UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 1-3579

PITNEY BOWES INC.

(Exact name of registrant as specified in its charter)



Delaware		06-0495050
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3001 Summer Street, Stamford, Connecticut		06926
(Address of principal executive offices)		(Zip Code)

(203) 356-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o~~(Do not check if a smaller reporting company)~~
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of ~~May 3,~~October 30, 2018, ~~187,550,191~~187,621,135 shares of common stock, par value $1 per share, of the registrant were outstanding.

PITNEY BOWES INC.

INDEX



		Page Number

Part I - Financial Information:

Item 1:	Financial Statements

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2018 and 2017	3

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2018 and 2017	4

	Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2018 and December 31, 2017	5

	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2018 and 2017	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3133

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	4043

Item 4:	Controls and Procedures	4043


Part II - Other Information:

Item 1:	Legal Proceedings	4044

Item 1A:	Risk Factors	4044

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4144

Item 6:	Exhibits	4245


Signatures		4346

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in thousands, except per share amounts)


	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017		2018			2017
Revenue:
Equipment sales	$	155,808		$	162,974	$	100,937		$	103,514	$	317,058		$	349,401
Supplies	65,374			66,818		50,403			53,627		165,853			173,321
Software	81,616			77,867		76,026			94,226		244,022			248,391
Rentals	95,280			99,870		91,115			95,333		277,550			290,087
Financing	80,103			85,745		76,730			81,079		233,504			250,477
Support services	118,463			118,847		74,117			75,783		219,311			223,056
Business services	386,538			224,519		363,528			229,711		1,117,942			672,133
Total revenue	983,182			836,640		832,856			733,273		2,575,240			2,206,866
Costs and expenses:
Cost of equipment sales	78,751			69,562		39,353			49,328		132,513			145,450
Cost of supplies	21,147			21,471		13,967			15,209		46,652			48,277
Cost of software	25,353			25,308		24,743			24,107		75,257			70,622
Cost of rentals	24,596			20,662		21,827			20,447		66,959			61,869
Financing interest expense	12,225			12,974		11,954			12,629		36,525			38,446
Cost of support services	75,572			73,354		43,259			39,468		125,995			122,889
Cost of business services	297,399			150,843		291,650			166,984		882,529			470,890
Selling, general and administrative	312,108			304,847		269,387			288,093		847,281			861,738
Research and development	32,784			31,856		32,760			29,316		94,155			88,598
Restructuring charges, net	1,021			2,082
Restructuring charges and asset impairments, net						7,232			1,470		19,639			29,109
Other components of net pension and postretirement cost	(1,719		)	1,456		(1,852		)	1,356		(6,070		)	4,079
Interest expense, net	30,853			25,676		25,483			28,601		85,959			81,877
Other expense						7,964			—		7,964			—
Total costs and expenses	910,090			740,091		787,727			677,008		2,415,358			2,023,844
Income before income taxes	73,092			96,549
Provision for income taxes	19,579			31,416
Income from continuing operations before taxes						45,129			56,265		159,882			183,022
(Benefit) provision for income taxes						(1,976		)	10,828		20,745			38,700
Income from continuing operations						47,105			45,437		139,137			144,322
Income from discontinued operations, net of tax						29,848			11,921		39,543			27,070
Net income	$	53,513		$	65,133	$	76,953		$	57,358	$	178,680		$	171,392
Earnings per share attributable to common stockholders:
Basic	$	0.29		$	0.35
Diluted	$	0.28		$	0.35
Basic earnings per share ⁽¹⁾:
Continuing operations						$	0.25		$	0.24	$	0.74		$	0.77
Discontinued operations						0.16			0.06		0.21			0.15
Net income						$	0.41		$	0.31	$	0.95		$	0.92
Diluted earnings per share ⁽¹⁾:
Continuing operations						$	0.25		$	0.24	$	0.74		$	0.77
Discontinued operations						0.16			0.06		0.21			0.14
Net income						$	0.41		$	0.31	$	0.95		$	0.92
Dividends declared per share of common stock	$	0.1875		$	0.1875	$	0.1875		$	0.1875	$	0.5625		$	0.5625

⁽¹⁾The sum of earnings per share amounts may not equal the totals due to rounding.

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands)

Three Months Ended March 31,
2018 2017
Net income $ 53,513
$ 65,133
Other comprehensive income, net of tax:
Foreign currency translations 15,512
19,915
Net unrealized gain on cash flow hedges, net of tax of $162 and $353, respectively 486
576
Net unrealized (loss) gain on investment securities, net of tax of $(1,366) and $344, respectively (3,992 ) 585
Adjustments to pension and postretirement plans, net of tax of $(304) —
(1,482 )
Amortization of pension and postretirement costs, net of tax of $2,803 and $3,517, respectively 8,172
6,708
Other comprehensive income, net of tax 20,178
26,302
Comprehensive income attributable to Pitney Bowes Inc. $ 73,691
$ 91,435



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Net income	$	76,953		$	57,358	$	178,680		$	171,392
Other comprehensive income, net of tax:
Foreign currency translation	(2,472		)	33,517		(31,545		)	100,223
Net unrealized gain on cash flow hedges, net of tax of $174, $122, $474 and $361, respectively	522			195		773			579
Net unrealized (loss) gain on investment securities, net of tax of $(417), $220, $(2,230) and $1,322, respectively	(1,218		)	375		(6,514		)	2,251
Adjustments to pension and postretirement plans, net of tax of $(304)	—			—		—			(1,482		)
Amortization of pension and postretirement costs, net of tax benefits of $2,399, $3,484, $7,766 and $10,440, respectively	8,810			6,744		24,850			20,078
Other comprehensive income (loss), net of tax	5,642			40,831		(12,436		)	121,649
Comprehensive income	$	82,595		$	98,189	$	166,244		$	293,041

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share and per share amounts)


	March 31, 2018			December 31, 2017			September 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	719,875		$	1,009,021		$	759,231		$	1,009,021
Short-term investments	55,603			48,988			55,929			48,988
Accounts receivable (net of allowance of $15,889 and $15,985, respectively)	488,028			524,424
Short-term finance receivables (net of allowance of $12,821 and $12,187, respectively)	792,802			828,003
Accounts receivable (net of allowance of $17,108 and $14,786, respectively)							378,036			427,022
Short-term finance receivables (net of allowance of $12,570 and $12,187, respectively)							787,121			828,003
Inventories	96,224			89,679			48,199			40,769
Current income taxes	42,274			58,439			11,395			58,439
Other current assets and prepayments	94,227			77,954			92,916			74,589
Assets of discontinued operations							18,273			334,848
Total current assets	2,289,033			2,636,508			2,151,100			2,821,679
Property, plant and equipment, net	386,977			379,044			399,347			373,503
Rental property and equipment, net	182,727			185,741			179,058			183,956
Long-term finance receivables (net of allowance of $6,959 and $6,446 respectively)	640,987			652,087
Long-term finance receivables (net of allowance of $8,070 and $6,446 respectively)							600,129			652,087
Goodwill	1,965,984			1,952,444			1,765,083			1,774,645
Intangible assets, net	261,318			272,186			238,167			272,186
Noncurrent income taxes	61,367			59,909			54,114			59,909
Other assets	531,225			540,796			526,937			540,750
Total assets	$	6,319,618		$	6,678,715		$	5,913,935		$	6,678,715

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,375,166		$	1,486,741		$	1,342,097		$	1,450,149
Current income taxes	9,457			8,823			40,018			8,823
Current portion of long-term debt	327,429			271,057			192,649			271,057
Advance billings	292,174			288,372			224,141			257,766
Liabilities of discontinued operations							10,446			72,808
Total current liabilities	2,004,226			2,054,993			1,809,351			2,060,603
Deferred taxes on income	239,472			234,643			230,663			234,643
Tax uncertainties and other income tax liabilities	112,520			116,551			101,362			116,551
Long-term debt	3,248,713			3,559,278			3,076,968			3,559,278
Other noncurrent liabilities	499,794			524,689			443,925			519,079
Total liabilities	6,104,725			6,490,154			5,662,269			6,490,154

Commitments and contingencies (See Note 13)
Commitments and contingencies (See Note 14)

Stockholders’ equity:
Cumulative preferred stock, $50 par value, 4% convertible	1			1			1			1
Cumulative preference stock, no par value, $2.12 convertible	422			441			403			441
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)	323,338			323,338			323,338			323,338
Additional paid-in capital	119,647			138,367			117,918			138,367
Retained earnings	5,235,874			5,229,584			5,290,761			5,229,584
Accumulated other comprehensive loss	(771,995		)	(792,173		)	(804,609		)	(792,173		)
Treasury stock, at cost (136,194,172 and 136,734,174 shares, respectively)	(4,692,394		)	(4,710,997		)
Treasury stock, at cost (135,722,534 and 136,734,174 shares, respectively)							(4,676,146		)	(4,710,997		)
Total stockholders’ equity	214,893			188,561			251,666			188,561
Total liabilities and stockholders’ equity	$	6,319,618		$	6,678,715		$	5,913,935		$	6,678,715

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)



	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	178,680		$	171,392
Income from discontinued operations, net of tax	(39,543		)	(27,070		)
Restructuring payments	(39,100		)	(28,442		)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	152,181			129,888
Loss on extinguishment of debt	7,964			—
Stock-based compensation	15,771			18,312
Restructuring charges and asset impairments, net	19,639			29,109
Gain on sale of technology	—			(6,085		)
Changes in operating assets and liabilities, net of acquisitions/divestitures:
Decrease in accounts receivable	43,905			43,715
Decrease in finance receivables	80,358			126,774
Increase in inventories	(6,159		)	(8,137		)
Increase in other current assets and prepayments	(24,436		)	(11,800		)
Decrease in accounts payable and accrued liabilities	(76,848		)	(38,789		)
Increase (decrease) in current and non-current income taxes	223			(31,410		)
Decrease in advance billings	(34,309		)	(32,102		)
Other, net	(31,900		)	(22,798		)
Net cash provided by operating activities - continuing operations	246,426			312,557
Net cash provided by operating activities - discontinued operations	44,200			18,020
Net cash provided by operating activities	290,626			330,577
Cash flows from investing activities:
Purchases of available-for-sale securities	(74,270		)	(108,571		)
Proceeds from sales/maturities of available-for-sale securities	67,354			89,940
Net activity from short-term and other investments	8,479			(8,082		)
Capital expenditures	(140,533		)	(118,351		)
Proceeds from sale of assets	—			5,458
Acquisition of businesses, net of cash acquired	(2,407		)	(7,889		)
Change in reserve account deposits	6,864			(2,508		)
Other investing activities	(2,500		)	(4,500		)
Net cash used in investing activities - continuing operations	(137,013		)	(154,503		)
Net cash provided by (used in) investing activities - discontinued operations	339,198			(1,212		)
Net cash provided by (used in) investing activities	202,185			(155,715		)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	—			1,437,659
Principal payments of long-term debt	(565,141		)	(614,449		)
Dividends paid to stockholders	(105,296		)	(104,524		)
Other financing activities	(55,485		)	(3,624		)
Net cash (used in) provided by financing activities	(725,922		)	715,062
Effect of exchange rate changes on cash and cash equivalents	(15,653		)	42,457
(Decrease) increase in cash and cash equivalents	(248,764		)	932,381
Cash and cash equivalents at beginning of period	1,009,021			764,522
Cash and cash equivalents at end of period	760,257			1,696,903
Less: Cash and cash equivalents of discontinued operations	1,026			—
Cash and cash equivalents of continuing operations at end of period	$	759,231		$	1,696,903

Cash interest paid	$	127,624		$	131,927
Cash income tax payments, net of refunds	$	17,168		$	88,021

Three Months Ended March 31,
2018 2017
Cash flows from operating activities:

Net income $ 53,513
$ 65,133
Restructuring payments (15,702 ) (12,416 )
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 50,820
44,295
Stock-based compensation 3,273
5,638
Restructuring charges, net 1,021
2,082
Changes in operating assets and liabilities, net of acquisitions/divestitures:

Decrease in accounts receivable 37,525
67,765
Decrease in finance receivables 49,350
63,390
Increase in inventories (3,823 ) (22,195 )
Increase in other current assets and prepayments (22,683 ) (9,746 )
Decrease in accounts payable and accrued liabilities (70,476 ) (32,829 )
Increase in current and non-current income taxes 13,369
13,542
Decrease in advance billings (2,106 ) (9,194 )
Other, net (11,409 ) (21,459 )
Net cash provided by operating activities 82,672
154,006
Cash flows from investing activities:

Purchases of available-for-sale securities (29,922 ) (34,308 )
Proceeds from sales/maturities of available-for-sale securities 15,044
34,396
Net activity from short-term and other investments 16,562
(4,303 )
Capital expenditures (42,923 ) (35,920 )
Acquisition of businesses, net of cash acquired (2,407 ) (7,889 )
Change in reserve account deposits 6,654
(19,346 )
Other investing activities (1,250 ) (1,500 )
Net cash used in investing activities (38,242 ) (68,870 )
Cash flows from financing activities:

Principal payments of long-term debt (255,045 ) (79,278 )
Dividends paid to stockholders (35,016 ) (34,567 )
Other financing activities (50,256 ) (5,658 )
Net cash used in financing activities (340,317 ) (119,503 )
Effect of exchange rate changes on cash and cash equivalents 6,741
9,398
Decrease in cash and cash equivalents (289,146 ) (24,969 )
Cash and cash equivalents at beginning of period 1,009,021
764,522
Cash and cash equivalents at end of period $ 719,875
$ 739,553
Cash interest paid $ 46,998
$ 52,989
Cash income tax payments, net of refunds $ 4,560
$ 18,511

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

1. Description of Business and Basis of Presentation

Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are a global technology company offering innovative products and solutions that help our clients navigate the complex world of commerce. We provide innovative products and solutions for mailing, shipping and cross border ecommerce that enable the sending of packages globally and products and solutions for customer information management, location intelligence and customer engagement to help our clients market to their customers. Clients around the world rely on our products, solutions and services. For more information about us, our products, services and solutions, visit www.pb.com.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2017 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2018. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2017 (2017 Annual Report).

During the third quarter of 2018, we completed the sale of our Document Messaging Technologies production mail business and supporting software (collectively, the Production Mail Business). Accordingly, the Production Mail Business is now reported as a discontinued operation in our condensed consolidated financial statements. Prior periods have been recast to conform to the current period presentation. See Note 4 for further details.

Accounting Pronouncements Adopted on January 1, 2018

We adopted Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606), which requires companies to recognize revenue when or as control of a promised good or service is transferred to a client in amounts that reflect consideration the company expects to receive in exchange for those goods and services. See Note 2 for more information on the adoption of ASC 606.

We adopted ASU No. 2016-16, Income Taxes: Intra-entity Transfers of Assets other than Inventory, which requires tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects of the transaction are eliminated in consolidation. Under prior guidance, the tax effects of transfers were deferred until the transferred asset was sold or otherwise recovered through use. We recognized the cumulative effect of initially applying this standard as a net reduction of $3 million to opening retained earnings.

We adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Benefit Cost. The ASU requires ~~only~~that the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation ~~costs. Other~~costs, while other components of ~~the~~ net periodic benefit cost ~~are now~~be presented ~~separately~~ in ~~Other components of net pension and postretirement costs~~a separate line item in the Consolidated Statements of Income. Prior period information has been recast to conform to the current period presentation.

We adopted ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. There was no impact on our consolidated financial statements.

We early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU changes the recognition and presentation requirements as well as the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. There was no impact on our consolidated financial statements.

We adopted ASU 2017-09, Scope of Modification Accounting. The ASU provides guidance about which changes to terms and conditions of a share-based payment award require an entity to apply modification accounting. There was no impact on our consolidated financial statements.

We adopted ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as an acquisition or disposal of assets or a business. There was no impact on our consolidated financial statements.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

New Accounting Pronouncements - Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective beginning January 1, 2020, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU impacts disclosure requirements only. The standard is effective beginning January 1, 2021, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU modifies certain disclosure requirements of fair value measurements. The standard is effective beginning January 1, 2020, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI). The ASU permits a reclassification of the disproportionate income tax effects of the 2017 Tax Cuts and Jobs Act (the Act) on items within AOCI to retained ~~earnings. The ASU also~~earnings and requires certain new ~~disclosures, some of which are applicable for all companies.~~disclosures. The standard is effective beginning January 1, ~~2019; however,~~2019, with early adoption is permitted. We ~~are currently assessing~~anticipate that the reclassification of the disproportionate income tax effects of the Act from AOCI to retained earnings could be material; however there will be no impact ~~this standard will have on our consolidated financial statements.~~to total Stockholder's equity.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU ~~shortens~~requires that the ~~amortization period for~~premium of certain callable debt securities ~~held at a premium, requiring the premium to~~ be amortized to the earliest call date rather than the scheduled maturity date. The standard is effective beginning January 1, 2019 and will be applied on a modified retrospective basis ~~through~~with a cumulative effect adjustment as of the beginning of the period of adoption. ~~The standard is effective beginning January 1, 2019; however, early~~Early adoption is permitted. We ~~are~~ currently ~~assessing~~do not believe the ~~impact~~adoption of this standard will have ~~on our consolidated financial statements.~~

~~In January 2017, the FASB issued ASU 2017-06,~~ ~~Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. The ASU requires separate disclosure in the statement of net assets available for benefits and the statement of changes in net assets available for benefits of changes in any interests held in~~ a ~~Master Trust and other enhanced disclosures. The standard is effective beginning January 1, 2019. We are currently evaluating the~~material impact ~~this standard will have~~ on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model, which requires companies to measure expected credit losses for all financial instruments held at the reporting date based on historical experience, current conditions and reasonably supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective beginning January 1, 2020. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, ~~Leases.~~Leases. This standard, among other things, requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease ~~liability~~liability. Additionally, the standard requires enhanced qualitative and ~~provide enhanced disclosures. The~~quantitative disclosures to help readers assess the amount, timing and uncertainty of cash flows arising from leases. From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with the new revenue recognition guidance. This standard is effective beginning January 1, 2019. We will adopt the standard using a modified retrospective approach and recognize and measure leases in the period of adoption. We plan to utilize a package of optional practical expedients that allows companies to maintain prior accounting conclusions regarding whether a contract contains a lease, lease classification and initial direct costs for any expired or existing leases. Prior periods will not be restated.

With regard to our lessor portfolio, we expect changes in the timing and classification of revenue and associated costs related to contract modifications, as well as conclusions on lease and non-lease components. We are ~~currently assessing~~still determining the impact ~~this standard will have~~of these changes on our consolidated financial statements; however, the changes could materially impact the timing of revenue and expense recognition over the lease term. We do not expect the economics and overall profitability of our lease offerings to be materially impacted.

From the lessee perspective, we are reviewing our lease portfolio to evaluate the impact on our consolidated financial statements, accounting policies and ~~disclosures.~~internal controls; however, we expect that recognizing a right-of-use asset and liability will materially impact our balance sheet. We are implementing a new lease accounting software solution that will determine the right-of-use asset and lease liability related to our operating lease portfolio as well as meet the disclosure requirements.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

2. Revenue from Contracts with Customers

Adoption of ASC 606

We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) using the modified retrospective approach. Prior period information was not restated and continues to be reported under the accounting standards in effect for those periods. We recognized a cumulative effect adjustment from the adoption of this standard that reduced opening retained earnings by $9 million. Significant components of the cumulative effect adjustment include:

The write-off of previously capitalized deferred marketing costs that did not meet the criteria for capitalization under ASC 606.

The capitalization of certain costs to obtain a contract, primarily sales commissions, that are permitted to be capitalized under ASC 606.

The establishment of deferred revenue related to the early renewal of software and data license contracts with terms beginning in 2018, as ASC 606 requires revenue recognition at the commencement of the license term.

The write-off of deferred revenues and related costs for certain software licenses bundled with a lease that are recognized at time of delivery under ASC 606.

The write-off of advance billings related to certain software data products that are recognized upon delivery under ASC 606.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)~~

The ~~pro forma~~ impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:


	Three months ended March 31, 2018							Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	As reported		Pro forma		Total increase (decrease)			As reported			Prior guidance			Increase (decrease)			As reported		Prior guidance		Increase (decrease)
Income Statement
Total revenue	$	983,182	$	970,451	$	12,731		$	832,856		$	828,999		$	3,857		$	2,575,240	$	2,553,059	$	22,181
Equipment sales	$	155,808	$	153,607	$	2,201		$	100,937		$	101,632		$	(695	)	$	317,058	$	319,165	$	(2,107	)
Software	$	81,616	$	70,597	$	11,019		$	76,026		$	71,081		$	4,945		$	244,022	$	218,410	$	25,612
Business services	$	386,538	$	387,027	$	(489	)	$	363,528		$	363,921		$	(393	)	$	1,117,942	$	1,119,266	$	(1,324	)

Total costs and expenses	$	910,090	$	907,747	$	2,343		$	787,727		$	790,565		$	(2,838	)	$	2,415,358	$	2,420,406	$	(5,048	)
Cost of equipment sales	$	78,751	$	76,738	$	2,013		$	39,353		$	39,409		$	(56	)	$	132,513	$	132,628	$	(115	)
Cost of software	$	25,353	$	24,071	$	1,282		$	24,743		$	23,957		$	786		$	75,257	$	72,499	$	2,758
Selling, general and administrative	$	312,108	$	313,060	$	(952	)	$	269,387		$	272,955		$	(3,568	)	$	847,281	$	854,972	$	(7,691	)

Income before taxes	$	73,092	$	62,704	$	10,388
Provision for income taxes	$	19,579	$	16,931	$	2,648
Net income	$	53,513	$	45,773	$	7,740
Income from continuing operations before taxes								$	45,129		$	38,434		$	6,695		$	159,882	$	132,653	$	27,229
(Benefit) provision for income taxes								$	(1,976	)	$	(3,768	)	$	1,792		$	20,745	$	13,666	$	7,079
Net income from continuing operations								$	47,105		$	42,202		$	4,903		$	139,137	$	118,987	$	20,150

Basic earnings per share attributable to common stockholders	$	0.29	$	0.25	$	0.04
Diluted earnings per share attributable to common stockholders	$	0.28	$	0.24	$	0.04
Basic earnings - continuing operations								$	0.25		$	0.22		$	0.03		$	0.74	$	0.63	$	0.11
Diluted earnings per share - continuing operations								$	0.25		$	0.22		$	0.03		$	0.74	$	0.63	$	0.11

The most significant change to the Consolidated ~~Statement~~Statements of Income under ASC 606 for the three and nine months ended ~~March 31,~~September 30, 2018, was ~~due to~~ higher software revenue of $5 million and $26 million, respectively, and higher net income from continuing operations before taxes of ~~$11~~$4 million and $9$23 million ~~respectively, under ASC 606 primarily as a result of~~for the ~~renewal of software data licenses with a term beginning in 2018.~~three and nine months ended September 30, 2018, respectively.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)


	March 31, 2018									September 30, 2018
	As reported			Pro forma			Total increase (decrease)			As reported			Prior guidance			Increase (decrease)
Balance Sheet
Total Assets	$	6,319,618		$	6,331,186		$	(11,568	)	$	5,913,935		$	5,911,188		$	2,747
Accounts receivable, net	$	488,028		$	486,327		$	1,701
Accounts receivable										$	378,036		$	377,484		$	552
Current income taxes	$	42,274		$	42,472		$	(198	)	$	11,395		$	11,593		$	(198	)
Other current assets and prepayments	$	94,227		$	97,909		$	(3,682	)	$	92,916		$	92,174		$	742
Noncurrent income taxes	$	61,367		$	61,571		$	(204	)	$	54,114		$	54,117		$	(3	)
Other assets	$	531,225		$	540,410		$	(9,185	)	$	526,937		$	525,283		$	1,654

Total Liabilities	$	6,104,725		$	6,115,357		$	(10,632	)	$	5,662,269		$	5,671,251		$	(8,982	)
Accounts payable and accrued liabilities	$	1,375,166		$	1,373,465		$	1,701		$	1,342,097		$	1,339,257		$	2,840
Current income taxes	$	9,457		$	6,034		$	3,423		$	40,018		$	32,960		$	7,058
Advance billings	$	292,174		$	302,586		$	(10,412	)	$	224,141		$	237,546		$	(13,405	)
Liabilities of discontinued operations										$	10,446		$	10,359		$	87
Deferred taxes on income	$	239,472		$	243,843		$	(4,371	)	$	230,663		$	234,365		$	(3,702	)
Other noncurrent liabilities	$	499,794		$	500,767		$	(973	)	$	443,925		$	445,785		$	(1,860	)

Total Stockholder's equity	$	214,893		$	215,829		$	(936	)
Total Stockholders' equity										$	251,666		$	239,256		$	12,410
Retained earnings	$	5,235,874		$	5,236,690		$	(816	)	$	5,290,761		$	5,278,691		$	12,070
Accumulated other comprehensive loss	$	(771,995	)	$	(771,875	)	$	(120	)	$	(804,609	)	$	(804,949	)	$	340

The most significant ~~changes~~change to the Consolidated Balance Sheet at ~~March 31,~~September 30, 2018 ~~were:~~

Lower Other current assets and prepayments due to the write-off of prepaid costs related to software licenses and software data products, which are now recognized at time of delivery rather than ratably under previous guidance.

Lower Other assets primarily due to the write-off of deferred marketing costs at January 1, 2018, offset by the capitalization of certain costs to obtain a contract, primarily related to sales commissions.

~~Lower Advance~~was lower advance billings due to the write-off of deferred revenue from software licenses bundled with leases and data products, which are now recognized at time of delivery rather than ratably under previous guidance.

Cash Flow Statement

The adoption of ASC 606 had no impact on our Consolidated Statements of Cash Flows.

Significant Accounting Policies

The most significant impact of ASC 606 on our consolidated financial statements will be in the timing of recognizing certain revenues and costs to obtain a contract related to software and software related products. We will continue to recognize revenue from equipment sales under sales-type leases and related financing income and rental of postage meters and mailing equipment in accordance with ASC 840, Leases.

We applied the following practical expedients and policy elections when adopting ASC 606:

Costs incurred to obtain a contract with a customer are expensed if the amortization period ~~of the asset~~ is one year or less.

With the exception of certain services contracts, all taxes assessed by government authorities, such as sales and use taxes, value added taxes and excise ~~tax,~~taxes, are excluded from the transaction price.

The transaction price is not adjusted for a significant financing component when a performance obligation is satisfied within one year.

Revenue is recognized based on the amount billable to the customer when that amount corresponds to the value transferred to the customer.

Shipping and handling activities are accounted for as a fulfillment activity rather than a separate performance obligation.

We reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price.

Significant changes to accounting policies disclosed in our 2017 Annual Report due to the adoption of ASC 606 are discussed below.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Software Sales and Integration Services

~~Our software products include software and data licenses that are either “right to use” or “right to access”.~~ A majority of our software and data license products are considered ~~right~~"right to ~~use~~use" and are generally distinct from other promised goods and services within a contract. Revenue for right to use software and data licenses is recognized at a point in time when control has transferred to the customer, which is generally upon delivery or acceptance for those licenses requiring significant integration or customization. Revenue from renewals are recognized at the beginning of ~~the license term.~~

Right to access licenses generally bundle certain software licenses, data licenses and data updates that are highly interdependent and the updates are critical to the continued use of the license by the customer. Revenue for these arrangements are deferred and recognized ratably over the license term.

We generally invoice customers upon delivery of our software and data licenses. Data contracts that include both data and data updates are invoiced in one or more equal installments. A contract asset is recognized on data licenses for which consideration will be received in future periods.

We allocate the transaction price based on relative standalone selling prices, which are generally based on observable selling prices in standalone transactions for our data products, maintenance and professional services. We estimate the standalone selling prices for our software licenses using the residual approach, as the selling prices are highly variable and when observable standalone selling prices exist for the other goods and services in the contract.

We often bundle software licenses with lease contracts. Revenue is recognized upon delivery of those software licenses considered distinct and functional in nature.

Costs to Obtain a Contract and Marketing Costs

Certain incremental costs to obtain a contract are capitalized ~~as contract costs~~ if we expect the benefit of those costs to be realized ~~for~~over a period greater than one year. These costs primarily relate to sales commission on multi-year equipment and software support service contracts. These costs ~~will be~~are amortized in a manner consistent with the timing of the related revenue over the ~~period of~~ contract performance period or a longer, ~~period,~~ if renewals are expected and the renewal commission is not commensurate with the initial commission. Amortization expense for the three and nine months ended ~~March 31,~~September 30, 2018 was $4 million and $11 million, respectively, and is included in ~~Selling,~~selling, general and administrative expenses. Unamortized contract costs at ~~March 31,~~September 30, 2018 were ~~$26~~$28 million and are included in ~~Other~~other assets.

Certain marketing costs associated with the acquisition of new customers are expensed as incurred since these costs do not meet the criteria of a cost to obtain a contract.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Revenue from Contracts with Customers

The following ~~table disaggregates~~tables disaggregate our revenue by major source:


	Three months ended March 31, 2018																		Three Months Ended September 30, 2018
	Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Production Mail		Total Revenue from sales and services (ASC 606)		Revenue from leasing transactions and financing		Total Consolidated Revenue		Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Total Revenue from sales and services (ASC 606)		Revenue from leasing transactions and financing		Total Consolidated Revenue
Equipment sales	$	—	$	—	$	17,145	$	13,364	$	—	$	45,435	$	75,944	$	79,864	$	155,808	$	—	$	—	$	13,615	$	11,974	$	—	$	25,589	$	75,348	$	100,937
Supplies	—		—		38,951		21,041		—		5,382		65,374		—		65,374		—		—		33,854		16,549		—		50,403		—		50,403
Software	—		—		—		—		81,616		—		81,616		—		81,616		—		—		—		284		75,742		76,026		—		76,026
Rentals	—		—		730		2,167		—		—		2,897		92,383		95,280		—		—		4,357		1,971		—		6,328		84,787		91,115
Financing	—		—		16,577		2,976		—		—		19,553		60,550		80,103		—		—		15,478		2,636		—		18,114		58,616		76,730
Support services	—		—		50,744		22,278		—		45,440		118,462		—		118,462		—		—		53,987		20,130		—		74,117				74,117
Business services	246,590		134,458		3,803		1,688		—		—		386,539		—		386,539		232,845		125,334		4,022		1,327		—		363,528				363,528
	$	246,590	$	134,458	$	127,950	$	63,514	$	81,616	$	96,257	$	750,385	$	232,797	$	983,182	$	232,845	$	125,334	$	125,313	$	54,871	$	75,742	$	614,105	$	218,751	$	832,856

Revenue from sales and services (ASC 606)	$	246,590	$	134,458	$	127,950	$	63,514	$	81,616	$	96,257	$	750,385	$	—	$	750,385	$	232,845	$	125,334	$	125,313	$	54,871	$	75,742	$	614,105	$	—	$	614,105
Revenue from leasing transactions and financing	—		—		197,480		34,383		—		934		—		232,797		232,797		—		—		188,652		30,099		—		—		218,751		218,751
Total revenue	$	246,590	$	134,458	$	325,430	$	97,897	$	81,616	$	97,191	$	750,385	$	232,797	$	983,182	$	232,845	$	125,334	$	313,965	$	84,970	$	75,742	$	614,105	$	218,751	$	832,856

Timing of revenue recognition (ASC 606)	Timing of revenue recognition (ASC 606)																		Timing of revenue recognition (ASC 606)
Products/services transferred at a point in time	$	—	$	—	$	56,096	$	34,405	$	26,057	$	50,817	$	167,375					$	—	$	—	$	47,467	$	28,809	$	24,262	$	100,538
Products/services transferred over time	246,590		134,458		71,854		29,109		55,559		45,440		583,010						232,845		125,334		77,846		26,062		51,480		513,567
Total revenue	$	246,590	$	134,458	$	127,950	$	63,514	$	81,616	$	96,257	$	750,385					$	232,845	$	125,334	$	125,313	$	54,871	$	75,742	$	614,105

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)



	Nine Months Ended September 30, 2018
	Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Total Revenue from sales and services (ASC 606)		Revenue from leasing transactions and financing		Total Consolidated Revenue
Equipment sales	$	—	$	—	$	46,061	$	36,992	$	—	$	83,053	$	234,005	$	317,058
Supplies	—		—		109,077		56,776		—		165,853		—		165,853
Software	—		—		—		284		243,738		244,022		—		244,022
Rentals	—		—		15,189		6,276		—		21,465		256,085		277,550
Financing	—		—		47,768		8,478		—		56,246		177,258		233,504
Support services	—		—		155,635		63,676		—		219,311				219,311
Business services	718,535		382,522		12,278		4,607		—		1,117,942				1,117,942
	$	718,535	$	382,522	$	386,008	$	177,089	$	243,738	$	1,907,892	$	667,348	$	2,575,240

Revenue from sales and services (ASC 606)	$	718,535	$	382,522	$	386,008	$	177,089	$	243,738	$	1,907,892	$	—	$	1,907,892
Revenue from leasing transactions and financing	—		—		568,072		99,276		—		—		667,348		667,348
Total revenue	$	718,535	$	382,522	$	954,080	$	276,365	$	243,738	$	1,907,892	$	667,348	$	2,575,240

Timing of revenue recognition (ASC 606)
Products/services transferred at a point in time	$	—	$	—	$	155,138	$	94,052	$	89,282	$	338,472
Products/services transferred over time	718,535		382,522		230,870		83,037		154,456		1,569,420
Total revenue	$	718,535	$	382,522	$	386,008	$	177,089	$	243,738	$	1,907,892

Our performance obligations are as follows:

Equipment ~~sales~~Sales and ~~supplies:~~Supplies: ~~Our performance obligations generally include the sale of~~We sell mailing equipment ~~excluding sales-type leases,~~ and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.

Software: ~~Our performance obligations include the sale of~~We sell software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.

Rentals: ~~Our performance obligations include the~~We charge our customers fees associated with postage refills for meters.

Financing: ~~Our performance obligations for financing revenue include~~We provide services under our equipment replacement program. The fees received for this program are recognized ratably over the contract term.

Support ~~services:~~Services: ~~Our performance obligations include providing~~We provide maintenance and professional services for our North America and International mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Maintenance ~~contract~~ revenue is recognized ratably over the contract period and revenue for professional services is recognized when services are ~~complete.~~provided.

Business ~~services:~~Services: ~~Our performance obligations include~~We provide mail processing services and ecommerce solutions. Revenue is recognized ~~as the services are provided as these services represent a series of distinct services that are similar and the revenue is recognized~~over time as the services are provided. The contract terms for these services vary, with the initial contracts ranging from one to five years followed by annual renewal periods.

Revenue from leasing transactions and financing include revenue from sales-type leases, operating leases, finance income and late fees that are not accounted for under ASC 606.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Contract Assets and Advance Billings from Contracts with Customers

March 31, 2018
January 1, 2018 ⁽¹⁾
Total increase (decrease)
Contracts assets, current portion $ 4,565
$ 5,075
$ (510 )
Contracts assets, noncurrent portion $ 1,752
$ 648
$ 1,104
Advance billings, current portion $ 236,599
$ 238,707
$ (2,108 )
Advance billings, noncurrent portion $ 14,887
$ 17,874
$ (2,987 )



	September 30, 2018		January 1, 2018 ⁽¹⁾		Increase (decrease)
Contracts assets, current	$	8,472	$	5,075	$	3,397
Contracts assets, noncurrent	$	7,520	$	648	$	6,872
Advance billings, current	$	171,682	$	209,098	$	(37,416	)
Advance billings, noncurrent	$	14,891	$	17,765	$	(2,874	)

⁽¹⁾Balances adjusted for the cumulative effect of accounting change

Contract assets ~~current and non current,~~ are recorded in ~~Other~~other current assets and prepayments and ~~Other~~other assets, respectively. Advance billings ~~current and noncurrent,~~ are recorded in ~~Advance~~advance billings and ~~Other~~other noncurrent ~~liabilities, respectively.~~liabilities.

Contract Assets

We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration is conditional on the satisfaction of another performance obligation within a contract. The net increase is driven by revenue recognized on data contracts during the third quarter, for which consideration will be invoiced in future periods.

Advance Billings from Contracts with Customers

Advance billings are recorded when cash payments are due in advance of our performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.

The net decrease in advance billings at ~~March 31,~~September 30, 2018 is primarily driven by revenues recognized during the period, which includes ~~$107~~$162 million of advance billings at the beginning of the period, partially offset by advance billings in the quarter.

Future Performance Obligations

The transaction prices allocated to future performance obligations will be recognized as follows:


	Total		Remainder of 2018		2019		2020-2023		Remainder of 2018		2019		2020-2025		Total
North America Mailing⁽¹⁾	$	269,197	$	91,823	$	90,473	$	86,901	$	39,160	$	136,602	$	209,758	$	385,520
International Mailing⁽¹⁾	121,695		38,663		33,801		49,231		12,174		35,227		48,822		96,223
Production Mail⁽²⁾	8,321		4,194		3,557		570
Software Solutions⁽³⁾	87,868		40,592		30,440		16,836
Software Solutions⁽²⁾									22,780		39,503		32,645		94,928
Total	$	487,081	$	175,272	$	158,271	$	153,538	$	74,114	$	211,332	$	291,225	$	576,671

⁽¹⁾Revenue streams bundled with our leasing contracts, primarily maintenance and other services

⁽²⁾ ~~Noncancellable maintenance contracts for production mail equipment for contract terms greater than 12 months~~

⁽³⁾Multiple-year software maintenance contracts, certain software and data licenses and data updates

The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

3. Segment Information

In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market. The Commerce Services group was formed and includes our Global Ecommerce and Presort Services segments. Additionally, the operating results of the Production Mail Business have been classified as discontinued operations and segment operating results for the prior year have been recast to conform to the current year presentation. The principal products and services of each of our reportable segments are as follows:

Commerce Services:

Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.

Presort Services: Includes revenue and related expenses from sortation services ~~which~~that allow clients to qualify large ~~mail~~ volumes of First Class Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound Printed Matter) for postal worksharing discounts.

Small & Medium Business Solutions:

North America Mailing: Includes the revenue and related expenses from mailing and ~~office~~shipping solutions, financing services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and ~~help~~ simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.

International Mailing: Includes the revenue and related expenses from mailing and ~~office~~shipping solutions, financing services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and ~~help~~ simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.

Software Solutions:

Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, and location intelligence software, ~~and~~ data solutions and related support services.

~~Production Mail:~~

Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound and outbound mail.

~~We determine~~Management uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the business. We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items ~~which are~~ not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable ~~segments.~~segments and reconciliation of segment EBIT to net income.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Revenue and EBIT by business segment is presented below:


	Revenue				Revenue
	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017
Global Ecommerce	$	246,590	$	88,152	$	232,845	$	106,181	$	718,535	$	288,839
Presort Services	134,458		132,677		125,334		119,074		382,522		370,203
Commerce Services	381,048		220,829		358,179		225,255		1,101,057		659,042
North America Mailing	325,430		355,578		313,965		320,091		954,080		1,016,993
International Mailing	97,897		93,058		84,970		93,858		276,365		282,482
Small & Medium Business Solutions	423,327		448,636		398,935		413,949		1,230,445		1,299,475
Software Solutions	81,616		78,220		75,742		94,069		243,738		248,349
Production Mail	97,191		88,955
Total revenue	$	983,182	$	836,640	$	832,856	$	733,273	$	2,575,240	$	2,206,866


	EBIT						EBIT
	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017
Global Ecommerce	$	(7,711	)	$	(4,270	)	$	(14,330	)	$	(9,594	)	$	(28,034	)	$	(17,894	)
Presort Services	27,026			30,717			17,435			19,474			57,026			69,461
Commerce Services	19,315			26,447			3,105			9,880			28,992			51,567
North America Mailing	119,471			141,008			118,070			107,963			352,833			370,004
International Mailing	15,892			13,269			12,794			8,809			42,040			36,239
Small & Medium Business Solutions	135,363			154,277			130,864			116,772			394,873			406,243
Software Solutions	4,849			2,749			3,525			18,531			24,450			24,928
Production Mail	9,619			8,964
Total segment EBIT	169,146			192,437			137,494			145,183			448,315			482,738
Reconciling items:
Unallocated corporate expenses							(39,696		)	(41,322		)	(137,257		)	(151,473		)
Interest, net	(43,078		)	(38,650		)	(37,437		)	(41,230		)	(122,484		)	(120,323		)
Unallocated corporate expenses	(49,361		)	(55,156		)
Restructuring charges, net	(1,021		)	(2,082		)
Restructuring charges and asset impairments, net							(7,232		)	(1,470		)	(19,639		)	(29,109		)
Gain from the sale of technology							—			—			—			6,085
Transaction costs	(2,594		)	—			(36		)	(4,896		)	(1,089		)	(4,896		)
Income before income taxes	73,092			96,549
Provision for income taxes	19,579			31,416
Other expense							(7,964		)	—			(7,964		)	—
Income from continuing operations before income taxes							45,129			56,265			159,882			183,022
(Benefit) provision for income taxes							(1,976		)	10,828			20,745			38,700
Income from discontinued operations, net of tax							29,848			11,921			39,543			27,070
Net income	$	53,513		$	65,133		$	76,953		$	57,358		$	178,680		$	171,392

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

4. Discontinued Operations

On July 2, 2018, we completed the sale of the Production Mail Business, other than in certain non-U.S. jurisdictions, to an affiliate of Platinum Equity, LLC, a leading global private equity firm. Subsequently during the third quarter, we closed on the sale of additional non-U.S. jurisdictions, and expect to close on the sale of the majority of the remaining non-U.S. jurisdictions in the fourth quarter, subject to local regulatory requirements. Cash proceeds received in the third quarter were $340 million. Net proceeds from the sale after the payment of closing costs, transaction fees and taxes are estimated to be approximately $270 million.

In connection with the sale of the Production Mail Business, we entered into Transition Services Agreements (TSAs) with the purchaser whereby we will perform certain support functions for periods of a year or less. None of these TSAs will have a material effect on our financial performance.

Selected financial information of the Production Mail Business included in discontinued operations is as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Revenue	$	19,557		$	109,547	$	211,000	$	293,965

(Loss) earnings from discontinued operations	$	(1,316	)	$	18,700	$	20,304	$	42,345
Gain on sale, including transaction costs	86,640			—		77,863		—
Income from discontinued operations before taxes	85,324			18,700		98,167		42,345
Tax provision	55,476			6,779		58,624		15,275
Income from discontinued operations, net of tax	$	29,848		$	11,921	$	39,543	$	27,070

The major categories of assets and liabilities of the Production Mail Business included in assets of discontinued operations and liabilities of discontinued operations are as follows:



	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	1,026	$	—
Accounts receivable, net	2,900		97,402
Inventories	4,360		48,910
Other current assets and prepayments	188		3,365
Property, plant and equipment, net	578		5,541
Rental property and equipment, net	386		1,786
Goodwill	8,787		177,799
Other assets	48		45
Assets of discontinued operations	$	18,273	$	334,848

Accounts payable and accrued liabilities	$	2,261	$	36,592
Advance billings	2,534		30,607
Other noncurrent liabilities	5,651		5,609
Liabilities of discontinued operations	$	10,446	$	72,808

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

5. Earnings per Share


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017
Numerator:
Net income from continuing operations					$	47,105	$	45,437	$	139,137	$	144,322
Income from discontinued operations, net of tax					29,848		11,921		39,543		27,070
Net income (numerator for diluted EPS)	$	53,513	$	65,133	76,953		57,358		178,680		171,392
Less: Preference stock dividend	8		9		8		9		24		28
Income attributable to common stockholders (numerator for basic EPS)	$	53,505	$	65,124	$	76,945	$	57,349	$	178,656	$	171,364
Denominator:
Weighted-average shares used in basic EPS	186,863		185,982		187,470		186,497		187,167		186,257
Effect of dilutive shares	1,312		893		945		1,260		1,023		943
Weighted-average shares used in diluted EPS	188,175		186,875		188,415		187,757		188,190		187,200

Basic earnings per share	$	0.29	$	0.35

Diluted earnings per share	$	0.28	$	0.35
Basic earnings per share⁽¹⁾:
Continuing operations					$	0.25	$	0.24	$	0.74	$	0.77
Discontinued operations					0.16		0.06		0.21		0.15
Net income					$	0.41	$	0.31	$	0.95	$	0.92
Diluted earnings per share⁽¹⁾:
Continuing operations					$	0.25	$	0.24	$	0.74	$	0.77
Discontinued operations					0.16		0.06		0.21		0.14
Net income					$	0.41	$	0.31	$	0.95	$	0.92

Anti-dilutive shares not used in calculating diluted weighted-average shares	11,636		11,176		12,195		9,927		12,097		10,211

⁽¹⁾The sum of earnings per share amounts may not equal the totals due to rounding.

5.6. Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at ~~March 31,~~September 30, 2018 and December 31, 2017 consisted of the following:


	March 31, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Raw materials	$	29,150		$	30,166		$	11,998		$	11,767
Work in process	7,127			4,981
Supplies and service parts	46,049			45,366			22,213			21,475
Finished products	26,497			21,765			16,993			13,261
Inventory at FIFO cost	108,823			102,278			51,204			46,503
Excess of FIFO cost over LIFO cost	(12,599		)	(12,599		)	(3,005		)	(5,734		)
Total inventory, net	$	96,224		$	89,679		$	48,199		$	40,769

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

6.7. Finance Assets

Finance Receivables

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our ~~customers~~clients for postage and supplies. Loan receivables are generally due each month; however, ~~customers~~clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. ~~Customer~~Client acquisition costs are expensed as incurred.

Finance receivables at ~~March 31,~~September 30, 2018 and December 31, 2017 consisted of the following:


	March 31, 2018									December 31, 2017									September 30, 2018									December 31, 2017
	North America			International			Total			North America			International			Total			North America			International			Total			North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,012,917		$	290,618		$	1,303,535		$	1,023,549		$	292,059		$	1,315,608		$	1,000,825		$	268,733		$	1,269,558		$	1,023,549		$	292,059		$	1,315,608
Unguaranteed residual values	68,719			14,242			82,961			74,093			14,202			88,295			58,565			13,163			71,728			74,093			14,202			88,295
Unearned income	(218,628		)	(62,527		)	(281,155		)	(216,720		)	(62,325		)	(279,045		)	(210,001		)	(56,613		)	(266,614		)	(216,720		)	(62,325		)	(279,045		)
Allowance for credit losses	(8,763		)	(3,083		)	(11,846		)	(7,721		)	(2,794		)	(10,515		)	(10,779		)	(2,264		)	(13,043		)	(7,721		)	(2,794		)	(10,515		)
Net investment in sales-type lease receivables	854,245			239,250			1,093,495			873,201			241,142			1,114,343			838,610			223,019			1,061,629			873,201			241,142			1,114,343
Loan receivables
Loan receivables	314,664			33,564			348,228			339,373			34,492			373,865			301,575			31,643			333,218			339,373			34,492			373,865
Allowance for credit losses	(6,950		)	(984		)	(7,934		)	(7,098		)	(1,020		)	(8,118		)	(6,712		)	(885		)	(7,597		)	(7,098		)	(1,020		)	(8,118		)
Net investment in loan receivables	307,714			32,580			340,294			332,275			33,472			365,747			294,863			30,758			325,621			332,275			33,472			365,747
Net investment in finance receivables	$	1,161,959		$	271,830		$	1,433,789		$	1,205,476		$	274,614		$	1,480,090		$	1,133,473		$	253,777		$	1,387,250		$	1,205,476		$	274,614		$	1,480,090

Allowance for Credit Losses

We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Activity in the allowance for credit losses for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 was as follows:


	Sales-type Lease Receivables						Loan Receivables									Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total			North America			International			North America			International			Total
Balance at January 1, 2018	$	7,721		$	2,794		$	7,098		$	1,020		$	18,633		$	7,721		$	2,794		$	7,098		$	1,020		$	18,633
Amounts charged to expense	2,217			399			1,925			141			4,682			7,037			829			4,896			331			13,093
Write-offs and other	(1,175		)	(110		)	(2,073		)	(177		)	(3,535		)	(3,979		)	(1,359		)	(5,282		)	(466		)	(11,086		)
Balance at March 31, 2018	$	8,763		$	3,083		$	6,950		$	984		$	19,780
Balance at September 30, 2018																$	10,779		$	2,264		$	6,712		$	885		$	20,640

	Sales-type Lease Receivables						Loan Receivables									Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total			North America			International			North America			International			Total
Balance at January 1, 2017	$	8,247		$	2,647		$	8,517		$	1,089		$	20,500		$	8,247		$	2,647		$	8,517		$	1,089		$	20,500
Amounts charged to expense	1,758			178			639			144			2,719			7,807			895			3,892			438			13,032
Write-offs and other	(1,189		)	(256		)	(1,787		)	(157		)	(3,389		)	(8,951		)	(774		)	(5,449		)	(438		)	(15,612		)
Balance at March 31, 2017	$	8,816		$	2,569		$	7,369		$	1,076		$	19,830
Balance at September 30, 2017																$	7,103		$	2,768		$	6,960		$	1,089		$	17,920

Aging of Receivables

The aging of gross finance receivables at ~~March 31,~~September 30, 2018 and December 31, 2017 was as follows:


	March 31, 2018										September 30, 2018
	Sales-type Lease Receivables				Loan Receivables						Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total		North America		International		North America		International		Total
1 - 90 days	$	960,922	$	284,696	$	305,623	$	33,292	$	1,584,533	$	959,594	$	262,464	$	294,349	$	31,430	$	1,547,837
> 90 days	51,995		5,922		9,041		272		67,230		41,231		6,269		7,226		213		54,939
Total	$	1,012,917	$	290,618	$	314,664	$	33,564	$	1,651,763	$	1,000,825	$	268,733	$	301,575	$	31,643	$	1,602,776
Past due amounts > 90 days
Still accruing interest	$	8,757	$	1,774	$	—	$	—	$	10,531	$	6,350	$	1,718	$	—	$	—	$	8,068
Not accruing interest	43,238		4,148		9,041		272		56,699		34,881		4,551		7,226		213		46,871
Total	$	51,995	$	5,922	$	9,041	$	272	$	67,230	$	41,231	$	6,269	$	7,226	$	213	$	54,939



	December 31, 2017
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	971,002	$	286,170	$	330,503	$	34,239	$	1,621,914
> 90 days	52,547		5,889		8,870		253		67,559
Total	$	1,023,549	$	292,059	$	339,373	$	34,492	$	1,689,473
Past due amounts > 90 days
Still accruing interest	$	10,807	$	1,738	$	—	$	—	$	12,545
Not accruing interest	41,740		4,151		8,870		253		55,014
Total	$	52,547	$	5,889	$	8,870	$	253	$	67,559

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process and there is no single credit score model that covers all countries.

The table below shows the North America portfolio at ~~March 31,~~September 30, 2018 and December 31, 2017 by relative risk class based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 ~~month period may become delinquent.~~months.

Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.

Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.

High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.


	March 31, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Sales-type lease receivables
Low	$	817,697	$	819,776	$	817,006	$	819,776
Medium	138,411		148,000		130,269		148,000
High	21,858		21,728		20,793		21,728
Not Scored	34,951		34,045		32,757		34,045
Total	$	1,012,917	$	1,023,549	$	1,000,825	$	1,023,549
Loan receivables
Low	$	239,104	$	262,646	$	234,085	$	262,646
Medium	56,560		56,744		48,947		56,744
High	6,067		6,791		5,847		6,791
Not Scored	12,933		13,192		12,696		13,192
Total	$	314,664	$	339,373	$	301,575	$	339,373

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

7.8. Acquisitions, Intangible Assets and Goodwill

Acquisitions

In October 2017, we acquired Newgistics for $471 million, net of cash acquired. The results of Newgistics are included in our consolidated operating results from the date of acquisition. Our consolidated revenue for the three and nine months ended ~~March 31,~~September 30, 2018 includes ~~$131~~$126 million and $384 million, respectively, from Newgistics. On a supplemental pro forma basis, had we acquired Newgistics on January 1, 2017, our revenues would have been ~~$119~~$106 million and $340 million higher for the three and nine months ended ~~March 31, 2017.~~September 30, 2017, respectively. The impact on our earnings would not have been material.

Intangible Assets

Intangible assets at ~~March 31,~~September 30, 2018 and December 31, 2017 consisted of the following:


	March 31, 2018							December 31, 2017							September 30, 2018							December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	528,997	$	(303,449	)	$	225,548	$	526,149	$	(292,500	)	$	233,649	$	481,422	$	(273,388	)	$	208,034	$	504,716	$	(271,066	)	$	233,650
Software & technology	174,208		(147,595		)	26,613		173,141		(144,742		)	28,399		165,692		(142,747		)	22,945		167,122		(138,724		)	28,398
Trademarks & other	42,838		(33,681		)	9,157		42,505		(32,367		)	10,138		40,312		(33,124		)	7,188		40,649		(30,511		)	10,138
Total intangible assets	$	746,043	$	(484,725	)	$	261,318	$	741,795	$	(469,609	)	$	272,186	$	687,426	$	(449,259	)	$	238,167	$	712,487	$	(440,301	)	$	272,186

Amortization expense was $11 million and $8 million for the three months ended ~~March 31,~~September 30, 2018 and 2017, respectively and $33 million and $24 million for the nine months ended September 30, 2018 and 2017, respectively.

Future amortization expense as of ~~March 31,~~September 30, 2018 was as follows:


Remaining for year ending December 31, 2018	$	37,598	$	15,092
Year ending December 31, 2019	38,330		38,021
Year ending December 31, 2020	33,744		33,721
Year ending December 31, 2021	30,119		29,989
Year ending December 31, 2022	29,038		29,012
Thereafter	92,489		92,332
Total	$	261,318	$	238,167

Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.

Goodwill

Changes in the carrying value of goodwill, by reporting segment, for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 are shown in the table below.


	December 31, 2017		Acquisitions		Other⁽¹⁾			March 31, 2018		December 31, 2017		Acquisitions		Other⁽¹⁾			September 30, 2018
Global Ecommerce	$	602,461	$	—	$	(653	)	$	601,808	$	602,461	$	—	$	(653	)	$	601,808
Presort Services	204,781		2,684		—			207,465		204,781		2,684		—			207,465
Commerce Services	807,242		2,684		(653		)	809,273		807,242		2,684		(653		)	809,273
North America Mailing	368,905		—		(205		)	368,700		368,905		—		(219		)	368,686
International Mailing	158,203		—		7,127			165,330		158,203		—		(7,456		)	150,747
Small & Medium Business Solutions	527,108		—		6,922			534,030		527,108		—		(7,675		)	519,433
Software Solutions	510,605		—		2,924			513,529		440,295		—		(3,918		)	436,377
Production Mail	107,489		—		1,663			109,152
Total goodwill	$	1,952,444	$	2,684	$	10,856		$	1,965,984	$	1,774,645	$	2,684	$	(12,246	)	$	1,765,083

⁽¹⁾Primarily represents foreign currency translation adjustments.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

8.9. Fair Value Measurements and Derivative Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:


Level 1 –	Unadjusted quoted prices in active markets for identical assets and liabilities.


Level 2 –	Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3 –	Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at ~~March 31,~~September 30, 2018 and December 31, 2017.


	March 31, 2018										September 30, 2018
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	84,345	$	312,373		$	—	$	396,718		$	102,777	$	432,125		$	—	$	534,902
Equity securities	—		23,734			—		23,734			—		25,621			—		25,621
Commingled fixed income securities	1,552		21,125			—		22,677			1,546		20,726			—		22,272
Government and related securities	127,475		16,439			—		143,914			118,914		17,405			—		136,319
Corporate debt securities	—		72,289			—		72,289			—		69,924			—		69,924
Mortgage-backed / asset-backed securities	—		161,069			—		161,069			—		158,540			—		158,540
Derivatives
Interest rate swap	—		1,595			—		1,595
Foreign exchange contracts	—		529			—		529			—		2,507			—		2,507
Total assets	$	213,372	$	609,153		$	—	$	822,525		$	223,237	$	726,848		$	—	$	950,085
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(1,639	)	$	—	$	(1,639	)	$	—	$	(3,888	)	$	—	$	(3,888	)
Total liabilities	$	—	$	(1,639	)	$	—	$	(1,639	)	$	—	$	(3,888	)	$	—	$	(3,888	)

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)



	December 31, 2017
	Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	143,349	$	542,568		$	—	$	685,917
Equity securities	—		40,717			—		40,717
Commingled fixed income securities	1,569		4,516			—		6,085
Government and related securities	116,041		18,587			—		134,628
Corporate debt securities	—		75,109			—		75,109
Mortgage-backed / asset-backed securities	—		158,202			—		158,202
Derivatives
Interest rate swap	—		1,776			—		1,776
Foreign exchange contracts	—		122			—		122
Total assets	$	260,959	$	841,597		$	—	$	1,102,556
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(335	)	$	—	$	(335	)
Total liabilities	$	—	$	(335	)	$	—	$	(335	)

Investment Securities

The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:

Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.

Equity Securities: Comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.

Commingled Fixed Income Securities: Comprised of mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 2.

Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities ~~valued~~are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable ~~securities are classified as Level 2.~~securities.

Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations ~~where observable,~~ or bond ~~spreads. The spread data used are~~spreads for the same maturity as the security. These securities are classified as Level 2.

Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing ~~indices. When external index pricing is not observable, these securities are valued based on~~indices or external price/spread data. These securities are classified as Level 2.

Investment securities include investments held by The Pitney Bowes Bank (the Bank), whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies. The Bank's assets and liabilities consist primarily of cash, finance receivables, short and long-term investments and deposit accounts.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Available-For-Sale Securities

Certain investment securities are classified as available-for-sale and recorded at fair ~~value in the Condensed Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity.~~value. Unrealized holding gains and losses, ~~are recorded,~~ net of tax are recorded in AOCI. Available-for-sale investment securities are predominantly held at the Pitney Bowes Bank, whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies.

Available-for-sale securities at ~~March 31,~~September 30, 2018 and December 31, 2017 consisted of the following:


	March 31, 2018									September 30, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Government and related securities	$	142,719	$	1,393	$	(1,996	)	$	142,116	$	136,967	$	980	$	(2,879	)	$	135,068
Corporate debt securities	72,790		555		(1,056		)	72,289		71,261		218		(1,555		)	69,924
Commingled fixed income securities	1,791		—		(67		)	1,724		1,628		—		(82		)	1,546
Mortgage-backed / asset-backed securities	163,174		879		(2,984		)	161,069		161,972		569		(4,001		)	158,540
Total	$	380,474	$	2,827	$	(6,103	)	$	377,198	$	371,828	$	1,767	$	(8,517	)	$	365,078



	December 31, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Government and related securities	$	131,872	$	1,984	$	(1,090	)	$	132,766
Corporate debt securities	73,612		1,724		(227		)	75,109
Commingled fixed income securities	1,796		—		(40		)	1,756
Mortgage-backed / asset-backed securities	158,496		1,348		(1,642		)	158,202
Total	$	365,776	$	5,056	$	(2,999	)	$	367,833

~~At March 31, 2018, investment securities that were in a loss position for 12 or more continuous months had~~The aggregate unrealized holding losses of ~~$4 million and an estimated fair value of $140 million, and~~ investment securities ~~that were~~ in a loss position ~~for less than 12 continuous months had aggregate unrealized holding losses of $2 million~~at September 30, 2018 and ~~an estimated fair value of $147 million.~~

At December 31, 2017 ~~investment securities that~~ were in a loss position for 12 or more continuous months had aggregate unrealized holding losses of $2 million and an estimated fair value of $116 million, and investment securities that were in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $1 million and an estimated fair value of $91 million.as follows:



	September 30, 2018				December 31, 2017
	Fair Value		Gross unrealized losses		Fair Value		Gross unrealized losses
Greater than 12 continuous months	$	171,927	$	3,193	$	90,838	$	709
Less than 12 continuous months	150,120		5,324		115,815		2,290
Total	$	322,047	$	8,517	$	206,653	$	2,999

We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses and we expect to receive the ~~contractual~~stated principal and interest ~~on these investment securities~~ at maturity.

Scheduled maturities of available-for-sale securities at ~~March 31,~~September 30, 2018 were as follows:


	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Within 1 year	$	51,133	$	50,855	$	54,573	$	54,230
After 1 year through 5 years	115,266		114,330		111,948		110,591
After 5 years through 10 years	66,418		65,540		59,377		57,862
After 10 years	147,657		146,473		145,930		142,395
Total	$	380,474	$	377,198	$	371,828	$	365,078

The ~~expected payments on~~scheduled maturities of mortgage-backed and asset-backed securities may not coincide with ~~their contractual maturities~~the actual payment as borrowers have the right to prepay ~~obligations with or without prepayment penalties.~~obligations.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

We have not experienced any significant write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. Government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy.

Derivative Instruments

In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We ~~limit~~mitigate these ~~risks~~exposures by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the ~~related~~ cost of debt. We do not use derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.

Foreign Exchange Contracts

We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. At both ~~March 31,~~September 30, 2018 and December 31, 2017, we had outstanding contracts associated with these anticipated transactions with notional amounts of $10 million.

The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.

Interest Rate Swap

We ~~have~~had an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with $300 million of variable-rate term loans. ~~The~~This swap ismatured in September 2018. While outstanding, the swap was designated as a cash flow ~~hedge. The~~hedge and the effective portion of the gain or loss on the cash flow hedge iswas included in AOCI in the period that the change in fair value ~~occurs~~occurred and is reclassified to earnings in the period that the hedged item iswas recorded in earnings. ~~Under the terms~~

The fair value of derivative instruments at September 30, 2018 and December 31, 2017 was as follows:



Designation of Derivatives	Balance Sheet Location	September 30, 2018			December 31, 2017
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	$	80		$	57
	Accounts payable and accrued liabilities	(60		)	(144		)

Interest rate swap	Other assets	—			1,776

Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	2,427			65
	Accounts payable and accrued liabilities	(3,828		)	(191		)

	Total derivative assets	$	2,507		$	1,898
	Total derivative liabilities	(3,888		)	(335		)
	Total net derivative (liability) asset	$	(1,381	)	$	1,563

The majority of the ~~swap agreement, we pay fixed-rate interest~~amounts included in AOCI at September 30, 2018 will be recognized in earnings within the next 12 months. No amount of ~~0.8826% and receive variable-rate interest based on 1-month LIBOR. The variable interest rate resets monthly.~~ineffectiveness was recorded in earnings for these designated cash flow hedges.

~~The valuation of our interest rate swap is based on the income approach using a model with inputs that are observable or that can be derived from or corroborated by observable market data.~~

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

~~The fair value of derivative instruments at~~ ~~March 31, 2018~~ ~~and~~ ~~December 31, 2017~~ ~~was as follows:~~

Designation of Derivatives Balance Sheet Location March 31,
2018 December 31,
2017
Derivatives designated as
hedging instruments

Foreign exchange contracts Other current assets and prepayments $ 103
$ 57
Accounts payable and accrued liabilities (69 ) (144 )

Interest rate swap Other assets 1,595
1,776

Derivatives not designated as
hedging instruments

Foreign exchange contracts Other current assets and prepayments 426
65
Accounts payable and accrued liabilities (1,570 ) (191 )

Total derivative assets $ 2,124
$ 1,898
Total derivative liabilities (1,639 ) (335 )
Total net derivative asset (liabilities) $ 485
$ 1,563

The majority of the amounts included in AOCI at March 31, 2018 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.

The following represents the results of cash flow hedging relationships for the three and nine months ended ~~March 31,~~ September 30, 2018 and ~~2017~~:2017:


	Three Months Ended March 31,															Three Months Ended September 30,
	Derivative Gain (Loss) Recognized in AOCI (Effective Portion)					Location of Gain (Loss) (Effective Portion)		Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)								Derivative Gain (Loss) Recognized in AOCI (Effective Portion)								Location of Gain (Loss) (Effective Portion)		Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)
Derivative Instrument	2018			2017			2018				2017				2018				2017					Location of Gain (Loss) (Effective Portion)	2018				2017
Foreign exchange contracts	$	35		$	50	Location of Gain (Loss) (Effective Portion)	Revenue		$	(3	)		$	(28	)		$	(42	)		$	(152	)		Revenue		$	(38	)		$	(139	)
						Cost of sales		(84		)		111												Cost of sales		52				(59		)
Interest rate swap	(181		)	468		Interest Expense		—				—				(824		)		(229		)		Interest Expense		—				—
	$	(146	)	$	518			$	(87	)		$	83			$	(866	)		$	(381	)				$	14			$	(198	)

																Nine Months Ended September 30,
																Derivative Gain (Loss) Recognized in AOCL (Effective Portion)								Location of Gain (Loss) (Effective Portion)		Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion)
Derivative Instrument																2018				2017					2018				2017
Foreign exchange contracts																$	111			$	(701	)		Location of Gain (Loss) (Effective Portion)	Revenue		$	38			$	(133	)
																								Cost of sales		(33		)		89
Interest rate swap																(1,776		)		92				Interest Expense		—				—
																$	(1,665	)		$	(609	)				$	5			$	(44	)

We ~~also~~ enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans and related interest that are denominated in a foreign currency. The revaluation of ~~the~~ intercompany loans and interest and the corresponding mark-to-market adjustment on ~~the~~ derivatives are ~~both~~ recorded in earnings. The table below represents the mark-to-market adjustments of non-designated derivative instruments for the three and nine months ended September 30, 2018 and 2017. All outstanding contracts at ~~March 31,~~September 30, 2018 mature within 12 months.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)~~

~~The following represents the results of our non-designated derivative instruments for the three months ended March 31,~~ ~~2018~~ ~~and~~ ~~2017~~:


		Three Months Ended March 31,							Three Months Ended September 30,
		Derivative Gain (Loss) Recognized in Earnings							Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2018			2017			Location of Derivative Gain (Loss)	2018			2017
Foreign exchange contracts	Selling, general and administrative expense	$	(4,713	)	$	(1,849	)	Selling, general and administrative expense	$	(1,948	)	$	(655	)

									Nine Months Ended September 30,
									Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument								Location of Derivative Gain (Loss)	2018			2017
Foreign exchange contracts								Selling, general and administrative expense	$	(20,344	)	$	(1,716	)

Credit-Risk-Related Contingent Features

Certain derivative instruments contain credit-risk-related contingent features that ~~would~~ require us to post collateral based on a combination of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At ~~March 31,~~September 30, 2018,, we ~~did not post any~~had no cash collateral ~~and the maximum amount of collateral that we would be required to post had the credit-risk-related contingent features been triggered was not significant.~~

posted with certain counterparties.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and accounts payable approximate fair value because of the short maturity of these instruments.

The carrying value and estimated fair value of our debt at ~~March 31,~~September 30, 2018 and December 31, 2017 were as follows:


	March 31, 2018		December 31, 2017
��					September 30, 2018		December 31, 2017
Carrying value	$	3,576,142	$	3,830,335	$	3,269,617	$	3,830,335
Fair value	$	3,481,467	$	3,718,986	$	3,092,977	$	3,718,986

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

10. Restructuring Charges and Asset Impairment

9. Restructuring Charges

Activity in our restructuring reserves for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 was as follows:


	Severance and benefits costs			Other exit costs			Total			Severance and benefits costs			Other exit costs			Total
Balance at January 1, 2018	$	42,151		$	1,569		$	43,720		$	42,151		$	1,569		$	43,720
Expenses, net	952			69			1,021			13,655			6,274			19,929
Cash payments	(15,125		)	(577		)	(15,702		)	(37,511		)	(1,589		)	(39,100		)
Balance at March 31, 2018	$	27,978		$	1,061		$	29,039
Balance at September 30, 2018										$	18,295		$	6,254		$	24,549

Balance at January 1, 2017	$	28,376		$	281		$	28,657		$	28,234		$	281		$	28,515
Expenses, net	1,419			67			1,486			23,832			1,712			25,544
Cash payments	(12,294		)	(122		)	(12,416		)	(27,724		)	(718		)	(28,442		)
Balance at March 31, 2017	$	17,501		$	226		$	17,727
Balance at September 30, 2017										$	24,342		$	1,275		$	25,617

The majority of the remaining restructuring reserves are expected to be paid over the next 12 to 24 months; however, due to certain international labor laws and long-term lease agreements, some payments will extend beyond 24 months. We expect to fund these payments from cash flows from operations.

Asset Impairment

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)~~

During the nine months ended September 30, 2017, we recorded asset impairment charges of $4 million.

~~10.~~

11. Debt

Total debt at ~~March 31,~~September 30, 2018 and December 31, 2017 consisted of the following:


	Interest rate	March 31, 2018		December 31, 2017		Interest rate	September 30, 2018		December 31, 2017
Notes due March 2018	5.6%	$	—	$	250,000	5.60%	$	—	$	250,000
Notes due March 2019	6.25%	300,000		300,000		6.25%	—		300,000
Notes due September 2020	3.625%	300,000		300,000		3.875%	300,000		300,000
Notes due October 2021	3.625%	600,000		600,000		3.625%	600,000		600,000
Notes due May 2022	4.125%	400,000		400,000		4.375%	400,000		400,000
Notes due April 2023	4.7%	400,000		400,000		4.7%	400,000		400,000
Notes due March 2024	4.625%	500,000		500,000		4.625%	500,000		500,000
Notes due January 2037	5.25%	35,841		35,841		5.25%	35,841		35,841
Notes due March 2043	6.7%	425,000		425,000		6.7%	425,000		425,000
Term loans	Variable	645,000		650,000		Variable	635,000		650,000
Other debt		5,432		5,476			5,336		5,476
Principal amount		3,611,273		3,866,317			3,301,177		3,866,317
Less: unamortized costs, net		35,131		35,982			31,560		35,982
Total debt		3,576,142		3,830,335			3,269,617		3,830,335
Less: current portion long-term debt		327,429		271,057			192,649		271,057
Long-term debt		$	3,248,713	$	3,559,278		$	3,076,968	$	3,559,278

~~During the first quarter of 2018, we repaid the $250 million of 5.6% Notes that matured in March 2018 and $5 million of principal related to our term loans.~~

~~On May 4, 2018, Standard & Poor’s lowered our corporate credit rating to BB+ from BBB-. Interest rates~~The interest rate on certain notes and term loans are subject to adjustment based on changes in our credit ratings. In the second quarter, Standard & Poor's lowered our corporate credit rating from BBB- to BB+. As a result, the ~~coupon~~interest rate on ~~$1.7 billion principal amount of our~~the May 2022 notes, September 2020 notes and term loans increased 0.25% and the interest rate on the October 2021 notes and the April 2023 notes will increase by 0.25% effective atafter the next interest payment ~~date for each security. The rate on our $650 million term loans will also increase 0.25%, effective immediately.~~

Additionally, the fees on our $1 billion credit facility are also subject to adjustment based on our credit ratings. As a result of the lower rating, the undrawn fee on the credit facility will increase 0.05% and the fee on any drawn amounts will increase 0.20%. As of March 31, 2018, we have not drawn upon the credit facility.

~~11. Pensions and Other Benefit Programs~~

~~The components of net periodic benefit cost (income) were as follows:~~

Defined Benefit Pension Plans Nonpension Postretirement Benefit Plans
United States Foreign
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
2018 2017 2018 2017 2018 2017
Service cost $ 37
$ 30
$ 589
$ 542
$ 407
$ 419
Interest cost 15,616
17,244
4,696
4,544
1,603
1,771
Expected return on plan assets (25,424 ) (24,548 ) (9,185 ) (7,780 ) —
—
Amortization of transition credit —
—
(2 ) (2 ) —
—
Amortization of prior service (credit) cost (15 ) (15 ) (18 ) (18 ) 88
74
Amortization of net actuarial loss 8,076
7,268
1,912
2,034
934
884
Net periodic benefit cost (income) $ (1,710 ) $ (21 ) $ (2,008 ) $ (680 ) $ 3,032
$ 3,148
date.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

~~Through~~On August 2, 2018, we redeemed the $300 million 6.25% notes due March ~~31,~~2019 and recorded an $8 million loss on the extinguishment of debt. We also repaid the $250 million of 5.6% notes that matured in March 2018 and ~~2017, contributions~~$15 million of principal on our term loans.

Pursuant to an extension option, the maturity of our ~~U.S. pension plans~~$150 million term loan was extended to August 2019.

12. Pensions and Other Benefit Programs

The components of net periodic benefit cost (income) were $1 million and $2 million, respectively. Contributions to our foreign plans were $9 million in both 2018 and 2017. Nonpension postretirement benefit plan contributions were $5 million through both March 31, 2018 and March 31, 2017.as follows:



	Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans
	United States						Foreign
	Three Months Ended						Three Months Ended						Three Months Ended
	September 30,						September 30,						September 30,
	2018			2017			2018			2017			2018		2017
Service cost	$	23		$	34		$	567		$	587		$	298	$	438
Interest cost	15,363			17,122			4,434			4,809			1,676		1,780
Expected return on plan assets	(25,281		)	(24,369		)	(8,730		)	(8,214		)	—		—
Amortization of transition credit	—			—			(2		)	(2		)	—		—
Amortization of prior service (credit) cost	(15		)	(15		)	(18		)	(18		)	112		74
Amortization of net actuarial loss	7,851			7,229			1,807			2,055			338		905
Settlement/Curtailment	796			—			—			—			339		—
Net periodic benefit (income) cost	$	(1,263	)	$	1		$	(1,942	)	$	(783	)	$	2,763	$	3,197
Contributions to benefit plans	$	2,479		$	1,792		$	661		$	1,000		$	4,442	$	4,009

	Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans
	United States						Foreign
	Nine Months Ended						Nine Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,
	2018			2017			2018			2017			2018		2017
Service cost	$	69		$	98		$	1,731		$	1,688		$	1,109	$	1,290
Interest cost	46,087			51,488			13,721			13,993			4,888		5,321
Expected return on plan assets	(75,815		)	(73,287		)	(27,045		)	(23,956		)	—		—
Amortization of transition credit	—			—			(5		)	(6		)	—		—
Amortization of prior service (credit) cost	(45		)	(45		)	(54		)	(53		)	287		223
Amortization of net actuarial loss	23,555			21,725			5,590			5,981			2,153		2,693
Settlement/Curtailment	796			—			—			—			339		—
Net periodic benefit (income) cost	$	(5,353	)	$	(21	)	$	(6,062	)	$	(2,353	)	$	8,776	$	9,527
Contributions to benefit plans	$	5,674		$	4,691		$	10,640		$	11,391		$	13,552	$	13,027

~~12.~~13. Income Taxes

The effective tax rate for the three months ended ~~March 31,~~September 30, 2018 and 2017 was ~~26.8%~~(4.4)% and ~~32.5%~~19.2%, ~~respectively. The 2018~~respectively, and the effective tax rate ~~is lower primarily due to~~for the ~~lower U.S. tax rate,~~nine months ended September 30, 2018 and ~~related provisions of the Act.~~2017 was 13.0% and 21.1%, respectively. The effective tax rate for the three and nine months ended ~~March 31,~~September 30, 2018 includes a $7 million and $13 million benefit, respectively, from the resolution of certain tax examinations. The effective tax rate for the three and nine months ended September 30, 2017 includes a $6 million and $20 million benefit, respectively, from the resolution of certain tax examinations. The effective tax rate for the nine months ended September 30, 2018 and 2017 includes a $2 million and $4 million charge, respectively, from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted ~~stock and a $3 million and $4 million benefit, respectively, from the resolution of certain tax examinations.~~stock.

The provisional amounts recorded ~~under Staff Accounting Bulletin No. 118 in 2017~~ to reflect the ~~estimated~~ impact of ~~the Act~~tax legislation in 2017 have ~~not~~ been adjusted for both the three and nine month periods ended September 30, 2018 and include a benefit of $8 million and $17 million, respectively, related to the re-measurement of deferred tax assets and liabilities and revisions of the U.S. tax on unremitted earnings of our foreign subsidiaries. The amounts recorded

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

as of December 31, 2017 and adjusted September 30, 2018 remain provisional and further adjustments are expected to be made during the ~~first quarter of 2018.~~measurement period.

As is the case with other large corporations, our tax returns are examined by tax authorities in the U.S. and other global taxing jurisdictions in which we have operations. As a result, it is reasonably possible that the amount of ~~our~~ unrecognized tax benefits will decrease in the next 12 months, and ~~we expect~~ this ~~change~~decrease could be up to ~~25%~~20% of our unrecognized tax benefits.

The IRS examinations of our consolidated U.S. income tax returns for tax years prior to ~~2013~~2015 are closed to audit; however, various ~~post-2006~~post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to ~~2012~~2014 are closed to audit, except for the pending application of legal principles to specific issues arising in earlier years. Other significant jurisdictions include France, which is closed to audit through the end of 2014, Germany, which is closed to audit through the end of 2012 and the UK, which, except for an item under appeal, is closed to audit through the end of 2015. We also have other less significant tax filings currently subject to examination.

~~13.~~14. Commitments and Contingencies

In the ordinary course of business, we are routinely defendants in, or party to a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, customers or others. In management's opinion, the potential liability, if any, that may result from these actions, either individually or collectively, is not reasonably expected to have a material effect on our financial position, results of operations or cash flows. However, as litigation is inherently unpredictable, there can be no assurances in this regard.

In August 2018, the Company, certain of its directors, officers and several banks who served as underwriters, were named as defendants in City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al., a putative class action lawsuit filed in Connecticut state court. The complaint asserts claims under the Securities Act of 1933, as amended, on behalf of those who purchased notes issued by the Company in connection with a September 13, 2017 offering, alleging, among other things, that the Company failed to make certain disclosures relating to components of its third quarter 2017 performance at the time of the notes offering. The complaint seeks compensatory damages and other relief. Although litigation outcomes are inherently unpredictable, we believe this case is without merit and intend to defend it vigorously.

~~14.~~15. Stockholders’ Equity ~~(Deficit)~~

Changes in stockholders’ equity ~~(deficit)~~ for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 were as follows:


	Preferred stock		Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity			Preferred stock		Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at December 31, 2017	$	1	$	441		$	323,338	$	138,367		$	5,229,584		$	(792,173	)	$	(4,710,997	)	$	188,561		$	1	$	441		$	323,338	$	138,367		$	5,229,584		$	(792,173	)	$	(4,710,997	)	$	188,561
Cumulative effect of accounting changes	—		—			—		—			(12,207		)	—			—			(12,207		)	—		—			—		—			(12,207		)	—			—			(12,207		)
Net income	—		—			—		—			53,513			—			—			53,513			—		—			—		—			178,680			—			—			178,680
Other comprehensive income	—		—			—		—			—			20,178			—			20,178
Other comprehensive loss																							—		—			—		—			—			(12,436		)	—			(12,436		)
Dividends paid	—		—			—		—			(35,016		)	—			—			(35,016		)	—		—			—		—			(105,296		)	—			—			(105,296		)
Issuance of common stock	—		—			—		(21,607		)	—			—			18,198			(3,409		)	—		—			—		(35,457		)	—			—			34,050			(1,407		)
Conversion to common stock	—		(19		)	—		(386		)	—			—			405			—			—		(38		)	—		(763		)	—			—			801			—
Stock-based compensation expense	—		—			—		3,273			—			—			—			3,273			—		—			—		15,771			—			—			—			15,771
Balance at March 31, 2018	$	1	$	422		$	323,338	$	119,647		$	5,235,874		$	(771,995	)	$	(4,692,394	)	$	214,893
Balance at September 30, 2018																							$	1	$	403		$	323,338	$	117,918		$	5,290,761		$	(804,609	)	$	(4,676,146	)	$	251,666

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)


	Preferred stock		Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total deficit			Preferred stock		Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total (deficit) equity
Balance at December 31, 2016	$	1	$	483		$	323,338	$	148,125		$	5,107,734		$	(940,133	)	$	(4,743,208	)	$	(103,660	)	$	1	$	483		$	323,338	$	148,125		$	5,107,734		$	(940,133	)	$	(4,743,208	)	$	(103,660	)
Net income	—		—			—		—			65,133			—			—			65,133			—		—			—		—			171,392			—			—			171,392
Other comprehensive loss	—		—			—		—			—			26,302			—			26,302
Other comprehensive income																							—		—			—		—			—			121,649			—			121,649
Dividends paid	—		—			—		—			(34,567		)	—			—			(34,567		)	—		—			—		—			(104,524		)	—			—			(104,524		)
Issuance of common stock	—		—			—		(27,098		)	—			—			21,914			(5,184		)	—		—			—		(32,538		)	—			—			30,202			(2,336		)
Conversion to common stock	—		(5		)	—		(101		)	—			—			106			—			—		(26		)	—		(505		)	—			—			531			—
Stock-based compensation expense	—		—			—		5,638			—			—			—			5,638			—		—			—		18,312			—			—			—			18,312
Balance at March 31, 2017	$	1	$	478		$	323,338	$	126,564		$	5,138,300		$	(913,831	)	$	(4,721,188	)	$	(46,338	)
Balance at September 30, 2017																							$	1	$	457		$	323,338	$	133,394		$	5,174,602		$	(818,484	)	$	(4,712,475	)	$	100,833

~~15.~~16. Accumulated Other Comprehensive Income

Reclassifications out of AOCI for the three and nine months ended ~~March 31,~~September 30, 2018 and 2017 were as follows:


	Amount Reclassified from AOCI^(a)						Amount Reclassified from AOCI^(a)
	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017
Gains (losses) on cash flow hedges
Revenue	$	(3	)	$	28		$	(38	)	$	(139	)	$	38		$	(133	)
Cost of sales	(84		)	(111		)	52			(59		)	(33		)	89
Interest expense, net	(507		)	(507		)	(825		)	(507		)	(1,839		)	(1,521		)
Total before tax	(594		)	(590		)	(811		)	(705		)	(1,834		)	(1,565		)
Benefit for income tax	(151		)	(230		)
Benefit from income taxes							206			274			468			610
Net of tax	$	(443	)	$	(360	)	$	(605	)	$	(431	)	$	(1,366	)	$	(955	)

Gains (losses) on available for sale securities
Interest expense, net	$	(24	)	$	(109	)	$	(40	)	$	(298	)	$	150		$	(524	)
Benefit provision for income tax	(6		)	(40		)
Benefit (provision) from income taxes							10			110			(38		)	194
Net of tax	$	(18	)	$	(69	)	$	(30	)	$	(188	)	$	112		$	(330	)

Pension and Postretirement Benefit Plans ^(b)
Transition credit(b)	$	2		$	2		$	2		$	2		$	5		$	6
Prior service costs(b)	(55		)	(41		)	(79		)	(41		)	(188		)	(125		)
Actuarial losses(b)	(10,922		)	(10,186		)	(9,996		)	(10,189		)	(31,298		)	(30,399		)
Settlements ^(b)							(1,135		)	—			(1,135		)	—
Total before tax	(10,975		)	(10,225		)	(11,208		)	(10,228		)	(32,616		)	(30,518		)
Benefit from income tax	(2,803		)	(3,517		)
Benefit from income taxes							2,399			3,484			7,766			10,440
Net of tax	$	(8,172	)	$	(6,708	)	$	(8,809	)	$	(6,744	)	$	(24,850	)	$	(20,078	)

^(a)Amounts in parentheses indicate reductions to income and increases to other comprehensive ~~income (loss).~~income.

^(b)Reclassified from accumulated other comprehensive loss into ~~selling, general and administrative expenses. These amounts are included~~

~~in the computation~~other components of net ~~periodic costs~~pension and postretirement cost (see Note 1112 for additional details).

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Changes in AOCI for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 were as follows:

Cash flow hedges Available for sale securities Pension and postretirement benefit plans Foreign currency adjustments Total
Balance at January 1, 2018 $ (406 ) $ 1,597
$ (748,800 ) $ (44,564 ) $ (792,173 )
Other comprehensive income (loss) before reclassifications (a) 43
(4,010 ) —
15,512
11,545
Reclassifications into earnings (a), (b) 443
18
8,172
—
8,633
Net other comprehensive income 486
(3,992 ) 8,172
15,512
20,178
Balance at March 31, 2018 $ 80
$ (2,395 ) $ (740,628 ) $ (29,052 ) $ (771,995 )



	Cash flow hedges			Available for sale securities			Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2018	$	(406	)	$	1,597		$	(748,800	)	$	(44,564	)	$	(792,173	)
Other comprehensive loss before reclassifications (a)	(593		)	(6,402		)	—			(31,545		)	(38,540		)
Reclassifications into earnings (a), (b)	1,366			(112		)	24,850			—			26,104
Net other comprehensive income (loss)	773			(6,514		)	24,850			(31,545		)	(12,436		)
Balance at September 30, 2018	$	367		$	(4,917	)	$	(723,950	)	$	(76,109	)	$	(804,609	)


	Cash flow hedges			Available for sale securities		Pension and postretirement benefit plans			Foreign currency adjustments			Total			Cash flow hedges			Available for sale securities		Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2017	$	(1,485	)	$	120	$	(787,813	)	$	(150,955	)	$	(940,133	)	$	(1,485	)	$	120	$	(787,813	)	$	(150,955	)	$	(940,133	)
Other comprehensive (loss) income before reclassifications (a)	216			516		(1,482		)	19,915			19,165			(376		)	1,921		(1,482		)	100,223			100,286
Reclassifications into earnings (a), (b)	360			69		6,708			—			7,137			955			330		20,078			—			21,363
Net other comprehensive income	576			585		5,226			19,915			26,302			579			2,251		18,596			100,223			121,649
Balance at March 31, 2017	$	(909	)	$	705	$	(782,587	)	$	(131,040	)	$	(913,831	)
Balance at September 30, 2017															$	(906	)	$	2,371	$	(769,217	)	$	(50,732	)	$	(818,484	)

(a) Amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

(b) See table above for additional details of these reclassifications.

~~16. Subsequent Event~~

On April 27, 2018, we entered into an agreement to sell our Document Messaging Technologies production mail business and supporting software (collectively, the Business) for $361 million, subject to certain adjustments. We anticipate proceeds from the sale of approximately $270 million, net of estimated closing costs, transaction fees and taxes. We expect to use the majority of the net proceeds from the sale to pay down debt. The transaction is likely to be completed late in the second quarter or early in the third quarter of 2018 subject to customary closing conditions.

Beginning in the second quarter of 2018, we will report the results of the Business as a discontinued operation in our condensed consolidated financial statements. Prior periods will be recast to conform to this presentation.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 may change based on various factors. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could differ materially. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include, without limitation:

declining physical mail volumes

competitive factors, including pricing pressures; technological developments and the introduction of new products and services by competitors

our success in developing new products and services, including digital-based products and services and obtaining regulatory approval if required

the market’s acceptance of new products and services

changes in postal or banking regulations

changes in, or loss of, our contractual relationships with the U.S. Postal Service or posts in our other major markets

changes in labor conditions and transportation costs

macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates and interest rates

economic tensions between governments and changes in international trade policies, including tariffs

the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws

a breach of security, including a cyberattack or other comparable event

~~macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates, interest rates, labor conditions and fuel prices~~

third-party suppliers' ability to provide products and services required by our clients

our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations not central to our business

~~changes in postal or banking regulations, including changes in, or loss of, our contractual relationships with the U.S. Postal Service or posts in our other major markets~~

integrating newly acquired businesses, including operations and product and service offerings

the loss of some of our larger clients in the Global Ecommerce segment

intellectual property infringement claims

our success at managing customer credit risk

capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs

our ability to fully utilize the enterprise business platform in North America and successfully deploy it in major international markets without significant disruption to existing operations

significant changes in pension, health care and retiree medical costs

income tax adjustments or other regulatory levies ~~for prior audit years~~from tax audits and changes in tax laws, rulings or regulations, including the impact of the Tax Cuts and Jobs Act of 2017

~~a disruption of~~potential impacts to our ~~businesses~~business due to changes in ~~international or national~~global political conditions, including the use of the ~~mail~~postal system for transmitting harmful biological agents or other terrorist attacks

acts of nature

Overview

InOur strategy is focused around three core principles: to invest in offerings that reduce the ~~first quarter~~complexity of ~~2018,~~mailing and shipping for our clients; to continue to focus on operational excellence initiatives to reduce costs; and to focus on integrating and leveraging technologies across the enterprise.

Year-to-date, total revenue increased ~~18% and our gross margin declined to 46.8% from 56.8% as compared to~~17% over the prior ~~year. We~~year, but total earnings before interest and taxes (EBIT) has declined. The decline in EBIT is largely due to continued investments in opportunities to ~~see a shift~~reduce the complexity in ~~our~~mailing and shipping and the overall portfolio shift to higher growth digital and shipping solutions. ~~The margins from these higher growth areas are lower than in our traditional markets, which are experiencing secular declines.~~

Following on our acquisition of Newgistics, we view our ongoing strategy in three primary categories. First, we are investing in offerings that reduce the complexity of shipping for our clients. Second, we are continuing our focus on operational excellence initiatives to reduce the costs in the business. And third, we are focusing on re-using technologies and our expertise in one line of our business to improve the capabilities and results of other aspects of our business.

~~Financial Results Summary - Three Months Ended March 31:~~

2018 2017 Change
Revenue $ 983,182
$ 836,640
18 %
Net income $ 53,513
$ 65,133
(18 )%
Diluted earnings per share $ 0.28
$ 0.35
(20 )%
Net cash provided by operations $ 82,672
$ 154,006
(46 )%

~~Revenue~~

~~Revenue increased 18% as reported and 15% on a constant currency basis.~~

~~The increase reflects growth in business services revenue and software revenue, partially offset by declines in equipment sales, financing, rentals, supplies and support services revenues.~~

Commerce Services grew 73% as reported and 71% on a constant currency basis primarily due to growth in Global Ecommerce. Revenue for Global Ecommerce more than doubled over prior year and excluding revenue from Newgistics, grew 29% due to higher shipping and marketplace revenue. Presort Services revenue grew 1% due to higher mail processing volumes.

Small and Medium Business Solutions (SMB) revenue declined 6% as reported and 8% on a constant currency basis. North America Mailing revenue declined 8% primarily due to a decline in equipment sales and streams revenues (supplies, rental, financing and support services). International Mailing revenue increased 5% as reported, but declined 6% on a constant currency basis due to lower equipment sales, supplies and support services revenue.

Software Solutions revenue increased 4% as reported and 1% on a constant currency basis as a result of the adoption of the new revenue recognition accounting standard (ASC 606). See Note 2 to the Condensed Consolidated Financial Statements for further information.

~~Production Mail revenue increased 9% as reported and 6% on a constant currency basis primarily due to higher equipment sales.~~

~~Net Income~~

Net income declined 18% driven largely by lower margins driven by a change in overall product mix, continued investments in Global Ecommerce and higher amortization expense from the acquisition of Newgistics, partially offset by a decline in our effective tax rate.

~~Cash Flows~~

Net cash provided by operations was $83 million compared to $154 million in the prior year. The decline primarily relates to working capital changes. During the first three months of 2018, we used cash to:

~~repay $255 million of outstanding debt;~~

~~pay dividends of $35 million to our common stockholders; and~~

~~invest $43 million in capital expenditures.~~

~~Outlook~~

The shift in our overall portfolio to higher growth, digital and shipping solutions is expected to continue and offerings related to shipping services will become a larger contributor to overall revenue. Global Ecommerce revenue, is expected to continue to grow largely from growth in domestic shipping APIs, carrier services offerings and cross-border volume expansion as well as from the acquisition of Newgistics and continued growth of that business. Presort Services revenue is expected to continue to perform around the market ranges.

We plan to continue to leverage Newgistics' existing network and volumes to drive scale across our parcel platform and synergies with our Global Ecommerce and Presort Services segments. We further anticipate cross-selling opportunities across the clients of Newgistics, Presort Services and Global Ecommerce.

Despite the decline in North America Mailing equipment sales in the first quarter, we continue to expect that the new SendPro products will improve trends in equipment sales and stream revenues in North America over the long term. We also plan on introducing new and expanded finance offerings to our clients.

Software Solutions is expected to improve driven by the indirect channel and expected expansion of our customer base. Production Mail revenue is expected to continue to perform around the market ranges.

~~We expect 2018 revenue to grow and our overall gross profit margins to contract as our portfolio mix shifts to higher revenue growth areas, but lower-margin businesses.~~ Over the last five years, we have developed a simpler and more digital operating model and have reduced our cost ~~structure by approximately $300 million. In the fourth quarter of 2017,~~structure. Last year we announced our intentions to reduce costs by an additional $200 million over a 24-month period. ~~These~~Our attainment to date leaves us well positioned to achieve or exceed our savings objectives.

In connection with our shift to higher growth markets that align with our strategic focus on shipping, we sold our Document Messaging Technology production mail business and supporting software (the Production Mail Business). The sale of the U.S. based operations was completed on July 2, 2018 while the sale of the majority of certain non-U.S. jurisdictions closed later in the third quarter or are expected to close in the fourth quarter, subject to local regulatory requirements. Proceeds from the sale were $340 million, the majority of which was used to repay debt.

Financial Results Summary - Three Months Ended September 30:



	2018		2017		Change
Revenue	$	832,856	$	733,273	14%
Net income from continuing operations	$	47,105	$	45,437	4%
Diluted earnings per share - continuing operations	$	0.25	$	0.24	4%

Revenue

Revenue increased 14% as reported and at constant currency.

The increase reflects growth in business services revenue, partially offset by declines in equipment sales, software revenue and stream revenues (financing, rentals, supplies and support services).

Commerce Services grew 59% primarily due to the acquisition of Newgistics. Excluding Newgistics, Commerce Services revenue grew 3% as Presort Services grew 5% due to higher mail processing volumes. Global Ecommerce revenue was flat.

Small and Medium Business Solutions (SMB) revenue declined 4% as reported and 3% at constant currency. North America Mailing revenue declined 2% and International Mailing revenue declined 9% as reported and 7% at constant currency due to lower equipment sales and stream revenues.

Software Solutions revenue decreased 19% as reported and at constant currency due to lower licensing revenue in the current year as well as a large Location Intelligence deal in third quarter of 2017.

Net Income from Continuing Operations

Net income from continuing operations was $47 million compared to $45 million in the prior year. The increase was driven by lower selling, general and administrative expenses and a lower effective tax rate, partially offset by lower gross margins and the loss from the extinguishment of debt.

Financial Results Summary - Nine Months Ended September 30:



	2018		2017		Change
Revenue	$	2,575,240	$	2,206,866	17%
Net income from continuing operations	$	139,137	$	144,322	(4)%
Diluted earnings per share - continuing operations	$	0.74	$	0.77	(4)%
Net cash provided by operating activities - continuing operations	$	246,426	$	312,557	(21)%

Revenue

Revenue increased 17% as reported and 16% at constant currency.

The increase reflects growth in business services revenue, partially offset by declines in equipment sales, software revenues and stream revenues.

Commerce Services grew 67%. Revenue for Global Ecommerce more than doubled over the prior year, and excluding revenue from Newgistics, grew 15% due to higher shipping and marketplace revenue. Presort Services revenue grew 3% due to higher mail processing volumes.

SMB revenue declined 5% as reported and 6% at constant currency. North America Mailing revenue declined 6% primarily due to a decline in equipment sales and stream revenues. International Mailing revenue decreased 2% as reported and 7% at constant currency due to lower equipment sales, supplies and support services revenue.

Software Solutions revenue decreased 2% as reported and 3% at constant currency due to lower licensing revenue.

Net Income from Continuing Operations

Net income from continuing operations was $139 million compared to $144 million in the prior year. The decrease was driven by lower overall margins as our portfolio continues to shift to higher growth, but lower margin businesses, continued investments in Global Ecommerce and higher amortization expense from the acquisition of Newgistics, partially offset by lower selling, general and administrative, restructuring and pension costs and a lower effective tax rate.

Cash Flows from Continuing Operations

Net cash provided by operating activities from continuing operations was $246 million compared to $313 million in the prior year. We also received $340 million from the sale of the Production Mail Business. During the first nine months of 2018, we used cash to:

repay $565 million of debt;

pay dividends of $105 million to our stockholders; and

invest $141 million in capital expenditures.

Outlook

We expect continued revenue growth as we move our portfolio into high growth, albeit lower margin, areas. We expect continued progress in our efforts to improve productivity and reduce spend. We are addressing challenges such as higher transportation and labor costs, and are on target to deliver cost ~~reductions~~savings this year.

We are integrating and leveraging the Newgistics network into our Commerce Services businesses. Shipping solutions will ~~come from across~~become a larger contributor to revenue and Shipping APIs, cross-border volume expansion and carrier services offerings will continue to contribute to revenue growth in Global Ecommerce. Presort Services revenue is expected to continue to perform around the ~~organization,~~market ranges.

Within our mailing business, we expect that the introduction of new services and products, including ~~people~~the SendPro products and ~~programs.~~expanded finance offerings, will contribute to improvements in equipment sales and stream revenue trends in North America over the long-term.

In Software Solutions, we continue to build our indirect channel to drive improvements and expect to expand our customer base.

RESULTS OF OPERATIONS

Revenue by source and the related cost of revenue are shown in the following tables:


	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018		2017		Actual % change		Constant Currency % change		2018		2017		Actual % change		Constant Currency % change		2018		2017		Actual % change		Constant Currency % change
Equipment sales	$	155,808	$	162,974	(4	)%	(8	)%	$	100,937	$	103,514	(2	)%	(2	)%	$	317,058	$	349,401	(9	)%	(10	)%
Supplies	65,374		66,818		(2	)%	(6	)%	50,403		53,627		(6	)%	(5	)%	165,853		173,321		(4	)%	(6	)%
Software	81,616		77,867		5	%	2	%	76,026		94,226		(19	)%	(19	)%	244,022		248,391		(2	)%	(3	)%
Rentals	95,280		99,870		(5	)%	(6	)%	91,115		95,333		(4	)%	(4	)%	277,550		290,087		(4	)%	(5	)%
Financing	80,103		85,745		(7	)%	(8	)%	76,730		81,079		(5	)%	(5	)%	233,504		250,477		(7	)%	(8	)%
Support services	118,463		118,847		—	%	(4	)%	74,117		75,783		(2	)%	(2	)%	219,311		223,056		(2	)%	(3	)%
Business services	386,538		224,519		72	%	71	%	363,528		229,711		58	%	58	%	1,117,942		672,133		66	%	66	%
Total revenue	$	983,182	$	836,640	18	%	15	%	$	832,856	$	733,273	14	%	14	%	$	2,575,240	$	2,206,866	17	%	16	%


	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
					Percentage of Revenue								Percentage of Revenue								Percentage of Revenue
	2018		2017		2018		2017		2018		2017		2018		2017		2018		2017		2018		2017
Cost of equipment sales	$	78,751	$	69,562	50.5	%	42.7	%	$	39,353	$	49,328	39.0	%	47.7	%	$	132,513	$	145,450	41.8	%	41.6	%
Cost of supplies	21,147		21,471		32.3	%	32.1	%	13,967		15,209		27.7	%	28.4	%	46,652		48,277		28.1	%	27.9	%
Cost of software	25,353		25,308		31.1	%	32.5	%	24,743		24,107		32.5	%	25.6	%	75,257		70,622		30.8	%	28.4	%
Cost of rentals	24,596		20,662		25.8	%	20.7	%	21,827		20,447		24.0	%	21.4	%	66,959		61,869		24.1	%	21.3	%
Financing interest expense	12,225		12,974		15.3	%	15.1	%	11,954		12,629		15.6	%	15.6	%	36,525		38,446		15.6	%	15.3	%
Cost of support services	75,572		73,354		63.8	%	61.7	%	43,259		39,468		58.4	%	52.1	%	125,995		122,889		57.5	%	55.1	%
Cost of business services	297,399		150,843		76.9	%	67.2	%	291,650		166,984		80.2	%	72.7	%	882,529		470,890		78.9	%	70.1	%
Total cost of revenue	$	535,043	$	374,174	54.4	%	44.7	%	$	446,753	$	328,172	53.6	%	44.8	%	$	1,366,430	$	958,443	53.1	%	43.4	%

~~The discussion below refers to the change~~We discuss changes in revenue ~~on a~~at constant currency ~~basis~~ to exclude ~~changes in foreign currency~~the effect of changing exchange rates on ~~the change in revenue.~~our reported revenues. We believe that the use of a constant currency revenue measure provides a better understanding of underlying revenue performance. Constant currency is calculated by converting our current period reported revenue at the prior year's exchange rates.

Revenue and Cost of Revenues - 2018 compared to 2017

Equipment sales

Equipment sales revenue decreased 4%2% in the ~~quarter. On a constant currency basis, equipment sales decreased 8%,~~quarter, primarily due ~~to:~~to

~~10%~~3% from lower equipment sales in ~~North America Mailing;~~International Mailing, primarily driven by declines in the U.K. and France partially offset by growth in Australia and Japan; offset partially by

3%1% from higher equipment sales in ~~Production Mail due to higher inserter and print placements.~~North American Mailing.

Cost of equipment sales as a percentage of equipment sales ~~increased~~decreased to ~~50.5%~~39.0% in the quarter primarily due to ~~a higher mix~~lower costs and product mix.

Equipment sales revenue decreased 9% in the first nine months of 2018. At constant currency, equipment sales decreased 10% primarily due to:

8% from lower ~~margin product~~equipment sales in ~~SMB~~North America Mailing reflecting a change in product mix; and ~~Production Mail.~~

2% from lower equipment sales in International Mailing, particularly the U.K. and Italy, partially offset by higher sales in Germany.

Cost of equipment sales as a percentage of equipment sales of 41.8% in the first nine months of 2018 was relatively flat compared to the prior year.

Supplies

Supplies revenue decreased 2%6% in the quarter. ~~On a~~At constant currency, ~~basis,~~ supplies revenue decreased 6%5% primarily due to:

3% from lower supplies revenue in International Mailing; and

3%2% from lower supplies revenue in North America Mailing.

Cost of supplies as a percentage of supplies revenue ~~was 32.3%~~decreased to 27.7% in the ~~quarter~~quarter.

Supplies revenue decreased 4% in the first nine months of 2018. At constant currency, supplies revenue decreased 6% primarily due to:

4% from lower supplies revenue in North America Mailing; and

2% from lower supplies revenue in International Mailing.

Cost of supplies as a percentage of supplies revenue of 28.1% was relatively flat in the first nine months of 2018 as compared to the prior year.

Software

Software revenue ~~increased 5%~~decreased 19% in the ~~quarter. The adoption ASC 606 had an $11 million favorable impact on software revenue. Excluding the impact of ASC 606 and on a constant currency basis, revenue decreased 13%~~third quarter primarily ~~due:~~

~~3% from~~due to lower licensing revenue ~~driven by~~and a ~~lower level of~~ large ~~deals~~Location Intelligence deal in the ~~quarter;~~third quarter of 2017.

~~8% from~~Software revenue decreased 2% in the first nine months of 2018. Software revenue decreased 3% at constant currency primarily due to lower ~~data revenue; and~~

~~2% from lower services~~licensing revenue.

Cost of software as a percentage of software revenue ~~decreased~~increased to ~~31.1%~~32.5% in the quarter and 30.8% in the first nine months of 2018 due to ~~the increase~~a decline in ~~high~~higher margin licensing revenue.

Rentals

Rentals revenue declined 5%4% in the ~~quarter. On a~~quarter and 4% as reported and 5% at constant currency ~~basis, revenue declined 6%~~for the first nine months of 2018, primarily due to a declining meter population. Cost of rentals as a percentage of rentals revenue increased to ~~25.8%~~24.0% for the quarter and 24.1% for the first nine months of 2018 primarily due to higher residual losses.

Financing

Financing revenue decreased 5% in the quarter and 7% ~~on a~~as reported ~~basis~~ and 8% ~~on a~~at constant currency ~~basis in~~for the ~~quarter~~first nine months of 2018 primarily due to a declining portfolio and lower fees.

We allocate a portion of our total cost of borrowing to financing interest expense. In computing financing interest expense, we assume an 8:1 debt to equity leverage ratio and apply our overall effective interest rate to the average outstanding finance receivables. Financing interest expense as a percentage of financing revenue ~~increased to 15.3%~~was flat at 15.6% for the quarter and increased slightly to 15.6% for the first nine months of 2018 primarily due to lower average outstanding finance receivables and lower fees revenue.

Support Services

Support services revenue ~~was flat~~decreased 2% in the ~~quarter. On a~~quarter and 2% as reported and 3% at constant currency ~~basis, support services revenue decreased 4%~~for the first nine months of 2018 primarily due to a worldwide decline in installed mailing ~~equipment worldwide.~~ equipment.

Cost of support services as a percentage of support services revenue increased to ~~63.8%~~58.4% in the quarter and 57.5% in the first nine months of 2018 primarily due to higher costs.

Business Services

Business services revenue increased ~~72%~~58% in the ~~quarter. On a constant currency basis, business~~quarter primarily due to:

55% from Global Ecommerce due to the acquisition of Newgistics; and

2% from Presort Services due to higher volumes of mail processed.

Business services revenue increased ~~71%~~66% in the first nine months of 2018 primarily due to:

~~58%~~57% from the acquisition of Newgistics;

~~12%~~7% from growth in ~~Global Ecommerce, excluding Newgistics, due to higher~~shipping and cross-border ~~volumes;~~revenue; and

1%2% from higher volumes of mail processed in Presort Services.

Cost of business services as a percentage of business services revenue increased to ~~76.9%~~80.2% in the quarter and 78.9% in the first nine months of 2018 primarily due to continued investment in Global Ecommerce and higher labor and transportation costs in ~~Global Ecommerce and Presort~~Commerce Services.

Selling, general and administrative (SG&A)

SG&A expense ~~increased 2%~~decreased 6% to ~~$312~~$269 million in the third quarter ~~primarily due to $18 million of~~despite additional expenses from Newgistics of $16 million, primarily due to cost savings initiatives, including lower salaries and ~~$8 million from the impact~~benefits of ~~foreign currency, offset partially by $8 million of lower marketing expenses and~~ $10 million and lower professional services of $9 million.

SG&A expense decreased 2% to $847 million in the first nine months of 2018 despite additional expenses from Newgistics of $51 million, primarily due to cost ~~reduction initiatives.~~savings initiatives, including lower salaries and benefits of $9 million and lower advertising expenses of $22 million. Partially offsetting these costs savings were higher depreciation and amortization expense of $6 million and higher professional services of $5 million.

Research and development (R&D)

R&D expense increased 3%12% to $33 million in the quarter, and 6% to $94 million in the first nine months of 2018, primarily due to continued investments in ~~our~~SMB and Global ~~Ecommerce business.~~Ecommerce.

Income taxes

See Note 1213 to the Condensed Consolidated Financial Statements.

Income from Discontinued Operations

See Note 4 to the Condensed Consolidated Financial Statements.

Pension and Postretirement Costs

In connection with the disposition of the Production Mail Business and certain other actions, we will incur non-cash pension settlement charges in the fourth quarter of 2018 of $40 to $60 million. The actual settlement charge will depend on the lump-sum elections made by participants.

Business segment results - 2018 compared to 2017

In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market. The Commerce Services group was formed and includes our Global Ecommerce and Presort Services segments. The operating results of the Production Mail Business are classified as discontinued operations and prior year results have been recast to conform to the current year presentation. The principal products and services of each of our reportable segments are as follows:

Commerce Services:

Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.

Small & Medium Business Solutions:

Software Solutions:

~~Production Mail:~~

Management uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the businesses. We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items ~~which are~~ not allocated to a particular business segment. Segment EBIT may not be indicative of our overall consolidated performance and ~~therefore,~~ should be read in conjunction with our consolidated results of operations. Due to acquisition activity in Commerce Services, we are also providing segment earnings before interest, taxes, depreciation and amortization (EBITDA) as a supplemental non-GAAP measure of profit and operational performance for each segment. See Note 3 to the Condensed Consolidated Financial Statements for a reconciliation of segment EBIT to net income.

Segment information for the three and nine months ended ~~March 31,~~September 30, 2018 and 2017 is presented below:


	Revenue								Revenue
	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018		2017		Actual % change		Constant Currency % change		2018		2017		Actual % change		Constant Currency % change		2018		2017		Actual % change		Constant Currency % change
Global Ecommerce	$	246,590	$	88,152	>100%		>100%		$	232,845	$	106,181	> 100%		> 100%		$	718,535	$	288,839	> 100%		> 100%
Presort Services	134,458		132,677		1	%	1	%	125,334		119,074		5	%	5	%	382,522		370,203		3	%	3	%
Commerce Services	381,048		220,829		73	%	71	%	358,179		225,255		59	%	59	%	1,101,057		659,042		67	%	67	%
North America Mailing	325,430		355,578		(8	)%	(8	)%	313,965		320,091		(2	)%	(2	)%	954,080		1,016,993		(6	)%	(6	)%
International Mailing	97,897		93,058		5	%	(6	)%	84,970		93,858		(9	)%	(7	)%	276,365		282,482		(2	)%	(7	)%
Small & Medium Business Solutions	423,327		448,636		(6	)%	(8	)%	398,935		413,949		(4	)%	(3	)%	1,230,445		1,299,475		(5	)%	(6	)%
Software Solutions	81,616		78,220		4	%	1	%	75,742		94,069		(19	)%	(19	)%	243,738		248,349		(2	)%	(3	)%
Production Mail	97,191		88,955		9	%	6	%
Total	$	983,182	$	836,640	18	%	15	%	$	832,856	$	733,273	14	%	14	%	$	2,575,240	$	2,206,866	17	%	16	%


	EBIT								EBIT
	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018			2017			% change		2018			2017			% change		2018			2017			% change
Global Ecommerce	$	(7,711	)	$	(4,270	)	81	%	$	(14,330	)	$	(9,594	)	(49	)%	$	(28,034	)	$	(17,894	)	(57	)%
Presort Services	27,026			30,717			(12	)%	17,435			19,474			(10	)%	57,026			69,461			(18	)%
Commerce Services	19,315			26,447			(27	)%	3,105			9,880			(69	)%	28,992			51,567			(44	)%
North America Mailing	119,471			141,008			(15	)%	118,070			107,963			9	%	352,833			370,004			(5	)%
International Mailing	15,892			13,269			20	%	12,794			8,809			45	%	42,040			36,239			16	%
Small & Medium Business Solutions	135,363			154,277			(12	)%	130,864			116,772			12	%	394,873			406,243			(3	)%
Software Solutions	4,849			2,749			76	%	3,525			18,531			(81	)%	24,450			24,928			(2	)%
Production Mail	9,619			8,964			7	%
Total Segment EBIT	$	169,146		$	192,437		(12	)%	$	137,494		$	145,183		(5	)%	$	448,315		$	482,738		(7	)%


	EBITDA								EBITDA
	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018			2017			% change		2018			2017			% change		2018			2017			% change
Global Ecommerce	$	6,719		$	3,052		>100%		$	820		$	(1,970	)	>100%		$	17,013		$	4,240		>100%
Presort Services	33,188			37,915			(12	)%	24,302			25,778			(6	)%	76,678			89,889			(15	)%
Commerce Services	39,907			40,967			(3	)%	25,122			23,808			6	%	93,691			94,129			—	%
North America Mailing	136,320			157,162			(13	)%	135,332			124,516			9	%	404,328			418,943			(3	)%
International Mailing	20,413			17,807			15	%	16,204			13,372			21	%	54,225			49,847			9	%
Small & Medium Business Solutions	156,733			174,969			(10	)%	151,536			137,888			10	%	458,553			468,790			(2	)%
Software Solutions	7,270			9,733			(25	)%	6,042			20,754			(71	)%	31,774			31,529			1	%
Production Mail	10,261			4,837			112	%
Total Segment EBITDA	214,171			230,506			(7	)%	182,700			182,450			—	%	584,018			594,448			(2	)%
Less: Segment depreciation and amortization⁽¹⁾	(45,025		)	(38,069		)	18	%	(45,206		)	(37,267		)	21	%	(135,703		)	(111,710		)	21	%
Total Segment EBIT	$	169,146		$	192,437		(12	)%	$	137,494		$	145,183		(5	)%	$	448,315		$	482,738		(7	)%

⁽¹⁾Excludes corporate depreciation and amortization expense.

Global Ecommerce

Global Ecommerce revenue increased ~~180%~~119% in the ~~quarter. On~~quarter primarily due to the $126 million of additional revenue from Newgistics.

EBIT for the quarter was a loss of $14 million compared to a loss of $10 million in the prior year. The higher loss was primarily due to $8 million of acquisition-related depreciation and amortization expense, investments in market growth opportunities and higher transportation and labor costs, partially offset by higher revenue. EBITDA in the quarter improved to $0.8 million from a loss of $2 million in the prior year due to the increase in revenue.

Global Ecommerce revenue increased 149% in the first nine months of 2018. At constant currency, ~~basis,~~ revenue increased ~~177%~~148% primarily due to:

~~148%~~133%, or ~~$131~~$383 million, from the additional revenue from Newgistics; and

~~18%~~15% from higher shipping revenues due to increased ~~volumes; and~~

~~11% from higher cross-border marketplace volumes, particularly in the U.S.~~volumes.

EBIT for the first nine months of 2018 was a loss of $8$28 million compared to a loss of $4$18 million in the prior ~~quarter.~~year. The higher loss was primarily due to $7$23 million of ~~additional~~acquisition-related depreciation and amortization expense, ~~primarily from the acquisition of Newgistics and~~ investments in market growth ~~opportunities.~~opportunities and higher transportation and labor costs, partially offset by higher revenue. The ~~acquisition~~increase in EBITDA in the first nine months of ~~Newgistics did not have a material impact on EBIT. EBITDA increased $4 million~~2018 compared to the prior year was due to the increase in revenue.

Presort Services

Presort Services revenue increased 1%5% in the quarter ~~primarily~~and 3% in the first nine months of 2018 due to higher volumes of ~~First Class~~ mail ~~parcels and flats processed, partially offset by lower Standard Class mail volumes.~~processed. EBIT decreased ~~12%~~10% in the quarter and 18% in the first nine months of 2018 primarily due to lower margins driven by higher labor and transportation ~~costs.~~costs and a decline in revenue per piece due in part to higher volumes of mail processed for larger clients.

North America Mailing

North America Mailing revenue decreased 8%2% in the quarter primarily due to:

4%1% from a decline in rentals revenue due to a decline in installed mailing equipment and lower postage volumes; and

1 % from lower financing revenue primarily due to a declining lease portfolio and lower fees.

EBIT increased 9% in the quarter primarily due to lower expenses.

North America Mailing revenue decreased 6% in the first nine months of 2018 primarily due to:

3% from lower equipment sales ~~driven by a~~due to lower ~~level of~~revenue from client lease ~~extensions~~extensions;

2% from lower financing revenue primarily due to a declining lease portfolio and ~~large deal in the first quarter of 2017, which impacted the year-to-year comparison;~~lower fees; and

2%1% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage ~~volumes; and~~volumes.

~~2% from lower financing revenue~~EBIT decreased 5% in the first nine months of 2018 primarily due to ~~a declining lease portfolio and~~ lower ~~fees.~~

~~EBIT decreased 15% in the quarter primarily due to the decline recurring~~ revenue ~~streams and equipment sales mix,~~ partially offset by lower expenses.

International Mailing

International Mailing revenue ~~increased 5%~~decreased 9% in the ~~quarter, however on a~~quarter. At constant currency, ~~basis,~~ revenue decreased 6%7% primarily due to:

3%4% from ~~declines in rentals, financing and support services revenue~~lower stream revenues resulting from a ~~decline~~lower installed meter base, declining postages volumes and a declining lease portfolio; and

4% from lower equipment sales, primarily in the U.K. and France.

International Mailing revenue decreased 2% in the first nine months of 2018. At constant currency, revenue decreased 7% primarily due to:

4% from lower stream revenues resulting from a lower installed ~~mailing equipment~~meter base, declining postages volumes and ~~the~~a declining lease portfolio; and

3% from lower equipment sales, primarily in the ~~UK.~~U.K.

EBIT increased ~~20%~~45% in the quarter and 16% in the first nine months of 2018 primarily due to lower expenses.

Software Solutions

Software revenue decreased 19% in the quarter primarily due to lower ~~expenses.~~

~~Software Solutions~~license revenue and a large Location Intelligence deal in the third quarter of 2017.

Software revenue ~~increased 4%~~decreased 2% as reported and 3% at constant currency in the ~~quarter. Excluding an $11 million favorable impact from ASC 606, revenue decreased 13% on a constant currency basis~~first nine months of 2018 primarily ~~due:~~

~~3% from~~due to lower licensing ~~revenue driven by a lower level of large deals in the quarter;~~

~~8% from lower data revenue; and~~

~~2% from lower services~~ revenue.

EBIT ~~increased 76%~~declined 81% in the quarter and 2% in the first nine months of 2018 primarily due to ~~the increase in~~lower high-margin licensing revenue. ~~EBIT includes~~The implementation of ASC 606 had a ~~$9 million~~ favorable impact ~~from ASC 606.~~

~~Production Mail~~

~~Production Mail revenue increased 9% in the quarter. On a constant currency basis, revenue increased 6% primarily due to higher equipment sales, primarily from inserter~~of $4 million and ~~print placements during the quarter. EBIT increased 7%~~$23 million in the quarter ~~primarily due to the increase in revenue, partially offset by a higher mix~~and first nine months of ~~lower margin equipment sales.~~

2018, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We believe that existing cash and investments, cash generated from operations and borrowing capacity through the capital markets will be sufficient to support our current cash needs, including discretionary uses such as capital investments, dividends, strategic acquisitions and share repurchases. Cash and cash equivalents and short-term investments were $~~775~~815 million at ~~March 31,~~September 30, 2018 and $1,058 million at December 31, 2017. We continuously review our credit profile through published credit ratings and the credit default swap market. We also monitor the creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers.

Cash and cash equivalents held by our foreign subsidiaries were ~~$285~~$157 million at ~~March 31,~~September 30, 2018 ~~and~~ ~~$608~~ compared to $608 million at December 31, ~~2017~~2017.. ~~During the quarter,~~Through September 30, 2018, we repatriated ~~$370~~$523 million of cash to the U.S. from our foreign subsidiaries. Cash and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these subsidiaries. ~~Most of these amounts could be repatriated to the U.S. but repatriation of some foreign balances is restricted by local laws.~~

Cash Flow Summary

Changes in cash and cash equivalents for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 were as follows:

2018 2017 Change
Net cash provided by operating activities $ 82,672
$ 154,006
$ (71,334 )
Net cash used in investing activities (38,242 ) (68,870 ) 30,628
Net cash used financing activities (340,317 ) (119,503 ) (220,814 )
Effect of exchange rate changes on cash and cash equivalents 6,741
9,398
(2,657 )
Change in cash and cash equivalents $ (289,146 ) $ (24,969 ) $ (264,177 )

~~Cash from operations decreased $71 million, primarily due to timing of working capital, specifically within accounts payable and accrued liabilities and accounts receivable.~~



	2018			2017			Change
Net cash provided by operating activities	$	290,626		$	330,577		$	(39,951	)
Net cash provided by (used in) investing activities	202,185			(155,715		)	357,900
Net cash (used in) provided by financing activities	(725,922		)	715,062			(1,440,984		)
Effect of exchange rate changes on cash and cash equivalents	(15,653		)	42,457			(58,110		)
Change in cash and cash equivalents	$	(248,764	)	$	932,381		$	(1,181,145	)

Cash flows ~~used in investing~~from operating activities ~~declined $31~~decreased $40 million, primarily due to:

~~An increase~~Working capital changes including lower cash from finance receivables of ~~$26~~$46 million ~~from a favorable change in reserve deposits;~~and the timing of accounts payable payments of $38 million;

Higher restructuring payments of $11 million; partially offset by

Higher cash ~~inflows~~from discontinued operations of $26 million.

Cash flows from investing activities improved $358 million, primarily due to:

Proceeds of $340 million from the sale of the Production Mail Business;

Higher cash flows from investment activities of ~~$6 million; and~~

~~Lower acquisition spending~~$28 million due to the investment of ~~$5 million;~~residual proceeds from the issuance of debt in the prior year; partially offset by

Higher capital expenditures of $7$22 million.

Cash flows ~~used in~~from financing activities ~~increased $221~~decreased $1,441 million, primarily due to:

~~Repayment of $255 million~~The repayment of debt of $565 million in ~~the first quarter of~~ 2018 compared to the ~~repayment~~net issuance of ~~$79~~debt of $823 million in the prior ~~year quarter;~~year; and

The settlement of $46 million related to a timing difference between our investing excess cash at the subsidiary level and our funding of an intercompany cash transfer at year end.

Financings and Capitalization

We are a "Well-Known Seasoned Issuer" within the meaning of Rule 405 under the Securities Act, which allows us to issue debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We have a committed credit facility of $1 billion that expires in January 2021. As of ~~March 31,~~September 30, 2018, we have not drawn upon the credit facility.

There were no outstanding commercial paper borrowings at ~~March 31,~~September 30, 2018 and December 31, 2017, and we did not issue any commercial paper during the ~~first~~third quarter of 2018.

During the ~~first~~ quarter, we redeemed the $300 million 6.25% notes due March 2019. As a result of ~~2018,~~this early redemption, we recognized an $8 million loss. Additionally during the year, we repaid the $250 million of 5.6% Notes ~~that matured in~~due March 2018 and $5$15 million of ~~principal related to our~~ term ~~loans.~~loan principal.

Pursuant to an extension option, the maturity of our ~~$650~~$150 million term ~~loans will also increase 0.25%, effective immediately.~~

~~Additionally, the fees on our $1 billion credit facility are also subject~~loan was extended to adjustment based on our credit ratings. As a result of the lower rating, the undrawn fee on the credit facility will increase 0.05% and the fee on any drawn amounts will increase 0.20%. As of March 31, 2018, we have not drawn upon the credit facility.

August 2019.

Dividends and Share Repurchases

During the ~~three~~nine months ended ~~March 31,~~September 30, 2018, we paid dividends ~~to our stockholders~~ of ~~$35~~$105 million. Each quarter, our Board of Directors considers our recent and projected earnings and other capital needs and priorities in deciding whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends.

We did not repurchase any of our common shares during the quarter and ~~still~~ have remaining authorization to repurchase up to $21 million of our common shares.

Off-Balance Sheet Arrangements

At ~~March 31,~~September 30, 2018, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material ~~current or future~~ effect on our financial condition, results of operations or liquidity.

Regulatory Matters

There have been no significant changes to the regulatory matters disclosed in our 2017 Annual Report.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to the disclosures made in our 2017 Annual Report.

Item 4: Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), ~~as appropriate~~ to allow timely decisions regarding ~~required disclosure.~~disclosures.

Under the direction of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal ~~control~~controls over financial reporting. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information ~~we are~~ required to ~~disclose~~be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time ~~periods specified in the Commission's rules and forms.~~periods. In addition, no changes in internal control over financial reporting occurred during the ~~fiscal~~ quarter covered by this report that ~~have~~ materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2018.

We acquired Newgistics in a purchase business combination in October 2017. We are in the process of reviewing and evaluating the internal controls of Newgistics and are implementing our internal control structure over this acquired business.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

See Note 1314 to the Condensed Consolidated Financial Statements.

Item 1A: Risk Factors

There were no material changes to the risk factors identified in our 2017 Annual Report.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

We periodically repurchase shares of our common stock in the open market to manage the dilution created by shares issued under employee stock plans and for other purposes. The following table provides information about purchases of our common stock during the three months ended ~~March 31,~~September 30, 2018:




	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance				$21,022
~~January~~July 1, 2018 - ~~January~~July 31, 2018	—	—	—	$21,022
~~February~~August 1, 2018 - ~~February 28,~~August 31, 2018	—	—	—	$21,022
~~March~~September 1, 2018 - ~~March 31,~~September 30, 2018	—	—	—	$21,022
	—	—	—

Item 6: Exhibits

Exhibit

Number

Description

Exhibit Number in this Form 10-Q

Description

Exhibit Number in this Form 10-Q

3(a)

Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(c) to Form 8-K filed with the Commission on May 12, 2012)

3(a)

Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(c) to Form 8-K filed with the Commission on May 12, 2012)

3(a)

3(b)

Pitney Bowes Inc. Amended and Restated By-laws effective May 13, 2013 (incorporated by reference to Exhibit 3(d) to Form 8-K filed with the Commission on May 15, 2013)

3(b)

Pitney Bowes Inc. Amended and Restated By-laws effective May 13, 2013 (incorporated by reference to Exhibit 3(d) to Form 8-K filed with the Commission on May 15, 2013)

3(b)

Asset Purchase agreement between Pitney Bowes Inc. and Stark Acquisition Corporation dated April 27, 2018 (incorporated by reference to Exhibit 2.1 to Form 8-K filed with Commission on May 1, 2018)

10a

Amendment and supplement asset purchase agreement between Pitney Bowes, Inc. and Stark Acquisition Corporation dated July 1, 2018 (incorporated by reference to Exhibit to 10a to Form 10-Q filed with the Commission on August 2, 2018)

10a

Computation of ratio of earnings to fixed charges

31.1

Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.1

Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.1

31.2

Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.2

Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.2

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.1

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

32.2

101.INS

XBRL Report Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

* Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish

supplementally a copy of any omitted attachment to the SEC upon request.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PITNEY BOWES INC.

Date:	~~May 4,~~November 5, 2018

		/s/ Stanley J. Sutula III

		Stanley J. Sutula III
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		/s/ Joseph R. Catapano

		Joseph R. Catapano
		Vice President, Chief Accounting Officer
		(Principal Accounting Officer)

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