To begin, it's important to note that our failure to achieve Wall Street consensus earnings estimates for the third and fourth quarters was not because of things we did or did not do in these quarters. Rather it was the cumulative result of decisions and actions taken over the last two years, and some made even before that time.

When Marc and I assumed leadership of the company in 1996, it seemed that every button we pushed was the right one. When the stock first hit its high watermark in January 1999, it had nearly tripled in value since May 1996. An astonishing, gratifying feat to be sure, but even then we were realistic enough to understand that this run up of stock price did not mean that the company's inherent value had tripled.

Conversely, today when the stock price has fallen to around $25 from $71 per share, we don't believe that the company has lost nearly two-thirds of its long-term inherent value. Many good things have been accomplished in the fast two years - things that are building significant value for Pitney Bowes' future.

To understand where we are from an earnings standpoint, a useful starting place is to take a retrospective look at the expectations we had for our performance coming into 2000. I went back to the July 1998 financial plan to look at our predictions, and several things became clear. First, there were market events and changes (such as interest rate increases and currency fluctuations) that we couldn't have anticipated. But in addition, several business units experienced far more challenging market conditions (both competitive and economic) than we had predicted and many of the new initiatives we expected to add revenue or profitability or offset adverse conditions in the period have been slower to produce revenue or profit.

In 1998 we expected:

•	Atlantic Mortgage to produce $45 million in net income in 2000. Instead external changes turned a low-risk, high growth service business into a volatile, high-risk proposition and it was divested.
•	Office Systems to produce significant net income in 2000. But a large drop in the amount of facsimile use per machine (and hence less supplies use), unprecedented competition and severe price compression in the office equipment industry have made this impossible.
•	Management Services to produce significantly more profit in 2000. As we worked to get the business back on the right track it went into a deep trough and lost a lot of ground. It has rebounded, but we have yet to recover what we lost.
•	TranScape and Mail Creation to be growing at 20-25% annually. Instead these lines are flat to down in 2000 because of changed market conditions

At the same time, we were feeling pressure from inside and outside to expand our reach into new initiatives. This was coming from all sides, particularly driven by both general market euphoria around the Internet and an environment in which postal authorities around the world appeared to be moving quickly to Internet postage solutions.

We made a number of growth investments in 1998 and 1999 expecting that they would open new sectors for us and offset some of the weakness we expected in other areas. looking back on these investments, we see a mixed record.

Some initiatives have clearly not produced the revenue or profitability we expected and we now see that the "match" between Pitney Bowes and these markets is fundamentally weak. Some have created new platforms for future growth and others that have not yet produced results will eventually succeed. Aside from feeling that we should have perhaps been stronger and resisted market temptation, we have learned that we stretched ourselves too thin, with our biggest barrier not cash to invest but adequate levels of talent and time to take all the ideas forward. In more than a few cases we took valuable talent out of a unit to support new initiatives, leaving the original group understaffed at a critical time. It is easy to criticize these decisions in hindsight, but at the time we felt that if we didn't act we might be left behind.

We invested in a number of worthy and necessary projects, such as PitneyWorks, Production Mail's Advanced Productivity and Digital Document Delivery systems, and Incoming Mail Solutions' Mixed Mail Manager. These projects consumed significant financial and human resources but will not start to produce noticeable revenues until next year.

Another major investment we made was in Project Voyager. This too caused a talent drain in our Mailing Systems and Financial Services groups, as we re-deployed talent to the project. Voyager has been extremely well managed and should come in ahead of time, and on budget, but it's critical to note that we have not yet seen the savings it will produce.

Should we criticize ourselves harshly for these decisions? I do not believe the investments were inappropriate, but our implementation and execution certainly could have been better. Having said that, we now have a great deal more knowledge to work with and know what we need to do differently. We must also recognize that we are in a slowing and more demanding economic environment, learn from the lessons of the past two years and operate differently.

What lessons are those? I think a few things stand out: First, we must be more customer centric than we have been. In those businesses with high volumes and relatively lower transaction sizes, such as Mailing Systems, Pitney Bowes Office Direct, Financial Services, and Commercial Office Systems sales, we need to focus more systematically on profitable customer retention. Many radical changes predicted as a result of the Internet did not happen, but one clear impact is that every customer has access to broader competitive choices. The best investment in growth we could make in these areas is to invest in programs that increase profitable customer retention.

In those businesses that operate with lower volumes of customers but higher transaction sizes, such as PBMS, Production Mail, Facsimile Systems and fleet copier sales, and the higher-ticket parts of TranScape and Mail Creation, we need to do some things differently.

We must also recognize that as we migrate to higher-ticket and more technologically sophisticated products and services, new decision-makers and influences enter the process. We must expect that every decision on web-enabled, networked products or services will be approved by chief information officers and chief e-commerce officers and their staffs will have to be active partners for us to achieve a successful solution for the customer. As our products become more applications-driven (such as those supporting direct mail or variable bill presentment) we are more likely to encounter chief marketing officers, operations officers and other functional leaders as well.

We must understand the needs and work habits of those who use our products and services as well as those who acquire them for users. We lost significant PBMS, business in 1998 and 1999 because we were not as conversant with user needs as we should have been. We were surprised when facsimile supplies usage dropped off a cliff starting in 1998 because we relied too heavily on purchaser, versus user, feedback.

In all of our businesses, we need to know a great deal more about competitors, regulators, and broader marketplace trends than we do today.

Recently, we have stepped up our efforts with increased spending on competitive equipment analysis, but we need to examine their market strategies as well. We must stay focused on the market and use every valid, ethical tool to understand what competitors are offering our customers.

We also need to understand the strategies, operations, and business needs of the postal authorities that regulate us, and influence the mailing environment in which we operate. To that end, we held a postal summit on October 26 and 27th. In it all Pitney Bowes leaders responsible for businesses or functions that are dependent on actions of the posts worked to understand the business climate and motivation of postal authorities and developed clear strategies for dealing with them.

I am also concerned that we may not have correctly prioritized our investments and growth initiatives because our intelligence about market place trends was neither broad nor deep enough. Our futures group activity under Luis Jimenez and Bob Hahn is dealing with longer-term trends that will affect our markets several years out. We are also identifying "watershed" events that could happen at any time and have a cataclysmic impact on our business. We need to be able to address factors such as rapid movements in interest rates, currencies, commodity prices, and economic growth rates, and Bruce Nolop is leading that effort.

In addition to an increased concentration on customers and competitors, we need to have a more disciplined, balanced and prioritized spending process.

Recently, we asked the senior leadership to evaluate major spending in all divisions and corporate staff functions to ensure that we are prioritising properly. Marc and I want to challenge all executives. managers, supervisors and employees to operationalize this thought process by asking themselves some simple questions.

•	Does this project broaden and enhance the core Pitney Bowes brand in a direction that is logical to the market?
•	Can we undertake this initiative in "bite-sized" pieces, particularly in new economy areas?
•	Do we have the talent, time and skills to support this initiative?
•	Should we invest in this product initiative or in enhanced distribution networks or back office infrastructure?
•	Which investment will increase customer satisfaction the most, retain more customers, and garner Pitney Bowes a larger share of customer expenditure?
•	Which investment will produce the most shareholder value? How quickly?

However, I want to make a couple of things clear. Prioritization is not retrenching, "giving up on the Internet" or returning to "business as usual" We are also not retreating from our commitments to core businesses or from the broad categories of growth we have previously identified. We invested close to $100 million in growth initiatives this year and expect to be at around the same level next year. But we want our investments to have a larger and more immediate effect. Instead of working on 100 new ideas in the core and growth categories we may concentrate on 30 or 10. I don't know what the right number is or where those investments should be, but we have to focus our efforts to escalate our impact.

We will also not scale back our commitment to leadership and talent development. The LEAD leadership development program launched earlier this year, will go on as planned. We continue to strengthen our ranks of e-business talent, and we will follow through on the development actions identified in the ACT process.

We also know that a key priority has to be the retention of our leaders and best non-management talent. Accordingly, at a special meeting on October 20th, the Board of Directors approved a plan that accelerated granting of stock options. All individuals who receive stock options as a regular part of their compensation have had their February 2001 and February 2002 grants brought forward, with a strike price $27.66. This special October 20th 2000 grant will substitute for the normal 2001 and 2002 grants.

Employees who received 21st century spot option award grants who are still performing exceptionally, will receive a one-time supplemental spot option grant. With the stock price at current low levels, we recognise that options granted since 1997 are under water. But we strongly believe that the current price is close to or at the bottom of a downward cycle, and that it should improve going forward.

In closing, I want to return to the questions I posed at the beginning of my remarks. What happened? How did we get here? What are we going to do about it? In retrospect, I believe we made decisions based on the information we had at the time about the markets in which we operate. Some of that information was imperfect. We can be excused for some of these mistakes, but we now know better. We must address our customer, competitive and prioritization challenges with a very high degree of urgency and discipline. Our leaders must take ownership of these challenges as if they were representing the shareholders. We must breakdown the functional, divisional, and departmental barriers that get in the way.

Shareholders who counted on being able to sell our stock at a gain have a right to be angry and their tolerance of our mistakes will be lower. At the same time, we must balance urgency and perhaps anxiety with a calm, disciplined focus. A key factor in achieving this balance is your success in creating your operational action plan, keeping your team mates informed and correcting the misinformation and rumor that inevitably sprouts up in this environment.

We need your help, but we also offer you our full support and encouragement.

While we're very optimistic about our future, we must be realistic about the challenges we face. Let's face these challenges together and make this company what it can be.