2006 Pitney Bowes Investor Update
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Charles F. McBride
Vice President, Investor Relations
2006 Investor Update Agenda
Time
Minutes
Topic
Speaker
The statements contained in this presentation that are not purely historical are
forward-looking statements about our expected future business and financial
performance Words such as “expect,” “anticipate,” “intend,” “estimate,”
“project,” “plan,” and other similar words may identify forward looking
statements. Such forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those projected. For
us, these risks and uncertainties include, but are not limited to: timely
development and acceptance of new products or gaining product approval;
successful entry into new markets; changes in interest rates; and changes in
postal regulations, as more fully outlined in the company’s 2005 Form 10-K
annual report filed with the Securities and Exchange Commission. The
forward-looking statements contained in this presentation are made as of the
date hereof and we do not assume any obligation to update the reasons why
actual results could differ materially from those projected in the forward-
looking statements.
Pitney Bowes
The Company’s financial results are reported in accordance with generally
accepted accounting principles (GAAP). Management finds it useful at times to
provide adjustments to its GAAP numbers. The Earnings Per Share and Free Cash
Flow results are adjusted to exclude the impact of special items such as
restructuring charges, legal settlements and write downs of assets, which
materially impact the comparability of the Company’s results of operations. The
following are the non-GAAP measures used in this presentation: Adjusted
Earnings Per Share; Free Cash Flow; Earnings Before Interest and Taxes (EBIT)
and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
Guidance for 2006 excludes the effects of future changes in accounting standards
and is provided with and without the impact of expected special items.
This adjusted financial information should not be construed as an alternative to
our reported results determined in accordance with GAAP. Further, our definition
of this adjusted financial information may differ from similarly titled measures
used by other companies.
Reconciliation of GAAP measures to non-GAAP measures may be found at the
company’s web-site www.pb.com/investorrelations and in the schedule following
the end of these presentations.
Pitney Bowes
Michael J. Critelli
Chairman and Chief Executive Officer
Strategic Intent
Grow and maximize profitability of core business
Invest in low-risk adjacent spaces
Grow revenue twice as fast as growth in SG&A
Organic Revenue Growth 4% to 6%
Earnings Per Share Growth 8% to 10%
Marketing Services
$145 to $155
Management Services
$1,085 to $1,095
Mail Services
$370 to $380
International Mailing
$1,010 to 1,020
Production Mail
$570 to $580
US Mailing
$2,340 to 2,360
Software
$200 to
$210
Create
Produce
Distribute
Manage
2006 Forecasted Revenue
U.S. Mailing
Revenue = 41%
EBIT = 68%
Postal reform
Channel management
Multi-vendor services
Financial services
Supplies
Growth Drivers
Expected Organic Revenue Growth
2% - 3%
International Mailing
Revenue = 18%
EBIT = 14%
Postal liberalization
New products
Financial services
Small business
Supplies
Growth Drivers
Expected Organic Revenue Growth
5% - 9%
Production Mail
Revenue = 10%
EBIT = 5%
High-speed equipment
Customized products
Direct mail solutions
Equipment for private postal
companies
Vertical market focus
Growth Drivers
Expected Organic Revenue Growth
3% - 8%
Software
Revenue = 3%
EBIT = 2%
Data integration
Address management
Document composition
Business geographics
Print management
Growth Drivers
Expected Organic Revenue Growth
8% - 15%
Management Services
Revenue = 19%
EBIT = 6%
Sales capabilities
Off-site print utilization
Vertical markets
Higher value products
Cross-selling
Growth Drivers
Expected Organic Revenue Growth
3% - 7%
Mail Services
Revenue = 7%
EBIT = 3%
Standard mail sorting
Greater presort discounts
Postage discount program
International mail services
Retail solutions
Growth Drivers
Expected Organic Revenue Growth
9% - 13%
Marketing Services
Revenue = 2%
EBIT = 2%
Life event products
Vehicle registration programs
Campaign management
Customer loyalty programs
Sales incentive solutions
Growth Drivers
Expected Organic Revenue Growth
8% - 14%
Organic Revenue Growth
2% to 3%
6% to 9%
28%
Mailstream Services
2% to 3%
3% to 5%
72%
Mailstream Solutions
Total Growth
4% to 6%
Improving EBIT Margin
% of
Total
Growth
Weighted
Amount
Earnings Model
Organic Revenue
Growth
Net Income
Growth
Earnings Per Share
Growth
4% to 6%
7% to 9%
8% to 10%
0%
2%
4%
6%
8%
10%
12%
Strategic
Consistent with brand image
Fast growing market segment
Adjacent space within mailstream
Potential to be market leader
Strong management team
Significant revenue opportunities
Return on investment over 10 percent
Recurring revenue
Not capital intensive
Double digit organic growth
Consistent profitability
Financial
Expansion Criteria
Marketing Services
8% to 14%
Management Services
3% to 7%
Mail Services
9% to 13%
International Mailing
5% to 9%
Production Mail
3% to 8%
US Mailing
2% to 3%
Software
8% to
15%
Create
Produce
Distribute
Manage
Forecasted Revenue Growth Rate
Strategic Themes
Expand and cultivate customer base
Influence regulatory environment
Drive margin expansion
Expand into mailstream adjacencies
Murray D. Martin
President and Chief Operating Officer
U.S. Mailing
As a percent of total Pitney Bowes
Revenue
EBIT
2004
2006
Forecast
2010
Forecast
0
$2,500
45%
76%
41%
68%
36%
58%
U.S. Mailing Profile
Moderate revenue growth
Consistent margins
Strong cash flow
Good return on capital
U.S. Mailing Revenue – 2005
Equipment Sales
27%
Supplies
Rentals
Financing
8%
23%
28%
Support
Services
14%
U.S. Mailing Revenue Growth
Recurring revenue provides consistent
growth
Recurring revenue stream increases as mix
changes
Growth levers are different for digital postage
meters
Meter Migration
Longer transition period
Higher leased vs. owned base
Electronic to Digital
2003-2008
Phase 2
Mechanical to Electronic
1996-1999
Phase I
73%
6 Years
704,000
3 Years
Transition
Period
30%
665,000
% of Leased
Equipment
# Meters
Average lease period 4-5 years
U.S. Mailing Margins
Less incremental depreciation expense
More remote service capabilities
More channel diversification
Declining R&D expense as a percent of
revenue
More operating efficiency and productivity
U.S. Mailing Growth – 2007
Customer Value in the Mailstream
New Product and Service Offerings
Cross-Selling
U.S. Mailing Growth – 2007
Customer Value in the Mailstream
Approximately 1.3 million customers in
the U.S.
Aligning customer needs with
appropriate channel
U.S. Mailing – Growth in 2007
Channel Diversification
Customer Value in the Mailstream
Focus sales and service on complex
accounts
Use telesales for low volume mailers
Continue to use Internet
Fastest growing channel for small business
solutions
Continue to use direct mail
U.S. Mailing – Growth in 2007
Customer Segmentation
Customer Value in the Mailstream
Understand lifetime value of relationship
Revenue
Postage spend
Transaction volumes
Investment in CRM technology
90% customer retention rate after the
first year
Small business retention program for
new meter customers
Leverage unique solutions for
competitive displacements
U.S. Mailing – Growth in 2007
Customer Retention
Customer Value in the Mailstream
U.S. Mailing – Growth in 2007
New Products and Services
Adding Value in Existing Markets
Financing and postage payment
solutions
Provide customers with greater value
Create and grow small business
markets
New low volume meters
Mail creation products
Solutions selling
Target marketing
Cross-selling
Permit mail
Financing solutions
Package mail solutions
Carrier shopping
Inbound package management
Presort discounts for meter
customers
U.S. Mailing – Growth in 2007
Penetrate High Growth Markets
New Products and Services
Fast growing segment
Now includes office supplies
Single source provider for mailstream needs
Acquisition of Print, Inc.
Builds on supplies platform
Leverages service network
U.S. Mailing – Growth in 2007
Supplies
New Products and Services
U.S. Mailing – Growth in 2007
Service Network
New Products and Services
Provides critical market intelligence
Expanded service capabilities
Multi-vendor services
Print, Inc. acquisition
Single-source provider to customer
U.S. Mailing – Growth in 2007
Next Generation
New Products and Services
Integrate metering technology with
business processes
Expand technological architecture of
digital mailing systems
Example: Ohio Court System
Network multiple mailing devices
U.S. Mailing – Growth in 2007
Cross-Selling
80% of equipment customers on lease
70% are using postage payment products
Marketing within vertical markets
U.S. Mailing partners with:
Management Services
Production Mail
Software
Mail Services
15 Minute Break
Bruce P. Nolop
Executive Vice President and Chief Financial Officer
Financial Review
Revenue
= Percent Growth
7.2%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2002
2003
2004
2005
2006
Forecast
$4,244
$4,440
$4,832
$5,367
4.6%
8.8%
11.1%
6% to
8%
$5,700
to
$5,800
EBITDA*
= Percent Growth
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2002
2003
2004
2005
2006
Forecast
$1,163
$1,395
$1,250
$1,133
4.2%
2.6%
7.5%
11.6%
8% to
10%
*Excluding Items
$1,500
to
$1,530
EBIT*
= Percent Growth
$0
$200
$400
$600
$800
$1,000
$1,200
$874
$1,063
$944
$869
3.6%
0.6%
8.0%
12.6%
9% to
11%
2002
2003
2004
2005
2006
Forecast
*Excluding Items
$1,160
to
$1,180
Interest Expense
2002
2003
2004
2005
2006
Forecast
$0
$50
$100
$150
$200
$250
= Average Interest Rate
4.7%
4.4%
4.3%
4.7%
5.0%
$178
$164
$158
$188
$212
to
$218
Taxes*
= Effective Tax Rate
*Excluding Items
$0
$50
$100
$150
$200
$250
$300
$350
2002
2003
2004
2005
2006
Forecast
$235
$294
$261
$225
32.5%
33.1%
33.2%
33.6%
34.5%
$325
to
$335
Net Income*
= Percent Growth
*Excluding Items
$0
$100
$200
$300
$400
$500
$600
$700
$471
$571
$519
$459
5.2%
2.4%
10.3%
10.1%
6% to
8%
2002
2003
2004
2005
2006
Forecast
$600
to
$620
Average Shares Outstanding
= Percent Reduction
2002
2003
2004
2005
2006
Forecast
0
50
100
150
200
250
241.5
2.5%
2.2%
0.9%
1.0%
≈ 2.6%
236.2
234.1
231.8
≈ 226.0
Earnings Per Share*
= Percent Growth
*Excluding Items
7.9%
4.7%
11.2%
11.1%
8% to
10%
2002
2003
2004
2005
2006
Forecast
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$1.99
$2.46
$2.22
$2.66
to
$2.72
$1.90
Free Cash Flow*
2002
2003
2004
2005
2006
Forecast
*Excluding Items
$0
$100
$200
$300
$400
$500
$600
$700
$490
$540
$555
$543
$550 to
$600
Debt/EBITDA*
*Excluding Items
0
1
2
3
4
2002
2003
2004
2005
2006
Forecast
3.4x
3.1x
3.1x
3.0x
≈ 3.0x
Unlevered Return On Capital*
*Excluding Items
15.4%
14.5%
13.6%
13.7%
2002
2003
2004
2005
2006
Forecast
≈ 14.5%
0%
5%
10%
15%
20%
Topical Updates
Acquisition Portfolio
Cumulative Transactions 56 64 64
Investment (billions) $1.8 $1.9 $1.9
Revenue (billions) $1.3 $1.6 $1.8
Earnings Per Share 18¢ 22¢ 26¢
EBITDA (millions) $178 $210 $246
EBIT (millions) $139 $160 $194
2005
2006
2007
U.S. Pension Fund
2005
2006
2007
Discount Rate 5.75% 5.60% 6.10%
Pre-Tax Expense $22 $26 $23
Per Share Expense 6¢ 8¢ 7¢
PBO Unfunded $169 $152 $142
Accounting Impact n/a ($420) $18
($ millions)
Tax Position
$350 million payment in September 2006
$750 million to be paid in December 2006
Effective Tax Rate 33.6% 34.5% 34.5%
Cash Tax Rate 22.7% 28.2% 31.7%
Deferred Taxes (billions) $1.9 $0.5 $0.6
2005
2006
2007
Debt Structure
Fixed Rate
Debt
63%
Total Debt = $4.5 billion
Floating
Rate Debt
37%
Average Interest Rate
2005
2006
2007
Total Debt 4.7% 5.0% 5.5%
Preferred Stock 3.0% 4.7% 5.4%
Restructuring Program
$0
$100
$200
$300
$400
Annual Benefits
Cumulative Charges
2003
2004
2005
2006
$120
$280
$365
$400
$150
$120
$70
$25
Productivity Program
Business Process Reengineering
Business Organizational Strategies
Shared Services and Outsourcing
Vendor and Expense Management
Human Resource Management
2007 Guidance
Earnings Per Share
*Excluding Items
$0.00
$1.00
$2.00
$3.00
$4.00
2006
2007
2006
2007
$2.47 to
$2.56
$2.90 to
$2.98
$2.66 to
$2.72*
$2.90 to
$2.98
Adjusted
EPS
GAAP
EPS
Growth Rates
Total Revenue 5 to 8%
Organic Revenue 4 to 6%
EBITDA 7 to 9%
EBIT 8 to 10%
Net Income 7 to 9%
Earnings Per Share 8 to 10%
Income Statement Margins
R&D
D&A
EBITDA
EBIT
20.5%
Gross Profit
53.5%
59.5%
33.0%
26.5%
SG&A
30.0%
Sources
Uses
Free Cash Flow
Finance
Receivables
Other Cap Ex
Net Income
Free Cash Flow
Depreciation &
Amortization
Taxes
($ millions)
Reserve Account
Rental Assets
Working Capital
$1,100 to $1,150
$525 to $550
$575 to $625
Sources
Uses
Sources and Uses
Debt Increase
Free Cash Flow
Dividends
Stock Issuance
($ millions)
Repurchase
Acquisitions
$100 to $200
$800 to $900
$700
Restructuring
$200 to $400
$150 to $300
$280 to $300
Please raise your hand and we’ll give you
a microphone so that the individuals on the
Internet can hear your questions,
comments and thoughts.
The statements contained in this presentation that are not purely historical are
forward-looking statements about our expected future business and financial
performance Words such as “expect,” “anticipate,” “intend,” “estimate,”
“project,” “plan,” and other similar words may identify forward looking
statements. Such forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those projected. For
us, these risks and uncertainties include, but are not limited to: timely
development and acceptance of new products or gaining product approval;
successful entry into new markets; changes in interest rates; and changes in
postal regulations, as more fully outlined in the company’s 2005 Form 10-K
annual report filed with the Securities and Exchange Commission. The
forward-looking statements contained in this presentation are made as of the
date hereof and we do not assume any obligation to update the reasons why
actual results could differ materially from those projected in the forward-
looking statements.
Pitney Bowes
The Company’s financial results are reported in accordance with generally
accepted accounting principles (GAAP). Management finds it useful at times to
provide adjustments to its GAAP numbers. The Earnings Per Share and Free Cash
Flow results are adjusted to exclude the impact of special items such as
restructuring charges, legal settlements and write downs of assets, which
materially impact the comparability of the Company’s results of operations. The
following are the non-GAAP measures used in this presentation: Adjusted
Earnings Per Share; Free Cash Flow; Earnings Before Interest and Taxes (EBIT)
and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
Guidance for 2006 excludes the effects of future changes in accounting standards
and is provided with and without the impact of expected special items.
This adjusted financial information should not be construed as an alternative to
our reported results determined in accordance with GAAP. Further, our definition
of this adjusted financial information may differ from similarly titled measures
used by other companies.
Reconciliation of GAAP measures to non-GAAP measures may be found at the
company’s web-site www.pb.com/investorrelations and in the schedule following
the end of these presentations.
Pitney Bowes