DBRS Confirms Pitney Bowes Inc. at AA (low)

DBRS has today confirmed the Senior Unsecured Debt rating of Pitney Bowes Inc. (PBI or the Company) at AA (low), with a Stable trend. At the same time, DBRS has confirmed Pitney Bowes of Canada’s Unsecured Medium and Long-Term Notes and Commercial Paper at AA (low) and R-1 (middle), respectively, also with Stable trends.

DBRS expects PBI’s ratings to remain steady as the Company continues to dominate its core business of mailstream equipment and generate consistently strong free cash flow (before working capital). However, PBI must continue to broaden its core competencies to compete more effectively in a digital communications environment.

The Company’s dominant position in the U.S. mail equipment market adds considerable operational stability and offsets aggressive leverage with debt to EBITDA of 3.1 times in 2006. However, DBRS believes that growth in this segment will likely be modest going forward as the U.S. postal market is mature and customers are increasingly gravitating toward digital mailing/documentation solutions.

PBI has been transforming itself to compete in this rapidly changing environment. Approximately 26% of PBI’s revenue in 2006 was derived from businesses it was not in six years ago. The Company has developed a broader platform of mail/documentation/marketing products and services that provide more value-added features, such as marketing on invoices. This has enhanced PBI’s cross-selling opportunities and enabled it to leverage its solid customer base.

To capitalize on new technologies, the Company has become more collaborative and nimble. PBI has had good success growing organically, but acquisitions will likely continue to play a role in product-line expansion and revenue growth. PBI’s software, marketing, and services segments have had robust growth recently and DBRS believes this trend will continue as customers seek more integrated and customized communications solutions.

Due to solid operating performance, free cash flow (before working capital) has been $300 million to $450 million annually since 2000, which gives PBI great latitude in financing strategic acquisitions and making substantial share repurchases. In addition, the divestiture of Capital Services should improve EBITDA margins going forward.

Overall, PBI is concentrating on protecting its core business, while leveraging it for expansion opportunities. Additionally, the U.S. Congress passed a landmark postal reform ruling in 2006, which is expected to create ongoing opportunities for PBI

Notes:
All figures are in U.S. dollars unless otherwise noted.
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.