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Pitney Bowes Announces Q2 Revenue Increase

Tuesday, July 25, 2006

Press release from the issuing company

STAMFORD, Conn., July 24 -- Pitney Bowes Inc. today reported second quarter 2006 financial results. For the second quarter 2006, revenue increased five percent to $1.39 billion and income from continuing operations was $121 million or $.54 per diluted share versus $.52 per diluted share for the prior year. In addition, the company recorded a $2.13 loss per diluted share in discontinued operations. During the quarter, the company recorded an after-tax charge from restructuring activity of $3 million or $.01 per diluted share as part of the restructuring program that it intends to substantially complete this year. It also recorded an additional tax provision of $61 million associated with the anticipated tax settlement agreement with the Internal Revenue Service, of which $20 million is included in continuing operations and $41 million is included in discontinued operations. The company also recorded an additional tax provision of $16 million in discontinued operations related to a recent tax law change. Excluding the impact of both the restructuring charge and the additional provision related to the tax settlement, adjusted diluted earnings per share from continuing operations was $.64 this quarter versus $.59 in the prior year. On July 17, 2006, the company announced that it had completed the sale of its Capital Services external financing business to an affiliate of Cerberus Capital Management, L.P. The company recorded a $477 million loss in discontinued operations in the second quarter as a result of the sale of the Capital Services business, the sale of the Imagistics lease portfolio, the anticipated IRS settlement, and the additional tax provision related to the recent tax law change. Discontinued operations included net income of $.05 per diluted share from the Capital Services business, excluding the impact of the recent tax law change. Mr. Critelli noted, "The sale of Capital Services is an important milestone for our company. We believe that it will enable investors to see more clearly the underlying strength and performance of our business. We are also further enhancing the transparency of our operations by providing more financial information about our business results." Including discontinued operations, the company generated net cash from operating activities of $143 million during the quarter. Adjusted free cash flow was $70 million. Adjusted free cash flow reflects cash from operations after subtracting capital expenditures and excluding the impact of discontinued operations and the company's restructuring program. Year-to-date, the company has generated $430 million in net cash from operating activities and $261 million of adjusted free cash flow. The company used $141 million to repurchase 3.3 million of its shares during the quarter and has $249 million of remaining authorization for future share repurchases. Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental, and financing of mail finishing, mail creation, shipping, and production mail equipment; supplies; support services; payment solutions; and mailing and customer communication software. In the second quarter, Mailstream Solutions revenue increased five percent to $1.0 billion and earnings before interest and taxes (EBIT) increased five percent to $297 million, when compared with the prior year. Within Mailstream Solutions: U.S. Mailing operations had second quarter revenue growth of one percent to $568 million and EBIT growth of four percent to $234 million. There was strong growth in supplies and payment solutions as the meter base continues to transition to new digital technology. However, revenue continued to be adversely affected by the ongoing changing mix to more fully featured smaller systems. In addition, the company experienced a delay in some anticipated orders, and a higher than anticipated proportion of orders where revenue is recognized over time. International Mailing revenue grew nine percent to $249 million while EBIT decreased by five percent to $42 million. International Mailing revenue benefited from growth in Europe. Transitional expenses related to the consolidation and outsourcing of European and Canadian administrative functions adversely affected International Mailing EBIT. Worldwide revenue for Production Mail grew six percent to $133 million and EBIT increased 53 percent to $15 million. In the U.S. revenue growth was favorably affected by strong placements of inserting systems and by placements of the company's advanced, high-speed Infinity metering system. The strong U.S. results more than offset the weaker revenue performance outside of the U.S. Software revenue grew 25 percent to $48 million and EBIT grew 41 percent to $5 million. Revenue growth benefited from strong demand for the company's software products and the acquisition of a print management company in the first quarter. Mailstream Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services for targeted customer markets; mail services operations, which include presort mail services and international outbound mail services; and marketing services. For the quarter, Mailstream Services reported revenue growth of six percent to $391 million and EBIT growth of 48 percent to $34 million, versus the prior year. Within Mailstream Services: Management Services revenue declined three percent for the quarter to $268 million and EBIT increased 21 percent to $22 million, consistent with the company's strategy to exit unprofitable accounts and facilities while focusing on higher value service offerings and administrative cost reductions. Mail Services revenue grew 11 percent to $91 million and EBIT grew 192 percent to $9 million. Revenue reflects growth in presort and international mail services, while EBIT benefited from the ongoing successful integration of acquired sites and increased operating efficiencies. Marketing Services revenue increased 167 percent to $33 million and EBIT grew 60 percent to $4 million. EBIT margin was adversely affected by continued investments for growth initiatives. Outlook The company anticipates third quarter revenue growth in the range of seven to nine percent for the third quarter and increased its revenue guidance to six to eight percent for the full year, to reflect recent acquisitions. The company expects adjusted earnings per share in third quarter 2006 in the range of $0.65 to $0.67 and $2.66 to $2.72 for the full year. Earnings per share on a Generally Accepted Accounting Principles (GAAP) basis is expected to be $0.62 to $0.65 for the third quarter and $2.47 to $2.56 for the full year.




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