Pitney Bowes (PBI)

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.

Business Segment Results

To provide further insight on the trends of the business, the company is also furnishing revenue and EBIT results on a sequential basis, which is a comparison to first quarter results.

Mailstream Solutions revenue declined 10 percent on a constant currency basis to $936 million. On a reported basis, revenue declined 15 percent and earnings before interest and taxes (EBIT) declined 19 percent to $238 million when compared with the prior year. When compared with the first quarter 2009, reported revenue increased by one percent and EBIT increased by 3 percent.

Within Mailstream Solutions:

U.S. Mailing revenue declined 8 percent to $505 million and EBIT declined 12 percent to $195 million when compared with the prior year. Revenue declined by one percent and EBIT increased by one percent when compared with the first quarter.

Similar to the first quarter, the segment benefited from the anticipated higher number of customers with leases becoming available for renewal and upgrade. Although equipment sales declined 7 percent compared with the prior year, there was an improvement in equipment sales on a sequential basis. The company continued its focus on customer retention by providing customers with a variety of options to upgrade or retain their existing equipment. Many customers elected to extend the lease on their existing equipment. These transactions benefit future period’s profitability but have a less positive impact on revenue and profits during the quarter than lease upgrades for new equipment. The quarter’s revenue and EBIT reflect lower levels of business activity and the related lower financing revenue, meter rentals, and supplies sales versus the prior year.

International Mailing revenue declined 14 percent on a constant currency basis to $218 million. On a reported basis, revenue declined 28 percent with 14 points of decline due to an adverse currency impact when compared with the prior year. EBIT declined 47 percent to $27 million. Adjusting for the legal settlement received during the second quarter last year, EBIT would have declined 38 percent. Reported revenue declined by 8 percent and EBIT declined 13 percent when compared with the first quarter.

Economic conditions internationally appear to be lagging the U.S. This has resulted in ongoing deferred capital purchases for mailing equipment and delays by customers in adding new services. This was particularly noticeable in Canada, Asia and certain key markets in Europe. In addition to a lower level of revenue during the quarter, EBIT was adversely affected by changes in currency rates that increased some product costs.

Worldwide Production Mail revenue declined 7 percent on a constant currency basis to $130 million. On a reported basis, revenue declined 13 percent with 6 points of the decline due to an adverse currency impact compared with the prior year. EBIT declined 32 percent to $10 million. Reported revenue increased 19 percent and EBIT doubled when compared with the first quarter.

Customers worldwide continued to defer making large capital investments and as a result are keeping existing equipment longer than usual. This trend again resulted in increased service revenue. There was also sequential improvement in the placement of new high-speed inserting equipment.

Software revenue declined 12 percent on a constant currency basis to $83 million. On a reported basis, revenue declined 19 percent and EBIT declined 17 percent to $5 million, when compared with the prior year. Reported revenue increased 10 percent and EBIT doubled when compared with the first quarter.

Worldwide consolidation in the financial services industry and slowness in the retail sector continued to adversely impact the sales and renewal of software licenses. Uncertainty surrounding the economy has resulted in many large multi-national organizations changing their approval policies for capital expenditures, which has lengthened the sales cycle. Ongoing business integration drove EBIT margin improvements versus the prior year and prior quarter. This helped offset the pressure on margin due to lower revenue and a mix of lower margin software sales.

Mailstream Services revenue declined 6 percent on a constant currency basis to $442 million. On a reported basis, revenue declined 8 percent and EBIT increased 9 percent to $41 million when compared with the prior year. Reported revenue declined one percent while EBIT increased 20 percent when compared with the first quarter.

Within Mailstream Services:

Management Services revenue declined 8 percent on a constant currency basis to $264 million. On a reported basis, revenue declined 12 percent and EBIT declined 11 percent to $16 million, when compared with the prior year. Reported revenue declined by one percent and EBIT increased 18 percent when compared with the first quarter.

In the U.S., EBIT as a percentage of revenue remained at 10 percent, comparable to the prior quarter, despite lower business activity and a decline in transaction volumes. The company continues to flex its costs with changing customer demand by taking actions to reduce the fixed cost structure of the business. Outside the U.S., the company’s significant exposure to the weak financial services industry in the UK, and overall reduced print volumes throughout most of Europe, again pressured the segment’s EBIT as a percentage of revenue.

Mail Services revenue increased 4 percent on a constant currency basis to $139 million. On a reported basis, revenue increased 3 percent and EBIT increased 36 percent to $22 million, when compared with the prior year. Reported revenue declined 2 percent and EBIT increased 17 percent when compared with the first quarter.

Expansion of the customer base and continued growth in mail volume processed drove an increase in revenue for the quarter. The company is achieving improved EBIT margin contributions from the integration of mail services sites acquired last year and the ongoing productivity initiatives taken by the business.

Marketing Services revenue declined 17 percent to $40 million and EBIT declined 11 percent to $3 million, when compared with the prior year. Revenue declined 3 percent while EBIT increased 56 percent when compared with the first quarter.

Revenue was negatively affected by reduced business in the areas of marketing campaign management and loyalty programs. Ongoing cost reduction initiatives resulted in EBIT margin improvement.

Business Segment Results

Mailstream Solutions revenue declined 8 percent on a constant currency basis. On a reported basis, revenue declined 15 percent to $931 million and earnings before interest and taxes (EBIT) declined 20 percent to $231 million when compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing revenue declined 8 percent to $509 million and EBIT declined 14 percent to $193 million. The segment continued to benefit from the anticipated higher number of customers with leases becoming available for renewal and upgrade. U.S. Mailing had a 9 percent increase in the number of mail metering equipment sales transactions, versus the prior year. In this challenging economic environment, the company focused on customer retention by providing customers with more options to extend their lease and keep their existing equipment. As a result, the company experienced a three-fold increase in the number of lease extensions of existing equipment. These transactions benefit future periods’ profitability but have a less positive impact on revenue during the quarter than new equipment placements. As in recent quarters, our business was impacted as customers also continued to defer capital investments in high-value table-top inserters and address printers. In addition, revenue growth and EBIT were adversely affected by lower financing revenue, meter rentals, and supplies sales because of lower business activity levels.

International Mailing revenue declined only 5 percent on a constant currency basis. On a reported basis, revenue was $237 million, a decline of 23 percent, which includes an adverse currency impact of 18 percentage points. Norway and Latin America experienced positive revenue growth on a constant currency basis, while there was weaker revenue performance in France, Canada and Asia Pacific. EBIT declined 38 percent to $31 million. Changes in currency rates increased product costs which unfavorably impacted EBIT for the quarter. On a constant currency basis, EBIT margins improved in Europe, despite lower revenue, driven by the company’s actions to reduce service and administrative costs.

Worldwide Production Mail revenue declined 12 percent on a constant currency basis. On a reported basis revenue declined 19 percent to $109 million and EBIT declined 41 percent to $5 million. As anticipated, customers in many regions continued to defer making large capital investments and are keeping existing equipment longer than usual. This resulted in increased service revenue on a constant currency basis, which partially mitigated lower equipment sales revenue. Service margins improved because of greater resource efficiency and higher revenue on longer-service equipment. The company continued to see solid demand in Canada and Latin America for its high-speed, intelligent inserting systems. However, in the U.S., Europe and Asia credit constraints and prolonged economic challenges in key vertical markets resulted in lower equipment sales.

Software revenue declined 13 percent on a constant currency basis. On a reported basis revenue declined 24 percent to $75 million and EBIT declined 60 percent to $3 million. Consistent with other large-ticket business segments and the trends from last quarter, there were fewer enterprise-level software licensing deals than the prior year as customers continued to defer capital investments. The company continued investments in new product development and integration of its global software engineering organization.

Mailstream Services revenue declined 3 percent on a constant currency basis, as Mail Services continued growth was offset by reduced activity in outsourced services in Management Services. On a reported basis, revenue declined 6 percent to $449 million and EBIT declined 12 percent to $34 million when compared with the prior year.

Within Mailstream Services:

Management Services revenue declined 7 percent on a constant currency basis. On a reported basis revenue declined by 12 percent to $267 million and EBIT declined 27 percent to $14 million. In the U.S., despite declining transaction volumes, the company improved EBIT as a percentage of revenue by about 80 basis points to 10 percent when compared with the prior year. This result reflects the ongoing actions to reduce the fixed cost structure of the business, while allowing the company to flex its costs with changing customer demand. For Management Services businesses outside the U.S., the company experienced lower print and transaction volumes, especially in Europe, which resulted in an overall decline in the segment’s EBIT.

Mail Services revenue increased 14 percent on a constant currency basis. With the recent expansion into the UK, currency now has an impact on revenue and reduced growth during the quarter by about one percentage point. On a reported basis, revenue increased 13 percent to $141 million and EBIT increased one percent to $19 million. Solid growth in the volume of mail processed contributed to underlying revenue growth. While the benefits from operating leverage have been temporarily offset by the integration costs associated with acquisitions made in the U.S. and UK in 2008, the quarter’s results reflect improvement in EBIT margin from these sites.

Marketing Services revenue declined 17 percent to $41 million while EBIT increased 15 percent to $2 million. Revenue benefited from the strong performance of the postal change of address marketing program, but was negatively affected by the loss of revenue from the planned exit of the company’s motor vehicle registration services program. Cost reduction initiatives and the exit from the motor vehicle registration services program resulted in EBIT margin improvement.

Business Segment Results

Mailstream Solutions earnings before interest and taxes (EBIT) declined 3 percent to $317 million while revenue decreased 9 percent to $1.1 billion, when compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing EBIT as a percentage of revenue improved to 41.2 percent from 40.4 percent, because of the ongoing actions the company has taken to reduce costs and streamline operations. EBIT declined one percent to $228 million as a result of the decline in revenue of 3 percent to $554 million. U.S. Mailing had a 6 percent increase in equipment sales revenue, versus the prior year, as it started to benefit from the anticipated higher number of customers with leases becoming available for renewal and upgrade. This growth was offset by lower financing revenue, meter rentals, and supplies sales resulting from lower equipment sales over the last year as well as the slowing economy.

International Mailing EBIT as a percentage of revenue improved to 16.8 percent from 15.0 percent, because of actions taken over the past two years to reduce costs through the outsourcing of manufacturing and the consolidation of back office operations. EBIT declined only 8 percent to $42 million on a currency-driven revenue decline of 18 percent to $252 million. Unfavorable currency translation caused 15 percentage points of the revenue decline for the quarter. Acquisitions added about one percent to revenue growth. On a local currency basis, there was positive revenue growth in Latin America, France, and Germany. Worsening economic conditions resulted in a decline in revenue in the UK, Canada and Asia Pacific.

Worldwide Production Mail EBIT as a percentage of revenue improved to 19.4 percent from 16.3 percent, because of ongoing actions to reduce administrative costs and improve gross margins. These actions were part of the company’s aggressive restructuring initiatives implemented in anticipation of a slowing capital investment environment. EBIT increased 8 percent to $34 million while revenue declined 10 percent to $177 million, of which 6 percentage points pertained to unfavorable currency translation. The company continued to see strong demand in the UK, France and Canada for its high-speed, intelligent inserting systems. Sales in the U.S., other parts of Europe and Latin America slowed as large enterprises curtailed their big-ticket capital expenditures due to ongoing credit constraints and global economic uncertainty.

Software EBIT as a percentage of revenue declined to 11.9 percent from 17.2 percent, primarily because of lower revenue, product mix and the planned investments in the expansion of the distribution channel and globalization of the company’s research and development infrastructure. EBIT declined 38 percent to $12 million and revenue declined 11 percent to $104 million. Unfavorable currency translation caused 9 percentage points of the revenue decline and acquisitions added about 5 percentage points to revenue growth for the quarter. Consistent with the behavior noted in other businesses, there were fewer large-ticket licensing deals than the prior year as customers assessed the overall business environment.

Mailstream Services reported a decline in EBIT of 5 percent to $40 million and a decline in revenue of 2 percent to $466 million, when compared with the prior year.

Within Mailstream Services:

Management Services EBIT as a percentage of revenue declined to 6.1 percent from 7.2 percent, primarily because of the decline in revenue during the quarter. In the U.S., despite declining transaction volumes, EBIT as a percentage of revenue improved by 70 basis points to more than 12 percent. This was a result of reducing the fixed cost structure of the business. For Management Services businesses outside the U.S., lower print and transaction volumes, particularly in the UK and Germany, resulted in a decline in EBIT. In aggregate EBIT for the segment declined 22 percent to $17 million and revenue declined 9 percent to $281 million. Unfavorable currency translation caused about 4 percentage points of the revenue decline for the quarter.

Mail Services EBIT increased 6 percent to $19 million and revenue increased 19 percent to $142 million. Unfavorable currency translation reduced revenue growth by about 1 percentage point, while acquisitions added about 14 percentage points to growth for the quarter. Solid growth in the volume of mail processed contributed to underlying revenue growth. EBIT as a percentage of revenue declined to 13.4 percent from 15.0 percent. As has been the case in past expansion periods, the benefits from operating leverage were temporarily offset by the integration costs associated with acquisitions in the U.S. and UK earlier in 2008. Excluding these sites, EBIT margin would have improved 80 basis points to 15.8 percent. The company expects positive EBIT margin contributions from the acquired sites in 2009 as they become fully integrated.

Marketing Services EBIT as a percentage of revenue improved to 9.9 percent from 5.2 percent, because of the strong performance of the postal change of address marketing program. EBIT as a percentage of revenue also benefited from cost reduction initiatives and the exit from the company’s motor vehicle registration services program. EBIT increased 73 percent to $4 million while revenue declined 8 percent to $43 million.

Business segment results

The following table shows revenue and earnings before interest and taxes (“EBIT”) by segment for the three months ended September 30, 2008 and 2007. Prior year results have been reclassified to conform to the current year presentation. Refer to Note 7 to the Condensed Consolidated Financial Statements for further detail on these changes.

(1) See reconciliation of segment amounts to Income from continuing operations before income taxes and preferred dividends in Note 7 to the Condensed Consolidated Financial Statements.

During the third quarter of 2008, Mailstream Solutions revenue was flat and EBIT increased 3% compared with the prior year. U.S. Mailing’s revenue decreased 5% due to lower mailing equipment placements and rental revenues in core mailing of 2%, lower financing revenues due to lower lease portfolio levels of 2% and lower supplies revenue of 1%. The lower revenues were driven by the wind-down of meter migration and by customer buying decisions influenced by uncertainty created by weak economic conditions. U.S. Mailing’s EBIT decreased 1% principally due to the lower revenue growth, but was partly offset by positive impacts of our transition initiatives. International Mailing’s revenue grew by 7% and benefited 4% from favorable foreign currency translation and 2% from acquisitions. Revenue growth was also impacted by increased rentals in France; increased equipment sales in Norway and other parts of Europe; and continued growth in supplies. International Mailing’s EBIT margins were favorably impacted by an improving cost structure in Europe. Revenue for Production Mail grew by 2% driven by positive foreign currency translation. Revenue growth from higher equipment placements in the U.K., Germany, and other parts of Europe were offset by lower equipment sales in the U.S. where economic uncertainty has slowed large-ticket investment for many companies, especially in the financial services sector. Production Mail’s EBIT, however, increased 37% due to a consistent focus on improving the cost structure. Software revenue increased 7%. Revenue was flat, when compared with the prior year, after excluding the effect of acquisitions. Software sales increased outside of the U.S., but declined within the U.S. as a result of the economic uncertainty, which has resulted in certain large customers delaying their purchasing decisions. Software’s EBIT decreased 39% due to the lower revenue growth, planned global investment in sales and marketing, and increase in research and development.

During the third quarter of 2008, Mailstream Services revenue grew 9% and EBIT decreased 1% compared with the prior year. The Management Services revenue growth of 4% was driven by acquisitions of 6%, partially offset by a decline in revenue of 3% due to lower transaction volumes for some customers, especially in the U.S. financial services sector. Management Services EBIT decreased 6% due to acquisition costs in France and fewer, high margin volume-related transactions. These decreases were partially offset by cost reductions in the U.S. through several productivity initiatives. Mail Services revenue grew 25%. Continued growth in presort and international mail services contributed 11% and acquisitions contributed 14% to this revenue growth. The Mail Services EBIT benefits from operating leverage were more than offset in the quarter by the costs associated with the acquisition of a multi-site presort operation in the U.S. and two U.K. international mail services sites. Marketing Services revenue grew 4% and EBIT increased by 15%. The segment’s results benefited from higher volumes in our mover-source program. The company’s phased exit from the motor vehicle registration services program adversely affected the segment’s revenue growth by $1.1 million, while positively impacting EBIT margins versus prior year by $2.0 million.

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Business Segment Results

Mailstream Solutions revenue was $1.1 billion which was equal to last year, while earnings before interest and taxes (EBIT) grew 3 percent to $291 million when compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing’s revenue declined 5 percent to $549 million and EBIT declined one percent to $223 million. Because of actions the company has taken to reduce costs, the EBIT margin for U.S. Mailing improved to 40.6 percent. The decline in revenue was due primarily to lower mailing equipment and supplies sales as many government and major account customers deferred upgrade decisions for new equipment or extended leases on existing equipment.

International Mailing’s revenue grew 7 percent to $272 million and EBIT increased 23 percent to $41 million. Revenue growth benefited from increased rentals in France; increased equipment sales in Norway, other parts of Europe, and Asia; and continued good growth in supplies. Revenue growth also benefited by about 4 percent from favorable currency translation and by about 2 percent from acquisitions. EBIT margin comparisons with the prior year were favorably affected by an improving administrative cost structure in Europe.

Worldwide revenue for Production Mail grew 2 percent to $155 million and EBIT increased 37 percent to $23 million. Favorable currency translation contributed about 2 percent to revenue growth. Revenue growth from higher equipment placements in the UK, Germany and other parts of Europe was offset by lower equipment sales in the U.S., where economic uncertainty has slowed large-ticket capital investment for many large financial services companies. The EBIT margin improved due to aggressive cost actions in anticipation of delayed buying decisions.

Software revenue increased 7 percent to $94 million while EBIT decreased 39 percent to $3 million. Revenue was flat, when compared with the prior year, after excluding the effect of acquisitions, which contributed about 7 percent to revenue growth. Software sales were adversely affected by the ongoing weak economic conditions worldwide causing some large enterprise accounts to continue to postpone their purchase decisions. The decline in EBIT margin was due to the planned global investment in sales and marketing, increased investment in research and development, as well as lower revenue growth.

Mailstream Services reported revenue growth of 9 percent to $478 million, while EBIT declined one percent to $38 million when compared with the prior year.

Within Mailstream Services:

Management Services’ revenue increased 4 percent to $288 million while EBIT decreased 6 percent to $16 million. The segment’s revenue growth for the quarter benefited from last year’s acquisition of a French business services company, which added about 6 percent to revenue growth, and favorable currency translation, which added about one percent to revenue growth. Revenue growth was adversely affected by lower transaction volumes for some customers, especially in the U.S. financial services sector. EBIT margin in the segment benefited from improvements in the U.S., where the margin increased to our near-term target of 10 percent because of the company’s focus on productivity initiatives. However, the margin benefits from the U.S. actions were more than offset by the costs associated with the acquisition in France.

Mail Services revenue grew 25 percent to $140 million, while EBIT decreased one percent to $15 million. Revenue growth was driven by both presort and international mail services. Acquisitions added about 14 percent to revenue growth. As has been the case in past expansion periods, the EBIT benefits from operating leverage were more than offset in the quarter by the costs associated with the acquisition of a multi-site presort operation in the U.S. and two UK international mail services sites. The company expects positive EBIT margin contributions from these sites in 2009 as they become fully integrated.

Marketing Services revenue increased 4 percent to $50 million and EBIT increased 15 percent to $6 million. The company’s phased exit from the motor vehicle registration services program adversely affected the segment’s revenue growth, while positively impacting EBIT margin versus the prior year.

Business Segment Results

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; mailing and multi-vendor support services; payment solutions; and mailing, customer communication, and location intelligence software.

In the second quarter, Mailstream Solutions revenue declined 1 percent to $1.1 billion compared with the prior year, and earnings before interest and taxes (EBIT) declined 10 percent to $294 million.

Within Mailstream Solutions:

As anticipated, U.S. Mailing’s weaker revenue and unfavorable EBIT comparisons for the quarter reflected higher equipment sales in the prior year due to the 2007 postal rate case. This quarter’s results were also impacted by weak economic conditions and the slowing of the U.S. Postal Service’s mandated meter technology transition, which ends in December. The segment’s revenue declined 14 percent to $551 million due primarily to the decline in higher margin equipment sales related to shape-based pricing, resulting in a 16 percent EBIT decline to $221 million.

International Mailing’s revenue grew 20 percent to $302 million and EBIT increased 41 percent to $51 million. The segment’s revenue grew 6 percent, excluding the effects of currency and acquisitions. Revenue growth benefited by about 12 percent from favorable currency translation and by about 1 percent from acquisitions. Revenue growth also benefited from increased equipment sales in the UK and France, and continued good growth in supplies. EBIT margin comparisons with the prior year were favorably affected by an improving cost structure in Europe and a legal settlement during the quarter which increased margins by about 250 basis points.

Worldwide revenue for Production Mail grew 3 percent to $149 million while EBIT decreased 18 percent to $15 million. Favorable currency translation contributed about 5 percent to revenue growth. The revenue benefits from higher equipment placements in the UK and France were offset by lower equipment sales in the U.S. and parts of Europe. The EBIT margin declined primarily due to favorable net legal recoveries in Europe last year, which improved margins by about 200 basis points and a change in the geographic mix of business this year.

Software revenue increased 23 percent to $102 million, while EBIT decreased 27 percent to $6 million. Software sales grew at a double-digit pace outside of the U.S., but declined within the U.S. as a result of weak economic conditions, causing some large enterprise accounts to defer their purchase decisions. Revenue grew 3 percent, excluding the effects of currency and acquisitions. Acquisitions, including MapInfo, contributed 16 percent to revenue growth and favorable currency translation contributed about 4 percent. The decline in EBIT margin was due to the timing of the acquisition of MapInfo in mid-April 2007, product mix, and the planned global investment in sales, marketing and research and development.

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 mail services; and marketing services.

For the quarter, Mailstream Services reported revenue growth of 14 percent to $484 million, and an EBIT increase of 37 percent to $38 million versus the prior year.

Within Mailstream Services:

Management Services’ revenue increased 9 percent to $300 million for the quarter while EBIT increased 14 percent to $18 million. The segment’s revenue growth for the quarter benefited from last year’s acquisition of a French business services company, which added about 9 percent to revenue growth, and favorable currency translation, which added about 3 percent to revenue growth. The segment’s revenue was further affected by lower transaction volumes for some U.S. financial services customers. EBIT margin in the segment benefited from improvements in the U.S., where the company focused on reducing costs, particularly through several productivity initiatives. The margin benefits from the U.S. actions were partially offset by the costs associated with the acquisition in France.

During its recently concluded strategic review of the U.S. Management Services operations, the company identified several opportunities to drive future growth and enhance profitability by deploying new solutions, bringing greater technology to traditional mail and print management services, and driving further integration of end-to-end solutions that incorporate more of the full suite of Pitney Bowes capabilities.

Mail Services revenue grew 23 percent to $135 million and EBIT grew 46 percent to $16 million. Revenue growth was driven by both presort and international mail services. EBIT benefited from operating leverage from the increase in mail volume processed and increased operating efficiencies. Acquisitions added about 8 percent to revenue growth.

Marketing Services revenue increased 21 percent to $48 million. The segment’s results benefited from the continued expansion of marketing services programs, and acquisitions which added about 11 percent to revenue growth. The segment’s EBIT margin improved by approximately 4 percentage points versus the prior year as a result of the company’s phased exit from the motor vehicle registration services program.

Business Segment Results

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; mailing and multi-vendor support services; payment solutions; and mailing, customer communication, and location intelligence software.

In the first quarter, Mailstream Solutions revenue increased 9 percent to $1.1 billion while earnings before interest and taxes (EBIT) declined 4 percent to $289 million, when compared with the prior year.

Within Mailstream Solutions:

As anticipated, U.S. Mailing’s revenue and EBIT for the quarter were adversely affected by lower equipment sales due to the postal rate case in the first half of last year, the wind-down of meter migration, and current weak economic conditions. As a result, the segment’s revenue declined 5 percent to $553 million and EBIT declined 8 percent to $224 million. The EBIT margin was hurt by lower revenue growth and the mix of business when compared with 2007, which included the sale of higher margin mailing equipment upgrade kits that enabled mailers to comply with the change in postage rates.

International Mailing’s revenue grew 20 percent to $308 million and EBIT increased 8 percent to $50 million. The segment’s revenue grew 6 percent when compared with the prior year, excluding the effects of currency and acquisitions. Revenue benefited by about 13 percent from favorable currency translation and by about 1 percent from acquisitions. EBIT margin comparisons with the prior year were adversely affected by the mix of business. However, the EBIT margin improved by 120 basis points when compared with the fourth quarter 2007 due to improved margin in France resulting from a postal rate change.

Worldwide revenue for Production Mail grew 5 percent to $135 million and EBIT increased 25 percent to $9 million. Favorable currency translation contributed about 5 percent to revenue growth. Revenue benefited from higher equipment placements in the U.K., Asia, and Canada; however, there were lower equipment sales in the U.S. and parts of Europe. The EBIT margin improved due to a higher gross margin and lower administrative costs.

Software revenue increased 159 percent to $100 million and EBIT increased 114 percent to $7 million. Results for the quarter were driven by broad-based demand for location intelligence and customer communication software solutions both within and outside of the U.S. Revenue grew 46 percent when compared with the prior year, excluding currency and acquisitions. Acquisitions, including MapInfo, contributed 105 percent to revenue growth and favorable currency translation contributed about 8 percent. The 1 percent decline in EBIT margin was due primarily to acquisition costs associated with MapInfo.

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 cross-border mail services; and marketing services.

For the quarter, Mailstream Services reported revenue growth of 17 percent to $478 million, and EBIT increased 17 percent to $39 million versus the prior year.

Within Mailstream Services:

Management Services’ revenue increased 11 percent to $303 million for the quarter while EBIT decreased 10 percent to $19 million. The segment’s revenue growth for the quarter benefited from last year’s acquisition of a French-based business services company, which added about 9 percent to growth, and favorable currency translation, which added about 3 percent to growth. The segment’s revenue and EBIT were adversely affected by continued weakness in U.S. legal solutions and slower business in government solutions. Acquisition costs also negatively impacted EBIT.

The company is nearing conclusion of its evaluation of the strategic options for its U.S. Management Services operations and expects to make a statement by the end of the second quarter.

Mail Services revenue grew 25 percent to $125 million and EBIT grew 56 percent to $18 million. Revenue growth was driven by both presort and cross-border mail services, while EBIT benefited from operating leverage from the increase in mail volume processed and increased operating efficiencies. Acquisitions added about 3 percent to revenue growth.

Marketing Services revenue increased 42 percent to $50 million as the segment’s results benefited from the continued expansion of marketing services programs and acquisitions during the year, which added about 11 percent to revenue growth. EBIT margin more than doubled to 4 percent of revenue versus the prior year.

Business Segment Results

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; mailing and multi-vendor support services; payment solutions; and mailing and customer communication software.

In the fourth quarter, Mailstream Solutions revenue increased 4 percent to $1.2 billion and earnings before interest and taxes (EBIT) declined 4 percent to $329 million, when compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing revenue declined 9 percent to $566 million and EBIT declined 7 percent to $228 million. As expected, the segment’s revenue and EBIT for the quarter were adversely affected by lower equipment sales due to the wind-down of meter migration, a shift in the timing of revenue due to the postal rate case in the first half of the year, and weak economic conditions.

International Mailing revenue grew 12 percent to $305 million and EBIT decreased 4 percent to $46 million. International Mailing revenue growth benefited by about 12 percent from favorable currency translation but was adversely affected by lower equipment sales in Europe and Canada. As discussed in October, EBIT margin comparisons with the prior year were adversely affected by incremental expenses related to the outsourcing of the company’s order and financial processing. However, the EBIT margin improved by 180 basis points when compared with the third quarter due to improved performance in the UK.

Worldwide revenue for Production Mail grew 6 percent to $190 million while EBIT declined 8 percent to $31 million. Revenue growth was driven by higher equipment placements in the U.S. and Asia; however, lower equipment sales in Europe and Canada offset this growth. Favorable currency translation contributed about 6 percent to growth. The EBIT margin declined due to the favorable effects of meter migration in the prior year.

Software revenue increased 95 percent to $122 million and EBIT increased 52 percent to $25 million. Results for the quarter were driven by demand for location intelligence and customer communication software and software solutions outside of the U.S. The acquisition of MapInfo contributed 62 percent to revenue growth and favorable currency translation contributed 6 percent. EBIT benefited from operating leverage resulting from the increase in revenue.

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 cross-border mail services; and marketing services.

For the quarter, Mailstream Services reported revenue growth of 17 percent to $480 million, and EBIT increased 5 percent to $45 million, versus the prior year.

Within Mailstream Services:

Management Services revenue increased 12 percent to $309 million for the quarter and EBIT increased 1 percent to $22 million. The segment’s revenue growth for the quarter benefited from the acquisition of a French-based business services company, which added about 9 percent to growth, and favorable currency translation, which added about 3 percent to growth. The segment’s revenue and EBIT were adversely affected by continued weakness in legal solutions and slower business in government solutions.

Mail Services revenue grew 32 percent to $124 million and EBIT grew 60 percent to $21 million. Revenue growth was driven by both presort and cross-border mail services, while EBIT benefited from operating leverage from the increase in mail volume and increased operating efficiencies.

Marketing Services revenue increased 11 percent to $47 million as the segment’s results benefited from acquisitions during the year, which added about 11 percent to revenue growth, and the continued expansion of marketing services programs. However, EBIT declined 70 percent to $2 million when compared with the prior year due to lower revenue and profit in the company’s motor vehicle registration services program.

Business segment results

The following table shows revenue and earnings before interest and taxes (EBIT) by segment for the three months ended March 31, 2007 and 2006. Prior year results have been adjusted to reflect the changes made to our reporting segments in the second quarter of 2006.

(1) See reconciliation of segment amounts to Income from Continuing Operations before Income Taxes and Minority Interest in Note 7 to the Condensed Consolidated Financial Statements.

During the first quarter of 2007, Mailstream Solutions revenue increased 3% and EBIT increased 5% compared with the prior year. U.S. Mailing’s revenue was flat with the prior year as growth in supplies and payment solutions was offset by lower equipment sales. The decrease in equipment sales was primarily due to historically low backlog at the beginning of the quarter; postal rate case revenue that was included in the prior year and delays in orders from customers due to uncertainties about the content and timing of the new rate case. Revenue continues to be adversely affected by the ongoing changing mix to more fully featured smaller systems. U.S. Mailing’s EBIT increased 5% due to an increase in mix of higher margin revenue from payment solutions and supplies, and benefits from productivity initiatives. International Mailing revenue grew by 8% driven by foreign currency of 7%, growth in supplies and placements of mailing equipment with small businesses. Last year’s upgrade cycle for mailing equipment in the U.K. affected the segment’s rate of growth. In addition, incremental investments to expand marketing channels in Europe affected International Mailing’s EBIT margin. Revenue for Production Mail grew by 7% driven by broad based equipment placements in the U.S., but was partially offset by lower sales in Europe. Acquisitions accounted for 4% of this growth while foreign currency contributed 2%. Production Mail EBIT grew 117% driven by a mix of higher margin product and continued focus on productivity initiatives. Software’s revenue grew by 3% driven by the acquisition of Emtex in the first quarter of 2006. Revenue growth for the quarter was affected by delays in signing several large contracts. Also, the segment’s EBIT margin was impacted by continued investments in expanding sales and marketing channels.

During the first quarter of 2007, Mailstream Services revenue grew 6% and EBIT grew 3% compared with the prior year. Our Management Services segment reported a revenue increase of 2% driven by acquisitions and foreign currency. Revenue growth was negatively affected by two large non-recurring print contracts that were included in the first quarter of 2006. Management Services EBIT grew by 1% driven by revenue growth. Mail Services revenue grew 11% due to continued growth in presort and international mail services. Mail Services EBIT grew by 20% to $14.1 million as a result of the ongoing successful integration of acquired sites and increased operating efficiencies. Marketing Services revenue grew 32% driven by acquisitions which contributed 24% and expansion of our marketing services programs. However, the segment’s results were negatively affected by lower revenue from motor vehicle registration services.

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