Pitney Bowes

Pitney Bowes Q2 Profit Up 64 Percent

Pitney Bowes Inc. (PBI) has reported second quarter 2011 results.

Revenue for the quarter was $1.3 billion, an increase of one percent compared with the prior year. As expected, revenue growth was reduced by approximately one percent this quarter as a result of lower revenues associated with the fire that destroyed the company's Dallas presort facility in the first quarter of this year. Revenue also included a 3 percent benefit from foreign currency translation. There was continued growth in equipment and software sales during the quarter. The combined recurring revenue streams of supplies, rentals and financing declined about 3 percent versus the prior year, which was a lower rate of decline than both the prior quarter and the prior year.

Adjusted earnings per diluted share from continuing operations for the second quarter was $0.52 compared with $0.48 for the prior year. Adjusted earnings per diluted share would have been $0.03 higher except for the reduction in earnings resulting from lower revenue related to the Dallas presort facility fire. Adjusted earnings per diluted share was also reduced by about $0.01 related to the company's investment in its new digital mail communications platform, Volly(TM). The company expects it will be reimbursed by its insurance carriers for the $0.05 per diluted share in year-to-date lost earnings related to lower revenue and expenses associated with the presort facility fire.

Earnings per diluted share for the quarter on a Generally Accepted Accounting Principles (GAAP) basis was $0.49 compared with $0.30 per diluted share for the prior year. GAAP earnings per diluted share for the quarter included $0.02 for restructuring charges and asset impairments associated with the company's Strategic Transformation initiatives and less than $0.01 each for a tax charge associated with out-of-the money stock options that expired during the quarter and a loss associated with discontinued operations.

The company's earnings per share results for the quarter are summarized in the table below:

                                                       Second Quarter
                                                       --------------
        Adjusted EPS from Continuing Operations             $0.52
        -------------------------------------------    --------------
        Restructuring Charges and Asset Impairments        ($0.02)
        -------------------------------------------    --------------
        GAAP EPS                                            $0.49
        -------------------------------------------    --------------

*The sum of the earnings per share does not equal the totals above due to rounding and the impacts of tax charges and discontinued operations as noted above.

Free cash flow for the quarter was $269 million, while on a GAAP basis the company generated $153 million in cash from operations. Free cash flow during the quarter benefited from the timing of tax payments and refunds; an improvement in working capital; and lower finance receivables. During the quarter, the company made $123 million in contributions to its U.S. pension fund; used $85 million of cash for dividends; and repurchased 2.1 million shares of its outstanding common stock for $50 million. Year-to-date, the company has generated $554 million in free cash flow and on a GAAP basis $449 million in cash from operations, which was used primarily to pay dividends, fund its pension fund and buyback stock.

Commenting on the quarter, Chairman, President and CEO Murray D. Martin said, "During the quarter we continued to see the benefits of our ongoing actions to lay the foundation for long-term growth and profitability across our business portfolio. We were able to improve our EBIT margin, particularly in our SMB businesses and Software, despite an unsettled global economic environment. Strong enterprise customer demand fueled good revenue growth in Software and Production Mail.

"The flexibility provided by our improved processes, enhanced productivity, and streamlined operations from Strategic Transformation has also allowed us to make investments in new solutions and customer experience. We have continued to expand our cloud-based family of customer communications solutions for small and medium businesses. In addition to pbSmartPostage, our internet-based postage solution, and pbSmartConnections, our email marketing and communications platform, we now have pbSmartMarketer and are in pilot with pbSmartCodes. pbSmartMarketer allows businesses to identify potential new customers modeled after their existing customer base; create customized direct mail marketing campaigns; and track and measure the success of those campaigns. pbSmartCodes is a web-based software solution that enables businesses to create interactive marketing campaigns using a unique Quick Response or QR code.

"In addition, we are advancing our market development activities with large mailers and planning for a consumer roll out of Volly, our secure digital mail delivery system.

"We have accomplished a lot already because of our Strategic Transformation initiatives, but there is much more we expect to achieve before the year is finished. The disciplined, integrated approach that we have taken to our operations and markets will continue to drive a more variable cost structure, even after the formal program ends."

Business Segment Results

The company reports its business segments in two groups based on the customers it primarily serves: Small and Medium Business (SMB) Solutions and Enterprise Business Solutions. The SMB Solutions group consists of the company's global Mailing operations. The company aligns its SMB business segments into North America Mailing and International Mailing to reflect how the business is managed. North America Mailing includes the operations of U.S. Mailing and Canada Mailing. International Mailing includes all other SMB operations around the world. The Enterprise Business Solutions group includes the company's global Production Mail, Software, Management Services, Mail Services and Marketing Services operations.

SMB Solutions

                      2Q 2011      Y-O-Y Change
        Revenue    $670 million        (1%)
        EBIT       $203 million         3%
        -------    ------------    ------------
        
Within the SMB Solutions Group:

North America Mailing

                      2Q 2011      Y-O-Y Change
        Revenue    $494 million        (5%)
        EBIT       $176 million        (2%)
        -------    ------------    ------------
        
In North American Mailing during the quarter, there were increased placements of the company's Connect+(TM) mailing systems and positive growth in equipment sales in Canada. However, overall equipment sales declined in part because of an increase in lease extensions. Lease extensions are profitable transactions but generate less sales revenue than new equipment leases. For the second consecutive quarter combined recurring supplies, rentals and financing revenue streams declined at a lower rate than previous quarters indicating a continuation of an improving trend. In total, revenue declined 5 percent compared to the prior year, including a one percent benefit from currency.

EBIT margin for the segment improved by 110 basis points versus the prior year. EBIT benefited from ongoing productivity initiatives, lower credit losses and extensions of customer leases. As revenue growth improves, the segment is positioned for continued EBIT improvement.

International Mailing

                      2Q 2011      Y-O-Y Change
        Revenue    $176 million         13%
        EBIT       $ 27 million         56%
        -------    ------------    ------------
        
International Mailing revenue grew on a reported basis and was slightly positive excluding the benefit from currency. There was positive growth in equipment sales during the quarter, driven largely by increasing equipment sales in France and also sales of Connect+ in the UK. As in the U.S., stream revenue declined at a moderating rate. Financing revenue was flat with the prior year, reflecting an improvement in equipment sales growth and a higher percentage of equipment being leased. Rental and supplies revenue declined only slightly.

EBIT margin improved by 420 basis points versus the prior year in part as productivity initiatives are driving positive leverage from revenue growth.

Enterprise Business Solutions

                      2Q 2011      Y-O-Y Change
        Revenue    $645 million         4%
        EBIT       $ 55 million         12%
        -------    ------------    ------------
        
Within the Enterprise Business Solutions Group:

Production Mail

                      2Q 2011      Y-O-Y Change
        Revenue    $134 million         10%
        EBIT        $ 9 million         2%
        -------    ------------    ------------
        
Production Mail revenue grew 10 percent including a 5 percent benefit from currency. Revenue growth was driven by strong sales of the company's high-speed, high-integrity inserting systems in North America and Asia. The company also had a good quarter of written business in Europe and Asia for both inserting and high-speed Intellijet(TM) color printing systems, while the U.S. experienced lower relative written business. EBIT margin for the quarter increased substantially for the Production Mail business when compared with the prior year, however, this improvement was offset by start-up costs related to Volly.

Software

                       2Q 2011      Y-O-Y Change
        Revenue     $ 100 million        19%
        EBIT        $ 10 million         67%
        -------    -------------    ------------
        
During the quarter, Software revenue grew 19 percent, including a 7 percent benefit from currency. Revenue growth was driven primarily by strong demand worldwide for the company's customer communication and data management software solutions, especially in the financial services sector. The company had particularly good growth in high margin licensing revenue and continued to write multi-year licensing arrangements for some of its larger deals. These multi-year arrangements will increase the proportion of recurring revenue in future periods.

EBIT increased 67 percent year-over-year and EBIT margin improved by 280 basis points driven by margin leverage on revenue expansion and the mix of software sales.

Management Services

                      2Q 2011      Y-O-Y Change
        Revenue    $240 million        (3%)
        EBIT       $ 20 million        (10%)
        -------    ------------    ------------
        
Management Services revenue declined 3 percent compared to the prior year, including a 3 percent benefit from currency. The expected decline was a result of account contractions and terminations in the U.S. last year. However, net new written business improved significantly both in the U.S. and Europe during the quarter. This should benefit revenue in coming quarters. EBIT margin in the U.S. again improved as the company continues to move towards a more variable cost structure for its labor. However, the EBIT margin in Europe declined due to lower volume-driven revenue and investments to position the business for growth in customer communications management.

Mail Services

                      2Q 2011      Y-O-Y Change
        Revenue    $134 million         4%
        EBIT       $ 10 million         89%
        -------    ------------    ------------
        
Revenue for Mail Services grew 4 percent while EBIT grew 89 percent. The year-over-year impact of a one-time adjustment last year of $21 million to revenue and $16 million to EBIT, to correct rates used to estimate unbilled International Mail Services (IMS) revenue in prior periods, was partially offset by the effects of the company's Dallas presort facility fire.

The disruption caused by the facility fire in Dallas resulted in the loss of more than $9 million in revenue and about $9 million in EBIT in the quarter. At the end of June, the company opened a new mail processing facility in Dallas reestablishing its unique ability to achieve a high level of presort discounts nationally. The company expects that the facility will be operating at full efficiency by the end of the third quarter. As of today's date, the company has received approximately $25 million as partial payment from insurance companies, of which $15 million was received prior to June 30, 2011. The company expects to recognize in income the portion of these and future proceeds related to business interruption and other recoveries as allocations of these proceeds are resolved with the insurance companies.

Excluding the impact of the fire this year, increasing Standard Mail volume processed through the company's presort network led continued growth in presort revenue and EBIT margin improvement. Excluding the prior year adjustment, revenue in the international mail portion of the business declined due to a lower volume of mail and packages shipped.

Marketing Services

                      2Q 2011      Y-O-Y Change
        Revenue    $ 36 million        (3%)
        EBIT        $ 7 million        (7%)
        -------    ------------    ------------
        
Revenue in Marketing Services declined 3 percent because of fewer household moves compared with the prior year and the transition of online marketing revenue during the quarter. EBIT was impacted by lower revenue and ongoing investments in new services, including the MyMove start-up. MyMove is a recently launched on-line service for movers that allows individuals who are moving to opt-in to various move-relevant products and services. Click through rates from the traditional MoverSource product to MyMove have been increasing steadily.

2011 Guidance

This guidance discusses future results which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release.

The company is reaffirming its adjusted earnings per diluted share, its GAAP earnings per diluted share and its free cash flow guidance. However, the company is modifying its revenue guidance for the year as a result of the impact of the presort facility fire in Dallas, and the overall economic outlook, particularly given the slow business recovery in the SMB markets in the first half of the year.

The company now expects 2011 revenue, excluding the impacts of currency, to be in a range of minus 2 to positive one percent growth.

The company's 2011 guidance for adjusted diluted earnings per share from continuing operations is unchanged and is summarized below:

        
        2011 Earnings Guidance Reconciliation                      Full Year
        -------------------------------------------------      ----------------
        2010 Adjusted EPS                                            $2.23
        -------------------------------------------------      ----------------
         Operations Growth Excluding SMB Stream Revenues*       $0.32 to $0.42
        -------------------------------------------------      ----------------
         Impact of Lower SMB Stream Revenues*                  ($0.30 to $0.25)
        -------------------------------------------------      ----------------
        2011 EPS on a Comparative Basis                         $2.25 to $2.40
        -------------------------------------------------      ----------------
         Investment in Volly Market Development                ($0.10 to $0.05)
        -------------------------------------------------      ----------------
        2011 Adjusted EPS from Continuing Operations            $2.15 to $2.35
        -------------------------------------------------      ----------------
        
*Stream revenues include financing, rentals and supplies in the SMB Solutions Group

In 2011, the company anticipates generating incremental earnings of $0.32 to $0.42 per share from operations growth and productivity, excluding the impact of SMB stream revenues. As noted previously, the company anticipates lower SMB stream revenues as a result of lower equipment sales in prior periods, which are expected to negatively impact earnings by $0.25 - $0.30 per share, resulting in comparative earnings for the year of $2.25 to $2.40 per share. The company also plans to invest $.05 to $.10 per share to develop the market for Volly, a secure digital mail delivery system. As a result of improved margins, the company expects 2011 adjusted earnings per share from continuing operations to remain in the range of $2.15 to $2.35.

The company's 2011 guidance for GAAP diluted earnings per share from continuing operations is summarized below:

                                                             Full Year
                                                         ----------------
        2011 Adjusted EPS from Continuing Operations      $2.15 to $2.35
        --------------------------------------------     ----------------
         Restructuring Charges and Asset Impairments     ($0.35 to $0.25)
        --------------------------------------------     ----------------
        2011 GAAP EPS from Continuing Operations          $1.80 to $2.10
        --------------------------------------------     ----------------
        
The company expects 2011 GAAP earnings per diluted share from continuing operations in the range of $1.80 to $2.10 including the expected impact of $0.25 to $0.35 per share for restructuring charges and asset impairments associated with Strategic Transformation.

Earnings per share guidance assumes recoveries this year of losses related to the Dallas fire.

As part of negotiations to settle the company's 2001 to 2004 IRS examination, in July the company and the IRS agreed on the tax treatment of a number of issues and agreed to revised tax calculations. As a result, the company anticipates paying nearly $400 million of tax and interest for the years 2001 to 2004 by releasing previously funded tax bonds, and as a result this payment will not impact the company's cash position. Additionally, the company expects to reduce tax reserves in the third quarter by about $50 million (with about $30 million recorded in Discontinued Operations). The impact of this agreement is not included in the company's earnings guidance for the year.

The company continues to expect to generate free cash flow for 2011 in the range of $750 million to $850 million.

Management of Pitney Bowes will discuss the company's results in a broadcast over the Internet today at 5:00 p.m. EST. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the company's web site at www.pb.com/investorrelations .

Pitney Bowes is a $5.4 billion global leader whose products, services and solutions deliver value within the mailstream and beyond. For more information visit www.pitneybowes.com .

The company's financial results are reported in accordance with generally accepted accounting principles (GAAP). However, earnings per share, income from continuing operations, and cash from operations are adjusted to exclude the impact of special items such as restructuring charges, tax adjustments, accounting adjustments and write downs of assets. Although these charges represent actual expenses to the company, the company's management believes these charges may mask the periodic income and financial and operating trends associated with our business. In addition, such items are inconsistent in amount and frequency and as such, the adjustments allow an investor greater insight into the current underlying operating trends of the business. The use of free cash flow has limitations. GAAP cash from operations has the advantage of including all cash available to the company after actual expenditures for all purposes. The company's management believes that free cash flow permits an investor insight into the amount of cash that management could have available for other discretionary uses. It adjusts GAAP cash from operations for long-term commitments such as capital expenditures, as well as special items like cash used for restructuring charges, unusual tax payments and contributions to its pension funds. These items use cash that is not otherwise available to the company and are important expenditures. As a result, the company's management compensates for these limitations by using a combination of GAAP cash from operations and free cash flow in doing its planning.

EBIT is determined by deducting from segment revenue the related costs and expenses attributable to the segment. EBIT excludes interest, taxes, general corporate expenses, restructuring charges and asset impairments which are generally managed across the entire company on a consolidated basis. EBIT is useful to management in demonstrating the operational profitability of the segments and is also used for purposes of measuring the performance of our management team. In addition, to better understand trends in its business, the company's management believes that it is helpful to adjust revenue to exclude the impact of changes in the translation of foreign currencies into U.S. dollars. Financial results on a constant currency basis exclude the impact of changes in foreign currency exchange rates since the prior period under comparison and are calculated using the average of the rates in effect during that period. Constant currency measures are intended to help investors better understand the underlying operational performance of the business excluding the impacts of shifts in currency exchange rates over the intervening period.

Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also be found at the company's web site www.pb.com/investorrelations in the Investor Relations section.

This document contains "forward-looking statements" about our expected or potential future business and financial performance. For us forward-looking statements include, but are not limited to, statements about possible transformation initiatives; restructuring charges; our future revenue and earnings guidance; and other statements about future events or conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the uncertain economic environment, fluctuations in customer demand; mail volumes; foreign currency exchange rates; the outcome of litigation; timely development, market acceptance and regulatory approvals, if needed, of new products; management of credit risk; management of outsourcing arrangements; income tax or other regulatory levies; changes in postal regulations; and the financial health of national posts; and other factors beyond our control as more fully outlined in the company's 2010 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information, events or developments.

Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and six months ended June 30, 2011 and 2010, and consolidated balance sheets at June 30, 2011 and March 31, 2011 are attached.

        
                                                                         Pitney Bowes Inc.
                                                                 Consolidated Statements of Income
                                                                            (Unaudited)
        --------------------------------------------------------------------------------------------------------------------------------
        (Dollars in thousands, except per share data)
                                                                              Three Months Ended June 30,                 Six Months Ended June 30,
                                                                      ------------------------------------------ ------------------------------------------
                                                                              2011                 2010 (2)              2011                 2010 (2)
                                                                          -----------          -----------------     -----------          -----------------
        Revenue:
           Equipment sales                                              $     242,921        $     228,089         $     484,552        $     467,387
           Supplies                                                            78,587               77,054               161,457              162,331
           Software                                                           105,516               88,297               205,081              172,064
           Rentals                                                            142,576              150,141               285,627              305,578
           Financing                                                          149,955              156,604               304,185              319,379
           Support services                                                   176,807              175,298               355,421              355,332
           Business services                                                  418,112              421,754               841,220              863,399
                                                                          -----------          -----------           -----------          -----------
               Total revenue                                                1,314,474            1,297,237             2,637,543            2,645,470
                                                                          -----------          -----------           -----------          -----------
        Costs and expenses:
           Cost of equipment sales                                            104,385              101,072               219,138              206,909
           Cost of supplies                                                    25,562               24,173                51,754               49,538
           Cost of software                                                    24,898               21,207                50,110               42,363
           Cost of rentals                                                     32,809               34,310                65,408               71,381
           Financing interest expense                                          22,192               21,821                45,485               43,759
           Cost of support services                                           115,417              111,695               230,693              226,301
           Cost of business services                                          325,250              337,652               658,817              668,124
           Selling, general and administrative                                436,015              426,352               865,934              869,649
           Research and development                                            37,441               38,168                72,199               79,033
           Restructuring charges and asset impairments                          4,994               48,512                31,018               69,234
           Other interest expense                                              28,550               29,204                57,074               56,862
           Interest income                                                     (2,215)               (696)              (3,437)             (1,458)
                                                                          ----------- ---      ----------- ----      ----------- ---      ----------- ----
               Total costs and expenses                                     1,155,298            1,193,470             2,344,193            2,381,695
                                                                          -----------          -----------           -----------          -----------
        Income from continuing operations before income taxes                 159,176              103,767               293,350              263,775
        Provision for income taxes                                             53,012               35,177                94,406              108,422
                                                                          -----------          -----------           -----------          -----------
        Income from continuing operations                                     106,164               68,590               198,944              155,353
        Loss from discontinued operations, net of income tax                     (635)             (2,666)              (2,517)             (5,796)
                                                                          ----------- ---      ----------- ----      ----------- ---      ----------- ----
        Net income before attribution of noncontrolling interests             105,529               65,924               196,427              149,557
        Less: Preferred stock dividends of subsidiaries
           attributable to noncontrolling interests                             4,594                4,543                 9,188                9,137
                                                                          -----------          -----------           -----------          -----------
        Net income - Pitney Bowes Inc.                                  $     100,935        $      61,381         $     187,239        $     140,420
                                                                      === ===========      === ===========       === ===========      === ===========
        Amounts attributable to Pitney Bowes Inc.:
           Income from continuing operations                            $     101,570        $      64,047         $     189,756        $     146,216
           Loss from discontinued operations                                     (635)             (2,666)              (2,517)             (5,796)
                                                                          ----------- ---      ----------- ----      ----------- ---      ----------- ----
           Net income - Pitney Bowes Inc.                               $     100,935        $      61,381         $     187,239        $     140,420
                                                                      === ===========      === ===========       === ===========      === ===========
        Basic earnings per share of common stock attributable to
          Pitney Bowes Inc. common stockholders (1):
               Continuing operations                                    $        0.50        $        0.31         $        0.93        $        0.70
               Discontinued operations                                          (0.00)              (0.01)               (0.01)              (0.03)
                                                                          ----------- ---      ----------- ----      ----------- ---      ----------- ----
               Net income - Pitney Bowes Inc.                           $        0.50        $        0.30         $        0.92        $        0.68
                                                                      === ===========      === ===========       === ===========      === ===========
        Diluted earnings per share of common stock attributable to
          Pitney Bowes Inc. common stockholders (1):
               Continuing operations                                    $        0.50        $        0.31         $        0.93        $        0.70
               Discontinued operations                                          (0.00)              (0.01)               (0.01)              (0.03)
                                                                          ----------- ---      ----------- ----      ----------- ---      ----------- ----
               Net income - Pitney Bowes Inc.                           $        0.49        $        0.30         $        0.92        $        0.68
                                                                      === ===========      === ===========       === ===========      === ===========
        Average common and potential common
           shares outstanding                                             204,084,585          208,059,314           204,227,290          207,971,931
                                                                          ===========          ===========           ===========          ===========
        


        (1)  The sum of the earnings per share amounts may not equal the totals
             above due to rounding.
        (2)  Certain prior year amounts have been reclassified to conform to the
             current year presentation.
        


        
                                                      Pitney Bowes Inc.
                                                 Consolidated Balance Sheets
                                                         (Unaudited)
        -------------------------------------------------------------------------------------------------
        (Dollars in thousands, except per share data)
        Assets                                                                       06/30/11          03/31/11
        ---------------------------------------------------------------------       ----------        ----------
        Current assets:
             Cash and cash equivalents                                            $    578,448      $    652,069
             Short-term investments                                                     45,667            28,398
             Accounts receivable, gross                                                756,198           780,066
             Allowance for doubtful accounts receivables                               (31,367)         (30,073)
                                                                                    ---------- --     ---------- --
             Accounts receivables, net                                                 724,831           749,993
             Finance receivables                                                     1,328,180         1,336,881
             Allowance for credit losses                                               (47,603)         (47,981)
                                                                                    ---------- --     ---------- --
             Finance receivables, net                                                1,280,577         1,288,900
             Inventories                                                               177,504           180,292
             Current income taxes                                                       70,890            66,678
             Other current assets and prepayments                                      113,052           115,683
                                                                                    ----------        ----------
                    Total current assets                                             2,990,969         3,082,013
        Property, plant and equipment, net                                             429,737           420,385
        Rental property and equipment, net                                             282,976           290,013
        Finance receivables                                                          1,194,164         1,228,294
        Allowance for credit losses                                                    (20,305)         (21,239)
                                                                                    ---------- --     ---------- --
        Finance receivables, net                                                     1,173,859         1,207,055
        Investment in leveraged leases                                                 262,052           258,905
        Goodwill                                                                     2,336,796         2,331,022
        Intangible assets, net                                                         273,830           286,686
        Non-current income taxes                                                       134,569           134,564
        Other assets                                                                   484,166           486,211
                                                                                    ----------        ----------
        Total assets                                                              $  8,368,954      $  8,496,854
                                                                                 == ==========     == ==========
        Liabilities, noncontrolling interests and
        stockholders' deficit
        ---------------------------------------------------------------------
        Current liabilities:
             Accounts payable and accrued liabilities                             $  1,748,628      $  1,757,372
             Current income taxes                                                      231,982           206,134
             Notes payable and current portion of long-term obligations                  2,477            45,450
             Advance billings                                                          481,239           508,160
                                                                                    ----------        ----------
                    Total current liabilities                                        2,464,326         2,517,116
        Deferred taxes on income                                                       294,656           273,379
        Tax uncertainties and other income tax liabilities                             557,081           546,881
        Long-term debt                                                               4,239,965         4,236,437
        Other non-current liabilities                                                  517,725           651,761
                                                                                    ----------        ----------
                    Total liabilities                                                8,073,753         8,225,574
                                                                                    ----------        ----------
        Noncontrolling interests (Preferred stockholders' equity in                    296,370           296,370
        subsidiaries)
        Stockholders' deficit:
             Cumulative preferred stock, $50 par value, 4% convertible                       4                 4
             Cumulative preference stock, no par value, $2.12 convertible                  741               741
             Common stock, $1 par value                                                323,338           323,338
             Additional paid-in capital                                                235,504           236,633
             Retained earnings                                                       4,318,692         4,293,198
             Accumulated other comprehensive loss                                     (379,162)        (414,496)
             Treasury stock, at cost                                                (4,500,286)      (4,464,508)
                                                                                    ---------- --     ---------- --
                    Total Pitney Bowes Inc. stockholders' deficit                       (1,169)         (25,090)
                                                                                    ---------- --     ---------- --
        Total liabilities, noncontrolling interests and stockholders' deficit     $  8,368,954      $  8,496,854
                                                                                 == ==========     == ==========
        


        
                                                   Pitney Bowes Inc.
                                                   Revenue and EBIT
                                                   Business Segments
                                                     June 30, 2011
                                                      (Unaudited)
        -----------------------------------------------------------------------------------------
        (Dollars in thousands)                                               Three Months Ended June 30,
                                                                     ------------------------------------------
                                                                                                           %
                                                                           2011             2010        Change
                                                                        ---------        ---------     --------
            Revenue
        ---------------------------------------------------------
            North America Mailing                                     $   493,653      $   520,581      (5 %)
            International Mailing                                         176,158          155,579      13 %
                                                                        ---------        ---------
               Small & Medium Business Solutions                          669,811          676,160      (1 %)
                                                                        ---------        ---------
            Production Mail                                               133,769          121,466      10 %
            Software                                                       99,783           84,195      19 %
            Management Services                                           240,461          248,809      (3 %)
            Mail Services                                                 134,273          129,139       4 %
            Marketing Services                                             36,377           37,468      (3 %)
                                                                        ---------        ---------
               Enterprise Business Solutions                              644,663          621,077       4 %
                                                                        ---------        ---------
            Total revenue                                             $ 1,314,474      $ 1,297,237       1 %
                                                                     == =========     == =========
            EBIT (1)
        ---------------------------------------------------------
            North America Mailing                                     $   175,786      $   179,531      (2 %)
            International Mailing                                          26,735           17,121      56 %
                                                                        ---------        ---------
               Small & Medium Business Solutions                          202,521          196,652       3 %
                                                                        ---------        ---------
            Production Mail                                                 9,223            9,010       2 %
            Software                                                        9,542            5,727      67 %
            Management Services                                            19,979           22,181     (10 %)
            Mail Services                                                   9,819            5,197      89 %
            Marketing Services                                              6,792            7,337      (7 %)
                                                                        ---------        ---------
               Enterprise Business Solutions                               55,355           49,452      12 %
                                                                        ---------        ---------
            Total EBIT                                                $   257,876      $   246,104       5 %
            Unallocated amounts:
               Interest, net (2)                                          (48,527)        (50,329)
               Corporate expense                                          (45,179)        (43,496)
               Restructuring charges and asset impairments                 (4,994)        (48,512)
                                                                        --------- --     --------- --
            Income from continuing operations before income taxes     $   159,176      $   103,767
                                                                     == =========     == =========
        


        (1)  Earnings before interest and taxes (EBIT) excludes general corporate
             expenses and restructuring charges and asset impairments.
        (2)  Interest, net includes financing interest expense, other interest
             expense and interest income.
        


        
                                                   Pitney Bowes Inc.
                                                   Revenue and EBIT
                                                   Business Segments
                                                     June 30, 2011
                                                      (Unaudited)
        -----------------------------------------------------------------------------------------
        (Dollars in thousands)                                                Six Months Ended June 30,
                                                                     ------------------------------------------
                                                                                                           %
                                                                           2011             2010        Change
                                                                        ---------        ---------     --------
            Revenue
        ---------------------------------------------------------
            North America Mailing                                     $ 1,002,692      $ 1,055,244      (5 %)
            International Mailing                                         346,691          327,602       6 %
                                                                        ---------        ---------
              Small & Medium Business Solutions                         1,349,383        1,382,846      (2 %)
                                                                        ---------        ---------
            Production Mail                                               265,375          247,345       7 %
            Software                                                      195,768          165,202      19 %
            Management Services                                           482,085          503,425      (4 %)
            Mail Services                                                 278,556          277,162       1 %
            Marketing Services                                             66,376           69,490      (4 %)
                                                                        ---------        ---------
              Enterprise Business Solutions                             1,288,160        1,262,624       2 %
                                                                        ---------        ---------
            Total revenue                                             $ 2,637,543      $ 2,645,470      (0 %)
                                                                     == =========     == =========
            EBIT (1)
        ---------------------------------------------------------
            North America Mailing                                     $   355,447      $   365,805      (3 %)
            International Mailing                                          49,928           37,563      33 %
                                                                        ---------        ---------
              Small & Medium Business Solutions                           405,375          403,368       0 %
                                                                        ---------        ---------
            Production Mail                                                16,397           20,917     (22 %)
            Software                                                       15,054            9,511      58 %
            Management Services                                            41,008           42,273      (3 %)
            Mail Services                                                  20,084           30,474     (34 %)
            Marketing Services                                             10,952           11,859      (8 %)
                                                                        ---------        ---------
              Enterprise Business Solutions                               103,495          115,034     (10 %)
                                                                        ---------        ---------
            Total EBIT                                                $   508,870      $   518,402      (2 %)
            Unallocated amounts:
              Interest, net (2)                                           (99,122)        (99,163)
              Corporate expense                                           (85,380)        (86,230)
              Restructuring charges and asset impairments                 (31,018)        (69,234)
                                                                        --------- --     --------- --
            Income from continuing operations before income taxes     $   293,350      $   263,775
                                                                     == =========     == =========
        


        (1)  Earnings before interest and taxes (EBIT) excludes general corporate
             expenses and restructuring charges and asset impairments.
        (2)  Interest, net includes financing interest expense, other interest
             expense and interest income.
        


        
                                                           Pitney Bowes Inc.
                                      Reconciliation of Reported Consolidated Results to Adjusted
                                                                Results
                                                              (Unaudited)
        (Dollars in thousands, except per share data)
                                                              Three Months Ended June 30,        Six Months Ended June 30,
                                                           --------------------------------- ---------------------------------
                                                                 2011             2010             2011             2010
                                                               -------          -------          -------          -------
        GAAP income from continuing operations
          after income taxes, as reported                    $ 101,570        $  64,047        $ 189,756        $ 146,216
            Restructuring charges and asset impairments          3,563           31,870           20,869           45,397
            Tax adjustments                                        334            3,800            2,513           21,490
                                                               -------          -------          -------          -------
        Income from continuing operations
          after income taxes, as adjusted                    $ 105,467        $  99,717        $ 213,138        $ 213,103
                                                           === =======      === =======      === =======      === =======
        GAAP diluted earnings per share from
          continuing operations, as reported                 $    0.50        $    0.31        $    0.93        $    0.70
            Restructuring charges and asset impairments           0.02             0.15             0.10             0.22
            Tax adjustments                                       0.00             0.02             0.01             0.10
                                                               -------          -------          -------          -------
        Diluted earnings per share from continuing
          operations, as adjusted                            $    0.52        $    0.48        $    1.04        $    1.02
                                                           === =======      === =======      === =======      === =======
        GAAP net cash provided by operating activities,
          as reported                                        $ 152,640        $ 122,248        $ 449,401        $ 423,802
             Capital expenditures                              (53,341)        (30,272)        (88,017)        (58,639)
             Restructuring payments                             22,223           39,035           51,968           66,755
             Pension contribution                              123,000                -          123,000                -
             Reserve account deposits                           24,083           30,688           18,088           19,467
                                                               -------          -------          -------          -------
        Free cash flow, as adjusted                          $ 268,605        $ 161,699        $ 554,440        $ 451,385
                                                           === =======      === =======      === =======      === =======
        


        Note: The sum of the earnings per share amounts may not equal the
        totals above due to rounding.

 

 

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