PORTIONS OF ANNUAL REPORT TO SECURITY HOLDERS

EXHIBIT (vi)
------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Year ended December 31, 1999

Overview

Pitney Bowes Inc. (the company) continues to build on the core activities that
support its strong competitive position in informed mail and messaging
management.

The company operates in three reportable segments: Mailing and Integrated
Logistics, Office Solutions and Capital Services.

Mailing and Integrated Logistics includes revenues from the rental of postage
meters and the sale and financing of mailing equipment, including software-based
mail creation and mail finishing equipment, production mail systems including
customized software applications, software-based shipping, transportation and
logistics systems, and related supplies and services. Office Solutions includes
revenues from the sale, financing, rental and service of reprographic and
facsimile equipment including related supplies, and facilities management
services which provides mail processing, reprographic business support and other
processing functions. Capital Services provides large-ticket financing and fee-
based programs covering a broad range of products and other financial services
to the commercial and industrial markets in North America.

On January 14, 2000, the company sold its mortgage servicing business, Atlantic
Mortgage & Investment Corporation (AMIC), a wholly-owned subsidiary of the
company to ABN AMRO North America. The company received approximately $484
million in cash at closing. Accordingly, operating results of AMIC have been
segregated and reported as discontinued operations in the Consolidated
Statements of Income. Prior year results have been reclassified to conform to
the current year presentation. In connection with the sale, the company recorded
a loss of approximately $27.6 million (net of taxes of $18.4 million) for the
year ended December 31, 1999. The transaction is subject to post-closing
adjustments. See Note 12 to the consolidated financial statements.

As part of the company's strategy to reduce the capital committed to asset-based
financing, while increasing fee-based income, in 1998 the company sold its
broker-oriented small-ticket leasing business to General Electric Capital
Corporation (GECC), a subsidiary of General Electric Company. As part of the
sale, the operations, employees and substantially all the assets of Colonial
Pacific Leasing Corporation (CPLC) were transferred to GECC. The company
received approximately $790 million at closing, which approximates the book
value of the net assets sold or otherwise disposed of and related transaction
costs. Accordingly, operating results of CPLC have been segregated and reported
as discontinued operations in the Consolidated Statements of Income. Prior year
results have been reclassified to conform to the current year presentation. In
connection with this transaction, the company recorded a gain of approximately
$3.7 million (net of taxes of $2.0 million) for the year ended December 31,
1999. This gain resulted from the settlement of post-closing adjustments in 1999
related to the sale, offset by the cost of settlement with regard to a dispute
with GECC over certain assets that were included in the sale. See Note 12 to the
consolidated financial statements.

Results of Continuing Operations
1999 Compared to 1998

In 1999, revenue increased 8%, operating profit grew 15%, income from continuing
operations grew 22% and diluted earnings per share from continuing operations
increased 25% to $2.42 compared with $1.94 for 1998.

In 1999, the company received a one time net after-tax settlement of $29.5
million from the U.S. Postal Service (USPS) (see Other Matters). Excluding the
impact of this settlement, income from continuing operations grew 16% and
diluted earnings per share from continuing operations increased 19% to $2.31
compared with $1.94 for 1998.

Diluted Earnings Per Share from Continuing Operations
Dollars

[BAR CHART]

*Excluding the USPS Settlement

Revenue

(Dollars in millions) 1999 1998 % change
-------------------------
Mailing and
Integrated Logistics $2,992 $2,707 11%
Office Solutions 1,266 1,216 4%
Capital Services 175 168 4%
-------------------------
$4,433 $4,091 8%
=========================

The revenue increase came from growth in the Mailing and Integrated Logistics,
Office Solutions and Capital Services segments of 11%, 4% and 4%, respectively,
over 1998. Volume increases in our U.S. Mailing Systems, International Mailing,
Production Mail, U.S. Copier Systems, Facsimile Systems and Management Services
businesses were the principal reasons for the revenue growth. The impact of
price changes and exchange rates was minimal.

Approximately 73% of our total revenue in 1999 is recurring revenue, which we
believe is a continuing good indicator of potential repeat business.

37

Operating profit

(Dollars in millions) 1999 1998 % change
------------------------
Mailing and
Integrated Logistics $ 798 $ 660 21%
Office Solutions 242 235 3%
Capital Services 51 52 (1%)
------------------------
$1,091 $ 947 15%
========================

Operating profit grew 15% over the prior year, consistent with the growth rate
in 1998, continuing to reflect our strong emphasis on reducing costs and
controlling operating expenses. Another measure of our success in controlling
costs and expenses in 1999 and 1998 was that growth in operating profit
continued to significantly outpace revenue growth. Operating profit grew 21% in
the Mailing and Integrated Logistics segment and 3% in the Office Solutions
segment. Operating profit decreased 1% in the Capital Services segment.

The operating profit growth in the Mailing and Integrated Logistics segment came
from strong performances by U.S. Mailing Systems, International Mailing,
Production Mail and related financing. Operating profit in our Office Solutions
segment was moderated by industry pricing pressures and unfavorable currency
impacts affecting our copier and facsimile businesses.

Revenue
Dollars in millions
- --------------------

[BAR CHART]


Sales revenue increased 9% in 1999 due mainly to double-digit growth in our U.S.
Mailing Systems, International Mailing and Production Mail businesses and
single-digit growth in our U.S. Copier Systems, Facsimile Systems and Management
Services businesses. The increase at U.S. Mailing Systems was due to the
continuing shift to advanced technologies and feature-rich products in large,
medium and entry level mailing machines, weighing scales and shipping and
integrated logistics software and related equipment. The strong growth in the
company's mailing and shipping businesses was also helped by increased business-
to-business and business-to-consumer activity generated by e-commerce. Sales of
consumable supplies used in our digital products also had strong growth. U.S.
Copier Systems' sales growth was driven by increased sales of our Smart
Image(TM) Plus line of products in the high-end segment, increased product
offerings of digital and color models and increased supply sales. Facsimile
supply sales in the U.S. and equipment sales in the U.K. and Canada contributed
to sales growth in the Facsimile Systems business. However, the rate of growth
in facsimile supply sales has moderated despite increased unit placements due to
lower usage and increased competition from private label manufacturers.
Increases in value-added services to the existing contract base, new services
such as business recovery services which had its second full year of operation
and international growth stimulated growth in our Management Services business.
In total, Financial Services financed 36% and 38% of all sales in 1999 and 1998,
respectively.

Rentals and financing revenue increased 7% in 1999. Rentals revenue grew 5%
driven by growth in the U.S. mailing market due to the continuing shift to
electronic and digital meters, including increased placements of the digital
desktop Personal Post(TM) meter, available through various distribution channels
such as telemarketing, the Internet and selected retail outlets specializing in
business supplies. At December 31, 1999, electronic and digital meters
represented over 99% of our U.S. meter base, up from 90% at December 31, 1998,
with digital meters representing approximately 40% of all meters in service in
the U.S., up from 35% in 1998. The company no longer places mechanical meters,
which is in line with USPS guidelines.

The strategic shift at U.S. Copier Systems from sales to rentals has increased
rentals revenue. Contribution to rentals revenue growth also came from our U.S.
and U.K. facsimile markets, driven by an increased rental base of the 33.6 kbps
systems such as the 9920 and 9930 models in the U.S. Our Facsimile Systems'
installed rental and sales base is the highest in its history.

Financing revenue grew 11%. Revenue increases came from increased volume of
leases of the company's products and from product offerings such as Purchase
PowerSM, Business RewardsSM, Postal PrivilegeSM, and Reserve AccountSM.
Financing revenue continued to be impacted by our strategy to reduce our asset-
based financing through asset sales in 1999 and prior years.

Support services revenue increased 8% in 1999. Despite competitive pricing
pressures, U.S. Mailing had increased support services revenue due to a larger
population of extended maintenance contracts and higher chargeable service
calls and billed labor hours in 1999. Production Mail had double-digit growth in
support services revenue due to increased service contract base and on-site
contracts. U.S. Copier Systems also had increased support services revenue.

Cost of sales

(Dollars in millions) 1999 1998 % change
-------------------------
$1,220 $1,146 6%
Percentage of sales revenue 56.0% 57.5%

38

Cost of sales, as a percentage of sales revenue, improved for the third
consecutive year. The significant improvement in this ratio was achieved
principally due to lower product costs, significant productivity improvements in
our manufacturing processes, increased sales of higher margin software-based
logistics and mail creation products, the increased sale of higher margin
supplies in our mailing, copier and facsimile businesses and the impact of
strategic sourcing initiatives in the U.S. and Europe.

Cost of rentals and financing

(Dollars in millions) 1999 1998 % change
----------------------
$470 $419 12%
Percentage of rentals
and financing revenue 27.7% 26.5%

Cost of rentals and financing, as a percentage of rentals and financing revenue,
increased 1.2 percentage points. The cost of rentals ratio was slightly lower
due to lower costs at U.S. Mailing and Facsimile Systems in 1999. The cost of
financing ratio increased due to the impact of Capital Services segment
transactions, reflecting the company's continued focus to reposition this
business, and increased costs associated with new business initiatives,
including the launch of the PitneyWorksSM suite of products.

Selling, service and administrative expenses were 34.3% of total revenue in 1999
compared with 35.3% in 1998. Continued emphasis on controlling expense growth
while growing revenues resulted in an improvement in this ratio. This was the
seventh consecutive year of improvement in our selling, service and
administrative cost to revenue ratio, excluding a charge in 1996 to exit the
copier business in Australia. The company continued its investment in an
enterprise-wide resource planning initiative and incurred expenses to comply
with Year 2000 systems issues, which partially offset the improvement in this
ratio.

Favorable pension plan asset performance and amendments to the retiree medical
program resulted in an increase in the unrecognized actuarial gain which could
result in a reduction of the net periodic benefit cost in future years.

Selling, Service and Administrative Rate
Percentage of revenue
- ----------------------------------------

[BAR CHART]


Research and development expenses
(Dollars in millions) 1999 1998 % change
------------------------
$109 $101 8%

Research and development expenses increased 8% in 1999 to $109 million
reflecting continued investment in developing new technologies and enhancing
features for all our products. The 1999 increase represents expenditures for
Internet-based bill presentment and metering, digital document delivery systems,
new digital meters, personal computer metering technology, advanced inserting
equipment, and new and advanced features for production mail equipment and high
volume mail sorting equipment.

Net interest expense
(Dollars in millions) 1999 1998 % change
------------------------
$179 $157 14%

Net interest expense increased due to higher average borrowings during 1999
compared to 1998 to fund the company's investment in products and new business
initiatives and the continuing stock repurchase program. Our variable and fixed
debt rate mix, after adjusting for the effect of interest rate swaps, was 50%
and 50%, respectively, at December 31, 1999.

Effective tax rate
1999 1998
--------------
33.1% 34.2%

The effective tax rate of 33.1% in 1999 reflects continued tax benefits from
leasing and financing activities, lower state and local taxes, and lower taxes
attributable to international sourced income.

Continuing Operations Margin
Percentage of revenue
- -----------------------------

[BAR CHART]

Income from continuing operations and diluted earnings per share from continuing
operations increased 22% and 25%, respectively, in 1999. Excluding the one time
net after-tax gain of $29.5 million from the USPS Settlement, income from
continuing operations and diluted

39

earnings per share from continuing operations increased 16% and 19%
respectively, in 1999. The increase in diluted earnings per share outpaced the
increase in income from continuing operations due to the company's share
repurchase program, under which 7.4 million shares, approximately 3% of the
average common and potential common shares outstanding at the end of 1998, were
repurchased in 1999. Income from continuing operations as a percentage of
revenue increased to 14.2% in 1999, excluding the USPS Settlement, from 13.3% in
1998, the sixth consecutive year of improvement in this ratio.

Income from Continuing Operations
Dollars in millions
- ---------------------------------

[BAR CHART]


Results of Continuing Operations
1998 Compared to 1997

In 1998, revenue increased 6%, operating profit grew 15%, income from continuing
operations grew 10% and diluted earnings per share from continuing operations
increased 15% to $1.94 compared with $1.68 for 1997.

Revenue
(Dollars in millions) 1998 1997 % change
-------------------------
Mailing and
Integrated Logistics $2,707 $2,552 6%
Office Solutions 1,216 1,089 12%
Capital Services 168 206 (18%)
-------------------------
$4,091 $3,847 6%
=========================

The revenue increase came from growth in the Mailing and Integrated Logistics
and Office Solutions segments of 6% and 12%, respectively, over 1997. Volume
increases in our U.S. Mailing Systems, Production Mail, U.S. Copier Systems,
Facsimile Systems and Management Services businesses were the principal cause of
the revenue growth. The impact of price changes and exchange rates was minimal.
The revenue increase was partially offset by an 18% decline in revenue in the
Capital Services segment due to our strategy to reduce our external assets and
shift to more fee-based revenue streams.

Approximately 75% of our total revenue in 1998 and 1997 is recurring revenue,
which we believe is a continuing good indicator of potential repeat business.

Operating profit
(Dollars in millions) 1998 1997 % change
------------------------
Mailing and
Integrated Logistics $660 $582 13%
Office Solutions 235 197 19%
Capital Services 52 48 7%
------------------------
$947 $827 15%
========================

Operating profit grew 15% over the prior year compared with growth of 17% in
1997, continuing to reflect our strong emphasis on reducing costs and
controlling operating expenses in all our businesses. Another measure of our
success in controlling costs and expenses in 1998 and 1997 was that growth in
operating profit continued to significantly outpace revenue growth. Operating
profit grew 13% in the Mailing and Integrated Logistics segment, 19% in the
Office Solutions segment and 7% in the Capital Services segment.

The operating profit growth in the Mailing and Integrated Logistics segment came
from strong performances by U.S. Mailing Systems, International Mailing,
Production Mail and related financing. Strong operating performances by our
Facsimile Systems, U.S. Copier Systems and Management Services businesses drove
the operating profit growth in the Office Solutions segment.

Sales revenue increased 9% in 1998 due mainly to strong sales growth in our U.S.
Mailing Systems, U.S. Copier Systems, Facsimile Systems and Management Services
businesses. The increase in U.S. Mailing Systems was due to the continuing shift
to advanced technologies and feature-rich products in the large, medium and
entry level mailing machines and in weighing scales. Sales of consumable
supplies used in our digital products also had strong growth. Sales growth in
our Software Solutions business was driven by strong sales of logistics and
print management software. Copier sales growth was driven by our new Smart
Image(TM) Plus line of products in the high-end segment plus increased product
offerings of digital and color models. Copier supply sales were also higher. For
the second consecutive year, Buyers Laboratory has named our copiers as the
"Most Outstanding Copier Line," with eight copiers being called "outstanding" in
their respective class. The award recognizes reliability, copy quality and ease
of use, all factors critical to customer satisfaction. Facsimile supply sales in
the U.S. and equipment sales in the U.K. and Canada drove sales growth in the
Facsimile Systems business. Increases in contract base and increases in value-
added services to the existing contract base accounted for the growth in our
Management Services business. In total, Financial Services financed 38% and 36%
of all sales in 1998 and 1997, respectively. This increase was achieved despite
the impact of the increased sales revenue from our Management Services business,
which does not use traditional financing services used by our other businesses.

40

Rentals and financing revenue increased 3% in 1998. Rentals revenue grew 6%
driven by growth in the U.S. and the U.K. mailing markets due to the continuing
shift to electronic and digital meters. In the U.S., the growth came primarily
from continuing placement of the digital desktop Personal Post(TM) meter, which
is available through various distribution channels such as telemarketing, the
Internet and selected retail outlets specializing in business supplies. At
December 31, 1998, electronic and digital meters represented over 90% of our
U.S. meter base, with digital meters representing 35% of all meters in service
in the U.S. The company no longer places mechanical meters, which is in line
with USPS guidelines; such meters were less than 10% of our U.S. meter
population at December 31, 1998. The growth in U.K. rentals revenue was due to
the introduction of the Personal Post(TM) meter in that market.

Contribution to rentals revenue growth also came from our U.S. and U.K.
facsimile markets, driven by an increased rental base of the 33.6 kbps systems
such as the 9920 and 9930 models in the U.S.

Financing revenue was flat. Revenue increases came from increased volume of
leases of the company's products and from new product offerings such as Purchase
PowerSM, Business RewardsSM and Postal PrivilegeSM. The increase was offset by
reduced revenues from the large-ticket external financing business due to asset
dispositions in 1998 and prior years in accordance with our strategy.

Support services revenue increased 7% in 1998. Despite competitive pricing
pressures, U.S. Mailing had increased support services revenue from a larger
population of extended maintenance contracts and higher chargeable service
calls. Production Mail had double-digit growth in support services revenue as
their service contract base and on-site contracts increased. U.S. Copier Systems
and most of our international mailing units, excluding currency impacts, had
increased support services revenue.

Cost of sales

(Dollars in millions) 1998 1997 % change
---------------------------
$1,146 $1,082 6%
Percentage of sales revenue 57.5% 59.0%


Cost of sales, as a percentage of sales revenue, improved for the second
consecutive year. The significant improvement in this ratio was achieved
principally due to lower product costs, the increased sale of higher margin
supplies in our mailing, copier and facsimile businesses and the impact of
strategic sourcing initiatives in the U.S. and Europe. The improvement was
achieved despite the offsetting effect of increased revenue and costs of the
lower margin Management Services business, where most of its expenses are in
cost of sales.

Cost of rentals and financing
(Dollars in millions) 1998 1997 % change
---------------------------
$419 $401 4%
Percentage of rentals
and financing revenue 26.5% 26.2%


Cost of rentals and financing, as a percentage of rentals and financing revenue,
increased slightly. While the cost of rentals was essentially flat with 1997,
the cost of financing increased due to lower revenues in the Capital Services
segment, reflecting the company's continued focus to reposition this business.

Selling, service and administrative expenses were 35.3% of revenue in 1998
compared with 35.6% in 1997. Continued emphasis on controlling expense growth
while growing revenues resulted in an improvement in this ratio. This was the
sixth consecutive year of improvement in our selling, service and administrative
cost to revenue ratio, excluding a charge in 1996 to exit the copier business in
Australia. The company is in the process of an enterprise-wide resource planning
initiative and has incurred expenses to comply with Year 2000 systems issues,
which have partially offset the improvement in this ratio.

Research and development expenses
(Dollars in millions) 1998 1997 % change
------------------------
$101 $89 13%

Research and development expenses increased 13% in 1998 to $101 million
reflecting continued investment in developing new technologies and enhancing
features for all our products. The 1998 increase represents expenditures for new
digital meters and metering technology, inserting equipment, developing advanced
features for production mail equipment, high volume mail sorting equipment and
digital delivery technologies.

Net interest expense
(Dollars in millions) 1998 1997 % change
------------------------
$157 $158 (1%)

Net interest expense decreased due to lower interest rates and higher interest
income, offset in part by higher average borrowings during 1998 compared to
1997. Lower interest expense, resulting from utilizing the proceeds from prior
year asset sales in our Capital Services segment and the sale of the broker-
oriented small-ticket external financing business in 1998, was offset by
interest expense on borrowings to fund the continuing stock repurchase program.
Our variable and fixed rate debt mix, after adjusting for the effect of interest
rate swaps, was 32% and 68%, respectively, at December 31, 1998.

Effective tax rate
1998 1997
------------
34.2% 34.2%

The effective tax rate of 34.2% in 1998 reflects continued tax benefits from
leasing and financing activities and lower taxes attributable to international
sourced income. This rate was essentially flat with prior year.

41

Income from continuing operations and diluted earnings per share from continuing
operations increased 10% and 15%, respectively, in 1998. The increase in diluted
earnings per share outpaced the increase in income from continuing operations
due to the company's share repurchase program, under which 11 million shares, 4%
of the average common and potential common shares outstanding at the end of
1997, were repurchased in 1998. Income from continuing operations as a
percentage of revenue increased to 13.3% in 1998 from 12.8% in 1997.

Other Matters

In August 1999, the USPS and the company announced that they had reached an
agreement (USPS Settlement) resolving a lawsuit filed by the company in 1997.
The lawsuit arose out of a dispute over a 1978 Statement of Understanding
authorizing the company to offer Postage by Phone(R), its proprietary version of
the Computerized Meter Resetting System. Under the terms of the agreement, the
company received $51.8 million, representing a portion of the financial benefit
that the USPS obtained as a result of the revised regulations. This payment, net
of related legal expenses of $2.2 million, was recorded as other income in the
Consolidated Statement of Income for the year ended December 31, 1999.

On January 14, 2000, the company sold its mortgage servicing business, AMIC, a
wholly-owned subsidiary of the company to ABN AMRO North America. The company
received approximately $484 million in cash at closing. The transaction is
subject to post-closing adjustments. In connection with the sale, the company
recorded a loss of approximately $27.6 million (net of taxes of $18.4 million)
for the year ended December 31, 1999.

On October 30, 1998, CPLC, a wholly-owned subsidiary of the company, transferred
the operations, employees and substantially all assets related to its broker-
oriented external financing business to GECC, a subsidiary of the General
Electric Company. The company received approximately $790 million at closing,
which approximates the book value of the net assets sold or otherwise disposed
of and related transaction costs. The transaction was subject to post-closing
adjustments. In connection with this transaction, the company recorded a gain of
approximately $3.7 million (net of taxes of $2.0 million) for the year ended
December 31, 1999. This gain resulted from the settlement of post-closing
adjustments in 1999 related to the sale, offset by the cost of settlement with
regard to a dispute with GECC over certain assets that were included in the
sale.

On August 21, 1997, the company entered into an agreement with GATX Capital
Corporation (GATX Capital), a subsidiary of GATX Corporation, which reduced the
company's external large-ticket finance portfolio by approximately $1.1 billion.
This represented approximately 50% of the company's external large-ticket
portfolio and reflects the company's ongoing strategy of focusing on fee- and
service-based revenue rather than asset-based income.

Under the terms of the agreement, the company transferred external large-ticket
finance assets through a sale to GATX Capital and an equity investment in a
limited liability company owned by GATX Capital and the company. The company
received approximately $867 million in net cash relating to this transaction
during 1997, 1998 and 1999. At December 31, 1999, the company retained
approximately $167.1 million of equity investment in a limited liability company
along with GATX Capital.

Accounting Changes

In 1997, the company adopted Statement of Financial Accounting Standards (FAS)
No. 128, "Earnings per Share." The company discloses basic and diluted earnings
per share (EPS) on the face of the Consolidated Statements of Income and a
reconciliation of the basic and diluted EPS computation is presented in Note 9
to the consolidated financial statements.

In 1998, the company adopted FAS No. 130, "Reporting Comprehensive Income." The
company has disclosed all non-owner changes in equity in the Consolidated
Statements of Stockholders' Equity. Prior periods have been restated for
comparability purposes.

In 1998, the company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Under FAS No. 131, the company has three
reportable segments: Mailing and Integrated Logistics, Office Solutions and
Capital Services. See Note 16 to the consolidated financial statements.

In 1998, the company adopted FAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." FAS No. 132 revises the company's
disclosures about pension and other postretirement benefit plans. See Note 11 to
the consolidated financial statements.

In June 1999, FAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133," was issued. This statement defers the effective date
of FAS No. 133 one year (January 1, 2001 for the company). FAS No. 133 requires
that an entity recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in the fair value of those instruments will be reflected
as gains or losses. The accounting for the gains and losses depends on the
intended use of the derivative and the resulting designation. The company is
currently evaluating the impact of this statement.

In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements," summarizing certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
This guidance is provided due, in part, to the large number of revenue
recognition issues that SEC registrants encounter. Although the company believes
it is in compliance with this guidance in all material respects, the company is
currently evaluating its current revenue recognition policies to determine the
impact of SAB No. 101, if any.

42

Liquidity and Capital Resources

Our ratio of current assets to current liabilities improved to 1.16 to 1 at
December 31, 1999 compared to .92 to 1 at December 31, 1998. The increase in
this ratio was due to the classification of AMIC's net assets to be disposed of
as current assets in the Consolidated Balance Sheet at December 31, 1999.
Excluding the impact of this classification, this ratio improved to 1.05 to 1 at
December 31, 1999.

Current Ratio
- -------------
[BAR CHART]

To manage interest rate risk, we use a balanced mix of debt maturities, variable
and fixed rate debt and interest rate swap agreements. In 1999, we entered into
interest rate swap agreements, primarily through our financial services
business.

The ratio of total debt to total debt and stockholders' equity was 69.1% at
December 31, 1999, versus 66.6% at December 31, 1998, including the preferred
stockholders' equity in a subsidiary company as debt. Excluding the preferred
stockholders' equity in a subsidiary company from debt, the ratio of total debt
to total debt and stockholders' equity was 67.2% at December 31, 1999, versus
64.4% at December 31, 1998. The increase in finance receivables and other assets
combined with the $438 million repurchase of 7.4 million shares of common stock
in 1999 increased this ratio. The company's strong results partially offset the
increase in this ratio.

As part of the company's non-financial services shelf registrations, the company
has a medium-term note facility permitting issuance of up to $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at December 31, 1999.

In December 1999, Pitney Bowes Nova Scotia ULC, a wholly-owned subsidiary of the
company, issued $150 million of floating rate notes maturing December 2004,
guaranteed by the company. These notes bear interest, at a floating rate of
LIBOR plus 32 basis points, set as of the quarterly interest payment dates. The
net proceeds from these notes were used for general corporate purposes,
including the repayment of commercial paper.

In April 1999, the company issued $200 million of medium-term notes from its
shelf registration filed with the SEC in April 1998. These unsecured notes bear
annual interest at 5.5% and mature in April 2004. The net proceeds from these
notes were used for general corporate purposes, including the repayment of
commercial paper. In January 1998, the company issued notes amounting to $300
million available under a prior shelf registration. These unsecured notes bear
annual interest at 5.95% and mature in February 2005. The notes are redeemable
earlier at the company's option. The net proceeds from these notes were used for
general corporate purposes, including the repayment of short-term debt.

Pitney Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the
company, has $625 million of unissued debt securities available at December 31,
1999 from a shelf registration statement filed with the SEC in July 1998. As
part of this shelf registration statement, in August 1999, PBCC established a
medium-term note program for the issuance from time to time of up to $500
million aggregate principal amount of Medium-Term Notes, Series D, of which $375
million remained available at December 31, 1999.

In September 1999, PBCC issued $125 million of 5.95% unsecured notes (the
"notes") available under the medium-term note program. The proceeds from the
notes were used for general corporate purposes, including the repayment of
short-term debt. The notes are due September 2000, with interest payable in
March 2000 and at maturity.

In January 1998, PBCC issued notes amounting to $250 million available under a
prior shelf registration. These unsecured notes bear annual interest at 5.65%
and mature in January 2003. The proceeds were used to meet PBCC's financing
needs during 1998.

In September 1998, certain partnerships controlled by affiliates of PBCC issued
a total of $282 million of Series A and Series B Secured Floating Rate Senior
Notes (the notes). The notes are due in 2001 and bear interest at a floating
rate of LIBOR plus 65 basis points, set as of the quarterly interest payment
dates. The proceeds from the notes were used to purchase subordinated debt
obligations from the company (PBI Obligations). The PBI Obligations have a
principal amount of $282 million and bear interest at a floating rate of LIBOR
plus 100 basis points, set as of the notes' quarterly interest payment dates.
The proceeds from the PBI Obligations were used for general corporate purposes,
including the repayment of short-term debt.

To help us better manage our international cash and investments, in June 1995
and April 1997, Pitney Bowes International Holdings, Inc., a subsidiary of the
company, issued $200 million and $100 million, respectively, of variable term,
voting preferred stock (par value $.01) representing 25% of the combined voting
power of all classes of its outstanding capital stock, to outside institutional
investors in a private placement. The remaining 75% of the voting power is held
directly or indirectly by Pitney Bowes Inc. The preferred stock is recorded on
the Consolidated Balance Sheets as preferred stockholders' equity in a
subsidiary company. We used the proceeds of these transactions to pay down
short-term debt. We have an obligation to pay cumulative dividends on this
preferred stock at rates that are set at auction. The auction periods are
generally 49 days, although they may increase in the future. The weighted
average dividend rate in 1999 and 1998 was 4.0%
43

and 4.1%, respectively. Preferred dividends are reflected as a minority interest
in the Consolidated Statements of Income in selling, service and administrative
expenses. In December 1998, the company sold 9.11% Cumulative Preferred Stock,
mandatorily redeemable in 20 years, in a subsidiary company to an institutional
investor for approximately $10 million.

At December 31, 1999, the company had unused lines of credit and revolving
credit facilities of $1.8 billion (including $1.2 billion at its financial
services businesses) in the U.S. and $47.7 million outside the U.S., largely
supporting commercial paper debt. We believe our financing needs for the next 12
months can be met with cash generated internally, money from existing credit
agreements, debt issued under new shelf registration statements and existing
commercial and medium-term note programs. Information on debt maturities is
presented in Note 5 to the consolidated financial statements.

Total financial services assets increased to $5.5 billion at December 31, 1999,
up 7% from $5.2 billion in 1998. To fund finance assets, borrowings were $3.0
billion in 1999 and $2.8 billion in 1998. Approximately $237 million and $387
million in cash was generated from the sale of finance assets in 1999 and 1998,
respectively. We used the money to pay down debt, repurchase shares and fund new
business development.


Market Risk

The company is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding activities and
its operations in different foreign currencies.

The company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the company uses a
balanced mix of debt maturities and variable and fixed rate debt together with
interest rate swaps.

The company's objective in managing its exposure to foreign currency
fluctuations is to reduce the volatility in earnings and cash flows associated
with foreign exchange rate changes. Accordingly, the company enters into various
contracts, which change in value as foreign exchange rates change, to protect
the value of external and intercompany transactions in foreign currencies. The
principal currencies hedged are the British pound, Canadian dollar, Japanese yen
and French franc.

The company employs established policies and procedures governing the use of
financial instruments to manage its exposure to such risks. The company does not
enter into foreign currency or interest rate transactions for speculative
purposes. The gains and losses on these contracts offset changes in the value of
the related exposures.

The company utilizes a "Value-at-Risk" (VaR) model to determine the maximum
potential loss in fair value from changes in market conditions. The VaR model
utilizes a "variance/co-variance" approach and assumes normal market conditions,
a 95% confidence level and a one-day holding period. The model includes all of
the company's debt and all interest rate and foreign exchange derivative
contracts. Anticipated transactions, firm commitments, and receivables and
accounts payable denominated in foreign currencies, which certain of these
instruments are intended to hedge, were excluded from the model.

The VaR model is a risk analysis tool and does not purport to represent actual
losses in fair value that will be incurred by the company, nor does it consider
the potential effect of favorable changes in market factors.

At December 31, 1999, the company's maximum potential one-day loss in fair value
of the company's exposure to foreign exchange rates and interest rates, using
the variance/co-variance technique described above, was not material.


Year 2000

In 1997, the company established a formal worldwide program to identify and
resolve the impact of the Year 2000 date processing issue on the company's
business systems, products and supporting infrastructure. This included a
comprehensive review of the company's information technology (IT) and non-IT
systems, software and embedded processors. The program structure had strong
executive sponsorship and consisted of a Year 2000 steering committee of senior
business and technology management, a Year 2000 program office of full-time
project management, and subject matter experts and dedicated business unit
project teams. The company also engaged independent consultants to perform
periodic program reviews and assist in systems assessment and test plan
development.

The program encompassed the following phases: an inventory of affected
technology and critical third party suppliers, an assessment of Year 2000
readiness, resolution, unit and integrated testing and contingency planning. The
company completed its worldwide inventory and assessment of all business
systems, products and supporting infrastructure. Required modifications were
substantially completed by year-end 1998. Tests were performed as software was
remediated, upgraded or replaced.

The company experienced no significant Year 2000 issues on its business systems,
products and supporting infrastructure. Minor issues noted in the early days of
the year were fully addressed and remedied during the first week of January
2000. The company has not noted or been notified of any significant concerns or
impacts on its many business and IT systems, products, services and
infrastructure or the failure of any third party on which the company relies to
make timely changes to their own systems and processes.

Although the company cannot determine with any degree of accuracy the potential
revenue it may have lost in the later months of 1999, the company believes it is
possible that some of its customers may have deferred purchasing decisions until
the year 2000.

While the company has not been notified of any specific product or system
failure as a result of the Year 2000 issue, it will continue its monitoring
activity into the second quarter of 2000 to ensure that any problems that may
arise are promptly addressed.

The total cost of the worldwide program from inception in 1997 through the year
2000 was approximately $33 million, of which approximately $12 million was
expensed in 1999. These costs, which were funded through the company's cash
flows, included both internal labor costs as well as consulting and other
external costs.

44

Capital Investment

During 1999, net investments in fixed assets included net additions of $114
million to property, plant and equipment and $191 million to rental equipment
and related inventories, compared with $91 million and $207 million,
respectively, in 1998. These additions included expenditures for normal plant
and manufacturing equipment. In the case of rental equipment, the additions
included the production of postage meters and the purchase of facsimile and
copier equipment for new placements and upgrade programs.

At December 31, 1999, commitments for the acquisition of property, plant and
equipment reflected plant and manufacturing equipment improvements as well as
rental equipment for new and replacement programs.


Legal, Environmental and Regulatory Matters


Legal
In the course of normal business, the company is occasionally party to lawsuits.
These may involve litigation by or against the company relating to, among other
things:

. contractual rights under vendor, insurance or other contracts
. intellectual property or patent rights
. equipment, service or payment disputes with customers
. disputes with employees

We are currently a plaintiff or a defendant in a number of lawsuits, none of
which should have, in the opinion of management and legal counsel, a material
adverse effect on the company's financial position or results of operations.


Environmental
The company is subject to federal, state and local laws and regulations relating
to the environment and is currently named as a member of various groups of
potentially responsible parties in administrative or court proceedings. As we
previously announced, in 1996 the Environmental Protection Agency (EPA) issued
an administrative order directing us to be part of a soil cleanup program at the
Sarney Farm site in Amenia, New York. The site was operated as a landfill
between the years 1968 and 1970 by parties unrelated to the company, and wastes
from a number of industrial sources were disposed there. We do not concede
liability for the condition of the site, but are working with the EPA to
identify, and then seek reimbursement from, other potentially responsible
parties. Based on the facts presently known, we estimate the total cost of our
remediation effort to be approximately $5 million. This amount has been recorded
as a liability in the Consolidated Balance Sheet at December 31, 1999.

The administrative and court proceedings referred to above are in different
states. It is difficult to estimate with any certainty the total cost of
remediating, the timing or extent of remedial actions which may be required by
governmental authorities. However, we believe that the outcome of any current
proceeding will not have a material adverse effect on our financial condition or
results of operations.


Regulation
In January 2000, the USPS issued a proposed schedule for the phaseout of
manually reset electronic meters in the U.S. as follows:

. As of February 1, 2000, new placements of manually reset electronic meters
would no longer be permitted. Current users of manually reset electronic
meters can continue to use these meters for the term of their current rental
and lease agreements.

Based on the proposed schedule, the company believes that the phaseout of
manually reset electronic meters will not cause a material adverse financial
impact on the company.

As a result of the company's aggressive efforts to meet the USPS mechanical
meter migration phaseout schedule combined with the company's ongoing and
continuing investment in advanced postage evidencing technologies, mechanical
meters represented less than 1% of the company's installed U.S. meter base at
December 31, 1999, compared with 10% at December 31, 1998. At December 31, 1999,
over 99% of the company's installed U.S. meter base is electronic or digital,
compared with 90% at December 31, 1998. The company continues to work, in close
cooperation with the USPS, to convert those mechanical meter customers who have
not migrated to digital or electronic meters.

In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the USPS, the purpose of the program was to develop a new standard for
future digital postage evidencing devices which significantly enhanced postal
revenue security and supported expanded USPS value-added services to mailers.
The program would consist of the development of four separate specifications:

. the Indicium specification-the technical specifications for the indicium to
be printed
. a Postal Security Device specification-the technical specification for the
device that would contain the accounting and security features of the system
. a Host specification
. a Vendor Infrastructure specification

During the period from May 1995 through December 31, 1999, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In July 1999, the USPS issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.

As of December 31, 1999, the company is in the process of finalizing the
development of both PC and Internet versions of a product which satisfy the
proposed IBI Performance Criteria. These products are currently in the final
phase of beta testing and are expected to be ready for market upon final
approval from the USPS.

In June 1999, the company was served with a Civil Investigative Demand (CID)
from the Justice Department's Antitrust Division. A CID is a tool used by the
Antitrust Division for gathering information and documents. The company believes
that the Justice Department may

45

be reviewing the company's efforts to protect its intellectual property rights.
The company believes it has complied fully with the antitrust laws and is
cooperating fully with the department's investigation.


Effects of Inflation and Foreign Exchange

Inflation, although moderate in recent years, continues to affect worldwide
economies and the way companies operate. It increases labor costs and operating
expenses, and raises costs associated with replacement of fixed assets such as
rental equipment. Despite these growing costs and the USPS meter migration
initiatives, the company has generally been able to maintain profit margins
through productivity and efficiency improvements, continual review of both
manufacturing capacity and operating expense levels, and, to an extent, price
increases.

Although not affecting income, deferred translation losses amounted to $5
million, $25 million and $32 million in 1999, 1998 and 1997, respectively. In
1999 and 1998, the translation losses resulted principally from the weakening
Canadian dollar. In 1997, the translation loss resulted from the strengthening
of the U.S. dollar against most other currencies except for the British pound.

The results of the company's international operations are subject to currency
fluctuations. We enter into foreign exchange contracts for purposes other than
trading primarily to minimize our risk of loss from such fluctuations. Exchange
rates can impact settlement of our intercompany receivables and payables that
result from transfers of finished goods inventories between our affiliates in
different countries, and intercompany loans.

At December 31, 1999, the company had approximately $331 million of foreign
exchange contracts outstanding, most of which mature in 2000, to buy or sell
various currencies. Risks arise from the possible non-performance by
counterparties in meeting the terms of their contracts and from movements in
securities values, interest and/or exchange rates. However, the company does not
anticipate non-performance by the counterparties as they are composed of a
number of major international financial institutions. Maximum risk of loss on
these contracts is limited to the amount of the difference between the spot rate
at the date of the contract delivery and the contracted rate.


Dividend Policy

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


Forward-Looking Statements

The company wants to caution readers that any forward-looking statements (those
which talk about the company's or management's current expectations as to the
future) in this Annual Report or made by the company management involve risks
and uncertainties which may change based on various important factors. Words
such as "estimate," "project," "plan," "believe," "expect" and similar
expressions may identify such forward-looking statements. Some of the factors
which could cause future financial performance to differ materially from the
expectations as expressed in any forward-looking statement made by or on behalf
of the company include:

. changes in postal regulations
. timely development and acceptance of new products
. success in gaining product approval in new markets where regulatory
approval is required
. successful entry into new markets
. mailers' utilization of alternative means of communication or
competitors' products
. our success at managing customer credit risk
. changes in interest rates

46

Summary of Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 4,432,608 $ 4,090,915 $3,846,767 $ 3,642,564 $ 3,389,153
Costs and expenses 3,448,036 3,266,311 3,098,342 3,001,805 2,801,589
---------------------------------------------------------------------------
Income from continuing operations
before income taxes 984,572 824,604 748,425 640,759 587,564
Provision for income taxes 325,413 282,092 256,073 198,230 200,192
---------------------------------------------------------------------------
Income from continuing operations 659,159 542,512 492,352 442,529 387,372
Discontinued operations (22,947) 33,882 33,675 26,884 195,768
---------------------------------------------------------------------------
Net income $ 636,212 $ 576,394 $ 526,027 $ 469,413 $ 583,140
===========================================================================
Basic earnings per share:
Continuing operations $2.47 $1.98 $1.70 $1.48 $1.28
Discontinued operations (.09) .12 .12 .09 .65
---------------------------------------------------------------------------
Net income $2.38 $2.10 $1.82 $1.57 $1.93
===========================================================================
Diluted earnings per share:
Continuing operations $2.42 $1.94 $1.68 $1.47 $1.27
Discontinued operations (.08) .12 .12 .09 .64
---------------------------------------------------------------------------
Net income $2.34 $2.06 $1.80 $1.56 $1.91
===========================================================================
Total dividends on common, preference
and preferred stock $272,866 $247,484 $231,392 $206,115 $181,657
Dividends per share of common stock $1.02 $.90 $.80 $.69 $.60
Average common and potential common
shares outstanding 272,006,143 279,656,603 292,517,116 301,303,356 304,739,952

Balance Sheet at December 31
Total assets $8,222,672 $7,661,039 $7,893,389 $8,155,722 $7,844,648
Long-term debt $1,997,856 $1,712,937 $1,068,395 $1,300,434 $1,048,515
Capital lease obligations $6,372 $8,384 $10,142 $12,631 $14,241
Stockholders' equity $1,625,610 $1,648,002 $1,872,577 $2,239,046 $2,071,100
Book value per common share $6.13 $6.09 $6.69 $7.56 $6.90
Ratios
Profit margin-continuing operations:
Pretax earnings 22.2% 20.2% 19.5% 17.6% 17.3%
After-tax earnings 14.9% 13.3% 12.8% 12.1% 11.4%
Return on stockholders' equity 39.1% 35.0% 28.1% 21.0% 28.2%
Debt to total capital 69.1% 66.6% 64.2% 60.5% 62.2%
Other
Common stockholders of record 32,754 32,210 31,092 32,258 32,859
Total employees 30,628 30,869 29,368 28,160 27,366
</TABLE>

See notes, pages 52 through 68

47

Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Revenue from:
Sales $2,180,255 $ 1,993,546 $ 1,834,057
Rentals and financing 1,696,952 1,581,866 1,529,154
Support services 555,401 515,503 483,556
-----------------------------------------
Total revenue 4,432,608 4,090,915 3,846,767
-----------------------------------------
Costs and expenses:
Cost of sales 1,220,124 1,146,404 1,081,537
Cost of rentals and financing 469,912 419,123 401,345
Selling, service and administrative 1,519,349 1,443,080 1,367,862
Research and development 108,900 100,806 89,463
Other income (49,574) - -
Interest expense 184,371 162,092 161,867
Interest income (5,046) (5,194) (3,732)
-----------------------------------------
Total costs and expenses 3,448,036 3,266,311 3,098,342
-----------------------------------------
Income from continuing operations before
income taxes 984,572 824,604 748,425
Provision for income taxes 325,413 282,092 256,073
-----------------------------------------
Income from continuing operations 659,159 542,512 492,352
Income from discontinued operations,
net of income tax 971 33,882 33,675
Loss on sale of discontinued operations,
net of income tax (23,918) - -
-----------------------------------------
Net income $ 636,212 $ 576,394 $ 526,027
=========================================
Basic earnings per share:
Income from continuing operations $2.47 $1.98 $1.70
Discontinued operations (.09) .12 .12
-----------------------------------------
Net income $2.38 $2.10 $1.82
=========================================
Diluted earnings per share:
Income from continuing operations $2.42 $1.94 $1.68
Discontinued operations (.08) .12 .12
-----------------------------------------
Net income $2.34 $2.06 $1.80
=========================================
</TABLE>
See notes, pages 52 through 68

48

Consolidated Balance Sheets
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 254,270 $ 125,684
Short-term investments, at cost which approximates market 2,414 3,302
Accounts receivable, less allowances:
1999, $28,716; 1998, $24,665 432,224 382,406
Finance receivables, less allowances:
1999, $48,056; 1998, $51,232 1,779,696 1,400,786
Inventories 257,452 266,734
Other current assets and prepayments 128,662 330,051
Net assets of discontinued operations 487,856 -
------------------------------
Total current assets 3,342,574 2,508,963

Property, plant and equipment, net 484,181 477,476
Rental equipment and related inventories, net 810,788 806,585
Property leased under capital leases, net 11,140 3,743
Long-term finance receivables, less
allowances: 1999, $56,665; 1998, $79,543 1,907,431 1,999,339
Investment in leveraged leases 969,589 827,579
Goodwill, net of amortization: 1999,
$54,848; 1998, $47,514 226,764 222,980
Other assets 470,205 814,374
------------------------------
Total assets $8,222,672 $7,661,039
==============================

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 915,826 $ 898,548
Income taxes payable 255,201 194,443
Notes payable and current portion of long-term obligations 1,320,332 1,259,193
Advance billings 381,405 369,628
------------------------------
Total current liabilities 2,872,764 2,721,812

Deferred taxes on income 1,082,019 920,521
Long-term debt 1,997,856 1,712,937
Other noncurrent liabilities 334,423 347,670
------------------------------
Total liabilities 6,287,062 5,702,940
------------------------------

Preferred stockholders' equity in a subsidiary company 310,000 310,097
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 29 34
Cumulative preference stock, no par value, $2.12 convertible 1,841 2,031
Common stock, $1 par value (480,000,000 shares
authorized; 323,337,912 shares issued) 323,338 323,338
Capital in excess of par value 17,382 16,173
Retained earnings 3,437,185 3,073,839
Accumulated other comprehensive income (93,015) (88,217)
Treasury stock, at cost (58,642,966 shares) (2,061,150) (1,679,196)
------------------------------
Total stockholders' equity 1,625,610 1,648,002
------------------------------
Total liabilities and stockholders' equity $8,222,672 $7,661,039
==============================
</TABLE>

See notes, pages 52 through 68

49

Consolidated Statements of Cash Flows
(Dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 636,212 $ 576,394 $ 526,027
Loss on sale of discontinued operations 23,918 - -
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 412,104 361,333 300,086
Increase in deferred taxes on income 158,803 64,805 185,524
Pension plan investment (67,000) - -
Change in assets and liabilities:
Accounts receivable (47,737) (32,658) (11,295)
Net investment in internal finance receivables (178,898) (219,141) (184,709)
Inventories 11,341 (11,522) 30,526
Other current assets and prepayments (29,383) (33,731) (62,635)
Accounts payable and accrued liabilities 6,174 52,364 29,090
Income taxes payable 76,069 46,909 (62,910)
Advance billings 10,667 8,489 33,607
Other, net (31,184) (41,214) (72,738)
------------------------------------
Net cash provided by operating activities 981,086 772,028 710,573
------------------------------------
Cash flows from investing activities:
Short-term investments 659 (1,655) (388)
Net investment in fixed assets (304,898) (298,415) (244,065)
Net investment in finance receivables (184,182) (81,663) (7,656)
Net investment in capital and mortgage services 148,670 (2,324) 672,148
Investment in leveraged leases (138,527) (109,217) (95,600)
Investment in mortgage servicing rights (28,738) (211,374) (105,482)
Proceeds from sales of subsidiary - 789,936 -
Other investing activities (30,486) (8,004) 455
------------------------------------
Net cash (used in) provided by investing activities (537,502) 77,284 219,412
------------------------------------
Cash flows from financing activities:
Increase (decrease) in notes payable, net 77,230 (696,157) 89,536
Proceeds from long-term obligations 358,232 837,847 -
Principal payments on long-term obligations (94,687) (234,182) (256,326)
Proceeds from issuance of stock 56,368 49,521 33,396
Stock repurchases (438,229) (578,464) (662,758)
Proceeds from preferred stock issued by a subsidiary - 10,097 100,000
Dividends paid (272,866) (247,484) (231,392)
------------------------------------
Net cash used in financing activities (313,952) (858,822) (927,544)
------------------------------------
Effect of exchange rate changes on cash (1,046) (1,879) (639)
------------------------------------
Increase (decrease) in cash and cash equivalents 128,586 (11,389) 1,802
Cash and cash equivalents at beginning of year 125,684 137,073 135,271
------------------------------------
Cash and cash equivalents at end of year $ 254,270 $ 125,684 $ 137,073
====================================
Interest paid $ 218,931 $ 187,339 $ 203,870
====================================
Income taxes paid, net $ 67,647 $ 172,638 $ 159,854
====================================
</TABLE>

See notes, pages 52 through 68

50

Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Accumulated
Capital in other Treasury
Preferred Preference Common excess of Comprehensive Retained comprehensive stock,
stock stock stock par value income earnings income at cost
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $46 $2,369 $323,338 $30,260 $2,450,294 $(31,297) $ (535,964)
Net income $526,027 526,027
Other comprehensive income:
Translation adjustments (32,051) (32,051)
--------
Comprehensive income $493,976
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (179)
Common ($.80 per share) (231,212)
Issuances of common stock (2,741) 33,997
Conversions to common stock (7) (149) (1,940) 2,096
Repurchase of common stock (662,758)
Tax credits relating to
stock options 2,449
-------------------------------------------------------------------------------------------------
Balance, December 31, 1997 39 2,220 323,338 28,028 2,744,929 (63,348) (1,162,629)
Net income $576,394 576,394
Other comprehensive income:
Translation adjustments (24,869) (24,869)
--------
Comprehensive income $551,525
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (164)
Common ($.90 per share) (247,319)
Issuances of common stock (21,051) 58,597
Conversions to common stock (5) (189) (3,106) 3,300
Repurchase of common stock (578,464)
Tax credits relating to
stock options 12,302
-------------------------------------------------------------------------------------------------
Balance, December 31, 1998 34 2,031 323,338 16,173 3,073,839 (88,217) (1,679,196)
Net income $636,212 636,212
Other comprehensive income:
Translation adjustments (4,798) (4,798)
--------
Comprehensive income $631,414
========
Cash dividends:
Preferred ($2.00 per share) (1)
Preference ($2.12 per share) (150)
Common ($1.02 per share) (272,715)
Issuances of common stock (5,431) 52,403
Conversions to common stock (5) (190) (3,679) 3,872
Repurchase of common stock (438,229)
Tax credits relating to
stock options 10,319
-------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $29 $1,841 $323,338 $17,382 $3,437,185 $(93,015) $(2,061,150)
=================================================================================================
</TABLE>

See notes, pages 52 through 68

51

Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data or as otherwise indicated)

1. Summary of significant accounting policies


Consolidation

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

Use of estimates

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

Cash equivalents, short-term investments and accounts receivable

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

Inventory valuation

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

Fixed assets and depreciation

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

Capitalized computer software costs

The company capitalizes certain costs of internally developed software.
Capitalized costs include purchased materials and services, payroll and payroll
related costs and interests costs. The cost of internally developed software is
amortized on a straight-line basis over appropriate periods, principally three
to five years.

Rental arrangements and advance billings

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

Financing transactions

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

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

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

The company has, from time to time, sold selected finance assets. The company
follows Statement of Financial Accounting Standards (FAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," when accounting for its sale of finance assets. All assets
obtained or liabilities incurred in consideration are recognized as proceeds of
the sale and any gain or loss on the sale is recognized in earnings.

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

52

Goodwill

Goodwill represents the excess of cost over the value of net tangible assets
acquired in business combinations and is amortized using the straight-line
method over appropriate periods, principally 40 years. Goodwill and other long-
lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be fully recoverable. If
such a change in circumstances occurs, the related estimated future undiscounted
cash flows expected to result from the use of the asset and its eventual
disposition, are compared to the carrying amount. If the sum of the expected
cash flows is less than the carrying amount, the company records an impairment
loss. The impairment loss is measured as the amount by which the carrying amount
exceeds the fair value of the asset.

Revenue

Sales revenue is primarily recognized when a product is shipped. Support
services revenue is primarily recognized over the term of the service contract
or as services are rendered.

Costs and expenses

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

Income taxes

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

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

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

It has not been necessary to provide for income taxes on $255 million of
cumulative undistributed earnings of subsidiaries outside the U.S. These
earnings will be either indefinitely reinvested or remitted substantially free
of additional tax. Determination of the liability that would result in the event
all of these earnings were remitted to the U.S. is not practicable. It is
estimated, however, that withholding taxes on such remittances would approximate
$8 million.

Nonpension postretirement benefits and postemployment benefits

It is the company's practice to fund amounts for nonpension postretirement and
postemployment benefits as incurred. See Note 11 to the consolidated financial
statements.

Earnings per share

Basic earnings per share is based on the weighted average number of common
shares outstanding during the year, whereas diluted earnings per share also
gives effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares include preference stock,
preferred stock and stock option and purchase plan shares.

Foreign exchange

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

The company enters into foreign exchange contracts for purposes other than
trading primarily to minimize its risk of loss from exchange rate fluctuations
on the settlement of intercompany receivables and payables arising in connection
with transfers of finished goods inventories between affiliates and certain
intercompany loans. Gains and losses on foreign exchange contracts entered into
as hedges are deferred and recognized as part of the cost of the underlying
transaction. At December 31, 1999, the company had approximately $331 million of
foreign exchange contracts outstanding, most of which mature in 2000, to buy or
sell various currencies. Risks arise from the possible non-performance by
counterparties in meeting the terms of their contracts and from movements in
securities values, interest and/or exchange rates. However, the company does not
anticipate non-performance by the counterparties as they are composed of a
number of major international financial institutions. Maximum risk of loss on
these contracts is limited to the amount of the difference between the spot rate
at the date of the contract delivery and the contracted rate.

Foreign currency transaction gains and (losses) net of tax were $(.3) million,
$(1.2) million and $.5 million in 1999, 1998 and 1997, respectively.

Reclassification

Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.

2. Inventories

Inventories consist of the following:

December 31 1999 1998
------------------
Raw materials
and work in process $ 41,149 $ 54,001
Supplies and service parts 122,726 106,864
Finished products 93,577 105,869
------------------
Total $257,452 $266,734
==================


If all inventories valued at LIFO had been stated at current costs, inventories
would have been $22.4 million and $24.9 million higher than reported at December
31, 1999 and 1998, respectively.

53

3. Fixed assets

December 31 1999 1998
-----------------------
Land $ 34,697 $ 34,775
Buildings 305,111 305,596
Machinery and equipment 847,390 813,202
-----------------------
1,187,198 1,153,573
Accumulated depreciation (703,017) (676,097)
-----------------------
Property, plant and equipment, net $ 484,181 $ 477,476
=======================
Rental equipment
and related inventories $1,706,306 $1,706,995
Accumulated depreciation (895,518) (900,410)
-----------------------
Rental equipment and
related inventories, net $ 810,788 $ 806,585
=======================
Property leased
under capital leases $ 27,217 $ 19,430
Accumulated amortization (16,077) (15,687)
-----------------------
Property leased
under capital leases, net $ 11,140 $ 3,743
=======================


4. Current liabilities

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


December 31 1999 1998
-----------------------
Accounts payable-trade $ 233,947 $ 265,144
Accrued salaries, wages
and commissions 138,132 134,262
Accrued pension benefits 29,086 95,341
Accrued nonpension
postretirement benefits 15,500 15,500
Accrued postemployment benefits 6,900 6,900
Miscellaneous accounts
payable and accrued liabilities 492,261 381,401
-----------------------
Accounts payable
and accrued liabilities $ 915,826 $ 898,548
=======================

Notes payable and overdrafts $1,128,332 $1,051,182
Current portion of long-term debt 190,391 206,253
Current portion of
capital lease obligations 1,609 1,758
-----------------------
Notes payable and current
portion of long-term obligations $1,320,332 $1,259,193
=======================


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

Notes payable were issued as commercial paper, loans against bank lines of
credit, or to trust departments of banks and others at below prevailing prime
rates. Fees paid to maintain lines of credit were $1.0 million in 1999 and $.9
million in 1998 and 1997.

At December 31, 1999, overdrafts outside the U.S. totaled $3.1 million and U.S.
notes payable totaled $1.1 billion. Unused credit facilities outside the U.S.
totaled $47.7 million at December 31, 1999, of which $35.4 million were for
finance operations. In the U.S., the company had unused credit facilities of
$1.8 billion at December 31, 1999, largely in support of commercial paper
borrowings, of which $1.2 billion were for its finance operations. The weighted
average interest rates were 3.6% and 2.9% on notes payable and overdrafts
outstanding at December 31, 1999 and 1998, respectively.

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

The company enters into interest rate swap agreements primarily through Pitney
Bowes Credit Corporation (PBCC), a wholly-owned subsidiary of the company. It
has been the policy and objective of the company to use a balanced mix of debt
maturities, variable and fixed rate debt and interest rate swap agreements to
manage interest rate risk. The company's variable and fixed rate debt mix, after
adjusting for the effect of interest rate swap agreements, was 50% and 50%,
respectively, at December 31, 1999. The company utilizes interest rate swap
agreements when it considers the economic benefits to be favorable. At December
31, 1999, the company had outstanding interest rate swap agreements with
notional principal amounts of $606.1 million and terms expiring at various dates
from 2002 to 2009. The company exchanged $256.1 million notional principal
amounts of variable commercial paper rates on an equal notional amount of notes
payable and overdrafts for fixed rates ranging from 5.5% to 8.9%. In addition,
the company exchanged $350.0 million notional principal amounts of fixed rate
debt on an equal notional amount of variable rate debt. The variable rates for
the swaps are based on six month LIBOR plus a spread, equal to the difference
between the fixed rate of the debt and the fixed rate currently available for
similar debt.

54

5. Long-term debt

December 31 1999 1998
----------------------
Non-financial services debt:
5.50% notes due 2004 $ 200,000 $ -
6.46% notes due 2004 150,000 -
5.95% notes due 2005 300,000 300,000
Other 7,748 11,757
Financial services debt:
Senior notes:
6.06% to 6.11% notes due 2000 - 50,000
5.65% to 6.77% notes due 2001 282,000 282,000
6.78% to 6.80% notes due 2001 200,000 200,000
6.63% notes due 2002 100,000 100,000
5.65% notes due 2003 250,000 250,000
8.80% notes due 2003 150,000 150,000
8.63% notes due 2008 100,000 100,000
9.25% notes due 2008 100,000 100,000
8.55% notes due 2009 150,000 150,000
Canadian dollar notes due
2000 (11.05% to 11.20%) - 10,857
Other 8,108 8,323
----------------------
Total long-term debt $1,997,856 $1,712,937
======================


The company has a medium-term note facility, which was established as a part of
the company's shelf registrations, permitting issuance of up to $500 million in
debt securities with a minimum maturity of nine months, of which $300 million
remained available at December 31, 1999.

PBCC has $625 million of unissued debt securities available from a shelf
registration statement filed with the Securities and Exchange Commission (SEC)
in July 1998. As part of this shelf registration statement, in August 1999, PBCC
established a medium-term note program for the issuance from time to time of up
to $500 million aggregate principal amount of Medium-Term Notes, Series D, of
which $375 million remained available at December 31, 1999.

The annual maturities of the outstanding debt during each of the next five years
are as follows: 2000, $190.4 million; 2001, $486.0 million; 2002, $102.2
million; 2003, $401.4 million; 2004, $350.2 million; and $658.1 million
thereafter.

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

6. Preferred stockholders' equity in a subsidiary company

Preferred stockholders' equity in a subsidiary company represents 3,000,000
shares of variable term voting preferred stock issued by Pitney Bowes
International Holdings, Inc., a subsidiary of the company, which are owned by
certain outside institutional investors. These preferred shares are entitled to
25% of the combined voting power of all classes of capital stock. All
outstanding common stock of Pitney Bowes International Holdings, Inc.,
representing the remaining 75% of the combined voting power of all classes of
capital stock, is owned directly or indirectly by Pitney Bowes Inc. The
preferred stock, $.01 par value, is entitled to cumulative dividends at rates
set at auction. The weighted average dividend rate in 1999 and 1998 was 4.0% and
4.1%, respectively. Preferred dividends are reflected as a minority interest in
the Consolidated Statements of Income in selling, service and administrative
expenses. The preferred stock is subject to mandatory redemption based on
certain events, at a redemption price not less than $100 per share, plus the
amount of any dividends accrued or in arrears. No dividends were in arrears at
December 31, 1999 or 1998.

In 1998, the company sold 100 shares of 9.11% Cumulative Preferred Stock,
mandatorily redeemable in 20 years, in a subsidiary company to an institutional
investor for approximately $10 million.

7. Capital stock and capital in excess of par value

At December 31, 1999, 480,000,000 shares of common stock, 600,000 shares of
cumulative preferred stock, and 5,000,000 shares of preference stock were
authorized, and 264,694,946 shares of common stock (net of 58,642,966 shares of
treasury stock), 588 shares of 4% Convertible Cumulative Preferred Stock (4%
preferred stock) and 67,967 shares of $2.12 Convertible Preference Stock ($2.12
preference stock) were issued and outstanding. In the future, the Board of
Directors can issue the balance of unreserved and unissued preferred stock
(599,412 shares) and preference stock (4,932,033 shares). This will determine
the dividend rate, terms of redemption, terms of conversion (if any) and other
pertinent features. At December 31, 1999, unreserved and unissued common stock
(exclusive of treasury stock) amounted to 114,964,638 shares.

The 4% preferred stock outstanding, entitled to cumulative dividends at the rate
of $2 per year, can be redeemed at the company's option, in whole or in part at
any time, at the price of $50 per share, plus dividends accrued to the
redemption date. Each share of the 4% preferred stock can be converted into
24.24 shares of common stock, subject to adjustment in certain events.

The $2.12 preference stock is entitled to cumulative dividends at the rate of
$2.12 per year and can be redeemed at the company's option at the rate of $28
per share. Each share of the $2.12 preference stock can be converted into 16
shares of common stock, subject to adjustment in certain events.

At December 31, 1999, a total of 1,101,725 shares of common stock were reserved
for issuance upon conversion of the 4% preferred stock (14,253 shares) and $2.12
preference stock (1,087,472 shares). In addition, 2,124,666 shares of common
stock were reserved for issuance under the company's dividend reinvestment and
other corporate plans.

55

Each share of common stock outstanding has attached one preference share
purchase right. Each right entitles each holder to purchase 1/200th of a share
of Series A Junior Participating Preference Stock for $97.50 and will expire in
February 2006. Following a merger or certain other transactions, the rights will
entitle the holder to purchase common stock of the company or the acquirers at a
50% discount.

8. Stock plans

The company has the following stock plans which are described below: the U.S.
and U.K. Stock Option Plans (ESP), the U.S. and U.K. Employee Stock Purchase
Plans (ESPP), and the Directors' Stock Plan.

The company adopted FAS No. 123, "Accounting for Stock-Based Compensation," on
January 1, 1996. Under FAS No. 123, companies can, but are not required to,
elect to recognize compensation expense for all stock-based awards using a fair
value methodology. The company has adopted the disclosure-only provisions, as
permitted by FAS No. 123. The company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock-based
plans. Accordingly, no compensation expense has been recognized for the ESP or
the ESPP, except for the compensation expense recorded for its performance-based
awards under the ESP and the Directors' Stock Plan as discussed herein. If the
company had elected to recognize compensation expense based on the fair value
method as prescribed by FAS No. 123, net income and earnings per share for the
years ended 1999, 1998 and 1997 would have been reduced to the following pro
forma amounts:

1999 1998 1997
----------------------------
Net Income
As reported $636,212 $576,394 $526,027
Pro forma $619,625 $567,907 $523,400
Basic earnings per share
As reported $2.38 $2.10 $1.82
Pro forma $2.32 $2.07 $1.81
Diluted earnings per share
As reported $2.34 $2.06 $1.80
Pro forma $2.28 $2.03 $1.79
----------------------------


In accordance with FAS No. 123, the fair value method of accounting has not been
applied to awards granted prior to January 1, 1995. Therefore, the resulting pro
forma impact may not be representative of that to be expected in future years.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

1999 1998 1997
-------------------
Expected dividend yield 2.0% 1.5% 2.0%
Expected stock price volatility 21% 18% 17%
Risk-free interest rate 6% 5% 6%
Expected life (years) 5 5 5
-------------------


Stock Option Plans

Under the company's stock option plans, certain officers and employees of the
U.S. and the company's participating subsidiaries are granted options at prices
equal to the market value of the company's common shares at the date of grant.
Options generally become exercisable in three equal installments during the
first three years following their grant and expire after ten years. In 1999, the
plans were amended to allow options granted on or after January 1, 1999 to be
fully vested to optionees (or their beneficiaries) in certain events. In
addition, the U.S. stock option plan was amended to permit optionees to gift
vested options to family members, trusts or partnerships. At December 31, 1999,
there were 18,337,216 options available for future grants under these plans. The
per share weighted average fair value of options granted was $15 in 1999, $11 in
1998 and $7 in 1997.

The following table summarizes information about stock option
transactions:

Per share
weighted
average
exercise
Shares price
----------------------------
Options outstanding
at January 1, 1997 4,377,974 $18
Granted 1,837,730 $30
Exercised (774,728) $17
Canceled (67,852) $28
----------------------------
Options outstanding
at December 31, 1997 5,373,124 $23
Granted 3,039,344 $47
Exercised (884,512) $17
Canceled (142,953) $40
----------------------------
Options outstanding
at December 31, 1998 7,385,003 $33
Granted 3,288,716 $65
Exercised (967,657) $21
Canceled (208,065) $52
----------------------------
Options outstanding
at December 31, 1999 9,497,997 $45
============================

Options exercisable
at December 31, 1997 2,703,734 $18
============================
Options exercisable
at December 31, 1998 2,966,399 $21
============================
Options exercisable
at December 31, 1999 3,790,291 $29
============================

The following tables summarize information about stock options outstanding and
exercisable at December 31, 1999:

Options Outstanding
- --------------------------------------------------------------------
Weighted Per share
Range of average weighted
per share remaining average
exercise prices Number contractual life exercise price
- --------------------------------------------------------------------
$12-$18 780,731 4.2 years $16
$19-$28 1,219,226 6.1 years $23
$29-$43 1,636,286 8.1 years $31
$44-$66 5,861,754 9.5 years $57
- --------------------------------------------------------------------
9,497,997 8.4 years
====================================================================

56

Options Exercisable
- ----------------------------------------------------------------
Per share
Range of weighted
per share average
exercise prices Number exercise price
- ----------------------------------------------------------------
$12-$18 780,731 $16
$19-$28 1,216,861 $23
$29-$43 909,569 $30
$44-$66 883,130 $47
- ----------------------------------------------------------------
3,790,291
================================================================

Beginning in 1997, certain employees eligible for performance-based compensation
may defer up to 100% of their annual awards, subject to the terms and conditions
of the Pitney Bowes Deferred Incentive Savings Plan. Participants may allocate
deferred compensation among specified investment choices, including stock
options under the U.S. stock option plan. Stock options acquired under this plan
are generally exercisable three years following their grant and expire after a
period not to exceed ten years. There were 220,647, 156,158 and 90,904 options
outstanding under this plan at December 31, 1999, 1998 and 1997, respectively,
which are included in outstanding options under the company's U.S. stock option
plan. The per share weighted average fair value of options granted was $16 in
1999, $10 in 1998 and $7 in 1997.

The U.S. stock option plan permits the issuance of restricted stock. Restricted
stock awards are subject to both tenure and financial performance over three
years. The restrictions on the shares are released, in total or in part, only if
the executive is still employed by the company at the end of the performance
period and if the performance objectives are achieved. The compensation expense
for each award is recognized over the performance period. There were no shares
awarded in 1999, 1998 and 1997. Compensation expense recorded by the company
related to these awards was $1.7 million in 1998 and $4.1 million in 1997.

Employee Stock Purchase Plans

The U.S. ESPP enables substantially all employees to purchase shares of the
company's common stock at a discounted offering price. In 1999, the offering
price was 90% of the average closing price of the company's common stock on the
New York Stock Exchange for the 30 day period preceding the offering date. At no
time will the exercise price be less than the lowest price permitted under
Section 423 of the Internal Revenue Code. The U.K. ESPP enables eligible
employees of the company's participating U.K. subsidiaries to purchase shares of
the company's stock at a discounted offering price. In 1999, the offering price
was 90% of the average closing price of the company's common stock on the New
York Stock Exchange for the three business days preceding the offering date. The
company may grant rights to purchase up to 9,523,018 common shares to its
regular employees under these plans. The company granted rights to purchase
1,016,480 shares in 1999, 593,256 shares in 1998, and 855,916 shares in 1997.
The per share fair value of rights granted was $11 in 1999, $7 in 1998 and $4 in
1997 for the U.S. ESPP and $17 in 1999, $14 in 1998 and $9 in 1997 for the U.K.
ESPP.

Directors' Stock Plan

Under this plan, each non-employee director is granted 1,400 shares of
restricted common stock annually as part of their compensation. Shares granted
at no cost to the directors were 12,600 in 1999, 11,600 in 1998 and 10,900 in
1997. Compensation expense recorded by the company was $873,000, $560,000 and
$370,000 for 1999, 1998 and 1997, respectively. The shares carry full voting and
dividend rights but, except as provided herein, may not be transferred or
alienated until the later of (1) termination of service as a director, or, if
earlier, the date of a change of control, or (2) the expiration of the six month
period following the grant of such shares. In 1999, the Directors' Stock Plan
was amended to permit certain dispositions of restricted common stock to family
members, trusts or partnerships, as well as donations to charity after the
expiration of the six month holding period, provided the director retain
restricted common stock with a minimum market value of $350,000. The per share
weighted average fair value of shares granted was $57 in 1999, $42 in 1998 and
$28 in 1997.

Beginning in 1997, non-employee directors may defer up to 100% of their eligible
compensation, subject to the terms and conditions of the Pitney Bowes Deferred
Incentive Savings Plan for directors. Participants may allocate deferred
compensation among specified investment choices, including stock options under
the Directors' Stock Plan. Stock options acquired under this plan are generally
exercisable three years following their grant and expire after a period not to
exceed ten years. There were 8,823, 4,822 and 1,994 options outstanding under
this plan at December 31, 1999, 1998 and 1997, respectively. The per share
weighted average fair value of options granted was $14 in 1999, $12 in 1998 and
$9 in 1997.

9. Earnings per share

A reconciliation of the basic and diluted earnings per share computations for
income from continuing operations for the years ended December 31, 1999, 1998
and 1997 is as follows:
1999
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $659,159
Less:
Preferred stock dividends (1)
Preference stock dividends (150)
------------------------------------
Basic earnings per share 659,008 267,504,030 $2.47
------------------------------------
Effect of dilutive securities:
Preferred stock 1 15,185
Preference stock 150 1,143,691
Stock options 3,008,359
Other 334,878
------------------------------------
Diluted earnings per share $659,159 272,006,143 $2.42
====================================

57

1998
------------------------------------
Per
Income Shares Share
------------------------------------
Income from
continuing operations $542,512
Less:
Preferred stock dividends (1)
Preference stock dividends (164)
------------------------------------
Basic earnings per share 542,347 274,977,135 $1.98
------------------------------------
Effect of dilutive securities:
Preferred stock 1 16,863
Preference stock 164 1,250,592
Stock options 2,892,149
Other 519,864
------------------------------------
Diluted earnings per share $542,512 279,656,603 $1.94
====================================

1997
-------------------------------------
Per
Income Shares Share
-------------------------------------

Income from
continuing operations $492,352
Less:
Preferred stock dividends (1)
Preference stock dividends (179)
-------------------------------------
Basic earnings per share 492,172 288,782,996 $1.70
-------------------------------------

Effect of dilutive securities:
Preferred stock 1 21,420
Preference stock 179 1,355,116
Stock options 2,068,442
Other 289,142
-------------------------------------
Diluted earnings per share $492,352 292,517,116 $1.68
=====================================
10. Taxes on income

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

Years ended December 31
---------------------------------
1999 1998 1997
---------------------------------
Income from continuing
operations before
income taxes:
U.S. $865,981 $732,214 $ 663,194
Outside the U.S. 118,591 92,390 85,231
----------------------------------
Total $984,572 $824,604 $ 748,425
==================================
Provision for income taxes:
U.S. federal:
Current $163,553 $ 87,326 $ 92,517
Deferred 72,927 130,479 108,645
----------------------------------
236,480 217,805 201,162
----------------------------------
U.S. state and local:
Current 42,887 21,046 39,313
Deferred 7,997 23,566 (6,969)
----------------------------------
50,884 44,612 32,344
----------------------------------
Outside the U.S.:
Current 32,236 29,919 33,596
Deferred 5,813 (10,244) (11,029)
----------------------------------
38,049 19,675 22,567
----------------------------------
Total current 238,676 138,291 165,426
Total deferred 86,737 143,801 90,647
----------------------------------
Total $325,413 $282,092 $256,073
==================================

Including discontinued operations, the provision for income taxes consists of
the following:

Years ended December 31
-----------------------------------
1999 1998 1997
-----------------------------------
U.S. federal $223,699 $236,031 $219,291
U.S. state and local 47,460 45,767 35,213
Outside the U.S. 38,049 19,675 22,567
-----------------------------------
Total $309,208 $301,473 $277,071
===================================


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

1999 1998 1997
-------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 3.4 3.5 2.9
Foreign tax differential (0.4) (1.5) (1.0)
Partnership leasing transactions (2.7) (1.5) (0.3)
Life insurance investment - (0.3) (0.8)
Other (2.2) (1.0) (1.6)
-------------------
Effective income tax rate 33.1% 34.2% 34.2%
===================
58

The effective tax rate for discontinued operations in 1999, 1998 and 1997
differs from the statutory rate due primarily to state and local income taxes.
<TABLE>
<CAPTION>
Deferred tax liabilities and (assets)

December 31 1999 1998
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 117,657 $ 113,455
Deferred profit
(for tax purposes) on
sales to finance subsidiaries 429,955 416,941
Lease revenue and
related depreciation 855,000 823,914
Loss on the sale of preferred stock 99,781 -
Other 150,276 134,147
-----------------------
Deferred tax liabilities 1,652,669 1,488,457
-----------------------
Deferred tax assets:
Nonpension postretirement
benefits (122,064) (122,481)
Inventory and
equipment capitalization (38,348) (40,745)
Net operating loss carryforwards (38,175) (42,950)
Other (218,797) (219,947)
Valuation allowance 35,443 39,872
-----------------------
Deferred tax assets (381,941) (386,251)
-----------------------
Net deferred taxes 1,270,728 1,102,206
Less: Current net deferred taxes (a) 188,709 181,685
-----------------------
Deferred taxes on income $1,082,019 $ 920,521
=======================
</TABLE>
(a) The table of deferred tax liabilities and (assets) above includes $188.7
million and $181.7 million for 1999 and 1998, respectively, of current net
deferred taxes, which are included in income taxes payable in the Consolidated
Balance Sheets.

The decrease in the deferred tax asset for net operating loss carryforwards and
related valuation allowance was mainly due to the utilization of foreign tax
loss carryforwards in Germany and Australia. At December 31, 1999 and 1998,
approximately $82.9 million and $90.6 million, respectively, of net operating
loss carryforwards were available to the company. Most of these losses can be
carried forward indefinitely.

11. Retirement plans and nonpension
postretirement benefits

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

During 1997, the company announced that it amended its U.S. defined benefit
pension plan to a pay equity plan for most of its active U.S. employees. A pay
equity plan is a defined benefit pension plan in which pension benefits are
defined as a lump sum amount based on final average pay. The prior plan was a
defined benefit plan in which pension benefits were defined as annual annuity
amounts based on final average pay. In addition, the company enhanced the
employer contributions to the U.S. defined contribution plan. The net impact of
these changes was a reduction in 1997 U.S. pension plan costs of approximately
$15.4 million and a reduction in the projected benefit obligation for the U.S.
defined benefit plan of $74.3 million. The reduction in pension costs and the
projected benefit obligation result from the fact that the value of pension
benefits are lower under the pay equity plan than under the prior plan using the
actuarial assumptions disclosed.

The company contributed $19.7 million, $32.0 million and $16.9 million to its
defined contribution plans in 1999, 1998 and 1997, respectively.

59

The change in benefit obligations and plan assets and the funded status for
defined benefit pension plans is as follows:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------
United States Foreign
----------------------- ---------------------
December 31 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligations at beginning of year $1,030,379 $ 968,950 $ 204,510 $ 179,713
Service cost 24,863 22,754 5,770 5,641
Interest cost 73,340 70,341 12,171 12,293
Amendments - - 2,619 1,393
Actuarial (gain) loss (58,808) 40,708 (2,969) 19,722
Foreign currency changes - - (1,102) (4,543)
Benefits paid (73,202) (72,374) (10,587) (9,709)
-----------------------------------------------
Benefit obligations at end of year $ 996,572 $1,030,379 $ 210,412 $ 204,510
===============================================

Change in plan assets:
Fair value of plan assets at beginning of year $1,023,417 $ 959,632 $ 202,579 $ 209,629
Actual return on plan assets 320,251 134,853 30,672 2,819
Company contribution 68,921 1,306 7,782 6,396
Foreign currency changes - - 299 (6,556)
Benefits paid (73,202) (72,374) (10,357) (9,709)
-----------------------------------------------
Fair value of plan assets at end of year $1,339,387 $1,023,417 $ 230,975 $ 202,579
===============================================

Funded status $ 342,815 $ (6,962) $ 20,561 $ (1,931)
Unrecognized actuarial (gain) loss (315,968) (23,902) (7,975) 8,353
Unrecognized prior service cost (42,535) (46,318) 4,756 5,448
Unrecognized transition cost (3,099) (6,278) (5,987) (6,221)
-----------------------------------------------
(Accrued) prepaid benefit cost $ (18,787) $ (83,460) $ 11,355 $ 5,649
===============================================

Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost $ 12,887 $ - $ 19,683 $ 16,181
Accrued benefit liability (31,674) (83,460) (8,328) (10,532)
Additional minimum liability - - (728) (136)
Intangible asset - - 728 136
-----------------------------------------------
(Accrued) prepaid benefit cost $ (18,787) $ (83,460) $ 11,355 $ 5,649
===============================================

Weighted average assumptions:
Discount rate 7.75% 7.00% 3.0%-7.0% 3.5%-7.0%
Expected return on plan assets 9.30% 9.30% 4.0%-8.3% 4.0%-8.3%
Rate of compensation increase 4.25% 4.25% 2.0%-4.5% 2.0%-5.0%
</TABLE>
At December 31, 1999, 4,900 shares of the company's common stock with a fair
value of $.2 million were included in the plan assets of the company's pension
plan.

The company provides certain health care and life insurance benefits to eligible
retirees and their dependents. The cost of these benefits are recognized over
the period the employee provides credited service to the company. Substantially
all of the company's U.S. and Canadian employees become eligible for retiree
health care benefits after reaching age 55 and with the completion of the
required service period. Postemployment benefits included primarily company-
provided medical benefits to disabled employees and company-provided life
insurance as well as other disability and death-related benefits to former or
inactive employees, their beneficiaries and covered dependents.

During 1997, the company amended its retiree medical program for current and
future retirees of Pitney Bowes Management Services who will now have increased
contributions.

During 1999, the company amended its retiree medical program to increase plan
participants' contributions for current and future retirees and to eliminate
retiree life insurance for future retirees.

60

The change in benefit obligations and plan assets and the funded status for
nonpension postretirement benefit plans is as follows:

Nonpension Postretirement Benefits
----------------------------------
December 31 1999 1998
----------------------------------
Change in benefit obligation:
Benefit obligations at
beginning of year $ 314,699 $ 306,722
Service cost 9,003 9,423
Interest cost 15,733 18,952
Plan participants' contributions 1,575 1,305
Actuarial gain (13,002) (720)
Foreign currency changes 343 (464)
Benefits paid (23,781) (19,938)
Plan amendments (39,800) (581)
----------------------------------
Benefit obligations at end of year $ 264,770 $ 314,699
==================================

Nonpension Postretirement Benefits
----------------------------------
December 31 1999 1998
-----------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ - $ -
Company contribution 22,206 18,633
Plan participants' contributions 1,575 1,305
Benefits paid (23,781) (19,938)
-----------------------------
Fair value of plan assets at end of year $ - $ -
=============================

Funded status $(264,770) $(314,699)
Unrecognized actuarial gain (15,093) (2,094)
Unrecognized prior service cost (34,679) (7,826)
-----------------------------
Accrued benefit cost $(314,542) $(324,619)
=============================

The assumed weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.75% in 1999 and 7.0% in 1998.

The components of the net periodic benefit cost for defined pension plans and
nonpension postretirement benefit plans are as follows:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------------------------
United States Foreign
-------------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 24,863 $ 22,754 $ 22,780 $ 5,770 $ 5,641 $ 6,771
Interest cost 73,340 70,341 67,111 12,171 12,293 12,515
Expected return on plan assets (87,845) (78,100) (75,518) (15,936) (14,779) (14,676)
Amortization of transition cost (3,179) (3,179) (3,179) (1,555) (1,604) (1,614)
Amortization of prior service costs (3,784) (3,784) (3,766) 1,601 1,595 1,477
Recognized net actuarial loss 854 559 977 1,716 - 7
-----------------------------------------------------------------
Net periodic benefit cost $ 4,249 $ 8,591 $ 8,405 $ 3,767 $ 3,146 $ 4,480
=================================================================

</TABLE>

<TABLE>
<CAPTION>
Nonpension Postretirement Benefits
----------------------------------
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Service cost $ 9,003 $ 9,423 $ 9,688
Interest cost 15,733 18,952 18,770
Amortization of prior
service costs (12,972) (15,873) (16,045)
Recognized net actuarial loss 41 58 -
----------------------------------
Net periodic benefit cost $ 11,805 $ 12,560 $ 12,413
==================================
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 7.75% in 1999 and 7.0% in 1998. This was
assumed to gradually decline to 4.75% by the year 2003 and remain at that level
thereafter.

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (in millions):

1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------------------------
Effect on total of service
and interest cost components $ 1,238 $ 1,179
Effect on postretirement
benefit obligation $11,581 $11,030

12. Discontinued Operations

On January 14, 2000, the company sold Atlantic Mortgage & Investment Corporation
(AMIC), a wholly-owned subsidiary of the company to ABN AMRO North America. The
company received approximately $484 million in cash at closing. In connection
with the sale, the company recorded a loss of approximately $27.6 million (net
of taxes of $18.4 million) for the year ended December 31, 1999. The transaction
is subject to post-closing adjustments.
61

Revenue of AMIC was $114.9 million, $129.6 million and $73.2 million for the
years ended December 31, 1999, 1998, and 1997, respectively. Net interest
expense allocated to AMIC's discontinued operation was $5.6 million, $4.9
million and $.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest has been allocated based on AMIC's net intercompany
borrowing levels with PBCC, charged at PBCC's weighted average borrowing rate,
offset by the interest savings PBCC realizes due to borrowings against AMIC's
escrow deposits as opposed to regular commercial paper borrowings.

On October 30, 1998, Colonial Pacific Leasing Corporation (CPLC), a wholly-owned
subsidiary of the company, transferred the operations, employees and
substantially all assets related to its broker-oriented external financing
business to General Electric Capital Corporation (GECC), a subsidiary of the
General Electric Company. The company received approximately $790 million at
closing. In connection with this transaction, the company recorded a gain of
approximately $3.7 million (net of taxes of $2.0 million) for the year ended
December 31, 1999. This gain resulted from the settlement of post-closing
adjustments in 1999 related to the sale, offset by the cost of settlement with
regard to a dispute with GECC over certain assets that were included in the
sale.

Revenue of CPLC was $113.8 million and $180.5 million for the years ended
December 31, 1998 and 1997, respectively. Income from discontinued operations
includes allocated interest expense of $33.9 million and $46.2 million for the
years ended December 31, 1998 and 1997, respectively. Interest expense has been
allocated based on CPLC's intercompany borrowing levels with PBCC, charged at
PBCC's weighted average borrowing rate.

Operating results of both AMIC and CPLC have been segregated and reported as
discontinued operations in the Consolidated Statements of Income. Prior year
results have been reclassified to conform to the current year presentation. Net
assets of AMIC's discontinued operations have been separately classified in the
Consolidated Balance Sheet at December 31, 1999. Cash flow impacts of
discontinued operations have not been segregated in the Consolidated Statements
of Cash Flows. Details of income from discontinued operations, net of income
tax, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------
<S> <C> <C> <C>
AMIC $ 971 $25,429 $16,650
CPLC - 8,453 17,025
-----------------------
Income from
discontinued operations $ 971 $33,882 $33,675
</TABLE> =======================

13. Commitments, contingencies and
regulatory matters

The company's finance subsidiaries had no unfunded commitments to extend credit
to customers at December 31, 1999. The company evaluates each customer's
creditworthiness on a case-by-case basis. Upon extension of credit, the amount
and type of collateral obtained, if deemed necessary by the company, is based on
management's credit assessment of the customer. Fees received under the
agreements are recognized over the commitment period. The maximum risk of loss
arises from the possible non-performance of the customer to meet the terms of
the credit agreement. As part of the company's review of its exposure to risk,
adequate provisions are made for finance assets, which may be uncollectible.

From time to time, the company is a party to lawsuits that arise in the ordinary
course of its business. These lawsuits may involve litigation by or against the
company to enforce contractual rights under vendor, insurance, or other
contracts; lawsuits relating to intellectual property or patent rights;
equipment, service or payment disputes with customers; disputes with employees;
or other matters. The company is currently a plaintiff or a defendant in a
number of lawsuits, none of which should have, in the opinion of management and
legal counsel, a material adverse effect on the company's financial position or
results of operations.

The company is subject to federal, state and local laws and regulations relating
to the environment and is currently named as a member of various groups of
potentially responsible parties in administrative or court proceedings. As
previously announced by the company, in 1996 the Environmental Protection Agency
(EPA) issued an administrative order directing the company to be part of a soil
cleanup program at the Sarney Farm site in Amenia, New York. The site was
operated as a landfill between the years 1968 and 1970 by parties unrelated to
the company, and wastes from a number of industrial sources were disposed there.
The company does not concede liability for the condition of the site, but is
working with the EPA to identify and then seek reimbursement from, other
potentially responsible parties. Based on the facts presently known, the company
estimates the total cost of our remediation effort to be approximately $5
million. This amount has been recorded as a liability in the Consolidated
Balance Sheet at December 31, 1999. All of these proceedings are at various
stages of activity, and it is difficult to estimate with any certainty the total
cost of remediating, the timing or extent of remedial actions which may be
required by governmental authorities. However, the company does not believe that
the outcome of these proceedings will have a material adverse effect on its
financial condition or results of operations.

In January 2000, the U.S. Postal Service (USPS) issued a proposed schedule for
the phaseout of manually reset electronic meters in the U.S. As of February 1,
2000, new placements of manually reset electronic meters would no longer be
permitted. Current users of manually reset electronic meters can continue to use
these meters for the term of their current rental and lease agreements. Based on
the proposed schedule, the company believes that the phaseout of manually reset
electronic meters will not cause a material adverse financial impact on the
company.

As a result of the company's aggressive efforts to meet the USPS mechanical
meter migration phaseout schedule combined with the company's ongoing and
continuing investment in advanced postage evidencing technologies, mechanical
meters represented less than 1% of the company's installed U.S. meter base at
December 31, 1999, compared with 10% at December 31, 1998. At December 31, 1999,
over 99% of the company's installed U.S. meter base is electronic or digital,
compared with 90% at December 31, 1998. The company continues to work, in close
cooperation with the USPS, to convert those mechanical meter customers who have
not migrated to digital or electronic meters.

62

In May 1995, the USPS publicly announced its concept of its Information Based
Indicia Program (IBIP) for future postage evidencing devices. As initially
stated by the USPS, the purpose of the program was to develop a new standard for
future digital postage evidencing devices which significantly enhanced postal
revenue security and supported expanded USPS value-added services to mailers.
The program would consist of the development of four separate specifications:
(i) the Indicium specification--the technical specifications for the indicium to
be printed; (ii) a Postal Security Device specification--the technical
specification for the device that would contain the accounting and security
features of the system; (iii) a Host specification; and (iv) a Vendor
Infrastructure specification.

During the period from May 1995 through December 31, 1999, the company has
submitted extensive comments to a series of proposed IBIP specifications issued
by the USPS. In July 1999, the USPS issued the latest set of proposed
specifications, entitled "Performance Criteria for Information Based Indicia and
Security Architecture for Open IBI Postage Evidencing Systems" (the IBI
Performance Criteria). The company has submitted comments to the IBI Performance
Criteria.

As of December 31, 1999, the company is in the process of finalizing the
development of both PC and Internet versions of a product which satisfy the
proposed IBI Performance Criteria. These products are currently in the final
phase of beta testing and are expected to be ready for market upon final
approval from the USPS.

In June 1999, the company was served with a Civil Investigative Demand (CID)
from the Justice Department's Antitrust Division. A CID is a tool used by the
Antitrust Division for gathering information and documents. The company believes
that the Justice Department may be reviewing the company's efforts to protect
its intellectual property rights. The company believes it has complied fully
with the antitrust laws and is cooperating fully with the department's
investigation.

In August 1999, the USPS and the company announced that they had reached an
agreement (USPS Settlement) resolving a lawsuit filed by the company in 1997.
The lawsuit arose out of a dispute over a 1978 Statement of Understanding
authorizing the company to offer Postage by Phone(R), its proprietary version of
the Computerized Meter Resetting System. Under the terms of the agreement, the
company received $51.8 million, representing a portion of the financial benefit
that the USPS obtained as a result of the revised regulations. This payment, net
of related legal expenses of $2.2 million, was recorded as other income in the
Consolidated Statement of Income for the year ended December 31, 1999.

14. Leases

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

Future minimum lease payments under both capital and operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31 leases leases
<S> <C> <C>
------------------
2000 $ 2,761 $ 56,291
2001 2,621 43,873
2002 2,216 35,173
2003 1,858 23,833
2004 1,354 15,420
Thereafter 538 44,838
------------------
Total minimum lease payments $11,348 $219,428
Less: Amount representing interest 3,367 ========
Present value of net minimum -------
lease payments $ 7,981
</TABLE> =======

Rental expense was $101.2 million, $110.9 million and $116.3 million in 1999,
1998 and 1997, respectively.

15. Financial services

The company has several consolidated finance operations which are engaged in
lease financing of the company's products in the U.S., Canada, the U.K.,
Germany, France, Norway, Ireland, Australia, Austria, Spain, Switzerland and
Sweden, as well as other financial services to the commercial and industrial
markets in the U.S.

As discussed in Note 12, CPLC transferred the operations, employees and
substantially all assets related to its broker-oriented external financing
business to GECC in 1998.

On August 21, 1997, the company announced that it had entered into an agreement
with GATX Capital Corporation (GATX Capital), a subsidiary of GATX Corporation,
which reduced the company's external large-ticket finance portfolio by
approximately $1.1 billion. This represented approximately 50% of the company's
external large-ticket portfolio and reflects the company's ongoing strategy of
focusing on fee- and service-based revenue rather than asset-based income.

Under the terms of the agreement, the company transferred external large-ticket
finance assets through a sale to GATX Capital and an equity investment in a
limited liability company owned by GATX Capital and the company. The company
received approximately $867 million in net cash relating to this transaction
during 1997, 1998 and 1999. At December 31, 1999, the company retained
approximately $167.1 million of equity investment in a limited liability company
along with GATX Capital.

63

Condensed financial data for the consolidated finance operations follows:

Condensed summary of operations


Years ended December 31 1999 1998 1997
----------------------------------
Revenue $667,757 $600,693 $608,641
----------------------------------
Costs and expenses 244,019 184,213 180,100
Interest, net 132,913 139,845 167,490
----------------------------------
Total expenses 376,932 324,058 347,590
----------------------------------
Income before
income taxes 290,825 276,635 261,051
Provision for
income taxes 71,312 71,952 72,279
----------------------------------
Income from
continuing operations 219,513 204,683 188,772
Income from discontinued
operations, net of income tax - 8,453 17,025
Gain on sale of discontinued
operations, net of income tax 3,682 - -
----------------------------------
Net income $223,195 $213,136 $205,797
==================================
Condensed balance sheet

December 31 1999 1998
------------------------
Cash and cash equivalents $ 142,782 $ 27,057
Finance receivables, net 1,779,696 1,400,786
Accounts receivable 49,413 560,177
Other current assets and
prepayments 98,292 54,846
------------------------
Total current assets 2,070,183 2,042,866
Long-term finance receivables, net 1,907,431 1,999,339
Investment in leveraged leases 969,589 827,579
Other assets 588,678 315,821
------------------------
Total assets $5,535,881 $5,185,605
========================
Accounts payable and
accrued liabilities $ 491,036 $ 499,204
Income taxes payable 179,948 146,913
Notes payable and
current portion
of long-term obligations 933,823 699,453
------------------------
Total current liabilities 1,604,807 1,345,570
Deferred taxes on income 379,141 349,082
Long-term debt 2,030,551 2,097,737
Other noncurrent liabilities 777 878
------------------------

Total liabilities 4,015,276 3,793,267
Equity 1,520,605 1,392,338
------------------------
Total liabilities and equity $5,535,881 $5,185,605
========================

Finance receivables are generally due in monthly, quarterly or semiannual
installments over periods ranging from three to 15 years. In addition, 16% of
the company's net finance assets represent secured commercial and private jet
aircraft transactions with lease terms ranging from two to 23 years. The company
considers its credit risk for these leases to be minimal since all aircraft
lessees are making payments in accordance with lease agreements. The company
believes any potential exposure in aircraft investment is mitigated by the value
of the collateral as the company retains a security interest in the leased
aircraft.

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

Gross finance Notes payable, current
Years ending December 31 receivables and long-term debt
-------------------------------------
2000 $2,061,297 $ 933,823
2001 873,138 482,000
2002 571,388 100,000
2003 284,569 400,000
2004 90,149 -
Thereafter 211,275 1,048,551
-------------------------------------
Total $4,091,816 $2,964,374
=====================================

Finance operations' net purchases of Pitney Bowes equipment amounted to $795.4
million, $750.8 million and $667.3 million in 1999, 1998 and 1997, respectively.
The components of net finance receivables were as follows:

December 31 1999 1998
-----------------------
Gross finance receivables $4,091,816 $3,902,585
Residual valuation 498,386 479,777
Initial direct cost deferred 53,439 55,176
Allowance for credit losses (104,721) (130,775)
Unearned income (851,793) (906,638)
-----------------------
Net finance receivables $3,687,127 $3,400,125
=======================

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

December 31 1999 1998
------------------------
Net rents receivable $1,169,114 $ 955,563
Unguaranteed residual valuation 623,003 608,858
Unearned income (822,528) (736,842)
------------------------
Investment in leveraged leases 969,589 827,579
Deferred taxes arising from
leveraged leases (611,717) (477,814)
------------------------
Net investment in
leveraged leases $ 357,872 $ 349,765
========================
64


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

<TABLE>
<CAPTION>

Years ended December 31 1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Pretax leveraged
lease income $35,954 $20,671 $6,797
Income tax effect 5,761 9,990 16,110
-------------------------------
Income from
leveraged leases $41,715 $30,661 $22,907
===============================
</TABLE>

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

Leveraged lease investments include $289.4 million related to commercial real
estate facilities, with original lease terms ranging from 17 to 25 years. Also
included are ten aircraft transactions with major commercial airlines, with a
total investment of $299.0 million with original lease terms ranging from 22 to
25 years and transactions involving locomotives, railcars and rail and bus
facilities, with a total investment of $381.2 million and original lease terms
ranging from 15 to 44 years.

The company has sold net finance receivables with varying amounts of recourse in
privately placed transactions with third-party investors. The uncollected
principal balance of receivables sold and guarantee contracts totaled $571.8
million and $545.0 million at December 31, 1999 and 1998, respectively. The
maximum risk of loss arises from the possible non-performance of lessees to meet
the terms of their contracts and from changes in the value of the underlying
equipment. Conversely, these contracts are supported by the underlying equipment
value and creditworthiness of customers. As part of the review of its exposure
to risk, the company believes adequate provisions have been made for sold
receivables, which may be uncollectible.

The company has invested in various types of equipment under operating leases;
the net investment at December 31, 1999 and 1998 was not significant.

16. Business segment information

For a description of the company's reportable segments and the types of products
and services from which each reportable segment derives its revenue, see
"Overview" on page 37. That information is incorporated herein by reference. The
information set forth below should be read in conjunction with such information.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies, with the exception of the items
outlined below.

Operating profit of each segment is determined by deducting from revenue the
related costs and operating expenses directly attributable to the segment.
Segment operating profit excludes general corporate expenses, income taxes and
net interest attributable to corporate debt. Interest from financial services
businesses includes intercompany interest. Identifiable assets are those used in
the company's operations and exclude cash and cash equivalents, short-term
investments and general corporate assets. Long-lived assets exclude finance
receivables, investment in leveraged leases and mortgage servicing rights.

Revenue and operating profit by business segment and geographic area for the
years ended 1997 to 1999 were as follows:

Revenue
----------------------
(Dollars in millions) 1999 1998 1997
----------------------
Business segments:
Mailing and
Integrated Logistics $2,992 $2,707 $2,552
Office Solutions 1,266 1,216 1,089
Capital Services 175 168 206
----------------------
Total $4,433 $4,091 $3,847
======================
Geographic areas:
United States $3,796 $3,505 $3,285
Outside the United States 637 586 562
----------------------
Total $4,433 $4,091 $3,847
======================

Operating Profit
----------------------
(Dollars in millions) 1999 1998 1997
----------------------
Business segments:
Mailing and
Integrated Logistics $ 798 $ 660 $ 582
Office Solutions 242 235 197
Capital Services 51 52 48
----------------------
Total $1,091 $ 947 $ 827
======================
Geographic areas:
United States $ 978 $ 860 $ 748
Outside the United States 113 87 79
----------------------
Total $1,091 $ 947 $ 827
======================

65

Additional segment information is as follows:

Years ended December 31
-----------------------
(Dollars in millions) 1999 1998 1997
-----------------------

Depreciation and amortization:
Mailing and
Integrated Logistics $ 178 $ 177 $ 167
Office Solutions 101 88 74
Capital Services 32 16 15
-----------------------
Total $ 311 $ 281 $ 256
=======================
Net interest expense:
Mailing and
Integrated Logistics $ 73 $ 63 $ 58
Office Solutions 6 5 5
Capital Services 54 72 104
-----------------------
Total $ 133 $ 140 $ 167
=======================
Net additions to
long-lived assets:
Mailing and
Integrated Logistics $ 164 $ 177 $ 176
Office Solutions 134 123 98
Capital Services 8 16 (42)
-----------------------
Total $ 306 $ 316 $ 232
=======================

December 31
--------------
(Dollars in millions) 1999 1998
--------------
Identifiable assets:
Mailing and
Integrated Logistics $4,364 $3,893
Office Solutions 959 879
Capital Services 1,945 2,012
--------------
Total $7,268 $6,784
==============

Identifiable long-lived assets by
geographic areas:
United States $1,594 $1,561
Outside the United States 215 195
--------------
Total $1,809 $1,756
==============


Reconciliation of segment amounts to consolidated totals:

Years ended December 31
------------------------
(Dollars in millions) 1999 1998 1997
------------------------
Operating profit:
Total operating profit for
reportable segments $1,091 $ 947 $ 827
Unallocated amounts:
Net interest (corporate
interest expense, net of
intercompany transactions) (46) (17) 9
Corporate expense (110) (105) (88)
USPS Settlement 50 - -
------------------------
Income from continuing
operations before
income taxes $ 985 $ 825 $ 748
========================
Net interest expense:
Total interest expense for
reportable segments $ 133 $ 140 $ 167
Net interest (corporate
interest expense, net
of intercompany
transactions) 46 17 (9)
------------------------
Consolidated net interest
expense $ 179 $ 157 $ 158
========================
Depreciation and
amortization:
Total depreciation and
amortization for
reportable segments $ 311 $ 281 $ 256
Corporate depreciation 13 14 13
Discontinued operations 88 66 31
------------------------
Consolidated depreciation
and amortization $ 412 $ 361 $ 300
========================
Net additions to
long-lived assets:
Total additions for
reportable segments $ 306 $ 316 $ 232
Unallocated amounts 9 6 10
Discontinued operations 1 3 8
------------------------
Consolidated additions to
long-lived assets $ 316 $ 325 $ 250
========================


66

December 31
---------------------
(Dollars in millions) 1999 1998
---------------------
Total assets:
Notal identifiable assets
by reportable segments $7,268 $6,784
Cash and cash equivalents and
short-term investments 257 129
General corporate assets 217 138
Discontinued operations 481 610
---------------------
Consolidated assets $8,223 $7,661
=====================


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

Cash, cash equivalents, short-term investments, accounts receivable, accounts
payable and notes payable

The carrying amounts approximate fair value because of the short maturity of
these instruments.

Investment securities

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

Loans receivable

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

Long-term debt

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

Interest rate swap agreements and foreign currency exchange contracts

The fair values of interest rate swaps and foreign currency exchange contracts
are obtained from dealer quotes. These values represent the estimated amount the
company would receive or pay to terminate agreements taking into consideration
current interest rates, the creditworthiness of the counterparties and current
foreign currency exchange rates.

Mortgage servicing rights (MSR) hedge

The fair values of the MSR hedge are obtained from the dealer quotes. The
interest rate swap portion represents the estimated amount the company would
receive or pay to terminate the agreements, taking into consideration current
interest rates and creditworthiness of the counterparties. The interest rate
floor portion represents the difference between the market value and amounts
paid to enter into the contracts.

Residual, conditional commitment and financial guarantee contracts

The fair values of residual and conditional commitment guarantee contracts are
based on the projected fair market value of the collateral as compared to the
guaranteed amount plus a commitment fee generally required by the counterparty
assuming the guarantee. The fair value of financial guarantee contracts
represents the estimate of expected future losses.

Transfer of receivables with recourse

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

The estimated fair value of the company's financial instruments at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Carrying Fair
value(a) value
---------------------------
<S> <C> <C>
Investment securities $14,748 $16,380
Loans receivable $614,712 $625,582
Long-term debt $(2,225,165) $(2,223,452)
Interest rate swaps $(272) $(13,740)
Foreign currency
exchange contracts $1,240 $(489)
Residual, conditional
commitment and financial
guarantee contracts - $(5,800)
Transfer of receivables with
recourse $(64,662) $(64,662)
---------------------------
(a) Carrying value includes accrued interest and deferred fee income, where applicable.

The estimated fair value of the company's financial instruments at December 31, 1998 is as follows:
Carrying Fair
value(a) value
---------------------------
Investment securities $9,022 $9,898
Loans receivable $453,558 $469,159
Long-term debt $(1,954,434) $(2,058,237)
Interest rate swaps $(2,142) $(31,912)
Foreign currency
exchange contracts $1,867 $652
MSR hedge $3,950 $2,864
Residual, conditional
commitment and financial
guarantee contracts $(2,077) $ (3,460)
Transfer of receivables with
recourse $(42,805) $ (42,805)
---------------------------
</TABLE>

(a) Carrying value includes accrued interest and deferred fee income, where
applicable.

67

18. Quarterly financial data (unaudited)

Summarized quarterly financial data (dollars in millions, except for per share
data) for 1999 and 1998 follows:

<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
1999 March 31 June 30 Sept. 30 Dec. 31
-------------------------------------
<S> <C> <C> <C> <C>
Total revenue $1,049 $1,105 $1,090 $1,188
Cost of sales and rentals
and financing $ 408 $ 424 $ 419 $ 440
Income from continuing
operations $ 138 $ 158 $ 186 $ 177
Discontinued operations 4 (28) - 1
-------------------------------------
Net income $ 142 $ 130 $ 186 $ 178
=====================================
Basic earnings per share:
Continuing operations $ .52 $ .58 $ .70 $ .67
Discontinued operations .01 (.10) - -
Net income $ .53 $ .48 $ .70 $ .67
Diluted earnings per share:
Continuing operations $ .51 $ .58 $ .69 $ .66
Discontinued operations .01 (.10) - -
-------------------------------------
Net income $ .52 $ .48 $ .69 $ .66
=====================================

Three Months Ended
-------------------------------------
1998 March 31 June 30 Sept. 30 Dec. 31
-------------------------------------
Total revenue $ 954 $1,015 $1,013 $1,109
Cost of sales and rentals
and financing $ 378 $ 394 $ 385 $ 408
Income from continuing
operations $ 123 $ 133 $ 133 $ 154
Discontinued operations 7 9 8 9
-------------------------------------
Net income $ 130 $ 142 $ 141 $ 163
=====================================
Basic earnings per share:
Continuing operations $ .43 $ .49 $ .49 $ .57
Discontinued operations .03 .03 .03 .03
-------------------------------------
Net income $ .46 $ .52 $ .52 $ .60
=====================================
Diluted earnings per share:
Continuing operations $ .43 $ .48 $ .48 $ .56
Discontinued operations .03 .03 .03 .03
-------------------------------------
Net income $ .46 $ .51 $ .51 $ .59
=====================================
</TABLE>
The sum of the quarters of 1999 and 1998 may not equal the annual amount due to
rounding.

68

Report of Independent Accountants


To the Stockholders and Board of Directors of Pitney Bowes Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Pitney Bowes
Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Stamford, Connecticut
January 20, 2000

69

Stockholder Information
World Headquarters
Pitney Bowes Inc.
1 Elmcroft Rd.
Stamford, CT 06926-0700
(203) 356-5000

www.pitneybowes.com

Annual Meeting

Stockholders are cordially invited to attend the 2000 Annual Meeting at 9:00
a.m., Monday, May 8, 2000, at Pitney Bowes World Headquarters in Stamford,
Connecticut. A notice of the meeting, proxy statement and proxy will be mailed
to each stockholder under separate cover.

10-K Report
The Form 10-K report, to be filed by Pitney Bowes with the Securities and
Exchange Commission, will provide certain additional information. Stockholders
may obtain copies of this report without charge by writing to:

MSC 6140
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Rd.
Stamford, CT 06926-0700

Stock Exchanges
Pitney Bowes common stock is traded under the symbol "PBI." The principal market
it is listed on is the New York Stock Exchange. The stock is also traded on the
Chicago, Philadelphia, Boston, Pacific and Cincinnati stock exchanges.

Comments concerning the Annual Report should be sent to:
MSC 6309
Director Corporate Marketing and Advertising
Pitney Bowes Inc.
1 Elmcroft Rd.
Stamford, CT 06926-0700

Investor Inquiries
All investor inquiries about Pitney Bowes should be addressed to:

MSC 6140
Investor Relations
Pitney Bowes Inc.
1 Elmcroft Rd.
Stamford, CT 06926-0700

Transfer Agent and Registrar:
EquiServe LP
(Formerly First Chicago Company of New York)
PO Box 2500
Jersey City, NJ 07303-2500

Stockholders may call EquiServe at (800) 648-8170.
http://www.equiserve.com
e-mail: equiserve@equiserve.com

Stockholder Inquiries
Communications concerning transfer requirements, lost certificates, dividends,
change of address or other stockholder inquiries may be made by calling (800)
648-8170, TDD phone service for the hearing impaired (201) 222-4955, for foreign
holders (201) 324-1225, or by writing to the address above.

Dividend Reinvestment Plan

Owners of Pitney Bowes Inc. common stock may purchase common stock, $1 par
value, with their dividends through the Dividend Reinvestment Plan. A prospectus
and enrollment card may be obtained by calling (800) 648-8170 or by writing to
the agent at the address above.

Direct Deposit of Dividends
For information about direct deposit of dividends, please call
(800) 648-8170 or write to the agent at the address above.

Duplicate Mailings
If you receive duplicate mailings because you have more than one account
listing, you may wish to save your company money by consolidating your accounts.
Please write to the agent at the address above.
<TABLE>
<CAPTION>

Stock Information
Dividends per common share
Quarter 1999 1998
-------------------
<S> <C> <C>
First $ .255 $ .225
Second .255 .225
Third .255 .225
Fourth .255 .225
-------------------
Total $1.020 $ .900
===================

Quarterly price ranges of common stock
1999
Quarter High Low
------------------
First 71 3/16 60 1/16
Second 73 5/16 61 1/16
Third 72 1/2 55 3/4
Fourth 63 13/16 40 7/8

1998
Quarter High Low
-------------------
First 51 5/16 42 7/32
Second 52 3/16 44 13/16
Third 58 3/16 46 5/8
Fourth 66 3/8 47 1/8

Trademarks
</TABLE>

3 Series, 14 Series, AccuTrac, AddressRight, Arrival, Ascent, ClickStamp,
Conquest, D3, DirectNet, DocuMatch, Finalist, ForwardTrak, Fulfillment, Galaxy,
iSend, Mail Essentials, Mail List Manager, Mailers Choice, Paragon, Personal
Post, PitneyWorks, Postage by Phone, ReUnion, Smart Image, SmartMailer,
StreamWeaver, Target Prospects, Universal Access, ValueShip, Weigh-on-the-Way
are trademarks or service marks of Pitney Bowes Inc.

Business Rewards, Postal Privilege, Purchase Power, Reserve Account, ValueMax,
are trademarks or service marks of Pitney Bowes Financial Services.
All other trademarks are service marks owned by their respective companies.

70