SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

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FORM 10-K

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x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 1998

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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Commission file number 0-13497

PITNEY BOWES CREDIT CORPORATION
Incorporated pursuant to the Laws of the State of Delaware

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Internal Revenue Service -- Employer Identification No. 06-0946476

27 Waterview Drive, Shelton, CT 06484-4361
(203) 922-4000

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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 26, 1999: None

As of March 26, 1999, 460 shares of common stock, no par value, with a stated
value of $100,000 per share, were outstanding, all of which were owned by Pitney
Bowes Inc., the parent of the Registrant.

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT

PITNEY BOWES CREDIT CORPORATION

Part I

Item 1.-- Business................................................................ 3
Item 2.-- Properties.............................................................. 7
Item 3.-- Legal proceedings....................................................... 7
Item 4.-- Submission of matters to a vote of security holders..................... 7

Part II

Item 5. -- Market for the registrant's common equity and related
stockholder matters................................................. 7
Item 6.-- Selected financial data................................................. 8
Item 7.-- Management's discussion and analysis of financial
condition and results of operations................................. 9
Item 7A. -- Quantitative and qualitative disclosures about market risk........... 14
Item 8.-- Financial statements and supplementary data............................. 15
Item 9.-- Changes in and disagreements with accountants on
accounting and financial disclosure................................. 38

Part III

Item 10.-- Directors and executive officers of the registrant..................... 38
Item 11.-- Executive compensation................................................. 38
Item 12.-- Security ownership of certain beneficial owners and
management.......................................................... 38
Item 13.-- Certain relationships and related transactions......................... 38

Part IV

Item 14.-- Exhibits, financial statements and reports on Form 8-K................. 39
Index to exhibits................................................................. 39
Signatures........................................................................ 41

3
PITNEY BOWES CREDIT CORPORATION
PART I
ITEM 1. -- BUSINESS

GENERAL

Pitney Bowes Credit Corporation (the "Company" or "PBCC") operates primarily
in the United States and is a wholly-owned subsidiary of Pitney Bowes Inc.
("PBI" or "Pitney Bowes"). As such, the Company is part of PBI's Mailing and
Integrated Logistics, Office Solutions, Mortgage Servicing and Capital Services
segments. The Company is principally engaged in the business of providing lease
financing for PBI products as well as other financial services to the capital
services and mortgage servicing markets.
The Internal Financing Division of PBCC provides marketing support to PBI.
Equipment leased or financed for Internal Division programs include mailing,
paper handling and shipping equipment, scales, copiers, and facsimile units.
Transaction sizes generally range from $500 to $500,000, although historically
most transactions have occurred in the $1,000 to $10,000 range, with lease terms
generally from 36 to 60 months. As part of its focus on new business
initiatives, the Company launched a revolving credit product called Purchase
PowerSM in August, 1996. This product allows Pitney Bowes customers to finance
postage as well as mailing, copier and facsimile supplies. The Company earns
income on balances from customers who elect to use this credit facility. In
1997, the Company piloted a co-branded credit card called the Pitney Bowes
Business RewardsSM Visa(R). The product is designed for the small business owner
and allows the customer to facilitate business purchases. PBCC earns income on
membership and transaction fees as well as interest on balances from customers
choosing to use the credit facility. The business owners receive air mileage
points based on purchases made under this, as well as the Purchase PowerSM
program.
PBCC's Capital Services Division operates in the commercial and industrial
market by offering financial services to its customers for products not
manufactured or sold by PBI or its subsidiaries. Sales of lease transactions are
part of the Company's ongoing strategy to shift the foundation of the capital
services financing business from asset-based to service-based revenues. During
1997, the Company reduced capital services finance assets by approximately $1
billion, which represented approximately 50% of the portfolio balance before the
reductions. (See Note 3 to CONSOLIDATED FINANCIAL STATEMENTS.) Products financed
through Capital Services Division financing programs include both commercial and
non-commercial aircraft, over-the-road trucks and trailers, railcars and
locomotives, and high-technology equipment such as data processing and
communications equipment. Transaction sizes (other than aircraft leases) range
from $30,000 to several million dollars, with original lease terms generally
from 28 to 252 months. Aircraft transaction sizes range from less than $1
million to $25 million for non-commercial aircraft and up to $57 million for
commercial aircraft. Original lease terms are generally from two to 12 years for
non-commercial aircraft and from 15 to 23 years for commercial aircraft. The
Company has also participated in seven commercial aircraft leveraged lease
transactions with a net investment of $297.5 million at December 31, 1998. The
Company's Capital Services Division also participates, on a select basis, in
certain other types of financial transactions including: sales of lease
transactions, senior secured loans in connection with acquisition, leveraged
buyout and recapitalization financings, and certain project financings.
Equipment financed by former PBI subsidiaries Dictaphone and Monarch is also
reported as a component of the Capital Services Division
PBCC's Capital Services Division is also responsible for managing Pitney Bowes
Real Estate Financing Corporation ("PREFCO"), a wholly-owned subsidiary of PBCC
providing lease financing for commercial real estate properties. Both PBCC and
Pitney Bowes have provided capital for PREFCO's investments.
On October 30, 1998, the Company transferred the operations, employees and
substantially all related assets of its wholly-owned subsidiary, Colonial
Pacific Leasing Corporation ("CPLC"), to General Electric Capital Corporation
("GECC"), a subsidiary of the General Electric Company. CPLC was the Company's
broker-oriented small-ticket financing business. (See Note 2 to CONSOLIDATED
FINANCIAL STATEMENTS.)
The Company's Mortgage Servicing Division is responsible for the management of
Atlantic Mortgage & Investment Corporation ("AMIC"), a wholly-owned subsidiary
of PBCC, located in Jacksonville, Florida, which specializes in servicing
residential first mortgages for a fee. AMIC does not generally hold or assume
the credit risk on mortgages it services. In return for a servicing fee, AMIC
provides billing services and collects principal, interest and tax and insurance
escrow payments for mortgage investors such as Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Government National
Mortgage Association and private investors. The current interest rate
environment and its effect on mortgage prepayment patterns, has caused the
Company to re-examine the manner in which it manages its mortgage servicing
business. PBCC is exploring a range of strategic options available to address
the changing profile of the mortgage servicing business and its effect on the
Company overall.
Substantially all lease financing is done through full payout leases or
security agreements whereby PBCC recovers its costs plus a return on investment
over the initial, noncancelable term of the contract. The Company has also
entered into a limited amount of leveraged and operating lease structures.

4
The Company's gross finance assets (contracts receivable plus estimated
residual values) outstanding for the internal and capital services programs at
December 31, 1994 through 1998 are presented in ITEM 6 SELECTED FINANCIAL DATA.
Total Company gross finance assets at December 31, 1998 were $3.5 billion of
which approximately 56 percent were related to mailing, paper handling and
shipping products, 7 percent to commercial aircraft, 3 percent to railcars, 9
percent to copier and office equipment, 1 percent to both data processing
equipment and manufacturing products and 1 percent to over-the-road trucks and
trailers. Total gross finance contracts acquired amounted to $1.6 billion in
1998 and $1.9 billion in 1997. Capital services programs accounted for 38
percent of gross finance contracts acquired in 1998 compared to 51 percent in
1997.
As of December 31, 1998, PBCC had approximately 738,000 active accounts
compared with 682,000 active accounts at December 31, 1997.
At December 31, 1998, PBCC's largest customer accounted for $78.8 million, or
2.6 percent of gross finance receivables, and the Company's ten largest
customers accounted for $500.7 million in gross finance receivables, or 16.4
percent of the receivable portfolio.

CREDIT EXPERIENCE

The percentage of receivables over 30 days delinquent was 4.3 percent at
December 31, 1998 compared to 3.7 percent at December 31, 1997 and 2.9 percent
at December 31, 1996. Total Company delinquency at December 31, 1998 increased
over the prior year mainly due to a shift in business mix to a higher proportion
of Internal Financing Division business, which exhibits a higher average
delinquency rate than the capital services business.

CREDIT POLICIES

PBCC's management and Board of Directors establish credit approval limits at
regional, divisional, subsidiary and corporate levels based on the credit
quality of the customer and the type of equipment financed. The Company and PBI
have established an Automatic Approval Program ("AAP") for certain products
within the Internal Financing Division. The AAP dictates the criteria under
which PBCC will accept a customer without performing the Company's usual credit
investigation. The AAP considers criteria such as maximum equipment cost, a
customer's time in business and current payment experience with PBCC.
PBCC bases credit decisions primarily on a customer's financial strength.
However, with the Company's Capital Services Division programs, collateral
values may also be considered.

LOSS EXPERIENCE

PBCC has charged against the allowance for credit losses $66.8 million, $60.5
million and $69.2 million in 1998, 1997 and 1996, respectively. The increase in
write-offs in 1998 was primarily due to the write-off of assets at CPLC. For
further information see Note 6 to CONSOLIDATED FINANCIAL STATEMENTS.

RELATIONSHIP WITH PITNEY BOWES INC.

PBCC is PBI's domestic finance subsidiary and provides the largest financing
support of PBI's Mailing and Intergrated Logistics, Office Solutions, Mortgage
Servicing and Capital Services. Equipment sales to PBCC as a percentage of PBI's
consolidated revenue from continuing operations was 14 percent in 1998 and 1997,
and 13 percent in 1996.
Business relationships between PBCC and PBI are defined by several agreements
including an Operating Agreement, Finance Agreement and Tax Sharing Agreement.

Operating Agreement-An operating agreement with PBI was initiated on March 3,
1977 and was subsequently amended. This agreement was terminated in its entirety
and superseded with a successor agreement on November 6, 1996 as the First
Amended and Restated Operating Agreement ("Operating Agreement"). The Operating
Agreement can be modified or canceled on a prospective basis by either party
upon 90 days prior written notice. PBI and PBCC have entered into detailed
written operating procedures ("Operating Procedures") which govern among other
things: the terms and prices of equipment purchases by PBCC for lease to third
parties; computation and payment of fees for referrals and services provided by
PBI sales personnel; the AAP for PBI equipment; buyback allowances; and the
handling of contract terminations, cancellations, trade-ups and trade-ins.
In connection with sales of finance assets of the internal small-ticket
financing programs, PBI agreed not to cancel or modify, in any material respect,
its obligations under the Operating Agreement concerning the sold receivables,
without the prior written consent of PBCC and the transferee.

5
Pursuant to the Operating Procedures, the purchase of equipment by the Company
is contingent upon a lessee entering into a full payout lease with the Company
and delivery to and acceptance of the equipment by the lessee. Service and
maintenance of the equipment leased is the responsibility of the lessee and is
generally arranged through a separate equipment maintenance agreement between
the lessee and PBI.
In connection with the buyback provision of the Operating Procedures, PBCC has
the option to request a buyback from PBI for non-copier equipment subject to a
lease which is terminated or canceled, provided the equipment is available for
repossession. Following such buyback, PBI is responsible for the repossession
and disposition of equipment. The buyback provision sets forth a stipulated
amount that is payable by PBI to PBCC for certain terminated leases; such amount
is calculated on the basis of a declining percentage, based upon the passage of
time, of the original total invoice value to PBCC. The difference between the
buyback amount received from PBI and the remaining value of the lease usually
results in a loss that is charged against PBCC's allowance for credit losses.
The Pitney Bowes Copier Division does not remanufacture used copier equipment;
therefore copier equipment is excluded from the buyback arrangement described
above. However, under the Returned Copier Equipment Agreement (the "Agreement"),
the copier systems division issues an annual blanket purchase order for the
repurchase of certain copier models. These returns are made under conditions and
at rates specifically set forth in the Agreement. All copier equipment lease
transactions are subject to the Company's standard credit review procedures.

Finance Agreement- Pursuant to the Amended and Restated Finance Agreement (the
"Finance Agreement") dated June 12, 1995, between PBI and PBCC, PBI has agreed
to retain, directly or indirectly, ownership of the majority of the outstanding
shares of capital stock of the Company having voting power in the election of
directors, to make payments, if necessary, to enable the Company to maintain a
ratio of income available for fixed charges as defined to such fixed charges of
1.25 to 1 as of the end of each fiscal quarter, and to provide or cause to be
provided funds sufficient to make timely payment of any principal, interest or
premium in respect of any of the Company's indebtedness for borrowed money that
has the benefit of the Finance Agreement if the Company is unable to make such
payment.
Under the terms of the Finance Agreement and the Indenture dated as of
November 1, 1995, between the Company and Chemical Bank, as Trustee (the "1995
Indenture"), the Finance Agreement may not be amended, in any material respect,
or terminated while the Company has any series of debt securities issued under
the 1995 Indenture or any series of other debt outstanding that is, by its
express terms, entitled to the provisions of the Finance Agreement unless at
least two nationally recognized statistical rating agencies that have been
rating such series of debt, confirm that their ratings for such series of debt
will not be downgraded as a result or the holders of at least a majority of the
outstanding principal amount of such series of debt have consented in writing.
Under the Indenture dated as of May 1, 1985 (together with all Supplemental
Indentures as noted in Part IV Item 14(a) 3, the "Indenture"), between PBCC and
the trustee (Sun Trust Bank effective December 16, 1996 replacing Bankers Trust
Company), as Trustee (the "Trustee"), PBCC agreed it would not waive compliance
with, or amend in any material respect, the Finance Agreement without the
consent of the holders of a majority in principal amount of the outstanding
securities of each series of debt securities issued under the Indenture. In
addition, PBI has entered into a Letter Agreement with the Trustee pursuant to
which it agreed, among other things, that it would not default under the Finance
Agreement nor terminate the Finance Agreement without the consent of the holders
of a majority in principal amount of the outstanding securities issued under the
Indenture.

Tax Sharing Agreement - The Company's taxable results are included in the
consolidated Federal and certain state income tax returns of Pitney Bowes. Under
the Tax Sharing Agreement, dated April 1, 1977, between the Company and Pitney
Bowes (the "Tax Sharing Agreement"), the Company makes payment to Pitney Bowes
for its share of consolidated income taxes, or receives cash equal to the
benefit of tax losses utilized in consolidated returns in exchange for which it
issues non-interest bearing subordinated notes with a maturity one day after all
senior debt is repaid. The Tax Sharing Agreement can be canceled by either PBI
or PBCC upon twelve months written notice.

Real Estate Transactions When the Company entered into real estate lease
financing, PBI agreed to make capital contributions up to a maximum of $15.0
million to provide a portion of the financing for such transactions, of which
$13.8 million has been received to date. There is no formal agreement in place
and PBI is under no obligation to continue to make capital contributions. There
have been no capital contributions received since 1993.

PITNEY BOWES INC.

PBI, a Delaware corporation organized in 1920, is listed on the New York Stock
Exchange. Headquartered in Stamford, Connecticut, PBI employs approximately
31,300 people throughout the United States, Europe, Canada, Australia and other
countries. PBI operates within four industry segments: Mailing and Integrated
Logistics, Office Solutions, Mortgage Servicing and Capital Services.
The Mailing and Integrated Logistics segment includes revenues from the sale
and financing of mailing equipment, related supplies and services, and the
rental of postage meters. In accordance with postal regulations, postage meters
may not be sold in the United States; they are rented to users and therefore are
not subject to lease by PBCC.
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 reprographic business support, and
other processing functions.

6
Mortgage Servicing provides billing, collecting and processing services for
major investors in residual first mortgages. Mortgage servicing is administered
by AMIC.
Capital Services provides large-ticket financing and fee-based programs
covering a broad range of products and other financial services to the capital
services markets in the U.S.
At December 31, 1998, PBI and its consolidated subsidiaries had total assets
of $7.7 billion and stockholders' equity of $1.6 billion. For the year ended
December 31, 1998, PBI's consolidated revenue and income from continuing
operations were $4.2 billion and $567.9 million, respectively, compared with
$3.9 billion and $509.0 million for 1997.

COMPETITION AND REGULATION

The finance business is highly competitive with aggressive rate competition.
Leasing companies, commercial finance companies, commercial banks and other
financial institutions compete in varying degrees in the several markets in
which PBCC does business and range from very large diversified financial
institutions to many small, specialized firms. In view of the market
fragmentation and absence of any dominant competitors which result from such
competition, it is not possible to provide a meaningful description of PBCC's
competitive position in its markets. While financing rates are generally
considered by customers to be the principal factor in choosing a financing
source, the Company believes there are additional important factors related to a
customer's decision, including simplicity of documentation, flexibility and ease
of doing business over the duration of the contract. PBCC seeks to distinguish
itself from its competition by providing excellent service to its customers.
PBCC considers its documentation and systems to be among the best in the
industry. The Company has an established communication network in its regional
offices to eliminate costly delays and to increase the quality of service
offered to customers and vendors.
PBI has historically been a leading supplier of certain products and services
in its business segments, particularly postage meters and mailing machines.
However, all segments have strong competition from a number of companies. In
particular, PBI is facing competition in many countries for new placements from
several postage meter and mailing machine suppliers, and its mailing systems
products face some competition from products and services offered as alternative
means of message communications. Pitney Bowes believes that its long experience
and reputation for product quality, and its sales and support service
organizations, along with PBCC, are important factors in influencing customer
choices with respect to its products and services.
Several states have ceilings on interest rates which may be charged to
commercial customers on secured lending transactions. PBCC may be required to
charge lower interest rates in certain jurisdictions than it charges elsewhere,
or to cease offering secured lending transactions in such states. PBCC does not
extend consumer credit as defined in the Federal Consumer Credit Protection Act.
Accordingly, PBCC's financing transactions are not subject to that Act.

FUNDING POLICY

PBCC's borrowing strategy is to use a balanced mix of debt maturities,
variable- and fixed-rate debt and interest rate swap agreements ("interest rate
swaps") to control its sensitivity to interest rate volatility. The Company
utilizes interest rate swaps when it considers the economic benefits to be
favorable. Interest rate swaps have been principally utilized to fix interest
rates on commercial paper and/or obtain a lower cost on debt than would
otherwise be available absent the swap. (See ITEM 7A.- QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK for information regarding market
risk.) The Company may borrow through the sale of commercial paper, under its
confirmed bank lines of credit and by private and public offerings of
intermediate- or long-term debt securities. The Company expects to have in place
shortly, a medium-term note program which will allow it to issue debt securities
having maturities ranging from nine months to 30 years.
While the Company's funding strategy of balancing short-term and longer-term
borrowings and variable- and fixed-rate debt may reduce sensitivity to interest
rate changes over the long-term, effective interest costs have been and will
continue to be impacted by interest rate changes. The Company periodically
adjusts prices on its new leasing and financing transactions to reflect changes
in interest rates; however, the impact of these rate changes on revenue is
usually less immediate than the impact on borrowing costs.

EMPLOYEE RELATIONS

At December 31, 1998, there were 1,040 individuals employed by the Company and
its subsidiaries. Employee relations are considered to be highly satisfactory.
Management follows the policy of keeping employees informed of its decisions,
and encourages and implements suggestions whenever practicable.

7
PITNEY BOWES CREDIT CORPORATION
ITEM 2. -- PROPERTIES

PBCC's executive and administrative offices are located in Shelton, Connecticut,
which it leases from its parent, PBI. The lease term is for 14 years, cancelable
upon mutual agreement. Except for its executive offices, all of the Company's
remaining office space is occupied under operating leases with original terms
ranging from one to ten years. PBCC has three regional offices located
throughout the United States and seven district sales offices located in or near
major metropolitan areas. Atlantic Mortgage & Investment Corporation's executive
and administrative offices are located in Jacksonville, Florida.

ITEM 3. -- LEGAL PROCEEDINGS

ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I.

PART II

Item 5. -- Market for the registrant's common equity and related stockholder
matters

All of the Company's common stock is owned by Pitney Bowes Inc. Accordingly,
there is no public trading market for the Company's common stock. The Board of
Directors declared and the Company paid dividends to PBI in amounts totaling
$86.0 million in 1998, $78.0 million in 1997 and $71.2 million in 1996. The
Company intends to continue to pay dividends to PBI in 1999.

8
PITNEY BOWES CREDIT CORPORATION
Item 6. -- Selected financial data

The following tables summarize selected financial data for the Company, and
should be read in conjunction with the more detailed financial statements and
related notes thereto included under Item 8 of this report.

(Dollars in thousands) December 31,
-------------------------------------------------------------------------------------

For the Years Ended (3) 1998 1997 1996 1995 1994
------------------- ---- ---- ---- ---- ----

Gross finance contracts acquired............. $ 1,584,864 $ 1,879,084 $ 1,908,105 $ 2,158,549 $ 1,627,974
======== ======== ======== ======== ========

Finance income............................... $ 514,287 $ 524,913 $ 529,987 $ 507,413 $ 441,487
Mortgage servicing revenue................... 132,072 73,246 52,985 37,122 25,012
Equipment sales.............................. - - 26,666 2,687 45,747
Selling, general and administrative expenses. 136,999 121,043 111,217 97,196 81,901
Depreciation and amortization................ 75,051 42,462 40,267 31,862 26,438
Cost of equipment sales...................... - - 22,821 2,214 43,039
Provision for credit losses.................. 36,080 34,076 35,617 33,661 36,251
Interest expense............................. 116,746 151,033 160,841 172,417 128,181
Non-recurring items, net..................... - - - - (3,311)
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes 281,483 249,545 238,875 209,872 199,747
Provision for income taxes................... 82,460 71,737 76,445 65,469 64,153
-------- -------- -------- -------- --------
Income from continuing operations
before effect of accounting changes........ 199,023 177,808 162,430 144,403 135,594
Discontinued operations, net of tax.......... 8,453 17,025 16,804 14,253 11,499
Effect of accounting changes (1)............. - - - - (2,820)
-------- -------- -------- -------- --------
Net income................................... $ 207,476 $ 194,833 $ 179,234 $ 158,656 $ 144,273
======== ======== ======== ======== ========
Ratio of earnings from continuing
operations to fixed charges (2) 3.39X 2.64X 2.47X 2.21X 2.54X

At Year End

Gross finance assets
Internal programs............................ $ 2,560,524 $ 2,222,735 $ 2,039,567 $ 1,872,593 $ 1,697,890
Capital services............................. 902,617 2,162,083 3,520,395 3,631,757 3,262,141
-------- -------- -------- -------- --------
Total gross finance assets................... 3,463,141 4,384,818 5,559,962 5,504,350 4,960,031
Unearned income.............................. (741,336) (909,280) (1,285,778) (1,333,280) (1,234,928)
-------- -------- -------- -------- --------
Finance assets............................... $ 2,721,805 $ 3,475,538 $ 4,274,184 $ 4,171,070 $ 3,725,103
======== ======== ======== ======== ========

Investment in leveraged leases............... $ 764,145 $ 667,779 $ 617,970 $ 562,500 $ 478,650
======== ======== ======== ======== ========

Investment in operating leases, net.......... $ 33,261 $ 32,112 $ 86,634 $ 114,587 $ 95,684
======== ======== ======== ======== ========

Allowance for credit losses.................. $ (115,233) $ (116,588) $ (98,721) $ (101,355) $ (95,271)
======== ======== ======== ======== ========

Total assets................................. $ 5,293,670 $ 5,328,340 $ 5,347,002 $ 5,057,874 $ 4,451,837
======== ======== ======== ======== ========

Senior notes payable
Within one year.............................. $ 991,853 $ 1,970,110 $ 1,901,581 $ 2,122,880 $ 2,075,591
After one year............................... 1,382,000 1,050,000 1,275,000 1,020,500 745,500
-------- -------- -------- -------- --------

Total senior notes payable................... $ 2,373,853 $ 3,020,110 $ 3,176,581 $ 3,143,380 $ 2,821,091
======== ======== ======== ======== ========

Short-term notes payable to affiliates....... $ 137,00 $ - $ 139,400 $ 149,709 $ -
======== ======== ======== ======== ========

Subordinated notes payable................... $ 285,886 $ 270,487 $ 229,154 $ 170,857 $ 133,735
======== ======== ======== ======== ========

Stockholder's equity......................... $ 1,216,337 $ 1,094,861 $ 978,028 $ 869,994 $ 773,338
======== ======== ======== ======== ========

Debt to equity............................... 2.33:1 3.01:1 3.62:1 3.98:1 3.82:1

(1) Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting
for Postemployment Benefits."
(2) In computing the ratio of earnings from continuing operations to fixed charges, earnings have been calculated by adding to
earnings before income taxes the amount of fixed charges. Fixed charges consist of interest on debt and a portion of net
rental expense deemed to represent interest.
(3) Due to its sale, CPLC has been accounted for as discontinued operations on the income statement for the year ended
December 31, 1998. Consequently, prior years' income statements have been restated to conform to current year presentation.

9
PITNEY BOWES CREDIT CORPORATION
Item 7. -- Management's discussion and analysis of financial condition and
results of operations

RESULTS OF OPERATIONS

On October 30, 1998, the Company's wholly-owned subsidiary, Colonial Pacific
Leasing Corporation ("CPLC"), transferred the operations, employees and
substantially all assets related to its broker-oriented capital services
financing business to General Electric Capital Corporation ("GECC"). As a
result, CPLC has been accounted for as discontinued operations in the
accompanying Consolidated Statements of Income. Accordingly, the discussion that
follows concerns only the results of continuing operations. The Company received
approximately $790 million at closing, which approximates the book value of net
assets sold or otherwise disposed of together with related transaction costs. As
part of the sale, the Company retained certain non-performing accounts of CPLC.
(See Note 6 to CONSOLIDATED FINANCIAL STATEMENTS.) The transaction is subject to
post-closing adjustments pursuant to the terms of the purchase agreement with
GECC executed on October 12, 1998. The Company does not expect the effect of any
adjustments to be significant.
The Company's finance income from continuing operations decreased 2.0 percent
to $514.3 million in 1998 compared with $524.9 million in 1997, which was down
1.0 percent from 1996. Finance income for internal financing programs increased
8.0 percent to $358.3 million in 1998 compared with $331.8 million in 1997,
which was up 7.7 percent from 1996. These increases are primarily due to higher
income from fee-based programs and higher investment levels for the mailing and
copier programs. Finance income for capital services financing programs
decreased 19.2 percent to $156.0 million in 1998 compared with $193.1 million in
1997, which decreased 22.3 percent from 1996. The decreases for both 1998 and
1997 are primarily due to lower capital services investment levels in accordance
with the Company's strategy to shift the foundation of the capital services
financing business from asset-based to fee- and service- based revenues. (See
Note 3 to CONSOLIDATED FINANCIAL STATEMENTS.) This is partially offset by higher
revenue from income- and fee-based programs. Included in these revenues are
gains on asset sales of $7.7 million in 1998, $1.0 million in 1997 and $4.0
million in 1996. Also included are revenues from the Dictaphone and Monarch
portfolios of $9.2 million, $9.9 million, and $14.3 million in 1998, 1997 and
1996, respectively. Revenue generated from mortgage servicing increased 80.3
percent to $132.1 million in 1998 compared with $73.2 million in 1997, which was
up 38.2 percent from 1996. The increases in both the current and prior year are
due to a larger mortgage servicing portfolio, the sale of selected investments
and mortgage refinancing fees in keeping with the Company's fee-based income
growth strategy.
The Company had no equipment sales in 1998 and 1997 compared to $26.7 million in
1996. The book value of such equipment sold was $22.8 million in 1996. Selling,
general and administrative ("SG&A") expenses increased 13.2 percent to $137.0
million in 1998 compared with $121.0 million in 1997, which was up 8.8 percent
from 1996. SG&A expenses for internal financing programs increased 8.9 percent
to $71.0 million in 1998 compared to $65.2 million in 1997, which was 7.8
percent above 1996. These increases are principally due to higher professional
fees and outsourcing expenses related to new business initiatives as well as
consulting services in support of strategic initiatives such as improvements to
information technology and customer service. SG&A expenses for capital services
financing programs decreased 16.0 percent to $27.7 million in 1998 compared with
$32.9 million in 1997, up 3.4 percent from 1996. Included in the prior year
amount is a charge of approximately $5.0 million for costs related to the
transfer of certain capital services finance assets made in 1997.
(See Note 3 to CONSOLIDATED FINANCIAL STATEMENTS.) Also included in these
amounts are expenses related to asset sales of $0.4 million in 1998, none in
1997, and $.3 million in 1996, as well as SG&A expenses of the Dictaphone and
Monarch portfolios of $0.7 million, $0.9 million and $1.2 million in 1998, 1997,
and 1996, respectively. SG&A expenses related to mortgage servicing increased
67.4 percent to $38.3 million in 1998 compared with $22.9 million in 1997, which
was up 21.3 percent from 1996 primarily due to the administration of a larger
mortgage servicing portfolio.
Depreciation on operating leases was $6.0 million in 1998 and $11.4 million in
1997 reflecting a lower operating lease average investment balance during 1998.
Amortization of mortgage servicing rights and acquisition fees was $63.4 million
in 1998 compared to $28.3 million in 1997. This increase is principally due to a
larger mortgage servicing portfolio and a valuation allowance adjustment of
$10.2 million recorded in 1998. The current interest rate environment and its
effect on mortgage prepayment patterns, has caused the Company to reexamine the
manner in which it manages its mortgage servicing business. PBCC is exploring a
range of strategic options available to address the changing profile of the
mortgage servicing business and its effect on the Company overall. Costs
associated with the Company's participation in partnership transactions were
$5.6 million in 1998 compared to $2.6 million in 1997. The increase is primarily
due to a partnership created in connection with an asset transfer made during
the fourth quarter of 1997.
The provision for credit losses in 1998 increased 5.9 percent to $36.1 million
compared to $34.1 million for 1997, which decreased 4.3 percent from 1996. The
provision for the internal financing programs increased 2.5 percent to $32.5
million in 1998 compared to $31.7 million in 1997, which had increased 2.4
percent from 1996. The increases are mainly due to increased provisions for the
Company's Purchase PowerSM and Business RewardsSM programs.
The provision for capital services financing programs was $3.6 million in 1998
compared with $2.4 million in 1997 and $4.7 million in 1996. Included in these
amounts were credit loss provisions related to asset sales of $1.1 million in
1998, none in 1997 and $0.9 million in 1996. Also included are provisions for
the Dictaphone and Monarch portfolios of $1.3 million, $1.8 million and $2.6
million for 1998, 1997 and 1996, respectively.

10
The Company's allowance for credit losses as a percentage of net lease
receivables (net investments before allowance for credit losses plus the
uncollected principal balance of receivables sold, exclusive of assets held for
sale) was 2.87 percent at December 31, 1998, 2.55 percent at December 31, 1997
and 1.88 percent at December 31, 1996. PBCC charged $66.8 million, $60.5 million
and $69.2 million against the allowance for credit losses in 1998, 1997 and
1996, respectively.
Interest expense was $116.7 million in 1998 compared with $151.0 million in
1997, a decrease of 22.7 percent. The decrease in 1998 reflects lower average
borrowings combined with lower short-term interest rates. The effective interest
rate on short-term average borrowings was 4.00 percent in 1998 compared to 5.00
percent in 1997 and 4.89 percent in 1996. The Company does not match fund its
financing investments and does not apply different interest rates to its various
financing programs.
The effective tax rate for 1998 was 29.3 percent compared to 28.8 percent for
1997 and 32.0 percent in 1996. The higher effective tax rate is principally due
to higher state tax requirements related to certain leveraged lease
transactions.
Net income from continuing operations increased 11.9 percent to $199.0 million
in 1998 compared with $177.8 million in 1997, which was up 9.5 percent from
1996. The increase in 1998 is primarily attributable to higher Internal
Financing Division investment levels, additional fee-based income, increased
mortgage servicing revenue and lower borrowing levels partly offset by higher
SG&A and depreciation and amortization expenses.
The Company's ratio of earnings from continuing operations to fixed charges
was 3.39 times for 1998 compared with 2.64 times for 1997 and 2.47 times for
1996. The increase reflects the disposition of capital services assets, the
proceeds from which were used for debt reduction.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are from operations and borrowings.
It has been PBCC's practice to use a balanced mix of debt maturities, variable-
and fixed-rate debt and interest rate swap agreements to control sensitivity to
interest rate volatility. PBCC's debt mix was 45 percent short-term and 55
percent long-term at December 31, 1998 and 60 percent short-term and 40 percent
long-term at December 31, 1997. PBCC's swap-adjusted variable-rate versus
fixed-rate debt mix was 35 percent variable-rate and 65 percent fixed-rate at
December 31, 1998 and 47 percent variable-rate and 53 percent fixed-rate at
December 31, 1997. The Company may borrow through the sale of commercial paper,
under its confirmed bank lines of credit, and by private and public offerings of
intermediate- or long-term debt securities.
In January 1998, the Company issued $250 million of 5.65% unsecured notes (the
"Notes") available under a shelf registration filed with the Securities and
Exchange Commission in September 1995. The Notes are due January 15, 2003, with
interest payable on January 15 and July 15 of each year, commencing July 15,
1998. The Notes are not redeemable at the option of the Company or repayable at
the option of any holder prior to maturity. The Company also entered into an
interest rate swap for a notional amount of $125 million, at a fixed interest
rate of 5.83% and a floating rate equal to the Money Market Yield of Commercial
Paper-Nonfinancial. Under the terms of the interest rate swap the Company is the
fixed rate payer. The interest rate swap is effective through February 2, 2005.
On September 30, 1998, certain partnerships controlled by affiliates of the
Company 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%, set as of the quarterly interest payment
dates. The proceeds from the Notes were used to purchase subordinated debt
obligations from Pitney Bowes Inc. ("PBI Obligations"). The PBI Obligations have
a principal amount of $282 million and bear interest at a floating rate of LIBOR
plus one percent, set as of the quarterly interest payment dates. (See Note 11
to CONSOLIDATED FINANCIAL STATEMENTS).
In July 1998, the Company filed a new shelf registration statement on Form S-3
with the Securities and Exchange Commission. The registration statement allows
PBCC to offer, in one or more series, its unsecured debt securities at an
aggregate initial offering price not to exceed $750 million. The Company expects
to have in place shortly, a medium-term note program which will allow it to
issue debt securities having maturities ranging from nine months to 30 years.
(See Note 10 to CONSOLIDATED FINANCIAL STATEMENTS). The Company also had unused
lines of credit and revolving credit facilities totaling $1.2 billion at
December 31, 1998, largely supporting its commercial paper borrowings.
The Company's utilization of derivative instruments is normally limited to
interest rate swap agreements ("interest rate swaps") and foreign currency
exchange forward contracts ("foreign currency contracts"). The Company
periodically enters into interest rate swaps as a means of managing interest
rate exposure. The interest rate differential paid or received is recognized as
an adjustment to interest expense. The interest differential on the swap will be
offset against changes in valuation of the assets resulting from interest rate
movements.
The Company is periodically exposed to credit loss in the event of
non-performance by the counterparties to the interest rate swaps to the extent
of the differential between fixed- and variable-rates; such exposure is
considered minimal. The Company periodically enters into a foreign currency
contract for the purpose of minimizing its risk of loss from fluctuations in
exchange rates in connection with certain intercompany transactions. When in
effect, the Company is exposed to credit loss in the event of non-performance by
the counterparties to the foreign currency contracts to the extent of the
difference between the spot rate at the date of the contract delivery and the
contracted rate; such exposure is also considered minimal. At December 31, 1998
there were no foreign currency contracts outstanding.

11
Since the Company normally enters into derivative transactions only with
members of its banking group, the credit risk of these transactions is monitored
as part of the normal credit review of the banking group. The Company monitors
the market risk of derivative instruments through periodic review of fair market
values.
The Company continues to actively pursue a strategy of asset sales, thereby
allowing it to focus on fee- and service-based revenue rather than asset-based
income. In keeping with this strategy, during 1997 the Company entered into a
transaction with GATX Capital Corporation which reduced capital services finance
assets by approximately $1 billion. As part of this transaction, the Company
holds approximately $166 million of equity investment in a limited liability
company. (See Note 3 to CONSOLIDATED FINANCIAL STATEMENTS.) Additionally, in
1998, 1997 and 1996, the Company sold approximately $384 million, $264 million
and $409 million, respectively, of capital services finance assets. Sales of
these asset portfolios were made with limited recourse in privately-placed
transactions with third-party investors. The proceeds from the sales of these
assets were used to repay a portion of the Company's commercial paper
borrowings. The uncollected principal balance of receivables sold at December
31, 1998 and 1997 was $501.2 million and $391.0 million, respectively.
The Company's liquidity ratio (finance contracts receivable plus residuals
expected to be realized in cash over the next 12 months to current maturities of
debt over the same period) was 1.47 and .89 times at December 31, 1998 and 1997,
respectively.
Under the Finance Agreement between Pitney Bowes and the Company, Pitney Bowes
is obligated on a quarterly basis to make payments, to the extent necessary, so
that the Company's earnings available for fixed charges for the preceding one
year period shall not be less than 1.25 times its fixed charges. Pitney Bowes
has also agreed to make any past due principal, interest or premium payments on
behalf of PBCC in respect to all approved debt and/or commercial paper, in the
event that PBCC is unable to make such payments. To date, no such payments from
Pitney Bowes have been required.
The Company will continue to use cash to invest in finance assets with
emphasis on internal leasing transactions and controlled investment in capital
services financing transactions. The Company believes that cash generated from
operations and collections on existing lease contracts will provide the majority
of cash needed for such investment activities. Borrowing requirements will be
dependent on the level of equipment purchases from PBI, the level of capital
services financing activity, capital requirements for new business initiatives,
intercompany loans and the refinancing of maturing debt. Additional cash, to the
extent needed, is expected to be provided from commercial paper, intermediate-
or long-term debt securities and intercompany funds, when available. While the
Company expects that market acceptance of its short- and long-term debt will
continue to be strong, additional liquidity is available, if needed, under
revolving credit facilities and credit lines.

YEAR 2000

In 1997, the Company's parent, Pitney Bowes Inc., established a formal
worldwide program to identify and resolve the impact of the Year 2000 date
processing issue on its business systems, products and supporting
infrastructure. PBCC is included as part of this program. This program includes
a comprehensive review of information technology (IT) and non-IT systems,
software, and embedded processors. The program structure has strong executive
sponsorship and consists of a Year 2000 steering committee comprised of senior
business and technology management, a Year 2000 program office staffed with
full-time project management, and subject matter experts and dedicated business
unit project teams. The Company has also engaged independent consultants to
perform periodic program reviews and assist in systems assessment and test plan
development.
The program encompasses 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 has completed its worldwide inventory and assessment of all business
systems and supporting infrastructure. Required modifications are still in
progress but were substantially completed by year-end 1998. Tests are performed
as software is remediated, upgraded, or replaced. Integrated testing is expected
to be complete by mid-1999.
PBCC relies on third parties for many systems, products and services. The
Company could be adversely impacted if third parties do not make necessary
changes to their own systems and products successfully and in a timely manner.
The Company has established a formal process to identify, assess and monitor the
Year 2000 readiness of critical third parties. Critical third parties with which
the Company interacts include, among others, customers and business partners
(supply chains, technology vendors and service providers); the global financial
market infrastructure (payment and clearing systems); and the utility
infrastructure (power, transportation, telecommunications) on which all
corporations rely. However, the Company is unable to predict whether such third
parties will be able to address their Year 2000 problems on a timely basis.
PBCC estimates the total cost of the program from inception in 1997 through
the Year 2000 to be approximately $2 million, of which approximately $1.3
million was incurred through December 31, 1998. These costs, which are funded
through the Company's cash flows, include both internal labor costs as well as
consulting and other external costs. These costs are incorporated in the
Company's budgets and current forecasts and are being expensed as incurred.

12
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from
uncertainty about the Year 2000 readiness of third parties, PBCC is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on its results of operations, liquidity or financial
condition. However, the Company continues to evaluate its Year 2000 risks and is
developing contingency plans to mitigate the impact of any potential Year 2000
disruptions. PBCC expects to complete contingency plans by the second quarter of
1999.

OTHER MATTERS

In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). Under SFAS 131, the Company has three reportable segments:
Internal Financing programs, Capital Services programs and Mortgage Servicing.
(See Note 12 to CONSOLIDATED FINANCIAL STATEMENTS.) In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires an entity recognize all derivative instruments as
either assets or liabilities on its balance sheet and measure those instruments
at fair market value. Changes in the fair value of those instruments will be
reflected as gains or losses. The accounting for the gains or losses depends on
the intended use of the derivative instrument and the resulting designation.
PBCC will be required to implement this statement beginning January 1, 2000. The
Company is currently in the process of evaluating the impact of implementing
this statement.

LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

From time to time, the Company is a party to lawsuits that arise in the
ordinary course of its business. These lawsuits may involve litigation by or
against the Company to enforce contractual rights under contracts; lawsuits by
or against the Company relating to equipment, service or payment disputes with
customers; disputes with employees; or other matters. The Company is currently a
defendant in a number of lawsuits, none of which should have, in the opinion of
management and legal counsel, a material adverse effect on the Company's
financial condition, results of operations or cash flows.
Pitney Bowes is subject to Federal, state and local laws and regulations
related to the environment, and is currently named as a member of various groups
of potentially responsible parties in administrative or court proceedings. Based
on facts presently known, PBI believes that the outcome of any current
proceeding will not have a material adverse effect on its financial condition,
results of operations or cash flows.
In June 1995, the United States Postal Service ("USPS") finalized and issued
regulations governing the manufacture, distribution and use of postage meters.
These regulations cover four general categories: meter security, administrative
controls, Computerized Meter Resetting Systems and other issues. Pitney Bowes
continues to comply with these regulations in its ongoing postage meter
operations.
In May 1996, the USPS issued a proposed schedule for the phaseout of
mechanical meters in the United States. Between May 1996 and March 1997, PBI
worked with the USPS to negotiate a revised mechanical meter migration schedule
which better reflected the needs of existing mechanical meter users and
minimized any potential negative financial impact. The final schedule agreed to
with the USPS is as follows:

o as of June 1, 1996, new placements of mechanical meters would no longer be
permitted; replacements of mechanical meters previously licensed to
customers would be permitted prior to the applicable suspension date for
that category of mechanical meter
o as of March 1, 1997, use of mechanical meters by persons or firms who process
mail for a fee would be suspended and would have to be removed from service o as
of December 31, 1998, use of mechanical meters that interface with mail machines
or processors ("systems meters") would be suspended and would have to be
removed from service
o as of March 1, 1999, use of all other mechanical meters ("stand-alone meters")
would be suspended and have to be removed from service

Based on the foregoing schedule, PBI believes that the phaseout of mechanical
meters will not have a material adverse financial impact.
As a result of the PBI's aggressive efforts to meet the USPS mechanical meter
migration schedule combined with its ongoing and continuing investment in
advanced postage evidencing technologies, mechanical meters represent less than
10% of PBI's installed U.S. meter base as of December 31, 1998, compared with
25% as of December 31, 1997.

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:

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

In July 1996, the USPS published for public comment draft specifications for
the Indicium, Postal Security Device and Host specifications. Pitney Bowes
submitted extensive comments to these specifications. In March 1997, the USPS
published for public comment the vendor infrastructure specification.
On August 26, 1998, the USPS published for public comment a consolidated and
revised set of IBIP specifications entitled "Performance Criteria for
Information Based indicia and Security Architecture for IBI Postage Metering
Systems" (the "IBI Performance Criteria"). The IBI Performance Criteria
consolidated the aforementioned IBIP specifications and incorporated many of the
comments previously submitted by the Company. PBI submitted comments to the IBI
Performance Criteria on November 30, 1998.
As of December 31, 1998, PBI is in the process of finalizing the development
of a PC project, which satisfies the proposed IBI Performance Criteria. This
product is currently undergoing beta testing and is expected to be ready for
market upon final approval from the USPS.

- - --------------------------------------------------------------------------------
The Company wishes to caution readers that any forward-looking statements (those
which talk about the Company's or management's current expectations as to the
future), in this Form 10-K or made by Company management involve risks and
uncertainties which may change based on various important factors. 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: the level of business and financial performance
of Pitney Bowes, including the impact of changes in postal regulations in the
United States; the impact of governmental financing regulations; the success of
the Company in developing strategies to manage debt levels, including the
ability of the Company to access the capital markets; the strength of worldwide
economies; the effects of and changes in trade, monetary and fiscal policies and
laws, and inflation and monetary fluctuations, including changes in interest
rates; the willingness of customers to substitute financing sources; and the
success of the Company at managing customer credit risk and associated
collection and asset management efforts; and the impact of the Year 2000 issue,
including the effects of third parties' inability to address the Year 2000
problem, as well as the Company's own readiness.

14
PITNEY BOWES CREDIT CORPORATION
ITEM 7A. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

In the normal course of business, PBCC is exposed to the impact of market
risk. Market risk is the sensitivity of income to variations in interest rates,
foreign exchange rates, and other market-driven rates or prices.
Interest-rate risk, including mortgage prepayment risk, is the most
significant market risk to which the Company is exposed. Interest-rate risk is
the sensitivity of income to variations in interest rates.
The Company manages its interest-rate risk mainly by using a variety of
off-balance sheet instruments. The most frequently used off-balance sheet
instruments are interest-rate swaps and options (particularly interest-rate
floors).
At December 31, 1998, interest-rate swaps totaling $325 million (notional
amount) were being used to manage risk due to interest-rate risk.
A second major source of the Company's interest-rate risk is the sensitivity
of its mortgage servicing rights ("MSRs") to prepayments. The mortgage borrower
has the option to repay the mortgage loan at any time. When mortgage interest
rates decline, borrowers have a greater incentive to prepay mortgage loans
through a refinancing; when mortgage interest rates rise, this incentive is
reduced or eliminated. Since MSRs represent the right to service mortgage loans,
a decline in interest rates and an actual (or probable) increase in mortgage
prepayments shortens the expected life of the MSR asset and reduces its economic
value. Correspondingly, an increase in interest rates and an actual (or
probable) decline in mortgage prepayments lengthen the expected life of the MSR
asset and enhance its economic value. The expected income from and, therefore,
economic value of MSRs is sensitive to movements in interest rates due to this
sensitivity to mortgage prepayments.
To mitigate the risk of declining long-term interest rates,
higher-than-expected mortgage prepayments, and the potential impairment of the
MSRs, the Company uses interest-rate swaps and floors. These instruments gain
value as interest rates decline, mitigating the impairment of MSRs. At December
31, 1998, the Company had approximately $275 million of interest-rate swaps and
$1.3 billion of interest-rate floors outstanding (notional amounts) to manage
risk to the MSRs' valuation.
It is the Company's policy to use financial instruments only to the extent
necessary to meet the above stated objectives, and not for speculative
purposes. PBCC uses a Value-at-Risk ("VaR") model to determine the maximum
potential one-day loss in the fair value of its interest rate and foreign
exchange sensitive
financial instruments. The VaR model estimates were made assuming normal market
conditions and a 95% confidence level. The Company's computations are based on
the interrelationships between movements in various currencies and interest
rates. The model includes all of the Company's debt as well as interest rate
swaps. Anticipated transactions, firm commitments and accounts receivable and
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 PBCC, nor does it consider the
potential effect of favorable changes in market factors. At December 31, 1998,
the Company's maximum potential one-day loss in fair value on the interest rate
swaps, using a variance/co-variance technique, was not material to the Company's
financial condition, results of operations or cash flows. (See Note 13 to
CONSOLIDATED FINANCIAL STATEMENTS.)

15
PITNEY BOWES CREDIT CORPORATION
Item 8. -- Financial statements and supplementary data

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors of
Pitney Bowes Credit Corporation

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 39 present fairly, in all material
respects, the financial position of Pitney Bowes Credit Corporation and its
subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 39, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Stamford, Connecticut
January 21, 1999

16
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands of dollars)

Years Ended December 31 1998 1997 1996
---- ---- ----
Revenue:
Finance income...................................... $ 514,287 $ 524,913 $ 529,987
Mortgage servicing revenue.......................... 132,072 73,246 52,985
Equipment sales..................................... - - 26,666
------- ------- -------

Total revenue..................................... 646,359 598,159 609,638
------- ------- -------

Expenses:
Selling, general and administrative................. 136,999 121,043 111,217
Depreciation and amortization....................... 75,051 42,462 40,267
Cost of equipment sales............................. - - 22,821
Provision for credit losses......................... 36,080 34,076 35,617
Interest............................................ 116,746 151,033 160,841
------- ------- -------
Total expenses.................................... 364,876 348,614 370,763
------- ------- -------
Income from continuing operations
before income taxes................................. 281,483 249,545 238,875
Provision for income taxes............................ 82,460 71,737 76,445
------- ------- -------
Income from continuing operations..................... 199,023 177,808 162,430
Discontinued operations (net of taxes of $5,237 in 1998
$10,546 in 1997 and $10,410 in 1996)................ 8,453 17,025 16,804
------- ------- -------

Net income [1]........................................ $ 207,476 $ 194,833 $ 179,234
======= ======= =======

Consolidated Statement of Retained Earnings
(in thousands of dollars)

Years Ended December 31 1998 1997 1996
---- ---- ----

Retained earnings at beginning of year................ $ 1,007,136 $ 890,303 $ 782,269
Net income for the year............................... 207,476 194,833 179,234
Dividends paid to Pitney Bowes Inc.................... (86,000) (78,000) (71,200)
-------- ------- -------

Retained earnings at end of year...................... $ 1,128,612 $ 1,007,136 $ 890,303
======== ======= =======

[1] For the years ended December 31, 1998, 1997 and 1996, the Company
had no other comprehensive income items. Consequently, net income
represents the Company's total comprehensive income.

The accompanying notes are an
integral part of the financial statements.

17
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

1998 1997
---- ----
Assets:
Cash..................................................................... $ 19,154 $ 36,320
--------- ---------
Investments:
Finance assets......................................................... 2,721,805 3,475,538
Investment in leveraged leases......................................... 764,145 667,779
Investment in operating leases, net of accumulated depreciation........ 33,261 32,112
Allowance for credit losses............................................ (115,233) (116,588)
--------- ---------
Net investments...................................................... 3,403,978 4,058,841
--------- ---------

Mortgage servicing rights, net of accumulated amortization............. 364,071 220,912
Assets held for sale................................................... 337,757 305,228
Investment in partnership.............................................. 165,950 158,327
Loans and advances to affiliates....................................... 611,625 290,488
Other assets........................................................... 391,135 258,224
--------- ---------
Total assets........................................................ $ 5,293,670 $ 5,328,340
========= =========

Liabilities:
Senior notes payable within one year................................... $ 991,853 $ 1,970,110
Short-term notes payable to affiliates................................. 137,000 -
Accounts payable to affiliates......................................... 278,452 232,917
Accounts payable and accrued liabilities............................... 182,236 199,905
Deferred taxes......................................................... 486,906 510,060
Senior notes payable after one year.................................... 1,382,000 1,050,000
Long-term notes payable to affiliates.................................. 333,000 -
Subordinated notes payable............................................. 285,886 270,487
--------- ---------
Total liabilities.................................................. 4,077,333 4,233,479
--------- ---------
Stockholder's Equity:
Common stock........................................................... 46,000 46,000
Capital surplus........................................................ 41,725 41,725
Retained earnings...................................................... 1,128,612 1,007,136
--------- ---------
Total stockholder's equity.......................................... 1,216,337 1,094,861
--------- ---------
Total liabilities and stockholder's equity.......................... $ 5,293,670 $ 5,328,340
========= =========

The accompanying notes are an
integral part of the financial statements.

18
PITNEY BOWES CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)

Years Ended December 31 1998 1997 1996
---- ---- ----

Operating Activities
Net income........................................................... $ 207,476 $ 194,833 $ 179,234
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses........................................ 65,404 78,320 66,529
Depreciation and amortization...................................... 75,163 42,648 40,447
Cost of equipment sales............................................ - - 22,821
Increase in deferred taxes.......................................... 22,387 31,436 37,300
Increase in other receivables....................................... (14,643) (37,782) (8,315)
Increase in foreclosure claims receivable........................... (23,414) (24,155) (3,673)
Increase in advances and deposits................................... (17,942) (23,351) (6,168)
Increase in loans held for sale..................................... (89,577) (12,336) (17,964)
Increase in accounts payable to affiliates.......................... 45,535 64,359 41,551
Increase in accounts payable and accrued liabilities................ 7,518 23,248 21,054
Other, net.......................................................... (10,155) 12,271 (784)
--------- --------- --------
Net cash provided by operating activities 267,752 349,491 372,032
--------- --------- --------
Investing Activities
Proceeds from sale of subsidiary................................... 789,936 - -
Investment in net finance assets................................... (1,399,498) (1,420,409) (1,494,606)
Investment in leveraged leases..................................... (77,441) (46,390) (22,446)
Investment in operating leases..................................... (6,366) (16,023) (20,348)
Investment in assets held for sale................................. (545,149) (650,951) (326,691)
Cash receipts collected under lease contracts, net of finance
income recognized............................................... 1,783,235 2,538,321 1,557,822
Investment in mortgage service rights.............................. (206,464) (110,014) (50,407)
Investment in affiliate notes...................................... (282,000) - -
Loans and advances to affiliated companies, net.................... (26,101) (281,777) (2,001)
Additions to equipment and leasehold improvements.................. (9,012) (14,327) (12,536)
--------- --------- --------
Net cash provided by (used in) investing activities.................. 21,140 (1,570) (371,213)
--------- --------- --------
Financing Activities
Net change in short-term debt..................................... (1,012,457) 89,029 (466,799)
Short-term loans from affiliates.................................. 137,000 (139,400) (10,309)
Proceeds from issuance of senior notes payable after one year..... 532,000 - 500,000
Proceeds from issuance of subordinated debt....................... 15,399 41,333 58,297
Settlement of long-term debt...................................... (225,000) (245,500) -
Loans from affiliates ............................................ 333,000 - -
Dividends paid to Pitney Bowes, Inc............................... (86,000) (78,000) (71,200)
--------- --------- --------
Net cash (used in) provided by financing activities.................. (306,058) (332,538) 9,989
--------- --------- --------
(Decrease) increase in cash.......................................... (17,166) 15,383 10,808
Cash at beginning of year............................................ 36,320 20,937 10,129
--------- --------- --------
Cash at end of year.................................................. $ 19,154 $ 36,320 $ 20,937
========= ========= ========

Interest paid........................................................ $ 162,270 $ 196,968 $ 197,256
========= ========= ========
Income taxes refunded, net........................................... $ (63,420) $ (21,773) $ (44,397)
========= ========= ========

Supplemental noncash activities:
During 1998, the Company acquired a lease portfolio consisting of direct
financing and operating leases. In connection with this acquisition, the Company
assumed certain non-recourse debt in the amount of $59.2 million.

The accompanying notes are an
integral part of the financial statements.

19
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 1. - Summary of Significant Accounting Policies

Consolidation The consolidated financial statements include the accounts of
Pitney Bowes Credit Corporation and all of its subsidiaries (the "Company" or
"PBCC"). All significant intercompany transactions and balances 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 and cash equivalents Cash equivalents include short-term, highly liquid
investments with a maturity of three months or less from the date of
acquisition. Basis of accounting for financing transactions At the time a
financing transaction is consummated, the Company records on its balance sheet
the total receivable, unearned income and the estimated residual value of leased
equipment. Unearned income represents the excess of the total receivable plus
the estimated residual value over the cost of equipment or contract acquired.
Unearned income is recognized as finance income under the interest method over
the term of the transaction. Initial direct costs incurred in consummating
transactions, including fees paid to Pitney Bowes Inc. ("Pitney Bowes" or
"PBI"), are accounted for as part of the investment in a direct financing lease
and amortized to income using the interest method over the term of the lease.
The Company has, from time-to-time, sold selected finance assets. Beginning
January 1, 1997, the Company adopted Statement of Financial Accounting Standards
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", to account for the sale of these assets. All
assets obtained or liabilities incurred in consideration are recognized as
proceeds of the sale and any resulting gain or loss is recognized in income
currently. Prior to January 1, 1997, the Company followed Statement of Financial
Accounting Standards No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse", when accounting for its sale of finance assets.
Allowance for credit losses The Company evaluates the collectibility of its net
investment in finance assets based upon its loss experience and assessment of
prospective risk, and does so through ongoing reviews of its exposures to net
asset impairment. The Company adjusts the carrying value of its net investment
in finance assets to the estimated collectible amount through adjustments to the
allowance for credit losses. Finance receivables are charged to the allowance
for credit losses after the account is deemed uncollectible. (See Note 6 to
CONSOLIDATED FINANCIAL STATEMENTS.)
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. Capital services transactions
are reviewed on an individual basis. Income recognition is discontinued when it
is apparent an obligor will not be making payment in accordance with lease terms
and is resumed when the Company has sufficient experience on resumption of
payments to be satisfied that such payments will continue in accordance with
contract terms. Income taxes The Company's taxable results are included in the
consolidated Federal and certain state income tax returns of Pitney Bowes. For
tax purposes, income from leases is recognized under the operating method and
represents the difference between gross rentals billed and operating expenses.
Under a tax sharing agreement between the Company and Pitney Bowes, the Company
makes payment to Pitney Bowes for its share of consolidated income taxes or
receives cash equal to the benefit of tax losses utilized in consolidated
returns in exchange for which it issues non-interest bearing subordinated notes
with a maturity one day after all senior debt is repaid. Deferred taxes
reflected in the Company's balance sheet represent the difference between
Federal and state income taxes reported for financial and tax reporting
purposes, less non-interest bearing subordinated notes issued, including those
capitalized. Investment in operating leases Equipment under operating leases is
depreciated over the initial term of the lease to its estimated residual value.
Rental revenue is recognized on a straight-line basis over the related lease
term. Mortgage servicing rights ("MSR") The Company recognizes, as separate
assets, rights to service mortgage loans, whether those servicing rights are
originated or purchased. MSRs originated by others, purchased separately from
loans, are recorded at cost. The Company assesses impairment of MSRs based on
the fair value of those rights. The Company estimates the fair value of MSRs
based on estimated future net servicing income, using a valuation model which
considers such factors as market discount rates, consensus loan prepayment
predictions, servicing costs and other economic factors. For purposes of
impairment valuation, the Company's policy stratifies MSRs based on predominant
risk characteristics of the underlying loans, including loan type, amortization
type (fixed or adjustable) and note rate. To the extent that the carrying value
of MSRs exceeds fair value by individual stratum, a valuation reserve is
established, which is adjusted as the value of MSRs increases or decreases. The
cost of MSRs is amortized in proportion to and over the period of estimated net
servicing income. Reclassifications Certain amounts from prior years have been
reclassified in order to conform to current year presentation.

20
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 2. - Discontinued Operations

Discontinued operations On October 30, 1998, the Company's wholly-owned
subsidiary, Colonial Pacific Leasing Corporation ("CPLC"), transferred the
operations, employees and substantially all assets related to its
broker-oriented small-ticket lease financing business to General Electric
Capital Corporation ("GECC"). The Company received approximately $790 million at
closing, which approximates the book value of net assets sold or otherwise
disposed of together with related transaction costs. As part of the sale, the
Company retained certain non-performing accounts of CPLC. (See Note 6 to
CONSOLIDATED FINANCIAL STATEMENTS.) The transaction is subject to post-closing
adjustments pursuant to the terms of the purchase agreement with GECC executed
on October 12, 1998. The Company does not expect the effect of any adjustments
to be significant.
Operating results of CPLC have been segregated and reported as discontinued
operations in the consolidated statements of income. Finance income of CPLC was
$128.8 million for the ten months ended October 31, 1998 and $180.5 million and
$163.0 million for the years ended December 31, 1997 and 1996, respectively.
Interest expense allocated to discontinued operations was $33.9 million for the
ten months ended October 31, 1998 and $46.2 million and $40.7 million for the
years ended December 31, 1997 and 1996, respectively. Interest expense has been
allocated based on the level of CPLC's intercompany borrowing, charged at the
Company's weighted average borrowing rate.

Note 3. - Finance Assets

The composition of the Company's finance assets is as follows:

December 31 1998 1997
---- ----
(in thousands of dollars)
Gross finance receivables.................................. $ 3,050,572 $ 3,923,767
Unguaranteed residual valuation............................ 412,569 461,051
Initial direct costs deferred.............................. 46,224 85,497
Unearned income............................................ (787,560) (994,777)
--------- ---------
Total finance assets..................................... $ 2,721,805 $ 3,475,538
========= =========

Gross finance receivables represent earning assets held by the Company which are
generally due in monthly, quarterly or semi-annual installments over original
periods ranging from 36 to 180 months. In addition, gross finance receivables
for the Company's capital services programs include commercial jet aircraft
transactions with original lease terms of up to 23 years and other
non-commercial jet aircraft transactions with original lease terms ranging from
two to 12 years. The balance due at December 31, 1998, including estimated
residual value realizable at the end of the lease term, is payable as follows:

Gross Finance Assets
-------------------------------------------------------

Commercial
and
Internal industrial
programs programs Total

1999 $1,125,925 $ 134,753 $1,260,678
2000 662,580 121,363 783,943
2001 460,061 90,612 550,673
2002 241,231 98,914 340,145
2003 62,815 68,107 130,922
Thereafter 7,912 388,868 396,780
-------- -------- --------

Total $2,560,524 $ 902,617 $3,463,141
======== ======== ========

Net equipment financed for Pitney Bowes products were $672.7 million, $611.2
million and $571.6 million in 1998, 1997, and 1996, respectively.

21
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 3. - Finance Assets (continued)

During 1997, PBCC and GATX Corporation ("GATX") formed PBG Capital Partners
LLC ("PBG") for the purpose of financing and managing certain leasing related
assets. PBCC and GATX each contributed assets (primarily direct financing
leases) to PBG. The Company and GATX each maintain a 50 percent ownership
interest and jointly manage PBG. PBCC accounts for its investment in PBG under
the equity method and recorded income of approximately $8.0 million and $1.2
million in 1998 and 1997, respectively. During 1998, PBCC contributed $65.3
million of assets to PBG and received cash distributions totaling $89.6 million.
Total assets sold and contributed (including assets sold to GATX) by PBCC during
1997 were $958.8 million.

During 1998, 1997 and 1996, PBCC sold finance assets with limited recourse of
approximately $384 million, $264 million and $409 million, respectively. The
uncollected principal balance of receivables sold at December 31, 1998 and 1997
was $501.2 million and $391.0 million, respectively. The maximum risk of loss in
these transactions arises from the possible non-performance of lessees to meet
the terms of their contracts. The Company believes adequate provisions have been
made for sold receivables which may become uncollectible.

As of December 31, 1998, $326.8 million (12.0 percent) of the Company's
finance assets and $428.8 million (12.4 percent) of the Company's gross finance
assets were related to aircraft leased to commercial airlines. The Company
considers its credit risk for these leases to be minimal due to the credit
worthiness of the underlying lessees and the fact that all payments are being
made in accordance with lease agreements. The Company believes any potential
exposure in commercial aircraft investment is mitigated by the value of the
collateral as the Company retains a security interest in the leased aircraft.

Note 4. - Net Investment in Leveraged Leases

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

December 31 1998 1997
---- ----
(in thousands of dollars)
Net rents receivable....................................... $ 788,404 $ 627,655
Unguaranteed residual valuation............................ 599,741 599,741
Unearned income............................................ (624,000) (559,617)
--------- ---------
Investment in leveraged leases............................. 764,145 667,779
Deferred taxes arising from
leveraged leases (1) ..................................... (450,900) (308,746)
--------- ---------
Net investment in leveraged leases......................... $ 313,245 $ 359,033
========= =========

(1) Includes amounts reclassified to subordinated debt.

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

Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Pretax leveraged lease income............... $ 16,513 $ 4,467 $ 7,145
Income tax benefit.......................... 11,770 17,110 7,080
------- ------- -------
Net income from leveraged leases........... $ 28,283 $ 21,577 $ 14,225
======= ======= =======

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.

22
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 4. - Net Investment in Leveraged Leases (continued)

Leveraged lease investments totaling $301.6 million (39.5 percent) are related
to commercial real estate facilities, with original lease terms ranging up to 25
years. Also included are seven aircraft transactions with major commercial
airlines, with a total investment of $297.5 million (38.9 percent) and with
original lease terms ranging from 22 to 25 years; one transaction involving
locomotives with a total investment of $37.0 million (4.8 percent) with an
original lease term of 38 years and five transactions involving rail and bus
facilities with a total investment of $128.0 million (16.8 percent) and original
lease terms of 37 to 44 years.

Note 5. - Investment in Operating Leases, Net

The Company is the lessor of various types of equipment under operating leases
including data processing, transportation and production equipment.

Minimum future rental payments to be received in each of the next five years
under non-cancelable operating leases are $1.6 million in 1999, $0.7 million in
2000, $0.5 million in 2001, $0.3 million in 2002, $0.1 million in 2003 and $0.3
million thereafter.

Note 6. - Allowance for Credit Losses

The following is a summary of the allowance for credit losses, substantially all
of which relates to lease financing:

December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Beginning balance.......................... $ 116,588 $ 98,721 $ 101,355
Additions charged to
discontinued operations.................. 29,324 44,244 30,912
Additions charged to operations............ 36,080 34,076 35,617
Amounts written-off:
Internal programs....................... (28,945) (27,182) (22,879)
Capital services........................ (490) 40 (101)
External small-ticket................... (37,324) (33,311) (46,183)
------- ------- -------
Total write-offs.................... (66,759) (60,453) (69,163)
------- ------- -------

Ending balance............................. $ 115,233 $ 116,588 $ 98,721
======= ======= =======

The increase in the amount of additions charged to continuing operations in 1998
is the result of higher investment levels in the Company's new business
initiatives and the impact of finance asset sales. The decrease in 1997
additions was due to favorable adjustments to the internal financing programs
provisions reflecting management's evaluation of expected losses.

23
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 6. - Allowance for Credit Losses (continued)

In establishing the provision for credit losses, the Company utilizes an
asset-based percentage. This percentage varies depending on the nature of the
asset, recent historical experience, vendor recourse, management judgement, and
for capital services financing transactions, the credit ratings assigned by
Moody's and Standard & Poor's. In evaluating the adequacy of reserves, estimates
of expected losses, again by nature of the asset, are utilized. While historical
experience is the principal factor in determining loss percentages, adjustments
will also be made for current economic conditions, deviations from historical
aging patterns, seasonal write-off patterns and levels of non-earning assets. If
the resulting evaluation of expected losses differs from the actual aggregate
reserve, adjustments are made to the reserve.

For transactions in the internal programs, the Company discontinues income
recognition for finance receivables past due over 120 days. The Company has
utilized this period because historically internal collection efforts have
continued for this time period. In capital services programs, income recognition
is discontinued as soon as it is apparent that the obligor will not be making
payments in accordance with lease terms, such as in the event of bankruptcy.
Otherwise, income recognition is discontinued when accounts are past due over 90
days.

Finance receivables are written-off to the allowance for credit losses after
collection efforts are exhausted and the account is deemed uncollectible. For
internal financing transactions, this usually occurs near the point in time when
the transaction is placed in a non-earning status. For capital services
financing transactions, write-offs are normally made after efforts are made to
repossess the underlying collateral, the repossessed collateral is sold, and
efforts to recover remaining balances are exhausted. On capital services
financing transactions, periodic adjustments also may be made and/or a cost
recovery approach for cash proceeds utilized to reduce the face value to an
estimated present value of the future expected recovery. All write-offs and
adjustments are recorded on a transaction by transaction basis.

Resumption of income recognition on internal program non-earning accounts occurs
when payments are reduced to 60 days or less past due. On capital services
financing transactions, resumption of income recognition occurs after the
Company has had sufficient experience on resumption of payments and is satisfied
that such payments will continue in accordance with the original or restructured
contract terms.

The carrying values of non-performing and troubled finance assets are outlined
below. There are no leveraged leases classified under these categories.

December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Non-performing (non-accrual) transactions
Internal programs....................... $ 15,214 $ 11,394 $ 12,614
Capital services programs............... 2,134 2,543 2,643
External small-ticket................... 42,063 37,184 23,766
------- ------- -------
Total............................... $ 59,411 $ 51,121 $ 39,023
======= ======= =======
Troubled (potential problem) transactions
Capital services programs............... $ 12,906 $ 13,446 $ 13,810
======= ======= =======

The increase in non-performing transactions in 1998 and 1997 in the external
small-ticket programs was due to an increase in bankruptcy levels among certain
lease customers. As part of the sale of CPLC in October 1998, the Company
retained certain non-performing accounts. These accounts have been placed with a
specialized late stage collection group in an effort to maximize the potential
for recovery. The Company believes it has sufficient reserves to provide for any
losses which may result from the final resolution of the above transactions.

Historically, the Company has not allocated a specific amount of credit loss
reserve to non-performing and troubled transactions. This is due to the
historically low level of write-offs in the capital services financing programs
and the limited number of transactions with material credit loss exposure in
other areas. As stated previously, the Company evaluates its aggregate reserve
position in comparison to estimates of aggregate expected losses.

24
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 6. - Allowance for Credit Losses (continued)

However, for non-performing capital services financing transactions, the Company
has adjusted the face value of these receivables through the following
adjustments:

December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Face value of receivables.................. $ 2,500 $ 2,500 $ 2,500
Cash collections applied to principal...... (1,481) (1,352) (1,252)
------- ------- -------
Carrying value............................. $ 1,019 $ 1,148 $ 1,248
======= ======= =======

Note 7. - Mortgage Servicing Rights

The cost of rights to service mortgage loans, whether those servicing rights are
originated or purchased, are capitalized and recorded as separate assets by the
Compnay. These costs are amortized in proportion to and over the period of
estimated net servicing income. The Company assesses impairment of MSRs based on
the fair value of those rights. The Company estimates the fair value of MSRs
based on estimated future net servicing income, using a valuation model which
considers such factors as market discount rates, consensus loan prepayment
predictions, servicing costs and other economic factors. For purposes of
impairment valuation, the Company's policy stratifies MSRs based on predominant
risk characteristics of the underlying loans, including loan type, amortization
type (fixed or adjustable) and note rate. To the extent that the carrying value
of MSRs exceeds fair value by individual stratum, a valuation reserve is
established, which is adjusted as the value of MSRs increases or decreases.

The Company purchased rights to service loans with aggregate unpaid principal
balances of approximately $12.4 billion in 1998, $8.1 billion in 1997, and $5.3
billion in 1996. The costs associated with acquiring these rights were
capitalized and recorded as MSRs.

The following summarizes the Company's capitalized MSR activity:

December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Balance at beginning of year................ $ 220,912 $ 138,146 $ 108,851
MSR acquisitions............................ 206,464 110,014 50,407
Deferred hedge loss......................... 1,709 - -
MSR amortization............................ (54,787) (27,248) (21,112)
Impairment reserve.......................... (10,227) - -
------- ------- -------
Balance at end of year..................... $ 364,071 $ 220,912 $ 138,146
======= ======= =======

The fair value of MSRs was approximately $372.9 million at December 31, 1998 and
$247.5 million at December 31, 1997.

Note 8. - Assets Held for Sale

The Company funded transactions totaling $545.1 million in 1998, $650.9 million
in 1997, and $326.7 million in 1996, relating to assets held for sale.
Transactions totaling $380.3 million in 1998 and $445.5 million in 1997, were
sold for a net gain before taxes of $7.4 million in 1998 and $6.3 million in
1997, which is recorded as part of finance income. Thirty-eight transactions
relating to assets held for sale remain in inventory with a net carrying value
of $337.8 million at December 31, 1998 compared with twenty-one transactions
with a net carrying value of $305.2 million at December 31, 1997.

PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 8. - Other Assets

December 31 1998 1997
---- ----
(in thousands of dollars)
Loans held for sale......................................... $ 131,504 $ 41,927
Other receivables........................................... 74,834 60,191
Foreclosure claims receivable, net.......................... 57,471 34,057
Equipment and leasehold improvements, net of accumulated
depreciation and amortization: 1998-$22,259; 1997-$21,975. 15,393 30,612
Billed meter rental receivables ............................ 33,514 29,582
Mortgage escrow advances.................................... 33,019 25,634
Other advances and deposits................................. 29,698 19,141
MSR hedge................................................... 3,950 -
Deferred partnership fees................................... 3,330 5,290
Deferred debt placement fees................................ 3,594 3,308
Goodwill, net of accumulated amortization:
1998-$2,518; 1997-$2,132.................................. 2,131 2,518
Interest discount on commercial paper....................... 51 2,672
Prepaid expenses and other assets........................... 2,646 3,292
-------- --------
Total other assets......................................... $ 391,135 $ 258,224
======== ========

Loans held for sale consist of purchased and originated mortgage loans secured
by first real estate mortgages and are stated at the lower of aggregated cost or
market. Market value is determined by outstanding committments from investors or
by current investor yield requirements. In general, the Company enters into
forward delivery contracts for the sale of loans. Write-downs of loans to the
lower of cost or market are included in net income of the period in which the
adjustment occurs. Any discount resulting from the purchase of mortgage loans is
not included in net income until the loans are sold. There were no write-downs
of loans held for sale for the years ended December 31, 1998 or 1997.

Other receivables increased over the prior year mainly due to higher billed
receivables at the Company's Mortgage Servicing subsidiary and proceeds due on
syndication transactions.

Foreclosure claims receivable include loans and related advances in the process
of foreclosure. Such loans are insured or guaranteed by either the Federal
Housing Administration, the Veterans Administration or private mortgage
insurance and will be repaid when the foreclosure process is completed. The
Company has established reserves for possible losses in excess of insured or
guaranteed amounts of approximately $8.4 million at December 31, 1998 and $5.5
million at December 31, 1997.

Equipment and leasehold improvements are stated at cost. Equipment is
depreciated on a straight-line basis over the expected useful life generally
ranging from five to ten years. Leasehold improvements are amortized on a
straight-line basis over the remaining lease terms.

Billed meter rental receivables represent uncollected meter rental receivables
billed to customers who have opted to have their meter rental charged on their
lease invoice. PBCC remits these charges to PBI based on billings. There is no
reserve established at PBCC, since any unpaid meter rentals are netted against
future payments due PBI. The increase in billed meter rental receivables
resulted from a larger customer base and higher meter rates.

Mortgage escrow advances include advances made in connection with loan servicing
activities. These advances consist primarily of property taxes and insurance
premiums made before they are collected from mortgagors.

Other advances and deposits include advances made in connection with the
acquisition of new mortgage servicing portfolios.

The MSR hedge represents the net carrying value of the interest rate floor
contract the Company has entered into during 1998.

Deferred partnership fees relate to a transaction whereby the Company
contributed certain commercial aircraft, subject to direct financing leases, to
a majority-owned partnership. Partnership fees incurred in connection with this
transaction are amortized over the term of the transaction.

26
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 8. - Other Assets (continued)

Deferred debt placement fees incurred in connection with placing senior and
subordinated notes are amortized over the related terms of the notes.

Note 9. - Accounts Payable and Accrued Liabilities

December 31 1998 1997
---- ----
(in thousands of dollars)
Advances and deposits from customers........................ $ 48,448 $ 51,616
Accounts payable............................................ 45,787 48,572
Accrued interest payable.................................... 27,393 23,081
Sales and use, property and sundry taxes.................... 15,282 14,663
Portfolio purchase price payable............................ 4,448 12,800
Accrued salary and benefits payable......................... 5,664 8,662
Minority interest in partnership............................ 8,751 8,130
Other liabilities........................................... 26,463 32,381
-------- --------
Total accounts payable and accrued liabilities............. $182,236 $199,905
======== ========

Note 10. - Notes Payable

Short-term notes payable totaled $1.0 billion at December 31, 1998 and $2.0
billion at December 31, 1997. These notes were issued as commercial paper, loans
against bank lines of credit, or to trust departments of banks and others at
rates below the prevailing prime rate.

The composition of the Company's notes payable is as follows:

December 31 1998 1997
---- ----
(in thousands of dollars)
Senior Notes Payable:
Commercial paper at the weighted average
interest rate of 4.90% (5.66% in 1997).................... $ 173,700 $ 1,361,110
Notes payable against bank lines of credit and others at a
weighted average interest rate of 1.16% (1.68% in 1997)... 618,153 384,000
Current installment of long-term debt due within one year at
an interest rate of 6.54% (5.84% to 6.31% in 1997)........ 200,000 225,000
--------- ---------
Total senior notes payable due within one year............. 991,853 1,970,110
Senior notes payable due after one year at interest rates of
5.65% to 9.25% (6.06% to 9.25% in 1997).................. 1,382,000 1,050,000
--------- ---------
Total senior notes payable................................. 2,373,853 3,020,110
--------- ---------
Notes Payable to Affiliates:
Due within one year at interest rates of 5.38% and 5.55%... 137,000 -
Due after one year at an interest rate of 5.38%............ 333,000 -
--------- ---------
Total notes payable to affiliates.......................... 470,000 -
--------- ---------
Subordinated Notes Payable:
Non-interest bearing notes due Pitney Bowes Inc............. 285,886 270,487
--------- ---------

Total notes payable........................................ $ 3,129,739 $ 3,290,597
========= =========

27
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 10. - Notes Payable (continued)

At December 31, 1998, the Company had unused lines of credit and revolving
credit facilities totaling $1,200 million largely supporting commercial paper
borrowings. The Company recorded commitment fees of $0.7 million, $0.6 million
and $1.3 million in 1998, 1997 and 1996, respectively, to maintain its lines of
credit. The reduction in commitment fees from 1996 is a result of reductions in
commitment fee rates in January 1997.

Total notes payable at December 31, 1998 mature as follows: approximately $1,129
million in 1999, $87 million in 2000, $519 million in 2001, $137 million in
2002, $437 million in 2003 and $821 million thereafter.

Lending Arrangements: Under terms of its senior and subordinated loan
agreements, the Company is required to maintain earnings before taxes and
interest charges at prescribed levels. With respect to such loan agreements,
Pitney Bowes will endeavor to have the Company maintain compliance with such
terms and, under certain loan agreements, is obligated, if necessary, to pay to
the Company amounts sufficient to maintain a prescribed ratio of earnings
available for fixed charges or make approved debt/commercial paper principal,
interest or premium payments in the event that PBCC is unable to. To date, no
such payments have been required to maintain earnings available for fixed charge
coverage or to maintain the Company's contractual liquidity obligations.

In January 1998, the Company issued $250 million of medium-term notes due in
January 2003.

On September 30, 1998, the Company issued a total of $282 million of Series A
and Series B Secured Floating Rate Senior Notes (the "Notes"), through certain
affiliates. The Notes are due in 2001 and bear interest at a floating rate of
LIBOR plus .65%, set as of the quarterly interest payment dates. The proceeds
from the Notes were used to purchase subordinated debt obligations from Pitney
Bowes Inc. (the "PBI Obligations"). The PBI Obligations have a principal amount
of $282 million and bear interest at a floating rate of LIBOR plus one percent,
set as of the quarterly interest payment dates.

In July 1998, the Company filed a shelf registration statement on Form S-3 with
the Securities and Exchange Commission. The registration statement allows PBCC
to offer, in one or more series, its unsecured debt securities at an aggregate
initial offering price not to exceed $750 million. The debt securities will be
offered in amounts, at prices and at terms to be determined at the time of sale
and which will be set forth in supplements to the prospectus forming part of the
shelf registration statement. At December 31, 1998, the entire $750 million was
available under the shelf registration.

In 1998 and 1997, the Company issued $15.4 million and $41.3 million,
respectively, of non-interest bearing subordinated notes to Pitney Bowes in
exchange for funds equal to tax losses generated by the Company and utilized by
Pitney Bowes in the 1997 and 1996 consolidated tax returns. Any non-interest
bearing subordinated notes payable to Pitney Bowes mature after all senior notes
now outstanding and executed hereafter are paid.

PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 11. - Business Segment Information

The Internal Financing Division of PBCC provides marketing support to PBI.
Equipment leased or financed for Internal Division programs include mailing,
paper handling and shipping equipment, scales, copiers, and facsimile units.
PBCC's Capital Services Division operates in the commercial and industrial
market by offering financial services to its customers for products not
manufactured or sold by PBI or its subsidiaries. The Company's Mortgage
Servicing Division is responsible for the management of Atlantic Mortgage &
Investment Corporation ("AMIC"), a wholly-owned subsidiary of PBCC, located in
Jacksonville, Florida, which specializes in servicing residential first
mortgages for a fee. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. (See Note 1
to CONSOLIDATED FINANCIAL STATEMENTS.) Operating profit of each segment is
determined by deducting from revenue the costs and expenses directly related to
the segment as well as an allocation of certain corporate expenses. Operating
profit excludes income taxes and net interest attributable to corporate debt.
Identifiable assets are those used by the segment directly in 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 MSRs. Segmental revenue and income before taxes for the years ended
1998, 1997 and 1996 are presented below. All revenue is produced in the United
States.

Revenue
---------------------------------------

Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Internal financing............................... $ 358,273 $ 331,824 $ 308,084
Capital services................................. 156,014 193,089 248,569
Mortgage servicing............................... 132,072 73,246 52,985
------- ------- -------
Total revenue............................... $ 646,359 $ 598,159 $ 609,638
======= ======= =======

Income before Taxes
---------------------------------------
Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Internal financing............................... $ 212,030 $ 194,171 $ 174,176
Capital services................................. 77,313 66,638 73,294
Mortgage servicing............................... 40,273 27,102 16,028
------- ------- -------
Total for reportable segments.................... 329,616 287,911 263,498
Unallocated amounts:
Corporate interest expense, net................ (28,040) (20,796) (15,201)
Corporate expenses............................. (20,093) (17,570) (9,422)
------- ------- -------
Income before income taxes....................... $ 281,483 $ 249,545 $ 238,875
======= ======= =======

Additional segment information is as follows:
Depreciation and Amortization
--------------------------------------
Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Internal financing............................... $ 16 $ - $ -
Capital services................................. 13,186 14,231 19,155
Mortgage servicing............................... 61,849 28,231 21,112
------- ------- -------
Total....................................... $ 75,051 $ 42,462 $ 40,267
======= ======= =======

29
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 11. - Business Segment Information (continued)

Net Interest Expense
---------------------------------------

Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Internal financing............................... $ 52,174 $ 47,844 $ 43,213
Capital services................................. 44,197 85,994 105,446
Mortgage servicing............................... (7,665) (3,601) (3,019)
------- ------- -------
Total for reportable segments.................... 88,706 130,237 145,640
Corporate interest expense, net.................. 28,040 20,796 15,201
------- ------- -------
Consolidated interest expense, net............... $ 116,746 $ 151,033 $ 160,841
======= ======= =======

December 31,
------------------------------

Net additions to long-lived assets: 1998 1997
---- ----
(in thousands of dollars)
Internal financing.................................... $ 245,665 $ 57,492
Capital services...................................... 372,725 183,031
Mortgage servicing.................................... 20,736 4,086
------- -------
Total for reportable segments........................ 639,126 244,609
General corporate assets.............................. 106,746 284,251
------- -------
Consolidated additions to
long-lived assets..................................... $ 745,872 $ 528,860
======= =======

December 31,
--------------------------
Identifiable assets: 1998 1997
---- ----
(in thousands of dollars)
Internal financing.................................... $ 2,087,845 $ 1,797,783
Capital services...................................... 2,437,177 3,015,278
Mortgage servicing.................................... 598,771 345,317
-------- --------
Total for reportable segments........................... 5,123,793 5,158,378
Cash.................................................... 19,154 36,320
General corporate assets................................ 150,723 133,642
-------- --------
Consolidated assets..................................... $ 5,293,670 $ 5,328,340
======== ========

30
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 12. - Derivative Instruments

PBCC's principal objective in holding derivatives is the management of
interest-rate risk. The Company uses various financial instruments, particularly
interest rate swaps to manage these risks. The Company is exclusively an end
user of these instruments and does not engage in any derivatives trading,
market-making or other speculative activities in the derivative markets.

The major source of the Company's interest-rate risk is its exposure to changes
in interest rates as they relate to its notes payable. To manage this exposure,
the Company periodically enters into interest rate swaps. The interest rate
differential to be paid or received is recognized over the life of the
agreements as an adjustment to interest expense.

The aggregate amount of interest rate swaps categorized by type, and the related
weighted average interest rate paid and received assuming current market
conditions is reflected below:

Total
Major Type Notional
of Interest Amount Weighted Average Interest Rates
Rate Swap Hedged Liability (000's) Fixed Variable(1)

Pay fixed Commercial paper $325,000 7.70% 4.73%

(1) The variable rate is indexed from the 30 day Fed AA composite commercial
paper rate. The Fed AA composite rate at December 31, 1998 was used to calculate
the weighted average interest rate.

The aggregate notional amount of interest rate swaps categorized by annual
maturity is reflected below:

Pay
(in thousands of dollars) Fixed

1999....................................... $ -
2000....................................... -
2001....................................... -
2002....................................... 100,000
2003....................................... -
Thereafter................................. 225,000
-------
Notional Amount............................ $325,000
=======

31
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 12. - Derivative Instruments (continued)

The following is a reconciliation of interest rate swap activity by major type
of swap:

Annual Maturity
--------------------------------------
Pay
------------------------
(in thousands of dollars) Fixed Variable Total

Balance December 31, 1996................... $ 300,000 $ 26,048 $ 326,048
Expired contracts.......................... (100,000) (2,524) (102,524)
-------- -------- --------

Balance December 31, 1997.................. 200,000 23,524 223,524
New contracts.............................. 125,000 - 125,000
Expired contracts.......................... - (23,524) ( 23,524)
-------- -------- --------

Balance December 31, 1998................... $ 325,000 $ - $ 325,000
======== ======== ========

Interest rate swaps are used in the majority of circumstances to convert
variable rate commercial paper interest payments to fixed rate interest
payments. The impact of interest rate swaps on interest expense and the weighted
average borrowing rate is as follows:

1998 1997 1996
---- ---- ----

Impact of interest rate swaps on interest expense (000's).............. $ 4,500 $ 6,268 $ 7,346
Weighted average borrowing rate excluding interest rate swaps.......... 5.53% 5.89% 5.81%
Weighted average borrowing rate including interest rate swaps.......... 5.69% 6.09% 6.03%

A second source of the Company's interest-rate risk is the sensitivity of its
MSRs to prepayments. The mortgage borrower has the option to repay the mortgage
loan at any time. When mortgage interest rates decline, borrowers have a greater
incentive to prepay mortgage loans through a refinancing; when mortgage interest
rates rise, this incentive is reduced or eliminated. To mitigate the risk of
declining long-term interest rates, higher-than-expected mortgage prepayments,
and the potential impairment of the MSRs, the Company uses interest-rate swaps
and interest rate floors tied to yields on 10-year "constant maturity" swap
rates. Decreases in the value of such contracts aggregating $2.1 million, of
which, $1.7 million has been recorded as adjustments to the carrying value of
MSRs at December 31, 1998.

The aggregate amount of the MSRs hedge categorized by contract type, and the
related interest rate to be paid and received assuming current market conditions
is reflected below:

Total
Notional
Amount Interest Rates
Contract Type (000's) Fixed/Floor Variable

Interest rate swap: 3-Month
Company as variable rate payor $ 275,000 5.400% LIBOR

10-Year
Interest rate floor $ 1,275,000 5.186% CMS

PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 12. - Derivative Instruments (continued)

Interest rate swap agreements involve the exchange of fixed rate and variable
rate interest payments based on a notional principal amount and maturity date.
In a purchased interest-rate floor agreement, cash interest payments are
received only if current interest rates fall below a predetermined interest
rate.

The Company is exposed to credit loss in the event of non-performance by the
counterparties to the interest-rate swap and interest-rate floor agreements to
the extent of the differential between fixed- and variable-rates; such exposure
is considered minimal.

The Company periodically enters into foreign currency contracts for the purpose
of minimizing its risk of loss from fluctuations in exchange rates in connection
with certain intercompany loans and certain sales of receivables with recourse
of foreign currency denominated lease receivables. The Company had no foreign
currency contracts outstanding as of December 31, 1998.

Since the Company normally enters into derivative transactions only with members
of its banking group, the credit risk of these transactions is monitored as part
of the normal credit review of the banking group. The Company monitors the
market risk of derivative instruments through periodic review of the fair market
values.

There were no deferred gains or losses relating to terminated interest rate
swaps or foreign currency contracts at December 31, 1998 and 1997. The fair
value of interest rate swaps and foreign currency contracts is presented in Note
14 to CONSOLIDATED FINANCIAL STATEMENTS.

Note 13. - Stockholder's Equity

The following is a reconciliation of stockholder's equity:

Total
Common Capital Retained Stockholder's
(in thousands of dollars) Stock Surplus Earnings Equity

Balance December 31, 1995...... $ 46,000 $ 41,725 $ 782,269 $ 869,994
Net income - 1996.............. - - 179,234 179,234
Dividends paid to PBI.......... - - (71,200) (71,200)
-------- -------- -------- --------

Balance December 31, 1996...... 46,000 41,725 890,303 978,028
Net income - 1997.............. - - 194,833 194,833
Dividends paid to PBI.......... - - (78,000) (78,000)
-------- -------- -------- --------

Balance December 31, 1997...... 46,000 41,725 1,007,136 1,094,861
Net income - 1998.............. - - 207,476 207,476
Dividends paid to PBI.......... - - (86,000) (86,000)
-------- -------- -------- --------

Balance December 31, 1998...... $ 46,000 $ 41,725 $1,128,612 $1,216,337
======== ======== ======== ========

At December 31, 1998, 10,000 shares of common stock, no-par with a stated value
of $100,000 per share were authorized and 460 shares were issued and outstanding
and amounted to $46.0 million at December 31, 1998 and 1997. All of the
Company's stock is owned by Pitney Bowes.

When the Company entered into real estate lease financing, PBI made capital
contributions to provide a portion of the financing for such transactions. A
total of $13.8 million has been received to date. There is no formal agreement
in place and PBI is under no obligation to continue with capital contributions.
No capital contributions have been received since 1993.

PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 14. - Fair Value of Financial Instruments

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

Cash, assets held for sale, accounts payable and senior notes payable within one
year. Due to the short maturity of these instruments, the carrying amounts
approximate fair value.

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.

Senior notes payable after one year. The fair value of long-term debt is
estimated based on quoted dealer prices for the same or similar issues.

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

MSR hedge. The fair values of the MSR hedge are obtained from 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 the creditworthiness of the counterparties. The interest rate
floor portion represents the difference between the market value and amounts
paid to enter into the contracts.

Transfers 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.

Financial guarantee contracts. The Company has recourse obligations in
connection with certain mortgages it services, as well as certain finance asset
sales to third-parties. Aggregate exposure at December 31, 1998 and 1997 was
$151 million and $213 million respectively. The fair value of the guarantees
under these obligations represents the estimate of expected future losses.

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

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

December 31 1998 1997
------------------------- -------------------------
(in thousands of dollars) Carrying Fair Carrying Fair
Value (1) Value Value (1) Value

Investment securities $ 683 $ 683 $ 15,822 $ 15,715
Loans receivable (2) 453,558 469,159 357,227 358,941
Senior notes payable after one year (1,325,454) (1,414,697) (1,068,662) (1,143,402)
Interest rate swaps (2,051) (29,730) (935) (24,524)
MSR hedge 2,864 2,864 - -
Transfers of receivables
with recourse (42,805) (42,805) (7,765) (7,765)
Financial guarantee contracts (1,532) (3,411) (1,656) (3,265)
Residual and conditional
commitment guarantee contracts (545) (48) (4,750) (4,253)

(1) Carrying value includes accrued interest and deferred fee income, where
applicable.
(2) Carrying value for loans receivable and other debt financing is net of
applicable allowance for credit losses.

34
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 15. - Taxes on Income from Continuing Operation

Income from continuing operations before income taxes and the provision for
income taxes were as follows:

Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Income from continuing operations
before income taxes...................... $ 281,483 $ 249,545 $ 238,875
======== ======== ========
Provision for income taxes:
Federal:
Current................................. $ 4,565 $ (21,879) $ (3,479)
Deferred................................ 67,656 94,380 64,566
------- ------- -------
Total federal....................... 72,221 72,501 61,087
------- ------- -------
State and local:
Current................................. 3,380 11,209 (6,553)
Deferred................................ 6,859 (11,973) 21,911
------- ------- -------
Total state and local............... 10,239 (764) 15,358
------- ------- -------

Total...................................... $ 82,460 $ 71,737 $ 76,445
======= ======= =======

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

Year Ended December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Federal.................................... $ 76,773 $ 81,668 $ 70,136
State and local............................ 10,924 615 16,719
------- ------- -------
Total............................... $ 87,697 $ 82,283 $ 86,855
======= ======= =======

Deferred tax liabilities and (assets):

December 31 1998 1997 1996
---- ---- ----
(in thousands of dollars)
Deferred tax liabilities:
Lease revenue and related depreciation.... $ 511,172 $ 531,195 $ 553,206
Deferred tax assets:
Alternative minimum tax
credit carryforwards................... (24,266) (21,135) (74,582)
-------- -------- --------
Total...................................... $ 486,906 $ 510,060 $ 478,624
======== ======== ========

35
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 15. - Taxes on Income from Continuing Operation (continued)

The reconciliation of the U.S. Federal statutory rate to the Company's effective
income tax rate for continuing operations is as follows:

Year Ended December 31 1998 1997 1996
---- ---- ----
(Percent of pretax income)
U.S. Federal statutory rate................. 35.0% 35.0% 35.0%

State and local income taxes .............. 2.2 (0.2) 4.1
Partnership tax benefits................... (0.7) (0.9) (1.0)
Tax-exempt foreign trade income............ (1.7) (2.1) (2.4)
Tax-exempt finance income ................. (1.1) (0.7) (0.6)
Residual portfolio and
equipment acquisition.................... (0.5) (0.5) (0.6)
Other, net ................................ (3.9) (1.8) (2.5)
-------- -------- --------
Effective income tax rate ................. 29.3% 28.8% 32.0%
======== ======== ========

The difference between the statutory tax rate and the effective tax rate for
discontinued operations is primarily due to state and local income taxes.

Note 16. - Retirement Plan

The Company participates in the Pitney Bowes retirement plan which covers the
majority of PBCC employees. The assets of this plan fully fund vested benefits.
Pitney Bowes' plan assumptions for 1998 were 7.00 percent for the discount rate,
4.25 percent for the expected rate of increase in future compensation levels and
9.30 percent for the expected long-term rate of return on plan assets. Plan
assumptions for 1997 were 7.25 percent for the discount rate, 4.25 percent for
the expected rate of increase in future compensation levels and 9.50 percent for
the expected long-term rate of return on plan assets. The Company's pension
expense was $0.5 million in 1998, $0.4 million in 1997 and $1.6 million in 1996.

The Company participates in the Pitney Bowes nonpension postretirement benefit
plan, which provides certain health care and life insurance benefits to eligible
retirees and their dependents.

Note 17. - Commitments, Contingencies and Regulatory Matters

The Company is the lessee under noncancelable operating leases for office space
and automobiles. Future minimum lease payments under these leases are as
follows: $3.2 million in 1999, $2.3 million in 2000, $2.1 million in 2001, $2.0
million in 2002, $1.9 million in 2003 and $16.1 million thereafter. Rental
expense under operating leases was $2.8 million, $4.3 million and $4.1 million
in 1998, 1997 and 1996, respectively.

At December 31, 1998, the Company had no unfunded commitments to extend credit
to customers. 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 contracts; lawsuits by or against the Company
relating to equipment, service or payment disputes with customers; disputes with
employees; or other matters. The Company is currently a defendant in a number of
lawsuits, none of which should have, in the opinion of management and legal
counsel, a material adverse effect on the Company's financial condition, results
of operations or cash flows.

PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 18. - Commitments, Contingencies and Regulatory Matters (continued)

Pitney Bowes is subject to Federal, state and local laws and regulations related
to the environment, and is currently named as a member of various groups of
potentially responsible parties in administrative or court proceedings. Based on
facts presently known, PBI believes that the outcome of any current proceeding
will not have a material adverse effect on its financial condition, results of
operations or cash flows.

In June 1995, the United States Postal Service ("USPS") finalized and issued
regulations governing the manufacture, distribution and use of postage meters.
These regulations cover four general categories: meter security, administrative
controls, Computerized Meter Resetting Systems and other issues. Pitney Bowes
continues to comply with these regulations in its ongoing postage meter
operations.

In May 1996, the USPS issued a proposed schedule for the phaseout of mechanical
meters in the United States. Between May 1996 and March 1997, PBI worked with
the USPS to negotiate a revised mechanical meter migration schedule which better
reflected the needs of existing mechanical meter users and minimized any
potential negative financial impact. The final schedule agreed to with the USPS
is as follows:

o as of June 1, 1996, new placements of mechanical meters would no longer be
permitted; replacements of mechanical meters previously licensed to
customers would be permitted prior to the applicable suspension date for
that category of mechanical meter
o as of March 1, 1997, use of mechanical meters by persons or firms who process
mail for a fee would be suspended and would have to be removed from service o as
of December 31, 1997, use of mechanical meters that interface with mail machines
or processors ("systems meters") would be suspended and would have to be
removed from service
o as of March 1, 1999, use of all other mechanical meters ("stand-alone meters")
would be suspended and have to be removed from service

Based on the foregoing schedule, PBI believes that the phaseout of mechanical
meters will not have a material adverse financial impact.

As a result of the PBI's aggressive efforts to meet the USPS mechanical meter
migration schedule combined with its ongoing and continuing investment in
advanced postage evidencing technologies, mechanical meters represent less than
10% of PBI's installed U.S. meter base as of December 31, 1998, compared with
25% as of December 31, 1997.

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

o a Host specification

o a Vendor Infrastructure specification

On August 26, 1998, the USPS published for public comment a consolidated and
revised set of IBIP specifications entitled "Performance Criteria for
Information Based Indicia and Security Architecture for IBI Postage Metering
Systems" (the IBI Performance Criteria). The IBI Performance Criteria
consolidated the aforementioned IBIP specifications and Incorporated many of the
comments previously submitted by the Company. PBI submitted comments to the IBI
Performance Criteria on November 30, 1998.

As of December 31, 1998, PBI is in the process of finalizing the development of
a PC project, which satisfies the proposed IBI Performance Criteria. This
product is currently undergoing beta testing and is expected to be ready for
market upon final approval from the USPS.

37
PITNEY BOWES CREDIT CORPORATION
Notes to Consolidated Financial Statements

Note 19. - Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for 1998 and 1997 follows (in thousands of
dollars):

Three Months Ended
----------------------------------------------

1998 March 31 June 30 Sept. 30 Dec. 31
---- -------- ------- -------- -------

Total revenue $ 142,841 $ 156,034 $ 169,342 $ 178,142
-------- -------- -------- --------
Expenses:
Selling, general and administrative 30,008 33,348 32,215 41,428
Depreciation and amortization 12,216 14,190 27,059 21,586
Provision for credit losses 8,849 8,933 8,307 9,991
Interest 29,870 29,833 28,542 28,501
Provision for income taxes 17,802 20,271 22,027 22,360
-------- -------- -------- --------
Total expenses 98,745 106,575 118,150 123,866
-------- -------- -------- --------
Income from continuing operations 44,096 49,459 51,192 54,276
Discontinued operations 2,753 2,633 2,367 700
-------- -------- -------- --------
Net income $ 46,849 $ 52,092 $ 53,559 $ 54,976
======== ======== ======== ========

1997

Total revenue $ 148,201 $ 146,007 $ 151,341 $ 152,610
-------- -------- -------- --------
Expenses:
Selling, general and administrative 27,462 28,070 34,121 31,390
Depreciation and amortization 10,457 9,786 13,340 8,879
Provision for credit losses 9,155 9,753 5,237 9,931
Interest 39,445 39,684 39,081 32,823
Provision for income taxes 19,320 17,301 15,696 19,420
-------- -------- -------- --------
Total expenses 105,839 104,594 107,475 102,443
-------- -------- -------- --------
Income from continuing operations 42,362 41,413 43,866 50,167
Discontinued operations 2,876 3,373 3,623 7,153
-------- -------- -------- --------
Net income $ 45,238 $ 44,786 $ 47,489 $ 57,320
======== ======== ======== ========

38
PITNEY BOWES CREDIT CORPORATION

Item 9. -- Changes in and disagreements with accountants on accounting and
financial disclosure

None.

PART III

ITEM 10. -- Directors and executive officers of the registrant

Omitted pursuant to General Instruction I.

Item 11. -- executive compensation

Omitted pursuant to General Instruction I.

Item 12. -- security ownership of certain beneficial owners and management

Omitted pursuant to General Instruction I.

Item 13. -- certain relationships and related transactions

Omitted pursuant to General Instruction I.

PITNEY BOWES CREDIT CORPORATION

Part IV

Item 14. -- exhibits, financial statements and reports on form 8-k

(a) Index of documents filed as part of this report: Page(s)

1. Consolidated financial statements
Included in Part II of this report
Report of independent accountants................................................. 15
Consolidated statements of income and of retained earnings for each of
the three years in the period ended December 31, 1998............................. 16
Consolidated balance sheet at December 31, 1998 and 1997.......................... 17
Consolidated statement of cash flows for each of the three years in
the period ended December 31, 1998................................................ 18
Notes to consolidated financial statements........................................ 19-37
2. Financial statement schedules
Valuation and qualifying accounts and reserves (Schedule II)........................ 42

The additional financial data should be read in conjunction with the
financial statements included in Item 8 to this Form 10-K. Schedules
not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in
the financial statements or notes thereto.

3. Index to Exhibits (numbered in accordance with Item 601 of Regulation
S-K)

REG S-K STATE OR INCORPORATION
EXHIBITS DESCRIPTION BY REFERENCE
-------- ------------------------------------------ ----------------------
(3) 1. Certificate of Incorporation, as amended Incorporated by reference to 10-K
(No. 01-13497) as filed with
the Commission on March 21, 1996.

2. By-Laws, as amended Incorporated by reference to
Exhibit (3.2) to Form 10 on
Registration Statement
(No. 01-13497) as filed with the
Commission on May 1, 1985.

(4) (a) Form of Indenture dated as of May 1, 1985 Incorporated by reference to
between the Company and Bankers Trust Exhibit (4a) to Registration
Company, as Trustee Statement on Form S-3
(No. 2-97411) as filed with the
Commission on May 1, 1985.

(b) Form of First Supplemental Indenture Incorporated by reference to
dated as of December 1, 1986 between Exhibit (4b) to Registration
the Company and Bankers Trust Company, Statement on Form S-3 (No.
as Trustee. 33-10766) as filed with the
Commission on December 12,
1986.

(c) Form of Second Supplemental Indenture Incorporated by reference to
dated as of February 15, 1989 between Exhibit (4c) to Registration
the Company and Bankers Trust Company, Statement on Form S-3 (No.
as Trustee. 33-27244) as filed with the
Commission on February 24,
1989.

40
PITNEY BOWES CREDIT CORPORATION

3. Index to Exhibits (numbered in accordance with Item 601 of Regulation S-K) [continued]

REG S-K STATE OR INCORPORATION
EXHIBITS DESCRIPTION BY REFERENCE
-------- ------------------------------------------ ----------------------

(d) Form of Third Supplemental Indenture Incorporated by reference to
dated as of May 1, 1989 between the Exhibit (1) on Form 8-K
Company and Bankers Trust Company, (No. 0-13497) as filed with
as Trustee. the Commission on May 16, 1989.

(e) Letter Agreement between Pitney Bowes Inc. Incorporated by reference to
and Bankers Trust Company, as Trustee. Exhibit (4b) to Registration
Statement on Form S-3 (No.
2-97411) as filed with the
Commission on May 1, 1985.

(f) Indenture dated as of November 1, 1995 Incorporated by reference to
between the Company and Chemical Bank, Exhibit (4a) to Amendment
as Trustee. No.1 to Registration statement
on Form S-3 (No. 33-62485) as
filed with the Commission on
November 2, 1995.

(10) Material Contracts
1. First Amended and Restated Operating Incorporated by reference to
Agreement dated November 6, 1996, Exhibit (i) on Form 10-Q
between the Company and Pitney Bowes Inc. (No. 01-13497) as filed with
the Commission on
November 13, 1996.

2. Tax Sharing Agreement dated April 1, 1977 Incorporated by reference to
between the Company and Pitney Bowes Inc. Exhibit (10.3) to Form 10 as
filed with the Commission
on May 1, 1985.

3. Amended and Restated Finance Agreement, Incorporated by reference to
dated June 12, 1995 between the Company Exhibit (i) on Form 8-K
and Pitney Bowes Inc. (No. 01-13497) as filed with
the Commission on June 12, 1995.

(12) Computation of ratio of earnings from continuing Exhibit (i)
operations to fixed charges

(21) Subsidiaries of the registrant Exhibit (ii)

(23) Consent of Independent Accountants Exhibit (iii)

(27) Financial Data Schedule Exhibit (iv)

(b) Reports on Form 8-K

On February 4, 1998, the Company filed a current Report on Form 8-K pursuant to
Item 5 thereof, reporting the issuance of the Company's 5.65% Notes.

On October 19, 1998, the Company filed a current Report on Form 8-K pursuant to
Item 5 thereof, reporting the proposed sale of the operations of Colonial
Pacific Leasing Corporation ("CPLC").

On November 16, 1998, the Company filed a current Report on Form 8-K pursuant to
Items 2 and 7 thereof, reporting the sale of the operations of CPLC on October
30, 1998.

On November 19, 1998, the Company filed a current Report on Form 8-K pursuant to
Item 7 thereof, reporting the content of the Stock Purchase Agreement for the
operations of CPLC.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

PITNEY BOWES CREDIT CORPORATION

By /s/ MATTHEW S. KISSNER
----------------------
Matthew S. Kissner
President and Chief Executive Officer
Dated: March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

By /s/ MATTHEW S. KISSNER Dated: March 31, 1999
----------------------
Matthew S. Kissner
President and Chief Executive Officer

By /s/ NANCY E. COOPER Dated: March 31, 1999
----------------------
Nancy E. Cooper
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)

By /s/ MARC C. BRESLAWSKY Dated: March 31, 1999
----------------------
Marc C. Breslawsky
Director

By /s/ MICHAEL J. CRITELLI Dated: March 31, 1999
----------------------
Michael J. Critelli
Director

By /s/ SARA E. MOSS Dated: March 31, 1999
----------------------
Sara E. Moss
Director

By /s/ MURRAY L. REICHENSTEIN Dated: March 31, 1999
-------------------------
Murray L. Reichenstein
Director

By /s/ HARRY W. NEINSTEDT Dated: March 31, 1999
----------------------
Harry W. Neinstedt
Director

By /s/ DOUGLAS A. RIGGS Dated: March 31, 1999
----------------------
Douglas A. Riggs
Director

By /s/ JOHN N.D. MOODY Dated: March 31, 1999
----------------------
John N.D. Moody
Director

By /s/ ARLEN F. HENOCK Dated: March 31, 1999
----------------------
Arlen F. Henock
Director

42
PITNEY BOWES CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996 TO 1998

Allowance for credit losses (shown on balance sheet as deduction from
net investments)
--------------------------------------------------------------------------------

Additions Additions Deductions -
Balance at charged to charged to uncollectible
beginning costs and discontinued accounts Balance at
of year expenses operations written off end of year

1998 $ 116,588 $ 36,080 $ 29,324 $ 66,759 $ 115,233

1997 $ 98,721 $ 34,076 $ 44,244 $ 60,453 $ 116,588

1996 $ 101,355 $ 35,617 $ 30,912 $ 69,163 $ 98,721

Valuation Allowance for Mortgage Servicing Rights Impairment
----------------------------------------------------------------------------

Additions
Balance at charged to Deductions -
beginning costs and impairment Balance at
of year expenses recoveries end of year

1998 $ - $ 12,102 $ 1,875 $ 10,227

43
PITNEY BOWES CREDIT CORPORATION

Exhibit (i)
Computation of Ratio of Earnings from Continuing Operations to Fixed Charges

(in thousands of dollars)

Years Ended December 31,
--------------------------------------------------------------

1998 1997 1996 1995 1994
---- ---- ---- ---- ----

Income from continuing operations
before income taxes............... $ 281,483 $ 249,545 $ 238,875 $ 209,872 $ 199,747
------- ------- -------- -------- -------

Fixed charges:
Interest on debt.................. 116,746 151,033 160,841 172,417 128,181
One-third of rent expense......... 934 1,428 1,379 1,438 1,338
------- ------- -------- -------- -------
Total fixed charges................. 117,680 152,461 162,220 173,855 129,519
------- ------- -------- -------- -------

Earnings from continuing
operations before fixed charges... $ 399,163 $ 402,006 $ 401,095 $ 383,727 $ 329,266
======= ======= ======== ======== =======

Ratio of earnings from continuing
operations to fixed charges (1)... 3.39X 2.64X 2.47X 2.21X 2.54X
======= ======= ======== ======== =======

(1) The ratio of earnings from continuing operations to fixed charges is
computed by dividing earnings from continuing operations before fixed charges by
fixed charges. Fixed charges consist of interest on debt and one-third of rent
expense as representative of the interest portion.

PITNEY BOWES CREDIT CORPORATION

Exhibit (ii)
Subsidiaries of the Registrant

The Registrant, Pitney Bowes Credit Corporation, a Delaware corporation, is a
subsidiary of Pitney Bowes Inc.

The following are subsidiaries of the Registrant as of December 31, 1998:

Country or State
Company Name of Incorporation

Atlantic Mortgage & Investment Corporation ("AMIC") Florida
RE Properties Management Corporation (Subsidiary of AMIC) Delaware
Waterview Resolution Trust Corporation Massachusetts
FSL Holdings Inc. Connecticut
FSL Risk Managers Inc. (Subsidiary of FSL Holdings Inc.) New York
FSL Valuation Services Inc. (Subsidiary of FSL Holdings Inc.) Connecticut
PB CFSC I Inc. US Virgin Islands
PB Funding Corporation Delaware
PB Global Holdings Inc. Connecticut
PBA Foreign Sales Corporation (Subsidiary of PB Global Holdings Inc.) Barbados
PB Global Holdings II Inc. Connecticut
Tower FSC Ltd. (Subsidiary of PB Global Holdings II Inc.) Bermuda
PB Global Holdings III Inc. Connecticut
PB Nikko FSC Ltd. (Subsidiary of PB Global Holdings III Inc.) Bermuda
PB Global Holdings IV Inc. Connecticut
PB Nihon FSC Ltd. (Subsidiary of PB Global Holdings IV Inc.) Bermuda
PB Leasing Services Inc. Nevada
PBL Holdings Inc. Nevada
The Pitney Bowes Bank, Inc. Utah
Pitney Bowes Insurance Agency, Inc. Connecticut
PB Public Finance Inc. Delaware
Pitney Bowes Business Connections Inc. Delaware
Pitney Structured Funding I Inc. Delaware
Harlow Aircraft Inc. Delaware
PREFCO XII Holdings Inc. (Subsidiary of Harlow Aircraft Inc.) Delaware
Pitney Bowes Real Estate Financing Corporation ("PREFCO") Delaware
PB/PREFCO Real Estate Holdings Inc. (Subsidiary of PREFCO) Delaware
PREFCO I LP Inc (Subsidiary of PREFCO) Delaware
PREFCO II Inc. (Subsidiary of PREFCO) Delaware
PREFCO III LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV Inc. (Subsidiary of PREFCO) Delaware
PREFCO IV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO V LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI Inc. (Subsidiary of PREFCO) Delaware
PREFCO VI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII Inc. (Subsidiary of PREFCO) Delaware
PREFCO VII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO VIII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO IX LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XI Inc. (Subsidiary of PREFCO) Delaware
PREFCO XI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XV Inc. (Subsidiary of PREFCO) Delaware
PREFCO XV LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVI Inc. (Subsidiary of PREFCO) Delaware
PREFCO - Dayton Community
Urban Redevelopment Corporation (Subsidiary of PREFCO XVI Inc.) Ohio
PREFCO XVI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVII LP Inc. (Subsidiary of PREFCO) Delaware

PITNEY BOWES CREDIT CORPORATION

Exhibit (ii)
Subsidiaries of the Registrant (continued)

Country or State
Company Name of Incorporation

PREFCO XVIII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XVIII LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIX Inc. (Subsidiary of PREFCO) Delaware
PREFCO XIX LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XX Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXI Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXI LP Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXII Inc. (Subsidiary of PREFCO) Delaware
PREFCO XXII LP Inc. (Subsidiary of PREFCO) Delaware

Exhibit (iii)
Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-59181) of
Pitney Bowes Credit Corporation of our report dated January 21, 1999 appearing
on page 15 of this Form 10-K.

PricewaterhouseCoopers LLP

Stamford, Connecticut
March 31, 1999