370 $ 3,108 $ 2,851
Outside the
United States 619 573 524
Inter-area revenue (130) (126) (104)
------- ------- -------
Total $ 3,859 $ 3,555 $ 3,271
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Operating Profit
-----------------------------------
(in millions) 1996 1995 1994(2)
----- ----- -----
<S> <C> <C> <C>
Industry segments:
Business equipment (1) $ 621 $ 586 $ 561
Business services 40 30 31
Commercial and
industrial financing 87 69 60
----- ----- -----
Total $ 748 $ 685 $ 652
===== ===== =====
Geographic areas:
United States $ 719 $ 643 $ 655
Outside the
United States (1) 38 56 6
Inter-area revenue (9) (14) (9)
----- ----- -----
Total $ 748 $ 685 $ 652
===== ===== =====
</TABLE>
(1) In 1996, excluding the Australian charge of $30 million, the business
equipment segment would have increased 11% from 1995 to $651 million, and the
geographic area outside the United States would have increased 21% to $68
million. See discussion of selling, service and administrative expense on page
18.
(2) As a result of the nonrecurring items in 1994, industry segments include a
$21 million credit in Business equipment and a $6 million credit in Business
services; geographic areas include a $61 million credit in the United States and
a $34 million charge outside the United States (See Note 13).
Additional segment information is as follows:
<TABLE>
<CAPTION>
Years ended December 31
----------------------------
(in millions) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Depreciation and
amortization:
Business equipment $ 220 $ 224 $ 221
Business services 32 23 18
Commercial and
industrial financing 15 14 13
----- ----- -----
Total $ 267 $ 261 $ 252
===== ===== =====
Net additions to property,
plant and equipment
and rental equipment
and related inventories:
Business equipment $ 258 $ 256 $ 250
Business services 20 7 1
Commercial and
industrial financing (4) 36 43
----- ----- -----
Total $ 274 $ 299 $ 294
===== ===== =====
</TABLE>
43
<pg$pcn>
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.
Identifiable assets by business segment and geographic area for the years 1994
to 1996 were as follows:
<TABLE>
<CAPTION>
Identifiable Assets
------------------------------------
(in millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Industry segments:
Business equipment $3,776 $3,612 $3,416
Business services 471 374 330
Commercial and
industrial financing 3,621 3,638 3,129
------ ------ ------
Total $7,868 $7,624 $6,875
====== ====== ======
Geographic areas:
United States $7,188 $6,928 $6,317
Outside the
United States 831 828 764
------ ------ ------
Total $8,019 $7,756 $7,081
====== ====== ======
</TABLE>
A reconciliation of identifiable assets to consolidated assets is as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
(in millions) 1996 1995
------- -------
<S> <C> <C>
Identifiable assets by
geographic area $ 8,019 $ 7,756
Inter-area profits (18) (41)
Intercompany accounts (133) (91)
------- -------
Identifiable assets by
industry segment 7,868 7,624
Cash and cash equivalents and
short-term investments 137 89
General corporate assets 151 132
------- -------
Consolidated assets $ 8,156 $ 7,845
======= =======
</TABLE>
18. 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 creditworthiness 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.
44
<pg$pcn>
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 creditworthiness 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.
The estimated fair value of the company's financial instruments is as follows:
<TABLE>
<CAPTION>
Carrying Fair
December 31, 1996 value* value
----------- -----------
<S> <C> <C>
Investment securities $ 2,681 $ 2,691
Loan receivables $ 381,790 $ 365,560
Long-term debt $(1,577,277) $(1,629,527)
Interest rate swaps $ (1,639) $ (27,969)
Foreign currency
exchange contracts $ 806 $ 385
Residual and conditional
commitment
guarantee contracts $ (5,068) $ (6,003)
Transfer of receivables with
recourse $ (10,885) $ (11,093)
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Carrying Fair
December 31, 1995 value* value
----------- -----------
<S> <C> <C>
Investment securities $ 1,797 $ 1,813
Loan receivables $ 280,013 $ 284,245
Long-term debt $(1,080,381) $(1,174,836)
Interest rate swaps $ (1,147) $ (42,318)
Foreign currency
exchange contracts $ (499) $ (850)
Residual and conditional
commitment
guarantee contracts $ (4,669) $ (5,782)
Commitments to extend credit -- $ (165)
Transfer of receivables with
recourse $ (17,349) $ (17,349)
----------- -----------
</TABLE>
* Carrying value includes accrued interest and deferred fee income.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in millions of dollars, except for per
share data) for 1996 and 1995 follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
1996 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenue $ 906 $ 943 $ 951 $1,059
Cost of sales and rentals
and financing $ 365 $ 373 $ 382 $ 435
Net income $ 106 $ 118 $ 117 $ 128
====== ====== ====== ======
Income per common and
common share equivalent:
Net income $ .70 $ .79 $ .78 $ .85
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenue $839 $863 $876 $977
Cost of sales and rentals
and financing $319 $340 $348 $398
Income from continuing
operations $ 96 $ 98 $101 $113
Discontinued operations 10 11 154 --
---- ---- ---- ----
Net income $106 $109 $255 $113
==== ==== ==== ====
Income per common and common share equivalent:
Continuing operations $.63 $.65 $ .66 $.74
Discontinued operations .07 .07 1.01 --
---- ---- ----- ----
Net income $.70 $.72 $1.67 $.74
==== ==== ===== ====
</TABLE>
45
<pg$pcn>
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP [PRICE WATERHOUSE LOGO]
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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, 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 11 to the consolidated financial statements, the company
adopted a new accounting standard for postemployment benefits in 1994.
/s/ Price Waterhouse LLP
Stamford, Connecticut
January 30, 1997
46
<pg$pcn>
STOCKHOLDER INFORMATION
WORLD HEADQUARTERS
PITNEY BOWES INC
1 ELMCROFT RD
STAMFORD CT 06926-0700
(203) 356-5000
www.pitneybowes.com
ANNUAL MEETING
Stockholders are cordially invited to attend the 1997 Annual Meeting at 10:00
a.m., Monday, May 12, 1997, at Pitney Bowes World Headquarters in Stamford,
Connecticut. A notice of the meeting, proxy statement and proxy will be mailed
to each stockholder under separate cover.
10-K REPORT
The Form 10-K report, to be filed by Pitney Bowes with the Securities and
Exchange Commission, will provide certain additional information. Stockholders
may obtain copies of this report without charge by writing to:
MSC 6140
INVESTOR RELATIONS
PITNEY BOWES INC
1 ELMCROFT RD
STAMFORD CT 06926-0700
STOCK EXCHANGES
Pitney Bowes common stock is traded under the symbol "PBI." The principal market
it is listed on is the New York Stock Exchange. The stock is also traded on the
Chicago, Philadelphia, Boston, Pacific and Cincinnati stock exchanges.
Comments concerning the Annual Report should be addressed to:
MSC 6309
DIRECTOR INVESTOR COMMUNICATIONS AND ADVERTISING
PITNEY BOWES INC
1 ELMCROFT RD
STAMFORD CT 06926-0700
For lost securities and certificate replacement:
CHASEMELLON SHAREHOLDER SERVICES LLC
ESTOPPEL DEPARTMENT
PO BOX 3317
SOUTH HACKENSACK NJ 07606-1917
For change of address, account consolidations, legal transfer inquiries,
replacement checks, tax information and other inquiries:
CHASEMELLON SHAREHOLDER SERVICES LLC
PO BOX 3315
SOUTH HACKENSACK NJ 07606-1915
For certificate transfers:
CHASEMELLON SHAREHOLDER SERVICES LLC
STOCK TRANSFER DEPARTMENT
PO BOX 3312
SOUTH HACKENSACK NJ 07606-1912
For dividend reinvestment information:
THE CHASE MANHATTAN BANK
C/O CHASEMELLON SHAREHOLDER SERVICES LLC
PO BOX 750
PITTSBURGH PA 15230
Transfer Agent and Registrar:
CHASEMELLON SHAREHOLDER SERVICES LLC
OVERPECK CENTER
85 CHALLENGER RD
RIDGEFIELD NJ 07660
Stockholders may call:
ChaseMellon Shareholder Services at (800) 648-8170 or Pitney Bowes Stockholder
Services at (203) 351-6088 or (203) 351-7200.
INVESTOR INQUIRIES
All investor inquiries about Pitney Bowes should be addressed to:
MSC 6140
INVESTOR RELATIONS
PITNEY BOWES INC
1 ELMCROFT RD
STAMFORD CT 06926-0700
STOCK INFORMATION
<TABLE>
<CAPTION>
Dividends per common share
Quarter 1996 1995
------ ------
<S> <C> <C>
First $ .345 $ .30
Second .345 .30
Third .345 .30
Fourth .345 .30
------ ------
Total $1.380 $ 1.20
====== ======
</TABLE>
Quarterly price ranges of common stock
<TABLE>
<CAPTION>
1996
Quarter High Low
------ ------
<S> <C> <C>
First 51 5/8 41 7/8
Second 51 1/2 46 1/2
Third 54 1/2 43 1/4
Fourth 61 3/8 52 1/2
1995
Quarter High Low
------ ------
First 37 30
Second 40 34 7/8
Third 43 3/8 38 1/8
Fourth 48 1/4 40 3/4
====== ======
</TABLE>
TRADEMARKS
Ascent, DirectNet, DocuMatch, AddressRight, Paragon, Personal Post Office,
Postage by Phone, PostPerfect, StreamWeaver and Value Added Maintenance are
trademarks or service marks of Pitney Bowes Inc.
ValueMax and Purchase Power are service marks of Pitney Bowes Credit
Corporation. BLISS is a trademark of Colonial Pacific Leasing Corporation.
47
EXHIBIT (ix)
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, 1996)
Country or
state of
Company name incorporation
ACN003606611 Australia
Adrema Leasing Corporation Delaware
Adrema Maschinen und Auto-Leasing GmbH Germany
Adrema Maschinenbau Inc. Delaware
Adrema Mobilien Leasing GmbH Germany
Andeen Enterprises, Inc. Panama
Artec International Corporation California
Atlantic Mortgage & Investment Corporation Florida
B. Williams Holding Corp. Delaware
Canadian Office Services (Toronto) Limited Canada
Cascade Microfilm Systems, Inc. California
Chas. P. Young Health Fitness & Management, Inc. New York
Colonial Pacific Leasing Corporation Massachusetts
Datarite Systems Ltd. England
ECL Finance Company, N.V. Netherlands
Elmcroft Road Realty Corporation Connecticut
Financial Structures Limited Bermuda
Financial Structures Insurance Company New York
FSL Holdings Inc. Connecticut
FSL Risk Managers Inc. New York
FSL Valuation Services Inc. Connecticut
Harlow Aircraft Inc. Delaware
Informatech California
La Agricultora Ecuatoriana S.A. Ecuador
Lease Continental GmbH Germany
Norlin Australia Investment Pty. Ltd. Australia
Norlin Industries Limited Ontario
Norlin Music (U.K.) Ltd. England
Oy Adrema Helsinki Finland
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 (March), (June),(September)Ltd. England
PB Leasing International Corporation Delaware
PB Leasing Services Inc. Nevada
PBA Foreign Sales Corporation Inc. Barbados
PB World Trade Corporation (Disc) Delaware
PB CFSC I Inc. Virgin Islands
PBL Holdings Inc. Nevada
Pitney Bowes (Ireland) Limited Ireland
<PAGE>
EXHIBIT (ix)
Page 2 of 3
SUBSIDIARIES OF THE REGISTRANT (continued)
Country or
state of
Company name incorporation
PB Nikko FSC Ltd. Bermuda
PB Nihon FSC Ltd. Bermuda
Pitney Bowes AG Switzerland
Pitney Bowes Australia Pty. Australia
Pitney Bowes Australia FAS Pty. Ltd. Australia
Pitney Bowes Australia Funding Pty. Limited Australia
Pitney Bowes Austria Ges.m.b.H Austria
Pitney Bowes of Canada Ltd. Canada
Pitney Bowes Canada Funding Limited Canada
Pitney Bowes Canada Holdings Ltd. Canada
Pitney Bowes China Inc. Delaware
Pitney Bowes Credit Australia Limited Australia
Pitney Bowes Credit Corporation Delaware
Pitney Bowes Data Systems, Ltd. Delaware
Pitney Bowes de Mexico, S.A. de C.V. Mexico
Pitney Bowes Deutschland GmbH Germany
Pitney Bowes Espana, S.A. Spain
Pitney Bowes Finance S.A. France
Pitney Bowes Finance Norge AS Norway
Pitney Bowes Finance PLC England
(formerly PB Leasing Ltd.)
Pitney Bowes Finance Ireland Limited Ireland
Pitney Bowes Financial Corporation Utah
Pitney Bowes France S.A. France
Pitney Bowes Holdings Ltd. England
Pitney Bowes Holding SNC France
Pitney Bowes Hong Kong Inc. Delaware
Pitney Bowes India, Inc. Delaware
Pitney Bowes Insurance Agency, Inc. Connecticut
Pitney Bowes International Ireland
Pitney Bowes International Holdings, Inc. Delaware
Pitney Bowes Italia S.r.l. Italy
Pitney Bowes Japan Corporation Japan
Pitney Bowes Leasing Ltd. Canada
Pitney Bowes Macau Limited Macau
Pitney Bowes Management Services, Inc. Delaware
Pitney Bowes Management Services Canada, Inc. Canada
Pitney Bowes Management Services Limited England
Pitney Bowes Marking Systems Ltd. Delaware
Pitney Bowes Oy Finland
Pitney Bowes Limited England
Pitney Bowes Properties Inc. Connecticut
Pitney Bowes Real Estate Financing Corporation Delaware
Pitney Bowes Servicios, S.A. de C.V. Mexico
Pitney Bowes Shelton Realty Inc. Connecticut
Pitney Bowes Svenska Aktiebolag Sweden
Pitney Bowes World Trade Corporation (FSC) Virgin Islands
PREFCO I Inc. Delaware
<PAGE>
EXHIBIT (ix)
Page 3 of 3
SUBSIDIARIES OF THE REGISTRANT (continued)
Country or
state of
Company name incorporation
PREFCO I LP Inc. Delaware
PREFCO II 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 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 XIII Inc. Delaware
PREFCO XIII LP Inc. Delaware
PREFCO XIV Inc. Delaware
PREFCO XIV LP Inc. Delaware
PREFCO XV Inc. Delaware
PREFCO XV LP Inc. Delaware
PREFCO XVI Inc. Delaware
PREFCO XVI LP Inc. Delaware
PREFCO XVII Inc. Delaware
PREFCO XVII LP Inc. Delaware
PREFCO XVIII Inc. Delaware
PREFCO XVIII LP Inc. Delaware
PREFCO XIX Inc. Delaware
PREFCO XIX LP Inc. Delaware
PREFCO XX Inc. Delaware
PREFCO-Dayton Community Urban Renewal
Corporation Ohio
RE Properties Management Corporation Delaware
Remington Customer Finance Pty. Limited Australia
Remington (PNG) Pty. Limited Papua New Guinea
ROM Holdings Pty. Limited Australia
ROM Securities Pty. Limited Australia
Sales and Service Training Center Inc. Georgia
Techno Mail Service K.K. Japan
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
Wheeler Insurance, Ltd. Vermont
1136 Corporation Delaware
75 V Corp. Delaware
<PAGE>
EXHIBIT (x)
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 January 30, 1997 appearing on page
46 of the Pitney Bowes Inc. 1996 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 schedule, which appears in this Form
10-K.
Price Waterhouse LLP
Stamford, Connecticut
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, CORRESPONDING
FOOTNOTE #3 FIXED ASSETS AND STATEMENT RE COMPUTATION OF PER SHARE EARNINGS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 135,271
<SECURITIES> 1,500
<RECEIVABLES> 356,890
<ALLOWANCES> 16,160
<INVENTORY> 281,942
<CURRENT-ASSETS> 2,222,066
<PP&E> 1,093,501
<DEPRECIATION> 607,472
<TOTAL-ASSETS> 8,155,722
<CURRENT-LIABILITIES> 3,305,289
<BONDS> 1,300,434
<COMMON> 323,338
200,000
2,415
<OTHER-SE> 1,913,293
<TOTAL-LIABILITY-AND-EQUITY> 8,155,722
<SALES> 1,675,090
<TOTAL-REVENUES> 3,858,579
<CGS> 1,025,250
<TOTAL-COSTS> 1,554,990
<OTHER-EXPENSES> 1,422,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,204
<INCOME-PRETAX> 684,383
<INCOME-TAX> 214,970
<INCOME-CONTINUING> 469,413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469,413
<EPS-PRIMARY> 3.12
<EPS-DILUTED> 3.12
</TABLE>
