Pitney Bowes Announces Fourth Quarter and Annual Results for 2009

STAMFORD, Conn., February 04, 2010 - Pitney Bowes Inc. (NYSE:PBI) today reported 2009 fourth quarter and full year 2009 results.

Adjusted earnings per diluted share from continuing operations for the fourth quarter was $0.64 compared with $0.77 for the prior year. For the full year 2009, adjusted earnings per diluted share was $2.28 compared with $2.78 for the prior year.

On a Generally Accepted Accounting Principles (GAAP) basis, the company reported earnings per diluted share of $0.47 for the fourth quarter, compared with $0.36 per diluted share for the prior year and $2.04 for the full year compared with $2.00 for the prior year. GAAP earnings per diluted share for the quarter included an $0.11 charge for restructuring costs associated with the company’s strategic transformation initiatives; a $0.01 benefit related to certain leveraged lease transactions in Canada and a $0.06 loss associated with discontinued operations. GAAP earnings per diluted share for the year included a $0.15 charge for restructuring costs associated with the company’s strategic transformation initiatives; a non-cash net tax adjustment of $0.05, primarily associated with out-of-the money stock options that expired during the year and a $0.04 loss associated with discontinued operations.

Revenue for the quarter was $1.5 billion, a decline of 6 percent compared with the prior year, while on a constant currency basis revenue declined 9 percent. For the full year, revenue was $5.6 billion, a decline of 11 percent when compared with the prior year. Excluding the effect of currency during the year, revenue declined 9 percent.

Free cash flow was $223 million for the quarter and $889 million for the year. On a GAAP basis, the company generated $94 million in cash from operations for the quarter and $826 million for the year, which was partially used to reduce debt by $242 million during the year.

Free cash flow for the year benefited from lower levels of receivables and inventory as well as reduced capital expenditures. The company returned $74 million of dividends to common shareholders during the quarter and $298 million for the year.

The company’s results for the quarter and the year are summarized in the table below:

 
    Fourth Quarter*   Full Year 2009
Adjusted EPS   $0.64   $2.28
Restructuring   ($0.11)   ($0.15)
Tax Adjustments   $0.01   ($0.05)
GAAP EPS from Continuing Operations   $0.54   $2.08
Discontinued Operations   ($0.06)   ($0.04)
GAAP EPS   $0.47   $2.04
 

*The sum of the earnings per share does not equal the totals above due to rounding.

Commenting on the quarter and the year, Chairman, President and CEO Murray D. Martin noted, “In 2009 we took definitive actions to position ourselves for long-term growth, while addressing the immediate challenges presented by an uncertain business environment.

“Throughout the year we enhanced productivity, reduced expenses, and increased the variability of our cost structure, all of which helped to offset the impact of revenue declines driven by macroeconomic conditions, and produced year-over-year EBIT margin improvements in our Software, Management Services, Mail Services, and Marketing Services business segments. In addition in the fourth quarter we saw improvement in both revenue and EBIT margins in the majority of our business segments when compared with the prior quarter.

“Our free cash flow remained strong and we continued to take actions to improve our capital position and increase our liquidity, as we reduced our debt by $242 million for the year.

“For the 28th consecutive year our Board of Directors approved an increase in the quarterly dividend. The dividend for the first quarter 2010 will be $.365 per common share.

“As we exited 2009, we began to see some early signs of improved economic activity including an increased backlog of orders in our Production Mail business; increased solution sales activity during December in our U.S. Mailing business; and, a moderating decline in total U.S. mail volumes, especially for standard mail. Additionally, in our Software business we had an 11% increase in the billings for large transactions, many of which will be recorded as recurring revenue. In 2010, we will continue to expand our recurring revenue stream as we move more towards a ‘Software as a Service’ (SaaS) model.

“We are streamlining our operations which will position us to invest in areas of growth with processes and systems that will allow us to gain better leverage across our businesses. Given the actions we have taken to date, our planned transformation initiatives going forward, and an expected gradual improvement in global business conditions in the latter half of the year, we are reaffirming our financial guidance for 2010.”

Business Segment Results

Mailstream Solutions revenue declined 8 percent in the quarter to $1.0 billion with currency providing 3.6 percentage points of benefit to the change in revenue. Earnings before interest and taxes (EBIT) declined 15 percent to $268 million compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing revenue declined 11 percent in the quarter to $499 million and EBIT declined 20 percent to $182 million when compared with the prior year.

The company maintained its focus on customer retention, as many customers continued to exercise their option to extend leases on existing equipment. The company experienced increased equipment sales activity in the month of December, particularly in its Solutions business. However, the lower levels of equipment sales in prior periods and the resulting lower level of finance receivables reduced revenue growth and profitability during the quarter and this trend is expected to continue into at least the first half of 2010.

International Mailing revenue declined 4 percent in the quarter to $241 million with currency providing about 10 percentage points of benefit to the change in revenue when compared with the prior year. EBIT declined 3 percent to $41 million.

While there appear to be some improving economic trends in Asia, Canada and parts of Europe, customers remained cautious and continue to take longer than usual to make purchase decisions and commitments. As in the U.S., the decline in high-margin finance and rental revenue streams, due to lower equipment sales in prior periods, reduced revenue and profitability during the quarter.

Worldwide Production Mail revenue declined 10 percent in the quarter to $160 million, with currency providing about 4 percentage points of benefit to the change in revenue, and EBIT declined 30 percent to $24 million compared with the prior year.

Production Mail has had three consecutive quarters of sequential EBIT margin improvement driven by ongoing productivity investments. During the quarter, Production Mail started to experience increased customer demand for its industry leading, high-speed inserting systems. As a result, Production Mail ended the quarter with an increased backlog of customer orders globally.

Software revenue increased one percent in the quarter to $105 million, with currency providing about 6 percentage points of benefit to the change in revenue, and EBIT increased 72 percent to $21 million compared with the prior year. EBIT margin reached 20 percent in the quarter, which was nearly double the prior year.

While Software typically has seasonally stronger fourth quarter sales, the company’s actions to integrate its sales organization and focus its product offerings have resulted in a greatly improved EBIT margin. This is the third consecutive quarter of sequential EBIT margin improvement. The company continues to expand its SaaS offerings and recurring revenue streams from term licenses. The company experienced increased customer interest in its data integration, document composition and location intelligence software products which resulted in an increase in the billings for large transactions.

Mailstream Services revenue declined 2 percent in the quarter to $450 million with currency providing 1.6 percentage points of benefit to the change in revenue and EBIT increased 15 percent to $48 million compared with the prior year.

Within Mailstream Services:

Management Services revenue declined 3 percent in the quarter to $271 million, with currency providing about 2 percentage points of benefit to the change in revenue, and EBIT improved 33 percent to $23 million compared with the prior year.

In the U.S., EBIT margin remained above 10 percent, slightly improved from the first three quarters of the year. Outside of the U.S., the company has refocused the business to more profitable contracts and continued to transition to a more variable cost structure. As a result, the non-U.S. Pitney Bowes Management Services (PBMS) operations improved revenue during the quarter and greatly expanded EBIT margin. The company’s strategy to move to a more variable cost infrastructure, that allows it to align costs with changing volumes, has resulted in three consecutive quarters of sequential EBIT margin improvement.

Mail Services revenue increased 2 percent in the quarter to $145 million and EBIT increased 2 percent to $19 million compared with the prior year.

Mail Services continues to process increasing volumes of presort mail from existing customers including a greater volume of Standard Class mail. An increase in outbound international package volume increased revenue for the International Mail Services portion of the business. While EBIT margin for the quarter was adversely affected by the timing of certain benefit costs, on an annual basis, the Mail Services EBIT margin for 2009 improved by 210 basis points when compared with the prior year due to ongoing automation and productivity initiatives.

Marketing Services revenue declined 3 percent in the quarter to $33 million and EBIT declined 2 percent to $6 million compared with the prior year.

On a year-over-year basis, revenue and EBIT were negatively affected by fewer household moves which resulted in a reduced need for change of address kits.

2010 Guidance

The company reaffirms its guidance for 2010. The company expects 2010 revenue to be in a range of flat to 3 percent growth, including an anticipated 2 percent benefit from currency. Adjusted earnings per diluted share is expected to be in the range of $2.30 to $2.50 for the year. Adjusted earnings per diluted share excludes the expected impact of $100 million to $150 million of pre-tax restructuring charges associated with the company’s previously announced transformation initiatives. Adjusted earnings per diluted share also excludes an expected non-cash tax charge of approximately 7 cents per diluted share associated with out-of-the-money stock options that expire principally in the first quarter of 2010. On a Generally Accepted Accounting Principles (GAAP) basis, the company expects 2010 earnings per diluted share from continuing operations in the range of $1.75 to $2.11. The company expects that a greater percentage of its annual earnings will occur in the second half of the year as equipment sales start to improve and the impact of lower financing revenue moderates, and the company realizes increased benefits from its transformation initiatives.

The company expects to generate free cash flow for 2010 in the range of $650 million to $750 million. During 2010 the company expects an increased investment in finance receivables through higher levels of equipment sales, requiring a higher use of cash versus the prior year.

The company’s expected earnings results for 2010 are summarized below.

 
    Full Year 2010
Adjusted EPS   $2.30 to $2.50
Restructuring   ($0.32 to $0.48)
Tax Adjustment   ($0.07)
GAAP EPS from Continuing Operations   $1.75 to $2.11
 

Mr. Martin concluded, “Given the actions we have taken to date and the plans we have in place for 2010, we believe the company is positioned to take advantage of an improving business environment and generate increased growth and profitability in 2010 and beyond.”

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 $5.6 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 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 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, including adverse impacts on customer demand; changes in foreign currency exchange rates; the outcome of litigations; 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. 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.

Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three months and year ended December 31, 2009 and 2008, and consolidated balance sheets at December 31, 2009 and September 30, 2009 are attached.

 
Pitney Bowes Inc.
Consolidated Statements of Income

(Unaudited)

 
(Dollars in thousands, except per share data)
 
    Three Months Ended December 31,   Twelve Months Ended December 31,
    2009   2008 (2)   2009   2008 (2)
Revenue:                
Equipment sales   $ 291,762     $ 341,175     $ 1,006,542     $ 1,252,058  
Supplies     82,773       86,664       336,239       392,414  
Software     110,784       109,679       365,185       424,296  
Rentals     159,440       174,502       647,432       728,160  
Financing     165,910       180,877       694,444       772,711  
Support services     183,229       188,428       714,429       768,424  
Business services     460,407       471,264       1,804,900       1,924,242  
                 
Total revenue     1,454,305       1,552,589       5,569,171       6,262,305  
                 
Costs and expenses:                
Cost of equipment sales     142,330       178,442       530,004       663,430  
Cost of supplies     25,165       23,197       93,660       103,870  
Cost of software     21,761       21,250       82,241       101,357  
Cost of rentals     44,509       39,604       158,881       153,831  
Financing interest expense     23,721       24,507       97,586       110,136  
Cost of support services     93,161       104,238       393,251       447,745  
Cost of business services     348,468       365,509       1,382,401       1,485,703  
Selling, general and administrative     483,304       479,715       1,800,714       1,970,868  
Research and development     43,568       49,444       182,191       205,620  
Restructuring charges and asset impairments     35,901       115,117       48,746       200,254  
Other interest expense     26,721       27,641       111,269       119,207  
Interest income     (1,796 )     (3,162 )     (4,949 )     (12,893 )
                 
Total costs and expenses     1,286,813       1,425,502       4,875,995       5,549,128  
                 
Income from continuing operations before income taxes     167,492       127,087       693,176       713,177  
                 
Provision for income taxes     47,779       29,540       240,154       244,929  
                 
Income from continuing operations     119,713       97,547       453,022       468,248  
                 
Loss from discontinued operations, net of income tax     (13,405 )     (18,974 )     (8,109 )     (27,700 )
                 
Net income before attribution of noncontrolling interests     106,308       78,573       444,913       440,548  
                 

Less: Preferred stock dividends of subsidiaries attributable to noncontrolling interests

    7,754       4,621       21,468       20,755  
                 
Pitney Bowes Inc. net income   $ 98,554     $ 73,952     $ 423,445     $ 419,793  
 
 

Amounts attributable to Pitney Bowes Inc. common stockholders:

               
Income from continuing operations   $ 111,959     $ 92,926     $ 431,554     $ 447,493  
Loss from discontinued operations     (13,405 )     (18,974 )     (8,109 )     (27,700 )
                 
Pitney Bowes Inc. net income   $ 98,554     $ 73,952     $ 423,445     $ 419,793  
                 

Basic earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders (1):

               
Continuing operations   $ 0.54     $ 0.45     $ 2.09     $ 2.15  
Discontinued operations     (0.06 )     (0.09 )     (0.04 )     (0.13 )
                 
Net income   $ 0.48     $ 0.36     $ 2.05     $ 2.01  
                 

Diluted earnings per share of common stock attributable to Pitney Bowes Inc. common stockholders (1):

               

Continuing operations

  $ 0.54     $ 0.45     $ 2.08     $ 2.13  
Discontinued operations     (0.06 )     (0.09 )     (0.04 )     (0.13 )
                 
Net income   $ 0.47     $ 0.36     $ 2.04     $ 2.00  
                 

Average common and potential common shares outstanding

    207,733,717       206,933,281       207,322,440       209,699,471  
 
(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

  12/31/09   09/30/09
Current assets:        
  Cash and cash equivalents   $ 412,737     $ 441,128  
  Short-term investments     14,682       17,660  
  Accounts receivable, less allowances:        
   

    12/09    $42,781    09/09    $46,312

    816,852       772,077  
  Finance receivables, less allowances:        
   

    12/09    $46,790    09/09    $43,333

    1,370,918       1,365,631  
  Inventories     156,502       176,626  
  Current income taxes     103,832       100,904  
  Other current assets and prepayments     98,297       98,736  
     
    Total current assets     2,973,820       2,972,762  
     
Property, plant and equipment, net     514,904       529,079  
Rental property and equipment, net     360,207       374,021  
Long-term finance receivables, less allowances:        
   

    12/09    $25,368    09/09    $25,547

    1,355,442       1,370,460  
Investment in leveraged leases     233,359       231,088  
Goodwill     2,286,904       2,294,594  
Intangible assets, net     316,417       319,040  
Non-current income taxes     122,428       118,976  
Other assets     387,182       414,215  
     
Total assets   $ 8,550,663     $ 8,624,235  
     

Liabilities, noncontrolling interests and stockholders' equity/(deficit)

       
Current liabilities:        
  Accounts payable and accrued liabilities   $ 1,748,254     $ 1,693,697  
  Current income taxes     38,919       37,822  
  Notes payable and current portion of long-term obligations     226,022       170,783  
  Advance billings     447,786       452,380  
     
    Total current liabilities     2,460,981       2,354,682  
     
Deferred taxes on income     414,275       402,593  
Tax uncertainties and other income tax liabilities     526,655       511,804  
Long-term debt     4,213,640       4,218,646  
Other non-current liabilities     625,079       783,750  
     
    Total liabilities     8,240,630       8,271,475  
     
Noncontrolling interests (Preferred stockholders' equity in subsidiaries)     296,370       374,165  
     
Stockholders' equity/(deficit):        
  Cumulative preferred stock, $50 par value, 4% convertible     4       4  
  Cumulative preference stock, no par value, $2.12 convertible     868       876  
  Common stock, $1 par value     323,338       323,338  
  Additional paid-in capital     256,133       251,273  
  Retained earnings     4,305,794       4,281,613  
  Accumulated other comprehensive loss     (457,378 )     (461,550 )
  Treasury stock, at cost     (4,415,096 )     (4,416,959 )
     
    Total Pitney Bowes Inc. stockholders' equity/(deficit)     13,663       (21,405 )
     
Total liabilities, noncontrolling interests and stockholders' equity/(deficit)   $ 8,550,663     $ 8,624,235  

 

 
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
December 31, 2009

(Unaudited)

 
(Dollars in thousands)
    Three Months Ended December 31,
            %
    2009   2008 (2)   Change
   

Revenue

           
                 
    U.S. Mailing   $ 498,882     $ 563,170     (11 %)
    International Mailing     240,505       251,507     (4 %)
    Production Mail     159,745       176,897     (10 %)
    Software     105,180       103,680     1 %
    Mailstream Solutions     1,004,312       1,095,254     (8 %)
                 
    Management Services     271,272       281,092     (3 %)
    Mail Services     145,309       141,901     2 %
    Marketing Services     33,412       34,342     (3 %)
    Mailstream Services     449,993       457,335     (2 %)
                 
    Total revenue   $ 1,454,305     $ 1,552,589     (6 %)
                 
   

EBIT (1)

           
                 
    U.S. Mailing   $ 181,876     $ 226,887     (20 %)
    International Mailing     40,883       42,147     (3 %)
    Production Mail     24,063       34,398     (30 %)
    Software     21,271       12,373     72 %
    Mailstream Solutions     268,093       315,805     (15 %)
                 
    Management Services     23,013       17,242     33 %
    Mail Services     19,401       18,964     2 %
    Marketing Services     5,615       5,733     (2 %)
    Mailstream Services     48,029       41,939     15 %
                 
    Total EBIT   $ 316,122     $ 357,744     (12 %)
                 
    Unallocated amounts:            
    Interest, net     (48,646 )     (48,986 )    
    Corporate expense     (59,633 )     (60,842 )    
    Restructuring charges and asset impairments     (35,901 )     (115,117 )    
    Other items     (4,450 )     (5,712 )    
                 
    Income from continuing operations before income taxes   $ 167,492     $ 127,087      
 
(1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.
 
(2)   Certain prior year amounts have been reclassified to conform to the current year presentation.

 

 
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
December 31, 2009

(Unaudited)

 
(Dollars in thousands)   Twelve Months Ended December 31,
            %
    2009   2008 (2)   Change
   

Revenue

           
                 
    U.S. Mailing   $ 2,016,259     $ 2,250,399     (10 %)
    International Mailing     920,398       1,133,652     (19 %)
    Production Mail     525,745       616,255     (15 %)
    Software     345,739       399,814     (14 %)
    Mailstream Solutions     3,808,141       4,400,120     (13 %)
                 
    Management Services     1,060,907       1,172,170     (9 %)
    Mail Services     559,200       541,776     3 %
    Marketing Services     140,923       148,239     (5 %)
    Mailstream Services     1,761,030       1,862,185     (5 %)
                 
    Total revenue   $ 5,569,171     $ 6,262,305     (11 %)
                 
   

EBIT (1)

           
                 
    U.S. Mailing   $ 743,108     $ 890,356     (17 %)
    International Mailing     128,084       184,667     (31 %)
    Production Mail     51,037       81,514     (37 %)
    Software     37,335       28,335     32 %
    Mailstream Solutions     959,564       1,184,872     (19 %)
                 
    Management Services     72,307       70,173     3 %
    Mail Services     82,723       68,800     20 %
    Marketing Services     22,938       21,291     8 %
    Mailstream Services     177,968       160,264     11 %
                 
    Total EBIT   $ 1,137,532     $ 1,345,136     (15 %)
                 
    Unallocated amounts:            
    Interest, net     (203,906 )     (216,450 )    
    Corporate expense     (187,254 )     (209,543 )    
    Restructuring charges and asset impairments     (48,746 )     (200,254 )    
    Other items     (4,450 )     (5,712 )    
                 
    Income from continuing operations before income taxes   $ 693,176     $ 713,177      
 
(1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.
 
(2)   Certain prior year amounts have been reclassified to conform to the current year presentation.

 

Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
 
(Dollars in thousands, except per share data)
 
    Three Months Ended December 31,   Twelve Months Ended December 31,
    2009   2008   2009   2008
 

GAAP income from continuing operations after income taxes, as reported

  $ 111,959     $ 92,926     $ 431,554     $ 447,493  
Restructuring charges and asset impairments     23,482       82,347       31,782       144,210  
Tax adjustments     (2,141 )     (15,272 )     10,063       (8,792 )
MapInfo purchase accounting     -       -       -       322  

Income from continuing operations after income taxes, as adjusted

  $ 133,300     $ 160,001     $ 473,399     $ 583,233  
                 

GAAP diluted earnings per share from continuing operations, as reported

  $ 0.54     $ 0.45     $ 2.08     $ 2.13  
Restructuring charges and asset impairments     0.11       0.40       0.15       0.69  
Tax adjustments     (0.01 )     (0.07 )     0.05       (0.04 )
MapInfo purchase accounting     -       -       -       0.00  

Diluted earnings per share from continuing operations, as adjusted

  $ 0.64     $ 0.77     $ 2.28     $ 2.78  

 

               

GAAP net cash provided by operating activities, as reported

  $ 93,627     $ 253,356     $ 826,051     $ 1,009,415  
Capital expenditures     (40,219 )     (67,330 )     (166,728 )     (237,308 )
Restructuring payments and discontinued operations     36,755       36,822       103,512       103,273  
Pension contribution     125,000       -       125,000       -  
Reserve account deposits     7,900       16,742       1,664       33,359  
                 
Free cash flow, as adjusted   $ 223,063     $ 239,590     $ 889,499     $ 908,739  
 
Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.