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
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OF 1934
For the year ended December 31, 2000
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. [_]
The aggregate market value of voting stock (common stock and $2.12 preference
stock) held by non-affiliates of the Registrant as of March 16, 2001 is
$8,502,157,743.
Number of shares of common stock, $1 par value, outstanding as of March 16, 2001
is 247,562,695.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Only the following portions of the Pitney Bowes Inc. 2000 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 44 to 65.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations and Summary of Selected Financial Data on pages
33 to 43, excluding the information on page 42 relating to Dividend
Policy.
(c) Stock Exchanges and Stock Information, on page 66.
2. Pitney Bowes Inc. Notice of the 2001 Annual Meeting and Proxy Statement
dated March 23, 2001, pages 7 to 8, 11 to 15 and 20 and portions of pages
4, 5, 9, 10, 16, 19 and 21 are incorporated by reference into Part III of
this Form 10-K Annual Report.
PART I
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Item 1. Business
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Pitney Bowes Inc. and its subsidiaries (the company) operate in three reportable
segments: Global Mailing, Enterprise 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 61 to 63 of the Pitney Bowes Inc.
2000 Annual Report to Stockholders and is incorporated herein by reference.
Global Mailing. Global Mailing includes worldwide revenues from the rental of
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postage meters and the sale, rental and financing of mailing equipment,
including mail finishing and software-based mail creation equipment, 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, paper handling, shipping equipment and software-based shipping and
logistics systems.
Enterprise Solutions. Enterprise Solutions includes Pitney Bowes Management
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Services and Document Messaging Technologies. Pitney Bowes Management Services
includes revenues from facilities management contracts for advanced mailing,
reprographic, document management and other high-value services. Document
Messaging Technologies includes revenues from the sale, service and financing of
high speed, software-enabled production mail systems, sortation equipment,
incoming mail systems, electronic statement, billing and payment solutions, and
mailing software. 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 Global Mailing and Enterprise Solutions segments) in the
U.S., Canada, the United Kingdom, Germany, France, Norway, Ireland, Australia,
Austria, Spain, Italy, Switzerland and Sweden. Consolidated financial services
operations financed 37 percent of consolidated sales in 2000, 37 percent in
1999, and 39 percent in 1998. Consolidated financial services operations
financed approximately 76 percent, 73 percent and 76 percent of leasable sales
in 2000, 1999, and 1998, respectively.
2
Capital Services. Capital Services provides large-ticket financing and fee-
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based programs covering a broad range of products and other financial services.
Products financed include both commercial and non-commercial aircraft, over-the-
road trucks and trailers, locomotives, railcars, rail and bus facilities, office
equipment 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 December 11, 2000, the company announced that its
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Board of Directors approved a formal plan to spin off the company's Office
Systems business to stockholders as an independent, publicly-traded company.
The transaction is expected to be completed by the end of the third quarter
2001. Operating results of Office Systems 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.
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 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. 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
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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 2000, and 12 percent in 1999 and 1998.
Marketing. The company's products and services are marketed through an
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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.
3
Competition. The company has historically been a leading supplier of certain
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products and services in its business segments, particularly postage meters and
mailing machines. 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.
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
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programs that are directed towards developing new products and service methods.
Expenditures on research and development totaled $120.5 million, $108.9 million,
and $100.8 million in 2000, 1999, and 1998, 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
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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.
Environmental Regulation. The company is subject to federal, state and local
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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 and other potentially responsible parties to
evaluate remediation options and negotiate allocation of past and future
remediation costs. 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,
2000.
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
Regulatory Matters. In 2000, the U.S. Postal Service (U.S.P.S.) issued a
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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. Leases or
rentals due to expire in the year 2000 can be extended to December 31,
2001.
In August 2000, the U.S.P.S. also issued a proposal to cease placements of non-
digital, or letterpress, meters as follows:
. New placements of non-digital meters with a "timeout" feature that enables
the meters to be automatically disabled, if not reset within a specified
time period, are no longer permitted after December 2003.
. New placements of non-digital meters without the "timeout" feature are no
longer permitted after June 2001.
The company has submitted comments to the U.S.P.S.'s proposed schedules
described above. Based on the proposed schedules, the company believes that the
phaseout of manually reset electronic meters will not cause a material adverse
financial impact on the company. The company is working with the U.S.P.S. to
meet the non-digital meter phaseout schedule and is currently evaluating the
potential financial impact on the company.
As a result of the company's aggressive efforts to meet the U.S.P.S'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, 2000 and 1999. 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 would significantly enhance
postal revenue security and support 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, 2000, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the U.S.P.S. In March 2000, 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. In September and October 2000, the U.S.P.S. issued further proposed
regulations regarding postage evidencing systems using Information Based
Indicia, titled "Refunds and Exchanges" and "Production, Distribution and Use of
Postal Security Devices and Information-Based Indicia." The company has
submitted comments regarding those proposed regulations.
In March 2000, the company received approval from the U.S.P.S. for the
commercial launch of the Internet version of a product which satisfies the
proposed IBI Performance Criteria, ClickStamp(TM) Online.
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.
5
Employee Relations. At December 31, 2000, 23,335 persons were employed by the
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company in the U.S. and 5,207 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 policy of keeping employees informed of
its decisions, and encourages and implements employee suggestions whenever
practicable.
Item 2. Properties
----------
The company's World Headquarters and certain other office and manufacturing
facilities are located in Stamford, Connecticut. 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.
Global Mailing. Global Mailing products are manufactured in a number of plants
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principally in Connecticut, as well as in Harlow, England. Most of these
facilities are owned by the company. At December 31, 2000, there were 134
sales, support services, and finance offices, substantially all of which are
leased, located throughout the U.S. and in a number of other countries.
Enterprise Solutions. The company's Document Messaging Technologies (DMT)
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business is headquartered in Danbury, Connecticut. DMT leases 5 facilities
located throughout the U.S. The company's management services subsidiary is
headquartered in Stamford, Connecticut and leases 36 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
Global Mailing and Enterprise 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; Milan, Italy; Barcelona,
Spain; and Stockholm, Sweden.
Capital Services. Pitney Bowes Credit Corporation (PBCC) leases an executive and
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administrative office in Shelton, Connecticut, which is owned by Pitney Bowes
Inc. There are nine leased regional and district sales offices located
throughout the U.S.
Item 3. Legal Proceedings
-----------------
In the course of normal business, the company is occasionally party to lawsuits.
These may involve litigation by or against the company relating to, among other
things:
. contractual rights under vendor, insurance or other contracts
. intellectual property or patent rights
. equipment, service or payment disputes with customers
. disputes with employees
The company is currently a 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
Executive Officers of the Registrant
- ------------------------------------
Executive
Officer
Name Age Title Since
- ----- --- ----- -----------
Michael J. Critelli 52 Chairman and Chief Executive Officer 1988
Marc C. Breslawsky 58 President and Chief Operating Officer 1985
Brian Baxendale 58 Executive Vice President and 2000
President, Pitney Bowes Document
Messaging Technologies
Gregory E. Buoncontri 53 Vice President and Chief Information 2000
Officer
Amy C. Corn 47 Vice President and Corporate Secretary 1996
Meredith B. Fischer 48 Vice President, Corporate Marketing 1996
and Chief Communications Officer
Karen M. Garrison 52 Executive Vice President and President, 1999
Pitney Bowes Business Services
Suzanne N. Grey 50 Vice President, Strategy Planning 1999
and New Business Development
Arlen F. Henock 44 Vice President - Finance 1996
Luis A. Jimenez 56 Vice President, Global Growth and 1999
Futures Strategy
Matthew S. Kissner 46 Executive Vice President and Group 1997
President, Pitney Bowes Small Business
and Financial Services
Murray D. Martin 53 Executive Vice President and Group 1998
President, Global Mailing Systems
John N. D. Moody 56 Executive Vice President - Office 1997
of the Chairman
Sara E. Moss 54 Vice President and General Counsel 1996
Bruce P. Nolop 50 Executive Vice President and 2000
Chief Financial Officer
Fred M. Purdue 54 Vice President and General Manager, 1999
Business Reengineering
Murray L. Reichenstein 63 Vice President, E-Business and Chief 1996
Development Officer
Kathleen E. Synnott 47 Vice President and General Manager, 1999
Customer Relationship Management
Johnna G. Torsone 50 Vice President and Chief 1993
Human Resources Officer
Joseph E. Wall 49 Vice President and Chief Technology 1996
Officer
7
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, 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.
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
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholders'
------------------------------------------------------------------
Matters
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The sections entitled "Stock Exchanges" and "Stock Information" on page 66 of
the Pitney Bowes Inc. 2000 Annual Report to Stockholders are incorporated herein
by reference. At December 31, 2000, the company had 32,231 common stockholders
of record.
Item 6. Selected Financial Data
-----------------------
The section entitled "Summary of Selected Financial Data" on page 43 of the
Pitney Bowes Inc. 2000 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 33 to 42 of the Pitney Bowes Inc.
2000 Annual Report to Stockholders is incorporated herein by reference, except
for the section on page 42 relating to "Dividend Policy".
The section under "Legal, Environmental and Regulatory Matters" titled
"Regulation" on pages 40 and 41 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 with
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (those which talk about the company's or
management's current expectations as to the future and include, but are not
limited to, statements about possible restructuring charges and future guidance)
in this Form 10-K, other reports or press releases or made by the company's
management involve risks and uncertainties which may change based on various
important factors. Words such as "estimate", "project", "plan", "believe",
"expect", "anticipate", "intend", 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
. foreign currency fluctuations
. terms and timing of the spin-off of Office Systems
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The section entitled "Market Risk" on page 40 of the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the Pitney
Bowes Inc. 2000 Annual Report to Stockholders 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 22, 2001, appearing on pages 44 to 65
of the Pitney Bowes Inc. 2000 Annual Report to Stockholders are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
9
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 7
to 9 and 4 to 5 of the Pitney Bowes Inc. Notice of the 2001 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 10 to 16, and 19 to 21 of the Pitney Bowes Inc. Notice of the
2001 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 4 to 5 of the Pitney
Bowes Inc. Notice of the 2001 Annual Meeting and Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
10
PART IV
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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 18.
2. Financial statement schedules - see "Index to Financial Schedules"
on page 18.
3. Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Reg. S-K
Exhibits Description Status or Incorporation by Reference
- -------- ------------------------- ----------------------------------------------
(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
(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)
11
(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.
12
Executive Compensation Plans:
- ----------------------------
(10) (a) Retirement Plan for Directors Incorporated by reference to Exhibit (10a) to
of Pitney Bowes Inc. 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 Exhibit (i) to
Stock Plan (as amended and Form 10-K as filed with the Commission on March
restated 1997) 31, 1997. (Commission file number 1-3579)
(b.1) Pitney Bowes Inc. Directors' Incorporated by reference to Exhibit (i) to Form
Stock Plan (as amended and 10-K as filed with the Commission on March 30,
restated 1999) 2000. (Commission file number 1-3579)
(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 Exhibit (ii) to
Bowes 1991 Stock Plan 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 Exhibit (i) to
Bowes 1991 Stock Plan Form 10-Q as filed with the Commission on
November 13, 1997. (Commission file number
1-3579)
(c.3) Pitney Bowes 1991 Stock Plan (as Incorporated by reference to Exhibit (10) to
amended and restated) 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 Incorporated by reference to Exhibit (ii) to
amended and restated ) Form 10-K as filed with the Commission on March
30, 2000. (Commission file number 1-3579)
(d) Pitney Bowes Inc. Key Employees' Incorporated by reference to Exhibit (10c) to
Incentive Plan (as amended and Form 10-K as filed with the Commission on March
restated) 25, 1992. (Commission file number 1-3579)
(d.1) First Amendment to Pitney Incorporated by reference to Exhibit (iii) to
Bowes Inc. Key Employees' Form 10-K as filed with the Commission on March
Incentive Plan (as amended and 31, 1997. (Commission file number 1-3579)
restated June 10, 1991)
(d.2) Second Amendment to Pitney Bowes Exhibit (i)
Inc. Key Employees' Incentive
Plan (as amended and restated)
(e) 1979 Pitney Bowes Stock Option Incorporated by reference to Exhibit (10d) to
Plan (as amended and restated) Form 10-K as filed with the Commission on March
25, 1992. (Commission file number 1-3579)
13
(f) Pitney Bowes Severance Plan, as Incorporated by reference to Exhibit (10) to
amended, dated December 12, 1988 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 (10h) to
Policy, adopted December 11, Form 10-K as filed with the Commission on April
1995 1, 1996. (Commission file number 1-3579)
(h) Pitney Bowes Inc. Deferred Incorporated by reference to Exhibit (i) to
Incentive Savings Plan for the Form 10-Q as filed with the Commission on May
Board of Directors 15, 1997. (Commission file number 1-3579)
(h.1) Pitney Bowes Inc. Deferred Incorporated by reference to Exhibit (iii) to
Incentive Savings Plan for the Form 10-K as filed with the Commission on March
Board of Directors (as amended 30, 2000. (Commission file number 1-3579)
and restated 1999)
(i) Pitney Bowes Inc. Deferred Incorporated by reference to Exhibit (v) to
Incentive Savings Plan Form 10-K as filed with the Commission on March
31, 1997. (Commission file number 1-3579)
(j) Pitney Bowes U.K. Stock Option Incorporated by reference to Exhibit (iv) to
Plan (as amended and restated Form 10-K as filed with the Commission on March
1999) 30, 2000. (Commission file number 1-3579)
(k) Pitney Bowes Letter of Agreement Exhibit (vi)
with Marc C. Breslawsky dated
October 27, 2000
(l) Pitney Bowes Separation Exhibit (vii)
Agreement with Marc C.
Breslawsky dated October 27, 2000
(m) Pitney Bowes Separation Exhibit (viii)
Agreement with Marc C.
Breslawsky dated October 27, 2000
(12) Computation of ratio of earnings Exhibit (ii)
to fixed charges
(13) Portions of annual report to Exhibit (iii)
security holders
(21) Subsidiaries of the registrant Exhibit (iv)
(23) Consent of experts and counsel Exhibit (v)
14
(b) Reports on Form 8-K
On December 11, 2000, the company filed a current report on Form
8-K pursuant to Item 5 thereof, reporting the Press Release dated
December 11, 2000, regarding its announcement to spin off the
company's Office System business to stockholders.
On October 19, 2000, the company filed a current report on
Form 8-K pursuant to Item 5 thereof, reporting the Press Release
dated October 17, 2000, regarding its financial results for the
period ended September 30, 2000.
On October 5, 2000, the company filed a current report on Form
8-K pursuant to Item 5 thereof, reporting the Press Release dated
October 4, 2000 for the revised financial outlook for the periods
ended September 30, 2000 and December 31, 2000.
15
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 26, 2001
--------------
16
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 26, 2001
- ------------------------- --------------
Michael J. Critelli Executive Officer - Director
/s/ Marc C. Breslawsky President and Chief March 26, 2001
- ------------------------- --------------
Marc C. Breslawsky Operating Officer - Director
/s/ Bruce P. Nolop Executive Vice President and March 26, 2001
- ------------------------- --------------
Bruce P. Nolop Chief Financial Officer
(principal financial officer)
/s/ Arlen F. Henock Vice President - Finance March 26, 2001
- ------------------------- --------------
Arlen F. Henock (principal accounting
officer)
/s/ Linda G. Alvarado Director March 26, 2001
- ------------------------- --------------
Linda G. Alvarado
/s/ William E. Butler Director March 26, 2001
- ------------------------- --------------
William E. Butler
/s/ Colin G. Campbell Director March 26, 2001
- ------------------------- --------------
Colin G. Campbell
/s/ Jessica P. Einhorn Director March 26, 2001
- ------------------------- --------------
Jessica P. Einhorn
/s/ Ernie Green Director March 26, 2001
- ------------------------- --------------
Ernie Green
/s/ Herbert L. Henkel Director March 26, 2001
- ------------------------- --------------
Herbert L. Henkel
/s/ James H. Keyes Director March 26, 2001
- ------------------------- --------------
James H. Keyes
/s/ John S. McFarlane Director March 26, 2001
- ------------------------- --------------
John S. McFarlane
/s/ Michael I. Roth Director March 26, 2001
- ------------------------- --------------
Michael I. Roth
/s/ Phyllis S. Sewell Director March 26, 2001
- ------------------------- --------------
Phyllis S. Sewell
17
INDEX TO FINANCIAL SCHEDULES
----------------------------
The financial schedules should be read in conjunction with the financial
statements in the Pitney Bowes Inc. 2000 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 19
Financial statement schedule for the years 1998 - 2000:
Valuation and qualifying accounts and
reserves (Schedule II) 20
18
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 22, 2001 appearing on page 65 of the Pitney Bowes Inc. 2000 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.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 22, 2001
19
PITNEY BOWES INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998 TO 2000
(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
- -------------------------------
2000 $ 28,716 $ 9,337 $11,585 (2) $ 26,468
1999 $ 24,665 $ 8,668 $ 4,617 (2) $ 28,716
1998 $ 21,129 $ 9,872 $ 6,336 (2) $ 24,665
Allowance for credit losses on finance receivables
- --------------------------------------------------
2000 $104,721 $58,421 $65,791 (2) $ 97,351
1999 $130,775 $67,257 $93,311 (2) (3) $104,721
1998 $132,308 $73,142 $74,675 (2) (3) $130,775
Valuation allowance for deferred tax asset (1)
- ------------------------------------------
2000 $ 35,443 $ 372 $10,866 $ 24,949
1999 $ 39,872 $ 586 $ 5,015 $ 35,443
1998 $ 41,301 $ 2,189 $ 3,618 $ 39,872
(1) Included in balance sheet as a liability.
(2) Principally uncollectible accounts written off.
(3) Amounts include the write-off of finance receivables retained in connection
with the disposal of our small-ticket external leasing business against
previously established allowance for credit losses recorded at the time of
disposal of this business in 1998.
20
EXHIBIT (i)
-----------
PITNEY BOWES INC.
KEY EMPLOYEES' INCENTIVE PLAN
(As Amended and Restated: February 12, 2001)
1. The Pitney Bowes Inc. Key Employees Incentive Plan (the "Plan") is
designed to provide additional incentives for key employees of Pitney Bowes Inc.
(the "Company") and its subsidiaries and affiliates by the making of awards of
supplemental compensation. It is intended that such awards will be given in a
way designed to retain or attract, and to provide additional incentive to, key
employees, having regard for their individual potential, location, contributions
to the Company and other appropriate considerations.
2. (A) The Plan shall be administered by a committee (the "Committee") which
shall consist of directors then constituting the Board of Directors of the
Company, excluding any director who is not a "disinterested person" within the
meaning of Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, and regulations promulgated thereunder
(directors meeting both such requirements being hereinafter referred to as
"Qualified Directors"), or any such other committee designated by the Board of
Directors of the Company to administer the Plan, which committee shall be
composed of not less than the minimum number of directors from time to time
required by Rule 16b-3 or Section 162(m), each of whom is a Qualified Director.
The Committee shall have full authority to establish rules for the
administration of the Plan and to make administrative decisions regarding the
Plan or awards hereunder. The Committee may delegate its functions hereunder to
the extent consistent with applicable law.
(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 or certificate shall be with and in
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.
3. (A) Awards of supplemental compensation may be made in respect of each
calendar year up to the aggregate amount of the "Incentive Fund" for such year.
The amount of the Incentive Fund for each year shall be determined by the
Committee prior to the end of the following year, provided that the amount so
determined shall not exceed an amount equal to (a) 4-1/2% of the consolidated
net income of the Company and its consolidated subsidiaries before provision for
income taxes, as certified by the Company's independent public accountants, plus
(b) an additional amount equal to- any excess of the aggregate amount of the
Incentive Funds for the five preceding years over the aggregate amount of awards
made for such years.
(B) (i) The Committee shall fix the extent, within the limits of the
Incentive Fund, to which awards shall be made by the Company, shall decide who
shall receive awards for the year, and shall determine the amount of each award.
Such awards may be made in cash, shares of the Company; units (as defined in
subparagraph ii), or such other kind or form of compensation (other than options
to acquire shares of the Company) or any combination of them as may, in the
judgment of the Committee, be best calculated to further the purposes of the
Plan.
(ii) A "unit" shall be an award which entitles the recipient to receive
cash, shares or other compensation in an amount which depends upon the business
performance of the Company or any of its divisions, subsidiaries, or affiliates
during a stated period. Performance of this purpose may be measured by the
growth in book or market value of capital stock, the increase in the earnings in
total or per share, or any other indicator specified by the Committee. The
Committee shall also fix the period during which such performance is to be
measured, the time at which the value of the units is to be paid, and the form
of the payment to be made in respect of the units.
(iii) All awards under the Plan shall be made on such terms and subject
to such conditions as the Committee may determine.
(C) Awards other than awards of units shall be deemed, for the purpose only
of determining the amount to be charged against the Incentive Fund, to have the
value of the cash, shares, or other kind or form of compensation awarded, as
determined by the Committee, as of the time the award is made. Awards of units
shall be deemed for such purpose to have a value, which represents 50% of the
estimated maximum liability of the Company to make payments with regard to such
units as determined by the Committee. Such units may be revalued by the
Committee from time to-time during the stated period referred to in Section
3(B)(ii) above, and any excess over the value originally assigned shall be
charged to the Incentive Fund for such year or years as the Committee shall
determine.
4. Nothing in the Plan shall prevent a participant from being included in any
other employee benefit or stock option or purchase plan of the Company or its
subsidiaries or affiliates, or from receiving any compensation provided by them.
Neither the Plan nor any action taken thereunder shall be understood as giving
any person any right to be retained in the employ of the Company or any
subsidiary or affiliate, nor shall any person (including persons participating
for a prior year) be entitled as of right to be selected as a participant in the
Plan for any years.
5. The Committee may amend, suspend, or terminate the Plan in whole or in part
at any time provided, however, that if in the judgment of the Committee such
amendment or other action would have a material effect on the Plan, such
amendment or other action must be taken by the Board of Directors of the
Company. No amendment which would materially increase the cost of the Plan
shall be made effective unless approved by the shareholders of the Company;
provided, however, that this Plan may not be amended, suspended or terminated
from and after the date of a Change of Control (as hereinafter defined) or in
anticipation of a Change of Control so as to reduce or otherwise adversely
affect the benefits to which participants in the Plan are entitled upon a Change
of Control.
6. Notwithstanding anything in the Plan to the contrary:
(A) In the event of a Change of Control (as defined below) awards under
the Plan, other than units payable in cash governed by Section 6(B), or shares
or units entitling the recipient to receive shares which shall be governed by
Section 6(G), shall be paid in cash to all executives of the Company and its
subsidiaries and affiliates who, as of the date of such Change of Control, had
previously been notified by the Company that they were eligible to receive
annual supplemental compensation as provided under the Plan. (Such annual
supplemental compensation is to be known as Performance Based Compensation or
"PBC", and any individual as so notified is to be known as a "PBC Participant").
(i) With respect to a PBC Participant's award, the amount of which
has been determined pursuant to the provisions of the Plan as provided above but
not yet paid as of the date of a Change of Control, the PBC Participant shall
have a vested right thereto as of the day of the Change of Control, which amount
shall be paid as provided below.
(ii) With respect to a PBC Participant's award, the amount of which
has not been determined as of the date of a Change of Control and which pertains
to services for a year which has been completed prior to the date of a Change of
Control, the award shall be determined pursuant to the provisions of the Plan as
provided above, and the amount thereby determined shall be a vested right of
each PBC Participant as of the day of the Change of Control and shall be paid as
provided below.
(iii) With respect to a PBC award, regarding services for a year in
which the Change of Control occurs and the amount of such award has not been
determined (a "Determinable PBC"), such award shall be paid as provided below.
(a) If a rating system to determine the amount of PBC awards had
been in effect in any of the three (3) years preceding the year in which the
Change of Control occurs, whereunder (1) each PBC Participant had been assigned
a rating (expressed as a number) corresponding to the evaluation of his or her
individual performance with respect to a fiscal year (the "Personal Rating"),
and (2) each PBC Participant had been assigned a rating (also expressed as a
number) corresponding to evaluation of the performance with respect to such
fiscal year for the Company and/or the division or divisions or unit or units to
which such PBC Participant had been assigned during such fiscal year, each PBC
Participant shall be assigned ratings for (1) his or her personal level of
performance, (2) the Company's performance and/or (3) his or her division(s)' or
unit(s)' performance (a "Determinable Rating") for purposes of determining his
or her Determinable PBC, each of which Determinable Ratings shall be equal to
the respective aggregate average rating for a period which shall be composed of
such of the three fiscal years (prior to the year that the Change of Control
occurs) during which such rating system was in effect and such Participant was
eligible to receive PBC with respect to the individual's performance, the
Company's performance and/or the appropriate division(s)' or unit(s)'
performance. If a Change of Control occurs in the first year in which a PBC
Participant is eligible to receive PBC, his or her Personal Rating shall be
equal to the mid-level rating then in effect, and such rating shall be used as
the Determinable Rating regarding his or her personal performance for
purposes of this Section, provided that the Determinable Rating regarding the
Company and/or the relevant business unit or division shall be determined as
provided above. The Determinable Ratings with respect to each PBC Participant
shall be applied in accordance with the appropriate bonus grid (or such similar
device then in effect) for which such PBC Participant is eligible at the time of
Change of Control to determine the appropriate percentages, the aggregate of
which shall then be multiplied by the salary range midpoint (or the computation
basis used to compute the value of PBC) then in effect for each respective PBC
Participant, and the amount thereby derived shall be the Determinable PBC and
shall be a vested right of each PBC Participant as of the day of the Change of
Control, payable as provided below.
(b) If a rating system has not been in effect in any of the three
years immediately preceding the year in which the Change of Control occurs,
payment of an award in respect of the year in which the Change of Control occurs
shall be determined by the Committee in its sole discretion, provided, however,
that each PBC Participant shall be entitled to receive and shall receive a
minimum amount of no less than the amount received in respect to the past fiscal
year and, in the event of a PBC Participant's first year of participation, no
less than the average award made in the preceding year to PBC Participants of
the same job level.
(c) The foregoing is intended to set forth the minimum amount of PBC
payments that shall be made in the circumstances as above provided but are not
intended to limit any additional payments that the Committee may desire to make
as in its discretion it deems appropriate.
(B) In the event of a Change of Control (as defined below) the Committee
shall determine the value of all units payable in cash (or any other form of
compensation value other than shares) ("KEIP Units") maturing upon the end of
any stated period (the "Cycle") as authorized under Subsection 3(B)(ii) above,
which had been awarded and not yet paid to all executives of the Company and its
subsidiaries and affiliates who had received notice of such award ("KEIP
Participants") as follows:
(ii) The Company shall make payments from the Determinable Fund in
the amounts as described below according to the following priorities as
applicable:
(a) First, if applicable, 100% of the amounts for each PBC
Participant as determined under Subsection 6(A)(i) or Subsection 6(A)(ii), as
the case may be.
(b) Second, if applicable, 100% of the amount as computed under
Subsection 6(B)(i) above.
(c) Third, an amount for each PBC Participant (the "PBC
Payment") equal to the Determinable PBC computed under Section 6(A)(iii) for
each PBC Participant, discounted by such amount so that the PBC Payment, when
compounded at an interest rate equal to the Prime Rate as established by Chase
Manhattan Bank, N. A., as of the day of the Change of Control (the "Prime Rate")
for the period from the day of the Change of Control until the following
February 10, will equal the Determinable PBC.
(d) Fourth, an amount (the "First KEIP Payment") equal to the
amount as computed under Subsection 6(B)(ii) with respect to each KEIP payment
thereunder, discounted by such amount so that the First KEIP Payment, when
compounded at an interest rate equal to the Prime Rate for the period from the
day of the Change of Control until the following February 10, will equal such
amount as computed under Subsection 6(B)(ii).
(e) Fifth, an amount (the "Second KEIP Payment") equal to the
amount as computed under Subsection 6(B)(iii) with respect to the cycle which
shall be completed during or at the end of the first complete fiscal year after
the Change of Control occurs, discounted by such amount so that the Second KEIP
Payment, when compounded at an interest rate equal to the Prime Rate for the
period from the day of the Change of Control until the second February 10
thereafter occurring, will equal such amount as computed under Subsection
6(B)(iii).
(f) Sixth, if applicable, an amount (the "Additional KEIP
Payment") equal to the amount or amounts as computed under Subsection 6(B)(iii)
with respect to any cycle which shall be completed during or at the end of the
second or subsequent complete fiscal year after the Change of Control occurs,
discounted by an amount so that the additional KEIP Payment, when compounded at
an interest rate equal to the Prime Rate for the period from the day of the
Change of Control until the appropriate February 10 will, in each instance,
equal such amount or amounts computed under Subsection 6(B)(iii).
(iii) Any payments as provided above in accordance with the
priorities ascertained above, which are to be made at or about the same time,
shall be reduced proportionately in the event a full payment thereof shall
reduce the Determinable Fund to less than zero.
(D) All payments and actions required pursuant to this Section shall be
made as expeditiously as possible after the action of the Committee as herein
provided has been taken, but in no event later than five days after a Change of
Control. Payments, as provided above, to PBC Participants or KEIP Participants
who reside outside the United States shall be made in such currencies and such
exchange rates that are consistent with the patterns and practices under this
Plan.
(E) For purposes of this Plan, a "Change of Control" shall be deemed to
have occurred if:
(i) There is an acquisition, in any one transaction or a series of
transactions (other than from the Company), by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, but excluding, for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which, following such acquisition,
more than 50 percent of the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners, respectively, of the common stock
and voting securities of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of common stock of the Company or
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors, as the case may
be; or
(ii) Individuals who, as of February 12, 2001, constitute the
Board of Directors (as of such date, the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to February 12, 2001 whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) There is (x) an approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, with respect to which
the common stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, represent, either by remaining outstanding or being
converted into securities of the resulting corporation, directly or indirectly,
more than 50 percent of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation, or
(y) an approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company or of the sale or other disposition of all or
substantially all of the assets of the Company.
(F) Any right to a payment as provided in this Section shall be a
contract right of the executives as herein described, enforceable against the
Company, its assigns and successors. Upon and following the occurrence of a
Change of Control, any decision rendered pursuant to this Section 6 may be
contested by any claimant, and the Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which a claimant may reasonably
incur as a result of any contest, provided the claimant substantially prevails
in the outcome thereof.
(G) Notwithstanding any contrary provision in this Section 6, in the event
of a Change of Control (as defined) awards under the Plan of shares or units
entitling the recipient to receive shares shall be fully vested with all
performance conditions deemed fully earned and any and all restrictions and
conditions shall be deemed satisfied.
7. To the extent required, and only to such extent, in order to render the
grant of an award, or the sale of equity securities corresponding to an award,
an exempt transaction under Section 16(b) of the Exchange Act, if no other
exemption applies, any equity security granted under the Plan to any participant
designated by the Company as having Section 16 reporting obligations must be
held by such participant for at least six months from the date of grant before
disposition, 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 than upon a 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.
8. Except for any award with respect to which all applicable restrictions have
expired, lapsed, or been waived, (a "Released Award"), no award, and no right
under any award shall be assignable, alienable, saleable, or transferable by a
participant other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder (or, in the case of
any award of restricted stock, to the Company); provided however, that if so
determined by the Committee, a participant may in the manner established by the
Committee, designate a beneficiary or beneficiaries to exercise the rights of
the rights of the participant, and to 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 issuable or payable only to the participant, or,
if permissible under applicable law, to the participant's guardian or legal
representative or to a transferee receiving such award pursuant to a qualified
domestic relations order referred to above. No award (other than a Released
Award), and no right under any such award, may be pledged, alienated, attached,
or otherwise encumbered and any purported pledge, alienation, attachment, or
encumbrance thereof shall be void and unenforceable against the Company or any
affiliate.
9. The Plan, as amended and restated herein, shall become effective on
February 12, 2001.
10. (A) The provisions of this Section 10 shall be applicable to awards under
the Plan to "Covered Employees" if the Committee so provides at the time of
grant (such awards being referred to as "Covered Awards"). For purposes of this
Section 10, "Covered Employees" means participants in the Plan who are
designated by the Committee prior to the grant of an award hereunder who are, or
are expected to be at the time taxable income will realized with respect to the
award, "covered employees" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, or any successor thereto, and the Treasury
Regulations thereunder ("Section 162(m)").
(B) Covered Awards shall be made subject to the achievement of one or
more preestablished Performance Goals (as defined below), in accordance with
procedures to be established by the Committee from time to time.
Notwithstanding any provision of the Plan to the contrary, the Committee shall
not have discretion to waive or amend such Performance Goals or to increase the
amount payable pursuant to Covered Awards after the Performance Goals have
been established, provided, however, that the Committee may, in its sole
discretion, reduce the amount which would otherwise be payable with respect to
any Covered Award, and provided, further, that the provisions of Section 6 shall
override any contrary provision of this Section 10.
(C) "Performance Goals" means one or more objective performance goals,
established by the Committee at the time an award is granted, and based upon the
attainment of targets for one or any combination of the following criteria:
operating income, revenues, return on operating assets, earnings per share,
return on stockholder equity, stock price, free cash flow, or achievement of
cost control, of the Company or such subsidiary, division or department of the
Company for or within which the participant is primarily employed. Performance
Goals also may be based upon attaining specified levels of Company performance
based upon one or more of the criteria described above relative to prior periods
or the performance of other corporations. Performance Goals shall be set by the
Committee within the time period prescribed by Section 162(m).
(D) 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. The maximum amount payable pursuant to Covered Awards
to a particular Covered employee for any fiscal year of the Company shall be
$5,000,000.
(E) The Committee may from time to time establish procedures pursuant to
which Covered Employees will be permitted or required to defer receipt of awards
under the Plan.
(F) Notwithstanding any other provision of the Plan, for all purposes
involving Covered Awards, the Committee shall consist of at least two members of
the Board of Directors, each of whom is an "outside director" within the meaning
of Section 162(m).
EXHIBIT (ii)
------------
PITNEY BOWES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(Dollars in thousands)
Years Ended December 31,
--------------------------------------------------------------
2000(2) 1999(2) 1998(2) 1997(2) 1996(2)
---------- ---------- --------- -------- --------
Income from continuing
operations before income taxes....................... $ 802,848 $ 823,942 $ 658,662 $605,788 $520,785
Add:
Interest expense................................... 200,957 175,699 156,284 157,322 161,222
Portion of rents representative of the interest
factor............................................ 34,512 33,042 36,403 38,284 39,634
Amortization of capitalized interest............... 973 973 973 914 914
Minority interest in the income of subsidiary with
fixed charges..................................... 14,237 12,033 12,425 11,322 8,121
---------- ---------- --------- -------- --------
Income as adjusted.................................... $1,053,527 $1,045,689 $ 864,747 $813,630 $730,676
========== ========== ========= ======== ========
Fixed charges:
Interest expense................................... $ 200,957 $ 175,699 $ 156,284 $157,322 $161,222
Capitalized interest............................... 2,383 1,316 - - 1,201
Portion of rents representative of the
interest factor................................... 34,512 33,042 36,403 38,284 39,634
Minority interest, excluding taxes, in the
income of subsidiary with fixed charges........... 20,298 17,610 18,468 16,856 11,391
---------- ---------- --------- -------- --------
$ 258,150 $ 227,667 $ 211,155 $212,462 $213,448
========== ========== ========= ======== ========
Ratio of earnings to fixed charges.................... 4.08 4.59 4.10 3.83 3.42
========== ========== ========= ======== ========
Ratio of earnings to fixed charges excluding minority
interest............................................. 4.37 4.92 4.42 4.10 3.58
========== ========== ========= ======== ========
(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 Office Systems, 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 3.95, 4.37, 3.56, 3.75 and 3.39 for the years ended
December 31, 2000, 1999, 1998, 1997, and 1996, respectively. The ratio of
earnings to fixed charges excluding minority interest would be 4.21, 4.66,
3.78, 4.00 and 3.54 for the years ended December 31, 2000, 1999, 1998,
1997, and 1996, respectively.
Exhibit (iii)
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Year ended December 31, 2000
Overview
Pitney Bowes Inc. (the company) continues to build on the core activities that
support its strong competitive position in integrated mail and document
management.
The company operates in three reportable segments: Global Mailing, Enterprise
Solutions and Capital Services.
Global Mailing includes worldwide revenues from the rental of postage meters and
the sale, rental and financing of mailing equipment, including mail finishing
and software-based mail creation equipment, software-based shipping,
transportation and logistics systems, and related supplies and services.
Enterprise Solutions includes Pitney Bowes Management Services and Document
Messaging Technologies. Pitney Bowes Management Services includes revenues from
facilities management contracts for advanced mailing, reprographic, document
management and other high-value services to enterprises. Document Messaging
Technologies includes revenues from the sale, service and financing of high
speed, software-enabled production mail systems, sortation equipment, incoming
mail systems, electronic statement, billing and payment solutions, and mailing
software. Capital Services primarily provides large-ticket financing and
fee-based programs covering a broad range of products and other financial
services.
On December 11, 2000, the company announced that its Board of Directors approved
a formal plan to spin off the company's Office Systems business to stockholders
as an independent, publicly-traded company. The transaction is expected to be
completed by the end of the third quarter 2001. Operating results of Office
Systems 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. See Note 12 to the consolidated
financial statements.
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 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. 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 2000 Compared to 1999
In 2000, revenue increased 2%, operating profit grew 8%, income from continuing
operations was flat and diluted earnings per share from continuing operations
increased 5% to $2.18 compared with $2.07 for 1999.
In 2000, the company recorded an after-tax charge of approximately
$11.2 million related to the consolidation of information technology staff and
infrastructure, and a $12 million tax benefit related to state tax law changes.
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 these one-time items from both periods, income from continuing
operations grew 5% and diluted earnings per share from continuing operations
increased 11% to $2.17 compared with $1.96 for 1999.
Diluted Earnings Per Share from Continuing Operations
Dollars
[GRAPHIC]
- ----------------------------------------------------
98 99 00
---- ---- ----
1.58 1.96* 2.17*
- ----------------------------------------------------
*Excluding one-time items
Revenue
(Dollars in millions) 2000 1999 % change
------------------------------
Global Mailing $2,836 $2,799 1%
Enterprise Solutions 862 803 7%
------------------------------
Total Messaging Solutions 3,698 3,602 3%
Capital Services 183 210 (13%)
------------------------------
$3,881 $3,812 2%
==============================
33
Total Messaging Solutions revenue grew 3% over the prior year. The revenue
increase came from growth in the Global Mailing and Enterprise Solutions
segments of 1% and 7%, respectively, over 1999. Global Mailing revenue growth
was negatively impacted by lower sales of mail creation and shipping logistics
products in the second half of 2000. Global Mailing revenue was also negatively
impacted by the weakening of foreign currencies, principally the British pound
and Euro currencies. Volume increases at Pitney Bowes Management Services and
Document Messaging Technologies were the principal reasons for the revenue
growth in the Enterprise Solutions segment. Capital Services revenue decreased
13% due to the company's previously stated strategy to concentrate on fee-based
income opportunities. The impact of price changes was minimal.
Approximately 74% of our total revenue in 2000 is recurring revenue, which we
believe is a continuing good indicator of potential repeat business.
Operating profit
(Dollars in millions) 2000 1999 % change
-----------------------------
Global Mailing $ 847 $790 7%
Enterprise Solutions 73 52 42%
-----------------------------
Total Messaging Solutions 920 842 9%
Capital Services 62 65 (5%)
-----------------------------
$ 982 $907 8%
=============================
Operating profit grew 8% over the prior year, continuing to reflect our emphasis
on reducing costs and controlling operating expenses. The company's successful
Enterprise-Wide Resource Planning (ERP) initiative also helped to enhance our
operating capabilities. Another measure of our success in controlling costs and
expenses in 2000 and 1999 was that growth in operating profit continued to
outpace revenue growth. Operating profit grew 7% in the Global Mailing segment
and 42% in the Enterprise Solutions segment. Total Messaging Solutions operating
profit grew 9% over the prior year. Operating profit decreased 5% in the Capital
Services segment due primarily to the decrease in revenue.
The operating profit growth in the Global Mailing segment came from improved
profit margins at Pitney Bowes Office Direct, which focuses on small business
solutions, and International Mailing, as well as margin improvements at U.S.
Mailing Systems and related financing. The operating profit growth in our
Enterprise Solutions segment came from double-digit operating profit growth at
Pitney Bowes Management Services and Document Messaging Technologies.
Sales revenue increased 1% in 2000 due mainly to high single-digit growth in our
International Mailing, Document Messaging Technologies and Management Services
businesses. The negative impact of foreign currency reduced sales growth by
slightly more than one percent. Increases in value-added services to both new
and existing customers, as part of the company's strategy of pursuing profitable
growth, stimulated revenue growth in our Management Services business. Document
Messaging Technologies' sales growth was driven by strong demand for
sophisticated, high speed production mail equipment to process complex, unique
marketing and billing statements. U.S. Mailing Systems' sales decreased due to
softness in the high-end shipping and mail creation product lines as the slowing
economy and slower customer decision-making process for the higher-value, more
complex products adversely impacted growth. In total, Financial Services
financed 37% of all sales in 2000 and 1999.
Revenue
Dollars in millions
- --------------------------------------------------------------------------------
Sales Rentals & Financing Support Services
98 1,692 1,382 425
99 1,863 1,486 463
00 1,883 1,505 493
- --------------------------------------------------------------------------------
Rentals and financing revenue increased 1% in 2000. Rentals revenue grew 2%
driven by growth in the U.S. and international mailing markets due to the
continuing shift to electronic and digital meters, including increased
placements of the digital desktop Personal PostTM meter, available through
various distribution channels such as telemarketing, the Internet and selected
retail outlets specializing in business supplies. At December 31, 2000,
electronic meters represented approximately 56% of our U.S. meter base and
digital meters represented approximately 44% of our U.S. meter base, up from 40%
in 1999. The company no longer places mechanical meters, which is in line with
USPS guidelines.
Financing revenue was flat due to our strategy to reduce our asset-based
financing, through asset sales in 2000 and prior years. Excluding Capital
Services, financing revenue grew 7% driven by increased volume of leases of the
company's products and by product offerings such as Purchase Power(R), Postal
Privilege(R) and Reserve Account.
Support services revenue increased 6% in 2000. Despite competitive pricing
pressures, U.S. and International 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 2000. Document Messaging
Technologies had double-digit growth in support services revenue due to
increased service contract base and on-site contracts.
Cost of sales
(Dollars in millions) 2000 1999 % change
------------------------------
$1,074 $1,072 --
Percentage of sales revenue 57.1% 57.5%
34
Cost of sales, as a percentage of sales revenue, improved for the fourth
consecutive year. The improvement in this ratio was achieved principally due to
lower product costs, significant productivity improvements in our manufacturing
processes, increased sales of higher margin supplies in our mailing business and
the impact of strategic sourcing initiatives in the U.S. and Europe. The
improvement in this ratio was moderated by the increasing mix of lower margin
Management Services sales revenue.
Cost of rentals and financing
(Dollars in millions) 2000 1999 % change
-------------------------------------------
$373 $396 (6%)
Percentage of rentals
and financing revenue 24.8% 26.6%
Cost of rentals and financing, as a percentage of rentals and financing revenue,
improved 1.8 percentage points. The cost of rentals ratio improvement was due to
lower costs at U.S. Mailing in 2000. The cost of financing ratio decreased due
to lower operating costs, partially offset by increased costs associated with
new business initiatives.
Selling, Service and Administrative Rate
1998 1999 2000
--------------------------------------
Percentage of revenue 35.2% 33.8% 33.5%*
* Excluding one-time items
Selling, service and administrative expenses were 34.0% of total revenue in 2000
compared with 33.8% in 1999. Excluding the one-time charge related to the
consolidation of information technology staff and infrastructure, this ratio
would have been 33.5%. The improvement in this ratio resulted from continued
emphasis on controlling expense growth. This was the sixth consecutive year of
improvement in our selling, service and administrative expenses to revenue
ratio, excluding one-time charges. The improvement in this ratio was moderated
by the company's continued investment in the Internet, ERP and other new
business initiatives.
Research and development expenses
(Dollars in millions)
2000 1999 % change
--------------------------------------
$120 $109 11%
Research and development expenses increased 11% in 2000 to $120 million
reflecting continued investment in developing new technologies and enhancing
features for all our products. The 2000 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 incoming mail sorting equipment.
Net interest expense
(Dollars in millions) 2000 1999 % change
----------------------------------------
$192 $171 13%
Net interest expense increased due to higher interest rates during 2000 compared
to 1999 associated with borrowings to fund the company's investment in leasing
and rental products, and the stock repurchase program. Our variable and fixed
debt rate mix, after adjusting for the effect of interest rate swaps, was 48%
and 52%, respectively, at December 31, 2000.
Effective tax rate
2000 1999
---------------------
29.9% 31.7%
Excluding the one-time tax benefit related primarily to recent state tax law
changes, the effective tax rate was 31.4% in 2000, reflecting 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
1998 1999 2000
----------------------------------------
12.7% 14.0%* 14.5%*
* (Excluding) one-time items
Income from continuing operations was flat and diluted earnings per share from
continuing operations increased 5% in 2000. Excluding one-time items from both
periods, income from continuing operations and diluted earnings per share from
continuing operations increased 5% and 11%, respectively, in 2000. The increase
in diluted earnings per share outpaced the increase in income from continuing
operations due to the company's share
35
repurchase program, under which 17.2 million shares, approximately 6% of the
average common and potential common shares outstanding at the end of 1999, were
repurchased in 2000. Excluding one-time items from both periods, income from
continuing operations as a percentage of revenue increased to 14.5% in 2000 from
14.0% in 1999, the seventh consecutive year of improvement in this ratio.
Income from Continuing Operations
Dollars in millions
1998 1999 2000
----------------------------------------
443 533* 562*
* Excluding one-time items
Results of Continuing Operations
1999 Compared to 1998
In 1999, revenue increased 9%, operating profit grew 18%, income from continuing
operations grew 27% and diluted earnings per share from continuing operations
increased 31% to $2.07 compared with $1.58 for 1998.
Excluding the one-time net after-tax settlement of $29.5 million from the USPS
in 1999, income from continuing operations grew 20% and diluted earnings per
share from continuing operations increased 24% to $1.96 compared with $1.58 for
1998.
Revenue
(Dollars in millions) 1999 1998 % change
--------------------------------
Global Mailing $2,799 $2,557 9%
Enterprise Solutions 803 742 8%
--------------------------------
Total Messaging Solutions 3,602 3,299 9%
Capital Services 210 200 5%
--------------------------------
$3,812 $3,499 9%
================================
Total Messaging Solutions revenue grew 9% over the prior year. The revenue
increase came from growth in the Global Mailing, Enterprise Solutions and
Capital Services segments of 9%, 8% and 5%, respectively, over 1998. Volume
increases in our U.S. Mailing Systems, International Mailing, Document Messaging
Technologies 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.
Operating profit
(Dollars in millions) 1999 1998 % change
-----------------------------
Global Mailing $790 $653 21%
Enterprise Solutions 52 47 9%
----------------------------
Total Messaging Solutions 842 700 20%
Capital Services 65 66 (1%)
----------------------------
$907 $766 18%
============================
Operating profit grew 18% over the prior year, 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 Global Mailing segment and 9% in the Enterprise
Solutions segment. Total Messaging Solutions operating profit grew 20% over the
prior year. Operating profit decreased 1% in the Capital Services segment.
The operating profit growth in the Global Mailing segment came from strong
performances by U.S. Mailing Systems, International Mailing and related
financing. The operating profit growth in our Enterprise Solutions segment came
from strong performances by Document Messaging Technologies and Management
Services.
Sales revenue increased 10% in 1999 due mainly to double-digit growth in our
U.S. Mailing Systems, International Mailing and Document Messaging Technologies
businesses and single-digit growth in our Management Services business. 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. 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 37% and 39% 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
36
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.
Financing revenue grew 11%. Revenue increases came from increased volume of
leases of the company's products and from product offerings such as Purchase
Power(R), Business Rewards(SM) Postal Privilege(R), and Reserve Account.
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 9% 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. Document Messaging Technologies had double-digit
growth in support services revenue due to increased service contract base and
on-site contracts.
Cost of sales
(Dollars in millions) 1999 1998 % change
- --------------------------------------------------------------
$1,072 $1,006 6%
Percentage of sales revenue 57.5% 59.5%
Cost of sales, as a percentage of sales revenue, improved for the third
consecutive year. The 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, higher margin supplies in our mailing business and the impact
of strategic sourcing initiatives in the U.S. and Europe.
Cost of rentals and financing
(Dollars in millions) 1999 1998 % change
- ---------------------------------------------------------------
$396 $350 13%
Percentage of rentals
and financing revenue 26.6% 25.3%
Cost of rentals and financing, as a percentage of rentals and financing revenue,
increased 1.3 percentage points. The cost of rentals ratio was slightly lower
due to lower costs at U.S. Mailing 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 33.8% of total revenue in 1999
compared with 35.2% in 1998. Continued emphasis on controlling expense growth
while growing revenues resulted in an improvement in this ratio. This was the
fifth consecutive year of improvement in our selling, service and administrative
expenses to revenue ratio, excluding one-time items. 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.
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
- ---------------------------------------------------------------
$171 $151 13%
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
------------------
31.7% 32.7%
The effective tax rate of 31.7% in 1999 reflects continued tax benefits from
leasing and financing activities, lower state and local taxes, and lower taxes
attributable to international sourced income.
Income from continuing operations and diluted earnings per share from continuing
operations increased 27% and 31%, 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 earnings per share from continuing operations
increased 20% and 24%, 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 14.0% in 1999, excluding the USPS
Settlement, from 12.7% in 1998, the sixth consecutive year of improvement in
this ratio.
37
Other Matters
In January 2001, the company announced that it would issue the details of a
restructuring plan in the first quarter of 2001. This plan is expected to result
in a one-time pretax charge of approximately $100 million of which 20 to 30
percent will likely be charged to discontinued operations. The one-time charge
relates to the implementation of a common, streamlined business infrastructure
across the corporation as a result of our decisions to spin off Office Systems
and align our mailing business on a global basis, cost saving opportunities due
to strategic acquisitions and partnerships, and additional benefits attained
from the consolidation of our IT organization and ERP initiatives. This
restructuring plan is expected to increase our operating efficiency and
effectiveness in 2002 and beyond while enhancing growth.
In September 2000, the company recorded a one-time pretax charge of approx-
imately $19 million (approximately $11 million after-tax), related to the
consolidation of information technology staff and infrastructure. This
initiative is focused on creating an efficient global organization and
technology platform to leverage the benefits of our current ERP and e-business
initiatives. This charge is included in selling, service and administrative
expenses in the Consolidated Statement of Income for the year ended December 31,
2000. The current year also includes a one-time tax benefit of $12 million
related primarily to recent state tax law changes.
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.
Accounting Changes
In 1998, the company adopted Statement of Financial Accounting Standards (FAS)
No. 130, "Reporting Comprehensive Income." The company has disclosed all non-
owner changes in equity in the Consolidated Statements of Stockholders' Equity.
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: Global Mailing, Enterprise 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 1998, FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," amended in 2000 by FAS No. 138, was issued. 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. FAS No. 133, as
amended, is effective January 1, 2001 for the company. Adoption of these
accounting standards is expected to result in a one-time cumulative after-tax
reduction in other comprehensive income of approximately $10 million in the
first quarter of 2001 and will also impact assets and liabilities recorded on
the Consolidated Balance Sheet. Adoption of these standards is not expected to
materially impact net income in 2001.
In 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements,"
summarizing certain guidance in applying generally accepted accounting
principles to revenue recognition in financial statements. The company adopted
the provisions of SAB No. 101 in the fourth quarter of 2000, retroactive to
January 1, 2000. The adoption of SAB No. 101 resulted in a one-time cumulative
after-tax reduction in net income of $4.7 million (net of taxes of approximately
$3.1 million). The reduction to net income is primarily attributable to the
deferral of sales recognition of software-enabled mail creation equipment and
shipping products prior to installation. See Note 1 to the consolidated
financial statements.
In 2000, FAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" was issued, amending FAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." FAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral, as well
as requiring certain additional disclosures. However, it carries over most of
the provisions contained in FAS No. 125. FAS No. 140 is effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after March 31, 2001. However, it is effective for the recognition and
reclassification of collateral and for disclosures relating to those
transactions for the year ended December 31, 2000. The company believes it is in
compliance with these standards in all material respects.
Liquidity and Capital Resources
The current ratio reflects the company's practice of utilizing a balanced mix of
debt maturities to fund finance assets. Our ratio of current assets to current
liabilities declined to .91 to 1 at December 31, 2000 compared to 1.16 to 1 at
December 31, 1999. The decrease in this ratio was primarily due to a decline in
cash and cash equivalents in 2000, which were used to repay debt, and to the
classification of AMIC's net assets to be disposed of as current assets in the
Consolidated Balance Sheet at December 31, 1999. AMIC's net assets were sold in
January 2000.
To manage interest rate risk, we use a balanced mix of debt maturities, variable
and fixed rate debt and interest rate swap agreements. In 2000, we entered into
interest rate swap agreements, primarily through our financial services
business.
38
[GRAPH]
Current Ratio
The ratio of total debt to total debt and stockholders' equity was 73.0% at
December 31, 2000, versus 69.1% at December 31, 1999, 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 71.1% at December 31, 2000, versus
67.2% at December 31, 1999. The increase in this ratio is driven primarily by
the $664 million repurchase of 17.2 million shares of common stock in 2000. The
company's generation of $604 million of free cash flow (defined as cash from
operations less capital expenditures) partially offset the increase in this
ratio.
As part of a strategic alliance with U.S. Bank, a division of U.S. Bancorp, on
June 30, 2000 the company, through Pitney Bowes Credit Corporation (PBCC), its
wholly-owned subsidiary, sold its PitneyWorks(SM) Business Rewards(SM) Visa(R)
and Business Visa(R) card operations, including credit card receivables of
approximately $322 million. The company expects to earn fees in connection with
the strategic alliance with U.S. Bank. However, the company will no longer
originate credit card receivables and as a result will not earn finance income
on those balances. This alliance expands the company's capabilities to capture a
greater share of the growing small business market. The new alliance will allow
PitneyWorks.com, a division of the company which focuses on small business
solutions, to continue to market the credit card to small business owners, while
providing cardholders with full access to U.S. Bank's respected network of
financial resources. The transaction is subject to post-closing adjustments.
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, 2000.
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.
PBCC has $425 million of unissued debt securities available at December 31, 2000
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 $175 million
remained available at December 31, 2000.
In December 2000, PBCC issued $100 million of unsecured floating rate notes
maturing in April 2002 and $100 million of unsecured floating rate notes
maturing in June 2004, available under the medium-term note program. These notes
bear interest at floating rates of LIBOR plus 5 basis points and 25 basis
points, respectively, set as of the quarterly interest payment dates. The
proceeds from these notes were used for general corporate purposes, including
the repayment of commercial paper.
In March 2000, PBCC issued $43.3 million of 7.515% Senior Notes maturing 2002
through 2012. The proceeds from these notes were used to pay down commercial
paper.
In September 1999, PBCC issued $125 million of 5.95% unsecured 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 matured in September 2000, with interest paid in March 2000 and at
maturity.
In April 2000, certain partnerships controlled by affiliates of PBCC issued a
total of $134 million of Series A and Series B Secured Floating Rate Senior
Notes. The notes are due in 2003 and bear interest at 7.443%. 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 $134 million
and bear interest at 8.073% for the first three years and reset in May 2003 and
each third anniversary of the first reset date. 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 2000 and 1999 was 4.7%
39
and 4.0%, respectively. Preferred dividends are reflected 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, 2000, the company, together with its financial services
businesses, had unused lines of credit and revolving credit facilities of $1.5
billion in the U.S. and $30.6 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 $6.2 billion at December 31, 2000,
up 11.9% from $5.5 billion in 1999. To fund finance assets, borrowings were $3.3
billion in 2000 and $3.0 billion in 1999. Approximately $480 million and $237
million in cash was generated from the sale of finance assets in 2000 and 1999,
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 the effect of foreign exchange rate changes on transactions that are
denominated in foreign currencies. 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. The principal currencies
hedged are the British pound, Canadian dollar and Euro currencies.
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, 2000, 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.
Capital Investment
During 2000, net investments in fixed assets included net additions of $122
million to property, plant and equipment and $147 million to rental equipment
and related inventories, compared with $114 million and $191 million,
respectively, in 1999. 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 related to the discontinued operations of Office Systems.
At December 31, 2000, 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
40
of the site, but are working with the EPA and other potentially responsible
parties to evaluate remediation options and negotiate allocation of past and
future remediation costs. 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, 2000.
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 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 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. Leases or
rentals due to expire in 2000 can be extended to December 31, 2001.
In August 2000, the USPS also issued a proposal to cease placements of non-
digital, or letterpress, meters as follows:
. New placements of non-digital meters with a "timeout" feature that enables
the meters to be automatically disabled, if not reset within a specified time
period, are no longer permitted after December 2003.
. New placements of non-digital meters without the "timeout" feature are no
longer permitted after June 2001.
The company has submitted comments to the USPS's proposed schedules described
above. Based on the proposed schedules, the company believes that the phaseout
of manually reset electronic meters will not cause a material adverse financial
impact on the company. The company is working with the USPS to meet the non-
digital meter phaseout schedule and is currently evaluating the potential
financial impact on the company.
As a result of the company's aggressive efforts to meet the USPS'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, 2000 and 1999. 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 would significantly enhance
postal revenue security and support 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, 2000, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In March 2000, 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. In September and October 2000, the USPS issued further proposed
regulations regarding postage evidencing systems using Information Based
Indicia, titled "Refunds and Exchanges" and "Production, Distribution and Use of
Postal Security Devices and Information-Based Indicia." The company has
submitted comments regarding those proposed regulations.
In March 2000, the company received approval from the USPS for the commercial
launch of the Internet version of a product which satisfies the proposed IBI
Performance Criteria, ClickStamp(TM) Online.
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.
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 $46
million, $5 million and $25 million in 2000, 1999 and 1998, respectively. These
translation losses resulted principally from the weakening Canadian dollar and
British pound.
The results of the company's international operations are subject to currency
fluctuations. We enter into foreign exchange contracts 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
41
finished goods inventories between our affiliates in different countries, and
intercompany loans.
At December 31, 2000, the company had approximately $331 million of foreign
exchange contracts outstanding, most of which mature in 2001, 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 with
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (those which talk about the company's or
management's current expectations as to the future and include, but are not
limited to, statements about possible restructuring charges and future guidance)
in this Annual Report, other reports or press releases or made by the company's
management involve risks and uncertainties which may change based on various
important factors. Words such as "estimate," "project," "plan," "believe,"
"expect," "anticipate," "intend," 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
. foreign currency fluctuations
. terms and timing of the spin-off of Office Systems
42
Summary of Selected Financial Data
(Dollars in thousands, except per share data)
Years ended December 31
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
Total revenue $ 3,880,868 $ 3,811,576 $ 3,499,483 $ 3,304,457 $ 3,146,224
Costs and expenses 3,078,020 2,987,634 2,840,821 2,698,669 2,625,439
----------------------------------------------------------------------------------
Income from continuing operations
before income taxes 802,848 823,942 658,662 605,788 520,785
Provision for income taxes 239,723 260,952 215,513 198,877 149,535
----------------------------------------------------------------------------------
Income from continuing operations 563,125 562,990 443,149 406,911 371,250
Discontinued operations 64,104 73,222 133,245 119,116 98,163
Cumulative effect of accounting change (4,683) -- -- -- --
----------------------------------------------------------------------------------
Net income $ 622,546 $ 636,212 $ 576,394 $ 526,027 $ 469,413
==================================================================================
Basic earnings per share:
Continuing operations $ 2.20 $ 2.11 $ 1.61 $ 1.41 $ 1.24
Discontinued operations .25 .27 .49 .41 .33
Cumulative effect of accounting change (.02) -- -- -- --
----------------------------------------------------------------------------------
Net income $ 2.43 $ 2.38 $ 2.10 $ 1.82 $ 1.57
==================================================================================
Diluted earnings per share:
Continuing operations $ 2.18 $ 2.07 $ 1.58 $ 1.39 $ 1.23
Discontinued operations .25 .27 .48 .41 .33
Cumulative effect of accounting change (.02) -- -- -- --
----------------------------------------------------------------------------------
Net income $ 2.41 $ 2.34 $ 2.06 $ 1.80 $ 1.56
==================================================================================
Total dividends on common, preference
and preferred stock $ 292,736 $ 272,866 $ 247,484 $ 231,392 $ 206,115
Dividends per share of common stock $ 1.14 $ 1.02 $ .90 $ .80 $ .69
Average common and potential common
shares outstanding 258,602,218 272,006,143 279,656,603 292,517,116 301,303,356
Free cash flow $ 603,667 $ 676,188 $ 473,613 $ 466,508 $ 415,201
Balance Sheet at December 31
Total assets $ 7,901,266 $ 8,222,672 $ 7,661,039 $ 7,893,389 $ 8,155,722
Long-term debt $ 1,881,947 $ 1,997,856 $ 1,712,937 $ 1,068,395 $ 1,300,434
Capital lease obligations $ 4,660 $ 6,372 $ 8,384 $ 10,142 $ 12,631
Stockholders' equity $ 1,284,975 $ 1,625,610 $ 1,648,002 $ 1,872,577 $ 2,239,046
Book value per common share $ 5.16 $ 6.13 $ 6.09 $ 6.69 $ 7.56
Ratios
Profit margin--continuing operations:
Pretax earnings 20.7% 21.6% 18.8% 18.3% 16.6%
After-tax earnings 14.5% 14.8% 12.7% 12.3% 11.8%
Return on stockholders' equity--
before accounting changes 48.8% 39.1% 35.0% 28.1% 21.0%
Debt to total capital 73.0% 69.1% 66.6% 64.2% 60.5%
EBIT to interest 5.2x 5.8x 5.4x 4.9x 4.3x
Other
Common stockholders of record 32,231 32,754 32,210 31,092 32,258
Total employees 28,542 27,267 27,700 26,385 25,220
43
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Years ended December 31
------------------------------------------
2000 1999 1998
------------------------------------------
Revenue from:
Sales $1,882,501 $1,862,753 $1,692,375
Rentals and financing 1,505,101 1,485,599 1,382,341
Support services 493,266 463,224 424,767
------------------------------------------
Total revenue 3,880,868 3,811,576 3,499,483
------------------------------------------
Costs and expenses:
Cost of sales 1,074,177 1,071,782 1,006,429
Cost of rentals and financing 373,232 395,667 350,304
Selling, service and administrative 1,317,748 1,290,180 1,232,164
Research and development 120,486 108,900 100,806
Other income -- (49,574) --
Interest expense 200,957 175,699 156,284
Interest income (8,580) (5,020) (5,166)
------------------------------------------
Total costs and expenses 3,078,020 2,987,634 2,840,821
------------------------------------------
Income from continuing operations before
income taxes 802,848 823,942 658,662
Provision for income taxes 239,723 260,952 215,513
------------------------------------------
Income from continuing operations 563,125 562,990 443,149
Income from discontinued operations,
net of income tax 64,104 97,140 133,245
Loss on sale of discontinued operations,
net of income tax -- (23,918) --
Cumulative effect of accounting change (4,683) -- --
------------------------------------------
Net income $ 622,546 $ 636,212 $ 576,394
==========================================
Basic earnings per share:
Income from continuing operations $2.20 $2.11 $1.61
Discontinued operations .25 .27 .49
Cumulative effect of accounting change (.02) -- --
------------------------------------------
Net income $2.43 $2.38 $2.10
==========================================
Diluted earnings per share:
Income from continuing operations $2.18 $2.07 $1.58
Discontinued operations .25 .27 .48
Cumulative effect of accounting change (.02) -- --
------------------------------------------
Net income $2.41 $2.34 $2.06
==========================================
See notes, pages 48 through 64
44
Consolidated Balance Sheets
[Dollars in thousands except share data]
December 31
----------------------------
2000 1999
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 198,255 $ 254,270
Short-term investments, at cost which approximates market 15,250 2,414
Accounts receivable, less allowances: 2000, $26,468; 1999, $28,716 313,510 432,224
Finance receivables, less allowances: 2000, $44,129; 1999, $48,056 1,592,920 1,779,696
Inventories 167,969 257,452
Other current assets and prepayments 145,786 128,662
Net current assets of discontinued operations 193,018 487,856
----------------------------
Total current assets 2,626,708 3,342,574
Property, plant and equipment, net 491,312 484,181
Rental equipment and related inventories, net 620,841 810,788
Property leased under capital leases, net 2,303 11,140
Long-term finance receivables, less allowances: 2000, $53,222; 1999, $56,665 1,980,876 1,907,431
Investment in leveraged leases 1,150,656 969,589
Goodwill, net of amortization: 2000, $58,658; 1999, $54,848 203,447 226,764
Other assets 612,760 470,205
Net long-term assets of discontinued operations 212,363 --
----------------------------
Total assets $ 7,901,266 $ 8,222,672
============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 995,283 $ 915,826
Income taxes payable 262,125 255,201
Notes payable and current portion of long-term obligations 1,277,941 1,320,332
Advance billings 346,228 381,405
----------------------------
Total current liabilities 2,881,577 2,872,764
Deferred taxes on income 1,226,597 1,082,019
Long-term debt 1,881,947 1,997,856
Other noncurrent liabilities 316,170 334,423
----------------------------
Total liabilities 6,306,291 6,287,062
----------------------------
Preferred stockholders' equity in a subsidiary company 310,000 310,000
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 29 29
Cumulative preference stock, no par value, $2.12 convertible 1,737 1,841
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 10,298 17,382
Retained earnings 3,766,995 3,437,185
Accumulated other comprehensive income (139,434) (93,015)
Treasury stock, at cost (74,537,860 shares) (2,677,988) (2,061,150)
----------------------------
Total stockholders' equity 1,284,975 1,625,610
----------------------------
Total liabilities and stockholders' equity $ 7,901,266 $ 8,222,672
============================
See notes, pages 48 through 64
45
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
Cash flows from operating activities:
Net income $ 622,546 $ 636,212 $ 576,394
Loss on disposal of discontinued operations -- 23,918 --
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 321,157 412,104 361,333
Increase in deferred taxes on income 135,208 158,803 64,805
Pension plan investment -- (67,000) --
Change in assets and liabilities:
Accounts receivable (8,531) (47,737) (32,658)
Net investment in internal finance receivables (149,701) (178,898) (219,141)
Inventories (71,184) 11,341 (11,522)
Other current assets and prepayments (20,667) (29,383) (33,731)
Accounts payable and accrued liabilities 57,580 6,174 52,364
Income taxes payable 9,272 76,069 46,909
Advance billings (1,117) 10,667 8,489
Other, net (22,319) (31,184) (41,214)
-----------------------------------------
Net cash provided by operating activities 872,244 981,086 772,028
-----------------------------------------
Cash flows from investing activities:
Short-term investments (12,934) 659 (1,655)
Net investment in fixed assets (268,577) (304,898) (298,415)
Net investment in finance receivables (67,850) (184,182) (81,663)
Net investment in capital and mortgage services (22,177) 148,670 (2,324)
Investment in leveraged leases (189,859) (138,527) (109,217)
Investment in mortgage servicing rights -- (28,738) (211,374)
Proceeds and cash receipts from the sale of discontinued operations 512,780 -- 789,936
Net proceeds from the sale of credit card portfolio 321,746 -- --
Net investment in insurance contracts (129,964) (58,825) (6,859)
Other investing activities 1,155 28,339 (1,145)
-----------------------------------------
Net cash provided by (used in) investing activities 144,320 (537,502) 77,284
-----------------------------------------
Cash flows from financing activities:
(Decrease) increase in notes payable, net (327,227) 77,230 (696,157)
Proceeds from long-term obligations 383,232 358,232 837,847
Principal payments on long-term obligations (205,026) (94,687) (234,182)
Proceeds from issuance of stock 39,961 56,368 49,521
Stock repurchases (663,987) (438,229) (578,464)
Proceeds from preferred stock issued by a subsidiary -- -- 10,097
Dividends paid (292,736) (272,866) (247,484)
-----------------------------------------
Net cash used in financing activities (1,065,783) (313,952) (858,822)
-----------------------------------------
Effect of exchange rate changes on cash (6,796) (1,046) (1,879)
-----------------------------------------
(Decrease) increase in cash and cash equivalents (56,015) 128,586 (11,389)
Cash and cash equivalents at beginning of year 254,270 125,684 137,073
-----------------------------------------
Cash and cash equivalents at end of year $ 198,255 $ 254,270 $ 125,684
=========================================
Interest paid $ 247,749 $ 218,931 $ 187,339
=========================================
Income taxes paid, net $ 122,880 $ 67,647 $ 172,638
=========================================
See notes, pages 48 through 64
46
Consolidated Statements of Stockholder's Equity
(Dollars in thousands except per share data)
Accumulated
Capital in other Treasury
Preferred Preference Common excess of Comprehensive Retained comprehensive stock,
stock stock stock par value income earnings income at cost
-------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $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)
Net income $622,546 622,546
Other comprehensive income:
Translation adjustments (46,419) (46,419)
--------
Comprehensive income $576,127
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (139)
Common ($1.14 per share) (292,596)
Issuances of common stock (11,563) 44,940
Conversions to common stock (104) (2,106) 2,209
Repurchase of common stock (663,987)
Tax credits relating to stock
options 6,585
-------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $29 $1,737 $323,338 $ 10,298 $3,766,995 $(139,434) $(2,677,988)
=================================================================================================
See notes pages 48 though 64
47
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 estimated useful lives: 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 interest costs. The cost of internally developed software is
amortized on a straight-line basis over appropriate periods, principally three
to seven years.
Rental arrangements and advance billings
The company rents equipment to its customers, primarily postage meters, mailing
equipment and shipping 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. 140, "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.
48
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
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," summarizing certain guidance in applying generally accepted
accounting principles to revenue recognition in financial statements. The
company adopted the provisions of SAB No. 101 in the fourth quarter of 2000,
retroactive to January 1, 2000. The adoption of SAB No. 101 resulted in a one-
time cumulative after-tax reduction in net income of $4.7 million (net of taxes
of approximately $3.1 million). The reduction to net income is primarily
attributable to the deferral of sales recognition of software-enabled mail
creation equipment and shipping products prior to installation. The change in
accounting had no material impact on quarterly results, and as a result,
quarterly information is not restated. The pro forma effect of retroactive
application of this new method of accounting would not materially affect the
results of operations for the years ended December 31, 1999 and 1998.
Revenue is recognized when earned. Sales revenue is recognized when the risks of
ownership have been transferred to the buyer, which is generally when shipped.
Sales revenue from customized equipment and software, including software-enabled
mail creation equipment and shipping products, is generally recognized when
installed. Sales revenue from sales type leases is generally recognized at the
inception of the lease. 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 $310 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
$9 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, 2000, the company had approximately $331 million of
foreign exchange contracts outstanding, most of which mature in 2001, 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.
Reclassification
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation. See Note 12 to the
consolidated financial statements.
49
2 Inventories
Inventories consist of the following:
December 31 2000 1999
----------------------
Raw materials
and work in process $ 67,990 $ 41,149
Supplies and service parts 38,708 122,726
Finished products 61,271 93,577
----------------------
Total $ 167,969 $257,452
======================
If all inventories valued at LIFO had been stated at current costs, inventories
would have been $14.2 million and $22.4 million higher than reported at December
31, 2000 and 1999, respectively.
3 Fixed assets
December 31 2000 1999
--------------------------
Land $ 34,289 $ 34,697
Buildings 298,496 305,111
Machinery and equipment 862,534 847,390
--------------------------
1,195,319 1,187,198
Accumulated depreciation (704,007) (703,017)
--------------------------
Property, plant and equipment, net $ 491,312 $ 484,181
--------------------------
Rental equipment
and related inventories $ 1,218,251 $ 1,706,306
Accumulated depreciation (597,410) (895,518)
--------------------------
Rental equipment and
related inventories, net $ 620,841 $ 810,788
==========================
Property leased
under capital leases $ 19,059 $ 27,217
Accumulated amortization (16,756) (16,077)
--------------------------
Property leased
under capital leases, net $ 2,303 $ 11,140
==========================
4 Current liabilities
Accounts payable and accrued liabilities and notes payable and current portion
of long-term obligations are comprised as follows:
December 31 2000 1999
-----------------------
Accounts payable--trade $ 254,425 $ 233,947
Accrued salaries, wages
and commissions 121,497 138,132
Accrued pension benefits 26,353 29,086
Accrued nonpension
postretirement benefits 15,500 15,500
Accrued postemployment benefits 6,900 6,900
Miscellaneous accounts
payable and accrued liabilities 570,608 492,261
-----------------------
Accounts payable
and accrued liabilities $ 995,283 $ 915,826
=======================
Notes payable and overdrafts $ 798,963 $1,128,332
Current portion of long-term debt 477,267 190,391
Current portion of
capital lease obligations 1,711 1,609
-----------------------
Notes payable and current
portion of long-term obligations $1,277,941 $1,320,332
=======================
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 $.8 million in 2000, $1.0
million in 1999, and $.9 million in 1998.
At December 31, 2000, U.S. notes payable totaled $799.0 million. Unused credit
facilities outside the U.S. totaled $30.6 million at December 31, 2000, of which
$20.1 million were for finance operations. In the U.S., the company, together
with its financial service businesses, had unused credit facilities of $1.5
billion at December 31, 2000, largely in support of commercial paper borrowings.
The weighted average interest rates were 6.5% and 3.6% on notes payable and
overdrafts outstanding at December 31, 2000 and 1999, 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
50
debt mix, after adjusting for the effect of interest rate swap agreements, was
48% and 52%, respectively, at December 31, 2000. The company utilizes interest
rate swap agreements when it considers the economic benefits to be favorable. At
December 31, 2000, the company had outstanding interest rate swap agreements
with notional principal amounts of $599.8 million and terms expiring at various
dates from 2002 to 2009. The company exchanged $249.8 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.
Current liabilities of Office Systems have been classified in net assets of
discontinued operations at December 31, 2000 (See Note 12).
5 Long-term debt
December 31 2000 1999
-----------------------
Non-financial services debt:
5.50% notes due 2004 $ 200,000 $200,000
6.46% to 6.84% notes due 2004 150,000 150,000
5.95% notes due 2005 300,000 300,000
Other -- 7,748
Financial services debt:
Senior notes:
6.78% to 6.80% notes due 2001 -- 200,000
6.77% or 7.23% notes due 2001 -- 282,000
6.63% notes due 2002 100,000 100,000
6.73% notes due 2002 100,000 --
5.65% notes due 2003 250,000 250,000
7.44% notes due 2003 134,000 --
8.80% notes due 2003 150,000 150,000
6.93% notes due 2004 100,000 --
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
7.51% notes due 2002 thru 2012 40,819 --
Other 7,128 8,108
----------------------
Total long-term debt $1,881,947 $1,997,856
======================
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, 2000.
PBCC has $425 million of unissued debt securities available 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 $175 million remained
available at December 31, 2000.
The annual maturities of the outstanding debt during each of the next five years
are as follows: 2001, $477.3 million; 2002, $201.8 million; 2003, $536.4
million; 2004, $452.6 million; 2005, $302.8 million; and $388.3 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 2000 and 1999 was 4.7% and
4.0%, respectively. Preferred dividends are reflected 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, 2000 or
1999.
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, 2000, 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 248,800,052 shares of common stock (net of 74,537,860 shares of
treasury stock), 588 shares of 4% Convertible Cumulative Preferred Stock (4%
preferred stock) and 64,135 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 (4,935,865 shares). This will determine
the dividend rate, terms of redemption, terms of conversion (if any) and other
pertinent features. At December 31, 2000, unreserved and unissued common stock
(exclusive of treasury stock) amounted to 116,285,844 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
51
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, 2000, a total of 1,040,413 shares of common stock were reserved
for issuance upon conversion of the 4% preferred stock (14,253 shares) and $2.12
preference stock (1,026,160 shares). In addition, 1,972,740 shares of common
stock were reserved for issuance under the company's dividend reinvestment and
other corporate plans.
Each share of common stock outstanding has attached one preference share
purchase right. Each right entitles each holder to purchase 1/200th 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 2000, 1999 and 1998 would have been reduced to the following pro
forma amounts:
2000 1999 1998
---------------------------------------
Net Income
As reported $ 622,546 $ 636,212 $ 576,394
Pro forma $ 597,799 $ 619,625 $ 567,907
Basic earnings per share
As reported $ 2.43 $ 2.38 $ 2.10
Pro forma $ 2.33 $ 2.32 $ 2.07
Diluted earnings per share
As reported $ 2.41 $ 2.34 $ 2.06
Pro forma $ 2.31 $ 2.28 $ 2.03
---------------------------------------
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:
2000 1999 1998
--------------------
Expected dividend yield 2.9% 2.0% 1.5%
Expected stock price volatility 27% 21% 18%
Risk-free interest rate 6% 6% 5%
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, 2000,
there were 9,635,373 options available for future grants under these plans. The
per share weighted average fair value of options granted was $9 in 2000, $15 in
1999 and $11 in 1998.
The following table summarizes information about stock option transactions:
Per share
weighted
average
exercise
Shares price
-----------------------------
Options outstanding
at January 1, 1998 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
Granted 9,372,320 $35
Exercised (812,122) $21
Canceled (670,477) $55
-----------------------------
Options outstanding
at December 31, 2000 17,387,718 $40
=============================
Options exercisable
at December 31, 1998 2,966,399 $21
=============================
Options exercisable
at December 31, 1999 3,790,291 $29
=============================
Options exercisable
at December 31, 2000 5,420,101 $39
=============================
52
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
Options Outstanding
----------------------------------------------------------------------------
Weighted Per share
Range of average weighted
per share remaining average
exercise prices Number contractual life exercise price
- ------------------------------------------------------------------------------
$12-$18 503,206 3.6 years $16
$19-$28 6,662,619 9.4 years $27
$29-$43 1,996,113 7.9 years $33
$44-$66 8,225,780 9.0 years $53
- ------------------------------------------------------------------------------
17,387,718 8.9 years
==============================================================================
Options Exercisable
- -------------------------------------------------------------------------------
Per share
Range of weighted
per share average
exercise prices Number exercise price
- -------------------------------------------------------------------------------
$12-$18 503,206 $16
$19-$28 852,794 $23
$29-$43 1,394,381 $31
$44-$66 2,669,720 $54
- -------------------------------------------------------------------------------
5,420,101
===============================================================================
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 285,289, 220,647 and 156,158 options
outstanding under this plan at December 31, 2000, 1999 and 1998, 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 $12 in
2000, $16 in 1999 and $10 in 1998.
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 2000, 1999 and 1998. Compensation expense recorded by the company
related to these awards was $1.7 million in 1998.
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 2000, 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 2000, 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 8,935,733 common shares to its
regular employees under these plans. The company granted rights to purchase
758,741 shares in 2000, 1,016,480 shares in 1999, and 593,256 shares in 1998.
The per share fair value of rights granted was $9 in 2000, $11 in 1999 and $7 in
1998 for the U.S. ESPP and $10 in 2000, $17 in 1999 and $14 in 1998 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 13,475 in 2000, 12,600 in 1999 and 11,600 in
1998. Compensation expense recorded by the company was $320,000, $873,000 and
$560,000 for 2000, 1999 and 1998, 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 $30 in 2000, $57 in 1999 and
$42 in 1998.
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 18,136, 8,823 and 4,822 options outstanding under
this plan at December 31, 2000, 1999 and 1998, respectively. The per share
weighted average fair value of options granted was $10 in 2000, $14 in 1999 and
$12 in 1998.
53
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, 2000, 1999
and 1998 is as follows:
2000
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $ 563,125
Less:
Preferred stock dividends (1)
Preference stock dividends (139)
------------------------------------
Basic earnings per share 562,985 256,549,114 $ 2.20
------------------------------------
Effect of dilutive securities:
Preferred stock 1 14,253
Preference stock 139 1,058,897
Stock options 869,322
Other 110,632
------------------------------------
Diluted earnings per share $ 563,125 258,602,218 $ 2.18
====================================
1999
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $ 562,990
Less:
Preferred stock dividends (1)
Preference stock dividends (150)
------------------------------------
Basic earnings per share 562,839 267,504,030 $ 2.11
------------------------------------
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 $ 562,990 272,006,143 $ 2.07
====================================
1998
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $ 443,149
Less:
Preferred stock dividends (1)
Preference stock dividends (164)
------------------------------------
Basic earnings per share 442,984 274,977,135 $ 1.61
------------------------------------
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 $ 443,149 279,656,603 $ 1.58
====================================
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
------------------------------------
2000 1999 1998
------------------------------------
Income from continuing
operations before
income taxes:
U.S $ 679,734 $ 713,863 $ 573,125
Outside the U.S. 123,114 110,079 85,537
------------------------------------
Total $ 802,848 $ 823,942 $ 658,662
====================================
Provision for income taxes:
U.S. federal:
Current $ 31,609 $ 114,066 $ 36,361
Deferred 172,639 72,927 130,480
------------------------------------
204,248 186,993 166,841
------------------------------------
U.S. state and local:
Current 5,029 30,557 7,552
Deferred (4,632) 7,997 23,566
------------------------------------
397 38,554 31,118
------------------------------------
Outside the U.S.:
Current 18,748 29,592 27,798
Deferred 16,330 5,813 (10,244)
------------------------------------
35,078 35,405 17,554
------------------------------------
Total current 55,386 174,215 71,711
Total deferred 184,337 86,737 143,802
------------------------------------
Total $ 239,723 $ 260,952 $ 215,513
====================================
54
Including discontinued operations, the provision for income taxes consists of
the following:
Years ended December 31
------------------------------------
2000 1999 1998
------------------------------------
U.S. federal $236,872 $ 223,699 $ 236,031
U.S. state and local 8,173 47,460 45,767
Outside the U.S. 37,065 38,049 19,675
------------------------------------
Total $282,110 $ 309,208 $ 301,473
====================================
A reconciliation of the U.S. federal statutory rate to the company's effective
tax rate for continuing operations follows:
2000 1999 1998
--------------------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 0.1 3.0 3.1
Foreign tax differential (1.0) (0.4) (1.9)
Partnership leasing transactions (3.2) (3.2) (1.6)
Other (1.0) (2.7) (1.9)
--------------------------------
Effective income tax rate 29.9% 31.7% 32.7%
================================
The effective tax rate for discontinued operations in 2000, 1999 and 1998
differs from the statutory rate due primarily to state and local income taxes.
Deferred tax liabilities and (assets)
December 31 2000 1999
------------------------
Deferred tax liabilities:
Depreciation $ 118,036 $ 117,657
Deferred profit
(for tax purposes) on
sales to finance subsidiaries 449,306 429,955
Lease revenue and
related depreciation 995,698 855,000
Loss on the sale of preferred stock 99,781 99,781
Other 159,025 150,276
------------------------
Deferred tax liabilities 1,821,846 1,652,669
------------------------
Deferred tax assets:
Nonpension postretirement
benefits (101,750) (122,064)
Inventory and
equipment capitalization (34,900) (38,348)
Net operating loss carryforwards (27,309) (38,175)
Other (204,649) (218,797)
Valuation allowance 24,949 35,443
------------------------
Deferred tax assets (343,659) (381,941)
------------------------
Net deferred taxes 1,478,187 1,270,728
Less: Current net deferred taxes/(a)/ 251,590 188,709
------------------------
Deferred taxes on income $1,226,597 $1,082,019
========================
/(a)/ The table of deferred tax liabilities and (assets) above includes $251.6
million and $188.7 million for 2000 and 1999, 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, Australia and France. At December 31, 2000 and
1999 approximately $69.1 million and $82.9 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.
The company contributed $21.0 million, $19.7 million and $32.0 million to its
defined contribution plans in 2000, 1999 and 1998, respectively.
55
The change in benefit obligations and plan assets and the funded status for
defined benefit pension plans is as follows:
Pension Benefits
----------------------------------------------------------
United States Foreign
---------------------------- --------------------------
December 31 2000 1999 2000 1999
----------------------------------------------------------
Change in benefit obligation:
Benefit obligations at beginning of year $ 996,572 $ 1,030,379 $ 210,412 $ 204,510
Service cost 24,937 24,863 5,668 5,770
Interest cost 76,064 73,340 11,967 12,171
Amendments -- -- 1,711 2,619
Plan participants contribution -- -- 3,231 --
Actuarial loss (gain) 40,204 (58,808) 26,399 (2,969)
Foreign currency changes -- -- (15,213) (1,102)
Benefits paid (90,810) (73,202) (10,257) (10,587)
----------------------------------------------------------
Benefit obligations at end of year $ 1,046,967 $ 996,572 $ 233,918 $ 210,412
==========================================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 1,339,387 $ 1,023,417 $ 230,975 $ 202,579
Actual return on plan assets (71,256) 320,251 30,623 30,672
Company contribution 2,052 68,921 6,135 7,782
Plan participants contributions -- -- 3,231 --
Foreign currency changes -- -- (15,847) 299
Benefits paid (90,810) (73,202) (10,257) (10,357)
----------------------------------------------------------
Fair value of plan assets at end of year $ 1,179,373 $ 1,339,387 $ 244,860 $ 230,975
==========================================================
Funded status $ 132,406 $ 342,815 $ 10,941 $ 20,561
Unrecognized actuarial (gain) loss (107,262) (315,968) 4,994 (7,975)
Unrecognized prior service cost (38,752) (42,535) 4,195 4,756
Unrecognized transition cost 80 (3,099) (4,018) (5,987)
----------------------------------------------------------
(Accrued) prepaid benefit cost $ (13,528) $ (18,787) $ 16,112 $ 11,355
==========================================================
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost $ 22,390 $ 12,887 $ 22,365 $ 19,683
Accrued benefit liability (35,918) (31,674) (6,253) (8,328)
Additional minimum liability (3,186) -- (604) (728)
Intangible asset 3,186 -- 604 728
----------------------------------------------------------
(Accrued) prepaid benefit cost $ (13,528) $ (18,787) $ 16,112 $ 11,355
==========================================================
Weighted average assumptions:
Discount rate 7.50% 7.75% 3.0%-7.0% 3.0%-7.0%
Expected return on plan assets 9.55% 9.30% 4.0%-8.3% 4.0%-8.3%
Rate of compensation increase 4.75% 4.25% 2.0%-4.5% 2.0%-4.5%
At December 31, 2000, no shares of the company's common stock 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 include primarily
company-provided medical benefits to disabled employees and company-provided
life insurance as well as other disability and death-related benefits to former
or inactive employees, their beneficiaries and covered dependents.
During 1999, the company amended its retiree medical program to increase
participants' contributions for current and future retirees and to eliminate
retiree life insurance for future retirees.
56
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 2000 1999
-----------------------------------
Change in benefit obligation:
Benefit obligations at beginning of year $ 264,770 $ 314,699
Service cost 6,952 9,003
Interest cost 17,948 15,733
Plan participants' contributions 1,969 1,575
Actuarial loss (gain) 15,624 (13,002)
Foreign currency changes (212) 343
Benefits paid (26,933) (23,781)
Plan amendments (902) (39,800)
-----------------------------------
Benefit obligations at end of year $ 279,216 $ 264,770
===================================
Nonpension Postretirement Benefits
-----------------------------------
December 31 2000 1999
-----------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ -- $ --
Company contribution 24,964 22,206
Plan participants' contributions 1,969 1,575
Benefits paid (26,933) (23,781)
-----------------------------------
Fair value of plan assets at end of year $ -- $ --
===================================
Funded status $(279,216) $(264,770)
Unrecognized actuarial loss (gain) 433 (15,093)
Unrecognized prior service cost (28,378) (34,679)
-----------------------------------
Accrued benefit cost $(307,161) $(314,542)
===================================
The assumed weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.50% in 2000 and 7.75% in 1999.
The components of the net periodic benefit cost for defined pension plans and
nonpension postretirement benefit plans are as follows:
Pension Benefits
--------------------------------------------------------------------
United States Foreign
--------------------------------- --------------------------------
2000 1999 1998 2000 1999 1998
--------------------------------------------------------------------
Service cost $ 24,937 $ 24,863 $ 22,754 $ 5,668 $ 5,770 $ 5,641
Interest cost 76,064 73,340 70,341 11,967 12,171 12,293
Expected return on plan assets (97,577) (87,845) (78,100) (16,410) (15,936) (14,779)
Amortization of transition cost (3,179) (3,179) (3,179) (1,482) (1,555) (1,604)
Amortization of prior service costs (3,784) (3,784) (3,784) 1,359 1,601 1,595
Recognized net actuarial loss 331 854 559 578 1,716 --
--------------------------------------------------------------------
Net periodic benefit cost $ (3,208) $ 4,249 $ 8,591 $ 1,680 $ 3,767 $ 3,146
====================================================================
Nonpension Postretirement Benefits
----------------------------------
2000 1999 1998
----------------------------------
Service cost $ 6,952 $ 9,003 $ 9,423
Interest cost 17,948 15,733 18,952
Amortization of prior
service costs (7,192) (12,972) (15,873)
Recognized net actuarial loss 73 41 58
--------------------------------
Net periodic benefit cost $ 17,781 $ 11,805 $ 12,560
================================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 7.00% in 2001 and 7.75% in 2000. This was
assumed to gradually decline to 5.00% 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 $ 1,016 $ 976
Effect on postretirement
benefit obligation $11,412 $10,910
12 Discontinued Operations
On December 11, 2000, the company announced that its Board of Directors approved
a formal plan to spin-off the company's Office Systems business to stockholders
as an independent, publicly traded company. The company expects the spin-off to
be tax free as provided for under the Internal Revenue Code. The transaction is
expected to be completed by the end of the third quarter 2001. Revenue of Office
Systems was $641.3 million, $621.0 million and $591.4 million for the years
ended December 31, 2000, 1999 and 1998, respectively. Net interest expense
allocated to Office Systems' discontinued operations was $11.3 million, $8.7
million and $5.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Interest has been allocated based on the net assets of Office
Systems charged at the company's weighted
57
average borrowing rate. Income from Office Systems' discontinued operations
after the measurement date (December 11, 2000) was approximately $3.2 million
(net of taxes of $2.2 million), offset by costs and expenses directly associated
with the spin-off. The company expects that income from Office Systems'
discontinued operations between the measurement date and the spin-off date will
exceed the total amount of costs and expenses directly associated with the spin-
off. The assets of Office Systems' discontinued operations have been separately
classified in the Consolidated Balance Sheet at December 31, 2000. Assets and
liabilities of Office Systems' discontinued operations at December 31, 2000 and
1999, respectively, are as follows:
2000 1999
----------------------
Accounts receivable $ 128,289 $ 108,214
Inventories 153,247 126,751
Net current liabilities (88,518) (69,065)
----------------------
Net current assets $ 193,018 $ 165,900
======================
Rental equipment and related
inventories, net $ 141,308 $ 134,102
Goodwill, net of amortization 53,053 46,563
Net other assets 18,002 13,937
----------------------
Net long-term assets $ 212,363 $ 194,602
======================
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. Revenue of AMIC was $114.9 million and
$129.6 million for the years ended December 31, 1999 and 1998, respectively. Net
interest expense allocated to AMIC's discontinued operations was $5.6 million
and $4.9 million for the years ended December 31, 1999 and 1998, 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 for the year ended December 31, 1998. Income
from discontinued operations includes allocated interest expense of $33.9
million for the year ended December 31, 1998. 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 Office Systems, 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 Office Systems' and AMIC's discontinued operations
have been separately classified in the Consolidated Balance Sheets at December
31, 2000 and 1999, respectively. 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:
2000 1999 1998
--------------------------------
Office Systems $64,104 $96,169 $ 99,363
AMIC -- 971 25,429
CPLC -- -- 8,453
--------------------------------
$64,104 $97,140 $133,245
================================
13 Commitments, contingencies and regulatory matters
The company's finance subsidiaries had no unfunded commitments to extend credit
to customers at December 31, 2000. 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 and other potentially responsible parties to evaluate
remediation options and to negotiate allocation of past and future remediation
costs. 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, 2000.
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 and
extent of remedial actions which may be required by
58
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 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 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. Leases or
rentals due to expire in 2000 can be extended to December 31, 2001.
In August 2000, the USPS also issued a proposal to cease placements of non-
digital, or letterpress, meters. New placements of non-digital meters with a
"timeout" feature that enables the meters to be automatically disabled, if not
reset within a specified time period are no longer permitted after December
2003. New placements of non-digital meters without the "timeout" feature are no
longer permitted after June 2001.
The company has submitted comments to the USPS's proposed schedules described
above. 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. The company is working with the USPS to meet the non-
digital meter phaseout schedule and is currently evaluating the potential
financial impact on the company.
As a result of the company's aggressive efforts to meet the USPS'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, 2000 and 1999, respectively. 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 would significantly enhance
postal revenue security and support 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, 2000, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In March 2000, 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. In September and October 2000, the USPS issued further proposed
regulations regarding postage evidencing systems using Information Based
Indicia, titled "Refunds and Exchanges" and "Production, Distribution and Use of
Postal Security Devices and Information-Based Indicia." The company has
submitted comments regarding those proposed regulations.
In March 2000, the company received approval from the USPS for the commercial
launch of the Internet version of a product which satisfies the proposed IBI
Performance Criteria, ClickStamp/TM/ Online.
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, 2000 are as follows:
Capital Operating
Years ending December 31 leases leases
-------------------
2001 $2,620 $ 51,369
2002 2,216 41,347
2003 1,858 28,438
2004 1,354 17,751
2005 424 11,266
Thereafter 113 34,087
------------------
Total minimum lease payments $8,585 $184,258
========
Less: Amount representing interest 2,214
-----
Present value of net minimum
lease payments $6,371
======
Rental expense was $103.5 million, $99.1 million and $109.2 million in 2000,
1999 and 1998, 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, Sweden
and Italy, as well as other financial services to the commercial and industrial
markets in the U.S.
59
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.
Condensed financial data for the consolidated finance operations follows:
Condensed summary of operations
Years ended December 31 2000 1999 1998
----------------------------------
Revenue $671,529 $667,757 $600,693
----------------------------------
Costs and expenses 220,479 244,019 184,213
Interest, net 126,728 132,913 139,845
----------------------------------
Total expenses 347,207 376,932 324,058
----------------------------------
Income before income taxes 324,322 290,825 276,635
Provision for income taxes 73,532 71,312 71,952
----------------------------------
Income from continuing operations 250,790 219,513 204,683
Income from discontinued
operations, net of income tax -- -- 8,453
Gain on sale of discontinued
operations, net of income tax -- 3,682 --
----------------------------------
Net income $250,790 $223,195 $213,136
==================================
Condensed balance sheet
December 31 2000 1999
-----------------------
Cash and cash equivalents $ 88,051 $ 142,782
Finance receivables, net 1,592,920 1,779,696
Accounts receivable 27,454 49,413
Other current assets and prepayments 106,309 98,292
-----------------------
Total current assets 1,814,734 2,070,183
Long-term finance receivables, net 1,980,876 1,907,431
Investment in leveraged leases 1,150,656 969,589
Other assets 1,248,246 588,678
-----------------------
Total assets $6,194,512 $5,535,881
=======================
Accounts payable and accrued liabilities $ 563,639 $ 491,036
Income taxes payable 203,549 179,948
Notes payable and current portion
of long-term obligations 1,404,412 933,823
-----------------------
Total current liabilities 2,171,600 1,604,807
Deferred taxes on income 423,662 379,141
Long-term debt 1,914,989 2,030,551
Other noncurrent liabilities 777 777
-----------------------
Total liabilities 4,511,028 4,015,276
Equity 1,683,484 1,520,605
-----------------------
Total liabilities and equity $6,194,512 $5,535,881
=======================
Finance receivables are generally due in monthly, quarterly or semiannual
installments over periods ranging from three to 15 years. In addition, 4% of the
company's net finance assets represent secured commercial and private jet
aircraft transactions with lease terms ranging from six to 24 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
---------------------------------------
2001 $1,891,942 $1,404,412
2002 896,779 201,825
2003 592,393 536,394
2004 310,872 102,621
2005 118,196 2,825
Thereafter 223,206 1,071,324
---------------------------------------
Total $4,033,388 $3,319,401
=======================================
Finance operations' net purchases of Pitney Bowes equipment amounted to $698.7
million, $694.8 million and $653.0 million in 2000, 1999 and 1998, respectively.
The components of net finance receivables were as follows:
December 31 2000 1999
-----------------------
Gross finance receivables $4,033,388 $4,091,816
Residual valuation 447,271 498,386
Initial direct cost deferred 53,243 53,439
Allowance for credit losses (97,351) (104,721)
Unearned income (862,755) (851,793)
-----------------------
Net finance receivables $3,573,796 $3,687,127
=======================
The company's net investment in leveraged leases is composed of the following
elements:
December 31 2000 1999
-----------------------
Net rents receivable $1,277,024 $1,169,114
Unguaranteed residual valuation 748,994 623,003
Unearned income (875,362) (822,528)
-----------------------
Investment in leveraged leases 1,150,656 969,589
Deferred taxes arising from
leveraged leases (702,194) (611,717)
-----------------------
Net investment in leveraged leases $ 448,462 $ 357,872
=======================
60
Following is a summary of the components of income from leveraged leases:
Years ended December 31 2000 1999 1998
-------------------------------
Pretax leveraged lease income $39,806 $35,954 $20,671
Income tax effect (3,019) 5,761 9,990
-------------------------------
Income from leveraged leases $36,787 $41,715 $30,661
===============================
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 $316.4 million related to commercial real
estate facilities, with original lease terms ranging from 17 to 25 years, $302.4
million for ten aircraft transactions with major commercial airlines, with
original lease terms ranging from 22 to 25 years and $228.8 million for rail and
bus facilities with original lease terms ranging from 32 to 44 years. Also
included are transactions involving locomotives, railcars and postal and
telecommunications equipment, with a total investment of $303.0 million and
original lease terms ranging from 15 to 38 years.
The company has sold net finance receivables with varying amounts of recourse in
privately placed transactions with third-party investors. The uncollected
principal balance of receivables sold and guarantee contracts totaled $458.5
million and $571.8 million at December 31, 2000 and 1999, 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, 2000 and 1999 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 33. 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 1998 to 2000 were as follows:
Revenue
------------------------------
(Dollars in millions) 2000 1999 1998
------------------------------
Business segments:
Global Mailing $2,836 $2,799 $2,557
Enterprise Solutions 862 803 742
------------------------------
Total Messaging Solutions 3,698 3,602 3,299
Capital Services 183 210 200
------------------------------
Total $3,881 $3,812 $3,499
==============================
Geographic areas:
United States $3,234 $3,201 $2,937
Outside the
United States 647 611 562
------------------------------
Total $3,881 $3,812 $3,499
==============================
Operating Profit
------------------------------
(Dollars in millions) 2000 1999 1998
------------------------------
Business segments:
Global Mailing $847 $790 $653
Enterprise Solutions 73 52 47
-----------------------------
Total Messaging Solutions 920 842 700
Capital Services 62 65 66
-----------------------------
Total $982 $907 $766
=============================
Geographic areas:
United States $862 $803 $687
Outside the
United States 120 104 79
-----------------------------
$982 $907 $766
=============================
61
Additional segment information is as follows:
Years ended December 31
-----------------------------
(Dollars in millions) 2000 1999 1998
-----------------------------
Depreciation and
amortization:
Global Mailing $ 187 $ 180 $ 179
Enterprise Solutions 30 31 26
-----------------------------
Total Messaging Solutions 217 211 205
Capital Services 17 33 17
-----------------------------
Total $ 234 $ 244 $ 222
=============================
Net interest expense:
Global Mailing $ 54 $ 72 $ 62
Enterprise Solutions 1 1 1
-----------------------------
Total Messaging Solutions 55 73 63
Capital Services 71 60 77
-----------------------------
Total $ 126 $ 133 $ 140
=============================
Net additions to
long-lived assets:
Global Mailing $ 171 $ 166 $ 178
Enterprise Solutions 45 28 23
-----------------------------
Total Messaging Solutions 216 194 201
Capital Services (23) 7 17
-----------------------------
Total $ 193 $ 201 $ 218
=============================
December 31
------------------
(Dollars in millions) 2000 1999
------------------
Identifiable assets:
Global Mailing $3,299 $4,277
Enterprise Solutions 439 364
------------------
Total Messaging Solutions 3,738 4,641
Capital Services 3,066 2,188
------------------
Total $6,804 $6,829
==================
Identifiable long-lived assets by
geographic areas:
United States $1,372 $1,389
Outside the United States 179 215
------------------
Total $1,551 $1,604
==================
Reconciliation of segment amounts to consolidated totals:
Years ended December 31
-----------------------------
(Dollars in millions) 2000 1999 1998
-----------------------------
Operating profit:
Total operating profit for
reportable segments $ 982 $ 907 $ 766
Unallocated amounts:
Net interest (corporate
interest expense, net of
intercompany transactions) (66) (38) (11)
Corporate expense (94) (95) (96)
IT reorganization charge (19) -- --
USPS Settlement -- 50 --
-----------------------------
Income from continuing
operations before
income taxes $ 803 $ 824 $ 659
=============================
Net interest expense:
Total interest expense for
reportable segments $ 126 $ 133 $ 140
Net interest (corporate
interest expense, net
of intercompany
transactions) 66 38 11
-----------------------------
Consolidated net interest
expense $ 192 $ 171 $ 151
=============================
Depreciation and
amortization:
Total depreciation and
amortization for
reportable segments $ 234 $ 244 $ 222
Corporate depreciation 13 13 14
Discontinued operations 74 155 125
-----------------------------
Consolidated depreciation
and amortization $ 321 $ 412 $ 361
=============================
Net additions to
long-lived assets:
Total additions for
reportable segments $ 193 $ 201 $ 218
Unallocated amounts 24 10 6
Discontinued operations 89 105 101
-----------------------------
Consolidated additions to
long-lived assets $ 306 $ 316 $ 325
=============================
62
December 31
------------------
(Dollars in millions) 2000 1999
------------------
Total assets:
Total identifiable assets
by reportable segments $6,804 $6,829
Cash and cash equivalents and
short-term investments 214 257
General corporate assets 478 217
Discontinued operations 405 920
------------------
Consolidated assets $7,901 $8,223
==================
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.
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,
2000 is as follows:
Carrying Fair
value/(a)/ value
----------------------------
Investment securities $ 18,356 $ 18,921
Loans receivable $ 394,241 $ 405,288
Long-term debt $(2,395,995) $(2,416,755)
Interest rate swaps $ (632) $ 9,687
Foreign currency
exchange contracts $ 270 $ (3,717)
Transfer of receivables with
recourse $ (33,129) $ (33,129)
-----------------------------
/(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,
1999 is as follows:
Carrying Fair
value/(a)/ value
----------------------------
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.
63
18 Quarterly financial data (unaudited)
Summarized quarterly financial data (dollars in millions, except for per share
data) for 2000 and 1999 follows:
Three Months Ended
------------------------------------------------------
2000 March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------
Total revenue $ 945 $ 998 $ 960 $ 978
Cost of sales and rentals
and financing $ 358 $ 376 $ 351 $ 363
Income from continuing
operations $ 134 $ 146 $ 145 $ 138
Discontinued operations 18 20 16 10
Cumulative effect of
accounting change (5) -- -- --
------------------------------------------------------
Net income $ 147 $ 166 $ 161 $ 148
======================================================
Basic earnings per share:
Continuing operations $ .51 $ .57 $ .57 $ .55
Discontinued operations .07 .07 .06 .04
Cumulative effect of
accounting change (.02) -- -- --
------------------------------------------------------
Net income $ .56 $ .64 $ .63 $ .59
======================================================
Diluted earnings per share:
Continuing operations $ .50 $ .56 $ .57 $ .55
Discontinued operations .07 .08 .06 .04
Cumulative effect of
accounting change (.02) -- -- --
------------------------------------------------------
Net income $ .55 $ .64 $ .63 $ .59
======================================================
Three Months Ended
-----------------------------------------------------
1999 March 31 June 30 Sept. 30 Dec. 31
-----------------------------------------------------
Total revenue $ 897 $ 951 $ 937 $ 1,026
Cost of sales and rentals
and financing $ 354 $ 371 $ 363 $ 380
Income from continuing
operations $ 114 $ 133 $ 163 $ 153
Discontinued operations 28 (3) 23 25
-----------------------------------------------------
Net income $ 142 $ 130 $ 186 $ 178
======================================================
Basic earnings per share:
Continuing operations $ .42 $ .49 $ .61 $ .58
Discontinued operations .11 (.01) .09 .09
-----------------------------------------------------
Net income $ .53 $ .48 $ .70 $ .67
======================================================
Diluted earnings per share:
Continuing operations $ .42 $ .49 $ .60 $ .57
Discontinued operations .10 (.01) .09 .09
-----------------------------------------------------
Net income $ .52 $ .48 $ .69 $ .66
======================================================
The sum of the quarters of 2000 and 1999 may not equal the annual amount due to
rounding.
64
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 of America 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 our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 22, 2001
65
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 2001 Annual Meeting at 9:00
a.m., Monday, May 14, 2001, at Pitney Bowes World Headquarters in Stamford,
Connecticut. Notice of the meeting and proxy information will be mailed to
stockholders of record as of March 16, 2001.
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:
First Chicago Trust Company of New York,
a division of EquiServe LP
PO Box 2500
Jersey City, NJ 07303-2500
Stockholders may call EquiServe at (800) 648-8170.
www.equiserve.com
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 call (800) 648-8170 or write to the agent at the address above.
Stock Information
Dividends per common share
Quarter 2000 1999
- -------------------------------------------------------------
First $ .285 $ .255
Second .285 .255
Third .285 .255
Fourth .285 .255
- -------------------------------------------------------------
Total $ 1.140 $ 1.020
=============================================================
Quarterly price ranges of common stock
2000
Quarter High Low
- -----------------------------------------------------------------
First 54 1/8 41
Second 47 35 5/8
Third 40 7/16 33 3/4
Fourth 39 3/8 24
1999
Quarter High Low
- -----------------------------------------------------------------
First 71 3/16 60 1/16
Second 73 5/16 61 9/16
Third 72 1/2 55 3/4
Fourth 63 13/16 40 7/8
Trademarks
ClickStamp, Paragon, and Postage By Phone are all registered trademarks of
Pitney Bowes Inc.
4 Series, 5 Series, AddressRight, Conquest, D3, DM200, DM300, Insite,
IntelliLink, PBShip, PB Supplies Online, and SmartMailer are all trademarks or
service marks of Pitney Bowes Inc.
Business Rewards, Postal Privilege and Purchase Power are registered
trademarks or service marks of Pitney Bowes Financial Services. PitneyWorks is a
service mark of Pitney Bowes Financial Services.
All other trademarks or service marks are owned by their respective companies.
66
EXHIBIT (iv)
------------
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, 2000)
Country or
state of
Company name incorporation
- ------------ -------------
Adrema Leasing Corporation Delaware
Adrema Maschinen - und - Auto Leasing GmbH Germany
Adrema Maschinenbau Inc. Delaware
Andeen Enterprises, Inc. Panama
Artec International Corporation California
AS Frankering Norway
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, NV Netherlands
Elmcroft Road Realty Corporation Connecticut
FSL Holdings Inc. Connecticut
FSL Risk Managers Inc. New York
Harlow Aircraft Inc. Delaware
Informatech Inc. California
La Agricultora Ecuatoriana S.A. Ecuador
Lease Continental GmbH Germany
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 June Ltd. England
PB Leasing March Ltd. England
PB Leasing September Ltd. England
PB Leasing Services Inc. Nevada
EXHIBIT (iv)
------------
Page 2 of 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
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 Delaware
PB CFSC I Inc. Virgin Islands
PB Nikko FSC Ltd. Bermuda
PB Nihon FSC Ltd. Bermuda
PBG Holdings Inc. Delaware
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 Global Limited England
Pitney Bowes Holdings Ltd. England
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 (Ireland) Limited Ireland
Pitney Bowes (Macau) Limited Macau
Pitney Bowes Mail and Messaging Systems
(Shanghai) Co Ltd. Shanghai
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
EXHIBIT (iv)
------------
Page 3 of 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
Pitney Bowes Limited England
Pitney Bowes Properties Inc. Connecticut
Pitney Bowes Real Estate Financing Corporation Delaware
Pitney Bowes SA (Pty) Ltd. South Africa
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 (Thailand) Limited Thailand
Pitney Bowes World Trade Corporation Virgin Islands
Pitney Structured Funding I Inc. Delaware
Pitney B2B Capital.com Inc. Delaware
PitneyWorks.com Inc. Delaware
PitneyWorks.com L.L.C. Delaware
PitneyWorks.com Connecticut Inc. Connecticut
PREFCO I LP Inc. Delaware
PREFCO II SPE Inc. Delaware
PREFCO II Inc. Delaware
PREFCO III LP Inc. Delaware
PREFCO IV LP 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 LP Inc. Delaware
PREFCO IX LP Inc. Delaware
PREFCO XI LP Inc. Delaware
PREFCO XII LP Inc. Delaware
PREFCO XIII Inc. Delaware
PREFCO XIII LP Inc. Delaware
PREFCO XIV LP 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 LP Inc. Delaware
PREFCO XIX LP Inc. Delaware
PREFCO XXI Inc. Delaware
EXHIBIT (iv)
------------
Page 4 of 4
SUBSIDIARIES OF THE REGISTRANT (continued)
- ------------------------------
Country or
state of
Company name incorporation
- ------------ -------------
PREFCO XXI LP Inc. Delaware
PREFCO XXII Inc. Delaware
PREFCO XXII LP Inc. Delaware
PREFCO XXIV Inc. Delaware
PREFCO - Dayton Community Urban Redevelopment Corporation Ohio
PREFCO Twelve Holdings Inc. Delaware
Remington Customer Finance Pty. Limited Australia
ROM Holding Pty. Limited Australia
ROM Securities Pty. Limited Australia
Sales & Service Training Center Inc. Georgia
SIG - GP, L.L.C. Delaware
Techno Mail Service K.K. Japan
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
EXHIBIT (v)
-----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on:
Form Reference
---- ---------
Form S-8 No. 33-5291
Form S-8 No. 33-4549
Form S-8 No. 33-22238
Form S-8 No. 33-5765
Form S-8 No. 33-41182
Form S-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
of Pitney Bowes Inc. of our report dated January 22, 2001 appearing on page 65
of the Pitney Bowes Inc. 2000 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 19 of this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 26, 2001
Exhibit (vi)
------------
October 27, 2000
Marc C. Breslawsky
RE: Letter of Agreement
Dear Marc:
This letter agreement is intended to set forth the commitments Pitney Bowes (the
"Company") intends to undertake if the Company both establishes a new legal
entity to operate the majority of the Company's existing Office Systems Division
business (the "Business") and spins off the Business in a separate transaction
to be determined in the future. For purposes of this Agreement, the spin-off
Business shall be referred to as "Spinco."
The Company shall offer you the position of Chief Executive Officer of Spinco.
During your employment with the Company, you agree to perform the duties of
Chief Executive Officer of Spinco in addition to your duties of Chief Operating
Officer of the Company without any additional compensation. Immediately prior to
the spin off of the Business in a separate transaction, you will assume the
duties of the Chief Executive Officer of Spinco on a full-time basis and your
compensation, benefits and incentive package as the full-time Chief Executive
Officer of Spinco shall be as follows:
1. Salary. Your annual salary shall be $825,000.
2. Annual Incentive. You will be eligible to participate in Spinco's
annual incentive compensation program. For the first full fiscal year
of your employment, you shall be entitled to a minimum incentive award
of $577,500, the equivalent of 70% of your salary, and a maximum award
of $1,072,500, the equivalent of 130% of your salary, depending upon
the achievement of performance targets established by Spinco's Board
of Directors.
3. Long-Term Incentive. You shall be eligible to participate in Spinco's
Long-Term Incentive Plan. You shall be eligible for a minimum award of
$625,000 and a maximum of award $1,250,000, depending upon Spinco's
achievement of performance goals established by the Board of Directors
of Spinco for multi-year cycles.
The payment shall be made at the end of each performance cycle in
accordance with the terms of the plan.
4. Equity. You may be granted stock options in Spinco at the discretion
of Spinco's Board of Directors.
5. Benefits. During the period of your employment, you shall be eligible
to participate in Spinco's benefits programs which are made available
to Spinco employees of equal status.
6. Welfare Benefits. During your employment, you and your eligible
dependents shall be eligible to participate in Spinco's group medical
and dental plans which are made available to Spinco employees of equal
status.
You understand and agree that immediately prior to the spin-off, the terms and
conditions of your employment with Spinco may be reflected in a formal written
document, which would contain the compensation terms herein and would be subject
to the approval of the Spinco Board following the spin-off. In the event the
Business is not spun-off, this agreement imposes no further independent
obligations upon the Company with respect to your employment or termination of
employment by the Company.
This agreement shall be effective as of the date you sign the agreement and
shall continue in effect until you are notified in writing by me that the
agreement ceases to be effective as of a date I shall specify in the notice.
Sincerely,
Michael J. Critelli
Chairman and
Chief Executive Officer
Agreed to and Accepted by:
______________________
Marc C. Breslawsky
______________________
DATE
2
Exhibit (vii)
-------------
October 27, 2000
Marc C. Breslawsky
RE: Separation Agreement
Dear Marc:
This letter is intended to provide you with the Company's understanding of how
the Separation Agreement between you and the Company dated October 27, 2000 (the
"Separation Agreement") will affect certain employee and executive benefit and
incentive plans and programs in which you participate if you incur a termination
of employment pursuant to the Separation Agreement. This letter will also serve
as the Company's commitment to administer these plans and programs in the manner
set forth below. The defined terms in this letter have the meanings that are
contained in the Separation Agreement unless a term is more specifically defined
in this Agreement.
Stock Options
- -------------
As of the Resignation Date, all outstanding stock options granted to you prior
to October 20, 2000 pursuant to the Company's 1991 Stock Plan or any successor
plan shall remain exercisable in accordance with their existing terms. Such
options shall expire on their stated expiration date; provided, however, options
granted prior to 1999 will expire on the earlier of (i) the fourth anniversary
of your termination from the Company or any company that is a spin-off of the
Company, as defined in the 1991 Stock Plan (a "Spin Off"), whichever occurs
later, and (ii) their original term.
The special option granted on October 20, 2000 ("Accelerated Option Grant")
shall vest and be exercisable in accordance with the terms and conditions set
forth in your award agreement. Such terms shall include a provision requiring
the forfeiture of the entire Accelerated Option Grant if you retire or
voluntarily resign from the Company or the Spin Off, prior to February 1, 2002.
If you retire or voluntarily resign from the Company or the Spin-off on or after
February 1, 2002, the Accelerated Option Grant shall become immediately 100%
vested and exercisable as of such retirement or voluntary resignation.
If you are terminated pursuant to Section 3 of the Separation Agreement prior to
February 1, 2002, the entire Accelerated Option Grant shall be immediately 100%
vested and exercisable as of the date of such termination. For purposes of the
1991 Stock Plan and options granted to you thereunder, your termination of
employment from the Company as a result of your employment with the Spin Off
shall not be treated as a retirement or other termination of employment from the
Company. The 1991 Stock Plan will be amended to reflect the terms and
conditions of the Accelerated Option Grant and other commitments described
herein, including the retirement, termination of employment, vesting and
exercise treatment with respect to the Spin Off.
The treatment of your stock options following the execution of the Separation
Agreement do not differ from that of any similarly situated executive of the
Company.
Deferred Incentive Savings Plan
- -------------------------------
The Company will pay you as soon as practicable following the Resignation Date a
lump sum amount in cash equal to the balance of your accounts under the Deferred
Incentive Savings Plan pursuant to the payment provisions of the plan.
Retirement Plans
- ----------------
The Company will treat your retirement plan benefits in the following manner:
(a) 401(k) Plan
As of the Resignation Date, your participation in and contributions to the
Pitney Bowes 401(k) Plan ("401(k) Plan") will cease. Your rights to a
distribution, rollover, forms of payment and deferral regarding your account
balance will be determined in accordance with the terms of the 401(k) Plan.
(b) Pension Plan
You will be credited during your Severance Period with service through March 31,
2004 in lieu of actual years of service with the Company for all purposes under
the Pitney Bowes Pension Plan, including determining your basic pension benefit
and any transition credits to which you may be entitled under the Pension Plan.
Your severance payment under Section 3 of the Separation Agreement and any PBC
incentive award under Section 4(a) of the Separation Agreement will be credited
as pensionable earnings. Any CIU payment made under Section 4(b) of the
Separation Agreement will not be credited as pensionable earnings in accordance
with the plan's existing provisions. If, after providing the service credit and
determining pensionable earnings as described in the preceding sentences, your
pension benefit under the Pension Plan exceeds the limits imposed by the plan
and applicable law, the excess amounts will be paid from the Pitney Bowes
Supplemental Pension Plan ("SERP"). If your employment with the Company
continues beyond March 31, 2004, you will continue to accrue pension benefits in
accordance with the terms and conditions of the Pension Plan and SERP.
2
The determination and payment of your pension benefits under the Pension Plan
and the SERP remain in all respects subject to the terms and conditions of the
respective plans.
Sincerely,
Michael J. Critelli
Chief Executive Officer
AGREED TO AND ACCEPTED BY
__________________________
Marc C. Breslawsky
__________________________
Date
3
Exhibit (viii)
--------------
SEPARATION AGREEMENT
AGREEMENT dated as of October 27, 2000 between Pitney Bowes Inc., a
Delaware corporation (the "Company"), and Marc C. Breslawsky ("the Executive").
WHEREAS, Marc C. Breslawsky is a valued executive of the Company;
WHEREAS, the Company considers it essential to the best interests of its
shareholders to provide the Company and the Executive with the protections of
this Agreement; and
WHEREAS, the parties desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
SECTION 1 Definitions
For purposes of this Agreement, the following terms shall have the meanings
indicated.
"Board" means the Board of Directors of the Company.
"Cause" means (i) the Executive's conviction or plea of guilty or nolo
contendere to a felony or crime involving moral turpitude, dishonesty, breach of
trust or unethical business conduct or any crime involving the business of the
Company; (ii) the Executive, in the performance of his duties for the Company,
to the material and demonstrable detriment of the Company, engaging in (A)
willful misconduct, (B) willful or gross neglect, (C) fraud, (D)
misappropriation, (E) embezzlement or (F) theft; (iii) the Executive's willfully
disobeying the directions of the Board to adhere to the policies and practices
of the Company or to devote substantially all of his business time and effort to
the Company; (iv) the breach of this Agreement in any material respect, if such
breach remains uncured (if curable) for a period of thirty (30) days following
written notice by the Company of such breach; or (v) the Executive's
acknowledgment in writing in any agreement or stipulation to, or the
adjudication in, any civil suit, of the commission of any theft, embezzlement,
fraud, or other intentional act of dishonesty involving any other person. No act
or failure to act on the Executive's part shall be deemed willful unless done or
omitted to be done by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Company.
"Resignation Date" means the date that the Executive terminates employment
with the Company at the Company's request in its sole discretion and resigns
from all positions and directorships within the Company, including, but not
limited to, a termination of employment with the Company as a result of
employment with a division or subsidiary that
has been divested, spun-off, split-off, or sold by the Company ("the Divested
Entity").
SECTION 2 Term of Agreement
This Agreement shall be in effect from the date hereof.
SECTION 3 Severance
(a) If the Executive's employment with the Company is terminated by the
Company at its request in its sole discretion without Cause (other than by
reason of disability or death), the Company shall pay the Executive cash
compensation in the amount of $2,805,000, which is equal to the sum of two (2)
times his current base salary plus 140% of his base salary. If the Executive's
employment is terminated hereunder prior to April 1, 2002, the payment shall be
made in equal monthly installments over the period from the Resignation Date
through March 31, 2004. If the Executive's employment is terminated hereunder on
or after April 1, 2002, the payment shall be made in equal monthly installments
over a two year period beginning on the Resignation Date. The period during
which the payment hereunder is made shall be referred to in this Agreement as
the (the "Severance Period").
(b) The severance payments to be made under this Section 3 shall be in
lieu of any severance pay to which the Executive may otherwise be entitled under
the Company's severance plans and practices; provided, however, that in the
event of a change of control of the Company the Executive may be entitled to
certain rights that exist under the Company's Senior Executive Severance Policy,
which rights would be offset by the severance payments made to the Executive
under Section 3 hereof.
SECTION 4 Other Incentives
(a) The Executive shall be eligible for a pro-rated PBC incentive award
pursuant to the Company's Key Employee Incentive Plan ("the KEIP") based on the
number of whole months of service completed with the Company by the Executive
during the year in which the Resignation Date occurs. The payment shall be made
at the time such incentive awards are paid to actively employed senior
executives in accordance with the terms of the KEIP. It is understood that the
Executive has no entitlement to the PBC incentive award described hereunder and
that the determination to pay the Executive such PBC incentive award is made at
the sole discretion of the Board with the Executive's individual performance
rating being based on the Company's overall performance rating.
(b) The Company shall pay the Executive a payout of outstanding Cash
Incentive Units ("CIUs") pursuant to the KEIP at the close of each respective
cycle in accordance with the terms of the KEIP; provided, however, that such
payout of CIUs shall be based on the Executive's total number of completed
months of active service with the Company during each 36 month CIU cycle and on
the achievement of performance-based targets associated with the CIUs. For
purposes of this prorated calculation, the targeted payout shall be
2
multiplied by a fraction, the numerator of which is the Executive's total number
of completed months of active service with the Company during the particular CIU
cycle and the denominator of which is 36.
(c) Any payments made under this Section 4 shall be in lieu of any
incentive pay to which the Executive may otherwise be entitled under the KEIP
and any practice or policy of the Company for the year in which occurs the
Resignation Date with respect to short and long term incentives.
SECTION 5 Medical and Dental
(a) As of the Resignation Date, the Executive and his eligible dependents
may at his option elect to continue to participate in the Company's group
medical and dental plans (or any successor medical or dental plans adopted by
the Company) (collectively, "Medical Plans") during the period commencing on the
Resignation Date and ending on the last day of the Severance Period on the same
terms applicable from time to time to active employees. The Executive may at his
option elect to terminate participation in the active employee plans and
commence participation in the retiree medical and dental plans following the
Resignation Date. The Executive understands that although he and his eligible
dependents may continue to participate in the Company's Medical Plans, the
Company reserves the right to change carriers, modify plan designs and pricing
and make such other changes to the Medical Plans and policies as may be
appropriate from a business standpoint or as otherwise be required by law.
(b) Upon the Executive's retirement, the Executive and his eligible
dependents shall be eligible for coverage under the Company's retiree group
medical and dental plans, in accordance with the terms of such plans as of that
date. The Company reserves the right to amend future plan design and active
employee contribution rates, as warranted under the circumstances.
(c) As of the Resignation Date, the Executive's coverage under the
Company's disability plans, including long and short-term disability insurance
and Accidental Death & Dismemberment insurance, shall cease.
SECTION 6 Perquisites
(a) As of the Resignation Date, the Executive shall be entitled to retain
the automobile he leases pursuant to his Lease Agreement. Upon the termination
of the Lease Agreement, the Executive may exercise the option to purchase the
automobile.
(b) The Executive shall be provided at the Company's sole expense with
professional financial counseling services for a period of 12 months following
the Resignation Date, subject to reasonable limitations as to dollar amounts
established by the Company on a uniform basis for similarly situated executives.
3
(c) Any payments made under this Section 6 shall be in lieu of any other
perquisites to which the Executive may otherwise be entitled under the programs,
plans, practices or policies of the Company following the Resignation Date with
respect to automobile leasing and financial counseling services.
SECTION 7 Covenants
(a) Confidentiality. The Executive will at all times (whether during or
after his employment with the Company) hold all Confidential Information in
strictest confidence and not use or disclose directly or indirectly any
Confidential Information to any individual, partnership, corporation, limited
liability company, trust or other entity (each, a "Person"), without prior
written authorization of the Board. "Confidential Information" means any
Company proprietary information, technical data, trade secrets and know-how,
including but not limited to research, product plans, products, services,
customer lists and customers (including but not limited to customers of the
Company on whom the Executive called or with whom the Executive became
acquainted during his employment), markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances and other business information
disclosed to the Executive by the Company either directly or indirectly in
writing, orally or by drawings or observation or generated by the Executive
during his employment with the Company. The Executive further understands that
Confidential Information does not include any of the foregoing items which has
become publicly known and made generally available through no wrongful act of
his or of others who were under confidentiality obligations as to the item or
items involved.
The definition of Confidential Information will be modified at the sole
discretion of the Company in the event of any decision by the Company to exit a
business by divestiture or otherwise or to enter or expand into a new area of
business between the effective date of this Agreement and the Resignation Date,
and shall be subject to any transition agreements executed by the Company
pursuant to the divestiture or other transaction.
(b) Non-Competition. At all times during his employment and for two years
following the termination of such employment either pursuant to Section 3 hereof
or for Cause, the Executive will not, without the prior approval of the Company:
(i) become engaged or become interested, directly or indirectly, as a
director, officer, employee or 10% or more stockholder of, partner in, or
consultant to, any business which is engaged in the development,
manufacture, or distribution of copier equipment, facsimile equipment,
desktop or network printers, mail finishing or sorting equipment, including
production mail or postage meters, shipping and logistics equipment, or
software and services or supplies which are used in mailing and shipping
functions and which are competitive with categories of equipment, firmware,
software, or supplies manufactured or distributed by the Company or any of
4
its subsidiaries for the functions described above, or identified for
introduction into the marketplace up through the strategy most recently
approved by senior management which incorporates Mailing Systems,
PitneyWorks (including internet postage and personal computer based
applications and the other products and services offered within
PitneyWorks' suite of products and services), Small Office Division,
Office Systems or Production Mail capabilities. For Mailing Systems and
Production Mail purposes, these systems include both in-bound and out-bound
mail and physical and hybrid mail; or
(ii) become engaged in or become interested directly or indirectly, own or
control more than 10% ownership, interest in, manage, operate, be employed
by or participate in the ownership, management, operation or control of or
be connected in any manner as a consultant or otherwise with any business
which provides sales-aid leasing for any competitor of the Company; or
(iii) become engaged in or become interested directly or indirectly, own or
control more than 10% ownership, interest in, manage, operate, be employed
by or participate in the ownership, management, operation or control of or
be connected in any manner as a consultant or otherwise with any business
which provides facilities management services, document services, incoming
mail services, EDP to mail service, mail management services, copying or
reprographic services, or any combination of the same, which are in
competition with Pitney Bowes Business Services, or any type of services
the Company is currently providing or identified for introduction through
any of its latest strategic plans.
The definition of what is competitive with the Company's businesses will be
modified at the sole discretion of the Company in the event of any decision by
the Company to exit a business by divestiture or otherwise or to enter or expand
into a new area of business between the effective date of this Agreement and the
Resignation Date, and shall be subject to any transition agreements executed by
the Company pursuant to the divestiture or other transaction. Further, the
Executive may request the Company's approval to become engaged in or become
interested in a competitor that is deemed insignificant by the Company and the
decision to deny or approve such request shall be made by the Company in its
sole discretion.
Notwithstanding anything to the contrary in this Section 7(b), the
definition of what is competitive with the Company's business shall not include
any business in which Office Systems is engaged, specifically the development,
manufacture, or distribution of copier equipment (but excluding copying or
reprographic services other than those services necessary to support the
distribution, installation and servicing of copy machines), facsimile equipment
or desktop or network printers, if the Company spins off or otherwise divests
such businesses. For purposes of the preceding sentence, distribution shall
include sales, leasing and rental of such machines. This definition shall be
subject to
5
any transition agreements executed in connection with the divestiture. In any
event, the definition and exclusion of what is competitive shall exclude Capital
Services.
If the Executive is an officer or director or 10% or more stockholder of a
Divested Entity and if the Divested Entity continues to receive products or
services marketed by the Company for an agreed-upon period of time pursuant to
transition agreements executed pursuant to the divestiture, the Executive may
obtain comparable products and services from one or more competitors of the
Company after the termination of any agreements with the Company relating to
said products and services, provided that the agreements have not been
terminated by the Company as a result of a breach of said agreements by the
Divested Entity. However, if during the term of any transition agreements with
the Company, the Executive is unable to obtain such products and services from
the Company because the Company is unwilling pursuant to the transition
agreements to provide such products and services, the Executive may procure
such products and services from sources other than the Company prior to
termination of the transition agreements.
(c) Non-Solicitation of Key Employees. At all times during his employment
and for two years following the termination of such employment for any reason,
whether with or without Cause, the Executive shall not directly or indirectly
solicit, entice, or encourage any Key Employee, as identified or described in
Exhibit A to this Agreement, to terminate his or her relationship with the
Company, and work for an organization as an employee, partner, or consultant or
10% or more shareholder with which the Executive is affiliated as a director,
employee, consultant, partner or 10% shareholder. Nothing contained in the
foregoing shall preclude the Executive during the Severance Period from hiring
any Key Employee as an employee, partner, or consultant or 10% or more
shareholder not earlier than 180 days after the termination of the Key
Employee's employment with the Company, provided such person terminated his or
her employment without any solicitation, enticement or encouragement directly or
indirectly from the Executive to terminate any employment with the Company and
without violation by the Executive of his obligations contained in the preceding
sentence. Notwithstanding the above, the Executive may solicit Key Employees
with the Company's written consent.
(d) Non-Solicitation of Customers. At all times during his employment and
for two years following the termination of such employment for any reason,
whether with or without Cause, the Executive will not directly or indirectly
solicit, divert or take away, or attempt to divert or to take away, the business
or patronage of any of the customers or accounts, or prospective customers or
accounts, of the Company. The definition of "customers" or "prospective
customers" herein will be modified at the sole discretion of the Company in the
event of any decision by the Company to exit a business by divestiture or
otherwise or to enter or expand into a new area of business between the
effective date
6
of this Agreement and the Resignation Date, and shall be subject to any
transition agreements executed by the Company pursuant to the divestiture or
other transaction.
(e) Non-Disparagement. At all times during his employment with the
Company and thereafter, the Executive and, to the extent set forth in the next
sentence, the Company agree that each party will not knowingly make any
statement, written or oral, which disparages or is derogatory to the other party
in any communications with any customer or client or in any communications made
in a public manner. The Company's obligations under the preceding sentence
shall be limited to communications by its senior corporate executives.
(f) Cooperation. At any time on or after the Resignation Date, the
Executive agrees to cooperate fully with the Company and to provide such
information as the Company may reasonably request with respect to any Company-
related transaction, investment or other matter in which the Executive was
involved in any way while employed by the Company.
SECTION 8 Remedies
(a) The Executive acknowledges and agrees that the Company's remedies at
law for a breach or threatened breach of any of the provisions of Section 7
hereof would be inadequate and, in recognition of this fact, the Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
seek equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available.
(b) Notwithstanding any provision of this Agreement to the contrary, from
and after any breach by the Executive of the provisions of Section 7 hereof, the
Company shall provide written notice to the Executive of such breach. If the
Executive fails to correct his violation within 90 days, the Company shall cease
to have any obligations to make payments or provide benefits to the Executive
under this Agreement. The Executive also agrees to return to the Company the
full value of any compensation and benefits provided to the Executive while he
was in violation of any of the provisions in Section 7 hereof, and to compensate
the Company for any actual economic damages suffered by the Company as a result
of a breach of any of the provisions of Section 7 hereof.
(c) It is expressly understood and agreed that the Executive and the
Company consider the restrictions contained in Section 7 hereof to be
reasonable. If a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Agreement is an unenforceable restriction against the Executive, the
provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
7
Alternatively, if the final decision of any tribunal of competent jurisdiction
determines that a particular restriction contained herein is unenforceable, and
such restriction cannot be amended so as to make it enforceable, such finding
shall not affect the enforceability of any of the other restrictions contained
herein.
SECTION 9 Release and Waiver of Claims
(a) It is understood and agreed that as a condition to the Executive's
becoming entitled to any payments or benefits under this Agreement, the
Executive agrees to execute on his Resignation Date a written release and waiver
of claims in which he releases and discharges the Company from
(i) any and all charges, claims and causes of action arising, directly or
indirectly, out of his employment or the termination or his employment with the
Company, including but not limited to any claims involving tortious course of
conduct, breach of contract, defamation and public policy, claims for wages and
benefits, monetary and equitable release, punitive or compensatory damages,
outrage, outrageous conduct, fraud, promissory estoppel, negligence, intentional
or negligent infliction of mental or emotional distress, breach of promise, and
breach of the covenant of good faith and fair dealing; and
(ii) any and all charges, claims and causes or action he may have under
Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in
Employment Act of 1967, as amended; the National Labor Relations Act, as
amended; the Civil Rights Act of 1991, as amended; 42 U. S. C. 1981, as amended;
the Americans with Disability Act of 1990; the Family and Medical Leave Act; the
Connecticut Fair Employment Practices Act, as amended; the Employee Retirement
Income Security Act of 1974, as amended; and various state and local human
rights laws of contract and tort, otherwise relating to his employment at the
Company
(b) The release and waiver referred to herein shall not apply to the
Executive's rights under the Company's benefit plans and Workers' Compensation
laws, rights under the provisions of this Agreement and the rights more fully
described in the attached letter agreement between the Company and the Executive
setting forth the mutual understanding of how the Company will administer
certain employee benefit and incentive plans and programs as to the Executive.
The release and waiver shall be effective with respect to the Company, its
subsidiaries, affiliates and divisions and their respective successors and
assigns ("Affiliates"), the directors, officers, representatives, shareholders,
agents, employees of the Company and the Affiliates, and their respective heirs
and personal representatives. It is agreed and understood that following the
Executive's termination of employment pursuant to Section 3 hereof, the payments
and benefits described under this Agreement shall not be required to be paid
until the Executive has delivered an executed release and waiver of claims to
the Company as set forth above.
8
(c) It is understood and agreed that the Company shall provide to the
Executive on the Resignation Date a written release and waiver of claims in
which the Company releases and discharges the Executive from any and all
charges, claims and causes of action arising, directly or indirectly, out of the
Executive's employment with the Company prior to the Resignation Date; provided,
however, that the Company shall not release the Executive or waive any charges,
claims and causes of action based on events and activities of the Executive
arising from or in consequence of events or activities of the Executive which
would constitute Cause, as defined in Section 2 hereof. The Executive shall
represent and warrant to the Company that he knows of no such charges, claims or
causes of action as of the Resignation Date.
SECTION 10 Death of Executive after Entitlement to Payment
If the Executive dies at any time after having become entitled to payments
under Sections 3 and 4 of this Agreement and prior to having received all
amounts owed thereunder, any of the amounts otherwise payable under Sections 3
and 4 of this Agreement remaining unpaid at his death shall be paid to the
Executive's designated beneficiary or, if none is designated, to his estate.
SECTION 11 Miscellaneous
(a) Governing Law/Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of Connecticut, without reference to
principles of conflict of laws.
(b) Arbitration. With respect to any dispute between the parties hereto
arising from or relating to the terms of this Agreement, the parties agree to
submit such dispute to arbitration in Connecticut under the auspices of and the
employment rules of the American Arbitration Association. The determination of
the arbitrator(s) shall be conclusive and binding on the Company and the
Executive and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The Company and the Executive
will each pay one-half of the costs and expenses of such arbitration, and each
party will separately pay for their counsel fees and expenses.
(c) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the severance payable to the
Executive in the event of a termination of employment during the term of this
Agreement. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject matter
herein other than those expressly set forth herein, except rights more fully
described in the attached letter agreement between the Company and the Executive
setting forth the mutual understanding of how the Company will administer
certain employee benefit and incentive plans and programs as to the Executive.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(d) No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights
9
or deprive such party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(e) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby. It is understood that this
Agreement does not constitute an admission by the Company of violation of any
statute, law or regulation.
(f) Assignment. This Agreement shall not be assignable by the Executive
and shall be assignable by the Company only with the consent of the Executive,
which shall not be unreasonably withheld; provided, however, that the Company
shall require any successor to substantially all of the stock, assets or
business of the Company to assume this Agreement.
(g) Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon the personal or legal representatives, executors,
administrators, successors, including successors to all or substantially all of
the stock, business and/or assets of the Company, heirs, distributees, devisees
and legatees of the parties.
(h) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the execution page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
(i) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such U.S. federal, state and local taxes as may be required
to be withheld pursuant to any applicable law or regulation.
(j) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(k) Integration of Other Plans and Programs. The Executive shall continue
to have such rights and privileges under the Company's executive and employee
plans and programs as the terms and conditions of such plans and programs may
provide taking into account the commitments of the Company under this Agreement;
provided, however, that any severance pay benefit to which the Executive may be
entitled from the Company other than any severance benefits under the Company's
Senior Executive Severance Policy, as set forth in Section 3 hereof, shall be
determined solely under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
PITNEY BOWES INC.
By:_________________________________
Michael J. Critelli
Chief Executive Officer
World Headquarters
One Elmcroft Road
Stamford, CT 06926-0700
By:_________________________________
Marc C. Breslawsky
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EXHIBIT A
(1) All LTI and PBC level employees of Pitney Bowes Inc. and related companies
(2) All sales and service management level employees of each business unit of
Pitney Bowes Inc.
(3) All salespersons of Pitney Bowes Inc. and related companies who are in the
top 25% of all salespersons as measured by gross sales revenue and who are
high performers as measured by participation in Sales Leadership
Conferences, as determined by the Company, and any other salesperson as
identified in writing to the Executive
A written list of all individuals referred to in item (3) above shall be
provided to the Executive within 30 days of the effective date of this Agreement
and shall be supplemented as of the Executive's termination of employment with
the Company.
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