<PAGE>
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
For the year ended December 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 ($1 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ____
----
Indicate by check mark if 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. [X]
The aggregate market value of voting stock (common stock and $2.12 preference
stock) held by non-affiliates of the Registrant as of March 10, 2000 is
$12,126,751,929.
Number of shares of common stock, $1 par value, outstanding as of March 10, 2000
is 262,192,195.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
1. Only the following portions of the Pitney Bowes Inc. 1999 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 48 to 69.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations and Summary of Selected Financial Data on pages
37 to 47, excluding the information on page 46 relating to Dividend
Policy.
(c) Stock Exchanges and Stock Information, on page 70.
2. Pitney Bowes Inc. Notice of the 2000 Annual Meeting and Proxy Statement
dated March 31, 2000, pages 4 to 7, 10 to 13 and 17 and portions of pages
3, 9, 14, 16 and 18 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 in three reportable
segments: Mailing and Integrated Logistics, Office Solutions and Capital
Services. The company operates in the United States and outside the U.S.
Financial information concerning revenue, operating profit and identifiable
assets by reportable segment and geographic area appears on pages 65 to 67 of
the Pitney Bowes Inc. 1999 Annual Report to Stockholders and is incorporated
herein by reference.
Mailing and Integrated Logistics. Mailing and Integrated Logistics includes
- --------------------------------
revenues from the rental of postage meters and the sale and financing of mailing
equipment, including software-based mail creation and mail finishing equipment,
production mail systems including customized software applications, software-
based shipping, transportation and logistics systems, and related supplies and
services. Products are sold, rented or financed by the company, while supplies
and services are sold. Some of the company's products are sold through dealers
outside the U.S.
Products 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.
Office Solutions. Office Solutions includes revenues from the sale, financing,
- ----------------
rental and service of reprographic and facsimile equipment including related
supplies, and facilities management services which provides mail processing,
reprographic business support and document resource planning functions. Products
are sold, rented or financed by the company, while supplies and services are
sold.
Facilities management services are provided by the company's Pitney Bowes
Management Services, Inc. subsidiary (P.B.M.S.). P.B.M.S. provides customers
with a variety of business support services to manage copy, reprographic and
mail centers, facsimile, electronic printing and imaging services, and records
management. P.B.M.S. is a major provider of 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.
The financial services operations provide lease financing for the company's
products (for both the Mailing and Integrated Logistics and Office Solutions
segments) in the U.S., Canada, the United Kingdom, Germany, France, Norway,
Ireland, Australia, Austria, Spain, Switzerland and Sweden. Consolidated
financial services operations financed 36 percent of
<PAGE>
consolidated sales in 1999, 38 percent in 1998, and 36 percent in 1997.
Consolidated financial services operations financed approximately 76 percent, 77
percent and 77 percent of leasable sales in 1999, 1998 and 1997, respectively.
2
<PAGE>
Capital Services. Capital Services provides large-ticket financing and fee-
- ----------------
based programs covering a broad range of products and other financial services
to the commercial and industrial markets in North America.
Products financed include both commercial and non-commercial aircraft, over-the-
road trucks and trailers, locomotives, railcars, rail and bus facilities and
high-technology equipment such as data processing and communications equipment.
The finance operations have also participated, on a select basis, in certain
other types of financial transactions including: sales of lease transactions,
senior secured loans in connection with acquisitions, leveraged buyout and
recapitalization financings and certain project financings.
Discontinued Operations. On January 14, 2000, the company sold its mortgage
- ------------------------
servicing business, Atlantic Mortgage & Investment Corporation (AMIC), a wholly-
owned subsidiary of the company to ABN AMRO North America. The company received
approximately $484 million in cash at closing. Accordingly, operating results of
AMIC have been segregated and reported as discontinued operations in the
Consolidated Statements of Income. Prior year results have been reclassified to
conform to the current year presentation. In connection with the sale, the
company recorded a loss of approximately $27.6 million (net of taxes of $18.4
million) for the year ended December 31, 1999. The transaction is subject to
post-closing adjustments.
As part of the company's strategy to reduce the capital committed to asset-based
financing, while increasing fee-based income, in 1998 the company sold its
broker-oriented small-ticket leasing business to General Electric Capital
Corporation (GECC), a subsidiary of General Electric Company. As part of the
sale, the operations, employees and substantially all the assets of Colonial
Pacific Leasing Corporation (CPLC) were transferred to GECC. The company
received $790 million at closing, which approximates the book value of the net
assets sold or otherwise disposed of and related transaction costs. Accordingly,
operating results of CPLC have been segregated and reported as discontinued
operations in the Consolidated Statements of Income. Prior year results have
been reclassified to conform to the current year presentation. In connection
with this transaction, the company recorded a gain of approximately $3.7 million
(net of taxes of $2.0 million) for the year ended December 31, 1999. This gain
resulted from the settlement of post-closing adjustments in 1999 related to the
sale, offset by the cost of settlement with regard to a dispute with GECC over
certain assets that were included in the sale.
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
approximately 13 percent of revenue in 1999, 1998 and 1997.
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, outbound telemarketing, and the Internet.
The company sells to a variety of business, governmental, institutional and
other organizations. It has a broad base of customers, and is not dependent
upon any one customer or type of customer for a significant part of its
business. The company does not have significant backlog or seasonality relating
to its businesses.
Operations Outside the United States. The company's manufacturing operations
- ------------------------------------
outside the 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.
<PAGE>
However, all of its segments have strong competition from a number of companies.
In particular, the company is facing competition in many countries for new
placements from several postage meter and mailing machine suppliers, and its
mailing systems products face competition from products and services offered as
alternative means of message communications. P.B.M.S., a major provider of
business 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.
3
<PAGE>
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 service methods.
Expenditures on research and development totaled $108.9 million, $100.8 million,
and $89.5 million in 1999, 1998 and 1997, respectively.
As a result of its research and development efforts, the company has been
awarded a number of patents with respect to several of its existing and planned
products. However, the company believes its businesses are not materially
dependent on any one patent or any group of related patents. The company also
believes its businesses are not materially dependent on any one license or any
group of related licenses.
Material Supplies. 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 the company, and wastes from a number of industrial sources were
disposed 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. Based on the facts presently known, we
estimate the total cost of our remediation effort to be approximately $5
million. This amount has been recorded as a liability in the Consolidated
Balance Sheet at December 31, 1999.
The administrative and court proceedings referred to above are in different
states. It is difficult to estimate with any certainty the total cost of
remediating, the timing or extent of remedial actions which may be required by
governmental authorities. However, 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.
4
<PAGE>
Regulatory Matters. In January 2000, the U.S. Postal Service (U.S.P.S.) issued a
- ------------------
proposed schedule for the phaseout of manually reset electronic meters in the
U.S. as follows:
. As of February 1, 2000, new placements of manually reset electronic meters
are no longer permitted. Current users of manually reset electronic
meters can continue to use these meters for the term of their current
rental and lease agreements.
Based on the proposed schedule, the company believes that the phaseout of
manually reset electronic meters will not cause a material adverse financial
impact on the company.
As a result of the company's aggressive efforts to meet the U.S.P.S mechanical
meter migration phaseout schedule combined with the company's ongoing and
continuing investment in advanced postage evidencing technologies, mechanical
meters represented less than 1% of the company's installed U.S. meter base at
December 31, 1999, compared with 10% at December 31, 1998. At December 31, 1999,
over 99% of the company's installed U.S. meter base was electronic or digital,
compared with 90% at December 31, 1998. The company continues to work in close
cooperation with the U.S.P.S. to convert those mechanical meter customers who
have not migrated to digital or electronic meters.
In May 1995, the U.S.P.S. publicly announced its concept of its Information
Based Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the U.S.P.S., the purpose of the program was to develop a new standard
for future digital postage evidencing devices which significantly enhanced
postal revenue security and supported expanded U.S.P.S. value-added services to
mailers. The program would consist of the development of four separate
specifications:
. the Indicium specification - the technical specifications for the indicium
to be printed
. a Postal Security Device specification - the technical specification for
the device that would contain the accounting and security features of the
system
. a Host specification
. a Vendor Infrastructure specification
During the period from May 1995 through December 31, 1999, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the U.S.P.S. In July 1999, the U.S.P.S. issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.
As of December 31, 1999, the company was in the process of finalizing the
development of both PC and Internet versions of a product which satisfy the
proposed IBI Performance Criteria. In March 2000, the company received approval
from the U.S.P.S. for the commercial launch of the Internet version of this
product, ClickStampTM Online. The PC version of this product is currently in
the final phase of beta testing and is expected to be ready for market upon
final approval from the U.S.P.S.
In June 1999, the company was served with a Civil Investigative Demand (CID)
from the U.S. Justice Department's Antitrust Division. A CID is a tool used by
the Antitrust Division for gathering information and documents. The company
believes that the Justice Department may be reviewing the company's efforts to
protect its intellectual property rights. The company believes it has complied
fully with the antitrust laws and is cooperating fully with the department's
investigation.
Employee Relations. At December 31, 1999, 25,792 persons were employed by the
- ------------------
company in the U.S. and 4,836 outside the U.S. Employee relations are
considered to be satisfactory. The majority of employees are not represented by
any labor union. Management follows the
<PAGE>
policy of keeping employees informed of its decisions, and encourages and
implements employee suggestions whenever practicable.
5
<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 operations.
Mailing and Integrated Logistics. Mailing and Integrated Logistics 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. At
December 31, 1999, there were 135 sales, support services, and finance offices,
substantially all of which are leased, located throughout the U.S. and in a
number of other countries.
Office Solutions. The company's copier and facsimile systems businesses are
- -----------------
both headquartered in Trumbull, Connecticut. The company's facilities management
services subsidiary is headquartered in Stamford, Connecticut and leases 31
facilities located throughout the U.S., and a facility in Toronto, Ontario,
Canada, and London, England.
Executive and administrative offices of the financing operations (for both the
Mailing and Integrated Logistics and Office Solutions segments) within the U.S.
are located in Shelton, Connecticut. Offices of the financing operations
outside the U.S. are maintained in Mississauga, Ontario, Canada; London,
England; Heppenheim, Germany; Paris, France; Oslo, Norway; Dublin, Ireland;
French's Forest, Australia; Vienna, Austria; Effretikon, Switzerland; and
Stockholm, Sweden.
Capital Services. Pitney Bowes Credit Corporation (PBCC) leases an executive
- ----------------
and administrative office in Shelton, Connecticut, which is owned by Pitney
Bowes Inc. There are eight 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 plaintiff or 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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
6
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
<TABLE>
<CAPTION>
Executive
Officer
Name Age Title Since
- ---- --- ----- -------
<S> <S> <C> <C>
Michael J. Critelli 51 Chairman and Chief 1988
Executive Officer
Marc C. Breslawsky 57 President and Chief 1985
Operating Officer
Gregory E. Buoncontri 52 Vice President and Chief Information 2000
Officer
Amy C. Corn 46 Corporate Secretary and Senior 1996
Associate General Counsel
Meredith B. Fischer 47 Vice President, Corporate Marketing 1996
and Chief Communications Officer
Karen M. Garrison 51 President, Pitney Bowes Business 1999
Services
Mary Jo Green 51 Vice President and Treasurer 1999
Suzanne N. Grey 49 Vice President, Strategy Planning 1999
and New Business Development
Arlen F. Henock 43 Vice President - Controller and 1996
Chief Tax Counsel
Luis A. Jimenez 55 Vice President, Global Growth and 1999
Futures Strategy
Matthew S. Kissner 45 President, Pitney Bowes Office 1997
Direct and Financial Solutions
Murray D. Martin 52 President, Pitney Bowes 1998
International
John N. D. Moody 55 President, U.S. Mailing Systems 1997
Sara E. Moss 53 Vice President and General Counsel 1996
Bruce P. Nolop 49 Vice President and Chief 2000
Financial Officer
Fred M. Purdue 53 Vice President and General Manager, 1999
Business Reengineering
Murray L. Reichenstein 62 Vice President, E-Business and Chief 1996
Development Officer
Douglas A. Riggs 55 Vice President and Chief Corporate 1988
(Retiring 3/31/00) Affairs Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Dennis M. Roney 57 President, Pitney Bowes 1998
Office Systems
Kathleen E. Synnott 46 Vice President and General Manager, 1999
Customer Relationship Management
Johnna G. Torsone 49 Vice President and Chief 1993
Personnel Officer
Joseph E. Wall 48 Vice President and Chief Technology 1996
Officer
</TABLE>
7
<PAGE>
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 G.E. Buoncontri, L.A. Jimenez, M.S.
Kissner, S.E. Moss, B.P. Nolop, M.L. Reichenstein and J.E. Wall.
Mr. Buoncontri was formerly the Vice President, Information Technology and Chief
Information Officer of Novartis Pharmaceuticals Corp. (merger of Sandoz and
Ciba Geigy). Prior to the merger, he also served as the Vice President,
Information Systems and Chief Information Officer for Sandoz Pharmaceuticals
Company. Mr. Buoncontri also served as Vice President, Information Management
Services and Chief Information Officer of Asea Brown Boveri, Inc.
Mr. Jimenez joined the company from Arthur D. Little, an international
management consulting company, with over 25 years of experience. Mr. Jimenez was
appointed worldwide practice leader for postal organizations in 1990, Corporate
Vice President in 1991, and served most recently on the firm's global board for
telecommunications and media and as Manager of the Latin American practice.
Mr. Kissner, who was President, Pitney Bowes Credit Corporation since 1995,
joined the company from Bankers Trust Company where he had been Managing
Director since 1993. Mr. Kissner was also President, Pitney Bowes Financial
Services since 1997 before assuming his duties as President, Pitney Bowes Office
Direct and Financial Solutions.
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.
Mr. Nolop joined the company from Wasserstein Perella & Co., an investment bank
and one of Pitney Bowes' financial advisors, where he had served as managing
director since 1993. Prior to joining Wasserstein Perella & Co., Mr. Nolop held
senior positions with Goldman Sachs & Co., Kimberly-Clark Corporation and Morgan
Stanley & Co.
Mr. Reichenstein, who was previously Vice President and Chief Financial Officer
of Pitney Bowes Inc. since 1996, joined the company with over 31 years of
experience with Ford Motor Company. During his time with Ford, Mr. Reichenstein
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 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.
8
<PAGE>
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Stockholders'
------------------------------------------------------------------
Matters
-------
The sections entitled "Stock Exchanges" and "Stock Information" on page 70 of
the Pitney Bowes Inc. 1999 Annual Report to Stockholders are incorporated herein
by reference. At December 31, 1999, the company had 32,754 common stockholders
of record.
Item 6. Selected Financial Data
-----------------------
The section entitled "Summary of Selected Financial Data" on page 47 of the
Pitney Bowes Inc. 1999 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 Financial
Condition and Results of Operations" on pages 37 to 46 of the Pitney Bowes Inc.
1999 Annual Report to Stockholders is incorporated herein by reference, except
for the section on page 46 relating to "Dividend Policy".
The section under "Legal, Environmental and Regulatory Matters" titled
"Regulation" on page 45 of the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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 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 Form 10-K or made by company management involve risks and
uncertainties which may change based on various important factors. Words such as
"estimate", "project", "plan", "believe", "expect" and similar expressions may
identify such forward-looking statements. 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
. changes in interest rates
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The section entitled "Market Risk" on page 44 of the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 20, 2000, appearing on pages 48 to 69
of the Pitney Bowes Inc. 1999 Annual Report to Stockholders are incorporated
herein by reference.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
9
<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 7 of this Form 10-K), the
information called for by this Item is incorporated herein by reference to the
sections entitled "Election of Directors", "How much stock is owned by
directors, nominees and executive officers?" and "Security Ownership" on pages 6
to 7 and 3 to 4 of the Pitney Bowes Inc. Notice of the 2000 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 9 to 14, and 16 to 18 of the Pitney Bowes Inc. Notice of the
2000 Annual Meeting and Proxy Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The section entitled "How much stock is owned by directors, nominees and
executive officers?" and "Security Ownership" on pages 3 to 4 of the Pitney
Bowes Inc. Notice of the 2000 Annual Meeting and Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
10
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. Financial statements - see Item 8 on page 9 and "Index to Financial
Schedules" on page 17.
2. Financial statement schedules - see "Index to Financial Schedules"
on page 17.
3. Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Reg. S-K Status or Incorporation
Exhibits Description by Reference
- -------- ------------------------------- -----------------------------------------------
<S> <C> <C>
(3)(a) Restated Certificate of Incorporated by reference to Exhibit (3a) to
Incorporation, as amended Form 10-K as filed with the Commission on March
30, 1993 (Commission file number 1-3579)
(a.1) Certificate of Amendment to the Incorporated by reference to Exhibit (a.1) to
Restated Certificate of Form 10-K as filed with the Commission on March
Incorporation (as amended May 27, 1998. (Commission file number 1-3579)
29, 1996)
(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)
(c) By-laws, as amended Incorporated by reference to Exhibit (3)(ii) to
Form 10-Q as filed with the Commission on
November 16, 1998. (Commission file number
1-3579)
(4)(a) Form of Indenture dated as of Incorporated by reference to Exhibit (4a) to
November 15, 1987 between the Form 10-K as filed with the Commission on March
company and Chemical Bank, as 24, 1988. (Commission file number 1-3579)
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 Supplemental Incorporated by reference to Exhibit (1) to
Indenture dated as of June 1, Form 8-K as filed with the Commission on June
1989 between the company and 16, 1989. (Commission file number 1-3579)
Chemical Bank, as Trustee
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(d) Form of Indenture dated as of Incorporated by reference to Exhibit (4.1) to
April 15, 1990 between the Registration Statement on Form S-3 (No.
company and Chemical Bank, as 33-33948) as filed with the Commission on March
successor to Manufacturers 28, 1990.
Hanover Trust Company, as
Trustee
(e) Forms of Debt Securities Incorporated by reference to Exhibit (4) to
Form 10-Q as filed with the Commission on May
14, 1990. (Commission file number 1-3579)
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
(f) Form of Indenture dated as of Incorporated by reference to Exhibit (4a) to
May 1, 1985 between Pitney Bowes Registration Statement on Form S-3 (No.
Credit Corporation and Bankers 2-97411) as filed with the Commission on May 1,
Trust Company, as Trustee 1985.
(g) Letter Agreement between Pitney Incorporated by reference to Exhibit (4b) to
Bowes Inc. and Bankers Trust Registration Statement on Form S-3 (No.
Company, as Trustee 2-97411) as filed with the Commission on May 1,
1985.
(h) Form of First Supplemental Incorporated by reference to Exhibit (4b) to
Indenture dated as of December Registration Statement on Form S-3 (No.
1, 1986 between Pitney Bowes 33-10766) as filed with the Commission on
Credit Corporation and Bankers December 12, 1986.
Trust Company, as Trustee
(i) Form of Second Supplemental Incorporated by reference to Exhibit (4c) to
Indenture dated as of February Registration Statement on Form S-3 (No.
15, 1989 between Pitney Bowes 33-27244) as filed with the Commission on
Credit Corporation and Bankers February 24, 1989.
Trust Company, as Trustee
(j) Form of Third Supplemental Incorporated by reference to Exhibit (1) to
Indenture dated as of May 1, Form 8-K as filed with the Commission on May
1989 between Pitney Bowes Credit 16, 1989. (Commission file number 1-3579)
Corporation and Bankers Trust
Company, as Trustee
(k) Indenture dated as of November Incorporated by reference to Exhibit (4a) to
1, 1995 between the company and Amendment No. 1 to Registration Statement on
Chemical Bank, as Trustee Form S-3 (No. 33-62485) as filed with the
Commission on November 2, 1995.
(l) Preference Share Purchase Rights Incorporated by reference to Exhibit (4) to
Agreement dated December 11, Form 8-K as filed with the Commission on March
1995 between the company and 13, 1996. (Commission file number 1-3579)
Chemical Mellon Shareholder
Services, LLC., as Rights
Agent, as amended
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.
</TABLE>
12
<PAGE>
Executive Compensation Plans:
- ----------------------------
(10)(a) Retirement Plan for Directors Incorporated by reference to
of Pitney Bowes Inc. Exhibit (10a) to Form 10-K
as filed with the Commission on
March 30, 1993. (Commission file
number 1-3579)
(b) Pitney Bowes Inc. Directors' Incorporated by reference to
Stock Plan (as amended and Exhibit (i) to Form 10-K as filed
restated 1997) with the Commission on March 31,
1997. (Commission file number 1-
3579)
(b.1) Pitney Bowes Inc. Directors' Exhibit (i)
Stock Plan (as amended and
restated 1999)
(c) Pitney Bowes 1991 Stock Plan Incorporated by reference to
Exhibit (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 Incorporated by reference to
Bowes 1991 Stock Plan Exhibit (ii) to Form 10-K as filed
with the Commission on March 31,
1997. (Commission file 1-3579)
(c.2) Second Amendment to Pitney Incorporated by reference to
Bowes 1991 Stock Plan Exhibit (i) to Form 10-Q as filed
with the Commission on November
13, 1997. (Commission file number
1-3579)
(c.3) Pitney Bowes 1991 Stock Plan Incorporated by reference to
(as amended and restated) Exhibit (10) to Form 10-Q as filed
with the Commission on May 14,
1998. (Commission file number 1-
3579)
(c.4) Pitney Bowes 1998 Stock Plan (as Exhibit (ii)
amended and restated )
(d) Pitney Bowes Inc. Key Employees' Incorporated by reference to
Incentive Plan (as amended and Exhibit (10c) to Form 10-K as
restated) filed with the Commission on March
25, 1992. (Commission file number
1-3579)
(d.1) First Amendment to Pitney Incorporated by reference to
Bowes Inc. Key Employees' Exhibit (iii) to Form 10-K as
Incentive Plan (as amended and filed with the Commission on March
restated June 10, 1991) 31, 1997. (Commission file number
1-3579)
(e) 1979 Pitney Bowes Stock Option Incorporated by reference to
Plan (as amended and restated) Exhibit (10d) to Form 10-K as
filed with the Commission on March
25, 1992. (Commission file number
1-3579)
<PAGE>
(f) Pitney Bowes Severance Plan, as Incorporated by reference to Exhibit
amended, dated December 12, 1988 (10) to Form 10-K as filed with the
Commission on March 23, 1989.
(Commission file number 1-3579)
(g) Pitney Bowes Executive Severance Incorporated by reference to Exhibit
Policy, adopted December 11, 1995 (10h) to Form 10-K as filed with the
Commission on April 1, 1996.
(Commission file number 1-3579)
13
<PAGE>
(h) Pitney Bowes Inc. Deferred Incorporated by reference to
Incentive Savings Plan Exhibit (i) to Form 10-Q as
for the Board of Directors filed with the Commission on
May 15, 1997. (Commission
file number 1-3579)
(h.1) Pitney Bowes Inc. Deferred Exhibit (iii)
Incentive Savings Plan for the
Board of Directors (as amended
and restated 1999)
(i) Pitney Bowes Inc. Deferred Incorporated by reference to
Incentive Savings Plan Exhibit (v) to Form 10-K as
filed with the Commission on
March 31, 1997. (Commission file
number 1-3579)
(j) Pitney Bowes U.K. Stock Option Exhibit (iv)
Plan (as amended and restated
1999)
(12) Computation of ratio of earnings Exhibit (v)
to fixed charges
(13) Portions of annual report to Exhibit (vi)
security holders
(21) Subsidiaries of the registrant Exhibit (vii)
(23) Consent of experts and counsel Exhibit (viii)
(27) Financial Data Schedule Exhibit (ix)
(b) On January 31, 2000, the company filed a current report on Form
8-K pursuant to Item 5 thereof, reporting the Press Release dated
January 27, 2000.
On December 10, 1999, the company filed a current report on Form 8-K
pursuant to Item 5 thereof, reporting the restated financial
statements (Form 10-K for the year ended December 31, 1998 and Form
10-Q for the quarter ended March 31, 1999 reflecting Atlantic
Mortgage & Investment Corporation (AMIC) as a discontinued
operation).
On November 24, 1999, the company filed a current report on Form 8-K
pursuant to Item 5 thereof, reporting the Press Release dated
November 19, 1999.
On October 22, 1999, the company filed a current report on Form 8-K
pursuant to Item 5 thereof, reporting the Press Release dated
October 19, 1999.
<PAGE>
On November 22, 1999, PBCC filed a current report on Form 8-K
pursuant to Item 5 thereof, reporting a definitive agreement between
PBCC and ABN AMRO North America, a subsidiary of ABN AMRO Bank N.V.,
for the sale of AMIC dated November 19, 1999.
14
<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 30, 2000
---------------------
15
<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 30, 2000
- ------------------------- Executive Officer - Director --------------
Michael J. Critelli
/s/ Marc C. Breslawsky President and Chief March 30, 2000
- ------------------------- Operating Officer - Director --------------
Marc C. Breslawsky
/s/ Bruce P. Nolop Vice President and Chief March 30, 2000
- ------------------------- Financial Officer (principal --------------
Bruce P. Nolop financial officer)
/s/ Arlen F. Henock Vice President - Controller March 30, 2000
- ------------------------- and Chief Tax Counsel --------------
Arlen F. Henock (principal accounting
officer)
/s/ Linda G. Alvarado Director March 30, 2000
- ------------------------- --------------
Linda G. Alvarado
/s/ William E. Butler Director March 30, 2000
- ------------------------- --------------
William E. Butler
/s/ Colin G. Campbell Director March 30, 2000
- ------------------------- --------------
Colin G. Campbell
/s/ Jessica P. Einhorn Director March 30, 2000
- ------------------------- --------------
Jessica P. Einhorn
/s/ Ernie Green Director March 30, 2000
- ------------------------- --------------
Ernie Green
/s/ Herbert L. Henkel Director March 30, 2000
- ------------------------- --------------
Herbert L. Henkel
/s/ James H. Keyes Director March 30, 2000
- ------------------------- --------------
James H. Keyes
/s/ Michael I. Roth Director March 30, 2000
- ------------------------- --------------
Michael I. Roth
/s/ Phyllis S. Sewell Director March 30, 2000
- ------------------------- --------------
Phyllis S. Sewell
16
<PAGE>
INDEX TO FINANCIAL SCHEDULES
----------------------------
The financial schedules should be read in conjunction with the financial
statements in the Pitney Bowes Inc. 1999 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 18
Financial statement schedule for the years 1997 - 1999:
Valuation and qualifying accounts and
reserves (Schedule II) 19
17
<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 20, 2000 appearing on page 69 of the Pitney Bowes Inc. 1999
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 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.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 20, 2000
18
<PAGE>
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997 TO 1999
(Dollars in thousands)
Additions
Balance at charged to Balance
Beginning of costs and at end
Description year expenses Deductions of year
- ----------- ------------ --------- ---------- -------
Allowance for doubtful accounts
- -------------------------------
1999 $24,665 $8,668 $4,617 (1) $28,716
1998 $21,129 $9,872 $6,336 (1) $24,665
1997 $16,160 $9,269 $4,300 (1) $21,129
Allowance for credit losses on finance receivables
- --------------------------------------------------
1999 $130,775 $67,257 $93,311 (1)(2) $104,721
1998 $132,308 $73,142 $74,675 (1)(2) $130,775
1997 $113,737 $85,628 $67,057 (1) $132,308
Valuation allowance for deferred tax asset (3)
- ------------------------------------------
1999 $39,872 $ 586 $5,015 $35,443
1998 $41,301 $2,189 $3,618 $39,872
1997 $46,601 $1,233 $6,533 $41,301
(1) Principally uncollectible accounts written off.
(2) Amounts include the write-off of finance receivables retained in connection
with the disposal of our small-ticket external leasing business against
previously estabished allowance for credit losses recorded at the time of
disposal of this business in 1998.
(3) Included in balance sheet as a liability.
19
<PAGE>
EXHIBIT (i)
-----------
PITNEY BOWES INC. DIRECTORS' STOCK PLAN
Amended and Restated Effective as of October 11, 1999
<PAGE>
PITNEY BOWES INC. DIRECTORS' STOCK PLAN
Amended and Restated Effective as of October 11, 1999
1. PURPOSE AND EFFECTIVE DATE OF PLAN: This Plan shall be known as the
Pitney Bowes Inc. Directors' Stock Plan. The purpose of the Plan is to enable
Pitney Bowes Inc. (the "Company") to attract and retain persons of outstanding
competence to serve as non-employee directors of the Company by paying such
persons a portion of their compensation in stock of the Company pursuant to the
terms of the Plan. The Plan became effective on the date the Plan was initially
approved by the stockholders of the Company. The Plan may be amended from time
to time and was amended and restated effective as of October 11, 1999.
2. STOCK AVAILABLE FOR THE PLAN: An aggregate of 400,000 shares of Common
Stock, $1 par value per share, of the Company ("Common Stock"), after giving
effect to the stock dividend in 1998, shall be available for issuance pursuant
to the provisions of the 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 the
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 annual award of 1400 restricted shares
of Common Stock on the date of the first meeting of directors after each annual
stockholders' meeting; provided, however, that an Eligible Director who joins
the Board after such date shall receive a partial award of restricted shares of
Common Stock that is prorated by multiplying 1400 by a fraction the numerator of
which is the number of days remaining in the 12 month period beginning on the
date following the annual stockholders' meeting and the denominator of which is
365. Fractional shares shall not be issued to Eligible Directors. A whole number
of shares shall be determined by rounding each fractional share to the next
highest whole number.
5. TRANSFER RESTRICTIONS, REMOVAL OF RESTRICTIONS, TERMS AND CONDITIONS
AND INTER VIVOS TRANSFERS OF AWARDS OF RESTRICTED STOCK:
(a) Each participant or transferee pursuant to Section 5(d) hereof 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
2
<PAGE>
Directors, until the provisions of the Plan relating to removal of the
restrictions have been satisfied.
(b) Subject to Section 5 (d) of the Plan, shares of restricted stock may
not be sold, assigned, pledged or otherwise transferred by the Eligible Director
unless and until all of the transfer restrictions imposed by this Plan have been
removed pursuant to the provisions of the Plan.
(c) Subject to Section 5(d) of the Plan, awarded shares shall remain
subject to the Plan's restrictions prohibiting sale or transfer of such shares
as set forth in Section 5(b) hereof until the later of (i) the termination of
the Eligible Director's service as a director of the Company and (ii) the day
following the end of the six (6) month period beginning on the date of the award
of such restricted shares; provided, however, all restrictions imposed under the
Plan on such shares shall lapse upon the occurrence of a "Change of Control" (as
defined below). 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.
(d) If, pursuant to the Pitney Bowes Inc. Directors' Stock Ownership
Policy, an Eligible Director is considered to own shares of Common Stock having
a Fair Market Value of at least $350,000, such Eligible Director may during his
or her lifetime transfer to a Family Member, Family Entity or Charitable
Organization whole shares of Common Stock originally acquired under the Plan
having a Fair Market Value up to, but not greater than, the Fair Market Value of
the Eligible Director's Common Stock holdings in excess of $350,000, rounded up
or down, as the case may be, to prevent the transfer of fractional shares;
provided, that each of the following conditions is met.
(1) Immediately before and after the date of transfer, the Eligible
Director is considered to have attained the minimum level of
stock ownership under the Pitney Bowes Inc. Directors' Stock
Ownership Policy based on the Fair Market Value as of the date of
transfer;
(2) A Family Member and Family Entity shall not be permitted to
further transfer restricted shares until the restrictions set
forth in Section 5(c) of the Plan have lapsed; provided, however,
that a Charitable Organization may transfer restricted shares
upon the Eligible Director's completion of six months of service
with the Company following the date on which the restricted
shares were granted without regard to the Eligible Director's
termination of service from the Company;
(3) Eligible Directors must comply with applicable securities laws
and regulations with respect to transfers made hereunder; and
3
<PAGE>
(4) Transfers under this Section 5(d) must meet all of the
requirements under applicable provisions of the Internal Revenue
Code to be considered "gift" transfers or charitable
contributions, as the case may be.
(5) For purposes of the Plan, the following definitions shall apply:
(A) Family Member means the Eligible Director's natural or
adopted child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, sister-in-law,
brother-in-law, nephew, niece (including by adoption) and
any person sharing the Eligible Director's household (other
than a tenant or employee);
(B) Family Entity means any trust in which the Eligible Director
has more than a 50% beneficial interest and any entity in
which the Eligible Director and/or a Family Member owns more
than a 50% of the voting interests; and
(C) Charitable Organization means any not-for-profit entity
recognized as such under the Internal Revenue Code of 1986,
as amended.
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 and the number of Options granted with respect to the deferred
amount shall be 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 Governance Committee of 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) Subject to Section 6(e) and (g), no portion of the Option is
exercisable until the third anniversary of the Date of Grant, at which time the
Option 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.
4
<PAGE>
(e) Subject to Section 6(f) and (g) of the Plan, 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.
(f) Upon termination of service by a director, any Option granted prior to
October 11, 1999 held by the 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 or the last day of the Option term, whichever occurs first.
(g) Options that are granted hereunder on or after October 11, 1999 shall
continue to be exercisable beyond the termination of the Eligible Director's
services until the expiration of the Option term; provided that the Eligible
Director's termination of service occurs (1) due to death, (2) due to
disability, as defined under the Company's long-term disability plan for
employees, (3) following the completion of 10 years of service with the Company
as a director, or (4) following attainment of the Company's mandatory retirement
age for directors. In the case of an Eligible Director's termination of service
for all other reasons, any Options or portions thereof that are exercisable at
the time of termination of service shall be exercisable until the earlier to
occur of (i) the last day of the Option term or (ii) the last day of the three
month period following such termination. Any Options granted on or after October
11, 1999 that are not exercisable at the time of the Eligible Director's
termination of service or that are not exercised by the last day of the
additional exercise period described in the preceding sentence shall be
forfeited.
(h) Notwithstanding Section 10 herein to the contrary, an Eligible Director
may transfer by gift any Option that is exercisable provided that the following
conditions (A) through (G) are met:
(A) The donees of the gift transfer are limited to Family
Members and Family Entities;
(B) The Option is not further transferable by gift or otherwise
by such Family Member or Family Entity;
(C) All rights appurtenant to the Option, including exercise
rights, are irrevocably and unconditionally assigned to the
donee;
(D) Transfers under this Section 6(h) must meet all of the
requirements under applicable provisions of the Internal
Revenue Code to be considered "gift" transfers.
5
<PAGE>
(E) Following the transfer, the donee is subject to the same
terms and conditions under the Option as was the Eligible
Director;
(F) Unless one of the conditions set forth in Section 6(g)(1-4)
hereof occurs, the exercise period of Options transferred
under this Section 6(h) shall not extend beyond the one year
period beginning on the Eligible Director's termination of
service, except that for Options granted prior to October
11, 1999, the one year extension period shall commence on
the date of the Eligible Director's death if the director
dies within three months of terminating service as a
director.
(G) For purposes of the Plan, the following definitions shall
apply:
(a) Family Member means the Eligible Director's natural or
adopted child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, sister-in-law, nephew, niece
(including by adoption) and any person sharing the
Eligible Director's household (other than a tenant or
employee); and
(b) Family Entity means any trust in which the Eligible
Director has more than a 50% beneficial interest and
any entity in which the Eligible Director and/or a
Family Member owns more than a 50% of the voting
interests.
(i) 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. 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
6
<PAGE>
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
(ii) individuals who, as of October 11, 1999, 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.
8. 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 or Options which were made prior to such action.
9. NON TRANSFERABILITY: Except as permitted under Section 5(d) and 6(h)
hereof, restricted shares of Common Stock and Options prior to distribution or
exercise thereof, as the case may be, 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.
10. ADMINISTRATION OF PLAN: This Plan shall be administered by the
Governance 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.
7
<PAGE>
11. 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 outstanding under the Plan, to prevent enlargement or diminution of
the benefits intended to be granted under the Plan.
8
<PAGE>
EXHIBIT (ii)
------------
THE PITNEY BOWES AMENDED AND RESTATED 1998 STOCK PLAN
Effective as of January 1, 1999
<PAGE>
THE PITNEY BOWES AMENDED AND RESTATED 1998 STOCK PLAN
-----------------------------------------------------
Section 1. Purpose.
The purposes of this Pitney Bowes 1998 Stock Plan (the "Plan") are (1) to make
available to key employees, certain compensatory arrangements related to the
growth in value of the common stock of the Company so as to generate an
increased incentive to contribute to the Company's future financial success and
prosperity, (2) to enhance the ability of the Company and its Affiliates to
attract and retain exceptionally qualified individuals whose efforts can affect
the financial growth and profitability of the Company, and (3) to align
generally the interests of key employees of the Company and its Affiliates with
the interests of Pitney Bowes shareholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company or (ii) any entity
in which the Company has a significant equity interest, as determined
by the Committee.
(b) "Award" shall mean any Option, Restricted Stock, Restricted Stock
Unit, Dividend Equivalent, Other Stock-Based Award, Performance Award
or Substitute Award, granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board of Directors" shall mean the Board of Directors of the Company
as it may be composed from time to time.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor code thereto.
(f) "Committee" shall mean the Board of Directors, excluding any director
who is not a Non-Employee Director" within the meaning of Rule 16b-3,
or any such other committee designated by the Board of Directors to
administer the Plan, which committee shall be composed of not less
than the minimum number of members of the Board of Directors from time
to time required by Rule 16b-3 or any applicable law, each of whom is
a Non-Employee Director within the meaning of Rule 16b-3.
(g) "Company" shall mean Pitney Bowes Inc., or any successor thereto.
2
<PAGE>
(h) "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.
(i) "Covered Employees" means Participants who are designated 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 Section 1 62(m).
(j) "Dividend Equivalent" shall mean any right granted under Section 6(c)
of the Plan.
(k) "Employee" shall mean any employee of the Company or of any Affiliate.
(l) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods, or
procedures as shall be established from time to time by the Committee.
(m) "Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code, or any successor provision thereto.
(n) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(p) "Other Stock-Based Award" shall mean any Award granted under Section
6(d) of the Plan.
(q) "Participant" shall mean an Employee who is granted an Award under the
Plan.
(r) "Performance Award" shall mean any Award granted hereunder that
complies with Section 6(e)(ii) of the Plan.
(s) "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, return on investment, economic value added, earnings per
share, return on stockholder equity, stock price, achievement of cost
control, or such other measure as the Committee may decide, 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
3
<PAGE>
performance of other corporations. Performance Goals shall be set by
the Committee within the time period prescribed by Section 162(m).
(t) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
or government or political subdivision thereof.
(u) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have
expired lapsed, or been waived.
(v) "Restricted Securities" shall mean Awards of Restricted Stock or other
Awards under which issued and outstanding Shares are held subject to
certain restrictions.
(w) "Restricted Stock" shall mean any Share granted under Section 6(b) of
the Plan.
(x) "Restricted Stock Unit" shall mean any right granted under Section
6(b) of the Plan that is denominated in Shares.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as
amended, or any successor rule and the regulation thereto.
(z) "Section 162(m)" means Section 162(m) of the Code or any successor
thereto, and the Treasury Regulations thereunder.
(aa) "Share" or "Shares" shall mean share(s) of the common stock of the
Company, $2 par value, and such other securities or property as may
become the subject of Awards pursuant to the adjustment provisions of
Section 4(c).
(bb) "Substitute Award" shall mean an Award granted in assumption of, or in
substitution for, an outstanding award previously granted by a company
acquired by the Company or with which the Company combines.
Section 3. Administration.
(a) The Plan shall be administered by the Committee. Subject to the terms
of the Plan and applicable law, the Committee shall have full power
and authority to:
(i) designate Participants;
(ii) determine the type or types of Awards to be granted to each
Participant under the Plan;
(iii) determine the number of Shares to be covered by (or with respect
to which payments, rights, or other matters are to be calculated
in connection with) Awards;
4
<PAGE>
(iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances
Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or to what extent,
and under what circumstances Awards may be canceled, forfeited,
or suspended, and the method or methods by which Awards may be
settled, exercised, canceled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Awards, other property,
and other amounts payable with respect to an Award under the
Plan shall be deferred either automatically or at the election
of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or
agreement relating to the Plan, or any Award made under the
Plan, including any Award Agreement;
(viii) establish, amend, suspend, or reconcile such rules and
regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and
(ix) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration
of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with
respect to the Plan, any Award, or any Award Agreement, shall be
within the sole discretion of the Committee, may be made at any time,
and shall be final, conclusive, and binding upon all Persons,
including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any employee of the Company or of any
Affiliate.
(c) The Committee may delegate to one or more executive officers of the
Company or to a committee of executive officers of the Company the
authority to grant Awards to Employees who are not officers or
directors of the Company and to amend, modify, cancel or suspend
Awards to such employees, subject to Sections 7 and 9.
5
<PAGE>
Section 4. Shares Available For Awards.
(a) Maximum Shares Available. The maximum number of Shares that may be
issued to Participants pursuant to Awards under the Plan shall be
30,800,000 (the "Plan Maximum), subject to adjustment as provided in
Section 4(c) below. Only 9,240,000 Shares may be issued pursuant to
Awards of Restricted Stock and Restricted Stock Units under Section
6(b) of the Plan. Pursuant to any Awards, the Company may in its
discretion issue treasury Shares or authorized but previously unissued
Shares pursuant to Awards hereunder. For the purpose of accounting for
Shares available for Awards under the Plan, the following shall apply:
(i) Only Shares relating to Awards actually issued or granted
hereunder shall be counted against the Plan Maximum. Shares
corresponding to Awards that by their terms expired, or that are
forfeited, canceled or surrendered to the Company without full
consideration paid therefor shall not be counted against the
Plan Maximum.
(ii) Shares that are forfeited by a Participant after issuance, or
that are reacquired by the Company after issuance without full
consideration paid therefor, shall be deemed to have never been
issued under the Plan and accordingly shall not be counted
against the Plan Maximum.
(iii) Awards not denominated in Shares shall be counted against the
Plan Maximum in such amount and at such time as the Committee
shall determine under procedures adopted by the Committee
consistent with the purposes of the Plan.
(iv) Substitute Awards shall not be counted against the Plan Maximum,
and clauses (i) and (ii) of this Section shall not apply to such
Awards.
The maximum number of Shares that may be the subject of Awards made to
a single Participant in any one calendar year shall be 400,000.
(b) Shares Available for ISOs. The maximum number of Shares for which ISOs
may be granted under the Plan shall not exceed the Plan Maximum as
defined in Section 4(a) above, subject to adjustment as provided in
Section 4(c) below.
(c) Adjustments to avoid dilution. Notwithstanding paragraphs (a) and (b)
above, in the event of a stock dividend, split-up or combination of
Shares, merger, consolidation, reorganization, recapitalization, or
other change in the corporate structure or capitalization affecting
the outstanding common stock of the Company, 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 the Plan or any Award, then the Committee
may make appropriate adjustments to (i) the number or kind of Shares
available for the future granting of Awards hereunder, (ii) the number
and type of Shares subject to outstanding Awards, and (iii) the grant,
purchase, or
6
<PAGE>
exercise price with respect to any Award; or if it deems such action
appropriate, the Committee may make provision for a cash payment to
the holder of an outstanding Award; provided, however, that with
respect to any ISO no such adjustment shall be authorized to the
extent that such would cause the ISO to violate Code Section 422 or
any successor provision thereto. The determination of the Committee as
to the adjustments or payments, if any, to be made shall be
conclusive.
(d) Other Plans. Shares issued under other plans of the Company shall not
be counted against the Plan Maximum under the Plan.
Section 5. Eligibility.
Any Employee, including any officer or employee director of the Company or of
any Affiliate, who is not a member of the Committee shall be eligible to be
designated a Participant.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Committee shall determine:
(i) Exercise Price. The exercise price per Share under an Option
shall be determined by the Committee; provided, however, that
except in the case of Substitute Awards, no Option granted
hereunder may have an exercise price of less than 100% of Fair
Market Value of a Share on the date of grant.
(ii) Times and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part; in no event, however, shall the period for exercising an
Option extend more than 10 years from the date of grant. The
Committee shall also determine the method or methods by which
options may be exercised, and the form or forms ('including
without limitation, cash, Shares, other Awards, or other
property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price), in
which payment of the exercise price with respect thereto may be
made or deemed to have been made.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor
provision thereto, and any regulations promulgated thereunder.
(iv) Termination of Employment. In the event that a Participant
terminates employment or becomes disabled, Options granted
hereunder shall be exercisable only as specified below:
7
<PAGE>
(A) Disability, Death and Retirement. Options Granted On Or
--------------------------------
After January 1,1999. If a Participant becomes disabled,
dies or retires, any outstanding Option granted to such a
Participant on or after January 1, 1999, whether or not full
or partial vesting has occurred with respect to such Option
at the time of the disability, death or retirement, shall be
exercisable during the ten (10) year period beginning on the
date of grant (or during such shorter period if the original
term is less than ten (10 years) even though the disability,
death or retirement occurs prior to the last day of such
option term. Any vesting requirements under the Option shall
be deemed to be satisfied as of the date of disability,
death or retirement.
Options Granted Prior to January 1, 1999. If a Participant
becomes disabled, dies or retires, any outstanding Option
granted to a Participant prior to January 1, 1999, whether
or not full or partial vesting has occurred with respect to
such Option at the time of the disability, death or
retirement, shall be exercisable for four (4) years (or
during such shorter period if the remaining term of the
Option is less than four (4) years following the disability,
death or retirement unless the Committee has in its sole
discretion established a special exercise period following
the occurrence of such events. Any vesting requirements
under the Option shall remain in effect during the exercise
period following the Participant's disability, death or
retirement.
For purposes of the Plan, a Participant shall be considered
to be "disabled" on the date he or she is determined to be
totally disabled under the procedures and provisions of the
Pitney Bowes Long Term Disability Plan, irrespective of
whether the Participant is eligible for benefits under the
LTD Plan. In addition, for purposes of the Plan, a
Participant shall be considered to retire on the date he or
she terminates employment on or after attainment of age 55
with at least 10 years of company service, as determined
under the Pitney Bowes Pension Plan. In the case of death,
an Option may be transferred to the executor of personal
representative of the Participant's estate or the
Participant's heirs by will or the laws of descent and
distribution.
(B) Termination for Reasons Other Than Death, Disability or
-------------------------------------------------------
Retirement.
----------
If a Participant terminates employment for reasons other
than death, disability or retirement, any vested,
unexercised portion of an Option that is at least partially
vested at the time of the termination shall be forfeited in
its entirety if not exercised by the Participant within
three (3) months of the date of termination of employment,
unless the Committee has in its sole discretion established
an additional exercise period (but in any case not longer
than the original
8
<PAGE>
option term). Any portion of such partially vested Option
that is not vested at the time of termination shall be
forfeited unless the Committee has in its sole discretion
established that a Participant may continue to satisfy the
vesting requirements beyond the date of his or her
termination of employment. Any outstanding Option granted to
a Participant terminating employment other than for death,
disability or retirement, for which no vesting has occurred
at the time of the termination shall be forfeited on the
date of termination and the Committed shall have no
discretion to extend the exercise period of such Option.
(C) Sale of Business. In the event the "business unit," (defined
----------------
as a division, subsidiary, unit or other delineation that
the Committee in its sole discretion may determine) for
which the Participant performs substantially all of his or
her services is assigned, sold, outsourced or otherwise
transferred, including an asset, stock or joint venture
transaction, to an unrelated third party such that after
such transaction the Company owns or controls directly or
indirectly less than 51% of the business unit, the affected
Participant shall become 100% vested in all outstanding
Options as of the date of the closing of such transaction,
whether or not fully partially vested, and such Participant
shall be entitled to exercise such Options during the three
(3) months following the closing of such transaction, unless
the Committee has in its sole discretion established an
additional exercise period (but in any case not longer than
the original option term). All Options which are unexercised
at the end of such three (3) months shall be automatically
forfeited.
(D) Conditions Imposed on Unvested Options. Notwithstanding the
--------------------------------------
foregoing provisions describing the additional exercise
periods for Options upon termination of employment, the
Committee may in its sole discretion condition the right of
a Participant to exercise any portion of a partially vested
Option for which the Committee has established an additional
exercise period on the Participant's agreement to adhere to
such conditions and stipulations which the Committee may
impose, including, but not limited to, restrictions on the
solicitation of employees or independent contractors,
disclosure of confidential information, covenants not to
compete, refraining from denigrating through adverse or
disparaging communication, written or oral, whether or not
true, the operations, business, management, products or
services of the Company or its current or former employees
and directors, including without limitation, the expression
of personal views, opinions or judgements. The unvested
Options of any Participant for whom the Committee has given
an additional exercise period subject to such conditions
subsequent as set forth in
9
<PAGE>
this Section 6(a)(iv)(D) shall be forfeited immediately upon
a breach of such conditions.
(E) Forfeiture for Gross Misconduct. Notwithstanding anything to
-------------------------------
the contrary herein, any Participant who engages in Gross
Misconduct, as defined herein, (including any Participant
who may otherwise qualify for disability or retirement
status) shall forfeit all outstanding, unexercised Options,
whether vested or unvested, as of the date such Gross
Misconduct occurs. For purposes of the Plan, Gross
Misconduct shall be defined to mean (i) the Participant's
conviction of a felony (or crime of similar magnitude in
non-U.S. jurisdictions) in connection with the performance
or nonperformance of the Participant's duties of (ii) the
Participant's willful act or failure to act in a way that
results in material injury to the business or reputation of
the Company or employees of the Company.
(F) Vesting. For purposes of the Plan, any reference to the
-------
"vesting" of an Option shall mean any events or conditions
which, if satisfied, entitle a Participant to exercise an
Option with respect to all or a portion of the shares
covered by the Option. The complete vesting of an Option
shall be subject to Section 6(a)(iv)(E) hereof. Such vesting
events or conditions may be set forth in the Notice of Grant
or determined by the Committee.
(b) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Awards of Restricted Stock and or Restricted Stock
Units to Participants with the following terms and conditions.
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, continued employment over
a specified period or the attainment of specified Performance
Objectives (as defined in Section 6(e)(ii)(B) or Performance
goals, in accordance with Section 13), which restrictions may
lapse separately or concurrently at such time or times, in such
installments or otherwise, as the Committee may deem appropriate.
Notwithstanding the foregoing, (A) any Awards of Restricted Stock
or Restricted Stock Units as to which the sole restriction
relates to the passage of time and continued employment must have
a restriction period of not less than three years and (B) any
Award not described in Clause (A) must have a restriction period
of not less than one year subject, in the case of both (A) and
(B) to the proviso to Section 6(b)(iii) below.
(ii) Registration. Any Restricted Stock granted under the Plan may be
evidenced in such manner, as the Committee may deem appropriate,
including without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock
certificate is issued in respect of Shares of Restricted Stock
10
<PAGE>
granted under the Plan, such certificate shall be registered in
the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable
to such Restricted Stock.
(iii) Termination of Employment. Upon termination of employment of a
Participant for any reason during the applicable restriction
period, all Restricted Stock and all Restricted Stock Units, or
portion thereof, still subject to restriction shall be forfeited
and reacquired by the Company; provided, however, that in the
event termination of employment is due to the death, total
disability or retirement of the Participant, the Committee may
waive in whole or in part any or all remaining restrictions with
respect to Restricted Stock or Restricted Stock Units.
(c) Dividend Equivalents. The Committee may grant to Participants Dividend
Equivalents under which the holders thereof shall be entitled to
receive payments equivalent to dividends with respect to a number of
Shares determined by the Committee, and the Committee may provide that
such amounts shall be deemed to have been reinvested in additional
Shares or otherwise reinvested. Subject to the terms of the Plan, such
Awards may have such terms and conditions, as the Committee shall
determine.
(i) Termination of Employment. Upon termination of the Participant's
employment for any reason during the term of a Dividend
Equivalent, the right of a Participant to payment under a
Dividend Equivalent shall terminate as of the date of
termination; provided, however, that in the event the
Participant's employment terminates because of the death, total
disability or retirement of a Participant the Committee may
determine that such right terminates at a later date.
(d) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to Shares (including without limitation securities convertible
into Shares), as are deemed by the Committee to be consistent with the
purposes of the Plan; provided, however, that such grants must comply
with Rule 16b-3 and applicable law.
(i) If applicable, Shares or other securities delivered pursuant to a
purchase right granted under this Section 6(d) shall be purchased
for such consideration, which may be paid by such method or
methods and in such form or forms, including without limitation
cash, Shares, other securities, other Awards or other properly,
or any combination thereof, as the Committee shall determine;
provided, however, that except in the case of Substitute Awards,
no derivative security (as defined in Rule 16b-3) awarded
hereunder may have an exercise price of less than 100% of Fair
Market Value of a Share on the date of grant.
(ii) In granting any Stock-Based Award pursuant to this Section 6(d)
the Committee shall also determine what effect the termination of
employment of the Participant
11
<PAGE>
holding such Award shall have on the rights of the Participant
pursuant to the Award.
(e) General. The following general provisions shall apply to all Awards
granted hereunder, subject to the terms of other sections of this Plan
or any Award Agreement.
(i) Award Agreements. Each Award granted under this Plan shall be
evidenced by an Award Agreement which shall specify the relevant
material terms and conditions of the Award and which shall be
signed by the Participant receiving such Award, if so indicated
by the Award.
(ii) Performance Awards. Subject to the other terms of this Plan, the
payment, release or exercisability of any Award, in whole or in
part, may be conditioned upon the achievement of such Performance
Objectives" (as defined below) during such performance periods as
are specified by the Committee. (Hereinafter in this Section
6(e)(ii) the terms payment, pay, and paid also refer to the
release or exercisability of a Performance Award, as the case may
require.)
(A) Terms. The Committee shall establish the terms and
conditions of any Performance Award including the
Performance Objectives (as defined below) to be achieved
during any performance period, the length of any performance
period, any event the occurrence of which will entitle the
holder to payment, and the amount of any Performance Award
granted.
(B) Performance Objectives. The Committee shall establish
"Performance Objectives" the achievement of which shall
entitle the Participant to payment under a Performance
Award. Performance Objectives may be any measure of the
business performance of the Company, or any of its divisions
or Affiliates, including but not limited to the growth in
book or market value of capital stock, the increase in the
earnings in total or per share, or any other financial or
non-financial indicator specified by the Committee.
(C) Fulfillment of Conditions and Payment. The Committee shall
determine in a timely manner whether all or part of the
conditions to payment of a Performance Award have been
fulfilled and, if so, the amount, if any, of the payment to
which the Participant is entitled.
(iii) Rule 16b-3 Six Month Limitations. To the extent required in order
to render the grant of an Award, the exercise of an Award or any
derivative security, or the sale of securities corresponding to
an Award, an exempt transaction under Section 16b of the
Securities Exchange Act of 1934 only, any equity security granted
under the Plan to a Participant must be held by such Participant
for at least six months from the date of grant, or in the case of
a derivative security granted pursuant to the Plan to a
Participant, at least six months must elapse from the date of
acquisition of the derivative security to the date of disposition
of the derivative security (other
12
<PAGE>
than upon exercise or conversion) or its underlying equity
security. Terms used in the preceding sentence shall, for the
purposes of such sentence only, have the meanings if any,
assigned or attributed to them under Rule 16b-3.
(iv) Limits on Transfer of Awards. No Award (other than Released
Securities), and no right under any such Award shall be
assignable, alienable, pledgeable, attachable, encumberable,
saleable, or transferable by a Participant other than by will or
by the laws of descent and distribution or pursuant to a domestic
relations order (or, in the case of Awards that are forfeited or
canceled, to the Company); and any purported assignment, sale,
transfer, thereof shall be void and unenforceable against the
Company or Affiliate. If the Committee so indicates in writing to
a Participant, he or she may designate one or more beneficiaries
who may exercise the rights of the Participant and receive any
property distributable with respect to any Award upon the death
of the Participant.
Each Award, and each right under any Award, shall be exercisable,
during the Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's guardian
or legal representative or by a transferee receiving such Award
pursuant to a domestic relations order referred to above.
(v) Gift Transfers. Notwithstanding Section 6(e)(iv) herein to the
contrary, a Participant may transfer by gift the exercisable
portion of an Option provided that the following conditions (A)
through (G) are met:
(A) The donees of the gift transfer are limited to Family
Members and Family Entities;
(B) The Option is not further transferable by gift or otherwise
by such Family Member and Family Entity;
(C) All rights appurtenant to the Option including exercise
rights, are irrevocability and unconditionally assigned to
the donee;
(D) Transfers under this Section 6(e)(v) must meet all of the
requirements under applicable provisions of the Internal
Revenue Code to be considered "gift" transfers.
(E) Following the transfer, the donee is subject to the same
terms and conditions under the Option as was the
Participant;
(F) The early exercise of the transferred Option shall be
triggered if the Participant dies, becomes disabled, retires
or terminates employment prior to the end of the Option term
in accordance with Section 6(a)(iv) hereof.
(G) For purposes of the Plan, the following definitions shall
apply:
13
<PAGE>
(1) Family Member means the Participant's natural or
adopted child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, sister- in-law, nephew, niece
(including by adoption) and any person sharing the
Participant's household (other than a tenant or
employee); and
(2) (2) Family Entity means any trust in which the
Participant has more than a 50% beneficial interest and
any entity in which the Participant and/or a Family
Member owns more than a 50% of the voting interests.
(vi) No Cash Consideration for Awards. Awards may be granted for no
cash consideration, or for such minimal cash consideration as
the Committee may specify, or as may be required by applicable
law.
(vii) Awards May Be Granted Separately or Together. Awards may, in
the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other
Award or any award granted under any other plan of the Company
or any Affiliate. Awards granted in addition to or in tandem
with other Awards or in addition to or in tandem with awards
granted under any other plan of the Company or any Affiliate
may be granted either at the same time as or at a different
time from the grant of such other Awards or awards. Performance
Awards and Awards which are not Performance Awards may be
granted to the same Participant.
(viii) Forms Of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant,
exercise, or payment of an Award may be made in such form or
forms as the Committee shall determine, including, without
limitation, cash, Shares, other securities, other Awards, or
other property, or any combination thereof, and may be made in
a single payment or transfer, in installments, or on a deferred
basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may
include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents in
respect of installment or deferred payments.
(ix) Term of Awards. Except as provided in Sections 6(a)(ii) or
6(a)(iv), the term of each Award shall be for such period as
may be determined by the Committee.
(x) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any
stock exchange upon which such Shares or other
14
<PAGE>
securities are then listed, and any applicable Federal or state
securities laws, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference
to such restrictions. Unrestricted certificates representing
Shares, evidenced in such manner as the Committee shall deem
appropriate, shall be delivered to the holder of Restricted
Stock, Restricted Stock Units or any other relevant Award
promptly after such related Shares shall become Released
Securities.
Section 7. Amendment And Termination Of Awards.
Except to the extent prohibited by applicable law and unless otherwise expressly
provided in an Award Agreement or in the Plan, the following shall apply to all
Awards.
(a) Amendments to Awards. Subject to Section 6(b)(i), the Committee may
waive any conditions or rights under, amend any terms of, or amend,
alter, suspend, discontinue, cancel or terminate, any Award heretofore
granted without the consent of any relevant Participant or holder or
beneficiary of an Award; provided, however, that no such amendment,
alteration, suspension, discontinuance, cancellation or termination
that would be adverse to the holder of such Award may be made without
such holder's consent. Notwithstanding the foregoing, the Committee
shall not amend any outstanding Option to change the exercise price
thereof to any price that is lower than the original exercise price
thereof, except in connection with an adjustment authorized under
Section 4(c).
(b) Adjustments of Awards Upon Certain Acquisitions. In the event the
Company or an Affiliate shall issue Substitute Awards, the Committee
may make such adjustments, not inconsistent with the terms of the
Plan, in the terms of Awards as it shall deem appropriate in order to
achieve reasonable comparability or other equitable relationship
between the assumed awards and the Substitute Awards granted under the
Plan.
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make
adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4(c)
hereof) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
to be made available under the Plan or an Award Agreement.
(d) Correction of Defects, Omissions, and Inconsistencies. The Committee
may correct any defect, supply any omission, or reconcile any
inconsistency in any Award Agreement in the manner and to the extent
it shall deem desirable to carry the Plan into effect.
15
<PAGE>
Section 8. Acceleration Upon A Change Of Control. In the event of a Change of
Control (as defined in Section 8(b) below) the following shall apply:
(a) Effect on Awards.
(i) Options. In the event of a Change of Control, (1) all Options
outstanding on the date of such Change of Control shall become
immediately and fully exercisable without regard to any vesting
schedule provided for in the Option.
(ii) Restricted Stock and Restricted Stock Units. In the event of a
Change of Control, all restrictions applicable to any Restricted
Stock or Restricted Stock Unit shall terminate and be deemed to
be fully satisfied for the entire stated restricted period of
any such Award, and the total number of underlying Shares shall
become Released Securities. The Participant shall immediately
have the right to the prompt delivery of certificates reflecting
such Released Securities.
(iii) Dividend Equivalents. In the event of a Change of Control, the
holder of any outstanding Dividend Equivalent shall be entitled
to surrender such Award to the Company and to receive payment of
an amount equal to the amount that would have been paid over the
remaining term of the Dividend Equivalent, as determined by the
Committee.
(iv) Other Stock-Based Awards. In the event of a Change of Control,
all outstanding Other Stock-Based Awards of whatever type become
immediately vested and payable in an amount that assumes that
the Awards were outstanding for the entire period stated
therein, as determined by the Committee.
(v) Performance Awards. In the event of a Change of Control,
Performance Awards for all performance periods, including those
not yet completed, shall immediately become fully vested and
payable in accordance with the following:
(A) The total amount of Performance Awards conditioned on
nonfinancial Performance Objectives and those conditioned on
financial Performance be immediately payable (or exercisable
or released, as the case may be) as if the Performance
Objectives had been fully achieved for the entire
performance period.
(B) For Performance Awards conditioned on financial Performance
Objectives and payable in cash, the Committee shall
determine the amount payable under such Award by taking into
consideration the actual level of attainment of the
Performance Objectives during that portion of the
performance period that had occurred prior to the date of
the Change of Control, and with respect to the part of the
performance period that had not occurred prior to the date
of the Change of Control, the Committee shall determine an
anticipated level of attainment taking into consideration
16
<PAGE>
available historical data and the last projections made by
the Company's Chief Financial Officer prior to the Change of
Control. The amount payable shall be the present value of
the amount so determined by the Committee discounted using a
factor that is the Prime Rate as established by Chase
Manhattan Bank, N.A. as of the date of the Change of
Control.
(vi) The Committee's determination of amounts payable under this
Section 8(a) shall be final. Except as otherwise provided in
Section 8(a)(1), any amounts due under this Section 8(a) shall
be paid to Participants within 30 days after such Change of
Control.
(vii) The provisions of this Section 8(a) shall not be applicable to
any Award granted to a Participant if any Change of Control
results from such Participant's beneficial ownership (within the
meaning of Rule 13d-3 under the Securities and Exchange Act of
1934, as amended (the "Exchange Act")) of Shares or other
Company common stock or Company voting securities.
(b) Change of Control Defined. "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, 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
(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,
17
<PAGE>
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 9. Amendment And Termination Of The Plan.
Except to the extent prohibited by applicable law and unless otherwise expressly
provided in an Award Agreement or in the Plan, the Board of Directors may amend,
alter, suspend, discontinue, or terminate the Plan, including without limitation
any such action to correct any defect, supply any omission or reconcile any
inconsistency in the Plan, without the consent of any stockholder, Participant,
other holder or beneficiary of an Award, or Person; provided that any such
amendment, alteration, suspension, discontinuation, or termination that would
impair the rights of any Participant, or any other holder or beneficiary of any
Award heretofore granted shall not be effective without the approval of the
affected Participant(s); and provided further, that, notwithstanding any other
provision of the Plan or any Award Agreement, without the approval of the
stockholders of the Company no such amendment, alteration, suspension,
discontinuation or termination shall be made that would increase the total
number of Shares available for Awards under the Plan, except as provided in
Section 4 hereof.
Section 10. General Provisions
(a) No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Employees, Participants, or
holders or beneficiaries of Awards under the Plan. The terms and
conditions of Awards need not be the same with respect to each
recipient.
18
<PAGE>
(b) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made
under any Award or under the Plan the amount (in cash, Shares, other
securities, other Awards, or other property) of withholding taxes due
in respect of an Award, its exercise, or any payment or transfer under
such Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company or Affiliate to satisfy all
obligations for the payment of such taxes.
(c) No Limit on Other Compensation Agreements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements and
such arrangements may be either generally applicable or applicable
only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment, free from any
liability or any claim under the Plan, unless otherwise any claim
under the Plan, unless otherwise expressly provided in the Plan or in
any Award Agreement.
(e) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Connecticut and applicable
Federal law.
(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person, or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate
pursuant to an Award, such right cured general creditor of the Company
or any Affiliate.
(h) No Fractional Shares. No fractional Share shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares, or whether such
fractional Shares, or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
19
<PAGE>
(i) Headings. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
Section 11. Effective Date Of The Plan.
The Plan shall be effective as of the date of its approval by the stockholders
of the Company.
Section 12. Term Of The Plan.
No Award shall be granted under the Plan after May 31, 2006. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond such date, and the authority of
the Committee hereunder to amend, alter, adjust, suspend, discontinue, or
terminate any such Award, or to waive any conditions or rights under any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
Section 13. Participants Subject to Section 162(m)
(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 preestablished Performance Goals, 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 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).
20
<PAGE>
EXHIBIT (iii)
-------------
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
FOR THE BOARD OF DIRECTORS
As Amended and Restated Effective as of October 11, 1999
<PAGE>
PITNEY BOWES INC.
DEFERRED INCENTIVE SAVINGS PLAN
FOR THE BOARD OF DIRECTORS
As Amended and Restated Effective as of October 11, 1999
ARTICLE 1
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. The Plan has
been amended from time to time and was amended and restated effective as of
October 11, 1999, unless otherwise indicated.
2
<PAGE>
ARTICLE 2
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. 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 2.02. Board. "Board" means the Board of Directors of Pitney Bowes
SECTION 2.03. 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 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 1 3(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
(ii) individuals who, as of October 11, 1999, 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
3
<PAGE>
(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 2.04. Committee. "Committee" means the Governance 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 2.05. Common Stock. "Common Stock" means the common stock of Pitney
Bowes Inc.
SECTION 2.06. 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 2.07. Deferral Account. "Deferral Account" means the account
maintained on the books of the Company by the Committee for each Participant to
reflect deferral of Eligible Compensation, adjusted for hypothetical gains,
earnings, dividends, losses, distributions, withdrawals and other similar
activity.
SECTION 2.08. Deferral Period. "Deferral Period" means the period beginning
on the date the Eligible Compensation would otherwise have been paid and ending
on the earlier of (i) the Participant's Termination of Service and (ii) the last
day of the period during which the Participant elected to defer current
enjoyment and distribution of the Eligible Compensation.
SECTION 2.09. Deferred Amount. "Deferred Amount" means 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.
SECTION 2.10 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 based on the plan's "own occupation" standard for determining
eligibility for benefits thereunder.
SECTION 2.11. 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 2.12. Fair Market Value. "Fair Market Value" of a share of Common
Stock means the definition of "Fair Market Value" used in the Pitney Bowes Inc.
Directors' Stock Plan.
4
<PAGE>
SECTION 2.13 Form of Payment. "Form of Payment" means payment in one lump
sum or in installments of 5, 10 or 15 years.
SECTION 2.13. Option. "Option" means an option to acquire shares of Common
Stock granted pursuant to the Pitney Bowes Inc. Directors' Stock Plan or any
successor thereto.
SECTION 2.14. 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 2.15. Participation Agreement. "Participation Agreement" means an
agreement filed by a Participant in accordance with Article 4.
SECTION 2.16. 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 2.17. Termination of Service. "Termination of Service" means the
cessation of a Participant's service as a director of the Company for any
reason.
SECTION 2.19. 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.
5
<PAGE>
ARTICLE 3
ADMINISTRATION
SECTION 3.01. 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.
6
<PAGE>
ARTICLE 4
PARTICIPATION
SECTION 4.01. 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 4.02. Contents of Participation Agreement. Subject to Article 7,
each Participation Agreement shall set forth: (i) 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 Deferral Period, which is not to be less than three
years, (iii) the Form of Payment; (iv) investment selections made by the
Participant in hypothetical investment funds under the Plan; and (v) and any
other item determined to be appropriate by the Committee.
SECTION 4.03. 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 may be 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.
7
<PAGE>
ARTICLE 5
DEFERRED INCENTIVE COMPENSATION
SECTION 5.01. 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 5.02. 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.
8
<PAGE>
ARTICLE 6
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 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.
SECTION 6.02. Investment Choices. (a) Subject to Section 6.02(d), the
Committee shall permit the Participant to elect to have his/her Deferral Account
deemed to be invested in one or more of the deemed investment funds offered
under the Plan, 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. 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.
(b) 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).
(c) 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.
(d) No deemed investment return under the Plan shall be allocated to
Deferred Amounts related to the granting of Options, as described in Section
6.02(c), prior to the last day of the Option term, subject to Section 7.02(b)
hereof. Following such Option term expiration, the Participant shall be entitled
to elect to have his/her Deferred Amounts related to the granting of such
Options deemed to be invested in one or more of the hypothetical investment
funds offered under the Plan effective as soon as practicable following such
Option term expiration, provided that under applicable provisions of the Plan
the Participant is permitted to defer distribution of the Deferred Amounts other
than for a de minimis period.
9
<PAGE>
(e) Any Participant who incurs a Termination of Service without completing
at least 10 years of service with the Company, who had not attained the
Company's mandatory retirement age for directors at termination or whose
termination is not on account of death or Disability shall have his or her
Deferred Amounts that are related to Options distributed without any deemed
investment return if such Deferred Amounts were credited to the Participant's
Deferral Account for less than three years as of the termination date.
(f) Any Participant electing Options as a deemed investment return who (i)
incurs a Termination of Service after having completed 10 years of service with
the Company, (ii) dies, (iii) incurs a Disability or (iv) terminates service
after having attained the Company's mandatory retirement age for directors shall
have the value of such exercised Options, if any, as the deemed investment
return under the Plan even if the deferral of Deferral Amounts related to the
Options has been less than three years at the time of the Termination of
Service.
SECTION 6.03. 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.
10
<PAGE>
ARTICLE 7
BENEFITS
SECTION 7.01. 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 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 7.02. Termination of Service. (a) 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.
(b) Notwithstanding Section 7.02 (a) hereof to the contrary, a Participant
who incurs a Termination of Service following the completion of at least 10
years of service with the Company or the attainment of the Company's mandatory
retirement age for directors and who has been granted Options pursuant to
Section 6.02(c) hereof in connection with Deferred Amounts shall have that
portion of his/her Deferral Account that relates to the granting of such Options
distributed no earlier than (i) the date of exercise of such Options and (ii)
the last day of the Option term, whichever occurs first; provided, however, that
any such Participant who has been granted Options pursuant to Section 6.02(c)
hereof and whose Termination of Service occurs as a result of death or
Disability shall have his or her Deferred Amounts related to such Options
distributed as soon as practicable following the occurrence of such Disability
or death, as the case may be. Such Deferred Amounts shall be distributed in
accordance with the Form of Payment elected by the Participant in his/her
Participation Agreement or with applicable provisions of the Plan; provided,
however, that if the Deferred Amounts are to be distributed in installments, the
Deferred Amounts related to the granting of Options shall be entirely
distributed over the remaining installment schedule commencing with the next
following installment payment due under the installment schedule. Any lump sum
payment shall be paid as soon as practicable following the date of exercise of
the Options or the last day of the Option term, as the case may be.
11
<PAGE>
SECTION 7.03. 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 7.04. 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 7.05. 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 7.06. 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.
12
<PAGE>
ARTICLE 8
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
Committee, on such form and in accordance with such procedures as the 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.
13
<PAGE>
ARTICLE 9
AMENDMENT AND TERMINATION OF PLAN
SECTION 9.01. 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 9.02. 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).
14
<PAGE>
ARTICLE 10
Miscellaneous
SECTION 10.01. 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 10.02. Nonassignabiliy. Except as specifically set forth in the
Plan, 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 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 10.04. 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 preempted by federal law.
SECTION 10.05. 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 service as a
director.
SECTION 10.06. 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.
15
<PAGE>
EXHIBIT (iv)
------------
RULES OF THE
------------
PITNEY BOWES U.K.
------------------
STOCK OPTION PLAN
------------------
Amended and Restated: Effective as of January 1, 1999
<PAGE>
THE PITNEY BOWES U.K. STOCK OPTION PLAN
---------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
PURPOSE AND INTRODUCTION...................................................... 4
1. INTERPRETATION.......................................................... 5
Committee .............................................................. 5
Company ................................................................ 5
Date of Grant .......................................................... 5
Directors .............................................................. 5
Eligible Employee ...................................................... 5
Fair Market Value ...................................................... 5
Issue or Reorganization ................................................ 5
Option ................................................................. 5
Participant ............................................................ 5
Participating Company .................................................. 5
Plan ................................................................... 6
Share .................................................................. 6
Subscription Price ..................................................... 6
Termination of Employment .............................................. 6
2. ELIGIBILITY ............................................................ 6
3. GRANT OF OPTIONS ....................................................... 6
4. OPTION CASH OUT ........................................................ 7
5. TERMS AND CONDITIONS OF OPTIONS ........................................ 8
(a) Non-Transferability ............................................... 8
(b) Exercise of Options
(i) Times and Meth8d of Exercise ................................. 8
(ii) Period of Exercise ........................................... 8
(A) Death, Disability or Retirement........................... 8
(B) Termination for Reasons Other Than Death,
Disability and Retirement ................................ 9
(C) Sale of Business ......................................... 9
(D) Conditions Imposed on Unvested Options....................10
(E) Forfeiture for Gross Misconduct ..........................10
(F) Vesting ..................................................10
(G) Rights on Dismissal ......................................11
1
<PAGE>
PAGE
6. ISSUE OR REORGANIZATION............................................... 11
7. CHANGE OF CONTROL..................................................... 11
8. ADMINISTRATION........................................................ 13
9. AMENDMENT OF OPTIONS.................................................. 13
10. AMENDMENT AND TERMINATION OF PLAN..................................... 14
11. CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES.................. 14
12. GOVERNING LAW......................................................... 14
13. GENERAL PROVISIONS.................................................... 14
APPENDIX A - APPROVED OPTIONS .............................................. 16
I. PURPOSE AND SCOPE..................................................... 16
II. INTERPRETATION
Act................................................................... 16
Approved Option....................................................... 16
Company Share......................................................... 16
Eligible Employee..................................................... 16
Participating Company................................................. 16
III. APPROVED OPTIONS...................................................... 16
IV. NON APPLICABILITY OF CERTAIN PROVISIONS............................... 16
V. RESTRICTIONS ON THE EXERCISE OF OPTIONS............................... 17
VI. EXERCISE OF APPROVED OPTIONS IN THE CASE OF DEATH .................... 17
VII. ISSUE OR REORGANIZATION............................................... 17
VIII. AMENDMENT OF PLAN..................................................... 18
IX. APPLICABILITY OF PRIOR PLAN UNTIL INLAND REVENUE
APPROVAL OF NEW PLAN ................................................. 18
2
<PAGE>
PAGE
X. ISSUE OR TRANSFER OF SHARES ......................................... 18
APPROVED STOCK OPTION AWARD ......................................... 19
3
<PAGE>
THE PITNEY BOWES U.K. STOCK OPTION PLAN
---------------------------------------
PURPOSE AND INTRODUCTION
------------------------
The purpose of the Pitney Bowes U.K. Stock Option Plan is (i) to make Options
available to certain employees of Pitney Bowes Ltd, Pitney Bowes Finance plc and
Pitney Bowes Management Services Ltd. and related companies who can make a
substantial contribution to the success of one or more of the above companies
and (ii) to enhance the ability of the above companies to attract and retain
exceptionally qualified individuals upon whom, in large measure, the sustained
progress, growth and profitability of the business of Pitney Bowes depend.
The Plan was established in 1986 and has been amended from time to time over the
years. The Plan was originally established as an Approved Scheme but was amended
on 22nd January, 1997 to permit the granting of Unapproved Options, along with
Approved Options. The current plan restatement continues to permit the Company
in its discretion to grant Approved Options and Unapproved Options under the
Plan. Appendix A of the Plan contains rules specifically applicable to Approved
Options. The plan name was changed in 1998 from the Pitney Bowes Inc. U.K.
Executive Stock Option Plan (1986) to the current plan name to reflect that the
group of eligible employees had been broadened to include non-executives.
The effective date of the restatement is January 1, 1999, meaning that the
provisions of the restatement apply to all outstanding options as of January 1,
1999 unless otherwise indicated. The restated Plan shall not be effective as to
any outstanding or future grants of Approved Options until the restated Plan has
been approved by Inland Revenue.
4
<PAGE>
THE PITNEY BOWES U.K. STOCK OPTION PLAN
---------------------------------------
1. INTERPRETATION
(a) The following words and expressions have the following meanings.
Certain capitalized but undefined terms appearing in this Rule 1 shall
have the meanings defined in Appendix A of the Plan:
"Committee" A committee of not less than three Directors who
shall be appointed, from time to time, by the
Directors;
"Company" Pitney Bowes Inc., a company incorporated under
the laws of the State of Delaware, U.S.A.;
"Date of Grant" The date on which the Directors resolve to grant
an Option in accordance with applicable terms of
the Plan;
"Directors" The Board of Directors of the Company for the
time being;
"Eligible
Employee" Any person holding employment who is an employee
or full-time director of the Company or any
Participating Company provided that no Termination
of Employment has occurred. For purposes of this
definition, "full-time" shall mean that the
director is required to work for not less than 25
hours per week;
"Fair Market
Value" The mean of the high and low price of a Share on
the date as of which the value is to be
determined, as reported in the New York Stock
Exchange Composite Transactions listing in the
Wall Street Journal;
"Issue or
Reorganization" Any capitalization issue or rights issue, stock
dividend or stock split, or any consolidation,
sub-division or reduction of capital by the
Company (other than the redemption or purchase by
the Company of any capital);
"Option" The right granted or to be granted hereunder to a
Participant on any particular Date of Grant to
subscribe for Shares in accordance with the Rules
of the Plan;
"Participant" Any person who has been granted an Option which
has not lapsed in accordance with the provisions
of
5
<PAGE>
Rule 5(b)(ii) hereof and includes, where the
context so permits, the legal personal
representatives of any such person;
"Participating
Company" Any company which the Directors from time to time
determine shall participate in the Plan;
"Plan" This plan, being the Pitney Bowes U.K. Stock
Option Plan, in its present form or with and
subject to any amendment thereto effected in
accordance with the Rules;
"Share" A unit of Common Stock in the capital of the
Company.
"Subscription
Price" The price for the subscription of a Share
comprised in any Option which is not less than the
higher of:
(i) the nominal value of a Share, and
(ii) 100% of the Fair Market Value of a Share on
the Date of Grant of such Option.
The Subscription Price shall be expressed in
United States dollars in the Option award
agreement.
"Termination of
Employment" The last day on which the Participant actively
perform services (whether voluntarily or
involuntarily) for the Company and any
Participating Company
(b) Words importing the singular shall include the plural and vice
versa and words importing the masculine shall include the
feminine;
2. ELIGIBILITY
-----------
No person shall be entitled as of right to participate in the Plan. Subject
to applicable law and provisions of the Plan, the Committee shall in their
absolute discretion decide from time to time which Eligible Employee shall
have the opportunity to participate in the Plan and the extent of the
participation.
3. GRANT OF OPTIONS
----------------
(a) The Committee shall select those Eligible Employees to whom Options
will be granted, and shall determine for such Options the number of
Shares which may be subscribed for, the Subscription Price, the
vesting schedule and any other terms of such Options. The Directors
shall have the final
6
<PAGE>
authority to grant Options. A Participant who accepts the grant of an
Option and the terms thereof shall send written notice of such
acceptance to the Company, if the Company has indicated that it
requires such written acceptance.
(b) All Options granted under the Plan shall be subject to the terms and
conditions of the Plan contained herein and shall be in such form as
the Committee may determine.
4. OPTION CASH OUT
---------------
(a) If a Participant tenders a notice of exercise of an Option, a cash sum may
be paid to the Participant in lieu of allotment and issue or transfer of
Shares. Such cash sum shall be equal to the amount by which the Fair Market
Value of the Shares as of the date of exercise for which the notice of
exercise was given exceeds the aggregate Subscription Price of those
Shares. For purposes of this Rule 4, the Fair Market Value of Shares on
which an Option is granted shall first be determined in United States
Dollars on the exercise date and shall then be converted to British Pounds
Sterling using the World Rate published in the Wall Street Journal as
reported on or most recently before the exercise date to determine the cash
sum amount, prior to withholding taxes. If payment is made pursuant to this
clause to a Participant, he shall have no further rights in respect of the
Shares for which the notice of exercise was given.
(b) The Company and any Participating Company shall be entitled to deduct
and/or withhold and/or account to the proper authorities for any tax,
national insurance contributions or other social security contribution
which it is required to deduct and/or withhold and/or account for under any
system for deduction of tax or such contributions at source (such as
pay-as-you earn). The Company and Participating Company shall ensure that
the amount of tax to which this sub-clause applies shall be the amount
which is properly attributable, to and does not exceed, the tax liability
on the benefit(s) to the Participant from participation in the Plan.
7
<PAGE>
5. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Non-transferability
-------------------
No Option granted under the Plan may be transferred, assigned, charged
or otherwise alienated other than due to death.
(b) Exercise of Options
-------------------
With respect to Options granted hereunder, the Committee shall take
the following actions:
(i) Times and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part; in no event, however, shall the period for exercising an
Option extend more than 10 years from the Date of Grant. The
Committee shall also determine the method or methods by which
options may be exercised, and the form or forms (`including
without limitation, cash, Shares, or other property, or any
combination thereof, having a Fair Market Value on the exercise
date equal to the relevant exercise price), in which payment of
the exercise price with respect thereto may be made or deemed to
have been made.
(ii) Period of Exercise. Options granted hereunder shall be
exercisable only as specified below:
(A) Disability, Death and Retirement. Options Granted On Or After
---------------------------------
January 1, 1999. If a Participant becomes disabled, dies or
retires, any outstanding Option granted to such a Participant on
or after January 1, 1999, whether or not full or partial vesting
has occurred with respect to such Option at the time of the
disability, death or retirement, shall be exercisable during the
ten (10) year period beginning on the Date of Grant (or during
such shorter period if the original term is less than ten (10)
years) even though the disability, death or retirement occurs
prior to the last day of such option term. Any vesting
requirements under the Option shall be deemed to be satisfied as
of the date of disability, death or retirement.
Options Granted Prior To January 1, 1999. If a Participant
becomes disabled, dies or retires, any outstanding Option granted
to a Participant prior to January 1, 1999, whether or not full or
partial vesting has occurred with respect to such Option at the
time of the disability, death or retirement, shall be exercisable
for four (4) years (or during such shorter period if the
remaining term of the Option is less than four (4) years)
following the disability, death or retirement unless the
Committee has in its sole discretion established a special
exercise period following the occurrence of
8
<PAGE>
such events. Any vesting requirements under the Option shall
remain in effect during the exercise period following the
Participant's disability, death or retirement.
For purposes of the Plan, a Participant shall be considered to be
"disabled' on the date he or she is determined to be totally
disabled under the procedures and provisions of the Pitney Bowes
U.K. Pension Fund, irrespective of whether the Participant is
eligible for disability benefits under the Pension Plan. In
addition, for purposes of the Plan, a Participant shall be
considered to retire on the date he terminates employment on or
after attainment of age 55 with at least 10 years of completed
service with the Company and its subsidiaries. In the case of
death, an Option may be transferred to the executor or personal
representative of the Participant's estate or the Participant's
heirs by will or the laws of descent and distribution.
(B) Termination for Reasons Other Than Death, Disability
----------------------------------------------------
or Retirement. If a Participant incurs a Termination of
-------------
Employment for reasons other than death, disability or
retirement, any vested, unexercised portion of an Option that is
at least partially vested at the time of the Termination of
Employment shall lapse in its entirety if not exercised by the
Participant within three (3) months of the Termination of
Employment, unless the Committee has in its sole discretion
established an additional exercise period (but in any case not
longer than the original option term). Any portion of such
partially vested Option that is not vested at the time of
Termination of Employment shall lapse unless the Committee has in
its sole discretion established that a Participant may continue
to satisfy the vesting requirements beyond the date of his
Termination of Employment. Any outstanding Option granted to a
Participant who incurs a Termination of Employment other than for
death, disability or retirement, for which no vesting has
occurred at the time of the termination shall lapse on the date
of termination and the Committee shall have no discretion to
extend the exercise period of such Option.
(C) Sale of Business. In the event the "business unit," (defined as
-----------------
a division, subsidiary, unit or other delineation that the
Committee in its sole discretion may determine) for which the
Participant performs substantially all of his or her services is
assigned, sold, outsourced or otherwise transferred, including an
asset, stock or joint venture transaction, to an unrelated third
party such that after such transaction the Company owns or
controls directly or indirectly less than 51% of the business
unit, the affected Participant shall become 100% vested in all
outstanding Options as of the date of the closing of such
transaction, whether or not fully or partially vested, and such
Participant shall be entitled to exercise
9
<PAGE>
such Options during the three (3) months following the closing of
such transaction, unless the Committee has in its sole discretion
established an additional exercise period (but in any case not
longer than the original option term). All Options which are
unexercised at the end of such three (3) months shall
automatically lapse.
(D) Conditions Imposed on Unvested Options. Notwithstanding the
--------------------------------------
foregoing provisions describing the additional exercise periods
for Options upon Termination of Employment, the Committee may in
its sole discretion condition the right of a Participant to
exercise any portion of a partially vested Option for which the
Committee has established an additional exercise period on the
Participant's agreement to adhere to such conditions and
stipulations which the Committee may impose, including, but not
limited to, restrictions on the solicitation of employees or
independent contractors, disclosure of confidential information,
covenants not to compete, refraining from denigrating through
adverse or disparaging communication, written or oral, whether or
not true, the operations, business, management, products or
services of the Company and any related companies or entities or
its current or former employees and directors, including without
limitation, the expression of personal views, opinions or
judgments. The unvested Options of any Participant for whom the
Committee has given an additional exercise period subject to such
conditions subsequent as set forth in this Rule 5(b)(ii)(D) shall
immediately lapse upon a breach of such conditions.
(E) Forfeiture for Gross Misconduct. Notwithstanding anything to the
--------------------------------
contrary herein, any Participant who engages in Gross Misconduct,
as defined herein, (including any Participant who may otherwise
qualify for disability or retirement status) shall forfeit all
outstanding, unexercised Options, whether vested or unvested, as
of the date such Gross Misconduct occurs. For purposes of the
Plan, Gross Misconduct shall be defined to mean (i) the
Participant's conviction of a serious crime in connection with
the performance or nonperformance of the Participant's duties or
(ii) the Participant's willful and gross misconduct in the
performance of his duties of employment or willful act or failure
to act in a way that results in material injury to the business
or reputation of the Company and any related companies or
entities or employees of the Company and any related companies or
entities.
(F) Vesting. For purposes of the Plan, any reference to the "vesting"
-------
of an Option shall mean any events or conditions which, if
satisfied, entitle a Participant to exercise an Option with
respect to all or a portion of the shares covered by the Option.
The complete vesting of an Option shall be subject to Rule
5(b)(ii)(E) hereof.
10
<PAGE>
Such vesting events or conditions may be set forth in the notice
of grant or determined by the Committee.
(G) Rights on Dismissal. In the event of his being dismissed by the
-------------------
Company or any Participating Company, a Participant shall not be
entitled to damages by reason of any cessation of or alteration
to his rights or expectations under the Plan arising from such
dismissal.
6. ISSUE OR REORGANIZATION
-----------------------
In the event of any Issue or Reorganization the number and/or class of
Shares subject to Options and/or the relevant Subscription Prices shall be
appropriately adjusted in such manner as the Committee shall determine to
be appropriate to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan provided
that the Subscription Price of a Share shall never be less than its nominal
value.
7. CHANGE OF CONTROL
-----------------
Notwithstanding anything in the Plan to the contrary, the following shall
apply:
(a) In the event of a Change of Control (as defined below), all Options
outstanding immediately before such Change of Control shall become
immediately exercisable to their fullest extent regardless of any
vesting schedule, including Options granted less than one year prior
to such Change of Control.
(b) If a Participant incurs a Termination of Employment within two years
after a Change of Control, all outstanding Options held by him, even
if granted less than one year before termination, and including those
accelerated upon Change of Control, shall continue to be exercisable
for a period of two years after such Termination of Employment,
provided that nothing contained in this Paragraph shall extend any
stock option granted beyond the expiration date pursuant to Rule 5
(b)(i) hereof.
(c) "Change of Control. shall mean the following events:
(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
11
<PAGE>
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
(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) 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 or dissolution of Pitney Bowes Inc. or of the sale
or other disposition of all or substantially all of the assets
of Pitney Bowes Inc.
12
<PAGE>
These "Change of Control" provisions only apply if Pitney Bowes Inc. is
subject to a "Change of Control". They do not apply to employees of a
Pitney Bowes subsidiary if that subsidiary is subject to a "Change of
Control".
8. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Committee. Subject to the terms
of the Plan and applicable law, the Committee shall have full power
and authority to:
(i) designate Eligible Employees;
(ii) determine the terms and conditions under which Options are to be
granted;
(iii) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other
securities, or other property, or to what extent, and under what
circumstances options may lapse or may be canceled, forfeited,
or suspended, and the method or methods by which Options may be
settled, exercised, canceled, forfeited, or suspended;
(iv) interpret and administer the Plan and any instrument or
agreement relating to the Plan, including any notice of grant;
(v) establish, amend, suspend, or reconcile such rules and
regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan;
(vi) carry out such additional duties or exercise such additional
rights as may be delegated to the Committee by the Directors;
and
(vii) make any other determination and take any other action that the
Committee may deem necessary or desirable for the administration
of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with
respect to the Plan, shall be within the sole discretion of the
Committee, may be made at any time, and shall be final, conclusive,
and binding upon all persons, including the Company, Participating
Companies, any Participant, any holder or beneficiary of any Option
and any employee or director of the Company or Participating Company.
9. AMENDMENT OF OPTIONS
--------------------
(a) Subject to (b) below, the Committee may at any time and from time to
time by resolution signed by the Committee and without other formality
13
<PAGE>
amend any terms or, waive any conditions or rights under, alter,
suspend, discontinue, cancel or terminate any Option granted hereunder
in any respect except to reduce the Subscription Price below the
Subscription Price at the time of grant, without the consent of the
stockholders of the Company and of the Participant;
(b) No amendment shall operate to prejudice materially any rights already
acquired by a Participant under the Plan or under a particular Option
grant.
10. AMENDMENT AND TERMINATION OF PLAN
----------------------------------
The Committee may at any time amend, alter, suspend, discontinue or
terminate the Plan without the consent of any stockholder or Participant;
provided that any such amendment, alteration, suspension, discontinuation
or termination that would operate to prejudice materially the rights of any
affected Participant shall not be effective without the approval of the
Participant; and provided further that the Plan may not be amended to
provide for repricing of Options previously issued under the Plan without
stockholder approval. In the event the Plan is suspended, discontinued or
terminated, no further grants will be made hereunder.
11. CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES
-----------------------------------------------------
The Committee may correct any defect, supply any omission, or reconcile any
inconsistency in any Option grant or Plan rule in the manner and to the
extent it shall deem desirable to carry the Plan into effect.
12. GOVERNING LAW
-------------
The Rules shall be governed by the laws of England.
13. GENERAL PROVISIONS
------------------
(a) No Right to Option. No Employee, Participant or other Person shall
have any claim to be granted any Option under the Plan, and there is
no obligation for uniformity of treatment of Eligible Employees,
Participants, or holders or beneficiaries of Options under the Plan.
The terms and conditions of Options need not be the same with respect
to each recipient.
(b) Withholding. The Company or any Participating Company shall be
authorized to withhold from any Option granted or any payment due or
transfer made under any Option, an amount (in cash, Shares, other
securities, or other property) of taxes, national insurance
contributions or other social security contribution due in respect of
an Option, its exercise, or any payment or transfer under such Option
or under the Plan and to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the payment
of such taxes.
(c) No Limit on Other Compensation Agreements. Nothing contained in the
Plan shall prevent the Company or any Participating Company from
adopting or continuing in effect other or additional compensation
14
<PAGE>
arrangements and such arrangements may be either generally applicable
or applicable only in specific cases.
(d) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of the
Company and further grants of Options under the Plan are made on a
purely discretionary basis and Eligible Employees and Participants
shall not have a vested right to receive Option grants hereunder.
(e) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or enforceable in any
jurisdiction, or as to any optionee or Option or would disqualify the
Plan or any Option under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering
the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, optionee, or Award and the remainder of the
Plan and any such Option shall remain in full force and effect.
(f) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall
determine whether cash, other securities, or other property shall be
paid or transferred in lieu of any fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(g) Headings. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
(h) Plan Expenses. The cost of the operation of the Plan (including but
not limited to the costs relating to the issue of Shares upon the
exercise of Options) shall be borne by the Company.
(i) Term of Plan. No Option shall be granted under the Plan after May 31,
2006. However, unless otherwise expressly provided in the Plan or in
an applicable notice of grant, any Option theretofore granted may
extend beyond such date, and the authority of the Committee hereunder
to amend, alter, adjust, suspend, discontinue, or terminate any such
Option, or waive any conditions or rights under any such Option in
accordance with the terms of the Plan shall extend beyond such date.
15
<PAGE>
APPENDIX A - APPROVED OPTIONS
-----------------------------
I. PURPOSE AND SCOPE
------------------
The purpose of this Appendix A is to set forth Rules that apply specifically and
only to Approved Options. All other Rules of the Plan not appearing in Appendix
A shall also apply to Approved Options, except where expressly superseded by a
specific Rule in Appendix A.
II. INTERPRETATION
--------------
(a) For purposes of this Appendix A, the following words and expressions
have the indicated meanings. Capitalized terms not defined in Appendix
A are already defined in Rule 1 of the Plan and shall have the
meanings set forth in such Rule 1. References to legislation shall be
to legislation enacted in the United Kingdom:
"Act" The Income and Corporation Taxes Act of 1988;
"Approved
Option" An Option granted under a share option scheme approved under
Schedule 9 of the Act;
"Company Share" A Share which satisfies the conditions of paragraphs
10 to 14 of Schedule 9 of the Act.
"Eligible Employee" Has the same meaning set forth in the Rules except
that for the purposes of Appendix A, it excludes any person
precluded from participating by paragraph 8 of Schedule 9.
"Participating
Company" The Company and all "subsidiaries" incorporated in United
Kingdom which are under the "control" of the Company, the
terms subsidiaries" and "control" having the same respective
meanings as defined in the Act.
(b) Words importing the singular shall include the plural and vice versa
and words importing the masculine shall include the feminine;
(c) Other words or expressions, so far as not inconsistent with the
context, shall have the same meanings as in Schedule 9 of the Act.
III. APPROVED OPTIONS
----------------
(a) Any Option granted as an Approved Option shall specifically be made
subject to paragraphs (b) & (c) of this Rule III.
(b) The aggregate market value of shares which an Eligible Employee may
acquire in pursuance of rights obtained (and not exercised) under an
Approved Option granted under the Plan or under any other Approved
16
<PAGE>
Scheme (other than a savings-related share option scheme) established
by the Company or by any other associated company of the Company
(within the meaning of s. 187 (2) of the Act), such aggregate market
value being determined at the time the rights are obtained, shall not
exceed (Pounds)30,000 or such other amount as may from time to time be
the appropriate limit for the purpose of paragraph (28)(1) of Schedule
9 of the Act.
(c) In order to calculate the amount set out in Rule III(b) hereof, the
Subscription Price of each Option shall be converted by the Committee
from United States Dollars into British Pounds Sterling by reference
to the World Rate published in the Wall Street Journal as reported on
or most recently before the Date of Grant.
IV. NON APPLICABILITY OF CERTAIN PROVISIONS
---------------------------------------
Rule 4 and 13(b) of the Plan shall not apply to Approved Options. Rules
5(b)(ii)(C) and (E) shall only apply to Approved Options granted on or after
January 1, 1999 and only after approval of the restated Plan by Inland Revenue.
Rule 5(b)(F) applies to Options granted under this Appendix A, except that the
last sentence of the Rule shall be replaced by the following:
"Such vesting events or conditions must be set forth in the notice of
grant."
V. RESTRICTIONS ON THE EXERCISE OF OPTIONS
---------------------------------------
Notwithstanding anything to the contrary in Rule 5(b)(ii) of the Plan, an
Approved Option granted under the Plan shall not be exercised by a Participant
at any time when he is ineligible to participate by virtue of paragraph 8 of
Schedule 9 of the Act.
VI. EXERCISE OF APPROVED OPTIONS IN THE CASE OF DEATH
-------------------------------------------------
Notwithstanding anything to the contrary in Rule 5(b)(ii)(A) of the Plan, an
Approved Option shall only be exercisable by the Participant's personal
representative during the one year period following the Participant's death.
VII. ISSUE OR REORGANIZATION
-----------------------
Rule 6 of the Plan shall be modified with respect to Approved Options such
that;
(1) no adjustment to an Approved Option on account of an Issue or
Reorganization shall be made without the prior approval of the Board
of the Inland Revenue;
(2) and the class of shares subject to Approved Options shall not be
altered unless following such alteration, the shares would comply with
paragraphs 10 to 14 of Schedule 9 of the Act.
17
<PAGE>
VIII. AMENDMENT OF PLAN
-----------------
Notwithstanding anything to the contrary in Rules 9 and 10 of the Plan, no
material amendment of the Plan affecting Approved Options shall become effective
without the prior approval of the Board of Inland Revenue and the Committee may
at any time and from time to time by resolution and without other formality
amend the Plan so as to secure or maintain approval under Schedule 9 of the Act.
IX. APPLICABILITY OF PRIOR PLAN UNTIL INLAND REVENUE APPROVAL OF NEW PLAN
---------------------------------------------------------------------
Approved Options granted under the Prior Plan document which was to expire on
December 31, 2001 shall be governed by the terms and conditions of such Prior
Plan document until the current restated plan document is approved by Inland
Revenue. The provisions of the restated plan document governing Approved Options
shall be adopted by the Board as soon as practicable following approval by
Inland Revenue. For purposes of this Rule IX, the term "Prior Plan" shall mean
the plan document (as amended and restated) in effect prior to January 1, 1999.
X. ISSUE OR TRANSFER OF SHARES
---------------------------
Within 30 days if the date of exercise, the Shares in respect of which the
Option has been exercised, shall be allotted and issued or, if appropriate,
transferred to the Participant or as he may direct.
18
<PAGE>
PITNEY BOWES INC. EXHIBIT (v)
-----------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31,
-----------------------------------------------------------------
1999(2) 1998(2) 1997(2) 1996(2) 1995(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes.................. $ 984,572 $ 824,604 $748,425 $640,759 $587,564
Add:
Interest expense.............. 184,371 162,092 161,867 163,173 196,436
Portion of rents
Representative of
the interest factor......... 33,750 36,962 38,764 40,157 41,750
Amortization of
Capitalized interest........ 973 973 914 914 914
Minority interest in
the income of
subsidiary with
fixed charges............... 12,033 12,425 11,322 8,121 5,013
---------- ---------- -------- -------- --------
Income as adjusted.............. $1,215,699 $1,037,056 $961,292 $853,124 $831,677
========== ========== ======== ======== ========
Fixed charges:
Interest expense.............. $ 184,371 $ 162,092 $161,867 $163,173 $196,436
Capitalized interest.......... 1,316 - - 1,201 2,178
Portion of rents
Representative of
the interest factor......... 33,750 36,962 38,764 40,157 41,750
Minority interest,
excluding taxes, in
the income of
subsidiary with
fixed charges................. 17,973 18,886 17,209 11,759 7,604
---------- ---------- -------- -------- --------
$ 237,410 $ 217,940 $217,840 $216,290 $247,968
========== ========== ======== ======== ========
Ratio of earnings to
fixed charges................. 5.12 4.76 4.41 3.94 3.35
========== ========== ======== ======== ========
Ratio of earnings to
fixed charges
excluding minority
interest...................... 5.49 5.15 4.73 4.13 3.44
========== ========== ======== ======== ========
</TABLE>
(1) The computation of the ratio of earnings to fixed charges has been computed
by dividing income from continuing operations before income taxes as
adjusted by fixed charges. Included in fixed charges is one-third of rental
expense as the representative portion of interest.
(2) Amounts reclassified to reflect CPLC and AMIC as discontinued operations.
Interest expense and the portion of rents representative of the interest
factor of these discontinued operations have been excluded from fixed
charges in the computation.
Including these amounts in fixed charges, the ratio of earnings to fixed
charges would be 5.02, 4.20, 3.80, 3.47 and 3.10 for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, respectively. The ratio of
earnings to fixed charges excluding
<PAGE>
minority interest would be 5.37, 4.48, 4.01, 3.61 and 3.17 for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
<PAGE>
EXHIBIT (vi)
------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Year ended December 31, 1999
Overview
Pitney Bowes Inc. (the company) continues to build on the core activities that
support its strong competitive position in informed mail and messaging
management.
The company operates in three reportable segments: Mailing and Integrated
Logistics, Office Solutions and Capital Services.
Mailing and Integrated Logistics includes revenues from the rental of postage
meters and the sale and financing of mailing equipment, including software-based
mail creation and mail finishing equipment, production mail systems including
customized software applications, software-based shipping, transportation and
logistics systems, and related supplies and services. Office Solutions includes
revenues from the sale, financing, rental and service of reprographic and
facsimile equipment including related supplies, and facilities management
services which provides mail processing, reprographic business support and other
processing functions. Capital Services provides large-ticket financing and fee-
based programs covering a broad range of products and other financial services
to the commercial and industrial markets in North America.
On January 14, 2000, the company sold its mortgage servicing business, Atlantic
Mortgage & Investment Corporation (AMIC), a wholly-owned subsidiary of the
company to ABN AMRO North America. The company received approximately $484
million in cash at closing. Accordingly, operating results of AMIC have been
segregated and reported as discontinued operations in the Consolidated
Statements of Income. Prior year results have been reclassified to conform to
the current year presentation. In connection with the sale, the company recorded
a loss of approximately $27.6 million (net of taxes of $18.4 million) for the
year ended December 31, 1999. The transaction is subject to post-closing
adjustments. See Note 12 to the consolidated financial statements.
As part of the company's strategy to reduce the capital committed to asset-based
financing, while increasing fee-based income, in 1998 the company sold its
broker-oriented small-ticket leasing business to General Electric Capital
Corporation (GECC), a subsidiary of General Electric Company. As part of the
sale, the operations, employees and substantially all the assets of Colonial
Pacific Leasing Corporation (CPLC) were transferred to GECC. The company
received approximately $790 million at closing, which approximates the book
value of the net assets sold or otherwise disposed of and related transaction
costs. Accordingly, operating results of CPLC have been segregated and reported
as discontinued operations in the Consolidated Statements of Income. Prior year
results have been reclassified to conform to the current year presentation. In
connection with this transaction, the company recorded a gain of approximately
$3.7 million (net of taxes of $2.0 million) for the year ended December 31,
1999. This gain resulted from the settlement of post-closing adjustments in 1999
related to the sale, offset by the cost of settlement with regard to a dispute
with GECC over certain assets that were included in the sale. See Note 12 to the
consolidated financial statements.
Results of Continuing Operations
1999 Compared to 1998
In 1999, revenue increased 8%, operating profit grew 15%, income from continuing
operations grew 22% and diluted earnings per share from continuing operations
increased 25% to $2.42 compared with $1.94 for 1998.
In 1999, the company received a one time net after-tax settlement of $29.5
million from the U.S. Postal Service (USPS) (see Other Matters). Excluding the
impact of this settlement, income from continuing operations grew 16% and
diluted earnings per share from continuing operations increased 19% to $2.31
compared with $1.94 for 1998.
Diluted Earnings Per Share from Continuing Operations
Dollars
[BAR CHART]
*Excluding the USPS Settlement
Revenue
(Dollars in millions) 1999 1998 % change
-------------------------
Mailing and
Integrated Logistics $2,992 $2,707 11%
Office Solutions 1,266 1,216 4%
Capital Services 175 168 4%
-------------------------
$4,433 $4,091 8%
=========================
The revenue increase came from growth in the Mailing and Integrated Logistics,
Office Solutions and Capital Services segments of 11%, 4% and 4%, respectively,
over 1998. Volume increases in our U.S. Mailing Systems, International Mailing,
Production Mail, U.S. Copier Systems, Facsimile Systems and Management Services
businesses were the principal reasons for the revenue growth. The impact of
price changes and exchange rates was minimal.
Approximately 73% of our total revenue in 1999 is recurring revenue, which we
believe is a continuing good indicator of potential repeat business.
37
<PAGE>
Operating profit
(Dollars in millions) 1999 1998 % change
------------------------
Mailing and
Integrated Logistics $ 798 $ 660 21%
Office Solutions 242 235 3%
Capital Services 51 52 (1%)
------------------------
$1,091 $ 947 15%
========================
Operating profit grew 15% over the prior year, consistent with the growth rate
in 1998, continuing to reflect our strong emphasis on reducing costs and
controlling operating expenses. Another measure of our success in controlling
costs and expenses in 1999 and 1998 was that growth in operating profit
continued to significantly outpace revenue growth. Operating profit grew 21% in
the Mailing and Integrated Logistics segment and 3% in the Office Solutions
segment. Operating profit decreased 1% in the Capital Services segment.
The operating profit growth in the Mailing and Integrated Logistics segment came
from strong performances by U.S. Mailing Systems, International Mailing,
Production Mail and related financing. Operating profit in our Office Solutions
segment was moderated by industry pricing pressures and unfavorable currency
impacts affecting our copier and facsimile businesses.
Revenue
Dollars in millions
- --------------------
[BAR CHART]
Sales revenue increased 9% in 1999 due mainly to double-digit growth in our U.S.
Mailing Systems, International Mailing and Production Mail businesses and
single-digit growth in our U.S. Copier Systems, Facsimile Systems and Management
Services businesses. The increase at U.S. Mailing Systems was due to the
continuing shift to advanced technologies and feature-rich products in large,
medium and entry level mailing machines, weighing scales and shipping and
integrated logistics software and related equipment. The strong growth in the
company's mailing and shipping businesses was also helped by increased business-
to-business and business-to-consumer activity generated by e-commerce. Sales of
consumable supplies used in our digital products also had strong growth. U.S.
Copier Systems' sales growth was driven by increased sales of our Smart
Image(TM) Plus line of products in the high-end segment, increased product
offerings of digital and color models and increased supply sales. Facsimile
supply sales in the U.S. and equipment sales in the U.K. and Canada contributed
to sales growth in the Facsimile Systems business. However, the rate of growth
in facsimile supply sales has moderated despite increased unit placements due to
lower usage and increased competition from private label manufacturers.
Increases in value-added services to the existing contract base, new services
such as business recovery services which had its second full year of operation
and international growth stimulated growth in our Management Services business.
In total, Financial Services financed 36% and 38% of all sales in 1999 and 1998,
respectively.
Rentals and financing revenue increased 7% in 1999. Rentals revenue grew 5%
driven by growth in the U.S. mailing market due to the continuing shift to
electronic and digital meters, including increased placements of the digital
desktop Personal Post(TM) meter, available through various distribution channels
such as telemarketing, the Internet and selected retail outlets specializing in
business supplies. At December 31, 1999, electronic and digital meters
represented over 99% of our U.S. meter base, up from 90% at December 31, 1998,
with digital meters representing approximately 40% of all meters in service in
the U.S., up from 35% in 1998. The company no longer places mechanical meters,
which is in line with USPS guidelines.
The strategic shift at U.S. Copier Systems from sales to rentals has increased
rentals revenue. Contribution to rentals revenue growth also came from our U.S.
and U.K. facsimile markets, driven by an increased rental base of the 33.6 kbps
systems such as the 9920 and 9930 models in the U.S. Our Facsimile Systems'
installed rental and sales base is the highest in its history.
Financing revenue grew 11%. Revenue increases came from increased volume of
leases of the company's products and from product offerings such as Purchase
PowerSM, Business RewardsSM, Postal PrivilegeSM, and Reserve AccountSM.
Financing revenue continued to be impacted by our strategy to reduce our asset-
based financing through asset sales in 1999 and prior years.
Support services revenue increased 8% in 1999. Despite competitive pricing
pressures, U.S. Mailing had increased support services revenue due to a larger
population of extended maintenance contracts and higher chargeable service
calls and billed labor hours in 1999. Production Mail had double-digit growth in
support services revenue due to increased service contract base and on-site
contracts. U.S. Copier Systems also had increased support services revenue.
Cost of sales
(Dollars in millions) 1999 1998 % change
-------------------------
$1,220 $1,146 6%
Percentage of sales revenue 56.0% 57.5%
38
<PAGE>
Cost of sales, as a percentage of sales revenue, improved for the third
consecutive year. The significant improvement in this ratio was achieved
principally due to lower product costs, significant productivity improvements in
our manufacturing processes, increased sales of higher margin software-based
logistics and mail creation products, the increased sale of higher margin
supplies in our mailing, copier and facsimile businesses and the impact of
strategic sourcing initiatives in the U.S. and Europe.
Cost of rentals and financing
(Dollars in millions) 1999 1998 % change
----------------------
$470 $419 12%
Percentage of rentals
and financing revenue 27.7% 26.5%
Cost of rentals and financing, as a percentage of rentals and financing revenue,
increased 1.2 percentage points. The cost of rentals ratio was slightly lower
due to lower costs at U.S. Mailing and Facsimile Systems in 1999. The cost of
financing ratio increased due to the impact of Capital Services segment
transactions, reflecting the company's continued focus to reposition this
business, and increased costs associated with new business initiatives,
including the launch of the PitneyWorksSM suite of products.
Selling, service and administrative expenses were 34.3% of total revenue in 1999
compared with 35.3% in 1998. Continued emphasis on controlling expense growth
while growing revenues resulted in an improvement in this ratio. This was the
seventh consecutive year of improvement in our selling, service and
administrative cost to revenue ratio, excluding a charge in 1996 to exit the
copier business in Australia. The company continued its investment in an
enterprise-wide resource planning initiative and incurred expenses to comply
with Year 2000 systems issues, which partially offset the improvement in this
ratio.
Favorable pension plan asset performance and amendments to the retiree medical
program resulted in an increase in the unrecognized actuarial gain which could
result in a reduction of the net periodic benefit cost in future years.
Selling, Service and Administrative Rate
Percentage of revenue
- ----------------------------------------
[BAR CHART]
Research and development expenses
(Dollars in millions) 1999 1998 % change
------------------------
$109 $101 8%
Research and development expenses increased 8% in 1999 to $109 million
reflecting continued investment in developing new technologies and enhancing
features for all our products. The 1999 increase represents expenditures for
Internet-based bill presentment and metering, digital document delivery systems,
new digital meters, personal computer metering technology, advanced inserting
equipment, and new and advanced features for production mail equipment and high
volume mail sorting equipment.
Net interest expense
(Dollars in millions) 1999 1998 % change
------------------------
$179 $157 14%
Net interest expense increased due to higher average borrowings during 1999
compared to 1998 to fund the company's investment in products and new business
initiatives and the continuing stock repurchase program. Our variable and fixed
debt rate mix, after adjusting for the effect of interest rate swaps, was 50%
and 50%, respectively, at December 31, 1999.
Effective tax rate
1999 1998
--------------
33.1% 34.2%
The effective tax rate of 33.1% in 1999 reflects continued tax benefits from
leasing and financing activities, lower state and local taxes, and lower taxes
attributable to international sourced income.
Continuing Operations Margin
Percentage of revenue
- -----------------------------
[BAR CHART]
Income from continuing operations and diluted earnings per share from continuing
operations increased 22% and 25%, respectively, in 1999. Excluding the one time
net after-tax gain of $29.5 million from the USPS Settlement, income from
continuing operations and diluted
39
<PAGE>
earnings per share from continuing operations increased 16% and 19%
respectively, in 1999. The increase in diluted earnings per share outpaced the
increase in income from continuing operations due to the company's share
repurchase program, under which 7.4 million shares, approximately 3% of the
average common and potential common shares outstanding at the end of 1998, were
repurchased in 1999. Income from continuing operations as a percentage of
revenue increased to 14.2% in 1999, excluding the USPS Settlement, from 13.3% in
1998, the sixth consecutive year of improvement in this ratio.
Income from Continuing Operations
Dollars in millions
- ---------------------------------
[BAR CHART]
Results of Continuing Operations
1998 Compared to 1997
In 1998, revenue increased 6%, operating profit grew 15%, income from continuing
operations grew 10% and diluted earnings per share from continuing operations
increased 15% to $1.94 compared with $1.68 for 1997.
Revenue
(Dollars in millions) 1998 1997 % change
-------------------------
Mailing and
Integrated Logistics $2,707 $2,552 6%
Office Solutions 1,216 1,089 12%
Capital Services 168 206 (18%)
-------------------------
$4,091 $3,847 6%
=========================
The revenue increase came from growth in the Mailing and Integrated Logistics
and Office Solutions segments of 6% and 12%, respectively, over 1997. Volume
increases in our U.S. Mailing Systems, Production Mail, U.S. Copier Systems,
Facsimile Systems and Management Services businesses were the principal cause of
the revenue growth. The impact of price changes and exchange rates was minimal.
The revenue increase was partially offset by an 18% decline in revenue in the
Capital Services segment due to our strategy to reduce our external assets and
shift to more fee-based revenue streams.
Approximately 75% of our total revenue in 1998 and 1997 is recurring revenue,
which we believe is a continuing good indicator of potential repeat business.
Operating profit
(Dollars in millions) 1998 1997 % change
------------------------
Mailing and
Integrated Logistics $660 $582 13%
Office Solutions 235 197 19%
Capital Services 52 48 7%
------------------------
$947 $827 15%
========================
Operating profit grew 15% over the prior year compared with growth of 17% in
1997, continuing to reflect our strong emphasis on reducing costs and
controlling operating expenses in all our businesses. Another measure of our
success in controlling costs and expenses in 1998 and 1997 was that growth in
operating profit continued to significantly outpace revenue growth. Operating
profit grew 13% in the Mailing and Integrated Logistics segment, 19% in the
Office Solutions segment and 7% in the Capital Services segment.
The operating profit growth in the Mailing and Integrated Logistics segment came
from strong performances by U.S. Mailing Systems, International Mailing,
Production Mail and related financing. Strong operating performances by our
Facsimile Systems, U.S. Copier Systems and Management Services businesses drove
the operating profit growth in the Office Solutions segment.
Sales revenue increased 9% in 1998 due mainly to strong sales growth in our U.S.
Mailing Systems, U.S. Copier Systems, Facsimile Systems and Management Services
businesses. The increase in U.S. Mailing Systems was due to the continuing shift
to advanced technologies and feature-rich products in the large, medium and
entry level mailing machines and in weighing scales. Sales of consumable
supplies used in our digital products also had strong growth. Sales growth in
our Software Solutions business was driven by strong sales of logistics and
print management software. Copier sales growth was driven by our new Smart
Image(TM) Plus line of products in the high-end segment plus increased product
offerings of digital and color models. Copier supply sales were also higher. For
the second consecutive year, Buyers Laboratory has named our copiers as the
"Most Outstanding Copier Line," with eight copiers being called "outstanding" in
their respective class. The award recognizes reliability, copy quality and ease
of use, all factors critical to customer satisfaction. Facsimile supply sales in
the U.S. and equipment sales in the U.K. and Canada drove sales growth in the
Facsimile Systems business. Increases in contract base and increases in value-
added services to the existing contract base accounted for the growth in our
Management Services business. In total, Financial Services financed 38% and 36%
of all sales in 1998 and 1997, respectively. This increase was achieved despite
the impact of the increased sales revenue from our Management Services business,
which does not use traditional financing services used by our other businesses.
40
<PAGE>
Rentals and financing revenue increased 3% in 1998. Rentals revenue grew 6%
driven by growth in the U.S. and the U.K. mailing markets due to the continuing
shift to electronic and digital meters. In the U.S., the growth came primarily
from continuing placement of the digital desktop Personal Post(TM) meter, which
is available through various distribution channels such as telemarketing, the
Internet and selected retail outlets specializing in business supplies. At
December 31, 1998, electronic and digital meters represented over 90% of our
U.S. meter base, with digital meters representing 35% of all meters in service
in the U.S. The company no longer places mechanical meters, which is in line
with USPS guidelines; such meters were less than 10% of our U.S. meter
population at December 31, 1998. The growth in U.K. rentals revenue was due to
the introduction of the Personal Post(TM) meter in that market.
Contribution to rentals revenue growth also came from our U.S. and U.K.
facsimile markets, driven by an increased rental base of the 33.6 kbps systems
such as the 9920 and 9930 models in the U.S.
Financing revenue was flat. Revenue increases came from increased volume of
leases of the company's products and from new product offerings such as Purchase
PowerSM, Business RewardsSM and Postal PrivilegeSM. The increase was offset by
reduced revenues from the large-ticket external financing business due to asset
dispositions in 1998 and prior years in accordance with our strategy.
Support services revenue increased 7% in 1998. Despite competitive pricing
pressures, U.S. Mailing had increased support services revenue from a larger
population of extended maintenance contracts and higher chargeable service
calls. Production Mail had double-digit growth in support services revenue as
their service contract base and on-site contracts increased. U.S. Copier Systems
and most of our international mailing units, excluding currency impacts, had
increased support services revenue.
Cost of sales
(Dollars in millions) 1998 1997 % change
---------------------------
$1,146 $1,082 6%
Percentage of sales revenue 57.5% 59.0%
Cost of sales, as a percentage of sales revenue, improved for the second
consecutive year. The significant improvement in this ratio was achieved
principally due to lower product costs, the increased sale of higher margin
supplies in our mailing, copier and facsimile businesses and the impact of
strategic sourcing initiatives in the U.S. and Europe. The improvement was
achieved despite the offsetting effect of increased revenue and costs of the
lower margin Management Services business, where most of its expenses are in
cost of sales.
Cost of rentals and financing
(Dollars in millions) 1998 1997 % change
---------------------------
$419 $401 4%
Percentage of rentals
and financing revenue 26.5% 26.2%
Cost of rentals and financing, as a percentage of rentals and financing revenue,
increased slightly. While the cost of rentals was essentially flat with 1997,
the cost of financing increased due to lower revenues in the Capital Services
segment, reflecting the company's continued focus to reposition this business.
Selling, service and administrative expenses were 35.3% of revenue in 1998
compared with 35.6% in 1997. Continued emphasis on controlling expense growth
while growing revenues resulted in an improvement in this ratio. This was the
sixth consecutive year of improvement in our selling, service and administrative
cost to revenue ratio, excluding a charge in 1996 to exit the copier business in
Australia. The company is in the process of an enterprise-wide resource planning
initiative and has incurred expenses to comply with Year 2000 systems issues,
which have partially offset the improvement in this ratio.
Research and development expenses
(Dollars in millions) 1998 1997 % change
------------------------
$101 $89 13%
Research and development expenses increased 13% in 1998 to $101 million
reflecting continued investment in developing new technologies and enhancing
features for all our products. The 1998 increase represents expenditures for new
digital meters and metering technology, inserting equipment, developing advanced
features for production mail equipment, high volume mail sorting equipment and
digital delivery technologies.
Net interest expense
(Dollars in millions) 1998 1997 % change
------------------------
$157 $158 (1%)
Net interest expense decreased due to lower interest rates and higher interest
income, offset in part by higher average borrowings during 1998 compared to
1997. Lower interest expense, resulting from utilizing the proceeds from prior
year asset sales in our Capital Services segment and the sale of the broker-
oriented small-ticket external financing business in 1998, was offset by
interest expense on borrowings to fund the continuing stock repurchase program.
Our variable and fixed rate debt mix, after adjusting for the effect of interest
rate swaps, was 32% and 68%, respectively, at December 31, 1998.
Effective tax rate
1998 1997
------------
34.2% 34.2%
The effective tax rate of 34.2% in 1998 reflects continued tax benefits from
leasing and financing activities and lower taxes attributable to international
sourced income. This rate was essentially flat with prior year.
41
<PAGE>
Income from continuing operations and diluted earnings per share from continuing
operations increased 10% and 15%, respectively, in 1998. The increase in diluted
earnings per share outpaced the increase in income from continuing operations
due to the company's share repurchase program, under which 11 million shares, 4%
of the average common and potential common shares outstanding at the end of
1997, were repurchased in 1998. Income from continuing operations as a
percentage of revenue increased to 13.3% in 1998 from 12.8% in 1997.
Other Matters
In August 1999, the USPS and the company announced that they had reached an
agreement (USPS Settlement) resolving a lawsuit filed by the company in 1997.
The lawsuit arose out of a dispute over a 1978 Statement of Understanding
authorizing the company to offer Postage by Phone(R), its proprietary version of
the Computerized Meter Resetting System. Under the terms of the agreement, the
company received $51.8 million, representing a portion of the financial benefit
that the USPS obtained as a result of the revised regulations. This payment, net
of related legal expenses of $2.2 million, was recorded as other income in the
Consolidated Statement of Income for the year ended December 31, 1999.
On January 14, 2000, the company sold its mortgage servicing business, AMIC, a
wholly-owned subsidiary of the company to ABN AMRO North America. The company
received approximately $484 million in cash at closing. The transaction is
subject to post-closing adjustments. In connection with the sale, the company
recorded a loss of approximately $27.6 million (net of taxes of $18.4 million)
for the year ended December 31, 1999.
On October 30, 1998, CPLC, a wholly-owned subsidiary of the company, transferred
the operations, employees and substantially all assets related to its broker-
oriented external financing business to GECC, a subsidiary of the General
Electric Company. The company received approximately $790 million at closing,
which approximates the book value of the net assets sold or otherwise disposed
of and related transaction costs. The transaction was subject to post-closing
adjustments. In connection with this transaction, the company recorded a gain of
approximately $3.7 million (net of taxes of $2.0 million) for the year ended
December 31, 1999. This gain resulted from the settlement of post-closing
adjustments in 1999 related to the sale, offset by the cost of settlement with
regard to a dispute with GECC over certain assets that were included in the
sale.
On August 21, 1997, the company entered into an agreement with GATX Capital
Corporation (GATX Capital), a subsidiary of GATX Corporation, which reduced the
company's external large-ticket finance portfolio by approximately $1.1 billion.
This represented approximately 50% of the company's external large-ticket
portfolio and reflects the company's ongoing strategy of focusing on fee- and
service-based revenue rather than asset-based income.
Under the terms of the agreement, the company transferred external large-ticket
finance assets through a sale to GATX Capital and an equity investment in a
limited liability company owned by GATX Capital and the company. The company
received approximately $867 million in net cash relating to this transaction
during 1997, 1998 and 1999. At December 31, 1999, the company retained
approximately $167.1 million of equity investment in a limited liability company
along with GATX Capital.
Accounting Changes
In 1997, the company adopted Statement of Financial Accounting Standards (FAS)
No. 128, "Earnings per Share." The company discloses basic and diluted earnings
per share (EPS) on the face of the Consolidated Statements of Income and a
reconciliation of the basic and diluted EPS computation is presented in Note 9
to the consolidated financial statements.
In 1998, the company adopted FAS No. 130, "Reporting Comprehensive Income." The
company has disclosed all non-owner changes in equity in the Consolidated
Statements of Stockholders' Equity. Prior periods have been restated for
comparability purposes.
In 1998, the company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Under FAS No. 131, the company has three
reportable segments: Mailing and Integrated Logistics, Office Solutions and
Capital Services. See Note 16 to the consolidated financial statements.
In 1998, the company adopted FAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." FAS No. 132 revises the company's
disclosures about pension and other postretirement benefit plans. See Note 11 to
the consolidated financial statements.
In June 1999, FAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133," was issued. This statement defers the effective date
of FAS No. 133 one year (January 1, 2001 for the company). FAS No. 133 requires
that an entity recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in the fair value of those instruments will be reflected
as gains or losses. The accounting for the gains and losses depends on the
intended use of the derivative and the resulting designation. The company is
currently evaluating the impact of this statement.
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements," summarizing certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
This guidance is provided due, in part, to the large number of revenue
recognition issues that SEC registrants encounter. Although the company believes
it is in compliance with this guidance in all material respects, the company is
currently evaluating its current revenue recognition policies to determine the
impact of SAB No. 101, if any.
42
<PAGE>
Liquidity and Capital Resources
Our ratio of current assets to current liabilities improved to 1.16 to 1 at
December 31, 1999 compared to .92 to 1 at December 31, 1998. The increase in
this ratio was due to the classification of AMIC's net assets to be disposed of
as current assets in the Consolidated Balance Sheet at December 31, 1999.
Excluding the impact of this classification, this ratio improved to 1.05 to 1 at
December 31, 1999.
Current Ratio
- -------------
[BAR CHART]
To manage interest rate risk, we use a balanced mix of debt maturities, variable
and fixed rate debt and interest rate swap agreements. In 1999, we entered into
interest rate swap agreements, primarily through our financial services
business.
The ratio of total debt to total debt and stockholders' equity was 69.1% at
December 31, 1999, versus 66.6% at December 31, 1998, including the preferred
stockholders' equity in a subsidiary company as debt. Excluding the preferred
stockholders' equity in a subsidiary company from debt, the ratio of total debt
to total debt and stockholders' equity was 67.2% at December 31, 1999, versus
64.4% at December 31, 1998. The increase in finance receivables and other assets
combined with the $438 million repurchase of 7.4 million shares of common stock
in 1999 increased this ratio. The company's strong results partially offset the
increase in this ratio.
As part of the company's non-financial services shelf registrations, the company
has a medium-term note facility permitting issuance of up to $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at December 31, 1999.
In December 1999, Pitney Bowes Nova Scotia ULC, a wholly-owned subsidiary of the
company, issued $150 million of floating rate notes maturing December 2004,
guaranteed by the company. These notes bear interest, at a floating rate of
LIBOR plus 32 basis points, set as of the quarterly interest payment dates. The
net proceeds from these notes were used for general corporate purposes,
including the repayment of commercial paper.
In April 1999, the company issued $200 million of medium-term notes from its
shelf registration filed with the SEC in April 1998. These unsecured notes bear
annual interest at 5.5% and mature in April 2004. The net proceeds from these
notes were used for general corporate purposes, including the repayment of
commercial paper. In January 1998, the company issued notes amounting to $300
million available under a prior shelf registration. These unsecured notes bear
annual interest at 5.95% and mature in February 2005. The notes are redeemable
earlier at the company's option. The net proceeds from these notes were used for
general corporate purposes, including the repayment of short-term debt.
Pitney Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the
company, has $625 million of unissued debt securities available at December 31,
1999 from a shelf registration statement filed with the SEC in July 1998. As
part of this shelf registration statement, in August 1999, PBCC established a
medium-term note program for the issuance from time to time of up to $500
million aggregate principal amount of Medium-Term Notes, Series D, of which $375
million remained available at December 31, 1999.
In September 1999, PBCC issued $125 million of 5.95% unsecured notes (the
"notes") available under the medium-term note program. The proceeds from the
notes were used for general corporate purposes, including the repayment of
short-term debt. The notes are due September 2000, with interest payable in
March 2000 and at maturity.
In January 1998, PBCC issued notes amounting to $250 million available under a
prior shelf registration. These unsecured notes bear annual interest at 5.65%
and mature in January 2003. The proceeds were used to meet PBCC's financing
needs during 1998.
In September 1998, certain partnerships controlled by affiliates of PBCC issued
a total of $282 million of Series A and Series B Secured Floating Rate Senior
Notes (the notes). The notes are due in 2001 and bear interest at a floating
rate of LIBOR plus 65 basis points, set as of the quarterly interest payment
dates. The proceeds from the notes were used to purchase subordinated debt
obligations from the company (PBI Obligations). The PBI Obligations have a
principal amount of $282 million and bear interest at a floating rate of LIBOR
plus 100 basis points, set as of the notes' quarterly interest payment dates.
The proceeds from the PBI Obligations were used for general corporate purposes,
including the repayment of short-term debt.
To help us better manage our international cash and investments, in June 1995
and April 1997, Pitney Bowes International Holdings, Inc., a subsidiary of the
company, issued $200 million and $100 million, respectively, 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 Sheets as preferred stockholders' equity in a
subsidiary company. We used the proceeds of these transactions to pay down
short-term debt. We have an obligation to pay cumulative dividends on this
preferred stock at rates that are set at auction. The auction periods are
generally 49 days, although they may increase in the future. The weighted
average dividend rate in 1999 and 1998 was 4.0%
43
<PAGE>
and 4.1%, respectively. Preferred dividends are reflected as a minority interest
in the Consolidated Statements of Income in selling, service and administrative
expenses. In December 1998, the company sold 9.11% Cumulative Preferred Stock,
mandatorily redeemable in 20 years, in a subsidiary company to an institutional
investor for approximately $10 million.
At December 31, 1999, the company had unused lines of credit and revolving
credit facilities of $1.8 billion (including $1.2 billion at its financial
services businesses) in the U.S. and $47.7 million outside the U.S., largely
supporting commercial paper debt. We believe our financing needs for the next 12
months can be met with cash generated internally, money from existing credit
agreements, debt issued under new shelf registration statements and existing
commercial and medium-term note programs. Information on debt maturities is
presented in Note 5 to the consolidated financial statements.
Total financial services assets increased to $5.5 billion at December 31, 1999,
up 7% from $5.2 billion in 1998. To fund finance assets, borrowings were $3.0
billion in 1999 and $2.8 billion in 1998. Approximately $237 million and $387
million in cash was generated from the sale of finance assets in 1999 and 1998,
respectively. We used the money to pay down debt, repurchase shares and fund new
business development.
Market Risk
The company is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding activities and
its operations in different foreign currencies.
The company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the company uses a
balanced mix of debt maturities and variable and fixed rate debt together with
interest rate swaps.
The company's objective in managing its exposure to foreign currency
fluctuations is to reduce the volatility in earnings and cash flows associated
with foreign exchange rate changes. Accordingly, the company enters into various
contracts, which change in value as foreign exchange rates change, to protect
the value of external and intercompany transactions in foreign currencies. The
principal currencies hedged are the British pound, Canadian dollar, Japanese yen
and French franc.
The company employs established policies and procedures governing the use of
financial instruments to manage its exposure to such risks. The company does not
enter into foreign currency or interest rate transactions for speculative
purposes. The gains and losses on these contracts offset changes in the value of
the related exposures.
The company utilizes a "Value-at-Risk" (VaR) model to determine the maximum
potential loss in fair value from changes in market conditions. The VaR model
utilizes a "variance/co-variance" approach and assumes normal market conditions,
a 95% confidence level and a one-day holding period. The model includes all of
the company's debt and all interest rate and foreign exchange derivative
contracts. Anticipated transactions, firm commitments, and receivables and
accounts payable denominated in foreign currencies, which certain of these
instruments are intended to hedge, were excluded from the model.
The VaR model is a risk analysis tool and does not purport to represent actual
losses in fair value that will be incurred by the company, nor does it consider
the potential effect of favorable changes in market factors.
At December 31, 1999, the company's maximum potential one-day loss in fair value
of the company's exposure to foreign exchange rates and interest rates, using
the variance/co-variance technique described above, was not material.
Year 2000
In 1997, the company established a formal worldwide program to identify and
resolve the impact of the Year 2000 date processing issue on the company's
business systems, products and supporting infrastructure. This included a
comprehensive review of the company's information technology (IT) and non-IT
systems, software and embedded processors. The program structure had strong
executive sponsorship and consisted of a Year 2000 steering committee of senior
business and technology management, a Year 2000 program office of full-time
project management, and subject matter experts and dedicated business unit
project teams. The company also engaged independent consultants to perform
periodic program reviews and assist in systems assessment and test plan
development.
The program encompassed the following phases: an inventory of affected
technology and critical third party suppliers, an assessment of Year 2000
readiness, resolution, unit and integrated testing and contingency planning. The
company completed its worldwide inventory and assessment of all business
systems, products and supporting infrastructure. Required modifications were
substantially completed by year-end 1998. Tests were performed as software was
remediated, upgraded or replaced.
The company experienced no significant Year 2000 issues on its business systems,
products and supporting infrastructure. Minor issues noted in the early days of
the year were fully addressed and remedied during the first week of January
2000. The company has not noted or been notified of any significant concerns or
impacts on its many business and IT systems, products, services and
infrastructure or the failure of any third party on which the company relies to
make timely changes to their own systems and processes.
Although the company cannot determine with any degree of accuracy the potential
revenue it may have lost in the later months of 1999, the company believes it is
possible that some of its customers may have deferred purchasing decisions until
the year 2000.
While the company has not been notified of any specific product or system
failure as a result of the Year 2000 issue, it will continue its monitoring
activity into the second quarter of 2000 to ensure that any problems that may
arise are promptly addressed.
The total cost of the worldwide program from inception in 1997 through the year
2000 was approximately $33 million, of which approximately $12 million was
expensed in 1999. These costs, which were funded through the company's cash
flows, included both internal labor costs as well as consulting and other
external costs.
44
<PAGE>
Capital Investment
During 1999, net investments in fixed assets included net additions of $114
million to property, plant and equipment and $191 million to rental equipment
and related inventories, compared with $91 million and $207 million,
respectively, in 1998. These additions included expenditures for normal plant
and manufacturing equipment. In the case of rental equipment, the additions
included the production of postage meters and the purchase of facsimile and
copier equipment for new placements and upgrade programs.
At December 31, 1999, 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 plaintiff or 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.
Environmental
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 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 the company, and wastes
from a number of industrial sources were disposed 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. Based on the facts presently known, we estimate the total cost of our
remediation effort to be approximately $5 million. This amount has been recorded
as a liability in the Consolidated Balance Sheet at December 31, 1999.
The administrative and court proceedings referred to above are in different
states. It is difficult to estimate with any certainty the total cost of
remediating, the timing or extent of remedial actions which may be required by
governmental authorities. However, 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 January 2000, the USPS issued a proposed schedule for the phaseout of
manually reset electronic meters in the U.S. as follows:
. As of February 1, 2000, new placements of manually reset electronic meters
would no longer be permitted. Current users of manually reset electronic
meters can continue to use these meters for the term of their current rental
and lease agreements.
Based on the proposed schedule, the company believes that the phaseout of
manually reset electronic meters will not cause a material adverse financial
impact on the company.
As a result of the company's aggressive efforts to meet the USPS mechanical
meter migration phaseout schedule combined with the company's ongoing and
continuing investment in advanced postage evidencing technologies, mechanical
meters represented less than 1% of the company's installed U.S. meter base at
December 31, 1999, compared with 10% at December 31, 1998. At December 31, 1999,
over 99% of the company's installed U.S. meter base is electronic or digital,
compared with 90% at December 31, 1998. The company continues to work, in close
cooperation with the USPS, to convert those mechanical meter customers who have
not migrated to digital or electronic meters.
In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the USPS, the purpose of the program was to develop a new standard for
future digital postage evidencing devices which significantly enhanced postal
revenue security and supported expanded USPS value-added services to mailers.
The program would consist of the development of four separate specifications:
. the Indicium specification-the technical specifications for the indicium to
be printed
. a Postal Security Device specification-the technical specification for the
device that would contain the accounting and security features of the system
. a Host specification
. a Vendor Infrastructure specification
During the period from May 1995 through December 31, 1999, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In July 1999, the USPS issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.
As of December 31, 1999, the company is in the process of finalizing the
development of both PC and Internet versions of a product which satisfy the
proposed IBI Performance Criteria. These products are currently in the final
phase of beta testing and are expected to be ready for market upon final
approval from the USPS.
In June 1999, the company was served with a Civil Investigative Demand (CID)
from the Justice Department's Antitrust Division. A CID is a tool used by the
Antitrust Division for gathering information and documents. The company believes
that the Justice Department may
45
<PAGE>
be reviewing the company's efforts to protect its intellectual property rights.
The company believes it has complied fully with the antitrust laws and is
cooperating fully with the department's investigation.
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 losses amounted to $5
million, $25 million and $32 million in 1999, 1998 and 1997, respectively. In
1999 and 1998, the translation losses resulted principally from the weakening
Canadian dollar. In 1997, the translation loss resulted from the strengthening
of the U.S. dollar against most other currencies except for the British pound.
The results of the company's international operations are subject to currency
fluctuations. 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 intercompany receivables and payables that
result from transfers of finished goods inventories between our affiliates in
different countries, and intercompany loans.
At December 31, 1999, the company had approximately $331 million of foreign
exchange contracts outstanding, most of which mature in 2000, 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, interest and/or 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.
Dividend Policy
The company's 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. The company
has paid a dividend each year since 1934.
Forward-Looking Statements
The company 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 the company management involve risks
and uncertainties which may change based on various important factors. Words
such as "estimate," "project," "plan," "believe," "expect" and similar
expressions may identify such forward-looking statements. 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
. changes in interest rates
46
<PAGE>
Summary of Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 4,432,608 $ 4,090,915 $3,846,767 $ 3,642,564 $ 3,389,153
Costs and expenses 3,448,036 3,266,311 3,098,342 3,001,805 2,801,589
---------------------------------------------------------------------------
Income from continuing operations
before income taxes 984,572 824,604 748,425 640,759 587,564
Provision for income taxes 325,413 282,092 256,073 198,230 200,192
---------------------------------------------------------------------------
Income from continuing operations 659,159 542,512 492,352 442,529 387,372
Discontinued operations (22,947) 33,882 33,675 26,884 195,768
---------------------------------------------------------------------------
Net income $ 636,212 $ 576,394 $ 526,027 $ 469,413 $ 583,140
===========================================================================
Basic earnings per share:
Continuing operations $2.47 $1.98 $1.70 $1.48 $1.28
Discontinued operations (.09) .12 .12 .09 .65
---------------------------------------------------------------------------
Net income $2.38 $2.10 $1.82 $1.57 $1.93
===========================================================================
Diluted earnings per share:
Continuing operations $2.42 $1.94 $1.68 $1.47 $1.27
Discontinued operations (.08) .12 .12 .09 .64
---------------------------------------------------------------------------
Net income $2.34 $2.06 $1.80 $1.56 $1.91
===========================================================================
Total dividends on common, preference
and preferred stock $272,866 $247,484 $231,392 $206,115 $181,657
Dividends per share of common stock $1.02 $.90 $.80 $.69 $.60
Average common and potential common
shares outstanding 272,006,143 279,656,603 292,517,116 301,303,356 304,739,952
Balance Sheet at December 31
Total assets $8,222,672 $7,661,039 $7,893,389 $8,155,722 $7,844,648
Long-term debt $1,997,856 $1,712,937 $1,068,395 $1,300,434 $1,048,515
Capital lease obligations $6,372 $8,384 $10,142 $12,631 $14,241
Stockholders' equity $1,625,610 $1,648,002 $1,872,577 $2,239,046 $2,071,100
Book value per common share $6.13 $6.09 $6.69 $7.56 $6.90
Ratios
Profit margin-continuing operations:
Pretax earnings 22.2% 20.2% 19.5% 17.6% 17.3%
After-tax earnings 14.9% 13.3% 12.8% 12.1% 11.4%
Return on stockholders' equity 39.1% 35.0% 28.1% 21.0% 28.2%
Debt to total capital 69.1% 66.6% 64.2% 60.5% 62.2%
Other
Common stockholders of record 32,754 32,210 31,092 32,258 32,859
Total employees 30,628 30,869 29,368 28,160 27,366
</TABLE>
See notes, pages 52 through 68
47
<PAGE>
Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Revenue from:
Sales $2,180,255 $ 1,993,546 $ 1,834,057
Rentals and financing 1,696,952 1,581,866 1,529,154
Support services 555,401 515,503 483,556
-----------------------------------------
Total revenue 4,432,608 4,090,915 3,846,767
-----------------------------------------
Costs and expenses:
Cost of sales 1,220,124 1,146,404 1,081,537
Cost of rentals and financing 469,912 419,123 401,345
Selling, service and administrative 1,519,349 1,443,080 1,367,862
Research and development 108,900 100,806 89,463
Other income (49,574) - -
Interest expense 184,371 162,092 161,867
Interest income (5,046) (5,194) (3,732)
-----------------------------------------
Total costs and expenses 3,448,036 3,266,311 3,098,342
-----------------------------------------
Income from continuing operations before
income taxes 984,572 824,604 748,425
Provision for income taxes 325,413 282,092 256,073
-----------------------------------------
Income from continuing operations 659,159 542,512 492,352
Income from discontinued operations,
net of income tax 971 33,882 33,675
Loss on sale of discontinued operations,
net of income tax (23,918) - -
-----------------------------------------
Net income $ 636,212 $ 576,394 $ 526,027
=========================================
Basic earnings per share:
Income from continuing operations $2.47 $1.98 $1.70
Discontinued operations (.09) .12 .12
-----------------------------------------
Net income $2.38 $2.10 $1.82
=========================================
Diluted earnings per share:
Income from continuing operations $2.42 $1.94 $1.68
Discontinued operations (.08) .12 .12
-----------------------------------------
Net income $2.34 $2.06 $1.80
=========================================
</TABLE>
See notes, pages 52 through 68
48
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 254,270 $ 125,684
Short-term investments, at cost which approximates market 2,414 3,302
Accounts receivable, less allowances:
1999, $28,716; 1998, $24,665 432,224 382,406
Finance receivables, less allowances:
1999, $48,056; 1998, $51,232 1,779,696 1,400,786
Inventories 257,452 266,734
Other current assets and prepayments 128,662 330,051
Net assets of discontinued operations 487,856 -
------------------------------
Total current assets 3,342,574 2,508,963
Property, plant and equipment, net 484,181 477,476
Rental equipment and related inventories, net 810,788 806,585
Property leased under capital leases, net 11,140 3,743
Long-term finance receivables, less
allowances: 1999, $56,665; 1998, $79,543 1,907,431 1,999,339
Investment in leveraged leases 969,589 827,579
Goodwill, net of amortization: 1999,
$54,848; 1998, $47,514 226,764 222,980
Other assets 470,205 814,374
------------------------------
Total assets $8,222,672 $7,661,039
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 915,826 $ 898,548
Income taxes payable 255,201 194,443
Notes payable and current portion of long-term obligations 1,320,332 1,259,193
Advance billings 381,405 369,628
------------------------------
Total current liabilities 2,872,764 2,721,812
Deferred taxes on income 1,082,019 920,521
Long-term debt 1,997,856 1,712,937
Other noncurrent liabilities 334,423 347,670
------------------------------
Total liabilities 6,287,062 5,702,940
------------------------------
Preferred stockholders' equity in a subsidiary company 310,000 310,097
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 29 34
Cumulative preference stock, no par value, $2.12 convertible 1,841 2,031
Common stock, $1 par value (480,000,000 shares
authorized; 323,337,912 shares issued) 323,338 323,338
Capital in excess of par value 17,382 16,173
Retained earnings 3,437,185 3,073,839
Accumulated other comprehensive income (93,015) (88,217)
Treasury stock, at cost (58,642,966 shares) (2,061,150) (1,679,196)
------------------------------
Total stockholders' equity 1,625,610 1,648,002
------------------------------
Total liabilities and stockholders' equity $8,222,672 $7,661,039
==============================
</TABLE>
See notes, pages 52 through 68
49
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 636,212 $ 576,394 $ 526,027
Loss on sale of discontinued operations 23,918 - -
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 412,104 361,333 300,086
Increase in deferred taxes on income 158,803 64,805 185,524
Pension plan investment (67,000) - -
Change in assets and liabilities:
Accounts receivable (47,737) (32,658) (11,295)
Net investment in internal finance receivables (178,898) (219,141) (184,709)
Inventories 11,341 (11,522) 30,526
Other current assets and prepayments (29,383) (33,731) (62,635)
Accounts payable and accrued liabilities 6,174 52,364 29,090
Income taxes payable 76,069 46,909 (62,910)
Advance billings 10,667 8,489 33,607
Other, net (31,184) (41,214) (72,738)
------------------------------------
Net cash provided by operating activities 981,086 772,028 710,573
------------------------------------
Cash flows from investing activities:
Short-term investments 659 (1,655) (388)
Net investment in fixed assets (304,898) (298,415) (244,065)
Net investment in finance receivables (184,182) (81,663) (7,656)
Net investment in capital and mortgage services 148,670 (2,324) 672,148
Investment in leveraged leases (138,527) (109,217) (95,600)
Investment in mortgage servicing rights (28,738) (211,374) (105,482)
Proceeds from sales of subsidiary - 789,936 -
Other investing activities (30,486) (8,004) 455
------------------------------------
Net cash (used in) provided by investing activities (537,502) 77,284 219,412
------------------------------------
Cash flows from financing activities:
Increase (decrease) in notes payable, net 77,230 (696,157) 89,536
Proceeds from long-term obligations 358,232 837,847 -
Principal payments on long-term obligations (94,687) (234,182) (256,326)
Proceeds from issuance of stock 56,368 49,521 33,396
Stock repurchases (438,229) (578,464) (662,758)
Proceeds from preferred stock issued by a subsidiary - 10,097 100,000
Dividends paid (272,866) (247,484) (231,392)
------------------------------------
Net cash used in financing activities (313,952) (858,822) (927,544)
------------------------------------
Effect of exchange rate changes on cash (1,046) (1,879) (639)
------------------------------------
Increase (decrease) in cash and cash equivalents 128,586 (11,389) 1,802
Cash and cash equivalents at beginning of year 125,684 137,073 135,271
------------------------------------
Cash and cash equivalents at end of year $ 254,270 $ 125,684 $ 137,073
====================================
Interest paid $ 218,931 $ 187,339 $ 203,870
====================================
Income taxes paid, net $ 67,647 $ 172,638 $ 159,854
====================================
</TABLE>
See notes, pages 52 through 68
50
<PAGE>
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Capital in other Treasury
Preferred Preference Common excess of Comprehensive Retained comprehensive stock,
stock stock stock par value income earnings income at cost
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $46 $2,369 $323,338 $30,260 $2,450,294 $(31,297) $ (535,964)
Net income $526,027 526,027
Other comprehensive income:
Translation adjustments (32,051) (32,051)
--------
Comprehensive income $493,976
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (179)
Common ($.80 per share) (231,212)
Issuances of common stock (2,741) 33,997
Conversions to common stock (7) (149) (1,940) 2,096
Repurchase of common stock (662,758)
Tax credits relating to
stock options 2,449
-------------------------------------------------------------------------------------------------
Balance, December 31, 1997 39 2,220 323,338 28,028 2,744,929 (63,348) (1,162,629)
Net income $576,394 576,394
Other comprehensive income:
Translation adjustments (24,869) (24,869)
--------
Comprehensive income $551,525
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (164)
Common ($.90 per share) (247,319)
Issuances of common stock (21,051) 58,597
Conversions to common stock (5) (189) (3,106) 3,300
Repurchase of common stock (578,464)
Tax credits relating to
stock options 12,302
-------------------------------------------------------------------------------------------------
Balance, December 31, 1998 34 2,031 323,338 16,173 3,073,839 (88,217) (1,679,196)
Net income $636,212 636,212
Other comprehensive income:
Translation adjustments (4,798) (4,798)
--------
Comprehensive income $631,414
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (150)
Common ($1.02 per share) (272,715)
Issuances of common stock (5,431) 52,403
Conversions to common stock (5) (190) (3,679) 3,872
Repurchase of common stock (438,229)
Tax credits relating to
stock options 10,319
-------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $29 $1,841 $323,338 $17,382 $3,437,185 $(93,015) $(2,061,150)
=================================================================================================
</TABLE>
See notes, pages 52 through 68
51
<PAGE>
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 the 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 on 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.
Capitalized computer software costs
The company capitalizes certain costs of internally developed software.
Capitalized costs include purchased materials and services, payroll and payroll
related costs and interests costs. The cost of internally developed software is
amortized on a straight-line basis over appropriate periods, principally three
to five years.
Rental arrangements and advance billings
The company rents equipment to its customers, primarily postage meters and
mailing, shipping, copier and facsimile systems under short-term rental
agreements, generally for periods of three months to three years. Charges for
equipment rental and maintenance contracts are billed in advance; the related
revenue is included in advance billings and taken into income as earned.
Financing transactions
At the time a finance transaction is consummated, the company's finance
operations record the gross finance receivable, unearned income and the
estimated residual value of leased equipment. Unearned income represents the
excess of the gross finance receivable plus the estimated residual value over
the cost of equipment or contract acquired. Unearned income is recognized as
financing income using the interest method over the term of the transaction and
is included in rentals and financing revenue in the Consolidated Statements 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
reduce the account 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 (FAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," when accounting for its sale of finance assets. All assets
obtained or liabilities incurred in consideration are recognized as proceeds of
the sale and any gain or loss on the sale is recognized in earnings.
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.
52
<PAGE>
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. Goodwill and other long-
lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be fully recoverable. If
such a change in circumstances occurs, the related estimated future undiscounted
cash flows expected to result from the use of the asset and its eventual
disposition, are compared to the carrying amount. If the sum of the expected
cash flows is less than the carrying amount, the company records an impairment
loss. The impairment loss is measured as the amount by which the carrying amount
exceeds the fair value of the asset.
Revenue
Sales revenue is primarily recognized when a product is shipped. Support
services revenue is primarily recognized over the term of the service contract
or as services are rendered.
Costs and expenses
Operating expenses of field sales and service offices are included in selling,
service and administrative expenses because no meaningful allocation of such
expenses to cost of sales, rentals and financing or support services is
practicable.
Income taxes
The deferred tax provision is determined under the liability method. Deferred
tax assets and liabilities are recognized based on differences between the book
and tax bases of assets and liabilities using 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,
recognition of lease income 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 depreciation
expense.
It has not been necessary to provide for income taxes on $255 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
$8 million.
Nonpension postretirement benefits and postemployment benefits
It is the company's practice to fund amounts for nonpension postretirement and
postemployment benefits as incurred. See Note 11 to the consolidated financial
statements.
Earnings per share
Basic earnings per share is based on the weighted average number of common
shares outstanding during the year, whereas diluted earnings per share also
gives effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares include preference stock,
preferred stock and stock option and purchase plan shares.
Foreign exchange
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 included in accumulated other comprehensive income 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 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. At December 31, 1999, the company had approximately $331 million of
foreign exchange contracts outstanding, most of which mature in 2000, 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, interest and/or 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 gains and (losses) net of tax were $(.3) million,
$(1.2) million and $.5 million in 1999, 1998 and 1997, respectively.
Reclassification
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
2. Inventories
Inventories consist of the following:
December 31 1999 1998
------------------
Raw materials
and work in process $ 41,149 $ 54,001
Supplies and service parts 122,726 106,864
Finished products 93,577 105,869
------------------
Total $257,452 $266,734
==================
If all inventories valued at LIFO had been stated at current costs, inventories
would have been $22.4 million and $24.9 million higher than reported at December
31, 1999 and 1998, respectively.
53
<PAGE>
3. Fixed assets
December 31 1999 1998
-----------------------
Land $ 34,697 $ 34,775
Buildings 305,111 305,596
Machinery and equipment 847,390 813,202
-----------------------
1,187,198 1,153,573
Accumulated depreciation (703,017) (676,097)
-----------------------
Property, plant and equipment, net $ 484,181 $ 477,476
=======================
Rental equipment
and related inventories $1,706,306 $1,706,995
Accumulated depreciation (895,518) (900,410)
-----------------------
Rental equipment and
related inventories, net $ 810,788 $ 806,585
=======================
Property leased
under capital leases $ 27,217 $ 19,430
Accumulated amortization (16,077) (15,687)
-----------------------
Property leased
under capital leases, net $ 11,140 $ 3,743
=======================
4. Current liabilities
Accounts payable and accrued liabilities and notes payable and current portion
of long-term obligations are comprised as follows:
December 31 1999 1998
-----------------------
Accounts payable-trade $ 233,947 $ 265,144
Accrued salaries, wages
and commissions 138,132 134,262
Accrued pension benefits 29,086 95,341
Accrued nonpension
postretirement benefits 15,500 15,500
Accrued postemployment benefits 6,900 6,900
Miscellaneous accounts
payable and accrued liabilities 492,261 381,401
-----------------------
Accounts payable
and accrued liabilities $ 915,826 $ 898,548
=======================
Notes payable and overdrafts $1,128,332 $1,051,182
Current portion of long-term debt 190,391 206,253
Current portion of
capital lease obligations 1,609 1,758
-----------------------
Notes payable and current
portion of long-term obligations $1,320,332 $1,259,193
=======================
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 $1.0 million in 1999 and $.9
million in 1998 and 1997.
At December 31, 1999, overdrafts outside the U.S. totaled $3.1 million and U.S.
notes payable totaled $1.1 billion. Unused credit facilities outside the U.S.
totaled $47.7 million at December 31, 1999, of which $35.4 million were for
finance operations. In the U.S., the company had unused credit facilities of
$1.8 billion at December 31, 1999, largely in support of commercial paper
borrowings, of which $1.2 billion were for its finance operations. The weighted
average interest rates were 3.6% and 2.9% on notes payable and overdrafts
outstanding at December 31, 1999 and 1998, respectively.
The company periodically enters into interest rate swap agreements as a means of
managing interest rate risk 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 swap counterparties to the
extent of the difference between the fixed and variable rates; such risk is
considered minimal.
The company enters into interest rate swap agreements primarily through Pitney
Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the company. 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
manage interest rate risk. The company's variable and fixed rate debt mix, after
adjusting for the effect of interest rate swap agreements, was 50% and 50%,
respectively, at December 31, 1999. The company utilizes interest rate swap
agreements when it considers the economic benefits to be favorable. At December
31, 1999, the company had outstanding interest rate swap agreements with
notional principal amounts of $606.1 million and terms expiring at various dates
from 2002 to 2009. The company exchanged $256.1 million notional principal
amounts of variable commercial paper rates on an equal notional amount of notes
payable and overdrafts for fixed rates ranging from 5.5% to 8.9%. In addition,
the company exchanged $350.0 million notional principal amounts of fixed rate
debt on an equal notional amount of variable rate debt. The variable rates for
the swaps are based on six month LIBOR plus a spread, equal to the difference
between the fixed rate of the debt and the fixed rate currently available for
similar debt.
54
<PAGE>
5. Long-term debt
December 31 1999 1998
----------------------
Non-financial services debt:
5.50% notes due 2004 $ 200,000 $ -
6.46% notes due 2004 150,000 -
5.95% notes due 2005 300,000 300,000
Other 7,748 11,757
Financial services debt:
Senior notes:
6.06% to 6.11% notes due 2000 - 50,000
5.65% to 6.77% notes due 2001 282,000 282,000
6.78% to 6.80% notes due 2001 200,000 200,000
6.63% notes due 2002 100,000 100,000
5.65% notes due 2003 250,000 250,000
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
2000 (11.05% to 11.20%) - 10,857
Other 8,108 8,323
----------------------
Total long-term debt $1,997,856 $1,712,937
======================
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 $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at December 31, 1999.
PBCC has $625 million of unissued debt securities available from a shelf
registration statement filed with the Securities and Exchange Commission (SEC)
in July 1998. As part of this shelf registration statement, in August 1999, PBCC
established a medium-term note program for the issuance from time to time of up
to $500 million aggregate principal amount of Medium-Term Notes, Series D, of
which $375 million remained available at December 31, 1999.
The annual maturities of the outstanding debt during each of the next five years
are as follows: 2000, $190.4 million; 2001, $486.0 million; 2002, $102.2
million; 2003, $401.4 million; 2004, $350.2 million; and $658.1 million
thereafter.
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
earnings available for fixed charges. The company has not been required to make
any such payments to maintain earnings available for fixed charges coverage.
6. Preferred stockholders' equity in a subsidiary company
Preferred stockholders' equity in a subsidiary company represents 3,000,000
shares of variable term voting preferred stock issued by 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 1999 and 1998 was 4.0% and
4.1%, respectively. Preferred dividends are reflected as a minority interest in
the Consolidated Statements of Income in selling, service and administrative
expenses. 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, 1999 or 1998.
In 1998, the company sold 100 shares of 9.11% Cumulative Preferred Stock,
mandatorily redeemable in 20 years, in a subsidiary company to an institutional
investor for approximately $10 million.
7. Capital stock and capital in excess of par value
At December 31, 1999, 480,000,000 shares of common stock, 600,000 shares of
cumulative preferred stock, and 5,000,000 shares of preference stock were
authorized, and 264,694,946 shares of common stock (net of 58,642,966 shares of
treasury stock), 588 shares of 4% Convertible Cumulative Preferred Stock (4%
preferred stock) and 67,967 shares of $2.12 Convertible Preference Stock ($2.12
preference stock) were issued and outstanding. In the future, the Board of
Directors can issue the balance of unreserved and unissued preferred stock
(599,412 shares) and preference stock (4,932,033 shares). This will determine
the dividend rate, terms of redemption, terms of conversion (if any) and other
pertinent features. At December 31, 1999, unreserved and unissued common stock
(exclusive of treasury stock) amounted to 114,964,638 shares.
The 4% preferred stock outstanding, entitled to cumulative dividends at the rate
of $2 per year, can be redeemed at the company's option, 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 can be converted into
24.24 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 can be redeemed at the company's option at the rate of $28
per share. Each share of the $2.12 preference stock can be converted into 16
shares of common stock, subject to adjustment in certain events.
At December 31, 1999, a total of 1,101,725 shares of common stock were reserved
for issuance upon conversion of the 4% preferred stock (14,253 shares) and $2.12
preference stock (1,087,472 shares). In addition, 2,124,666 shares of common
stock were reserved for issuance under the company's dividend reinvestment and
other corporate plans.
55
<PAGE>
Each share of common stock outstanding has attached one preference share
purchase right. Each right entitles each holder to purchase 1/200th of a share
of Series A Junior Participating Preference Stock for $97.50 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
The company has the following stock plans which are described below: the U.S.
and U.K. Stock Option Plans (ESP), the U.S. and U.K. Employee Stock Purchase
Plans (ESPP), and the Directors' Stock Plan.
The company adopted FAS No. 123, "Accounting for Stock-Based Compensation," on
January 1, 1996. Under FAS No. 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 No. 123. The company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock-based
plans. Accordingly, no compensation expense has been recognized for the ESP or
the ESPP, except for the compensation expense 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 expense based on the fair value
method as prescribed by FAS No. 123, net income and earnings per share for the
years ended 1999, 1998 and 1997 would have been reduced to the following pro
forma amounts:
1999 1998 1997
----------------------------
Net Income
As reported $636,212 $576,394 $526,027
Pro forma $619,625 $567,907 $523,400
Basic earnings per share
As reported $2.38 $2.10 $1.82
Pro forma $2.32 $2.07 $1.81
Diluted earnings per share
As reported $2.34 $2.06 $1.80
Pro forma $2.28 $2.03 $1.79
----------------------------
In accordance with FAS No. 123, the fair value method of accounting has not been
applied to awards granted prior to January 1, 1995. Therefore, the resulting pro
forma 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:
1999 1998 1997
-------------------
Expected dividend yield 2.0% 1.5% 2.0%
Expected stock price volatility 21% 18% 17%
Risk-free interest rate 6% 5% 6%
Expected life (years) 5 5 5
-------------------
Stock Option Plans
Under the company's stock option plans, certain officers and employees of the
U.S. and the company's participating subsidiaries are granted options at prices
equal to the market value of the company's common shares at the date of grant.
Options generally become exercisable in three equal installments during the
first three years following their grant and expire after ten years. In 1999, the
plans were amended to allow options granted on or after January 1, 1999 to be
fully vested to optionees (or their beneficiaries) in certain events. In
addition, the U.S. stock option plan was amended to permit optionees to gift
vested options to family members, trusts or partnerships. At December 31, 1999,
there were 18,337,216 options available for future grants under these plans. The
per share weighted average fair value of options granted was $15 in 1999, $11 in
1998 and $7 in 1997.
The following table summarizes information about stock option
transactions:
Per share
weighted
average
exercise
Shares price
----------------------------
Options outstanding
at January 1, 1997 4,377,974 $18
Granted 1,837,730 $30
Exercised (774,728) $17
Canceled (67,852) $28
----------------------------
Options outstanding
at December 31, 1997 5,373,124 $23
Granted 3,039,344 $47
Exercised (884,512) $17
Canceled (142,953) $40
----------------------------
Options outstanding
at December 31, 1998 7,385,003 $33
Granted 3,288,716 $65
Exercised (967,657) $21
Canceled (208,065) $52
----------------------------
Options outstanding
at December 31, 1999 9,497,997 $45
============================
Options exercisable
at December 31, 1997 2,703,734 $18
============================
Options exercisable
at December 31, 1998 2,966,399 $21
============================
Options exercisable
at December 31, 1999 3,790,291 $29
============================
The following tables summarize information about stock options outstanding and
exercisable at December 31, 1999:
Options Outstanding
- --------------------------------------------------------------------
Weighted Per share
Range of average weighted
per share remaining average
exercise prices Number contractual life exercise price
- --------------------------------------------------------------------
$12-$18 780,731 4.2 years $16
$19-$28 1,219,226 6.1 years $23
$29-$43 1,636,286 8.1 years $31
$44-$66 5,861,754 9.5 years $57
- --------------------------------------------------------------------
9,497,997 8.4 years
====================================================================
56
<PAGE>
Options Exercisable
- ----------------------------------------------------------------
Per share
Range of weighted
per share average
exercise prices Number exercise price
- ----------------------------------------------------------------
$12-$18 780,731 $16
$19-$28 1,216,861 $23
$29-$43 909,569 $30
$44-$66 883,130 $47
- ----------------------------------------------------------------
3,790,291
================================================================
Beginning in 1997, certain employees eligible for performance-based compensation
may defer up to 100% of their annual awards, subject to the terms and conditions
of the Pitney Bowes Deferred Incentive Savings Plan. Participants may allocate
deferred compensation among specified investment choices, including stock
options under the U.S. stock option plan. Stock options acquired under this plan
are generally exercisable three years following their grant and expire after a
period not to exceed ten years. There were 220,647, 156,158 and 90,904 options
outstanding under this plan at December 31, 1999, 1998 and 1997, respectively,
which are included in outstanding options under the company's U.S. stock option
plan. The per share weighted average fair value of options granted was $16 in
1999, $10 in 1998 and $7 in 1997.
The U.S. stock option plan permits the issuance of restricted stock. 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 the performance objectives are achieved. The compensation expense
for each award is recognized over the performance period. There were no shares
awarded in 1999, 1998 and 1997. Compensation expense recorded by the company
related to these awards was $1.7 million in 1998 and $4.1 million in 1997.
Employee Stock Purchase Plans
The U.S. ESPP enables substantially all employees to purchase shares of the
company's common stock at a discounted offering price. In 1999, the offering
price was 90% of the average closing price of the company's 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 U.K. ESPP enables eligible
employees of the company's participating U.K. subsidiaries to purchase shares of
the company's stock at a discounted offering price. In 1999, the offering price
was 90% of the average closing price of the company's common stock on the New
York Stock Exchange for the three business days preceding the offering date. The
company may grant rights to purchase up to 9,523,018 common shares to its
regular employees under these plans. The company granted rights to purchase
1,016,480 shares in 1999, 593,256 shares in 1998, and 855,916 shares in 1997.
The per share fair value of rights granted was $11 in 1999, $7 in 1998 and $4 in
1997 for the U.S. ESPP and $17 in 1999, $14 in 1998 and $9 in 1997 for the U.K.
ESPP.
Directors' Stock Plan
Under this plan, each non-employee director is granted 1,400 shares of
restricted common stock annually as part of their compensation. Shares granted
at no cost to the directors were 12,600 in 1999, 11,600 in 1998 and 10,900 in
1997. Compensation expense recorded by the company was $873,000, $560,000 and
$370,000 for 1999, 1998 and 1997, respectively. The shares carry full voting and
dividend rights but, except as provided herein, 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. In 1999, the Directors' Stock Plan
was amended to permit certain dispositions of restricted common stock to family
members, trusts or partnerships, as well as donations to charity after the
expiration of the six month holding period, provided the director retain
restricted common stock with a minimum market value of $350,000. The per share
weighted average fair value of shares granted was $57 in 1999, $42 in 1998 and
$28 in 1997.
Beginning in 1997, non-employee directors may defer up to 100% of their eligible
compensation, subject to the terms and conditions of the Pitney Bowes Deferred
Incentive Savings Plan for directors. Participants may allocate deferred
compensation among specified investment choices, including stock options under
the Directors' Stock Plan. Stock options acquired under this plan are generally
exercisable three years following their grant and expire after a period not to
exceed ten years. There were 8,823, 4,822 and 1,994 options outstanding under
this plan at December 31, 1999, 1998 and 1997, respectively. The per share
weighted average fair value of options granted was $14 in 1999, $12 in 1998 and
$9 in 1997.
9. Earnings per share
A reconciliation of the basic and diluted earnings per share computations for
income from continuing operations for the years ended December 31, 1999, 1998
and 1997 is as follows:
1999
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $659,159
Less:
Preferred stock dividends (1)
Preference stock dividends (150)
------------------------------------
Basic earnings per share 659,008 267,504,030 $2.47
------------------------------------
Effect of dilutive securities:
Preferred stock 1 15,185
Preference stock 150 1,143,691
Stock options 3,008,359
Other 334,878
------------------------------------
Diluted earnings per share $659,159 272,006,143 $2.42
====================================
57
<PAGE>
1998
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $542,512
Less:
Preferred stock dividends (1)
Preference stock dividends (164)
------------------------------------
Basic earnings per share 542,347 274,977,135 $1.98
------------------------------------
Effect of dilutive securities:
Preferred stock 1 16,863
Preference stock 164 1,250,592
Stock options 2,892,149
Other 519,864
------------------------------------
Diluted earnings per share $542,512 279,656,603 $1.94
====================================
1997
-------------------------------------
Per
Income Shares Share
-------------------------------------
Income from
continuing operations $492,352
Less:
Preferred stock dividends (1)
Preference stock dividends (179)
-------------------------------------
Basic earnings per share 492,172 288,782,996 $1.70
-------------------------------------
Effect of dilutive securities:
Preferred stock 1 21,420
Preference stock 179 1,355,116
Stock options 2,068,442
Other 289,142
-------------------------------------
Diluted earnings per share $492,352 292,517,116 $1.68
=====================================
10. Taxes on income
Income from continuing operations before income taxes and the provision for
income taxes consist of the following:
Years ended December 31
---------------------------------
1999 1998 1997
---------------------------------
Income from continuing
operations before
income taxes:
U.S. $865,981 $732,214 $ 663,194
Outside the U.S. 118,591 92,390 85,231
----------------------------------
Total $984,572 $824,604 $ 748,425
==================================
Provision for income taxes:
U.S. federal:
Current $163,553 $ 87,326 $ 92,517
Deferred 72,927 130,479 108,645
----------------------------------
236,480 217,805 201,162
----------------------------------
U.S. state and local:
Current 42,887 21,046 39,313
Deferred 7,997 23,566 (6,969)
----------------------------------
50,884 44,612 32,344
----------------------------------
Outside the U.S.:
Current 32,236 29,919 33,596
Deferred 5,813 (10,244) (11,029)
----------------------------------
38,049 19,675 22,567
----------------------------------
Total current 238,676 138,291 165,426
Total deferred 86,737 143,801 90,647
----------------------------------
Total $325,413 $282,092 $256,073
==================================
Including discontinued operations, the provision for income taxes consists of
the following:
Years ended December 31
-----------------------------------
1999 1998 1997
-----------------------------------
U.S. federal $223,699 $236,031 $219,291
U.S. state and local 47,460 45,767 35,213
Outside the U.S. 38,049 19,675 22,567
-----------------------------------
Total $309,208 $301,473 $277,071
===================================
A reconciliation of the U.S. federal statutory rate to the company's effective
tax rate for continuing operations follows:
1999 1998 1997
-------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 3.4 3.5 2.9
Foreign tax differential (0.4) (1.5) (1.0)
Partnership leasing transactions (2.7) (1.5) (0.3)
Life insurance investment - (0.3) (0.8)
Other (2.2) (1.0) (1.6)
-------------------
Effective income tax rate 33.1% 34.2% 34.2%
===================
58
<PAGE>
The effective tax rate for discontinued operations in 1999, 1998 and 1997
differs from the statutory rate due primarily to state and local income taxes.
<TABLE>
<CAPTION>
Deferred tax liabilities and (assets)
December 31 1999 1998
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 117,657 $ 113,455
Deferred profit
(for tax purposes) on
sales to finance subsidiaries 429,955 416,941
Lease revenue and
related depreciation 855,000 823,914
Loss on the sale of preferred stock 99,781 -
Other 150,276 134,147
-----------------------
Deferred tax liabilities 1,652,669 1,488,457
-----------------------
Deferred tax assets:
Nonpension postretirement
benefits (122,064) (122,481)
Inventory and
equipment capitalization (38,348) (40,745)
Net operating loss carryforwards (38,175) (42,950)
Other (218,797) (219,947)
Valuation allowance 35,443 39,872
-----------------------
Deferred tax assets (381,941) (386,251)
-----------------------
Net deferred taxes 1,270,728 1,102,206
Less: Current net deferred taxes (a) 188,709 181,685
-----------------------
Deferred taxes on income $1,082,019 $ 920,521
=======================
</TABLE>
(a) The table of deferred tax liabilities and (assets) above includes $188.7
million and $181.7 million for 1999 and 1998, respectively, of current net
deferred taxes, which are included in income taxes payable in the Consolidated
Balance Sheets.
The decrease in the deferred tax asset for net operating loss carryforwards and
related valuation allowance was mainly due to the utilization of foreign tax
loss carryforwards in Germany and Australia. At December 31, 1999 and 1998,
approximately $82.9 million and $90.6 million, respectively, of net operating
loss carryforwards were available to the company. Most of these losses can be
carried forward indefinitely.
11. Retirement plans and nonpension
postretirement benefits
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.
During 1997, the company announced that it amended its U.S. defined benefit
pension plan to a pay equity plan for most of its active U.S. employees. A pay
equity plan is a defined benefit pension plan in which pension benefits are
defined as a lump sum amount based on final average pay. The prior plan was a
defined benefit plan in which pension benefits were defined as annual annuity
amounts based on final average pay. In addition, the company enhanced the
employer contributions to the U.S. defined contribution plan. The net impact of
these changes was a reduction in 1997 U.S. pension plan costs of approximately
$15.4 million and a reduction in the projected benefit obligation for the U.S.
defined benefit plan of $74.3 million. The reduction in pension costs and the
projected benefit obligation result from the fact that the value of pension
benefits are lower under the pay equity plan than under the prior plan using the
actuarial assumptions disclosed.
The company contributed $19.7 million, $32.0 million and $16.9 million to its
defined contribution plans in 1999, 1998 and 1997, respectively.
59
<PAGE>
The change in benefit obligations and plan assets and the funded status for
defined benefit pension plans is as follows:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------
United States Foreign
----------------------- ---------------------
December 31 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligations at beginning of year $1,030,379 $ 968,950 $ 204,510 $ 179,713
Service cost 24,863 22,754 5,770 5,641
Interest cost 73,340 70,341 12,171 12,293
Amendments - - 2,619 1,393
Actuarial (gain) loss (58,808) 40,708 (2,969) 19,722
Foreign currency changes - - (1,102) (4,543)
Benefits paid (73,202) (72,374) (10,587) (9,709)
-----------------------------------------------
Benefit obligations at end of year $ 996,572 $1,030,379 $ 210,412 $ 204,510
===============================================
Change in plan assets:
Fair value of plan assets at beginning of year $1,023,417 $ 959,632 $ 202,579 $ 209,629
Actual return on plan assets 320,251 134,853 30,672 2,819
Company contribution 68,921 1,306 7,782 6,396
Foreign currency changes - - 299 (6,556)
Benefits paid (73,202) (72,374) (10,357) (9,709)
-----------------------------------------------
Fair value of plan assets at end of year $1,339,387 $1,023,417 $ 230,975 $ 202,579
===============================================
Funded status $ 342,815 $ (6,962) $ 20,561 $ (1,931)
Unrecognized actuarial (gain) loss (315,968) (23,902) (7,975) 8,353
Unrecognized prior service cost (42,535) (46,318) 4,756 5,448
Unrecognized transition cost (3,099) (6,278) (5,987) (6,221)
-----------------------------------------------
(Accrued) prepaid benefit cost $ (18,787) $ (83,460) $ 11,355 $ 5,649
===============================================
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost $ 12,887 $ - $ 19,683 $ 16,181
Accrued benefit liability (31,674) (83,460) (8,328) (10,532)
Additional minimum liability - - (728) (136)
Intangible asset - - 728 136
-----------------------------------------------
(Accrued) prepaid benefit cost $ (18,787) $ (83,460) $ 11,355 $ 5,649
===============================================
Weighted average assumptions:
Discount rate 7.75% 7.00% 3.0%-7.0% 3.5%-7.0%
Expected return on plan assets 9.30% 9.30% 4.0%-8.3% 4.0%-8.3%
Rate of compensation increase 4.25% 4.25% 2.0%-4.5% 2.0%-5.0%
</TABLE>
At December 31, 1999, 4,900 shares of the company's common stock with a fair
value of $.2 million were included in the plan assets of the company's pension
plan.
The company provides certain health care and life insurance benefits to eligible
retirees and their dependents. The cost of these benefits are 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 included 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.
During 1997, the company amended its retiree medical program for current and
future retirees of Pitney Bowes Management Services who will now have increased
contributions.
During 1999, the company amended its retiree medical program to increase plan
participants' contributions for current and future retirees and to eliminate
retiree life insurance for future retirees.
60
<PAGE>
The change in benefit obligations and plan assets and the funded status for
nonpension postretirement benefit plans is as follows:
Nonpension Postretirement Benefits
----------------------------------
December 31 1999 1998
----------------------------------
Change in benefit obligation:
Benefit obligations at
beginning of year $ 314,699 $ 306,722
Service cost 9,003 9,423
Interest cost 15,733 18,952
Plan participants' contributions 1,575 1,305
Actuarial gain (13,002) (720)
Foreign currency changes 343 (464)
Benefits paid (23,781) (19,938)
Plan amendments (39,800) (581)
----------------------------------
Benefit obligations at end of year $ 264,770 $ 314,699
==================================
Nonpension Postretirement Benefits
----------------------------------
December 31 1999 1998
-----------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ - $ -
Company contribution 22,206 18,633
Plan participants' contributions 1,575 1,305
Benefits paid (23,781) (19,938)
-----------------------------
Fair value of plan assets at end of year $ - $ -
=============================
Funded status $(264,770) $(314,699)
Unrecognized actuarial gain (15,093) (2,094)
Unrecognized prior service cost (34,679) (7,826)
-----------------------------
Accrued benefit cost $(314,542) $(324,619)
=============================
The assumed weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.75% in 1999 and 7.0% in 1998.
The components of the net periodic benefit cost for defined pension plans and
nonpension postretirement benefit plans are as follows:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------------------------
United States Foreign
-------------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 24,863 $ 22,754 $ 22,780 $ 5,770 $ 5,641 $ 6,771
Interest cost 73,340 70,341 67,111 12,171 12,293 12,515
Expected return on plan assets (87,845) (78,100) (75,518) (15,936) (14,779) (14,676)
Amortization of transition cost (3,179) (3,179) (3,179) (1,555) (1,604) (1,614)
Amortization of prior service costs (3,784) (3,784) (3,766) 1,601 1,595 1,477
Recognized net actuarial loss 854 559 977 1,716 - 7
-----------------------------------------------------------------
Net periodic benefit cost $ 4,249 $ 8,591 $ 8,405 $ 3,767 $ 3,146 $ 4,480
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Nonpension Postretirement Benefits
----------------------------------
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Service cost $ 9,003 $ 9,423 $ 9,688
Interest cost 15,733 18,952 18,770
Amortization of prior
service costs (12,972) (15,873) (16,045)
Recognized net actuarial loss 41 58 -
----------------------------------
Net periodic benefit cost $ 11,805 $ 12,560 $ 12,413
==================================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 7.75% in 1999 and 7.0% in 1998. This was
assumed to gradually decline to 4.75% by the year 2003 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (in millions):
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------------------------
Effect on total of service
and interest cost components $ 1,238 $ 1,179
Effect on postretirement
benefit obligation $11,581 $11,030
12. Discontinued Operations
On January 14, 2000, the company sold Atlantic Mortgage & Investment Corporation
(AMIC), a wholly-owned subsidiary of the company to ABN AMRO North America. The
company received approximately $484 million in cash at closing. In connection
with the sale, the company recorded a loss of approximately $27.6 million (net
of taxes of $18.4 million) for the year ended December 31, 1999. The transaction
is subject to post-closing adjustments.
61
<PAGE>
Revenue of AMIC was $114.9 million, $129.6 million and $73.2 million for the
years ended December 31, 1999, 1998, and 1997, respectively. Net interest
expense allocated to AMIC's discontinued operation was $5.6 million, $4.9
million and $.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest has been allocated based on AMIC's net intercompany
borrowing levels with PBCC, charged at PBCC's weighted average borrowing rate,
offset by the interest savings PBCC realizes due to borrowings against AMIC's
escrow deposits as opposed to regular commercial paper borrowings.
On October 30, 1998, Colonial Pacific Leasing Corporation (CPLC), a wholly-owned
subsidiary of the company, transferred the operations, employees and
substantially all assets related to its broker-oriented external financing
business to General Electric Capital Corporation (GECC), a subsidiary of the
General Electric Company. The company received approximately $790 million at
closing. In connection with this transaction, the company recorded a gain of
approximately $3.7 million (net of taxes of $2.0 million) for the year ended
December 31, 1999. This gain resulted from the settlement of post-closing
adjustments in 1999 related to the sale, offset by the cost of settlement with
regard to a dispute with GECC over certain assets that were included in the
sale.
Revenue of CPLC was $113.8 million and $180.5 million for the years ended
December 31, 1998 and 1997, respectively. Income from discontinued operations
includes allocated interest expense of $33.9 million and $46.2 million for the
years ended December 31, 1998 and 1997, respectively. Interest expense has been
allocated based on CPLC's intercompany borrowing levels with PBCC, charged at
PBCC's weighted average borrowing rate.
Operating results of both AMIC and CPLC have been segregated and reported as
discontinued operations in the Consolidated Statements of Income. Prior year
results have been reclassified to conform to the current year presentation. Net
assets of AMIC's discontinued operations have been separately classified in the
Consolidated Balance Sheet at December 31, 1999. Cash flow impacts of
discontinued operations have not been segregated in the Consolidated Statements
of Cash Flows. Details of income from discontinued operations, net of income
tax, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------
<S> <C> <C> <C>
AMIC $ 971 $25,429 $16,650
CPLC - 8,453 17,025
-----------------------
Income from
discontinued operations $ 971 $33,882 $33,675
</TABLE> =======================
13. Commitments, contingencies and
regulatory matters
The company's finance subsidiaries had no unfunded commitments to extend credit
to customers at December 31, 1999. 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, service or payment disputes with customers; disputes with employees;
or other matters. The company is currently a plaintiff or 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 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
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
the company, and wastes from a number of industrial sources were disposed 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. Based on the facts presently known, the company
estimates the total cost of our remediation effort to be approximately $5
million. This amount has been recorded as a liability in the Consolidated
Balance Sheet at December 31, 1999. All of these proceedings are at various
stages of activity, and it is difficult to estimate with any certainty the total
cost of remediating, the timing or extent of remedial actions which may be
required by governmental authorities. However, the company does not believe that
the outcome of these proceedings will have a material adverse effect on its
financial condition or results of operations.
In January 2000, the U.S. Postal Service (USPS) issued a proposed schedule for
the phaseout of manually reset electronic meters in the U.S. As of February 1,
2000, new placements of manually reset electronic meters would no longer be
permitted. Current users of manually reset electronic meters can continue to use
these meters for the term of their current rental and lease agreements. Based on
the proposed schedule, the company believes that the phaseout of manually reset
electronic meters will not cause a material adverse financial impact on the
company.
As a result of the company's aggressive efforts to meet the USPS mechanical
meter migration phaseout schedule combined with the company's ongoing and
continuing investment in advanced postage evidencing technologies, mechanical
meters represented less than 1% of the company's installed U.S. meter base at
December 31, 1999, compared with 10% at December 31, 1998. At December 31, 1999,
over 99% of the company's installed U.S. meter base is electronic or digital,
compared with 90% at December 31, 1998. The company continues to work, in close
cooperation with the USPS, to convert those mechanical meter customers who have
not migrated to digital or electronic meters.
62
<PAGE>
In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the USPS, the purpose of the program was to develop a new standard for
future digital postage evidencing devices which significantly enhanced postal
revenue security and supported expanded USPS value-added services to mailers.
The program would consist of the development of four separate specifications:
(i) the Indicium specification--the technical specifications for the indicium to
be printed; (ii) a Postal Security Device specification--the technical
specification for the device that would contain the accounting and security
features of the system; (iii) a Host specification; and (iv) a Vendor
Infrastructure specification.
During the period from May 1995 through December 31, 1999, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In July 1999, the USPS issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.
As of December 31, 1999, the company is in the process of finalizing the
development of both PC and Internet versions of a product which satisfy the
proposed IBI Performance Criteria. These products are currently in the final
phase of beta testing and are expected to be ready for market upon final
approval from the USPS.
In June 1999, the company was served with a Civil Investigative Demand (CID)
from the Justice Department's Antitrust Division. A CID is a tool used by the
Antitrust Division for gathering information and documents. The company believes
that the Justice Department may be reviewing the company's efforts to protect
its intellectual property rights. The company believes it has complied fully
with the antitrust laws and is cooperating fully with the department's
investigation.
In August 1999, the USPS and the company announced that they had reached an
agreement (USPS Settlement) resolving a lawsuit filed by the company in 1997.
The lawsuit arose out of a dispute over a 1978 Statement of Understanding
authorizing the company to offer Postage by Phone(R), its proprietary version of
the Computerized Meter Resetting System. Under the terms of the agreement, the
company received $51.8 million, representing a portion of the financial benefit
that the USPS obtained as a result of the revised regulations. This payment, net
of related legal expenses of $2.2 million, was recorded as other income in the
Consolidated Statement of Income for the year ended December 31, 1999.
14. 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 minimum lease payments at inception. Amounts included under liabilities
represent the present value of remaining lease payments.
Future minimum lease payments under both capital and operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31 leases leases
<S> <C> <C>
------------------
2000 $ 2,761 $ 56,291
2001 2,621 43,873
2002 2,216 35,173
2003 1,858 23,833
2004 1,354 15,420
Thereafter 538 44,838
------------------
Total minimum lease payments $11,348 $219,428
Less: Amount representing interest 3,367 ========
Present value of net minimum -------
lease payments $ 7,981
</TABLE> =======
Rental expense was $101.2 million, $110.9 million and $116.3 million in 1999,
1998 and 1997, respectively.
15. 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, Australia, Austria, Spain, Switzerland and
Sweden, as well as other financial services to the commercial and industrial
markets in the U.S.
As discussed in Note 12, CPLC transferred the operations, employees and
substantially all assets related to its broker-oriented external financing
business to GECC in 1998.
On August 21, 1997, the company announced that it had entered into an agreement
with GATX Capital Corporation (GATX Capital), a subsidiary of GATX Corporation,
which reduced the company's external large-ticket finance portfolio by
approximately $1.1 billion. This represented approximately 50% of the company's
external large-ticket portfolio and reflects the company's ongoing strategy of
focusing on fee- and service-based revenue rather than asset-based income.
Under the terms of the agreement, the company transferred external large-ticket
finance assets through a sale to GATX Capital and an equity investment in a
limited liability company owned by GATX Capital and the company. The company
received approximately $867 million in net cash relating to this transaction
during 1997, 1998 and 1999. At December 31, 1999, the company retained
approximately $167.1 million of equity investment in a limited liability company
along with GATX Capital.
63
<PAGE>
Condensed financial data for the consolidated finance operations follows:
Condensed summary of operations
Years ended December 31 1999 1998 1997
----------------------------------
Revenue $667,757 $600,693 $608,641
----------------------------------
Costs and expenses 244,019 184,213 180,100
Interest, net 132,913 139,845 167,490
----------------------------------
Total expenses 376,932 324,058 347,590
----------------------------------
Income before
income taxes 290,825 276,635 261,051
Provision for
income taxes 71,312 71,952 72,279
----------------------------------
Income from
continuing operations 219,513 204,683 188,772
Income from discontinued
operations, net of income tax - 8,453 17,025
Gain on sale of discontinued
operations, net of income tax 3,682 - -
----------------------------------
Net income $223,195 $213,136 $205,797
==================================
Condensed balance sheet
December 31 1999 1998
------------------------
Cash and cash equivalents $ 142,782 $ 27,057
Finance receivables, net 1,779,696 1,400,786
Accounts receivable 49,413 560,177
Other current assets and
prepayments 98,292 54,846
------------------------
Total current assets 2,070,183 2,042,866
Long-term finance receivables, net 1,907,431 1,999,339
Investment in leveraged leases 969,589 827,579
Other assets 588,678 315,821
------------------------
Total assets $5,535,881 $5,185,605
========================
Accounts payable and
accrued liabilities $ 491,036 $ 499,204
Income taxes payable 179,948 146,913
Notes payable and
current portion
of long-term obligations 933,823 699,453
------------------------
Total current liabilities 1,604,807 1,345,570
Deferred taxes on income 379,141 349,082
Long-term debt 2,030,551 2,097,737
Other noncurrent liabilities 777 878
------------------------
Total liabilities 4,015,276 3,793,267
Equity 1,520,605 1,392,338
------------------------
Total liabilities and equity $5,535,881 $5,185,605
========================
Finance receivables are generally due in monthly, quarterly or semiannual
installments over periods ranging from three to 15 years. In addition, 16% of
the company's net finance assets represent secured commercial and private jet
aircraft transactions with lease terms ranging from two to 23 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:
Gross finance Notes payable, current
Years ending December 31 receivables and long-term debt
-------------------------------------
2000 $2,061,297 $ 933,823
2001 873,138 482,000
2002 571,388 100,000
2003 284,569 400,000
2004 90,149 -
Thereafter 211,275 1,048,551
-------------------------------------
Total $4,091,816 $2,964,374
=====================================
Finance operations' net purchases of Pitney Bowes equipment amounted to $795.4
million, $750.8 million and $667.3 million in 1999, 1998 and 1997, respectively.
The components of net finance receivables were as follows:
December 31 1999 1998
-----------------------
Gross finance receivables $4,091,816 $3,902,585
Residual valuation 498,386 479,777
Initial direct cost deferred 53,439 55,176
Allowance for credit losses (104,721) (130,775)
Unearned income (851,793) (906,638)
-----------------------
Net finance receivables $3,687,127 $3,400,125
=======================
The company's net investment in leveraged leases is composed of the
following elements:
December 31 1999 1998
------------------------
Net rents receivable $1,169,114 $ 955,563
Unguaranteed residual valuation 623,003 608,858
Unearned income (822,528) (736,842)
------------------------
Investment in leveraged leases 969,589 827,579
Deferred taxes arising from
leveraged leases (611,717) (477,814)
------------------------
Net investment in
leveraged leases $ 357,872 $ 349,765
========================
64
<PAGE>
Following is a summary of the components of income from leveraged leases:
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Pretax leveraged
lease income $35,954 $20,671 $6,797
Income tax effect 5,761 9,990 16,110
-------------------------------
Income from
leveraged leases $41,715 $30,661 $22,907
===============================
</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 include $289.4 million related to commercial real
estate facilities, with original lease terms ranging from 17 to 25 years. Also
included are ten aircraft transactions with major commercial airlines, with a
total investment of $299.0 million with original lease terms ranging from 22 to
25 years and transactions involving locomotives, railcars and rail and bus
facilities, with a total investment of $381.2 million and original lease terms
ranging from 15 to 44 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 guarantee contracts totaled $571.8
million and $545.0 million at December 31, 1999 and 1998, 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, 1999 and 1998 was not significant.
16. Business segment information
For a description of the company's reportable segments and the types of products
and services from which each reportable segment derives its revenue, see
"Overview" on page 37. That information is incorporated herein by reference. The
information set forth below should be read in conjunction with such information.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies, with the exception of the items
outlined below.
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, income taxes and
net interest attributable to corporate debt. Interest from financial services
businesses includes intercompany interest. Identifiable assets are those used in
the company's operations and exclude cash and cash equivalents, short-term
investments and general corporate assets. Long-lived assets exclude finance
receivables, investment in leveraged leases and mortgage servicing rights.
Revenue and operating profit by business segment and geographic area for the
years ended 1997 to 1999 were as follows:
Revenue
----------------------
(Dollars in millions) 1999 1998 1997
----------------------
Business segments:
Mailing and
Integrated Logistics $2,992 $2,707 $2,552
Office Solutions 1,266 1,216 1,089
Capital Services 175 168 206
----------------------
Total $4,433 $4,091 $3,847
======================
Geographic areas:
United States $3,796 $3,505 $3,285
Outside the United States 637 586 562
----------------------
Total $4,433 $4,091 $3,847
======================
Operating Profit
----------------------
(Dollars in millions) 1999 1998 1997
----------------------
Business segments:
Mailing and
Integrated Logistics $ 798 $ 660 $ 582
Office Solutions 242 235 197
Capital Services 51 52 48
----------------------
Total $1,091 $ 947 $ 827
======================
Geographic areas:
United States $ 978 $ 860 $ 748
Outside the United States 113 87 79
----------------------
Total $1,091 $ 947 $ 827
======================
65
<PAGE>
Additional segment information is as follows:
Years ended December 31
-----------------------
(Dollars in millions) 1999 1998 1997
-----------------------
Depreciation and amortization:
Mailing and
Integrated Logistics $ 178 $ 177 $ 167
Office Solutions 101 88 74
Capital Services 32 16 15
-----------------------
Total $ 311 $ 281 $ 256
=======================
Net interest expense:
Mailing and
Integrated Logistics $ 73 $ 63 $ 58
Office Solutions 6 5 5
Capital Services 54 72 104
-----------------------
Total $ 133 $ 140 $ 167
=======================
Net additions to
long-lived assets:
Mailing and
Integrated Logistics $ 164 $ 177 $ 176
Office Solutions 134 123 98
Capital Services 8 16 (42)
-----------------------
Total $ 306 $ 316 $ 232
=======================
December 31
--------------
(Dollars in millions) 1999 1998
--------------
Identifiable assets:
Mailing and
Integrated Logistics $4,364 $3,893
Office Solutions 959 879
Capital Services 1,945 2,012
--------------
Total $7,268 $6,784
==============
Identifiable long-lived assets by
geographic areas:
United States $1,594 $1,561
Outside the United States 215 195
--------------
Total $1,809 $1,756
==============
Reconciliation of segment amounts to consolidated totals:
Years ended December 31
------------------------
(Dollars in millions) 1999 1998 1997
------------------------
Operating profit:
Total operating profit for
reportable segments $1,091 $ 947 $ 827
Unallocated amounts:
Net interest (corporate
interest expense, net of
intercompany transactions) (46) (17) 9
Corporate expense (110) (105) (88)
USPS Settlement 50 - -
------------------------
Income from continuing
operations before
income taxes $ 985 $ 825 $ 748
========================
Net interest expense:
Total interest expense for
reportable segments $ 133 $ 140 $ 167
Net interest (corporate
interest expense, net
of intercompany
transactions) 46 17 (9)
------------------------
Consolidated net interest
expense $ 179 $ 157 $ 158
========================
Depreciation and
amortization:
Total depreciation and
amortization for
reportable segments $ 311 $ 281 $ 256
Corporate depreciation 13 14 13
Discontinued operations 88 66 31
------------------------
Consolidated depreciation
and amortization $ 412 $ 361 $ 300
========================
Net additions to
long-lived assets:
Total additions for
reportable segments $ 306 $ 316 $ 232
Unallocated amounts 9 6 10
Discontinued operations 1 3 8
------------------------
Consolidated additions to
long-lived assets $ 316 $ 325 $ 250
========================
66
<PAGE>
December 31
---------------------
(Dollars in millions) 1999 1998
---------------------
Total assets:
Notal identifiable assets
by reportable segments $7,268 $6,784
Cash and cash equivalents and
short-term investments 257 129
General corporate assets 217 138
Discontinued operations 481 610
---------------------
Consolidated assets $8,223 $7,661
=====================
17. 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.
Loans receivable
The fair value of loans receivable is estimated based on quoted market prices,
dealer quotes or by discounting the future cash flows using current interest
rates at which similar loans would be made to borrowers with similar credit
ratings and similar remaining maturities.
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 agreements and foreign currency exchange contracts
The fair values of interest rate swaps 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.
Mortgage servicing rights (MSR) hedge
The fair values of the MSR hedge are obtained from the dealer quotes. The
interest rate swap portion represents the estimated amount the company would
receive or pay to terminate the agreements, taking into consideration current
interest rates and creditworthiness of the counterparties. The interest rate
floor portion represents the difference between the market value and amounts
paid to enter into the contracts.
Residual, conditional commitment and financial guarantee contracts
The fair values of residual and conditional commitment guarantee contracts are
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. The fair value of financial guarantee contracts
represents the estimate of expected future losses.
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 at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Carrying Fair
value(a) value
---------------------------
<S> <C> <C>
Investment securities $14,748 $16,380
Loans receivable $614,712 $625,582
Long-term debt $(2,225,165) $(2,223,452)
Interest rate swaps $(272) $(13,740)
Foreign currency
exchange contracts $1,240 $(489)
Residual, conditional
commitment and financial
guarantee contracts - $(5,800)
Transfer of receivables with
recourse $(64,662) $(64,662)
---------------------------
(a) Carrying value includes accrued interest and deferred fee income, where applicable.
The estimated fair value of the company's financial instruments at December 31, 1998 is as follows:
Carrying Fair
value(a) value
---------------------------
Investment securities $9,022 $9,898
Loans receivable $453,558 $469,159
Long-term debt $(1,954,434) $(2,058,237)
Interest rate swaps $(2,142) $(31,912)
Foreign currency
exchange contracts $1,867 $652
MSR hedge $3,950 $2,864
Residual, conditional
commitment and financial
guarantee contracts $(2,077) $ (3,460)
Transfer of receivables with
recourse $(42,805) $ (42,805)
---------------------------
</TABLE>
(a) Carrying value includes accrued interest and deferred fee income, where
applicable.
67
<PAGE>
18. Quarterly financial data (unaudited)
Summarized quarterly financial data (dollars in millions, except for per share
data) for 1999 and 1998 follows:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
1999 March 31 June 30 Sept. 30 Dec. 31
-------------------------------------
<S> <C> <C> <C> <C>
Total revenue $1,049 $1,105 $1,090 $1,188
Cost of sales and rentals
and financing $ 408 $ 424 $ 419 $ 440
Income from continuing
operations $ 138 $ 158 $ 186 $ 177
Discontinued operations 4 (28) - 1
-------------------------------------
Net income $ 142 $ 130 $ 186 $ 178
=====================================
Basic earnings per share:
Continuing operations $ .52 $ .58 $ .70 $ .67
Discontinued operations .01 (.10) - -
Net income $ .53 $ .48 $ .70 $ .67
Diluted earnings per share:
Continuing operations $ .51 $ .58 $ .69 $ .66
Discontinued operations .01 (.10) - -
-------------------------------------
Net income $ .52 $ .48 $ .69 $ .66
=====================================
Three Months Ended
-------------------------------------
1998 March 31 June 30 Sept. 30 Dec. 31
-------------------------------------
Total revenue $ 954 $1,015 $1,013 $1,109
Cost of sales and rentals
and financing $ 378 $ 394 $ 385 $ 408
Income from continuing
operations $ 123 $ 133 $ 133 $ 154
Discontinued operations 7 9 8 9
-------------------------------------
Net income $ 130 $ 142 $ 141 $ 163
=====================================
Basic earnings per share:
Continuing operations $ .43 $ .49 $ .49 $ .57
Discontinued operations .03 .03 .03 .03
-------------------------------------
Net income $ .46 $ .52 $ .52 $ .60
=====================================
Diluted earnings per share:
Continuing operations $ .43 $ .48 $ .48 $ .56
Discontinued operations .03 .03 .03 .03
-------------------------------------
Net income $ .46 $ .51 $ .51 $ .59
=====================================
</TABLE>
The sum of the quarters of 1999 and 1998 may not equal the annual amount due to
rounding.
68
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of Pitney Bowes Inc.:
In our opinion, the accompanying consolidated balance sheets 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in the
United States 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 20, 2000
69
<PAGE>
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 2000 Annual Meeting at 9:00
a.m., Monday, May 8, 2000, 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 sent to:
MSC 6309
Director Corporate Marketing and Advertising
Pitney Bowes Inc.
1 Elmcroft Rd.
Stamford, CT 06926-0700
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
Transfer Agent and Registrar:
EquiServe LP
(Formerly First Chicago Company of New York)
PO Box 2500
Jersey City, NJ 07303-2500
Stockholders may call EquiServe at (800) 648-8170.
http://www.equiserve.com
e-mail: [email protected]
Stockholder Inquiries
Communications concerning transfer requirements, lost certificates, dividends,
change of address or other stockholder inquiries may be made by calling (800)
648-8170, TDD phone service for the hearing impaired (201) 222-4955, for foreign
holders (201) 324-1225, or by writing to the address above.
Dividend Reinvestment Plan
Owners of Pitney Bowes Inc. common stock may purchase common stock, $1 par
value, with their dividends through the Dividend Reinvestment Plan. A prospectus
and enrollment card may be obtained by calling (800) 648-8170 or by writing to
the agent at the address above.
Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or write to the agent at the address above.
Duplicate Mailings
If you receive duplicate mailings because you have more than one account
listing, you may wish to save your company money by consolidating your accounts.
Please write to the agent at the address above.
<TABLE>
<CAPTION>
Stock Information
Dividends per common share
Quarter 1999 1998
-------------------
<S> <C> <C>
First $ .255 $ .225
Second .255 .225
Third .255 .225
Fourth .255 .225
-------------------
Total $1.020 $ .900
===================
Quarterly price ranges of common stock
1999
Quarter High Low
------------------
First 71 3/16 60 1/16
Second 73 5/16 61 1/16
Third 72 1/2 55 3/4
Fourth 63 13/16 40 7/8
1998
Quarter High Low
-------------------
First 51 5/16 42 7/32
Second 52 3/16 44 13/16
Third 58 3/16 46 5/8
Fourth 66 3/8 47 1/8
Trademarks
</TABLE>
3 Series, 14 Series, AccuTrac, AddressRight, Arrival, Ascent, ClickStamp,
Conquest, D3, DirectNet, DocuMatch, Finalist, ForwardTrak, Fulfillment, Galaxy,
iSend, Mail Essentials, Mail List Manager, Mailers Choice, Paragon, Personal
Post, PitneyWorks, Postage by Phone, ReUnion, Smart Image, SmartMailer,
StreamWeaver, Target Prospects, Universal Access, ValueShip, Weigh-on-the-Way
are trademarks or service marks of Pitney Bowes Inc.
Business Rewards, Postal Privilege, Purchase Power, Reserve Account, ValueMax,
are trademarks or service marks of Pitney Bowes Financial Services.
All other trademarks are service marks owned by their respective companies.
70
<PAGE>
EXHIBIT (vii)
-------------
Page 1 of 4
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, 1999)
Country or
state of
Company name incorporation
- ------------ -------------
Adrema Leasing Corporation Delaware
Adrema Maschinen - und - Auto Leasing GmbH Germany
Adrema Maschinenbau Inc. Delaware
Adrema Mobilien Leasing GmbH Germany
Andeen Enterprises, Inc. Panama
Artec International Corporation California
Atlantic Mortgage & Investment Corporation Florida
B. Williams Holdings Corp. Delaware
B. Williams Funding Corp. Delaware
Canadian Office Services (Toronto) Limited Canada
Cascade Microfilm Systems, Inc. California
Chas. P. Young Health Fitness & Management, Inc. New York
CPLC Inc. Delaware
Datarite Systems Ltd. England
ECL Finance Company, N.V. Netherlands
Elmcroft Road Realty Corporation Connecticut
FSL Holdings Inc. Connecticut
FSL Risk Managers Inc. New York
Harlow Aircraft Inc. Delaware
Informatech California
La Agricultora Ecuatoriana S.A. Ecuador
Lease Continental GmbH Germany
Lease Continental Partnership
MXT Inc. Canada
Norlin Australia Investments Pty. Ltd. Australia
Norlin Industries Ltd. Canada
Norlin Music (U.K.) Ltd. England
Oy Adrema Helsinki Finland
PB Air Inc. Nevada
PB Australia Funding Pty. Ltd. Australia
PB Canada Funding Ltd. Canada
PB Equipment Management Inc. Delaware
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 Lease Holdings Inc. Nevada
PB Leasing Corporation Delaware
PB Leasing International Corporation Delaware
PB Leasing June Ltd. England
PB Leasing March Ltd. England
PB Leasing September Ltd. England
PB Leasing Services Inc. Nevada
PB Miles Inc. Delaware
PB Municipal Funding Inc. Nevada
PB/PREFCO Real Estate Holdings Inc. Delaware
PB Production International Corporation Delaware
PB Professional Services Inc. Delaware
PB Public Finance Inc. Delaware
PBA Foreign Sales Corporation Barbados
PB World Trade Corporation (Disc) Delaware
<PAGE>
EXHIBIT (vii)
-------------
Page 2 0f 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
PB CFSC I Inc. Virgin Islands
PB Nikko FSC Ltd. Bermuda
PB Nihon FSC Ltd. Bermuda
Pitney Bowes Australia Pty. Australia
Pitney Bowes Australia FAS Pty. Limited Australia
Pitney Bowes Austria Ges.m.b.H Austria
Pitney Bowes of Canada Ltd. Canada
Pitney Bowes Canada Holdings Limited 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 Finans Norge AS Norway
Pitney Bowes Finance PLC (formerly PB Leasing Ltd.) England
Pitney Bowes Finance Ireland Limited Ireland
Pitney Bowes France S.A. France
Pitney Bowes Holdings Ltd. England
Pitney Bowes Holding SNC France
Pitney Bowes Hong Kong Inc. Delaware
Pitney Bowes Hong Kong Ltd. Hong Kong
Pitney Bowes India Inc. Delaware
Pitney Bowes Insurance Agency, Inc. Connecticut
Pitney Bowes International Ireland
Pitney Bowes International Funding Ireland
Pitney Bowes International Holdings, Inc. Delaware
Pitney Bowes Italia S.r.l. Italy
Pitney Bowes Japan KK Japan
Pitney Bowes Leasing International LP
Pitney Bowes (Ireland) Limited Ireland
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 New Zealand Limited New Zealand
Pitney Bowes Nova Scotia ULC Canada
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 (Switzerland) AG Switzerland
Pitney Bowes World Trade Corporation Virgin Islands
Pitney Structured Funding I Inc. Delaware
<PAGE>
EXHIBIT (vii)
-------------
Page 3 of 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
PREFCO I Inc. Delaware
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 V LP Inc. Delaware
PREFCO VI Inc. Delaware
PREFCO VI LP Inc. Delaware
PREFCO VII Inc. Delaware
PREFCO VII LP Inc. Delaware
PREFCO VIII Inc. Delaware
PREFCO VIII LP Inc. Delaware
PREFCO IX Inc. Delaware
PREFCO IX LP Inc. Delaware
PREFCO X Inc. Delaware
PREFCO XI Inc. Delaware
PREFCO XI LP Inc. Delaware
PREFCO XII Inc. Delaware
PREFCO XII LP Inc. Delaware
PREFCO XIII Inc. Delaware
PREFCO XIII LP Inc. Delaware
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 XXI Inc. Delaware
PREFCO XXI LP Inc. Delaware
PREFCO XXII Inc. Delaware
PREFCO XXII LP Inc. Delaware
PREFCO - Dayton Community Urban Redevelopment Corporation Ohio
Remington Customer Finance Pty. Limited Australia
ROM Holding Pty. Limited Australia
ROM Securities Pty. Limited Australia
Sales & Service Training Center Inc. Georgia
Techno Mail Service K.K. Japan
<PAGE>
EXHIBIT (vii)
-------------
Page 4 of 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
The Pitney Bowes Bank, Inc. Utah
Time-Sensitive Delivery Guide Inc. Delaware
Tower FSC, Ltd. Bermuda
Universal Postal Frankers Ltd. England
Waterview Resolution Trust Corporation Massachusetts
Wheeler Insurance, Ltd. Vermont
1136 Corporation Delaware
75 V Corp. Delaware
<PAGE>
EXHIBIT (viii)
--------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on:
<TABLE>
<CAPTION>
Form Reference
---- ---------
<S> <C>
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-8 No. 333-66735
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
Form S-3 No. 333-51281
</TABLE>
of Pitney Bowes Inc. of our report dated January 20, 2000 appearing on page 69
of the Pitney Bowes Inc. 1999 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 on page 18 of this
Form 10-K.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM PITNEY BOWES INC.
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CORRESPONDING
FOOTNOTE #3 FIXED ASSETS 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 254,270
<SECURITIES> 2,414
<RECEIVABLES> 2,288,692<F1>
<ALLOWANCES> 76,772<F1>
<INVENTORY> 257,452
<CURRENT-ASSETS> 3,342,574
<PP&E> 2,893,504<F2>
<DEPRECIATION> 1,598,535<F2>
<TOTAL-ASSETS> 8,222,672
<CURRENT-LIABILITIES> 2,872,764
<BONDS> 1,997,856
310,000
1,870
<COMMON> 323,338
<OTHER-SE> 1,300,402
<TOTAL-LIABILITY-AND-EQUITY> 8,222,672
<SALES> 2,180,255
<TOTAL-REVENUES> 4,432,608
<CGS> 1,220,124
<TOTAL-COSTS> 1,690,036
<OTHER-EXPENSES> 108,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,371
<INCOME-PRETAX> 984,572
<INCOME-TAX> 325,413
<INCOME-CONTINUING> 659,159
<DISCONTINUED> (22,947)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636,212
<EPS-BASIC> 2.38
<EPS-DILUTED> 2.34
<FN>
<F1> Receivables are comprised of trade receivables of $460,940 and short-term
finance receivables of $1,827,752. Allowances are comprised of allowance for
trade receivables of $28,716 and for short-term finance receivables of $48,056.
<F2> Property, plant and equipment are comprised of fixed assets of $1,187,198
and rental equipment and related inventories of $1,706,306. Depreciation is
comprised of depreciation of fixed assets of $703,017 and on rental equipment
and related inventories of $895,518.
</FN>
</TABLE>
