Pitney Bowes Announces Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091103006741/en

STAMFORD, Conn.--(Business Wire)--
Pitney Bowes Inc. (NYSE:PBI) today reported third quarter 2009 financial
results.

Revenue for the quarter was $1.36 billion compared with $1.55 billion in the
prior year, a decline of 12 percent. A stronger dollar reduced revenue by 2
percent year-over-year. Adjusted earnings per diluted share from continuing
operations was $0.55, compared with $0.67 in the prior year. Earnings reflect
the negative impacts of $0.01 per diluted share associated with currency and
$0.01 per diluted share from incremental pension costs when compared with the
prior year.

On a Generally Accepted Accounting Principles (GAAP) basis, earnings per diluted
share was $0.50 compared with $0.47 for the prior year. GAAP earnings per
diluted share for this quarter includes a $0.01 loss associated with
discontinued operations and a $0.04 charge for restructuring costs associated
with our strategic transformation initiatives.

Free cash flow was $223 million for the quarter while on a GAAP basis the
company generated $249 million in cash from operations. Free cash flow benefited
from lower capital expenditures and lower levels of finance receivables. During
the quarter the company paid $75 million of dividends to common shareholders.

Year-to-date, the company has generated $666 million in free cash flow and on a
GAAP basis $732 million in cash from operations, which was partially used to
reduce debt by $298 million.

The company`s results for the quarter and year-to-date are summarized below:

Third Quarter Year-to-date
Adjusted EPS $0.55 $1.64
Restructuring ($0.04 ) ($0.04 )
Tax Adjustments N/M ($0.06 )
GAAP EPS from Continuing Operations $0.51 $1.54
Discontinued Operations ($0.01 ) $0.03
GAAP EPS $0.50 $1.57

"We have been aggressively implementing a series of actions to help mitigate the
impact of a challenging business environment characterized by ongoing economic
pressures, depressed mail volumes, and evolving customer behaviors," noted
Pitney Bowes Chairman, President and CEO Murray D. Martin. "To enhance long-term
growth and value creation in this changing environment, we introduced new
solutions to the marketplace, we entered new partnerships to deliver more value
to our customers worldwide, and we initiated a comprehensive program to
transform our business processes and operations.

"We also continued to take significant actions to reduce costs and enhance
productivity. The benefits from our earlier actions are again visible in our
sequential results as EBIT and EBIT margins improved in 6 of our 7 business
segments compared with the second quarter 2009.

"We generated significant free cash flow and saw a sequential improvement in our
supplies and rental revenue streams, even as equipment sales continued to be
tempered by the economic environment.

"We believe that our strategic transformation process will help us navigate the
current environment and enhance our positioning for long-term growth when the
economy rebounds. We are analyzing a wide range of opportunities for process and
operational improvements in areas such as our global customer interactions and
product development processes.

"Currently, we are targeting annualized benefits, net of investments, from our
strategic transformation initiatives in the range of at least $150 to $200
million on a pre-tax basis. We expect the full benefit run rate to be achieved
by 2012. The restructuring charge in the current quarter represents costs
associated with initial actions identified as part of the diagnostic phase of
this project. Starting in the fourth quarter, there will be additional ongoing
costs associated with achieving these benefits, and both the benefits and costs
will be recognized as different actions are approved and implemented.

"Based upon our results year-to-date and our expectations for the remainder of
the year, we are narrowing the range for adjusted and GAAP earnings per diluted
share. We now expect adjusted earnings per diluted share will be in the range of
$2.19 to $2.31 and GAAP earnings per diluted share will be in the range of $2.09
to $2.21. We are also increasing our guidance range for cash flow and slightly
reducing our revenue expectations."

Business Segment Results

Mailstream Solutions revenue declined 12 percent on a constant currency basis
compared with the prior year. On a reported basis, revenue declined 14 percent
to $925 million and earnings before interest and taxes (EBIT) declined 21
percent to $227 million compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing revenue declined 12 percent to $491 million and EBIT declined 19
percent to $178 million compared with the prior year. Revenue declined by 4
percent and EBIT declined by 8 percent compared with the second quarter.
Sequential revenue comparisons are negatively impacted by an increase in the
number of customers renewing leases on equipment rather than upgrading; absence
of a postal rate increase which generates sales; and, a seasonal impact on the
equipment sales cycle.

The company continued its focus on customer retention, as many customers
continued to take advantage of the option to extend leases on existing
equipment. The quarter`s revenue and EBIT also reflect lower levels of
high-margin financing revenue as a result of reduced equipment sales in both the
current and prior quarters. In October the company continued to enhance its
product line with the launch of the new fully-featured mid-market DM475 mail and
metering solution.

International Mailing revenue declined 11 percent on a constant currency basis
compared with the prior year. On a reported basis, revenue declined 17 percent
to $225 million with more than 6 points of this decline due to adverse currency
impact, and EBIT declined 29 percent to $29 million when compared with the prior
year. Reported revenue increased by 3 percent, EBIT increased by 8 percent and
EBIT margin improved by 60 basis points, when compared with the second quarter
of 2009.

Similar to the U.S., results have been impacted by lower recurring revenue
streams such as financing and supplies, as a result of weak demand throughout
the economic downturn. At the end of the third quarter the company began to see
signs of stabilization of business trends in Canada, Asia Pacific, and parts of
Europe, despite generally weak economic conditions.

Worldwide Production Mail revenue declined 16 percent on a constant currency
basis compared with the prior year. On a reported basis, revenue declined 18
percent to $126 million with 2 points of the decline due to adverse currency
impact. EBIT declined 50 percent to $11 million compared with the prior year.
Reported revenue declined 3 percent while EBIT increased 10 percent and EBIT
margin improved 110 basis points when compared with the second quarter.

Production Mail again achieved sequential growth and margin improvement in
service revenue, despite lower equipment sales as a result of customers around
the world keeping existing equipment longer than usual. One example of how the
company is positioning itself to provide incremental value to its customers is
through a partnership announced during the quarter with Hewlett Packard. The
company will sell Hewlett Packard`s digital high-speed color printer as part of
an integrated solution with Pitney Bowes` inserting equipment.

Software revenue declined 9 percent on a constant currency basis compared with
the prior year. On a reported basis, revenue declined 13 percent to $82 million
while EBIT increased 160 percent to $8 million, compared with the prior year.
Reported revenue was essentially flat and EBIT increased 58 percent compared
with the second quarter 2009. EBIT margin reached 10 percent in the quarter,
more than double the prior year.

The company has taken significant actions to integrate acquired businesses,
focus the product line and rebrand its software offerings. Despite worldwide
consolidation in the financial services industry and weakness in the retail
sector impacting software sales, the company`s actions have resulted in
substantial EBIT margin improvements versus the prior year. This is expected to
benefit EBIT growth in the seasonally more significant fourth quarter.

Mailstream Services revenue declined 6 percent on a constant currency basis
compared with the prior year. On a reported basis, revenue declined 8 percent to
$432 million and EBIT increased 26 percent to $50 million compared with the
prior year.

Within Mailstream Services:

Management Services revenue declined 8 percent on a constant currency basis
compared with the prior year. On a reported basis, revenue declined 10 percent
to $259 million while EBIT improved 21 percent to $20 million compared with the
prior year. Reported revenue declined 2 percent and EBIT increased 21 percent
compared with the second quarter.

In the U.S., EBIT as a percentage of revenue remained above 10 percent,
comparable to the first half of the year. The company has implemented a more
variable cost infrastructure that allows it to align costs with changing
volumes. This flexibility helped drive EBIT improvements despite lower business
activity. Outside the U.S., the company instituted similar productivity
enhancements that have improved profitability despite lower print and
transaction volumes due to the economy. This will provide the international
operations with increased leverage as the economy improves and revenue rebounds.

Mail Services revenue declined 3 percent on a constant currency basis. On a
reported basis, revenue declined 4 percent to $134 million while EBIT increased
49 percent to $23 million compared with the prior year. Reported revenue
declined 3 percent while EBIT increased 6 percent and EBIT margin improved by
150 basis points when compared with the second quarter of 2009.

Mail Services continues to capture significant new customers even as mail volume
per customer has declined as a result of overall trends in mail volumes. The
company achieved improved EBIT margin contributions versus last year from the
integration of mail services sites acquired in 2008 and the ongoing automation
and productivity initiatives taken by the business.

Marketing Services revenue declined 6 percent to $39 million and EBIT declined 8
percent to $7 million compared with the prior year. Revenue increased 11 percent
and EBIT increased 32 percent compared with the second quarter of 2009,
benefiting partially from a seasonal increase in household moves during the
summer.

On a year-over-year basis, revenue was negatively affected by fewer household
moves which resulted in the need for fewer change of address kits. Ongoing
production efficiencies resulted in EBIT margin improvement on a sequential
basis.

2009 Guidance

The company is modifying its 2009 annual guidance as follows:

* The company is narrowing its range for adjusted and GAAP earnings per diluted
share from continuing operations. The adjusted earnings per diluted share range
for 2009 is now $2.19 to $2.31. Adjusted earnings per diluted share from
continuing operations excludes an estimated 6 cents per diluted share non-cash
tax charge associated with out-of-the-money stock options that was primarily
recorded in the first half of 2009. Adjusted earnings per diluted share also
excludes a $0.04 per share restructuring charge recorded in the third quarter.
The company`s current 2009 expectations for diluted earnings per share on a GAAP
basis include the restructuring charges recorded in the third quarter, but do
not include any potential restructuring charges in the fourth quarter. The
company expects earnings per diluted share from continuing operations on a GAAP
basis for the year will be in the range of $2.09 to $2.21.
* Revenue for the year is now expected to decline by 5 to 8 percent on a
constant currency basis and 8 to 11 percent on a reported basis.
* Based on strong cash flow performance year-to-date, the company is increasing
its free cash flow guidance for 2009 by $50 million to a range of $750 million
to $850 million.

The 2009 earnings guidance is summarized in the table below:

Full Year 2009
Adjusted EPS $2.19 to $2.31
Tax Adjustments ($0.06)
Restructuring ($0.04)
GAAP EPS from Continuing Operations $2.09 to $2.21

Mr. Martin concluded, "We are committed to making the most of the opportunities
we have to transform the way we operate as a global company so that we can build
sustainable long-term value for shareholders and customers. That is why we are
excited about the prospects of our strategic transformation initiative. The
expected improvements to our business practices, processes and operating model
will move us toward a more integrated global business with enhanced go-to-market
options and a flexible and variable cost infrastructure."

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 $6.3 billion global technology leader whose products, services
and solutions deliver value within the mailstream and beyond. For more
information about the company, its products, services and solutions, 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 free cash flow results are adjusted to exclude the
impact of special items such as transformation initiatives, restructuring
charges, tax adjustments, accounting adjustments and write downs of
assets.Although these charges represent actual expenses to the company, these
charges might mask the periodic income and financial and operating trends
associated with our business. The use of free cash flow has limitations. GAAP
cash flow has the advantage of including all cash available to the company after
actual expenditures for all purposes. Free cash flow permits a shareholder
insight into the amount of cash that management could have available for other
discretionary uses.It adjusts 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. Management compensates for these limitations by using a
combination of GAAP cash flow and free cash flow in doing its planning.

EBIT excludes interest payments and taxes, both cash expenses to the company,
and as a result, has the effect of showing a greater amount of earnings than net
income. The company uses EBIT for purposes of measuring the performance of its
management team. The interest rates and tax rates applicable to the company
generally are outside the control of management, and it can be useful to judge
performance independent of those variables.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 future
business and financial performance.Pitney Bowes assumes no obligation to update
any forward-looking statements contained in this document as a result of new
information or future events or developments.For us forward-looking statements
include, but are not limited to, statements about possible transformation
initiatives; restructuring charges and our future revenue and earnings guidance.
Forward-looking statements 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, including adverse impacts on customer demand; changes in foreign
currency exchange rates; and changes in postal regulations, as more fully
outlined in the company's 2008 Form 10-K Annual Report and other reports filed
with the Securities and Exchange Commission.

Note: Consolidated statements of income; revenue and EBIT by business segment;
and reconciliation of GAAP to non-GAAP measures for the three and nine months
ended September 30, 2009 and 2008, and consolidated balance sheets at September
30, 2009 and June 30, 2009 are attached.

Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Revenue:
Equipment sales $ 225,759 $ 296,520 $ 714,780 $ 910,883
Supplies 83,464 96,864 253,466 305,750
Software 87,295 100,092 254,401 314,617
Rentals 163,711 182,850 487,992 553,658
Financing 171,228 195,632 528,534 591,834
Support services 177,607 193,516 531,200 579,996
Business services 447,756 482,199 1,344,493 1,452,978

Total revenue 1,356,820 1,547,673 4,114,866 4,709,716

Costs and expenses:
Cost of equipment sales 124,819 157,593 387,674 484,988
Cost of supplies 23,785 26,382 68,495 80,673
Cost of software 19,413 25,917 60,480 80,107
Cost of rentals 40,508 36,252 114,372 114,227
Financing interest expense 23,975 27,702 73,865 85,630
Cost of support services 100,541 113,581 300,090 343,507
Cost of business services 335,406 370,213 1,033,933 1,120,193
Selling, general and administrative 435,931 484,650 1,317,410 1,491,154
Research and development 45,052 53,008 138,623 156,176
Restructuring charges and asset impairments 12,845 49,229 12,845 85,137
Other interest expense 27,244 30,037 84,548 91,565
Interest income (668 ) (3,179 ) (3,153 ) (9,731 )

Total costs and expenses 1,188,851 1,371,385 3,589,182 4,123,626

Income from continuing operations before income taxes 167,969 176,288 525,684 586,090

Provision for income taxes 57,691 69,456 192,375 215,389

Income from continuing operations 110,278 106,832 333,309 370,701

Gain (loss) from discontinued operations, net of income tax (2,429 ) (2,063 ) 5,296 (8,726 )

Net income before attribution of noncontrolling interests 107,849 104,769 338,605 361,975

Less: Preferred stock dividends of subsidiaries attributable to 4,622 6,540 13,714 16,134
noncontrolling interests

Pitney Bowes Inc. net income $ 103,227 $ 98,229 $ 324,891 $ 345,841

Amounts attributable to Pitney Bowes Inc.
common stockholders:
Income from continuing operations $ 105,656 $ 100,292 $ 319,595 $ 354,567
Gain (loss) from discontinued operations (2,429 ) (2,063 ) 5,296 (8,726 )

Pitney Bowes Inc. net income $ 103,227 $ 98,229 $ 324,891 $ 345,841

Basic earnings per share of common stock attributable to
Pitney Bowes Inc. common stockholders (1):
Continuing operations $ 0.51 $ 0.48 $ 1.55 $ 1.70
Discontinued operations (0.01 ) (0.01 ) 0.03 (0.04 )

Net income $ 0.50 $ 0.47 $ 1.57 $ 1.65

Diluted earnings per share of common stock attributable to
Pitney Bowes Inc. common stockholders (1):
Continuing operations $ 0.51 $ 0.48 $ 1.54 $ 1.68
Discontinued operations (0.01 ) (0.01 ) 0.03 (0.04 )

Net income $ 0.50 $ 0.47 $ 1.57 $ 1.64

Average common and potential common 207,643,504 208,655,671 207,198,120 210,586,568
shares outstanding

(1) The sum of the earnings per share amounts may not equal the totals above due to rounding.

Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)

(Dollars in thousands, except per share data)

Assets 09/30/09 06/30/09
Current assets:
Cash and cash equivalents $ 441,128 $ 445,262
Short-term investments 17,660 23,399
Accounts receivable, less allowances:
09/09 $46,312 06/09 $46,647 772,077 796,119
Finance receivables, less allowances:
09/09 $43,333 06/09 $42,814 1,365,631 1,365,188
Inventories 176,626 171,267
Current income taxes 73,386 91,465
Other current assets and prepayments 98,736 102,911

Total current assets 2,945,244 2,995,611

Property, plant and equipment, net 529,079 546,805
Rental property and equipment, net 374,021 365,852
Long-term finance receivables, less allowances:
09/09 $25,547 06/09 $25,091 1,370,460 1,382,681
Investment in leveraged leases 231,088 212,235
Goodwill 2,294,594 2,276,151
Intangible assets, net 319,040 341,612
Non-current income taxes 66,280 58,044
Other assets 414,215 389,188

Total assets $ 8,544,021 $ 8,568,179

Liabilities, noncontrolling interests and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 1,693,697 $ 1,722,404
Current income taxes 112,908 103,042
Notes payable and current portion of long-term obligations 170,783 292,869
Advance billings 452,380 491,073

Total current liabilities 2,429,768 2,609,388

Deferred taxes on income 366,721 320,842
Tax uncertainties and other income tax liabilities 293,476 296,711
Long-term debt 4,218,646 4,209,129
Other non-current liabilities 783,750 788,244

Total liabilities 8,092,361 8,224,314

Noncontrolling interests (Preferred stockholders' equity in subsidiaries) 374,165 374,165

Stockholders' equity (deficit):
Cumulative preferred stock, $50 par value, 4% convertible 4 7
Cumulative preference stock, no par value, $2.12 convertible 876 969
Common stock, $1 par value 323,338 323,338
Additional paid-in capital 251,273 249,312
Retained earnings 4,380,513 4,351,845
Accumulated other comprehensive loss (461,550 ) (533,571 )
Treasury stock, at cost (4,416,959 ) (4,422,200 )

Total Pitney Bowes Inc. stockholders' equity (deficit) 77,495 (30,300 )

Total liabilities, noncontrolling interests and stockholders' equity (deficit) $ 8,544,021 $ 8,568,179

Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2009
(Unaudited)

(Dollars in thousands)
Three Months Ended September 30,
%
2009 2008 Change
Revenue

U.S. Mailing $ 491,036 $ 558,038 (12 %)
International Mailing 224,681 271,727 (17 %)
Production Mail 126,434 154,554 (18 %)
Software 82,361 94,221 (13 %)
Mailstream Solutions 924,512 1,078,540 (14 %)

Management Services 259,370 287,989 (10 %)
Mail Services 134,042 139,689 (4 %)
Marketing Services 38,896 41,455 (6 %)
Mailstream Services 432,308 469,133 (8 %)

Total revenue $ 1,356,820 $ 1,547,673 (12 %)

EBIT(1)

U.S. Mailing $ 178,066 $ 221,179 (19 %)
International Mailing 29,193 41,123 (29 %)
Production Mail 11,494 23,183 (50 %)
Software 8,241 3,167 160 %
Mailstream Solutions 226,994 288,652 (21 %)

Management Services 19,517 16,064 21 %
Mail Services 23,024 15,467 49 %
Marketing Services 7,448 8,088 (8 %)
Mailstream Services 49,989 39,619 26 %

Total EBIT $ 276,983 $ 328,271 (16 %)

Unallocated amounts:
Interest, net (50,551 ) (54,560 )
Corporate expense (45,618 ) (48,194 )
Restructuring charges and asset impairments (12,845 ) (49,229 )

Income from continuing operations before income taxes $ 167,969 $ 176,288

(1) Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.

Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2009
(Unaudited)

(Dollars in thousands) Nine Months Ended September 30,
%
2009 2008 Change
Revenue

U.S. Mailing $ 1,517,377 $ 1,687,229 (10 %)
International Mailing 679,893 882,145 (23 %)
Production Mail 366,000 439,358 (17 %)
Software 240,559 296,134 (19 %)
Mailstream Solutions 2,803,829 3,304,866 (15 %)

Management Services 789,635 891,078 (11 %)
Mail Services 413,891 399,875 4 %
Marketing Services 107,511 113,897 (6 %)
Mailstream Services 1,311,037 1,404,850 (7 %)

Total revenue $ 4,114,866 $ 4,709,716 (13 %)

EBIT(1)

U.S. Mailing $ 561,232 $ 663,469 (15 %)
International Mailing 87,201 142,520 (39 %)
Production Mail 26,974 47,116 (43 %)
Software 16,064 15,962 1 %
Mailstream Solutions 691,471 869,067 (20 %)

Management Services 49,294 52,931 (7 %)
Mail Services 63,322 49,836 27 %
Marketing Services 17,323 15,558 11 %
Mailstream Services 129,939 118,325 10 %

Total EBIT $ 821,410 $ 987,392 (17 %)

Unallocated amounts:
Interest, net (155,260 ) (167,464 )
Corporate expense (127,621 ) (148,701 )
Restructuring charges and asset impairments (12,845 ) (85,137 )

Income from continuing operations before income taxes $ 525,684 $ 586,090

(1) Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.

Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008

GAAP income from continuing operations
after income taxes, as reported $ 105,656 $ 100,292 $ 319,595 $ 354,567
Restructuring charges and asset impairments 8,300 39,117 8,300 61,862
Tax adjustment 216 - 12,204 6,480
MapInfo purchase accounting - - - 322
Income from continuing operations
after income taxes, as adjusted $ 114,172 $ 139,409 $ 340,099 $ 423,231

GAAP diluted earnings per share from
continuing operations, as reported $ 0.51 $ 0.48 $ 1.54 $ 1.68
Restructuring charges and asset impairments 0.04 0.19 0.04 0.29
Tax adjustment 0.00 - 0.06 0.03
MapInfo purchase accounting - - - 0.00
Diluted earnings per share from continuing
operations, as adjusted $ 0.55 $ 0.67 $ 1.64 $ 2.01

GAAP net cash provided by operating activities,
as reported $ 249,038 $ 285,611 $ 732,424 $ 756,059
Capital expenditures (36,319 ) (54,632 ) (126,509 ) (169,978 )
Restructuring payments and discontinued operations 17,647 28,941 66,757 66,451
Reserve account deposits (7,768 ) (1,835 ) (6,236 ) 16,617

Free cash flow, as adjusted $ 222,598 $ 258,085 $ 666,436 $ 669,149

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

Editorial:
Sheryl Y. Battles, 203-351-6808
VP, Corp. Communications
or
Financial:
Charles F. McBride, 203-351-6349
VP, Investor Relations
Website: www.pitneybowes.com

Copyright Business Wire 2009