Photo of Murray D. Martin Murray D. Martin, Chairman, President and Chief Executive Officer

Fellow Shareholders:

The big story of 2011 was the continuing transformation of Pitney Bowes into a leading provider of 21st-century customer communication technologies. We have been able to accelerate this transformation by reducing our costs and streamlining our business over the last two and a half years. These measures also helped our company remain solidly profitable in 2011, despite the lingering effects of a deep, global recession. During the year, we added to our growing portfolio of products and services that help businesses cater to the communication preferences of individual customers and build long-term relationships with them. By seeking out the best technology partners, we ensured that the products we bring to market are superior to our competition's. Taken together, these actions demonstrate our commitment to leading the revolution in customer communications that is now taking place.

Breakthrough Technologies

Businesses face big challenges in communicating with their customers today. The rules of engagement are changing. Customers are now in charge. They will ignore anything that is not relevant to them. Digital communications are exploding and organizations are struggling to make sense of Big Data — the unending torrent of digital information from and about customers. There are also growing concerns about privacy and compliance. Pitney Bowes is helping businesses around the world turn these challenges to their advantage, so they can achieve their strategic objectives and become more profitable.

Our new EngageOne™ Communication Suite is the latest example of how our technology is helping businesses adopt a more integrated, customer-focused approach. This truly enterprise-wide solution allows multiple departments to use the same platform to create, produce and deliver communications of all types, across all channels: Web, email, mail and mobile. When marketing, billing and client services share a common integrated system, it is far easier to produce communications that reinforce each other and contain the most current, relevant information.

We expanded our software product offerings in 2011, solidifying our position as one of the world's leading software providers as measured by Software Magazine's annual Software 500 listing, in which we placed in the top one-third of all companies. We introduced new applications in areas ranging from customer analytics and campaign management to cross-channel customer self-service tools.

Our software is helping businesses improve how they identify prospects, bring them on board as customers and sustain mutually rewarding relationships. A report by Forrester Research called our combination of predictive analytics and EngageOne a "game changer," saying that "Pitney Bowes now has all the tools for emerging multichannel communications."

Our technologies are gaining traction in the marketplace. Portrait Uplift™ software, for example, delivered impressive growth while drawing glowing reviews from industry analysts. This software allows businesses to identify a crucial customer bloc: those who might leave, but might also be persuaded to stay. By delivering exactly the right offer to this target audience, companies can dramatically improve the ROI for their marketing efforts. Gartner calls uplift analysis a "must-consider concept for every organization with significant campaign management activities."

Small businesses often have to navigate the complexities of the multichannel world on their own. Through services for managing direct mail, email and QR code-based campaigns, our new pbSmart™ suite of cloud-based solutions helps these businesses market themselves with the same sophistication as larger companies. Our pbSmart Codes deliver a superior customer experience and are far more useful to marketers than typical QR codes. When a consumer scans a pbSmart Code, it brings up a link not just to a Web page, but to a landing page specifically designed to look great on any mobile device. It also provides instant campaign metrics to business owners.

This suite also includes pbSmartPostage™, which lets users print shipping labels and postage for letters from any networked computer, eliminating the need for software downloads. Our small-meter customers greeted the April launch of pbSmartPostage enthusiastically.

Volly™, our free digital delivery service, has the potential to simplify the lives of consumers while providing businesses with a flexible communication channel that can help them strengthen customer relationships. Volly will give consumers a single, secure online location to receive, manage and store bills, statements, investment information and other communications that once arrived in the mail.

We unveiled Volly as a concept in early 2011 and spent the rest of the year refining it. We talked to consumers, let them test-drive it, and then made improvements based on their feedback. Partnerships with best-of-breed companies will allow us to deliver the best possible digital service. Adobe's web content management software, for example, will create a more dynamic experience that we are certain will delight consumers.

Because success in this emerging market depends on mailer density (the amount of mail the average household can receive digitally), relationships with third-party mailers are key. We closed 2011 having signed agreements with 40 such firms, which collectively send out over 5 billion bills, statements and account communications a year on behalf of more than 5,000 businesses and consumer brands. We will continue to expand the amount of mail that can be delivered through Volly and make the service available to consumers in the second half of 2012.

The future of mail

Recent news reports have painted a dire picture of the U.S. Postal Service and the future of physical mail. While there is no question that the USPS faces serious operational issues, speculation that mail will cease to be a vital communication channel is simply wrong. In 2011, the USPS delivered nearly 170 billion pieces of mail, powering the trillion-dollar-a-year mailing industry.

Businesses know that their customers want to interact with them across multiple channels, depending on where they are and what they are doing: paying a bill, confirming an order or checking out a sale. Our strategy focuses on leveraging physical, digital and hybrid channels to yield a sum greater than its parts. We are actively involved in conversations with the USPS, as well as with other posts worldwide, to help define the future of this enduring communication channel.

We continue to invest in products and services that increase the value of mail and make it easier to integrate mail with digital communications. For instance, our cloud-based Connect+® system enables mailers to turn envelopes into powerful marketing pieces by printing full-color messages or a pbSmart Code in the same pass as the postage. Our Print+ Messenger™ gives high-volume mailers the ability to print personalized color marketing messages, logos and addresses on envelopes, while our new Mailstream Wrapper™ creates envelopes "on the fly" during mail production. For high-volume mailers, we also expanded our line of IntelliJet® printing systems in 2011. These digital color printers transform routine mailings into personalized marketing pieces. Our new MarketSpace™ Web Platform adds even greater potential value to these monthly statements by enabling mailers to sell space to third-party advertisers for highly targeted marketing. We and our partner Media Horizons Inc. handle it all, from brokering ads and analyzing available white space to matching recipients with each advertiser's target audience.

We also expanded our lineup of cloud-based SendSuite Live™ shipping solutions; with the rise of global e-commerce and the accompanying increase in shipping, this area is increasingly important for us. With a new technology-based consulting service from our Management Services business, recently named among the world's top 100 outsourcing service providers, we are also helping large businesses tackle the costly and persistent problem of returned mail. According to industry research, nearly 2 percent of all outbound USPS® First-Class Mail® gets returned each year, which translates into 1.4 billion lost opportunities to connect with a customer.

I cannot mention mail without a salute to our Mail Services employees for the heroic job they did following the fire that destroyed our huge processing site in Dallas. We not only maintained service during the crisis, but found and outfitted a new site in just seven months, enabling our presort business to return to its path of solid revenue growth.

Investing wisely

We have invested approximately $200 million in new technology and process improvements. These investments were funded with savings generated by our Strategic Transformation program, which exceeded our targets and will generate $300 million in net annualized savings. We launched this top-to-bottom review of our operations in 2009 to give us the ability to serve customers better, increase our capacity for growth and ensure our ability to manage our way through an economic downturn that has lasted longer than many expected.

Our new investments include collaborative software that is helping build stronger relationships with our own customers. This software connects our sales representatives across geographies and lines of business, giving them the same comprehensive view of each customer. This means our people can always speak with a single, knowledgeable voice, even when the customer is a global enterprise with a multilayered relationship with Pitney Bowes.

Our new Global Technology Center in Danbury, Connecticut, brings together our engineering, research and development, product management, and information technology services under one roof for our communications solutions businesses. We created the center to enhance cross-team collaboration and open new paths to innovation.

An enduring commitment to our values

Beyond great technology and a clear strategic vision, our commitment to the values that have sustained us for 90 years will ensure our continuing success. As I meet with Pitney Bowes people around the world, I am inspired by their personal dedication to innovation, to the pursuit of excellence and to our responsibilities as a global corporate citizen. Our 28,000 employees have weathered both an adverse economy and a rigorous internal transformation. Through it all, we have stayed true to who we are as a company while maintaining the passion and energy needed to transform Pitney Bowes for the challenges and opportunities of the 21st century. I am very proud of what we are accomplishing together.

Murray D. Martin
Chairman, President
and Chief Executive Officer