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Pitney Bowes Announces 4th Quarter Results

Press release from the issuing company

STAMFORD, Conn., Feb. 1 -- Pitney Bowes Inc. today reported fourth quarter and full year 2005 financial results. Michael J. Critelli noted, "I am very pleased with our performance during the quarter which featured strong growth in revenue, earnings before interest and taxes (EBIT) and earnings per share. I am also pleased with the progress we made throughout 2005 as successful execution of our growth strategies resulted in more solutions, for more customers, in more places worldwide. We are excited about the opportunities that lie before us in 2006 to participate in even more segments of the growing global mailstream and deliver even more value for our customers and shareholders." 2005 RESULTS For the fourth quarter 2005, revenue increased 7 percent to $1.46 billion and net income was $93.6 million or $.41 per diluted share versus $.35 per diluted share in the prior year. For the full year, revenue increased 11 percent to $5.49 billion and net income was $526.6 million or $2.27 per diluted share versus $2.05 per diluted share in the prior year. During the quarter, the company recorded an after-tax restructuring charge of $20 million as part of its ongoing restructuring initiatives. Also during the quarter the company recorded a $56 million increase in its tax reserves as a result of an adverse court opinion that another company received related to the tax treatment of corporate owned life insurance (COLI) investments. Excluding the restructuring charge in both periods, the tax reserve increase, and the legal settlement in the fourth quarter 2004, the company's fourth quarter adjusted diluted earnings per share was $.74 versus $.71 in the prior year. For the full year 2005, the adjusted diluted earnings per share was $2.70 versus $2.54 in 2004. The following table presents a reconciliation of earnings per share on a Generally Accepted Accounting Principles (GAAP) basis and on an adjusted basis. The company generated $107 million in cash from operations during the quarter. Free cash flow for the quarter was $137 million. Free cash flow is equal to cash from operations less capital expenditures of $76 million and excludes $77 million of contributions to the company's pension funds and $30 million in restructuring payments during the quarter. The company's cash from operations for the full year 2005 was $540 million. Free cash flow for the full year 2005 was $613 million. Free cash flow for the year is equal to cash from operations less capital expenditures of $292 million and excludes $79 million of restructuring payments, a $200 million IRS tax bond in the second quarter, $77 million of contributions to the company's pension funds in the fourth quarter, and $10 million contributed to the company's charitable foundations in the first quarter. During the quarter, the company used $69 million to repurchase 1.7 million of its shares, bringing the totals for the year to $259 million and 5.9 million shares, at an average price of $43.53 per share for the year. The company has $241 million of remaining authorization for future share repurchases. The company's Board of Directors authorized an increase of its common stock dividend to an annualized rate of $1.28 per common share. A dividend of $.32 per share will be paid in the first quarter, a one cent increase from the prior year. Mr. Critelli noted, "Our higher rate of dividend increase this year reflects our confidence in the strength of our business and cash flow. This marks the twenty-fourth consecutive year that we have increased the dividend on our common stock." Global 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. During the quarter, Global Mailstream Solutions revenue increased five percent to $1.04 billion and EBIT increased seven percent to $326 million, when compared with the fourth quarter of the prior year. In the U.S., the quarter's revenue growth continued to be favorably impacted by placements of networked digital mailing systems (especially small and mid-sized systems), mail creation equipment, and supplies. Also, there continued to be good demand for software products, as evidenced by the recent decision of Microsoft to integrate Group 1 software into its online mapping service. Outside of the U.S., revenue grew ten percent. These results include increased placements of mailing equipment with small businesses and increased sales of supplies. In addition, revenue growth benefited from the acquisitions of Groupe Mag and Danka Canada, but was negatively impacted by foreign currency translation for the first time in more than three years. Revenue growth was also negatively impacted by the comparison to very strong fourth quarter results in 2004. Global Business Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services to key vertical markets; and mail services operations, which include presort mail services, international outbound mail services, and direct mail marketing services. For the quarter, Global Business Services reported revenue growth of 12 percent to $383 million and EBIT growth of 61 percent to $31 million compared with the fourth quarter of the prior year. The company's management services operation reported a three percent decline in revenue and a 23 percent improvement in EBIT. This reflects the company's ongoing focus on enhancing profitability for this business. Mail Services revenue grew 75 percent versus the fourth quarter last year as a result of the expansion of its pre-sort and mail consolidation network and the acquisition of Imagitas during the second quarter 2005. The EBIT margin was eight percent, which was a significant improvement compared with the prior year and reflects the company's continued integration of recently acquired sites, as well as the addition of higher margin Imagitas revenue. Imagitas benefited from the expansion last quarter of its marketing services for the motor vehicle registration process to a fifth state and the fourth- quarter launch of the catalog request form as an enhanced offering in the USPS move update kit. Capital Services revenue for the quarter increased nine percent to $34 million and EBIT increased 21 percent to $21 million as a result of asset sales in the fourth quarter of 2005. In 2005, the company announced that it had entered into a definitive agreement to effect a sponsored spin-off of most of the Capital Services assets. Subject to customary regulatory approvals, the new entity will be an independent, publicly traded company consisting of most of the assets in the Capital Services segment. During the quarter, these assets contributed two cents per diluted share, compared with three cents in the fourth quarter 2004. Included in the quarter's results was a two cent per diluted share contribution from asset sales and a two cent per diluted share charge resulting primarily from the revision of the accounting for certain lease transactions, and favorable adjustments to the Capital Services tax provisions. In accordance with the revisions, the company grossed up the related lease assets and non-recourse debt on its consolidated balance sheets. In January the company received a favorable letter ruling from the IRS that the spin-off would be tax-free to its shareholders. The company is considering its options with respect to the Imagistics lease portfolio, which was to be part of the new entity. Any sale or other disposition of the Imagistics portfolio will be subject to a supplemental IRS letter ruling. The company continues to manage the Capital Services business to maximize its value to shareholders, as evidenced by the asset sales completed during the year, and continues to expect that the spin-off will occur in 2006.

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