EXCERPTS FROM ANNUAL REPORT TO SHAREHOLDERS

Exhibit (v)
MANAGEMENT'S DISCUSSION AND ANALYSIS

Segments

Pitney Bowes operates within three industry segments:
business equipment, business services and commercial and industrial financing.
The company has refined its strategic focus to capitalize on its strengths and
competitive position. The company is concentrating its energies and resources on
products and services which facilitate the preparation, organization, movement,
delivery, tracking, storage and retrieval of documents, packages, letters and
other materials, in hard copy and digital form for its customers.

The business equipment segment includes: postage meters and mailing
equipment, production mail systems, shipping and facsimile systems, copiers and
copier supplies, and related financing. The business services segment includes:
mailroom, reprographics and related facilities management services, and mortgage
servicing. The commercial and industrial financing segment provides financial
services for the commercial and industrial markets.

The company sold its Dictaphone Corporation (Dictaphone) and Monarch Marking
Systems, Inc. (Monarch) subsidiaries in 1995 resulting in gains approximating
$155 million net of approximately $130 million of income taxes. Dictaphone and
Monarch have been classified in the Consolidated Statement of Income as
discontinued operations; revenue and income from continuing operations exclude
the results of Dictaphone and Monarch for all periods presented. See Note 12 to
the consolidated financial statements.

Revenue and operating profit by business segment and geographic area for the
years ended 1993 to 1995 were as follows:

Revenue
------------------------------------
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Industry segments:
Business equipment $2,799 $2,592 $2,516
Business services 403 348 215
Commercial and
industrial financing 353 331 269
- --------------------------------------------------------------------------------
Total $3,555 $3,271 $3,000
================================================================================
Geographic areas:
United States $3,108 $2,851 $2,550
Outside the United States 573 524 554
Inter-area revenue (126) (104) (104)
- --------------------------------------------------------------------------------
Total $3,555 $3,271 $3,000
================================================================================
Operating profit
------------------------------------
(in millions) 1995 1994* 1993
- --------------------------------------------------------------------------------
Industry segments:
Business equipment $ 586 $ 561 $ 511
Business services 30 31 11
Commercial and
industrial financing 69 60 58
- --------------------------------------------------------------------------------
Total $ 685 $ 652 $ 580
================================================================================
Geographic areas:
United States $ 643 $ 655 $ 524
Outside the United States 56 6 61
Inter-area profit (14) (9) (5)
- -------------------------------------------------------------------------------
Total $ 685 $ 652 $ 580
================================================================================

* As a result of the nonrecurring items in 1994, industry segments include a
$21 million credit in Business equipment and a $6 million credit in Business
services; geographic areas include a $61 million credit in the United States
and a $34 million charge outside the United States (See Note 13).

Identifiable assets by business segment and geographic area for the years
1993 to 1995 were as follows:

Identifiable assets
------------------------------------
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Industry segments:
Business equipment $3,612 $3,416 $3,163
Business services 374 330 313
Commercial and
industrial financing 3,638 3,129 2,866
- --------------------------------------------------------------------------------
Total $7,624 $6,875 $6,342
================================================================================
Geographic areas:
United States $6,928 $6,317 $5,743
Outside the United States 828 764 865
- --------------------------------------------------------------------------------
Total $7,756 $7,081 $6,608
================================================================================

Certain prior year amounts have been reclassified to conform with the 1995
presentation.

Results of Continuing Operations
1995 Compared to 1994

Revenue increased nine percent in 1995 as a result of growth in the United
States operations as well as strong growth in international operations. Income
per share from continuing operations increased 21 percent to $2.68 per share in
1995 from $2.21 per share in 1994. The 1995 revenue increase was primarily a
result of strong double-digit growth in the facilities management contract base,
strong facsimile systems supplies sales in support of the growing plain paper
facsimile base and international mailing growth led by the United Kingdom
mailing business which had strong equipment sales throughout 1995. In addition,
sales benefited from the first quarter United States Postal Service (U.S.P.S.)
rate change and the mid-1995 acquisition of Pitney Bowes' former Japanese joint
venture offset, in part, by slower performance in the low-end shipping market in
the U.S. In 1995, both price increases and foreign currency fluctuation had less
than a one percent favorable impact on sales growth.

Rentals and financing revenue increased nine percent in 1995. Rental revenue
increased eight percent in 1995. This growth was fueled by the impressive gain
in placements of electronic and digital meters including the introduction of the
company's first digital meter, PostPerfect,(TM) a continued shift to more
profitable electronic and digital meters utilizing the Postage By Phone(R) meter
resetting system and strong volume growth in plain paper facsimile equipment
placements. Financing revenue increased 10 percent in 1995. Excluding the impact
of finance asset sales in both years, revenue growth would have been 16 percent.
This growth was achieved by increased activity in the financing of the company's
products and strong increases in creditworthy small ticket leases. Financing
revenue also benefited from portfolio growth, fee-based income and increased
leveraged lease revenue offset by the continued impact of the 1993 decision to
phase out the business of financing non-Pitney Bowes equipment outside of the
U.S.

Volume and price growth contributed to a five percent increase in revenue
from support services included in the business equipment segment. Expansion of
the service agreement

20

base in the facsimile and copier businesses offset the effect of a planned
competitive pricing strategy. U.S. mailing and shipping and production mail
systems had strong volume gains in the equipment service base; international
mailing and production mail systems also contributed to the growth with pricing
gains.

The ratio of cost of sales to sales in 1995 was 60.9 percent versus 58.4
percent in 1994. The facilities management business includes most of its costs
and expenses in cost of sales. The growth in its revenue and its increasing
significance to total revenue of the company continues to impact this ratio. The
increase in 1995 was also the result of increased efficiencies associated with
longer production runs in 1994 in U.S. mailing. Partially offsetting the
increase in the cost of sales to sales ratio was the favorable gross margin
realized from the 1995 U.S.P.S. rate change.

The ratio of cost of rentals and financing to related revenue improved to
29.4 percent in 1995 compared with 32.3 percent in 1994. The improvement was
attributable to growth in fee income which has minimal associated costs,
improved equipment rental margins in the U.S., a lower cost base supporting
higher earning asset levels and fewer sales, in 1995, of lower-margin lease
assets. Amortization of purchased mortgage rights served to partially offset the
decrease in the ratio of costs to related rental and financing revenue.

As a part of the company's direction toward new technology in transitioning
to all electronic postage meters and to meet postal needs, the estimated service
lives of postage meters was revised effective January 1, 1995. The meter base
has been segregated according to technological content. Mechanical meters which
at December 31, 1995 constituted approximately 50 percent of the meter base had
their depreciable lives shortened while electronic meters had their depreciable
lives lengthened due to enhanced security, functionality and limited risk of
technological obsolescence. These changes in depreciable lives were accounted
for as a change in accounting estimate and were not material to 1995 results of
operations.

Selling, service and administrative expense, as a percentage of revenue, was
down to 34.6 percent compared to 35.7 percent in 1994. The improvement was
primarily a result of more efficient operations and savings in the company's
benefit plans, largely emanating from the strategic focus initiatives commenced
in 1994. The improvement in this ratio was achieved despite the inclusion in
1994 of a patent royalty settlement and a special cash payment on an investment
security.

Research and development expense increased four percent as a result of
advanced product development with an emphasis on electronic technology and
software and the required higher expenditure on new products as they approach
the end of their development cycle. In 1995, a smaller portion of the
engineering activities were in support of newly introduced products.

Net interest increased 16 percent as a result of higher interest rates
coupled with higher average levels of borrowing primarily at the financial
services businesses. The increased borrowing levels at the financial services
businesses were used primarily to fund continued investments in finance assets.
Borrowings at the corporate level related to common stock repurchases made in
anticipation of the sale proceeds on Monarch and Dictaphone. Any future changes
to the interest rate environment could effect the company's borrowing
strategies. The company's practice is to manage the interest rate risk, most of
which is in the financial services businesses, through the use of a balanced mix
of debt maturities, variable and fixed-rate debt and interest rate swap
agreements. The company's swap adjusted variable-rate versus fixed-rate debt mix
was 57 percent and 43 percent, respectively, at December 31, 1995.

Through December 31, 1995 the company successfully implemented the plan
adopted in the third quarter of 1994 which was designed to address the impact of
technology on work force requirements and to further refine its strategic focus
on core businesses. The plan resulted in a $93.2 million charge against earnings
in 1994. The details of this plan are discussed below and in Note 13 to the
consolidated financial statements. The company has made severance and benefit
payments of approximately $49 million, the majority of which were paid in 1995,
to nearly 1,500 employees separated under the strategic focus initiatives. It is
anticipated that upon completion of the actions contemplated under the strategic
initiatives, approximately 1,700 employees will have been separated from the
company at a cost approximating $5 million in excess of that initially provided
in 1994. This excess has been recorded in selling, service and administrative
expense. Also, the company has written down assets and incurred certain other
exit costs, as planned, by approximately $19 million and $3 million,
respectively, the majority of which occurred in 1994. At this time, management
believes that the remaining reserve of approximately $23 million, most of which
is committed to severance and benefit payments to separated employees, is
adequate to complete the actions identified in the plan. The majority of the
remaining reserve will require cash outlays. Benefits from the strategic focus
initiatives (primarily reduced employee expense) will be offset, in part, by
increased hiring and training expenses to obtain employees with requisite
skills.

Operating profit excluding the impact of nonrecurring items in 1994,
increased nine percent with business equipment reflecting growth of eight
percent, business services 21 percent and commercial and industrial financing 16
percent. The operating profit performance in the business equipment segment
reflects strong performances by mailing and facsimile businesses in the U.S. and
internationally as well as the copier business in the U.S. In the fourth quarter
1995, incremental installation and service costs approximating $9 million were
reimbursed to non-U.S. operations by the related U.S. manufacturer to support
certain new product introductions. All businesses contributed to the operating
profit growth in the business services segment. Operating profit growth in the
commercial and industrial financing segment was achieved despite increased
interest expense and lower contributions from asset sales. Lower credit loss
provisions together with a higher fee income contributed to the growth in
operating profit.

Inclusive of the nonrecurring charges, the operating profit growth, overall,
was five percent with business equipment and commercial and industrial financing
segments growing their respective operating profit by four percent and 16
percent while the business services segment reflected a three percent decrease
in operating profit.

The effective tax rate was 34.1 percent in 1995 compared to 38.5 percent in
1994. The 1994 effective tax rate includes the impact of approximately $28
million of strategic actions

21

for which the company could not realize associated tax benefits. Excluding the
impact of such nonrecurring items, the 1994 tax rate was 36.3 percent. In
addition, the 1995 effective rate was favorably affected by tax benefits
associated with a company owned life insurance investment, as well as a higher
level of tax-exempt income and lower taxes on foreign operations.

Although not affecting income, deferred translation losses amounted to $1
million in 1995 versus gains of $6 million in 1994. In 1995 translation losses
resulted primarily from the weakening of the pound sterling.

Results of Continuing Operations
1994 Compared to 1993

Revenue increased nine percent in 1994 primarily as a result of growth in the
U.S. operations, especially in the facilities management, mailing, financial
services and facsimile businesses as well as improved performance in the U.K.
Favorable foreign currency impacts in the U.K. and Germany were mostly offset by
a weakening Canadian dollar. Growth was slowed by unfavorable performances in
Germany and in the low-end shipping market in the U.S. Additionally, revenue
growth in 1994 was slowed by the company's first-quarter 1993 decision to phase
out the business of financing non-Pitney Bowes equipment outside of the U.S.
Income per share from continuing operations increased 15 percent to $2.21 per
share in 1994 from $1.92 per share in 1993. In 1994 income from continuing
operations included the effect of a nonrecurring $25.4 million pretax credit.
The credit was the result of a $118.6 million credit to income due to changes
made in certain postemployment benefits offset, in part, by the establishment of
a $93.2 million reserve covering strategic focus initiatives. This net credit
added only $3.5 million, or two cents per share to income from continuing
operations because some of the strategic actions were taken in countries where
the company is unable to recognize associated tax benefits.

In 1993, income from continuing operations was impacted by the enactment of
the Omnibus Budget Reconciliation Act of 1993 (the Tax Act), enacted August 10,
1993, which increased U.S. corporate income tax rates from 34 percent to 35
percent, retroactive to January 1, 1993. Consequently, the company recorded
$22.0 million of additional taxes against 1993 income from continuing operations
($5.4 million on 1993 earnings and $16.6 million on deferred taxes). Excluding
the effect of the nonrecurring net credit in 1994 and the impact of the Tax Act
on deferred taxes in 1993, income per share from continuing operations would
have been eight percent above the prior year.

Sales revenue increased 11 percent in 1994 driven by aggressive expansion of
the facilities management contract base, including the late 1993 acquisition of
Ameriscribe, strong growth in sales of facsimile supplies to support the growing
plain-paper equipment base and copier and production mail systems product
placements in the U.S., as well as strong mailing equipment sales in the U.K.
These growth factors were partly offset by greater revenue in 1993 from PROM
(memory chip) and scale chart sales resulting from parcel and postal rate
changes in the U.S. and 1994 sales declines in Germany and the U.S. shipping
business. The unfavorable comparison in the U.S. shipping business, particularly
in the low-volume segment was due principally to enhanced 1993 revenue due to
special marketing programs as well as increased competitive pressure from
carrier automation initiatives in 1994. In Germany, 1993 record results included
sales for equipment upgrades necessitated by consolidation of the East and West
German postal zones. Additionally, the decision in the third quarter 1994 to
phase out sales of non-mailing products as part of the company's formal plan of
strategic focus refinement negatively impacted sales revenue. In 1994, both
price increases and foreign currency impacts had less than a one percent
favorable impact on sales growth.

Rentals and financing revenue increased ten percent in 1994. Rental revenue
increased nine percent in 1994. This increase was due to mailing price
increases, higher numbers of postage meters on rental, including a greater mix
of higher-yielding Postage By Phone(R) and electronic meters, as well as a
greater mix of plain paper facsimile equipment placements. Financing revenue
increased 11 percent in 1994, reflecting a greater contribution from sales of
finance assets than in 1993, and included the sale of operating lease assets
which generated approximately $45 million in revenue. Financing revenue also
benefited from portfolio growth, increased leveraged lease revenue and fee-based
income partly offset by lower lease rates and the decision to phase out the
business of financing non-Pitney Bowes equipment outside of the U.S.

Support services revenue decreased slightly in 1994. This decrease was due to
a decline in the non-U.S. mailing equipment service base and a shift in mix of
shipping service agreements to low-end products which were mostly offset by
price increases on mailing contracts.

The cost of sales to sales revenue ratio increased to 58.4 percent in 1994
from 55.2 percent in 1993. The ratio increase was due to the growing
significance of the company's facilities management business which includes most
of its costs and expenses in cost of sales, particularly after the Ameriscribe
acquisition. In 1994, increased engineering support of the company's many new
products, reduced margins on certain of the company's mailing, shipping and
facsimile products and unfavorable LIFO expense negatively impacted the
comparison of these ratios. These factors were partly offset by improved margins
at the company's facilities management and copier operations in both years.
Results in 1993 also benefited from high-margin PROM and scale chart sales as
well as favorable LIFO effects.

The cost of rentals and financing to rentals and financing revenue ratio was
32.3 percent in 1994 compared with 31.7 percent in 1993. The increase in 1994
resulted from increased asset sale activity, including the sales of lower-margin
operating lease assets with a cost of $42.6 million, offset, in part, by
favorable mailing rental equipment margins in the U.S. The growing impact of
amortization of purchased mortgage servicing rights associated with the
company's mortgage servicing subsidiary also increased the cost ratio in 1994.

Selling, service and administrative expense as a percentage of revenue was
35.7 percent in 1994 compared to 37.3 percent in 1993. The ratio comparison
benefited from lower

22

relative expenses related to the facilities management business after the
Ameriscribe acquisition, effective management of overall U.S. benefit costs, and
continued cost containment programs throughout the company. Also, 1994 benefited
from a patent royalty settlement and a special cash payment on an investment
security. Expense reductions resulted from the establishment of retiree medical
coverage maximums.

Research and development expense declined three percent in 1994. This decline
was caused by the completion of the primary development cycle for certain of the
company's major new mailing products, with the most significant new products
launched in 1992. These products currently use ongoing engineering support to
improve functionality and increase manufacturing efficiencies, the cost of which
is recorded in cost of sales.

Net interest expense increased six percent in 1994. In 1994 the increase was
due to higher short-term interest rates and average borrowing levels. Increased
borrowing levels were used primarily to fund common stock repurchases and
investments in finance assets. The company's practice is to manage its interest
rate risk, most of which is in the financial services businesses, through the
use of a balanced mix of debt maturities, variable- and fixed-rate debt and
interest rate swap agreements. The company's swap adjusted variable rate versus
fixed-rate debt mix was 65 percent and 35 percent, respectively, at December 31,
1994.

In 1994, as noted above, a net nonrecurring credit of $25.4 million resulted
from a $118.6 million credit to income for changes made to certain
postemployment benefits and the decision to undertake certain strategic actions
which resulted in the establishment of a $93.2 million reserve.

As part of the work-life initiatives undertaken by the company in 1994, it
was concluded that employees prefer benefits more closely related to their
changing work-life needs. As a result, in the third quarter of 1994, the company
significantly reduced or eliminated certain postemployment benefits,
specifically service-related company-subsidized life insurance, salary
continuance and medical benefits, resulting in a pre-tax credit to income of
$118.6 million ($70.9 million net of approximately $47.7 million of income
taxes). Postemployment benefit expense for 1994 was not materially affected by
these benefit changes and the net impact of the adoption of Statement of
Financial Accounting Standards No. 112, "Employees' Accounting for
Postemployment Benefits" (FAS 112) discussed below in Accounting Changes, nor is
ongoing postemployment benefit expense expected to be materially affected. As a
further outgrowth of the above study, the company also instituted, effective
January 1, 1995, certain enhancements to its deferred investment plan, including
an increase in the company's match of employee contributions.

During the third quarter of 1994, the company adopted a formal plan designed
to address the impact of technology on work force requirements and to further
refine its strategic focus on core businesses worldwide. The phase-out of older
product lines, introduction of new, advanced products and increased need for
higher employee skill levels to deliver and service these products required a
work force reduction as described above. Severance and benefit related costs
approximating $61 million were included in this reserve for work force
reduction. All costs associated with hiring of new employees were excluded from
the plan and have been recognized appropriately in the period incurred.

Current and future advanced product offerings require a smaller, but more
highly skilled engineering, manufacturing and service work force to take full
advantage of design, production, diagnostic and service strategies. These
requirements accounted for a work force reduction of more than 850 employees.
Other strategic actions included reengineering and streamlining of order flow,
logistics and other administrative processes in the U.S., Europe and the Asia
Pacific region. The decisions to phase out non-mailing products in Germany and
the cessation of further development and marketing of shipping products which
cannot be cost-effectively upgraded to new technologies accounted for the
remaining work force reductions.

Included in the plan to refine the strategic business focus of the company
were costs approximating $32 million for certain additional actions. Consistent
with a refinement of focus on core businesses, the actions included phasing out
non-mailing products in Germany. This decision required the write down of
inventories, accounts receivable, rental contracts and other assets to their
realizable value; such impacts were accrued with this reserve. In addition,
anticipated lease buyback exposure and expected future losses during the
phase-out of the non-mailing businesses were accrued. The decision to cease
development and marketing of certain shipping products as noted above also
resulted in inventory and other asset write-offs. As part of the administrative
reengineering actions, the adoption of a centralized organizational structure in
the European financial services businesses resulted in the planned early
termination of a facility lease, the cost of which was included in the reserve.
The company transitioned a software-based business with its own product offering
to a product development support function. As a result, the remaining goodwill
related to the acquisition of this business was written-off. As of December 31,
1994 the company had made severance and benefits payments of $3.4 million to
more than 200 employees separated under the strategic focus initiatives.
Benefits from the strategic focus initiatives (primarily reduced employee
expense) were offset, in part, by increased hiring and training expenses to
obtain employees with requisite skills.

Operating profit inclusive of the nonrecurring items in 1994, increased 12
percent with business equipment reflecting growth of 10 percent and commercial
and industrial financing increasing three percent. Operating profit increased
substantially at business services due to the fourth quarter 1993 acquisition of
Ameriscribe, a nationwide provider of on-site reprographics, mailroom and other
office services to industrial corporations and professional service firms on a
contract basis.

The effective tax rate was 38.5 percent in 1994 compared to 38.7 percent in
1993. The 1994 effective tax rate includes the impact of approximately $28
million of strategic actions for which the company could not realize associated
tax benefits offset, in part, by higher levels of tax exempt income and research
and development tax credits. The 1993 effective tax rate reflects the impacts of
the Tax Act discussed above. Excluding the impact of the tax legislation, the
effective tax

23

rate for 1993 was 34.3 percent. Further affecting this rate was the tax impact
of a partnership lease transaction and research and development tax credits.

Although not affecting income, deferred translation gains amounted to $6
million in 1994 versus losses of $20 million in 1993, respectively. In 1994 the
gains resulted primarily from the strengthening of the pound sterling. In 1993
losses resulted primarily from the weakening of the pound sterling. The Canadian
dollar, which weakened in 1993 and 1994, contributed to these impacts.

Discontinued Operations and Acquisitions

On June 29, 1995, the company sold Monarch for approximately $127 million in
cash, subject to post-closing adjustments, to a new company jointly formed by
Paxar Corporation and Odyssey Partners, L.P. On August 11, 1995, the company
sold Dictaphone for approximately $450 million in cash, subject to post-closing
adjustments, to an affiliate of Stonington Partners, Inc. The sales of
Dictaphone and Monarch resulted in gains approximating $155 million, net of
approximately $130 million of income taxes. Dictaphone and Monarch have been
classified in the Consolidated Statement of Income as discontinued operations;
revenue and income from continuing operations exclude the results of Dictaphone
and Monarch for all periods presented.

With the fourth quarter 1993 acquisition of Ameriscribe, the company
continued the expansion of its facilities management business. The transaction
was accounted for by the purchase method.

See Note 12 to the consolidated financial statements.

Financial Services

The financial services operations provide lease financing for Pitney Bowes
products in the U.S., Canada, the U.K., Germany, France, Norway, Ireland and
Australia, the results of which are included in the business equipment segment.
It also provides equipment financing for non-Pitney Bowes equipment and other
financial services to the commercial and industrial markets in the U.S., the
results of which are included in the commercial and industrial financing
segment.

Condensed financial information of the company's consolidated financial
services operations is disclosed in Note 16 to the consolidated financial
statements. Consolidated financial services operations financed 39 percent of
consolidated sales from continuing operations in 1995, 41 percent in 1994 and 44
percent in 1993. The decreasing percentage financed is a direct result of the
increasing significance of the facilities management business to the company's
revenue. The facilities management business does not require traditional
financing services used by the other businesses within the company.

Total financial services revenue amounted to $714 million in 1995 up eight
percent from 1994. Total financial services assets increased to $5.4 billion at
year-end 1995, up 12 percent from $4.8 billion in 1994. To fund finance assets,
borrowings were $3.7 billion in 1995 and $3.2 billion in 1994. Borrowing
requirements for the funding of new business were reduced by the proceeds
received from the sale of approximately $100 million and $190 million of finance
assets during 1995 and 1994, respectively. In addition to the $250 million of
borrowings available under shelf registration statements, the financial services
businesses had approximately $1.7 billion of unused lines of credit outstanding
as of year-end 1995, largely supporting commercial paper borrowings.

Accounting Changes

The company adopted FAS 112 as of January 1, 1994 which required that
postemployment benefits be recognized on the accrual basis of accounting.
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.

The one-time effect of adopting FAS 112 was a non-cash, after-tax charge of
$119.5 million (net of approximately $80.5 million of income taxes), or 76 cents
per share. Additional information with respect to accounting for postemployment
benefits is disclosed in Note 11 to the consolidated financial statements.

In addition to the adoption of FAS 112 as discussed above, the company also
adopted in 1994 Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and Statement of
Financial Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments." In 1995, Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures" were
also adopted. None of these statements significantly affected the company's
reported results. In 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" and Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" were issued. These
statements must be adopted effective January 1, 1996. None of these
pronouncements is expected to materially affect the company.

Liquidity and Capital Resources

The current ratio reflects the company's practice of utilizing a balanced mix of
debt maturities to fund finance assets. The current ratio increased to .60 to 1
as of December 31, 1995 from .52 to 1 as of December 31, 1994 as a result of
decreased short-term borrowings, which were reduced by the proceeds received
from the sales of Monarch and Dictaphone, the issuance of long-term debt by
Pitney Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the
company, and the issuance in June 1995 of preferred stock in a subsidiary
company. See Note 6 to the consolidated financial statements. The company also
entered into interest rate swap agreements principally through its financial
services businesses. It has been the practice and objective of the company to
use a balanced mix of debt maturities, variable- and fixed-rate debt and
interest rate swap agreements to control its sensitivity to interest rate
volatility. The

24

company utilizes interest rate swap agreements when it considers the economic
benefits to be favorable. Swap agreements, as noted above, have been principally
utilized to fix interest rates on commercial paper and/or obtain a lower cost on
debt than would otherwise be available absent the swap.

The ratio of total debt to the total of such debt and stockholders' equity
was 62.2 percent as of December 31, 1995, compared to 66.3 percent as of
December 31, 1994, including preferred stock in a subsidiary company in total
debt. The ratio of total debt to the total of such debt and stockholders' equity
was 60.7 percent as of December 31, 1995, compared to 66.3 percent as of
December 31, 1994, excluding preferred stock in a subsidiary company. This ratio
was favorably impacted by the company's sales of Dictaphone and Monarch, by the
sale of certain finance assets, by the 1993 strategic decision to phase out the
business of financing non-Pitney Bowes equipment outside of the U.S. as well as
by the company's strong operating cash flow. These factors were partially offset
in 1995 by the repurchase of approximately 2.3 million shares of common stock
for $98 million and increased investment in finance assets.

Of the cash required to be paid under the company's strategic focus
initiatives, severance and benefit related costs paid out were $45.1 million and
$3.4 million in 1995 and 1994, respectively, with the remaining cash outlays of
approximately $23 million expected on obligations committed to under the plan.

As part of the company's non-financial services shelf registrations, a
medium-term note facility was established permitting issuance of up to $100
million in debt securities with maturities ranging from more than one year up to
30 years on which $32 million remain available as of December 31, 1995. The
company also has an additional $300 million remaining on shelf registrations
filed with the Securities and Exchange Commission (SEC).

PBCC has $125 million available from a $500 million shelf registration
statement filed with the SEC. In September 1995, PBCC filed another registration
statement for an additional $625 million of debt securities. In November 1995,
PBCC commenced a $500 million medium-term note offering. The $500 million
medium-term note offering and the remaining $250 million of unissued debt
securities should meet PBCC's long-term financing needs for the next several
years.

In May 1995, PBCC issued $100 million of 6.250 percent notes due in June,
1998 and $100 million of 6.625 percent notes due in June 2002. In June 1995,
PBCC also issued $75 million of medium term notes due in June, 2000 with a
weighted average coupon rate of 6.014 percent.

In June 1995, Pitney Bowes International Holdings, Inc., a subsidiary of the
company, issued $200 million of variable term voting preferred stock to outside
institutional investors in a private placement transaction. The stock issuance
enables the company to better manage its international cash and investments. The
proceeds of the issuance were used to pay down short-term borrowings. Preferred
stockholders' equity in a subsidiary company on the Consolidated Balance Sheet
represents the outstanding preferred stock (2,000,000 shares) of Pitney Bowes
International Holdings, Inc. All of the outstanding common stock of Pitney Bowes
International Holdings, Inc., representing 75% of the combined voting power of
all classes of capital stock, is owned directly or indirectly by Pitney Bowes
Inc. The balance of the capital stock, consisting of such preferred stock, is
owned by certain outside institutional investors and accounts for the remaining
25% of the combined voting power. The preferred stock, $.01 par value, is
entitled to cumulative dividends at rates set at auction. The auction intervals
are for generally 49 days although longer periods may be set in the future. The
weighted average dividend rate in 1995 was 4.3%. Dividends are reflected as a
minority interest in the Consolidated Statement of Income in selling, service,
and administrative expense.

As of year-end 1995, the company had unused lines of credit and revolving
credit facilities totaling $2.0 billion in the U.S. and $106 million outside the
U.S. largely supporting commercial paper borrowings. Amounts available under
credit agreements, shelf registrations and commercial paper and medium-term note
programs, in addition to cash generated internally and by the sales of
Dictaphone and Monarch, are expected to be sufficient to provide for financing
needs in the next two years. Information with respect to debt maturities is
disclosed in Note 5 to the consolidated financial statements.

Capital Investment

During 1995, net investments in fixed assets included $100 million in net
additions to property, plant and equipment and $225 million in net additions to
rental equipment and related inventories compared with $126 million and $213
million, respectively, in 1994. These additions included expenditures for normal
plant and manufacturing equipment as well as a new facility in Shelton,
Connecticut. In the case of rental equipment, the additions included the
production of postage meters and the purchase of facsimile and copier equipment
for both new placements and upgrade programs.

As of December 31, 1995, commitments for the acquisition of property, plant
and equipment reflected plant and manufacturing equipment improvements as well
as rental equipment for new and replacement programs.

The company's commercial and industrial financing segment has made senior
secured loans and commitments in connection with acquisition, leveraged buyout
and recapitalization financing. The company has not participated in unsecured or
subordinated debt financing in any highly leveraged transactions.

Legal, Environmental and Regulatory Matters

From time to time, the company is a party to lawsuits that arise in the ordinary
course of its business. These lawsuits may involve litigation by or against the
company to enforce contractual rights under vendor, insurance, or other
contracts; lawsuits by or against the company relating to intellectual property
or patent rights; equipment, service or payment disputes with customers;
disputes with employees; or other matters. The company is currently a defendant
in 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 has been advised that the Antitrust Division of the U.S.
Department of Justice is conducting a civil investigation of its postage
equipment business to determine whether

25

there is, has been, or may be a violation of the surviving provisions of the
1959 consent decree between the company and the U.S. Department of Justice,
and/or the antitrust laws. The company intends to cooperate with the
Department's investigation.

The company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative or
court proceedings as a participant in various groups of potentially responsible
parties. These proceedings are at various stages of activity, and it is
impossible to estimate with any certainty the total cost of remediation, the
timing and extent of remedial actions which may be required by governmental
authorities, and the amount of the liability, if any, of the company. If and
when it is possible to make a reasonable estimate of the company's liability, if
any, with respect to such a matter, a provision would be made as appropriate.
Based on facts presently known to it, the company does not believe that the
outcome of these proceedings will have a material adverse effect on its
financial condition.

On June 9, 1995, the U.S.P.S. issued final regulations addressing the
manufacture, distribution and use of postage meters. The regulations cover four
general categories: meter security, administrative controls, Computerized Meter
Resetting Systems (C.M.R.S.) and other issues. In general, the regulations
impose reporting and performance obligations on meter manufacturers, prescribe
potential administrative sanctions for failure to meet these obligations and
require a restructuring of the fund management system of C.M.R.S., such as the
company's Postage by Phone(R) System, to give the U.S.P.S. more direct control
over meter licensee deposits. The company is working with the U.S.P.S. to ensure
that the implementation of these regulations provides mailing customers and the
U.S.P.S. with the intended benefits, and that Pitney Bowes also benefits. The
company believes that the financial impact to the company resulting from
implementation of these regulations will not be material.

The company is also currently working with the U.S.P.S. to devise a
multi-year migration schedule to phase out mechanical meters and replace them
with electronic meters in a manner that is most beneficial and least disruptive
to the operations of the company's customers. This is consistent with the
company's strategy of introducing new technology into the market place to add
value to customer operations and meet postal needs. This strategy and the
company's long-term focus has resulted in an increase in the percentage of the
electronic meter base in the U.S. from six percent of the overall base in 1986
to nearly 50 percent of the installed meter base in 1995. Until such time as a
final meter migration plan is promulgated, the financial impact, if any, on the
company cannot be determined; but, it is currently the belief of the company
that the migration plan will not cause a material adverse financial impact.

Effects of Inflation and Foreign Exchange

Inflation, even though moderate in recent years, continues to have an effect on
worldwide economies and the way companies operate. In addition to increasing
labor costs and operating expenses, the company would have higher costs
associated with replacement of fixed assets especially rental equipment assets.
In the face of increasing costs, the company has generally been able to maintain
profit margins through productivity and efficiency improvements, continual
review of both manufacturing capacity and operating expense levels and, to an
extent, price increases.

The results of the company's international operations are subject to currency
fluctuations. The company enters into foreign exchange contracts for purposes
other than trading primarily to minimize its risk of loss from fluctuations in
exchange rates on the settlement of firm and budgeted intercompany receivables
and payables arising in connection with transfers of finished goods inventories
between affiliates as well as certain intercompany loans.

As of December 31, 1995, the company had approximately $157.5 million of
foreign exchange contracts outstanding, to buy or sell various currencies. These
contracts mature through 1997. Risks arise from the possible non-performance by
counterparties in meeting the terms of their contracts and from movements in
securities values and interest and 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

It is policy of the Pitney Bowes board of directors to pay a cash dividend on
common stock each quarter when feasible. In setting dividend payments, the board
considers the dividend rate in relation to the company's recent and projected
earnings and its capital investment opportunities and requirements. Pitney Bowes
has paid a dividend each year since 1934.

--------------------------

The company wishes to caution readers that any forward-looking statements
contained in this annual report or made by the management of the company involve
risks and uncertainties, and are subject to change based on various important
factors. The following factors, among others, could affect the company's
financial results and could cause the company's financial performance to differ
materially from the expectations expressed in any forward-looking statement made
by or on behalf of the company -- the strength of worldwide economies; the
effects of and changes in trade, monetary and fiscal policies and laws, and
inflation and monetary fluctuations; the timely development of and acceptance of
new Pitney Bowes products and the perceived overall value of these products by
users including the features, pricing, and quality compared to competitors'
products; the willingness of users to substitute competitors' products for
Pitney Bowes products; the success of the company in gaining approval of its
products in new markets where regulatory approval is required; the ability of
the company to successfully enter new markets, including the ability to
efficiently distribute and finance its products; the impact of changes in postal
regulations around the world that directly regulate the manufacture, ownership
and or distribution of postage meters, or that regulate postal rates and
discounts; the willingness of mailers to utilize alternative means of
communication; and the company's success at managing customer credit risk.

26

SUMMARY OF SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data) Pitney Bowes, Inc.


<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $3,554,754 $3,270,613 $3,000,386 $2,887,583 $2,803,160
Costs and expenses 2,935,823 2,729,472 2,501,526 2,475,629 2,414,163
Nonrecurring items, net - (25,366) - - -
- --------------------------------------------------------------------------------------------------------------------------

Income from continuing operations
before income taxes 618,931 566,507 498,860 411,954 388,997
Provision for income taxes 211,222 218,077 193,166 151,215 146,346
- --------------------------------------------------------------------------------------------------------------------------

Income from continuing operations 407,709 348,430 305,694 260,739 242,651
Discontinued operations 175,431 45,161 47,495 54,129 52,648
Effect of accounting changes - (119,532) - (214,631) -
- --------------------------------------------------------------------------------------------------------------------------

Net income $ 583,140 $ 274,059 $ 353,189 $ 100,237 $ 295,299
==========================================================================================================================

Income per common and common equivalent share:
Continuing operations $2.68 $2.21 $1.92 $ 1.64 $1.52
Discontinued operations 1.15 .29 .30 .34 .33
Effect of accounting changes - (.76) - (1.35) -
- --------------------------------------------------------------------------------------------------------------------------

Net income $3.83 $1.74 $2.22 $ .63 $1.85
==========================================================================================================================

Total dividends on common, preference
and preferred stock $181,657 $162,714 $142,142 $123,112 $107,948
Dividends per share of common stock $1.20 $1.04 $.90 $.78 $.68
Average common and common equivalent
shares outstanding 152,358,474 157,728,628 159,368,652 159,235,412 159,954,680

Balance sheet at December 31

Total assets $7,844,648 $7,399,720 $6,793,816 $6,498,752 $6,380,580
Long-term debt $1,048,515 $779,217 $847,316 $1,015,401 $1,058,763
Capital lease obligations $14,241 $23,147 $29,462 $32,161 $35,755
Stockholders' equity $2,071,100 $1,745,069 $1,871,595 $1,652,881 $1,800,683
Book value per common share $13.79 $11.52 $11.81 $10.50 $11.31

Ratios

Profit margin-continuing operations:
Pretax earnings 17.4% 17.3% 16.6% 14.3% 13.9%
After-tax earnings 11.5% 10.7% 10.2% 9.0% 8.7%
Return on stockholders' equity -
before accounting changes 28.2% 22.6% 18.9% 19.0% 16.4%
Debt to total capital 62.2% 66.3% 61.3% 64.5% 62.8%

Other

Common stockholders of record 32,859 31,226 31,189 30,828 29,588
Total employees 27,723 32,792 32,539 28,958 29,421
Postage meters in service, U.S., U.K.
and Canada 1,517,806 1,480,692 1,445,689 1,413,448 1,393,774
</TABLE>

See notes, pages 32 through 41

27

CONSOLIDATED STATEMENT OF INCOME

(Dollars in thousands, except per share data) Pitney Bowes Inc.

<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue from:
Sales $1,546,393 $1,418,304 $1,278,859
Rentals and financing 1,575,094 1,441,183 1,309,361
Support services 433,267 411,126 412,166
- --------------------------------------------------------------------------------------------------------------------------

Total revenue 3,554,754 3,270,613 3,000,386
- --------------------------------------------------------------------------------------------------------------------------

Costs and expenses:
Cost of sales 941,124 828,221 705,438
Cost of rentals and financing 463,601 466,070 415,521
Selling, service and administrative 1,230,671 1,167,422 1,120,607
Research and development 81,800 78,618 80,874
Interest expense 226,110 194,115 189,292
Interest income (7,483) (4,974) (10,206)
Nonrecurring items, net - (25,366) -
- --------------------------------------------------------------------------------------------------------------------------

Total costs and expenses 2,935,823 2,704,106 2,501,526
- --------------------------------------------------------------------------------------------------------------------------

Income from continuing operations before
income taxes 618,931 566,507 498,860
Provision for income taxes 211,222 218,077 193,166
- --------------------------------------------------------------------------------------------------------------------------

Income from continuing operations 407,709 348,430 305,694
Income, net of income tax, from discontinued
operations prior to discontinuance 21,483 45,161 47,495
Net gains on sale of discontinued operations 153,948 - -
- --------------------------------------------------------------------------------------------------------------------------

Income before effect of a change in
accounting for postemployment benefits 583,140 393,591 353,189
Effect of a change in accounting for postemployment benefits - (119,532) -
- --------------------------------------------------------------------------------------------------------------------------

Net income $ 583,140 $ 274,059 $ 353,189
==========================================================================================================================

Income per common and common equivalent share:
Income from continuing operations $2.68 $2.21 $1.92
Discontinued operations 1.15 .29 .30
Effect of a change in accounting for postemployment benefits - (.76) -
- --------------------------------------------------------------------------------------------------------------------------

Net income $3.83 $1.74 $2.22
==========================================================================================================================
</TABLE>

See notes, pages 32 through 41

28

CONSOLIDATED BALANCE SHEET

(Dollars in thousands, except share data) Pitney Bowes Inc.

<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets

Current assets:
Cash and cash equivalents $ 85,352 $ 75,106
Short-term investments, at cost which approximates market 3,201 639
Accounts receivable, less allowances: 1995, $13,050; 1994, $16,909 386,727 422,276
Finance receivables, less allowances: 1995, $37,699; 1994, $36,224 1,208,532 1,050,090
Inventories 311,271 430,641
Other current assets and prepayments 106,014 104,992
- --------------------------------------------------------------------------------------------------------------------------

Total current assets 2,101,097 2,083,744
Property, plant and equipment, net 495,001 578,650
Rental equipment and related inventories, net 773,337 695,343
Property leased under capital leases, net 7,876 12,633
Long-term finance receivables, less allowances:
1995, $75,807; 1994, $76,867 3,390,597 3,086,401
Investment in leveraged leases 570,008 481,308
Goodwill, net of amortization: 1995, $30,504; 1994, $40,984 208,698 222,445
Other assets 298,034 239,196
- --------------------------------------------------------------------------------------------------------------------------

Total assets $7,844,648 $7,399,720
==========================================================================================================================

Liabilities and stockholders' equity

Current liabilities:
Accounts payable and accrued liabilities $ 818,122 $ 828,396
Income taxes payable 232,794 194,427
Notes payable and current portion of long-term obligations 2,138,065 2,626,231
Advance billings 312,595 329,415
- --------------------------------------------------------------------------------------------------------------------------

Total current liabilities 3,501,576 3,978,469
Deferred taxes on income 612,811 453,438
Long-term debt 1,048,515 779,217
Other noncurrent liabilities 410,646 443,527
- --------------------------------------------------------------------------------------------------------------------------

Total liabilities 5,573,548 5,654,651
- --------------------------------------------------------------------------------------------------------------------------

Preferred stockholders' equity in a subsidiary company 200,000 -

Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 47 48
Cumulative preference stock, no par value, $2.12 convertible 2,547 2,790
Common stock, $2 par value (240,000,000 shares authorized;
161,668,956 shares issued) 323,338 323,338
Capital in excess of par value 30,299 35,200
Retained earnings 2,186,996 1,785,513
Cumulative translation adjustments (46,991) (41,617)
Treasury stock, at cost (11,722,744 shares) (425,136) (360,203)
- --------------------------------------------------------------------------------------------------------------------------

Total stockholders' equity 2,071,100 1,745,069
- --------------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity $7,844,648 $7,399,720
==========================================================================================================================
</TABLE>

See notes, pages 32 through 41

29

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands) Pitney Bowes Inc.

<TABLE>
<CAPTION>
Years ended December 31 1995 1994* 1993*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 583,140 $ 274,059 $ 353,189
Net gains on sale of discontinued operations (153,948) - -
Effect of a change in accounting for postemployment benefits - 119,532 -
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 271,648 268,293 247,884
Nonrecurring items, net - (25,710) (1,283)
Net change in the strategic focus initiative (45,078) (3,386) -
Increase in deferred taxes on income 148,828 119,180 81,811
Change in assets and liabilities:
Accounts receivable (18,696) (8,500) (11,346)
Sales-type lease receivables (146,010) (173,691) (136,667)
Inventories 9,788 (43,801) (51,286)
Other current assets and prepayments (7,519) (22,762) (17,012)
Accounts payable and accrued liabilities 28,517 14,658 48,451
Income taxes payable (96,436) (332) (13,085)
Advance billings 22,637 12,826 3,102
Other, net (88,339) (40,827) (47,828)
- --------------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities 508,532 489,539 455,930
- --------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Short-term investments (2,553) 600 537
Net investment in fixed assets (337,718) (345,593) (291,783)
Net investment in direct-finance lease receivables (316,343) (72,170) 108,991
Investment in leveraged leases (141,898) (125,775) (24,117)
Proceeds from sales of subsidiaries 577,000 - -
Net investment in company acquired - - (8,428)
- --------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities (221,512) (542,938) (214,800)
- --------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
(Decrease) increase in notes payable (432,418) 555,457 195,024
Proceeds from long-term obligations 275,000 200,000 -
Principal payments on long-term obligations (66,734) (275,333) (244,503)
Proceeds from issuance of stock 26,999 22,702 22,544
Stock repurchases (98,038) (268,419) (86,861)
Proceeds from preferred stock issued by a subsidiary 200,000 - -
Dividends paid (181,657) (162,714) (142,142)
- --------------------------------------------------------------------------------------------------------------------------

Net cash (used in) provided by financing activities (276,848) 71,693 (255,938)
- --------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash 74 2,159 (1,555)
- --------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents 10,246 20,453 (16,363)
Cash and cash equivalents at beginning of year 75,106 54,653 71,016
- --------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year $ 85,352 $ 75,106 $ 54,653
==========================================================================================================================

Interest paid $ 228,460 $ 203,747 $ 199,176
==========================================================================================================================

Income taxes paid $ 163,745 $ 99,379 $ 124,034
==========================================================================================================================
</TABLE>

*Certain prior year amounts have been reclassified to conform with the 1995
presentation.

See notes, pages 32 through 41

30

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Dollars in thousands, except per share data) Pitney Bowes Inc.

<TABLE>
<CAPTION>
Capital in Cumulative Treasury
Preferred Preference Common excess of Retained translation stock,
stock stock stock par value earnings adjustments at cost
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $107 $3,161 $323,338 - $1,463,121 $(27,211) $(109,635)

Net income - 1993 353,189
Cash dividends:
Preferred ($2.00 per share) (3)
Preference ($2.12 per share) (239)
Common ($.90 per share) (141,900)
Issuances under dividend
reinvestment and stock plans 5,987 20,071
Conversions to common stock (39) (192) (1,539) 1,770
Issuance for company acquired 31,329 56,264
Repurchase of common stock (86,861)
Translation adjustments (20,108)
Tax credits relating to stock options 985
- --------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1993 68 2,969 323,338 36,762 1,674,168 (47,319) (118,391)

Net income - 1994 274,059
Cash dividends:
Preferred ($2.00 per share) (2)
Preference ($2.12 per share) (223)
Common ($1.04 per share) (162,489)
Issuances under dividend
reinvestment and stock plans (801) 23,635
Conversions to common stock (20) (179) (1,813) 2,012
Issuance for company acquired 40 960
Repurchase of common stock (268,419)
Translation adjustments 5,702
Tax credits relating to stock options 1,012
- --------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994 48 2,790 323,338 35,200 1,785,513 (41,617) (360,203)

Net income - 1995 583,140
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (261)
Common ($1.20 per share) (181,395)
Issuances under dividend
reinvestment and stock plans (4,047) 30,594
Conversions to common stock (1) (243) (2,267) 2,511
Repurchase of common stock (98,038)
Translation adjustments (5,374)
Tax credits relating to stock options 1,413
- --------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995 $ 47 $2,547 $323,338 $30,299 $2,186,996 $(46,991) $(425,136)
==========================================================================================================================
</TABLE>

See notes, pages 32 through 41

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousand, except per share data or as otherwise indicated)
Pitney Bowes Inc.

1. Summary of significant accounting policies

Consolidation. The consolidated financial statements include the accounts of
Pitney Bowes Inc. and all of its subsidiaries (the company). All significant
intercompany transactions have been eliminated.

Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash equivalents, short-term investments and accounts receivable. Cash
equivalents include short-term, highly liquid investments with a maturity of
three months or less from date of acquisition. The company places its temporary
cash and short-term investments with financial institutions and limits the
amount of credit exposure with any one financial institution. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number of customers and relatively small account balances within the majority of
the company's customer base, and their dispersion across different businesses
and geographic areas.

Inventory valuation. Inventories are valued at the lower of cost or market. Cost
is determined on the last-in, first-out (LIFO) basis for most U.S. inventories,
and the first-in, first-out (FIFO) basis for most non-U.S. inventories.

Fixed assets and depreciation. Property, plant and equipment are stated at cost
and depreciated principally using the straight-line method over appropriate
periods; machinery and equipment principally three to 15 years and buildings up
to 50 years. Major improvements which add to productive capacity or extend the
life of an asset are capitalized while repairs and maintenance are charged to
expense as incurred. Rental equipment is depreciated on the straight-line method
over appropriate periods, principally three to ten years. Other depreciable
assets are depreciated using either the straight-line method or accelerated
methods. Properties leased under capital leases are amortized on a straight-line
basis over the primary lease terms.

Rental arrangements and advance billings. The company rents equipment to its
customers, primarily postage meters and mailing, shipping, copier and facsimile
systems under short-term rental agreements, generally for periods of three
months to three years. Charges for equipment rental and maintenance contracts
are billed in advance; the related revenue is included in advance billings and
taken into income as earned.

Financing transactions. At the time a finance transaction is consummated, the
company's finance operations record the gross finance receivable, unearned
income and the estimated residual value of leased equipment. Unearned income
represents the excess of the gross finance receivable plus the estimated
residual value over the cost of equipment or contract acquired. Unearned income
is recognized as financing income using the interest method over the term of the
transaction and is included in rentals and financing revenue in the Consolidated
Statement of Income. Initial direct costs incurred in consummating a transaction
are accounted for as part of the investment in a lease and amortized to income
using the interest method over the term of the lease.

In establishing the provision for credit losses, the company has successfully
utilized an asset based percentage. This percentage varies depending on the
nature of the asset, recent historical experience, vendor recourse, management
judgment and the credit rating of the respective customer. The company evaluates
the collectibility of its net investment in finance receivables based upon its
loss experience and assessment of prospective risk, and does so through ongoing
reviews of its exposures to net asset impairment. The carrying value of its net
investment in finance receivables is adjusted to the estimated collectible
amount through adjustments to the allowance for credit losses. Finance
receivables are charged to the allowance for credit losses after collection
efforts are exhausted and the account is deemed uncollectible.

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

The company has, from time to time, sold selected finance assets. The company
follows Statement of Financial Accounting Standards No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse," when accounting for its
sale of finance assets. The difference between the sale price and the net
receivable, exclusive of residuals, is recognized as a gain or loss.

The company's investment in leveraged leases consist of rentals receivable
net of principal and interest on the related nonrecourse debt, estimated
residual value of the leased property and unearned income. The unearned income
is recognized as leveraged lease revenue in income from investments over the
lease term.

Goodwill. Goodwill represents the excess of cost over the value of net tangible
assets acquired in business combinations and is amortized using the
straight-line method over appropriate periods, principally 40 years. The
recoverability of goodwill is assessed by determining whether the unamortized
balance can be recovered from expected future cash flows from the applicable
operation.

Revenue. Sales revenue is primarily recognized when a product is shipped.

Costs and expenses. Operating expenses of field sales and service offices are
included in selling, service and administrative expense because no meaningful
allocation of such expenses to cost of sales, rentals and financing or support
services is practicable.

Income taxes. The deferred tax provision is determined under the liability
method. Deferred tax assets and liabilities are recognized based on differences
between the book and tax bases of assets and liabilities using currently enacted
tax rates. The provision for income taxes is the sum of the amount of income tax
paid or payable for the year as determined by applying the provisions of enacted
tax laws to the taxable income for that year and the net change during the year
in the company's deferred tax assets and liabilities.

32

Deferred taxes on income result principally from expenses not currently
recognized for tax purposes, the excess of tax over book depreciation, deferral
of lease revenue and gross profits on sales to finance subsidiaries.

For tax purposes, income from leases is recognized under the operating method
and represents the difference between gross rentals billed and operating
expenses.

It has not been necessary to provide for income taxes on $414 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
$16 million.

Nonpension postretirement benefits and postemployment benefits. The company
provides certain health care and life insurance benefits to eligible retirees
and their dependents. The cost of these benefits 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. It is the company's practice to fund
amounts for these nonpension postretirement and postemployment benefits as
incurred.

Income per share. Income per share is based on the weighted average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares include preference stock and stock option and purchase plan
shares.

Deposits in trust. The company's customers electing the use of the Pitney Bowes
Postage By Phone(R) meter setting system, a computerized system developed by the
company for the resetting of postage meters via telephone, are required to make
deposits with a trustee to cover expected postage usage. Such funds, which are
not available to the company, are transferred to the respective postal services
upon resettings of meters for which the company receives fees. Deposits in trust
are not included in the company's Consolidated Balance Sheet. Effective during
1996, customers in the U.S. will be required to make such deposits directly to
the U.S. Postal Service. Resetting fees received by the company will not be
negatively affected by this change.

Foreign currency translation. Assets and liabilities of subsidiaries operating
outside the U.S. are translated at rates in effect at the end of the period, and
revenues and expenses were translated at average rates during the period. Net
deferred translation gains and losses are accumulated in stockholders' equity.

The company enters into foreign exchange contracts for purposes other than
trading primarily to minimize its risk of loss from fluctuations in exchange
rates on the settlement of firm and budgeted intercompany receivables and
payables arising in connection with transfers of finished goods inventories
between affiliates as well as certain intercompany loans. Gains and losses on
foreign exchange contracts entered into as hedges are deferred and recognized as
part of the cost of the underlying transaction. Gains and losses related to
changes in the value of speculative contracts are recognized in income
currently. At December 31, 1995, the company had approximately $157.5 million of
foreign exchange contracts outstanding, maturing through 1997, to buy or sell
various currencies. Risks arise from the possible non-performance by
counterparties in meeting the terms of their contracts and from movements in
securities values and interest and exchange rates. However, the company does not
anticipate non-performance by the counterparties as they are composed of a
number of major international financial institutions. Maximum risk of loss on
these contracts is limited to the amount of the difference between the spot rate
at the date of the contract delivery and the contracted rate.

Foreign currency transaction and translation gains and (losses) net of tax
were $1.6 million, $0.1 million and $(1.1) million in 1995, 1994 and 1993,
respectively.

2. Inventories

Inventories consist of the following:

December 31 1995 1994
- --------------------------------------------------------------------------------

Raw materials and work in process $ 57,203 $ 111,051
Supplies and service parts 87,863 114,429
Finished products 166,205 205,161
- --------------------------------------------------------------------------------

Total $ 311,271 $ 430,641
================================================================================

Had all inventories valued at LIFO been stated at current costs, inventories
would have been $40.1 million and $45.1 million higher than reported at December
31, 1995 and 1994, respectively.

3. Fixed assets

December 31 1995 1994
- --------------------------------------------------------------------------------

Land $ 34,860 $ 39,698
Buildings 303,559 337,417
Machinery and equipment 733,810 840,901
- --------------------------------------------------------------------------------
1,072,229 1,218,016

Accumulated depreciation (577,228) (639,366)
- --------------------------------------------------------------------------------

Property, plant and equipment, net $ 495,001 $ 578,650
================================================================================

Rental equipment and related inventories $1,591,321 $1,484,698
Accumulated depreciation (817,984) (789,355)
- --------------------------------------------------------------------------------

Rental equipment and related inventories, net $ 773,337 $ 695,343
================================================================================

Property leased under capital leases $ 25,468 $ 38,644
Accumulated amortization (17,592) (26,011)
- --------------------------------------------------------------------------------

Property leased under capital leases, net $ 7,876 $ 12,633
================================================================================

4. Current liabilities

Accounts payable and accrued liabilities and notes payable and current portion
of long-term obligations are comprised as follows:

December 31 1995 1994
- --------------------------------------------------------------------------------

Accounts payable-trade $ 216,715 $ 242,090
Accrued salaries, wages and commissions 86,243 93,289
Accrued pension benefits 97,937 108,313
Accrued nonpension postretirement benefits 15,500 15,500
Accrued postemployment benefits 6,884 15,084
Miscellaneous accounts payable
and accrued liabilities 394,843 354,120
- --------------------------------------------------------------------------------

Accounts payable and accrued liabilities $ 818,122 $ 828,396
================================================================================

Notes payable and overdrafts $2,124,044 $2,556,783
Current portion of long-term debt 12,296 66,987
Current portion of capital lease obligations 1,725 2,461
- --------------------------------------------------------------------------------

Notes payable and current portion
of long-term obligations $2,138,065 $2,626,231
================================================================================

33

In countries outside the U.S., banks generally lend to non-finance
subsidiaries of the company on an overdraft or term-loan basis. These overdraft
arrangements and term-loans, for the most part, are extended on an uncommitted
basis by banks and do not require compensating balances or commitment fees.

Notes payable were issued as commercial paper, loans against bank lines of
credit, or to trust departments of banks and others at below prevailing prime
rates. Fees paid to maintain lines of credit were $1.8 million, $2.6 million and
$2.8 million in 1995, 1994 and 1993, respectively.

At December 31, 1995, notes payable and overdrafts outside the U.S. totaled
$1.1 million and U.S. notes payable totaled $2.1 billion. Unused credit
facilities outside the U.S. totaled $106.3 million at December 31, 1995 of which
$74.1 million were for finance operations. In the U.S., the company had $2.0
billion of unused credit facilities in place at December 31, 1995 largely in
support of commercial paper borrowings of which $1.7 billion were for the
finance operations. The weighted average interest rates were 5.5% and 5.7% on
notes payable and overdrafts outstanding at December 31, 1995 and 1994,
respectively.

The company periodically enters into interest rate swap and swap option
agreements as a means of managing interest rate exposure on both its U.S. and
non-U.S. debt. The interest differential to be paid or received is recognized
over the life of the agreements as an adjustment to interest expense. The
company is exposed to credit losses in the event of non-performance by the other
parties to the interest rate swap agreements to the extent of the differential
between the fixed- and variable-rates; such exposure is considered minimal.

The company enters into interest rate swap agreements primarily through its
Pitney Bowes Credit Corporation (PBCC) subsidiary. It has been the policy and
objective of the company to use a balanced mix of debt maturities, variable- and
fixed-rate debt and interest rate swap agreements to control its sensitivity to
interest rate volatility. The company utilizes interest rate swap agreements
when it considers the economic benefits to be favorable. Swap agreements, as
noted above, have been principally utilized to fix interest rates on commercial
paper and/or obtain a lower cost on debt than would otherwise be available
absent the swap. At December 31, 1995, the company had outstanding interest rate
swap agreements with notional principal amounts of $319.9 million and terms
expiring at various dates from 1996 to 2004. The company exchanged variable
commercial paper rates on an equal notional amount of notes payable and
overdrafts for fixed rates ranging from 5.50% to 10.75%.

5. Long-term debt

December 31 1995 1994
- --------------------------------------------------------------------------------
Non-financial services debt:
Due 1996-1997 (4.75% to 5.5%) $ 688 $ 750

Financial services debt:
Senior notes:
7.39% to 7.48% notes due 1997 45,500 45,500
5.63% notes due 1997 200,000 200,000
5.84% to 6.25% notes due 1998 125,000 -
6.06% to 6.11% notes due 2000 50,000 -
6.63% notes due 2002 100,000 -
8.80% notes due 2003 150,000 150,000
8.63% notes due 2008 100,000 100,000
9.25% notes due 2008 100,000 100,000
8.55% notes due 2009 150,000 150,000
Canadian dollar notes due
1996-2000 (11.05% to 12.50%) 25,371 29,856
Other, due 1996-1998 (9.92%) 1,956 3,111
- --------------------------------------------------------------------------------

Total long-term debt $1,048,515 $ 779,217
================================================================================

The company has a medium-term note facility which was established as a part of
the company's shelf registrations, permitting issuance of up to $100 million in
debt securities of which $32 million remain available. Securities issued under
this medium-term note facility would have maturities ranging from more than one
year up to 30 years. The company also has an additional $300 million remaining
on shelf registrations filed with the Securities and Exchange Commission (SEC).

PBCC has $125 million of unissued debt securities available from a $500
million shelf registration statement filed with the SEC in October 1992. In
September 1995, PBCC filed another registration statement for an additional $625
million of debt securities. In November 1995, PBCC commenced a $500 million
medium-term note offering.

In May 1995, PBCC issued $100 million of 6.250 percent notes due in June,
1998 and $100 million of 6.625 percent notes due in June, 2002. In June 1995,
PBCC also issued $75 million of medium term notes due in June, 1998 and June,
2000 with a weighted average coupon rate of 6.014 percent. In March 1994, PBCC
issued $200 million of 5.63 percent notes due in February 1997. In April 1994,
PBCC redeemed $100 million of 10.65 percent notes due in April 1999. PBCC had
previously sold an option on a notional principal amount of $100 million to
enable a counterparty to require PBCC to pay a fixed rate of 10.67 percent for
five years starting April 1, 1994. The counterparty exercised that option. In
September 1994, PBCC redeemed $100 million of 10.13 percent notes due in
September 1997.

The annual maturities of the outstanding debt during each of the next five
years are as follows: 1996, $12.3 million; 1997, $252.1 million; 1998, $130.5
million; 1999, $3.7 million and 2000, $62.2 million.

Under terms of their senior and subordinated loan agreements, certain of the
finance operations are required to maintain earnings before taxes and interest
charges at prescribed levels. With respect to such loan agreements, the company
will endeavor to have these finance operations maintain compliance with such
terms and, under certain loan agreements, is obligated, if necessary, to pay to
these finance operations amounts sufficient to maintain a prescribed ratio of
income available for fixed charges. The company has not been required to make
any such payments to maintain income available for fixed charge coverage.

6. Preferred stockholders' equity
in a subsidiary company

Preferred stockholders' equity in a subsidiary company represents the
outstanding preferred stock (2,000,000 shares) of Pitney Bowes International
Holdings, Inc., a subsidiary of the company. All of the outstanding common stock
of Pitney Bowes International Holdings, Inc., representing 75% of the combined
voting power of all classes of capital stock, is owned directly or indirectly by
Pitney Bowes Inc. The balance of the capital stock, consisting of such preferred
stock, is owned by certain outside institutional investors and accounted for the
remaining 25% of the combined voting power. The preferred stock, $.01 par value,
is entitled to cumulative dividends at rates set at auction. The weighted
average dividend rate in 1995 was 4.3%. Dividends are reflected as a minority
interest in the Consolidated Statement of Income in selling, service, and
administrative expense. The preferred stock is subject to mandatory redemption
based on certain events, at a redemption price not less than $100 per share,
plus the amount of any dividends accrued or in arrears.

7. Capital stock and capital in excess of par value

At December 31, 1995, 240,000,000 shares of common stock, 600,000 shares of
cumulative preferred stock, and 5,000,000 shares of preference stock were
authorized, and 149,946,212 shares of common stock (net of 11,722,744 shares of
treasury stock), 948 shares of 4% Convertible

34

Cumulative Preferred Stock (4% preferred stock) and 94,060 shares of $2.12
Convertible Preference Stock ($2.12 preference stock) were issued and
outstanding. The balance of unreserved and unissued preferred stock (599,052
shares) and preference stock (4,905,940 shares) may be issued in the future by
the board of directors, which will determine the dividend rate, terms of
redemption, terms of conversion (if any) and other pertinent features.
Unreserved and unissued common stock (exclusive of treasury stock) at December
31, 1995 amounted to 67,946,929 shares.

In October 1993, the company acquired all outstanding shares and options of
Ameriscribe Corporation in exchange for 2,257,792 shares of Pitney Bowes common
stock. See Note 12 to the consolidated financial statements.

The 4% preferred stock outstanding, which is entitled to cumulative dividends
at the rate of $2 per year, is redeemable at the option of the company, in whole
or in part at any time, at the price of $50 per share, plus dividends accrued to
the redemption date. Each share of the 4% preferred stock is convertible into
12.12 shares of common stock, subject to adjustment in certain events.

The $2.12 preference stock is entitled to cumulative dividends at the rate of
$2.12 per year and is redeemable at the option of the company at the rate of $28
per share. Each share of the $2.12 preference stock is convertible into eight
shares of common stock, subject to adjustment in certain events.

At December 31, 1995, an aggregate of 763,970 shares of common stock was
reserved for issuance upon conversion of the 4% preferred stock (11,490 shares)
and $2.12 preference stock (752,480 shares). In addition, 1,481,449 shares of
common stock were reserved for issuance under the company's dividend
reinvestment and other corporate plans.

Each share of common stock outstanding has attached one preference share
purchase right. The rights, which are subject to certain anti-dilution
adjustments, become exercisable in certain circumstances, after which they will
entitle the holder to purchase 1/400 of a share of Series A Junior Participating
Preference Stock. If, after the rights become exercisable, the company is
involved in a merger or certain other transactions, the holder will be entitled
to buy stock in the surviving company at a 50 percent discount. These rights
expire on February 20, 1996, on which date one new preference share purchase
right will be issued with respect to each share of common stock outstanding as
of such date. Each new right will entitle each holder to purchase 1/100th of a
share of Series A Junior Participating Preference Stock for $195 and will expire
in February 2006. Following a merger or certain other transactions, the new
rights will entitle the holder to purchase common stock of the company or the
acquirers at a 50 percent discount.

8. Stock plans

Transactions under the company's stock plans are summarized below:

Price per
Common stock Shares share
- --------------------------------------------------------------------------------
January 1, 1994, shares reserved 2,292,027 $ 7-$43
Shares offered 1994 (price approximates
market value at date of grant) 1,009,102 $32-$40
Shares issued 1994 (519,765) $ 7-$38
Shares canceled 1994 (152,398) $30-$42
- --------------------------------------------------------------------------------
December 31, 1994, shares reserved 2,628,966 $10-$43
Shares offered 1995 (price approximates
market value at date of grant) 939,091 $31-$41
Shares issued 1995 (730,199) $10-$42
Shares canceled 1995 (124,229) $30-$42
- --------------------------------------------------------------------------------
December 31, 1995, shares reserved 2,713,629 $15-$43
================================================================================

Of the common shares reserved at December 31, 1995, options for 1,411,526 are
exercisable. At December 31, 1995, there remain 984,633 common shares for which
rights to purchase may be granted under the stock purchase plans. In addition,
stock-based awards representing up to 4,440,434 common shares may be granted
under other stock plans.

9. Taxes on income

Income from continuing operations before income taxes and the provision for
income taxes consist of the following:

Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------

Income from continuing operations
before income taxes:
U.S $ 566,806 $ 565,375 $ 437,167
Outside the U.S. 52,125 1,132 61,693
- --------------------------------------------------------------------------------

Total $ 618,931 $ 566,507 $ 498,860
================================================================================

Provision for income taxes:
U.S. federal:
Current $ (17,024) $ 37,644 $ 79,666
Deferred 168,297 123,037 53,497
- --------------------------------------------------------------------------------

151,273 160,681 133,163
- --------------------------------------------------------------------------------

U.S. state and local:
Current 13,691 12,856 20,065
Deferred 26,221 31,295 14,834
- --------------------------------------------------------------------------------
39,912 44,151 34,899
- --------------------------------------------------------------------------------

Outside the U.S.:
Current 28,233 19,342 40,311
Deferred (8,196) (6,097) (15,207)
- --------------------------------------------------------------------------------
20,037 13,245 25,104
- --------------------------------------------------------------------------------

Total current 24,900 69,842 140,042
Total deferred 186,322 148,235 53,124
- --------------------------------------------------------------------------------
Total $ 211,222 $ 218,077 $ 193,166
================================================================================

Including discontinued operations, current provisions for 1995 federal, state
and local and outside the U.S. would have been $87.6 million, $39.9 million and
$41.9 million, respectively. Total tax provision would have been $355.7 million.

Deferred tax liabilities and (assets)
- --------------------------------------------------------------------------------
December 31 1995 1994
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 54,469 $ 58,441
Deferred profit (for tax purposes) on sales
to finance subsidiaries 342,435 316,630
Lease revenue and related depreciation 707,484 578,916
Other 77,362 46,667
- --------------------------------------------------------------------------------
Deferred tax liabilities 1,181,750 1,000,654
- --------------------------------------------------------------------------------

Deferred tax assets:
Nonpension postretirement benefits (112,201) (141,153)
Pension liability (32,219) (36,068)
Inventory and equipment capitalization (32,775) (30,095)
Net operating loss carryforwards (52,639) (43,528)
Alternative minimum tax (AMT)
credit carryforwards (57,194) (65,485)
Strategic focus reserve (4,212) (27,007)
Postemployment benefits (22,804) (34,320)
Other (108,503) (87,753)
Valuation allowance 48,692 37,532
- --------------------------------------------------------------------------------
Deferred tax assets (373,855) (427,877)
- --------------------------------------------------------------------------------

Net deferred taxes $ 807,895 $ 572,777
================================================================================

Net deferred taxes includes $195.1 million and $119.3 million for 1995 and
1994, respectively, of current deferred taxes which are included in income taxes
payable in the Consolidated Balance Sheet.

35

The deferred tax asset for net operating losses and related valuation
allowance changed due to losses incurred during 1995 by certain foreign
subsidiaries. As of December 31, 1995 and 1994, approximately $113.2 million and
$101.4 million, respectively, of net operating loss carryforwards were available
to the company. Most of these losses, as well as the company's alternative
minimum tax credit, can be carried forward indefinitely.

In 1995 and 1994, the company recognized a reduction in tax expense resulting
from its investment in a life insurance program. In 1993, the company completed
a transaction whereby it contributed certain commercial aircraft, subject to
direct finance leases, to a partnership. The partnership transaction had the
effect of reducing the company's obligation for previously accrued deferred
taxes. The reduction in deferred taxes has been recognized as a reduction in
1993 income tax expense. Tax benefits from this transaction have also been
recognized in 1995 and 1994. Also in 1993, the company recorded additional tax
expense in the U.S. as a result of the Omnibus Budget Reconciliation Act of
1993.

A reconciliation of the U.S. federal statutory rate to the company's
effective tax rate for continuing operations follows:

Percent of pretax income 1995 1994 1993
- --------------------------------------------------------------------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 4.2 5.1 4.5
Rate adjustment for deferred taxes - - 3.2
Partnership tax benefits (.4) (.8) (2.3)
Life insurance investment (2.1) (.6) -
Other (2.6) (.2) (1.7)
- --------------------------------------------------------------------------------
Effective income tax rates 34.1% 38.5% 38.7%
================================================================================

The effective tax rate for discontinued operations differs from the statutory
rate due primarily to state and local income taxes and non-deductible goodwill.

10. Retirement plans

The company has several defined benefit and defined contribution pension plans
covering substantially all employees worldwide. Benefits are primarily based on
employees' compensation and years of service. Company contributions are
determined based on the funding requirements of U.S. federal and other
governmental laws and regulations.

Total ongoing pension expense amounted to $52.2 million in 1995, $50.2
million in 1994 and $46.4 million in 1993. Net pension expense for defined
benefit plans for 1995, 1994 and 1993 included the following components:

<TABLE>
<CAPTION>
United States Foreign
----------------------------------- ------------------------------------

1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during period $ 33,061 $ 35,908 $ 30,797 $ 5,952 $ 5,975 $ 5,971
Interest cost on projected benefit obligations 68,027 65,745 62,241 10,317 10,090 9,163
Actual return on assets (124,866) 6,880 (85,971) (17,594) (10,681) (31,494)
Net amortization and (deferral) 58,831 (67,094) 30,804 5,237 (1,502) 19,896
- ------------------------------------------------------------------------------------------------------------------------------------

Ongoing net periodic defined benefit pension expense 35,053 41,439 37,871 3,912 3,882 3,536
Curtailment (gain) loss charge(a) (13,974) - - 2,921 - -
- ------------------------------------------------------------------------------------------------------------------------------------

Total pension expense $ 21,079 $ 41,439 $ 37,871 $ 6,833 $ 3,882 $ 3,536
====================================================================================================================================

</TABLE>

(a) Pitney Bowes merged the pension plans of Monarch Marking Systems, Inc. and
Dictaphone Corporation into the Pitney Bowes Retirement Plan. Benefits
ceased to be accrued for active employees of Monarch and Dictaphone as of
the date of the sales resulting in a net curtailment gain of approximately
$14.0 million. There was a $2.9 million curtailment charge to the Pitney
Bowes, Ltd. pension plan due primarily to actions taken by Pitney Bowes,
Ltd.

The funded status at December 31, 1995 and 1994 for the company's defined
benefit plans was:

<TABLE>
<CAPTION>

United States Foreign
------------------------ ------------------------
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $722,282 $526,832 $103,296 $107,064
===========================================================================================================================
Accumulated benefit obligations $802,299 $581,639 $103,459 $107,283
===========================================================================================================================
Projected benefit obligations $946,420 $798,933 $130,590 $128,942
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value, primarily stocks and bonds, adjusted by: 771,000 670,182 141,417 137,494
Unrecognized net loss (gain) 86,281 26,191 (12,034) (6,997)
Unrecognized net asset (15,815) (19,906) (13,828) (17,877)
Unamortized prior service costs from plan amendments 22,246 27,686 7,605 9,928
- ---------------------------------------------------------------------------------------------------------------------------
863,712 704,153 123,160 122,548
- ---------------------------------------------------------------------------------------------------------------------------
Net pension liability $ 82,708 $ 94,780 $ 7,430 $ 6,394
===========================================================================================================================
Assumptions for defined benefit plans:(a)
Discount rate 7.25% 8.75% 7.0%-8.5% 6.7%- 9.0%
Rate of increase in future compensation levels 4.25% 5.75% 3.0%-5.5% 3.5%- 6.5%
Expected long-term rate of return on plan assets 9.50% 9.50% 8.0%-9.5% 9.0%-10.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Pension costs are determined using assumptions as of the beginning of the
year while the funded status of the plans is determined using assumptions as
of the end of the year.

36

11. Nonpension postretirement
and postemployment benefits

Net nonpension postretirement benefit costs consisted of the following
components:

<TABLE>
<CAPTION>

Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 8,688 $ 10,140 $ 9,249
Interest cost on accumulated postretirement
benefit obligations 18,917 19,379 21,146
Net (deferral) and amortization (17,920) (19,143) (18,647)
- ------------------------------------------------------------------------------------------
Net periodic postretirement benefit costs $ 9,685 $ 10,376 $ 11,748
==========================================================================================
</TABLE>

The company's nonpension postretirement benefit plans are not funded. The
status of the plans was as follows:

December 31 1995 1994
- --------------------------------------------------------------------------------

Accumulated postretirement benefit obligations:
Retirees and dependents $ 186,324 $ 165,397
Fully eligible active plan participants 52,199 38,792
Other active plan participants 63,813 63,751
Unrecognized net (loss) gain (4,392) 16,179
Unrecognized prior service cost 53,450 81,650
- --------------------------------------------------------------------------------
Accrued nonpension postretirement benefits $ 351,394 $ 365,769
================================================================================

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 9.25% and 11.75% in 1995 and 1994,
respectively. This was assumed to gradually decline to 3.75% and 5.75% by the
year 2000 and remaining at that level thereafter for 1995 and 1994,
respectively. A one-percentage-point increase in the assumed health care cost
trend rate would increase the year-end accumulated postretirement benefit
obligations by approximately $15 million as of December 31, 1995 and the net
periodic postretirement health care cost by $1.2 million in 1995.

The assumed weighted average discount rate used in determining the
accumulated postretirement benefit obligations was 7.25% and 8.75% in 1995 and
1994, respectively.

The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112) as of January 1,
1994. FAS 112 required that postemployment benefits be recognized on the accrual
basis of accounting. The effect of adopting FAS 112 was a one-time non-cash,
after-tax charge of $119.5 million (net of approximately $80.5 million of income
taxes), or $.76 per share.

In 1994, as part of the company's employee work-life initiatives, employee
input was actively sought about benefits and it was concluded that employees
prefer benefits more closely related to their changing work-life needs. As a
result, the company significantly reduced or eliminated certain postemployment
benefits, specifically service-related company-subsidized life insurance, salary
continuance and medical benefits, resulting in an after-tax credit to income of
$70.9 million (net of approximately $47.7 million of income taxes). As a further
outgrowth of this study, the company also instituted, effective January 1, 1995,
certain enhancements to its deferred investment plan, including an increase in
the company's match of employee contributions.

12. Acquisitions and discontinued operations

The company has refined its strategic focus with the intent to capitalize on its
strengths and competitive position. Based on an extensive review, the company
decided to concentrate its energies and resources on products and services which
facilitate the preparation, organization, movement, delivery, tracking, storage
and retrieval of documents, packages, letters and other materials, in hard copy
and digital form for its customers. Accordingly, the company announced in 1994
its intent to seek buyers for its Dictaphone Corporation (Dictaphone) and
Monarch Marking Systems, Inc. (Monarch) subsidiaries.

On June 29, 1995, the company sold Monarch for approximately $127 million in
cash, subject to post-closing adjustments, to a new company jointly formed by
Paxar Corporation and Odyssey Partners, L.P. On August 11, 1995, the company
sold Dictaphone for approximately $450 million in cash, subject to post-closing
adjustments, to an affiliate of Stonington Partners, Inc. The sales resulted in
gains approximating $155 million net of approximately $130 million of income
taxes.

Dictaphone and Monarch have been classified in the Consolidated Statement of
Income as discontinued operations. Summary results of the Dictaphone and Monarch
operations prior to their sales, which have been classified separately, were as
follows:

Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------

Revenue $306,462 $552,255 $542,495
================================================================================

Income before income taxes $ 36,007 $ 74,843 $ 75,947
Provision for income taxes 14,524 29,682 28,452
- --------------------------------------------------------------------------------

Income from discontinued
operations $ 21,483 $ 45,161 $ 47,495
================================================================================

In October 1993, the company acquired all outstanding shares of Ameriscribe
Corporation (Ameriscribe), a nationwide provider of on-site reprographics,
mailroom and other office services, in exchange for approximately $83 million of
Pitney Bowes common stock, plus approximately $5 million of additional shares
for outstanding Ameriscribe options. The company consolidated this unit with its
facilities management business operated through its wholly-owned subsidiary,
Pitney Bowes Management Services, Inc. The transaction was accounted for by the
purchase method and the proforma effect on the company's results was not
significant.

13. Nonrecurring items, net

During 1994, the company adopted a formal plan designed to address the impact of
technology on work force requirements and to further refine its strategic focus
on core businesses worldwide. Accordingly, in the third quarter of 1994 the
company recorded a $93.2 million charge to income to cover the costs of such
actions. The charge anticipated $61 million of severance and benefit costs for
work force reductions, $22 million of asset write downs and $10 million of other
exit costs. As of December 31, 1995, the company has made severance and benefit
payments of approximately $49 million, the majority of which was expended in
1995, to nearly 1,500 employees separated under these strategic focus
initiatives.

The phase-out of older product lines, introduction of new, advanced products
and increased need for higher employee skill levels to deliver and service these
products will ultimately require a work force reduction of approximately 1,700
employees worldwide, and the future hiring of approximately 450 new employees
with these requisite enhanced skills upon completion of these strategic focus
initiatives. As of December 31, 1995, approximately 400 employees with the
requisite skills have been hired to produce and service advanced product
offerings. All costs associated with hiring of new employees were excluded from
the charge and have been and will continue to be recognized appropriately in the
period incurred.

Current and future advanced product offerings require a smaller, but more
highly skilled engineering, manufacturing and service work force to take full
advantage of design, production, diagnostic and service strategies. These
disciplines anticipated a work force reduction of more than 850 employees with
related severance and benefit costs of $27 million. As of December 31, 1995, the
actions taken by the company relative to this

37

portion of the initiative have resulted in cash expenditures of approximately
$21 million and anticipated 1996 expenditures of approximately $6 million. Other
anticipated strategic actions included reengineering and streamlining of order
flow, logistics and other administrative processes in the U.S., Europe and the
Asia Pacific region which anticipated an additional work force reduction of more
than 800 employees with related severance and benefit costs of $22.7 million. As
of December 31, 1995, the actions taken by the company relative to this portion
of the initiative have resulted in cash expenditures of approximately $17
million, an additional accrual of approximately $5 million in separation and
benefit costs and anticipated 1996 expenditures of approximately $10 million.
The additional accrual has been recorded in selling, service and administrative
expense in the Consolidated Statement of Income. The decisions to phase out
non-mailing products in Germany and the cessation of further development and
marketing of shipping products which could not be cost-effectively upgraded to
new technologies accounted for the remaining work force reductions and related
severance and benefit costs. As of December 31, 1995, the actions taken by the
company relative to this portion of the initiative have resulted in cash
expenditures of approximately $9 million and anticipated 1996 expenditures of
approximately $2 million.

As noted above, included in the plan to refine the strategic business focus
of the company were anticipated asset write downs of $22 million and $10 million
of other exit costs for certain additional actions. Consistent with a refinement
of focus on core businesses, these actions include phasing-out non-mailing
products in Germany. This decision anticipated the write down of inventories,
lease and rental contracts and other assets to their net realizable value for
which $7.4 million was provided. The decision to cease development and marketing
of certain shipping products as noted above anticipated further inventory and
other asset write-offs of $8.6 million. The company decided to transition a
software-based business with its own product offerings to a limited product
development and marketing support function. As a result, $6.3 million of
goodwill related to the acquisition of this business was written-off. The $10
million of other exit costs are primarily due to the adoption of a centralized
organizational structure in the European financial services businesses that
anticipated the early termination of a facility lease. As of December 31, 1995,
approximately $19 million in assets have been written off, $3 million of certain
other exit costs have been incurred, approximately $2 million of the original
anticipated write down associated with the phase-out of non-mailing products in
Germany has been reclassified as other exit costs within the reserve and $5
million originally provided for the early termination of a facility lease has
been reversed through selling, service and administration expense in the
Consolidated Statement of Income. Anticipated 1996 expenditures approximate $5
million, with the majority to be cash expenditures.

Benefits from the strategic focus initiatives (principally reduced employee
expense) will be offset, in part, by increased hiring and training expenses to
obtain employees with requisite skills.

14. Commitments, contingencies
and regulatory matters

At December 31, 1995, the company's finance subsidiaries had unfunded
commitments of $1.1 million to extend credit to customers. The company evaluates
each customer's credit worthiness on a case-by-case basis. Upon extension of
credit, the amount and type of collateral obtained, if deemed necessary by the
company, is based on management's credit assessment of the customer. Fees
received under the agreements are recognized over the commitment period. The
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.

The company is currently a defendant in a number of lawsuits arising in the
ordinary course of business, 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 has been advised that the Antitrust Division of the U.S.
Department of Justice is conducting a civil investigation of its postage
equipment business to determine whether there is, has been, or may be a
violation of the surviving provisions of the 1959 consent decree between the
company and the U.S. Department of Justice, and/or the antitrust laws. The
company intends to cooperate with the Department's investigation.

The company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative or
court proceedings, which are at various stages of activity, as a participant in
various groups of potentially responsible parties. These proceedings are at
various stages of activity, and it is impossible to estimate with any certainty
the total cost of remediation, the timing and extent of remedial actions which
may be required by governmental authorities, and the amount of the liability, if
any, of the company. If and when it is possible to make a reasonable estimate of
the company's liability, if any, with respect to such a matter, a provision
would be made as appropriate. Based on facts presently known to it, the company
does not believe that the outcome of these proceedings will have a material
adverse effect on its financial condition.

On June 9, 1995, the United States Postal Service (U.S.P.S.) issued final
regulations addressing the manufacture, distribution and use of postage meters.
The regulations cover four general categories: meter security, administrative
controls, Computerized Meter Resetting Systems (C.M.R.S.) and other issues. In
general, the regulations impose reporting and performance obligations on meter
manufacturers, prescribe potential administrative sanctions for failure to meet
these obligations and require a restructuring of the fund management system of
C.M.R.S., such as the company's Postage by Phone(R) System, to give the U.S.P.S.
more direct control over meter licensee deposits. The company is working with
the U.S.P.S. to ensure that the implementation of these regulations provides
mailing customers and the U.S.P.S. with the intended benefits, and that Pitney
Bowes also benefits. The company believes that the financial impact to the
company resulting from implementation of these regulations will not be material.

Pitney Bowes is also currently working with the U.S.P.S. to devise a
multi-year migration schedule to phase out mechanical meters and replace them
with electronic meters in a manner that is most beneficial and least disruptive
to the operations of the company's customers. This is consistent with the
company's strategy of introducing new technology into the market place to add
value to customer operations and meet postal needs. This strategy and the
company's long-term focus has resulted in an increase in the percentage of the
electronic meter base in the U.S. from six percent of the overall base in 1986
to nearly 50 percent of the installed meter base in 1995. Until such time as a
final meter migration plan is promulgated, the financial impact, if any, on the
company cannot be determined; but, it is currently the belief of the company
that the migration plan will not cause a material adverse financial impact.

15. Leases

In addition to factory and office facilities owned, the company leases similar
properties, as well as sales and service offices, equipment and other
properties, generally under long-term lease agreements extending from three to
25 years. Certain of these leases have been capitalized at the present value of
the net lease payments at inception. Amounts included under liabilities
represent the present value of remaining lease payments.

38

Future minimum lease payments under both capital and operating leases as of
December 31, 1995 are as follows:

Capital Operating
Years ending December 31 leases leases
- --------------------------------------------------------------------------------
1996 $ 3,948 $ 72,840
1997 3,636 49,616
1998 3,424 36,725
1999 3,415 25,129
2000 3,057 18,005
Later years 9,862 55,083
- --------------------------------------------------------------------------------

Total minimum lease payments 27,342 $257,398
========

Less amount representing interest (11,376)
- -------------------------------------------------------------

Present value of net
minimum lease payments $ 15,966
=============================================================

Rental expense was $129.3 million, $127.0 million and $101.6 million in 1995,
1994 and 1993, respectively.

16. Financial services

The company has several consolidated finance operations which are engaged in
lease financing of the company's products in the U.S., Canada, the U.K.,
Germany, France, Norway, Ireland and Australia as well as other commercial and
industrial transactions in the U.S. In 1993, the company decided to phase out
the business of financing non-Pitney Bowes equipment outside of the U.S.
Condensed financial data for the consolidated finance operations follows:

Condensed summary of operations
Years ended December 31 1995 1994* 1993*
- --------------------------------------------------------------------------------

Revenue $ 713,909 $ 659,619 $ 597,624
- --------------------------------------------------------------------------------

Costs and expenses 238,457 256,638 219,148
Interest, net 217,499 175,987 173,115
Nonrecurring items, net - 6,096 -
- --------------------------------------------------------------------------------

Total expenses 455,956 438,721 392,263
- --------------------------------------------------------------------------------
Income before income taxes 257,953 220,898 205,361
Provision for income taxes 81,422 70,398 73,688
- --------------------------------------------------------------------------------
Income before effect of a change
in accounting for
postemployment benefits 176,531 150,500 131,673
Effect of a change in accounting
for postemployment benefits - (2,820) -
- --------------------------------------------------------------------------------

Net income $ 176,531 $ 147,680 $ 131,673
================================================================================

Condensed balance sheet at December 31 1995 1994*
- --------------------------------------------------------------------------------

Cash and cash equivalents $ 11,486 $ 15,114
Finance receivables, net 1,208,532 1,050,090
Other current assets and prepayments 40,170 42,230
- --------------------------------------------------------------------------------

Total current assets 1,260,188 1,107,434

Long-term finance receivables, net 3,390,597 3,086,401
Investment in leveraged leases 570,008 481,308
Other assets 162,347 151,609
- --------------------------------------------------------------------------------

Total assets $5,383,140 $4,826,752
================================================================================

Accounts payable and accrued liabilities $ 180,243 $ 332,408
Income taxes payable 128,461 104,662
Notes payable and current portion
of long-term obligations 2,398,051 2,199,843
- --------------------------------------------------------------------------------

Total current liabilities 2,706,755 2,636,913

Deferred taxes on income 334,716 263,780
Long-term debt 1,272,700 973,222
Other noncurrent liabilities 4,956 4,983
- --------------------------------------------------------------------------------

Total liabilities 4,319,127 3,878,898
- --------------------------------------------------------------------------------

Equity 1,064,013 947,854
- --------------------------------------------------------------------------------

Total liabilities and equity $5,383,140 $4,826,752
================================================================================

* Certain prior year amounts have been reclassified to conform with the 1995
presentation.

Finance receivables are generally due in monthly, quarterly or semi-annual
installments over periods ranging from three to seven years. In addition, 20
percent of the company's net finance assets represent secured commercial and
private jet aircraft transactions with lease terms ranging from five to 25
years. The company considers its credit risk for these leases to be minimal
since all aircraft lessees are making payments in accordance with lease
agreements. The company believes any potential exposure in aircraft investment
is mitigated by the value of the collateral as the company retains a security
interest in the leased aircraft.

Maturities of gross finance receivables and notes payable for the finance
operations are as follows:

Gross finance Notes payable and
Years ending December 31 receivables subordinated debt
- --------------------------------------------------------------------------------

1996 $1,628,934 $2,398,051
1997 1,190,451 251,406
1998 844,774 130,483
1999 541,317 3,710
2000 316,949 62,228
Thereafter 961,270 824,873
- --------------------------------------------------------------------------------

Total $5,483,695 $3,670,751
================================================================================

Finance operations' net purchases of Pitney Bowes equipment amounted to
$618.6 million, $617.4 million and $585.1 million in 1995, 1994 and 1993,
respectively.

The components of net finance receivables were as follows:

December 31 1995 1994
- --------------------------------------------------------------------------------

Gross finance receivables $ 5,483,695 $ 5,012,175
Residual valuation 680,055 599,430
Initial direct cost deferred 94,571 76,323
Allowance for credit losses (113,506) (113,091)
Unearned income (1,545,686) (1,438,346)
- --------------------------------------------------------------------------------

Net finance receivables $ 4,599,129 $ 4,136,491
================================================================================

39

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

December 31 1995 1994
- --------------------------------------------------------------------------------

Net rent receivable $ 532,153 $ 479,027
Unguaranteed residual valuation 589,520 550,516
Unearned income (551,665) (548,235)
- --------------------------------------------------------------------------------

Investment in leveraged leases 570,008 481,308
Deferred taxes arising from
leveraged leases (216,873) (169,537)
- --------------------------------------------------------------------------------

Net investment in leveraged leases $ 353,135 $ 311,771
================================================================================

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

Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------

Pretax leveraged lease income $11,667 $ 6,694 $ 3,785
Income tax effect 4,408 5,050 5,381
- --------------------------------------------------------------------------------

Income from leveraged leases $16,075 $11,744 $ 9,166
================================================================================

Leveraged lease assets acquired by the company are financed primarily through
nonrecourse loans from third-party debt participants. These loans are secured by
the lessee's rental obligations and the leased property. Net rents receivable
represent gross rents less the principal and interest on the nonrecourse debt
obligations. Unguaranteed residual values are principally based on independent
appraisals of the values of leased assets remaining at the expiration of the
lease.

Leveraged lease investments totaling $265.2 million are related to commercial
real estate facilities, with original lease terms ranging from 5 to 25 years.
Also included are ten aircraft transactions with major commercial airlines, with
a total investment of $266.8 million and with original lease terms ranging from
22 to 25 years and two transactions involving locomotives with a total
investment of $38.0 million with an original lease term ranging from 25 to 38
years.

The company has sold net finance receivables with varying amounts of recourse
in privately-placed transactions with third-party investors. The uncollected
principal balance of receivables sold and residual guarantee contracts totaled
$263.3 million and $275.2 million at December 31, 1995 and 1994, 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 credit worthiness 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, 1995 and 1994 was not significant.

17. Business segment information

For a description of the company's segments and financial information relating
to revenue, operating profit and identifiable assets by business segment for the
years 1995, 1994 and 1993, see "Segments" on page 20. That information is
incorporated herein by reference. The information set forth below should be read
in conjunction with such information. Operating profit of each segment is
determined by deducting from revenue the related costs and operating expenses
directly attributable to the segment. Segment operating profit excludes general
corporate expenses, which amounted to $63.5 million in 1995, $71.7 million in
1994 and $74.4 million in 1993, income taxes and net interest other than that
related to the financial services businesses. Additional segment information is
as follows:

Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------

Depreciation and
amortization:
Business equipment $223,732 $220,848 $210,682
Business services 22,948 18,418 13,133
Commercial and
industrial financing 14,230 12,454 9,625
- --------------------------------------------------------------------------------

Total $260,910 $251,720 $233,440
================================================================================

Net additions to property,
plant and equipment
and rental equipment
and related inventories:
Business equipment $255,852 $249,892 $243,275
Business services 7,161 1,306 4,089
Commercial and
industrial financing 35,654 42,811 26,613
- --------------------------------------------------------------------------------

Total $298,667 $294,009 $273,977
================================================================================

Identifiable assets are those used in the company's operations in each
segment and exclude cash and cash equivalents and short-term investments.
Identifiable assets of geographic areas include intercompany profits on
inventory and rental equipment transferred between segments and intercompany
accounts. A reconciliation of identifiable assets to consolidated assets is as
follows:

December 31 1995 1994
- --------------------------------------------------------------------------------

Identifiable assets by geographic area $ 7,756,187 $ 7,081,244
Inter-area profits (41,507) (29,772)
Intercompany accounts (91,025) (176,874)
- --------------------------------------------------------------------------------

Identifiable assets by industry segment 7,623,655 6,874,598
Cash and cash equivalents and
short-term investments 88,553 75,745
General corporate assets 132,440 142,928
Discontinued operations - 306,449
- --------------------------------------------------------------------------------

Consolidated assets $ 7,844,648 $ 7,399,720
================================================================================

18. Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

Cash, cash equivalents, short-term investments, accounts receivable, accounts
payable and notes payable. The carrying amounts approximate fair value because
of the short maturity of these instruments.

Investment securities. The fair value of investment securities is estimated
based on quoted market prices, dealer quotes and other estimates.

Loan receivables. The fair value of loan receivables is estimated based on
quoted market prices, dealer quotes or by discounting the future cash flows
using current interest rates at which similar loans would be made to borrowers
with similar credit ratings.

Long-term debt. The fair value of long-term debt is estimated based on quoted
dealer prices for the same or similar issues.

Interest rate swap and swap option agreements and foreign currency exchange
contracts. The fair values of interest rate swaps, swap options and foreign
currency exchange contracts are obtained from dealer quotes. These values
represent the estimated amount the company would receive or pay to terminate
agreements taking

40

into consideration current interest rates, the credit worthiness of the
counterparties and current foreign currency exchange rates.

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

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

Transfer of receivables with recourse. The fair value of the recourse liability
represents the estimate of expected future losses. The company periodically
evaluates the adequacy of reserves and estimates of expected losses, if the
resulting evaluation of expected losses differs from the actual reserve,
adjustments are made to the reserve.

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

- --------------------------------------------------------------------------------
Carrying* Fair
December 31, 1995 value* value
- --------------------------------------------------------------------------------

Investment securities $1,797 $1,813
Loan receivables $280,013 $284,245
Long-term debt $(1,080,381) $(1,174,836)
Interest rate swaps $(1,147) $(42,318)
Foreign currency exchange contracts $(499) $(850)
Residual and conditional commitment
guarantee contracts $(4,669) $(5,782)
Commitments to extend credit - $(165)
Transfer of receivables with recourse $(17,349) $(17,349)
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
Carrying* Fair
December 31, 1994 value* value
- --------------------------------------------------------------------------------

Investment securities $7,490 $7,553
Loan receivables $265,795 $268,342
Long-term debt $(860,295) $(855,670)
Interest rate swaps $(3,180) $(17,855)
Foreign currency exchange contracts $704 $329
Residual and conditional commitment
guarantee contracts $(3,870) $(3,798)
Commitments to extend credit - $(450)
Transfer of receivables with recourse $(31,556) $(31,556)
- --------------------------------------------------------------------------------

* Carrying value includes accrued interest and deferred fee income.

19. Quarterly financial data (unaudited)

Summarized quarterly financial data (in millions of dollars, except for per
share data) for 1995 and 1994 follows:

Three Months Ended
- --------------------------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------

Total revenue $839 $863 $876 $977
Cost of sales and rentals
and financing $319 $340 $348 $398
Income from
continuing operations $96 $98 $101 $113
Discontinued operations 10 11 154 -
- --------------------------------------------------------------------------------

Net income $106 $109 $255 $113
================================================================================

Income per common and
common equivalent share:
Continuing operations $.63 $.65 $ .66 $.74
Discontinued operations .07 .07 1.01 -
- --------------------------------------------------------------------------------

Net income $.70 $.72 $1.67 $.74
================================================================================


Three Months Ended
- --------------------------------------------------------------------------------
1994 March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------

Total revenue $745 $818 $806 $902
Cost of sales and rentals
and financing $286 $330 $312 $366
Income from
continuing operations $ 82 $ 87 $ 85 $ 94
Discontinued operations 10 12 11 13
Effect of a change in
accounting for
postemployment benefits (120) - - -
- --------------------------------------------------------------------------------

Net income $(28) $ 99 $ 96 $107
================================================================================

Income per common and common
equivalent share:
Continuing operations $.51 $.55 $.54 $.61
Discontinued operations .07 .07 .07 .08
Effect of a change in
accounting for post-
employment benefits (.75) -- -- --
- --------------------------------------------------------------------------------

Net income $(.17) $.62 $.61 $.69
================================================================================


Report of Independent Accountants

Price Waterhouse LLP LOGOMARK


To the Stockholders and Board of Directors of Pitney Bowes Inc.:


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Pitney Bowes
Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed in Note 11 to the consolidated financial statements, the company
adopted a new accounting standard for postemployment benefits in 1994.



SIGNATURE HERE



Stamford, Connecticut

January 29, 1996


41





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.

Stock Information

<TABLE>
DIVIDENDS PER COMMON SHARE
<CAPTION>
Quarter 1995 1994
- ------------------------------------------------
<S> <C> <C>
First $ .30 $ .26
Second .30 .26
Third .30 .26
Fourth .30 .26
--------------
Total $1.20 $1.04
--------------


QUARTERLY PRICE RANGES OF COMMON STOCK
<CAPTION>
1995
-------------
Quarter High Low
- ------------------------------------------------
<S> <C> <C>
First 37 30
Second 40 34 7/8
Third 43 3/8 38 1/8
Fourth 48 1/4 40 3/4

<CAPTION>
1994
-------------
Quarter High Low
- ------------------------------------------------
<S> <C> <C>
First 46 3/8 39 7/8
Second 42 3/8 37
Third 39 1/4 34 1/2
Fourth 36 1/2 29 1/4
</TABLE>
42