STAMFORD, Conn., July 17, 2001 - Pitney Bowes Inc. today announced second quarter results that included diluted earnings per share from continuing operations of 58 cents, an increase of three percent, excluding both special gains and charges. Revenue grew two percent to $1.02 billion. Excluding both special gains and charges, income from continuing operations was $144.6 million During the quarter, special gains and charges included: a $362 million net pre-tax gain as a result of settling a lawsuit with Hewlett-Packard Company; a non-cash $248 million pre-tax charge associated with the company's previously announced plan to transition to the next generation of networked mailing technology; and a $29 million pre-tax charge related to additional initiatives under the company's previously announced restructuring plan. Commenting on the quarter, Chairman and Chief Executive Officer Michael J. Critelli said, "The second quarter was a remarkable period in the history of Pitney Bowes. During the quarter, we met our earnings guidance despite the backdrop of a weakening economic environment and significant strategic activity. During the quarter, we initiated several major transactions which will extend our market reach and enhance our ability to deliver advanced products and services to customers worldwide. These included the acquisition of Danka Services International (DSI) which closed at the end of June; the acquisition of Bell & Howell's International Mail and Messaging Technologies business, which closed in early June; and our intention to acquire Secap, a leading provider of advanced mailing and metering technology in France. We solidified our plans to transform the global mailing industry by making a long-term commitment to develop a networked platform for our mailing systems. We also reaffirmed the value of our ongoing investment in technology development, and our existing intellectual property portfolio through an intellectual property settlement with Hewlett-Packard. This settlement resulted in a $400 million cash payment, before legal fees and related expenses, and an agreement to pursue future business and commercial relationships. "We believe all of these actions will deliver shareholder and customer value as we strengthen our ability to provide leading-edge global, integrated mail and document management solutions to organizations of all sizes." The Global Mailing Segment includes worldwide revenues and related expenses from the sale, rental and financing of mail finishing, mail creation and shipping equipment, related supplies and services, postal payment solutions, small business solutions and software. In the second quarter, Global Mailing revenue was flat while operating profit increased four percent. As in the previous three quarters, Global Mailing revenue comparisons to the prior year were adversely impacted by the loss of revenues associated with the sale of the credit card portfolio in the second quarter of last year and the impact from unfavorable foreign currency during the quarter. Excluding the impact of these two factors, Global Mailing revenues increased four percent and operating profit increased seven percent. During the quarter, traditional mailing products revenue grew despite the slowing economy and its impact on the placement of higher value mail creation and distribution solutions products. Operating profit continued to benefit from the lower administrative costs from process improvements. On a U.S. dollar basis, the Global Mailing segment revenue growth was reduced by approximately one and one-half percent due to unfavorable foreign currency impacts, principally the British Pound, the Canadian Dollar and the Euro. The Enterprise Solutions Segment includes Pitney Bowes Management Services and Document Messaging Technologies (formerly Production Mail). Revenues from Management Services include facilities management contracts for advanced mailing, reprographic, document management and other added-value services to large enterprises. Revenues from Document Messaging Technologies include sales, service and financing of high speed, software-enabled production mail systems, sorting equipment, incoming mail systems, electronic statement, billing and payment solutions, and mailing software. The Enterprise Solutions segment, which represents approximately one-quarter of consolidated revenue, grew revenue 13 percent while operating profit declined two percent. Operating profit comparisons, particularly for Document Messaging Technologies, were adversely impacted by a previously reported settlement received from Bell & Howell in the second quarter of 2000 and costs associated with the investments in acquisition and growth initiatives during the second quarter of 2001. Excluding these items, operating profit for the segment would have increased at a double-digit rate. Pitney Bowes Management Services achieved its seventh consecutive quarter of improving revenue, recording a 14 percent increase over 2000. Operating profit grew at an even faster pace. The growth in business came from both new, value-added services for existing clients and new enterprise contracts. Document Messaging Technologies revenues grew 11 percent during the quarter. Document Messaging Technologies growth has benefited from its broadening portfolio of products and services, while worldwide demand for high-speed, software enabled production mail equipment and mail processing software has been tempered by slowing economic activity. DocSense continues to be a recognized leader in the field of electronic bill and statement management. Its growth has been enhanced by the acquisition of Alysis Technologies, a leading provider of business-to-business and business-to-consumer digital document delivery solutions. Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, reported a three percent increase in both revenues and operating profit. The Capital Services Segment includes primarily asset- and fee-based income generated by financing or arranging transactions for the acquisition of non-Pitney Bowes equipment. Revenue for the quarter declined 10 percent, consistent with the company's ongoing objective to shift to fee-based transactions. Operating profit decreased three percent for the quarter. As noted previously, during the quarter, the company recorded a $248 million pre-tax non-cash charge related to its plan to transition to the next generation of networked mailing technology. The components of the charge are: 52 percent for the impairment of the equipment lease residual values; 29 percent for the impairment in value of affected meter rental assets; 11 percent for charges related to reduced inventory valuation; and 8 percent for additional depreciation costs on meter rental assets. Additionally, the company repurchased 1.8 million shares, leaving $156 million of authorization for future share repurchases. Free cash flow from continuing operations, excluding payments associated with the restructuring plan and proceeds from the legal settlement, totaled in excess of $168 million during the quarter. Compared to year 2000 results, the company expects revenue growth of approximately four to six percent for the second half of the year, prior to the inclusion of any revenues from the recently announced acquisitions. Diluted earnings per share from continuing operations are expected to be in the range of 59 to 60 cents for the third quarter 2001 and $2.35 to $2.37 for the full year. Second quarter 2001 revenue included $522.4 million from sales, up seven percent from $488.3 million in the second quarter of 2000; $365.1 million from rentals and financing, down six percent from $386.6 million; and $133.3 million from support services, up nine percent from $122.7 million. Income from continuing operations for the period was $187.9 million, or 76 cents per diluted share. Excluding both special gains and charges, income from continuing operations during the quarter was $144.6 million, or 58 cents per diluted share compared to second quarter 2000 income from continuing operations of $146.3 million, or 56 cents per diluted share. Second quarter 2001 net income was $177.0 million or 71 cents per diluted share compared to second quarter 2000 net income of $166.0 million or 64 cents per diluted share. Second quarter 2001 net income includes a loss of $10.8 million from discontinued operations or approximately five cents per diluted share, while second quarter 2000 net income included income of $19.6 million from discontinued operations, or eight cents per diluted share. For the six-month period ended June 30, 2001, revenue was $1.987 billion, up two percent from $1.942 billion in 2000. Income from continuing operations for 2001, excluding both special gains and charges, was $276.1 million, or $1.11 per diluted share compared to $279.8 million or $1.07 per diluted share in 2000. Year-to-date restructuring charges total approximately $104 million of which $71 million was related to continuing operations and $33 million was related to discontinued operations. Year-to-date net income for 2001 was $281.0 million or $1.13 per diluted share compared to $312.8 million or $1.19 per diluted share in 2000. The year-to-date net income for 2001 included a $10.8 million loss from discontinued operations, or four cents per diluted share, compared to $37.7 million of income from discontinued operations or 14 cents per diluted share, and a $4.7 million charge from a change in accounting or two cents per diluted share in 2000.