Good evening and welcome to the Pitney Bowes second quarter 2010 earnings results conference call. (Operator Instructions) I would now like to introduce your speakers for today's conference call, Mr. Murray Martin, Chairman, President and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President and Chief Financial Officer; and Mr. Charles McBride, Vice President, Investor Relations. Mr. McBride will now begin the call with a Safe Harbor overview.

Thank you. Included in this presentation are forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our 2009 Form 10-K Annual Report and other reports filed with the SEC and are located on our website at www.pb.com by clicking on our Company and Investor Relations. Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. Now, our Chairman, President and Chief Executive Officer, Murray Martin, will start with an overview of the quarter.

Good afternoon and thanks for joining us today. Let me start by sharing some thoughts on our performance. Mike will follow with the details of our second quarter results, and then we will take your questions. We remain focused on transforming our business to position Pitney Bowes for the long-term growth and value creation. During the quarter, however, our near-term performance was adversely impacted by a challenging global business and economic environment. The related slowdown in new equipment investments and installations by customers was particularly evident within our Small and Medium Business Solutions and our Production Mail groups. When we originally gave our 2010 guidance, we expected stabilization and improvement in global business conditions as the year progressed. We instead witnessed deterioration in conditions toward the end of the second quarter and into July. Revenue for the quarter was $1.3 billion, a decline of 6% compared with the prior year. Adjusted earnings per share was $0.48 compared with $0.55 for the prior year, and it included a one-time charge of $0.05 primarily to correct rates used to estimate earned but unbilled International Mail Services revenue. Mike will provide more detail on this later. We continue to take actions to make it easier for our customers to do business with us during these uncertain times. Some of those actions may have a near-term impact on financial performance, but we're confident that they will have a long-term benefit for customer retention and will enhance customer value. For example, we offer lease extensions on existing equipment as an option for our customers. We saw an increasing number and proportion of customers in our SMB Solutions group take advantage of this offer during the quarter. Lease extensions are profitable transactions. They help us retain customer relationships, though they generate less sales revenue than the…

Thank you, Murray. As Murray noted, revenue was $1.3 billion for the quarter, a decline of 6% compared with the prior year. Currency had virtually no impact on revenue growth in the quarter. Breaking down our revenue for the quarter between U.S. and non-U.S. operations, U.S. revenue declined by 7% compared with the prior year; and outside the U.S. revenue decreased by 3%, again with little impact from currency in the quarter. Non-U.S. operations represented 29% of total revenue. Adjusted earnings before interest and taxes, or EBIT, for the quarter was $203 million. This was $31 million lower than last year as a result of lower revenue, which included declines in relatively high margin financing and rentals revenue as well as the International Mail Services adjustment. However, we reduced our costs as a percentage of revenue in the quarter for equipment sales, software, rental and support services when compared with the prior year, in large measure because of the productivity initiatives we've been implementing. Selling, general and administrative or SG&A costs decreased $5 million compared with the prior year. The year-over-year comparison reflects the reinstatement this year of certain employee-related costs which we temporarily reduced. Otherwise, our SG&A cost would have further declined year-over-year due to the benefits from Strategic Transformation. EBIT margins improved year-over-year in four of our seven business segment, International Mailing, Software, Management Services and Marketing Services. These improvements in EBIT margins were a result of our continued focus on reducing our cost structure and increasing our operating efficiency across all the business segments. As expected, the EBIT margin in U.S. mailing continued to be pressured by reduced rentals and financing revenue, which as previously discussed will lag in improvement in U.S. mailing equipment sales. While we had clearly done a lot to improve our productivity, we…

As you saw in our earnings release, we are modifying our revenue and earnings guidance for the year by increasing our guidance for free cash flow. These changes reflect business trends during the second quarter, the economic business outlook for our customers for the remainder of the year, and the onetime adjustment in the second quarter. The global economy and business environment have not stabilized or improved as quickly as we had originally anticipated when we provided guidance earlier this year. Also contrary to our previous expectations and based on the uncertainty surrounding the current economic outlook, we no longer expect the business environment to improve as much in the second half of the year. Given the continued volatility and uncertainty concerning currency, we will now provide constant currency revenue growth guidance. On a constant currency basis, we now expect revenue for the year will be in the range of flat growth to a 3% decline compared to our original expectation of revenue in the range of 1% growth to a 2% decline. Adjusted earnings per share for the year, is now expected to be in the range of $2.10 to $2.30, and GAAP EPS is expected to be in the range of $1.49 to $1.85. This compared to our previous adjusted EPS guidance in the range of $2.30 to $2.50 for the year, and GAAP EPS guidance for continuing operations in the range of $1.71 to $2.07. Our current GAAP EPS guidance includes tax charges of $0.13 per diluted share related to out of money stock options, certain capital of least transactions outside the U.S. and the impact of healthcare legislation enacted at the beginning of the year. GAAP EPS also includes expected restructuring charges and asset impairments in the range of $0.32 to $0.48. We are increasing free cash flow guidance for the year by $50 million based on the strong generation of free cash flow in the first half of the year, and the outlook for the remainder of the year. We now anticipate generating free cash flow for 2010 in the range of $700 million to $800 million compared to the earlier range of $650 million to $750 million. We continue to realize the benefits of our ongoing actions to improve the company's efficiency and market responsiveness and to identify and capitalize on long term growth opportunities. We believe these benefits will become increasingly visible as the economy recovers and business confidence rebounds. Thank you. Now let's open the line for questions.

(Operator Instructions) We do have a question form the line of Shannon Cross.

Can we get a little further into the declines that you saw in terms of demand coming from SMB, as well as what you saw in Europe? I guess we're a little confused because coming out of some of the office equipment guides, whether it was Xerox or Cannon, what have you we saw a definite uptick in terms of demand profit equipment? And it didn't seem like there was any slow down in terms of SMB, so I'm just trying to figure out if this is mailing versus copiers, or if this is a change in your customers and behavior? Just any color you can give us in terms of what you're hearing from customers? And then I've a couple of follow-ups.

If we start first with Europe, the production mail in Europe which is large ticket sales with the uncertainty that was occurring in Europe is when we started seeing a slowdown there as decision making cycles lengthened and there were delays in taking equipment. So that's where we saw the European shift, and that began around mid-second quarter. In the SMB segment, we have offered the lease extension option, and when we see uncertainty in the market, customers opt for lease extension rather a new product. So we're seeing more of the lease extension as we've described before that has an impact in the near term. Although long term, it provides fairly similar returns from a profitability with less revenue. So we started seeing that late in the quarter that there was some slowdown in that area early in the quarter. We did not see that, but the late period bookings we did.

But I guess you been seeing lease extensions for the last several quarters? Is there sort of a change in how people are thinking about leases or in your install base, your sales strategy, was there anything other than just customers going, "Oh crap we might double dip," and pulling back?

Just to give you a sense in terms of numbers, we had a doubling of the number of lease extensions this year second quarter to second quarter last year and about a 40% increase from the first quarter. The shift of that has been a little farther down the customer base to some smaller customers as I think you know our customer base, though it's SMB, tends to be more on the small side of the customer base and then a small percentage of our customers are larger entities. So we saw a fairly significant shift from that perspective. And we have also offered the lease extensions in some of our larger markets in Europe and we did see an increase there as well. I think there's an overall lower demand in the small business marketplace as well.

Was there any impact from any of your security budgets that we're hearing about in Europe?

I would say not that you could say directly related to the austerity but certainly the, I would say, the business environment, the business mood in Europe and particularly in the U.K which is a large market for us, we do think plays a factor.

And then just going to back to leases, can you walk us through sort of how we should think about lease extensions and when they should start to be refresh because, if I've got a customer and I've extended it for a year will you extend it for another six months or, is it fair to say that at a certain point here, there's got to be a lot of extensions from 2008 and 2009 that are going to need to be equipment sales effectively?

The typical lease extension is actually three to four years in length. So these are not generally short term extensions but longer term extensions. So that obviously puts the new equipment placement out, another cycle but likely on average less than what have been if it was new equipment sales. That's what we are seeing in terms of an impact from that.

And then just, my final question is on the cash flow and the cost saving. I mean you held the $50 million for cost savings are you going to try to extract more given the weakness this quarter just in general that you are seeing, and then with the strengthening cash flow is there any expectation that you may be more aggressive on share repurchase than you would have otherwise been?

I am sorry I forgot the first part of the question.

The first part of the question was actually on the cost saving, you have the $50 million.

I am sorry, on the cost saving side of it we have achieved about $30 million for the first half of the year so we obviously will continue to be aggressive around that. We have a number of projects in place that we expect to continue to contribute benefits as we go forward, and we are always looking for opportunities to enhance that. From a share repurchase standpoint, we obviously do have the cash flow capability to implement program we have in place, and we have approximately $120 million of authorization remaining.

So do you anticipate being more aggressive, given that you just took out cash flow.

Yes. Certainly we indicated in May that we sought the authorization received and began purchasing. So certainly we've been out of the market for a period of time and we have been focused on beginning to buy back shares. So obviously we're being more aggressive than we've been prior to this quarter.

And our next comes from the line of Ananda Baruah. Ananda Baruah - Brean Murray, Carret & Co.: I guess a just a follow on Shannon's question. In which way is, I guess you guys were most surprised in which you saw the softness I guess. Was it the use of extensions increasing pretty broadly, they caught you guys by surprise, was there also a sales component to that, that just came on and then caught you by surprise? And I guess, you mentioned that in the scrip, sort of a shift in annuity based pricing, how much of an impact did that have? I know this has multi-parts to this. But I guess finally on the extensions, was there any case of you guys going out and more aggressively offering extensions. There was a case of the extension that has been out there and more folks just decided to utilize them.

I think that as we look at it, there are a number of things. First, as you recall, in the first quarter, we were seeing some uptick in demand in the SMB marketplace. As we got late in the second quarter, we actually saw demand decline, particularly in the area of new business. So there were less new business starts. Our program has remained relatively similar on lease extensions. And as I look at it and look at confidence in the marketplace, it is usually as you see the shift. And so as we got through the quarter, we saw lower demand with new business starts and expansion in the tail-end of the quarter. But then the shift to lease extensions accelerated as we went through the quarter from the marketplace. So I think that was the primary driver in the area. When it comes to the annual payments on software, that has been something that has continued to move forward over the last number of quarters as more and more companies are looking for annual payments rather than term contract payment. So they are signing up for term annual payments rather than an upfront lump sum. And this really ties into paying for usage, and it is moving in the direction of the software-as-a-service product that we discussed in April that we are launching going forward into that marketplace. So we will continue to see the contract revenue being extended over time rather than upfront. And we'll see an acceleration in software-as-a-service. Ananda Baruah - Brean Murray, Carret & Co.: Can you just give us any sense of what revenue trends have been like in July relative to the slowing that you saw in June? Did you feel as though things have stabilized to some degree after what you saw in the second half of the June quarter?

As we look through the first components of July, through three quarters of July, we saw a similar trend to what we saw in late June. So we saw that sort of staying in level at a reduced rate and again with the extensions being in the accelerated form. So we did not see a bounce back as we looked at July. July is always lighter than June, but if we look at the comparative trends, it followed the similar pattern. Ananda Baruah - Brean Murray, Carret & Co.: So I guess just final one from me. So right now, it looks like you guys are kind of pointing to the SMB softness. Where was your Enterprise? What were the Enterprise dynamics for the quarter? It seemed like production was fairly softer. And you mentioned Europe as being a driver of that, but a lot of your services businesses were also soft and a lot of that is in Enterprise base. So can you just give us a sense of what enterprise trends were as well?

As we look at software, if we adjust for the annuity-based pricing, we would actually have seen an increase in software of about 1%. And we saw a significant gain in profitability. So we see that trend continuing positive. In Management Services, we have been aggressively moving on the profit side, as we've been talking about, and you can see margins continuing to improve there in that space. As we focus on our new business there and our extension of existing contracts, we did and have discussed in the past that the revenue would be affected by contracts that were terminated last year running into this year, but are focused on turning to a more variablized cost structure, and productivity improvement is paying off well in that space. As we look at the Mail Services segment, the presort segment has continued to grow in both volume and revenue and profitability. So that has continued to go. And we have the one-time adjustment, which takes that segment down in the quarter. But in the quarter, it's up, how much, Mike?

Exclusive of the adjustment, the revenue in Mail Services would be up 6%.

So we see all of those areas with significant EBIT improvement and two of those three with revenue improvement. Then we get to production mail. And in production mail, as we mentioned, we saw a slowing in Europe; however, our bookings continue to be reasonably strong in the U.S. with some backlog improvement. But that's the one area that was down year-over-year. And the print business is coming a little slower. We did introduce another printer, which will not be available until late in the year, beginning of next year. And some of that volume will shift to that printer, which will take it out of this period from the revenue recognition. And then the final area within the Enterprise, which is Marketing Services, we saw good growth in both revenue and in profitability. So it was up 7% in revenue. So in general, if we take that one-time out, we saw a pretty good return in the Enterprise area; a strong profit growth and as good as expected on the revenue side, excluding the adjustment. Ananda Baruah - Brean Murray, Carret & Co.: Does any of this that you've seen over the last two to two-and-a-half months have you sort of reconsider any of your thinking around cyclical versus secular kind of thinking that always seems to kind of surround the business?

As we look at it, certainly there is a definite strong economic component to this. As you look at the reports that have been coming out over the last week, there has been a lot of economic uncertainty and decision-making that people are expressing. And we see that as the major component. But certainly there are segments within the mailing segment, which we've discussed previously, that do have headwinds that we are looking to overcome. And those we don't expect to see any difference on, if we go back to the report that the Postal Service issued, which was about a 2% per year decline over the next decade. So that we see as a long-term headwind that we'll be facing. But as we've also mentioned, it is a pure volume, because there is an access component here as well. But certainly when there is economic uncertainty, people will look for an extension of what they're doing rather than moving forward with new goods. And that does take down revenues in the near term. On the long term, it has a positive effect from the less need to invest in new product to put into the fleet, because we're utilizing the assets that are already there.

(Operator Instructions) We now have a question from the line of Chris Whitmore.

I wanted to go back to this extension question and maybe you can help us understand. Why customers are able to extend a piece of equipment that's been there for three or four years for another three to four years without it impacting their operations? In other words, why isn't there more pressure to upgrade to the latest and greatest equipment?

If you recall a number of years ago, we moved to connected devices. And so we have already moved our product family into a fairly advanced technology, which was ahead of the majority of the market, so people can get access to rate changes, et cetera, remotely rather than having to have physical component set out in adjustments. The inkjet printing was put in place, et cetera. So those devices, if we go back further in time, we used to have about a seven to eight-year lifecycle on mailing machines that came down during the technology change into a four to five-year cycle. But there is nothing that's mandated change that would keep the existing devices from running and performing very well. They certainly have the capability and the longevity to do that, and we continue to add and download, because part of that connectivity was that we could download and update software in the equipment. So we keep that software up-to-date as well as the rates. And that makes the equipment very viable in a longer-term arrangement. So as we look forward and as you look at Connect+, our future product is adding new capabilities and technologies such as web services, which will expand the capability and move them forward into handling more applications and more personal applications that they might be doing in other means. So that will be the next reason for people to shift. But during this environment, people are staying close to what they have been doing and not making change. And it's much easier to sign a lease extension than it is to take a new contract and have that run through a business.

So is there anything on the regulatory standpoint that would change the requirement and maybe force an upgrade that you can see within the next 12 to 24 months?

We don't see anything in any of the markets that would force an upgrade over the next couple of years. We normally would be working in advance with the posts on those, because they look to not affect their customers, but haven't happened in cycle, so that their customers can naturally cycle through the equipment. I think that as we look forward, we'll see more and more things around marketing, which is why we've launched color, the ability to add other services such as address correction, et cetera, from the device. And then with the expansion in shipping, that shipping will be added and become easier to do on the new devices than on old devices, because they have the ability to drive label printers, et cetera, that will enhance that capability. So I think it will be more from the market demand, an expansion of capabilities and the consolidation around one device rather than multiple devices in the mailing and shipping area. And, Chris, part of that is working with the post to integrate those services. So it's not necessarily a regulatory change, but it is an enhancement of the access to other services. So with Connect+, for example, we've been working very much with the USPS to put the flat rate boxes, et cetera, all into that device, so that it can handle their new rates and their new capabilities as they moved forward. And so we will continue to add those new services, and some of those will have to be on new devices rather than existing install base.

Do you think any of the softness you've seen is related to a pause in front of the new product announcements, or do you think something more fundamental is happening?

I would see it as related to new product. The product is really targeted at the upper end of the market. So it's at the high-end mailers. And so there is certainly a transition as we move out of one product into the new product. But we aren't really seeing if there is more in the down market new business starts, expansion of small business. Those are the areas that really are the ones that drive our business forward. And if you have a slowdown and starts a lack of confidence and the lack of expansion in those small businesses, that does affect our ability to place new units.

And last one from me is around the rental and financing line, given the call back on equipment. What's your outlook on the two lines as we go forward? Do they have the potential that we can further from here or should we expect stabilization?

Well, we've factored obviously into our guidance the impact of the lower sales to date and our projection forward on those rental and financing lines. They obviously will continue to map to the install base. So that is reflected in our guidance. We don't expect a dramatic change from the trend we're on, but obviously not turning to the type of improvement that we would like to see. We really have to see the equipment sales growth to drive those lines forward.

We do have a follow-up question from Ananda Baruah. Ananda Baruah - Brean Murray, Carret & Co.: Just a clarification. The $0.48, which is adjusted, does that include or exclude the impact of the $0.05 used to correct the international rates?

Yes, adjusted earnings have been reduced by the $0.05. Ananda Baruah - Brean Murray, Carret & Co.: So if that did not occur, then the number would have been $0.53?

That's correct. Ananda Baruah - Brean Murray, Carret & Co.: I know you said that the charge is one-time in nature, but has there been any ripple impact into the second half of the year from the rates changing baked into your guidance?

No, we don't expect that the rate issue will have an impact on the go-forward basis.

(Operator Instructions) We do have another question from Chris Whitmore from Deutsche Bank.

I wanted to ask about the competitive environment, whether or not you've seen a change in the behavior from Neopost as you progressed through the quarter, and can you comment on market share terms?

We have not seen any real change in the market among Neopost or Francotyp. The market has stayed basically the same. Our information shows that we have gained small market share gains in Europe and that we're basically stable in the U.S. So we're not seeing any shift in market and any particular action from anyone in the space.

We do have another question from the line of Hale Holden.

Just very quickly on your dividend yields, 5.8%, 5.9%. Funding rates are very low right now. So any sense of maybe you'd want to accelerate the buyback through debt financing given where the current interest rate environment is? And maybe you could talk to the importance of just keeping the A rating as we go forward?

In terms of the share buyback, obviously we have the authorization. We can do that either through pre-cash flow, which we think would be sufficient, but we could also obviously finance that. In terms of ratings, I think we do view an investment-grade credit rating as important in terms of funding our overall business. So that's what we're focused on at this point.

We do have a question from Steve Searl.

Do you define investment-grade as in the A category?

I would say investment grade is A. Obviously, it goes as far as BBB, BBB+ as investment-grade. So our focus is to keep the rating as robust as we can.

Would you consider making a significant reduction in dividend to boost the free cash flow you have to reinvest in other areas?

We think we have sufficient cash flow to fund the dividend as well as invest in what we see as important investments in the business.

There are no further questions at this time.

We remain committed to our long term growth strategies and strategic transformation program, both of which are already producing meaningful benefits. Our strong financial position in free cash flow give us a financial and strategic flexibility as we work through this uncertain environment and position the company for long term growth and value creation. I want to thank each of you for participating in today's call, thank you.