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 ~~June~~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 ~~July 25,~~October 30, 2018, ~~188,021,682~~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 ~~Six~~Nine Months Ended ~~June~~September 30, 2018 and 2017	3

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

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

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~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	3433

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	4443

Item 4:	Controls and Procedures	4443


Part II - Other Information:

Item 1:	Legal Proceedings	4544

Item 1A:	Risk Factors	4544

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4544

Item 6:	Exhibits	4645


Signatures		4746

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 June 30,					Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017		2018			2017		2018			2017
Revenue:
Equipment sales	$	105,750		$	121,384	$	216,121		$	245,887	$	100,937		$	103,514	$	317,058		$	349,401
Supplies	55,457			58,639		115,450			119,694		50,403			53,627		165,853			173,321
Software	91,702			81,319		167,996			154,165		76,026			94,226		244,022			248,391
Rentals	91,809			95,447		186,435			194,754		91,115			95,333		277,550			290,087
Financing	76,671			83,653		156,774			169,398		76,730			81,079		233,504			250,477
Support services	72,171			72,068		145,194			147,273		74,117			75,783		219,311			223,056
Business services	367,876			217,903		754,414			442,422		363,528			229,711		1,117,942			672,133
Total revenue	861,436			730,413		1,742,384			1,473,593		832,856			733,273		2,575,240			2,206,866
Costs and expenses:
Cost of equipment sales	47,106			51,506		93,160			96,122		39,353			49,328		132,513			145,450
Cost of supplies	15,738			16,216		32,685			33,068		13,967			15,209		46,652			48,277
Cost of software	26,459			23,361		50,514			46,515		24,743			24,107		75,257			70,622
Cost of rentals	21,078			21,143		45,132			41,422		21,827			20,447		66,959			61,869
Financing interest expense	12,346			12,843		24,571			25,817		11,954			12,629		36,525			38,446
Cost of support services	39,609			41,772		82,736			83,421		43,259			39,468		125,995			122,889
Cost of business services	293,480			153,063		590,879			303,906		291,650			166,984		882,529			470,890
Selling, general and administrative	282,456			283,073		577,894			573,645		269,387			288,093		847,281			861,738
Research and development	31,073			30,328		61,395			59,282		32,760			29,316		94,155			88,598
Restructuring charges and asset impairments, net	11,503			25,990		12,407			27,639		7,232			1,470		19,639			29,109
Other components of net pension and postretirement cost	(2,499		)	1,267		(4,218		)	2,723		(1,852		)	1,356		(6,070		)	4,079
Interest expense, net	29,623			27,600		60,476			53,276		25,483			28,601		85,959			81,877
Other expense											7,964			—		7,964			—
Total costs and expenses	807,972			688,162		1,627,631			1,346,836		787,727			677,008		2,415,358			2,023,844
Income from continuing operations before taxes	53,464			42,251		114,753			126,757		45,129			56,265		159,882			183,022
Provision for income taxes	6,458			790		22,721			27,872
(Benefit) provision for income taxes											(1,976		)	10,828		20,745			38,700
Income from continuing operations	47,006			41,461		92,032			98,885		47,105			45,437		139,137			144,322
Income from discontinued operations, net of tax	1,208			7,440		9,695			15,149		29,848			11,921		39,543			27,070
Net income	$	48,214		$	48,901	$	101,727		$	114,034	$	76,953		$	57,358	$	178,680		$	171,392
Basic earnings per share ⁽¹⁾:
Continuing operations	$	0.25		$	0.22	$	0.49		$	0.53	$	0.25		$	0.24	$	0.74		$	0.77
Discontinued operations	0.01			0.04		0.05			0.08		0.16			0.06		0.21			0.15
Net income	$	0.26		$	0.26	$	0.54		$	0.61	$	0.41		$	0.31	$	0.95		$	0.92
Diluted earnings per share ⁽¹⁾:
Continuing operations	$	0.25		$	0.22	$	0.49		$	0.53	$	0.25		$	0.24	$	0.74		$	0.77
Discontinued operations	0.01			0.04		0.05			0.08		0.16			0.06		0.21			0.14
Net income	$	0.26		$	0.26	$	0.54		$	0.61	$	0.41		$	0.31	$	0.95		$	0.92
Dividends declared per share of common stock	$	0.1875		$	0.1875	$	0.375		$	0.375	$	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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017		2018			2017
Net income	$	48,214		$	48,901		$	101,727		$	114,034		$	76,953		$	57,358	$	178,680		$	171,392
Other comprehensive income, net of tax:
Foreign currency translation	(44,584		)	46,791			(29,073		)	66,706			(2,472		)	33,517		(31,545		)	100,223
Net unrealized (loss) gain on cash flow hedges, net of tax of $(78), $(120), $154 and $235, respectively	(235		)	(196		)	251			383
Net unrealized (loss) gain on investment securities, net of tax of $(447), $758, $(1,813) and $1,102, respectively	(1,305		)	1,291			(5,296		)	1,876
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		)	—			—		—			(1,482		)
Amortization of pension and postretirement costs, net of tax benefits of $2,564, $3,442, $5,368 and $6,956, respectively	7,868			6,624			16,040			13,335
Other comprehensive (loss) income, net of tax	(38,256		)	54,510			(18,078		)	80,818
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	$	9,958		$	103,411		$	83,649		$	194,852		$	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)


	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	689,870		$	1,009,021		$	759,231		$	1,009,021
Short-term investments	55,699			48,988			55,929			48,988
Accounts receivable (net of allowance of $13,515 and $14,786, respectively)	408,703			427,022
Short-term finance receivables (net of allowance of $14,924 and $12,187, respectively)	812,055			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	49,051			40,769			48,199			40,769
Current income taxes	39,100			58,439			11,395			58,439
Other current assets and prepayments	102,104			74,589			92,916			74,589
Assets of discontinued operations	313,356			334,848			18,273			334,848
Total current assets	2,469,938			2,821,679			2,151,100			2,821,679
Property, plant and equipment, net	398,909			373,503			399,347			373,503
Rental property and equipment, net	180,585			183,956			179,058			183,956
Long-term finance receivables (net of allowance of $6,420 and $6,446 respectively)	597,302			652,087
Long-term finance receivables (net of allowance of $8,070 and $6,446 respectively)							600,129			652,087
Goodwill	1,767,848			1,774,645			1,765,083			1,774,645
Intangible assets, net	249,125			272,186			238,167			272,186
Noncurrent income taxes	54,099			59,909			54,114			59,909
Other assets	528,945			540,750			526,937			540,750
Total assets	$	6,246,751		$	6,678,715		$	5,913,935		$	6,678,715

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,349,344		$	1,450,149		$	1,342,097		$	1,450,149
Current income taxes	5,686			8,823			40,018			8,823
Current portion of long-term debt	334,999			271,057			192,649			271,057
Advance billings	237,709			257,766			224,141			257,766
Liabilities of discontinued operations	84,219			72,808			10,446			72,808
Total current liabilities	2,011,957			2,060,603			1,809,351			2,060,603
Deferred taxes on income	234,190			234,643			230,663			234,643
Tax uncertainties and other income tax liabilities	105,803			116,551			101,362			116,551
Long-term debt	3,237,810			3,559,278			3,076,968			3,559,278
Other noncurrent liabilities	461,074			519,079			443,925			519,079
Total liabilities	6,050,834			6,490,154			5,662,269			6,490,154

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	415			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	122,732			138,367			117,918			138,367
Retained earnings	5,248,991			5,229,584			5,290,761			5,229,584
Accumulated other comprehensive loss	(810,251		)	(792,173		)	(804,609		)	(792,173		)
Treasury stock, at cost (136,104,630 and 136,734,174 shares, respectively)	(4,689,309		)	(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	195,917			188,561			251,666			188,561
Total liabilities and stockholders’ equity	$	6,246,751		$	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

Six Months Ended June 30,
2018 2017
Cash flows from operating activities:

Net income $ 101,727
$ 114,034
Income from discontinued operations (9,695 ) (15,149 )
Restructuring payments (27,528 ) (17,651 )
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 101,862
86,710
Stock-based compensation 9,153
12,531
Restructuring charges and asset impairments, net 12,407
27,639
Gain on sale of technology —
(6,085 )
Changes in operating assets and liabilities, net of acquisitions/divestitures:

Decrease in accounts receivable 14,323
58,263
Decrease in finance receivables 60,563
76,915
Increase in inventories (6,706 ) (3,762 )
Increase in other current assets and prepayments (33,041 ) (18,728 )
Decrease in accounts payable and accrued liabilities (47,118 ) (69,146 )
Increase (decrease) in current and non-current income taxes 4,570
(40,856 )
Decrease in advance billings (22,643 ) (22,972 )
Other, net (24,612 ) (11,192 )
   Net cash provided by operating activities - continuing operations 133,262
170,551
   Net cash provided by operating activities - discontinued operations 41,772
14,096
   Net cash provided by operating activities 175,034
184,647
Cash flows from investing activities:

Purchases of available-for-sale securities (48,303 ) (70,405 )
Proceeds from sales/maturities of available-for-sale securities 36,157
61,913
Net activity from short-term and other investments 10,959
(131,303 )
Capital expenditures (100,022 ) (75,844 )
Acquisition of businesses, net of cash acquired (2,407 ) (7,889 )
Change in reserve account deposits 5,959
2,514
Other investing activities (2,500 ) (3,000 )
   Net cash used in investing activities - continuing operations (100,157 ) (224,014 )
   Net cash used in investing activities - discontinued operations (1,169 ) (777 )
   Net cash used in investing activities (101,326 ) (224,791 )
Cash flows from financing activities:

Proceeds from the issuance of long-term debt —
395,772
Principal payments of long-term debt (260,099 ) (229,323 )
Dividends paid to stockholders (70,113 ) (69,527 )
Other financing activities (49,606 ) (5,551 )
   Net cash (used in) provided by financing activities (379,818 ) 91,371
Effect of exchange rate changes on cash and cash equivalents (13,041 ) 24,815
(Decrease) increase in cash and cash equivalents (319,151 ) 76,042
Cash and cash equivalents at beginning of period 1,009,021
764,522
Cash and cash equivalents at end of period $ 689,870
$ 840,564

Cash interest paid $ 89,339
$ 82,405
Cash income tax payments, net of refunds $ 19,244
$ 78,649

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 ~~entered into an agreement to sell~~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 impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:


	Three months ended June 30, 2018							Six months ended June 30, 2018							Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	As reported		Prior guidance		Total increase (decrease)			As reported		Prior guidance		Total increase (decrease)			As reported			Prior guidance			Increase (decrease)			As reported		Prior guidance		Increase (decrease)
Income Statement
Total revenue	$	861,436	$	852,781	$	8,655		$	1,742,384	$	1,724,060	$	18,324		$	832,856		$	828,999		$	3,857		$	2,575,240	$	2,553,059	$	22,181
Equipment sales	$	105,750	$	106,301	$	(551	)	$	216,121	$	217,533	$	(1,412	)	$	100,937		$	101,632		$	(695	)	$	317,058	$	319,165	$	(2,107	)
Software	$	91,702	$	82,054	$	9,648		$	167,996	$	147,329	$	20,667		$	76,026		$	71,081		$	4,945		$	244,022	$	218,410	$	25,612
Business services	$	367,876	$	368,318	$	(442	)	$	754,414	$	755,345	$	(931	)	$	363,528		$	363,921		$	(393	)	$	1,117,942	$	1,119,266	$	(1,324	)

Total costs and expenses	$	807,972	$	810,342	$	(2,370	)	$	1,627,631	$	1,629,841	$	(2,210	)	$	787,727		$	790,565		$	(2,838	)	$	2,415,358	$	2,420,406	$	(5,048	)
Cost of equipment sales	$	47,106	$	47,035	$	71		$	93,160	$	93,219	$	(59	)	$	39,353		$	39,409		$	(56	)	$	132,513	$	132,628	$	(115	)
Cost of software	$	26,459	$	25,769	$	690		$	50,514	$	48,542	$	1,972		$	24,743		$	23,957		$	786		$	75,257	$	72,499	$	2,758
Selling, general and administrative	$	282,456	$	285,587	$	(3,131	)	$	577,894	$	582,017	$	(4,123	)	$	269,387		$	272,955		$	(3,568	)	$	847,281	$	854,972	$	(7,691	)

Income from continuing operations before taxes	$	53,464	$	42,439	$	11,025		$	114,753	$	94,221	$	20,532		$	45,129		$	38,434		$	6,695		$	159,882	$	132,653	$	27,229
Provision for income taxes	$	6,458	$	3,640	$	2,818		$	22,721	$	17,434	$	5,287
(Benefit) provision for income taxes															$	(1,976	)	$	(3,768	)	$	1,792		$	20,745	$	13,666	$	7,079
Net income from continuing operations	$	47,006	$	38,799	$	8,207		$	92,032	$	76,787	$	15,245		$	47,105		$	42,202		$	4,903		$	139,137	$	118,987	$	20,150

Basic earnings per share attributable to common stockholders - continuing operations	$	0.25	$	0.21	$	0.04		$	0.49	$	0.41	$	0.08
Diluted earnings per share attributable to common stockholders - continuing operations	$	0.25	$	0.22	$	0.03		$	0.49	$	0.41	$	0.08
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 Statements of Income under ASC 606 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, was ~~due to~~ higher software revenue of ~~$10~~$5 million and ~~$21~~$26 million, respectively, ~~under ASC 606 primarily as a result of the change in timing of revenue recognition related to certain software licenses~~ and ~~data subscriptions. These~~ higher ~~software revenues also resulted in higher~~net income from continuing operations before taxes of $9$4 million and ~~$19~~$23 million for the three and ~~six~~nine months ended ~~June~~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)


	June 30, 2018									September 30, 2018
	As reported			Prior guidance			Total increase (decrease)			As reported			Prior guidance			Increase (decrease)
Balance Sheet
Total Assets	$	6,246,751		$	6,250,943		$	(4,192	)	$	5,913,935		$	5,911,188		$	2,747
Accounts receivable	$	408,703		$	407,204		$	1,499		$	378,036		$	377,484		$	552
Current income taxes	$	39,100		$	39,298		$	(198	)	$	11,395		$	11,593		$	(198	)
Other current assets and prepayments	$	102,104		$	102,760		$	(656	)	$	92,916		$	92,174		$	742
Assets of discontinued operations	$	313,356		$	312,922		$	434
Noncurrent income taxes	$	54,099		$	54,429		$	(330	)	$	54,114		$	54,117		$	(3	)
Other assets	$	528,945		$	533,886		$	(4,941	)	$	526,937		$	525,283		$	1,654

Total Liabilities	$	6,050,834		$	6,062,221		$	(11,387	)	$	5,662,269		$	5,671,251		$	(8,982	)
Accounts payable and accrued liabilities	$	1,349,344		$	1,347,837		$	1,507		$	1,342,097		$	1,339,257		$	2,840
Current income taxes	$	5,686		$	43		$	5,643		$	40,018		$	32,960		$	7,058
Advance billings	$	237,709		$	250,948		$	(13,239	)	$	224,141		$	237,546		$	(13,405	)
Liabilities of discontinued operations	$	84,219		$	84,132		$	87		$	10,446		$	10,359		$	87
Deferred taxes on income	$	234,190		$	238,539		$	(4,349	)	$	230,663		$	234,365		$	(3,702	)
Other noncurrent liabilities	$	461,074		$	462,110		$	(1,036	)	$	443,925		$	445,785		$	(1,860	)

Total Stockholders' equity	$	195,917		$	188,722		$	7,195		$	251,666		$	239,256		$	12,410
Retained earnings	$	5,248,991		$	5,241,824		$	7,167		$	5,290,761		$	5,278,691		$	12,070
Accumulated other comprehensive loss	$	(810,251	)	$	(810,279	)	$	28		$	(804,609	)	$	(804,949	)	$	340

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

~~Higher accounts receivable, net and accounts payable and accrued liabilities due to reserves for refunds to customers that were recorded in accounts receivable, net 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, including sales commissions and other contract costs.

~~Lower~~was lower advance billings ~~and other noncurrent liabilities~~ 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 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 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)

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

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 if we expect the benefit of those costs to be realized 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 are amortized in a manner consistent with the timing of the related revenue over the contract performance period or longer, if renewals are expected and the renewal commission is not commensurate with the initial commission. Amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2018 was $3$4 million and $7$11 million, respectively, and is included in selling, general and administrative expenses. Unamortized contract costs at ~~June~~September 30, 2018 were ~~$26~~$28 million and are included in 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 tables disaggregate our revenue by major source:


	Three months ended June 30, 2018																Three 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		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	$	—	$	—	$	15,303	$	11,654	$	—	$	26,957	$	78,793	$	105,750	$	—	$	—	$	13,615	$	11,974	$	—	$	25,589	$	75,348	$	100,937
Supplies	—		—		36,271		19,186		—		55,457		—		55,457		—		—		33,854		16,549		—		50,403		—		50,403
Software	—		—		—		—		91,702		91,702		—		91,702		—		—		—		284		75,742		76,026		—		76,026
Rentals	—		—		5,121		2,139		—		7,260		84,549		91,809		—		—		4,357		1,971		—		6,328		84,787		91,115
Financing	—		—		15,714		2,866		—		18,580		58,091		76,671		—		—		15,478		2,636		—		18,114		58,616		76,730
Support services	—		—		50,902		21,269		—		72,171				72,171		—		—		53,987		20,130		—		74,117				74,117
Business services	239,100		122,730		4,453		1,593		—		367,876		—		367,876		232,845		125,334		4,022		1,327		—		363,528				363,528
	$	239,100	$	122,730	$	127,764	$	58,707	$	91,702	$	640,003	$	221,433	$	861,436	$	232,845	$	125,334	$	125,313	$	54,871	$	75,742	$	614,105	$	218,751	$	832,856

Revenue from sales and services (ASC 606)	$	239,100	$	122,730	$	127,764	$	58,707	$	91,702	$	640,003	$	—	$	640,003	$	232,845	$	125,334	$	125,313	$	54,871	$	75,742	$	614,105	$	—	$	614,105
Revenue from leasing transactions and financing	—		—		186,782		34,651		—		—		221,433		221,433		—		—		188,652		30,099		—		—		218,751		218,751
Total revenue	$	239,100	$	122,730	$	314,546	$	93,358	$	91,702	$	640,003	$	221,433	$	861,436	$	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	$	—	$	—	$	51,574	$	30,840	$	38,963	$	121,377					$	—	$	—	$	47,467	$	28,809	$	24,262	$	100,538
Products/services transferred over time	239,100		122,730		76,190		27,867		52,739		518,626						232,845		125,334		77,846		26,062		51,480		513,567
Total revenue	$	239,100	$	122,730	$	127,764	$	58,707	$	91,702	$	640,003					$	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)


	Six months ended June 30, 2018																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		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	$	—	$	—	$	32,449	$	25,018	$	—	$	57,467	$	158,654	$	216,121	$	—	$	—	$	46,061	$	36,992	$	—	$	83,053	$	234,005	$	317,058
Supplies	—		—		75,223		40,227		—		115,450		—		115,450		—		—		109,077		56,776		—		165,853		—		165,853
Software	—		—		—		—		167,996		167,996		—		167,996		—		—		—		284		243,738		244,022		—		244,022
Rentals	—		—		10,832		4,305		—		15,137		171,298		186,435		—		—		15,189		6,276		—		21,465		256,085		277,550
Financing	—		—		32,290		5,842		—		38,132		118,642		156,774		—		—		47,768		8,478		—		56,246		177,258		233,504
Support services	—		—		101,647		43,547		—		145,194		—		145,194		—		—		155,635		63,676		—		219,311				219,311
Business services	485,690		257,188		8,255		3,281		—		754,414		—		754,414		718,535		382,522		12,278		4,607		—		1,117,942				1,117,942
	$	485,690	$	257,188	$	260,696	$	122,220	$	167,996	$	1,293,790	$	448,594	$	1,742,384	$	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)	$	485,690	$	257,188	$	260,696	$	122,220	$	167,996	$	1,293,790	$	—	$	1,293,790	$	718,535	$	382,522	$	386,008	$	177,089	$	243,738	$	1,907,892	$	—	$	1,907,892
Revenue from leasing transactions and financing	—		—		379,419		69,175		—		—		448,594		448,594		—		—		568,072		99,276		—		—		667,348		667,348
Total revenue	$	485,690	$	257,188	$	640,115	$	191,395	$	167,996	$	1,293,790	$	448,594	$	1,742,384	$	718,535	$	382,522	$	954,080	$	276,365	$	243,738	$	1,907,892	$	667,348	$	2,575,240

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	$	—	$	—	$	107,672	$	65,245	$	65,020	$	237,937					$	—	$	—	$	155,138	$	94,052	$	89,282	$	338,472
Products/services transferred over time	485,690		257,188		153,024		56,975		102,976		1,055,853						718,535		382,522		230,870		83,037		154,456		1,569,420
Total revenue	$	485,690	$	257,188	$	260,696	$	122,220	$	167,996	$	1,293,790					$	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


	June 30, 2018		January 1, 2018 ⁽¹⁾		Total increase (decrease)			September 30, 2018		January 1, 2018 ⁽¹⁾		Increase (decrease)
Contracts assets, current	$	8,213	$	5,075	$	3,138		$	8,472	$	5,075	$	3,397
Contracts assets, noncurrent	$	4,006	$	648	$	3,358		$	7,520	$	648	$	6,872
Advance billings, current	$	186,778	$	209,098	$	(22,320	)	$	171,682	$	209,098	$	(37,416	)
Advance billings, noncurrent	$	14,658	$	17,765	$	(3,107	)	$	14,891	$	17,765	$	(2,874	)

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

Contract assets are recorded in other current assets and prepayments and other assets, respectively. Advance billings are recorded in advance billings and other noncurrent 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 ~~second~~third quarter, for which consideration will be ~~invoices~~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 ~~June~~September 30, 2018 is primarily driven by revenues recognized during the period, which includes ~~$128~~$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		2020-2025		Remainder of 2018		2019		2020-2025		Total
North America Mailing⁽¹⁾	$	233,955	$	57,793	$	89,529	$	86,633	$	39,160	$	136,602	$	209,758	$	385,520
International Mailing⁽¹⁾	117,562		29,432		36,415		51,715		12,174		35,227		48,822		96,223
Software Solutions⁽²⁾	102,383		41,674		36,120		24,589		22,780		39,503		32,645		94,928
Total	$	453,900	$	128,899	$	162,064	$	162,937	$	74,114	$	211,332	$	291,225	$	576,671

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

⁽²⁾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. ~~We have classified~~Additionally, the operating results of the Production Mail Business have been classified as discontinued operations and ~~as such,~~ segment operating results for the prior ~~years~~year have been recast to conform to ~~this~~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.

~~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 June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017		2018		2017
Global Ecommerce	$	239,100	$	94,506	$	485,690	$	182,658	$	232,845	$	106,181	$	718,535	$	288,839
Presort Services	122,730		118,452		257,188		251,129		125,334		119,074		382,522		370,203
Commerce Services	361,830		212,958		742,878		433,787		358,179		225,255		1,101,057		659,042
North America Mailing	314,546		340,949		640,115		696,902		313,965		320,091		954,080		1,016,993
International Mailing	93,358		95,425		191,395		188,624		84,970		93,858		276,365		282,482
Small & Medium Business Solutions	407,904		436,374		831,510		885,526		398,935		413,949		1,230,445		1,299,475
Software Solutions	91,702		81,081		167,996		154,280		75,742		94,069		243,738		248,349
Total revenue	$	861,436	$	730,413	$	1,742,384	$	1,473,593	$	832,856	$	733,273	$	2,575,240	$	2,206,866


	EBIT												EBIT
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Global Ecommerce	$	(5,993	)	$	(4,030	)	$	(13,704	)	$	(8,300	)	$	(14,330	)	$	(9,594	)	$	(28,034	)	$	(17,894	)
Presort Services	12,565			19,270			39,591			49,987			17,435			19,474			57,026			69,461
Commerce Services	6,572			15,240			25,887			41,687			3,105			9,880			28,992			51,567
North America Mailing	115,193			120,797			234,763			262,041			118,070			107,963			352,833			370,004
International Mailing	13,215			14,020			29,246			27,430			12,794			8,809			42,040			36,239
Small & Medium Business Solutions	128,408			134,817			264,009			289,471			130,864			116,772			394,873			406,243
Software Solutions	18,433			5,091			20,925			6,397			3,525			18,531			24,450			24,928
Total segment EBIT	153,413			155,148			310,821			337,555			137,494			145,183			448,315			482,738
Reconciling items:
Unallocated corporate expenses	(46,477		)	(52,549		)	(97,561		)	(110,151		)	(39,696		)	(41,322		)	(137,257		)	(151,473		)
Interest, net	(41,969		)	(40,443		)	(85,047		)	(79,093		)	(37,437		)	(41,230		)	(122,484		)	(120,323		)
Restructuring charges and asset impairments, net	(11,503		)	(25,990		)	(12,407		)	(27,639		)	(7,232		)	(1,470		)	(19,639		)	(29,109		)
Gain from the sale of technology	—			6,085			—			6,085			—			—			—			6,085
Transaction costs	—			—			(1,053		)	—			(36		)	(4,896		)	(1,089		)	(4,896		)
Other expense													(7,964		)	—			(7,964		)	—
Income from continuing operations before income taxes	53,464			42,251			114,753			126,757			45,129			56,265			159,882			183,022
Provision for income taxes	6,458			790			22,721			27,872
(Benefit) provision for income taxes													(1,976		)	10,828			20,745			38,700
Income from discontinued operations, net of tax	1,208			7,440			9,695			15,149			29,848			11,921			39,543			27,070
Net income	$	48,214		$	48,901		$	101,727		$	114,034		$	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. ~~Cash proceeds received at~~Subsequently during the ~~closing were $316 million. We~~third quarter, we closed on the sale of additional non-U.S. jurisdictions, and expect to close on the ~~other~~sale of the majority of the remaining non-U.S. ~~jurisdiction sales~~jurisdictions in the ~~third and~~ fourth ~~quarters,~~quarter, subject to local regulatory requirements. ~~On August 1, 2018, following~~Cash proceeds received in the ~~completion of certain local requirements in a non-U.S. jurisdiction, we received an additional $24~~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 June 30,					Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017		2018			2017		2018		2017
Revenue	$	89,201		$	90,958	$	191,435		$	184,418	$	19,557		$	109,547	$	211,000	$	293,965

Earnings from discontinued operations	$	8,278		$	11,602	$	21,620		$	23,645
Transaction costs	(7,238		)	—		(8,777		)	—
(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	1,040			11,602		12,843			23,645		85,324			18,700		98,167		42,345
Tax (benefit) provision	(168		)	4,162		3,148			8,496
Tax provision											55,476			6,779		58,624		15,275
Income from discontinued operations, net of tax	$	1,208		$	7,440	$	9,695		$	15,149	$	29,848		$	11,921	$	39,543	$	27,070

The assets and liabilities of the Production Mail Business have been classified as assets of discontinued operations and liabilities of discontinued operations on the Condensed Consolidated Balance Sheets. 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:


	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Cash and cash equivalents					$	1,026	$	—
Accounts receivable, net	$	69,924	$	97,402	2,900		97,402
Inventories	54,808		48,910		4,360		48,910
Other current assets and prepayments	6,653		3,365		188		3,365
Property, plant and equipment, net	3,185		5,541		578		5,541
Rental property and equipment, net	1,041		1,786		386		1,786
Goodwill	176,501		177,799		8,787		177,799
Other assets	1,244		45		48		45
Total assets of discontinued operations	$	313,356	$	334,848
Assets of discontinued operations					$	18,273	$	334,848

Accounts payable and accrued liabilities	$	34,244	$	36,592	$	2,261	$	36,592
Advance billings	44,694		30,607		2,534		30,607
Other noncurrent liabilities	5,281		5,609		5,651		5,609
Total liabilities of discontinued operations	$	84,219	$	72,808
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 June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017		2018		2017
Numerator:
Net income from continuing operations	$	47,006	$	41,461	$	92,032	$	98,885	$	47,105	$	45,437	$	139,137	$	144,322
Income from discontinued operations, net of tax	1,208		7,440		9,695		15,149		29,848		11,921		39,543		27,070
Net income (numerator for diluted EPS)	48,214		48,901		101,727		114,034		76,953		57,358		178,680		171,392
Less: Preference stock dividend	8		10		16		19		8		9		24		28
Income attributable to common stockholders (numerator for basic EPS)	$	48,206	$	48,891	$	101,711	$	114,015	$	76,945	$	57,349	$	178,656	$	171,364
Denominator:
Weighted-average shares used in basic EPS	187,180		186,333		187,004		186,136		187,470		186,497		187,167		186,257
Effect of dilutive shares	934		1,044		1,053		809		945		1,260		1,023		943
Weighted-average shares used in diluted EPS	188,114		187,377		188,057		186,945		188,415		187,757		188,190		187,200
Basic earnings per share:
Basic earnings per share⁽¹⁾:
Continuing operations	$	0.25	$	0.22	$	0.49	$	0.53	$	0.25	$	0.24	$	0.74	$	0.77
Discontinued operations	0.01		0.04		0.05		0.08		0.16		0.06		0.21		0.15
Net Income	$	0.26	$	0.26	$	0.54	$	0.61
Diluted earnings per share:
Net income									$	0.41	$	0.31	$	0.95	$	0.92
Diluted earnings per share⁽¹⁾:
Continuing operations	$	0.25	$	0.22	$	0.49	$	0.53	$	0.25	$	0.24	$	0.74	$	0.77
Discontinued operations	0.01		0.04		0.05		0.08		0.16		0.06		0.21		0.14
Net Income	$	0.26	$	0.26	$	0.54	$	0.61
Net income									$	0.41	$	0.31	$	0.95	$	0.92

Anti-dilutive shares not used in calculating diluted weighted-average shares	12,453		9,916		11,959		11,379		12,195		9,927		12,097		10,211

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

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 ~~June~~September 30, 2018 and December 31, 2017 consisted of the following:


	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Raw materials	$	13,502		$	11,767		$	11,998		$	11,767
Supplies and service parts	21,822			21,475			22,213			21,475
Finished products	19,461			13,261			16,993			13,261
Inventory at FIFO cost	54,785			46,503			51,204			46,503
Excess of FIFO cost over LIFO cost	(5,734		)	(5,734		)	(3,005		)	(5,734		)
Total inventory, net	$	49,051		$	40,769		$	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)

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 clients for postage and supplies. Loan receivables are generally due each month; however, 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. Client acquisition costs are expensed as incurred.

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


	June 30, 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	$	1,004,241		$	273,118		$	1,277,359		$	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	62,358			13,391			75,749			74,093			14,202			88,295			58,565			13,163			71,728			74,093			14,202			88,295
Unearned income	(209,870		)	(58,527		)	(268,397		)	(216,720		)	(62,325		)	(279,045		)	(210,001		)	(56,613		)	(266,614		)	(216,720		)	(62,325		)	(279,045		)
Allowance for credit losses	(11,129		)	(2,406		)	(13,535		)	(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	845,600			225,576			1,071,176			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	313,049			32,941			345,990			339,373			34,492			373,865			301,575			31,643			333,218			339,373			34,492			373,865
Allowance for credit losses	(6,869		)	(940		)	(7,809		)	(7,098		)	(1,020		)	(8,118		)	(6,712		)	(885		)	(7,597		)	(7,098		)	(1,020		)	(8,118		)
Net investment in loan receivables	306,180			32,001			338,181			332,275			33,472			365,747			294,863			30,758			325,621			332,275			33,472			365,747
Net investment in finance receivables	$	1,151,780		$	257,577		$	1,409,357		$	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 ~~six~~nine months ended ~~June~~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	5,946			545			7,008			250			13,749			7,037			829			4,896			331			13,093
Write-offs and other	(2,538		)	(933		)	(7,237		)	(330		)	(11,038		)	(3,979		)	(1,359		)	(5,282		)	(466		)	(11,086		)
Balance at June 30, 2018	$	11,129		$	2,406		$	6,869		$	940		$	21,344
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	5,182			466			2,891			450			8,989			7,807			895			3,892			438			13,032
Write-offs and other	(4,973		)	(617		)	(3,905		)	(382		)	(9,877		)	(8,951		)	(774		)	(5,449		)	(438		)	(15,612		)
Balance at June 30, 2017	$	8,456		$	2,496		$	7,503		$	1,157		$	19,612
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 ~~June~~September 30, 2018 and December 31, 2017 was as follows:


	June 30, 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	$	961,356	$	266,146	$	305,116	$	32,706	$	1,565,324	$	959,594	$	262,464	$	294,349	$	31,430	$	1,547,837
> 90 days	42,885		6,972		7,933		235		58,025		41,231		6,269		7,226		213		54,939
Total	$	1,004,241	$	273,118	$	313,049	$	32,941	$	1,623,349	$	1,000,825	$	268,733	$	301,575	$	31,643	$	1,602,776
Past due amounts > 90 days
Still accruing interest	$	6,297	$	1,672	$	—	$	—	$	7,969	$	6,350	$	1,718	$	—	$	—	$	8,068
Not accruing interest	36,588		5,300		7,933		235		50,056		34,881		4,551		7,226		213		46,871
Total	$	42,885	$	6,972	$	7,933	$	235	$	58,025	$	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 ~~June~~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 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.


	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Sales-type lease receivables
Low	$	817,554	$	819,776	$	817,006	$	819,776
Medium	130,175		148,000		130,269		148,000
High	20,663		21,728		20,793		21,728
Not Scored	35,849		34,045		32,757		34,045
Total	$	1,004,241	$	1,023,549	$	1,000,825	$	1,023,549
Loan receivables
Low	$	244,570	$	262,646	$	234,085	$	262,646
Medium	50,711		56,744		48,947		56,744
High	5,593		6,791		5,847		6,791
Not Scored	12,175		13,192		12,696		13,192
Total	$	313,049	$	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)

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 ~~six~~nine months ended ~~June~~September 30, 2018 includes ~~$127~~$126 million and ~~$257~~$384 million, respectively, from Newgistics. On a supplemental pro forma basis, had we acquired Newgistics on January 1, 2017, our revenues would have been ~~$115~~$106 million and ~~$234~~$340 million higher for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively. The impact on our earnings would not have been material.

Intangible Assets

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


	June 30, 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	$	482,092	$	(265,904	)	$	216,188	$	504,716	$	(271,066	)	$	233,650	$	481,422	$	(273,388	)	$	208,034	$	504,716	$	(271,066	)	$	233,650
Software & technology	166,100		(141,338		)	24,762		167,122		(138,724		)	28,398		165,692		(142,747		)	22,945		167,122		(138,724		)	28,398
Trademarks & other	40,403		(32,228		)	8,175		40,649		(30,511		)	10,138		40,312		(33,124		)	7,188		40,649		(30,511		)	10,138
Total intangible assets	$	688,595	$	(439,470	)	$	249,125	$	712,487	$	(440,301	)	$	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 ~~June~~September 30, 2018 and 2017, respectively and ~~$22~~$33 million and ~~$17~~$24 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

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


Remaining for year ending December 31, 2018	$	25,997	$	15,092
Year ending December 31, 2019	38,023		38,021
Year ending December 31, 2020	33,722		33,721
Year ending December 31, 2021	30,001		29,989
Year ending December 31, 2022	29,012		29,012
Thereafter	92,370		92,332
Total	$	249,125	$	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 ~~six~~nine months ended ~~June~~September 30, 2018 are shown in the table below.


	December 31, 2017		Acquisitions		Other⁽¹⁾			June 30, 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		—		(354		)	368,551		368,905		—		(219		)	368,686
International Mailing	158,203		—		(5,784		)	152,419		158,203		—		(7,456		)	150,747
Small & Medium Business Solutions	527,108		—		(6,138		)	520,970		527,108		—		(7,675		)	519,433
Software Solutions	440,295		—		(2,690		)	437,605		440,295		—		(3,918		)	436,377
Total goodwill	$	1,774,645	$	2,684	$	(9,481	)	$	1,767,848	$	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)

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 ~~June~~September 30, 2018 and December 31, 2017.


	June 30, 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	$	114,665	$	328,296		$	—	$	442,961		$	102,777	$	432,125		$	—	$	534,902
Equity securities	—		24,637			—		24,637			—		25,621			—		25,621
Commingled fixed income securities	1,549		20,795			—		22,344			1,546		20,726			—		22,272
Government and related securities	123,239		16,429			—		139,668			118,914		17,405			—		136,319
Corporate debt securities	—		71,078			—		71,078			—		69,924			—		69,924
Mortgage-backed / asset-backed securities	—		165,835			—		165,835			—		158,540			—		158,540
Derivatives
Interest rate swap	—		824			—		824
Foreign exchange contracts	—		2,673			—		2,673			—		2,507			—		2,507
Total assets	$	239,453	$	630,567		$	—	$	870,020		$	223,237	$	726,848		$	—	$	950,085
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(178	)	$	—	$	(178	)	$	—	$	(3,888	)	$	—	$	(3,888	)
Total liabilities	$	—	$	(178	)	$	—	$	(178	)	$	—	$	(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 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.

Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond 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 or external price/spread data. These securities are classified as Level 2.

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. Unrealized holding gains and losses, 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 ~~June~~September 30, 2018 and December 31, 2017 consisted of the following:


	June 30, 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	$	140,583	$	1,247	$	(2,162	)	$	139,668	$	136,967	$	980	$	(2,879	)	$	135,068
Corporate debt securities	72,428		268		(1,618		)	71,078		71,261		218		(1,555		)	69,924
Commingled fixed income securities	1,619		—		(70		)	1,549		1,628		—		(82		)	1,546
Mortgage-backed / asset-backed securities	168,585		730		(3,480		)	165,835		161,972		569		(4,001		)	158,540
Total	$	383,215	$	2,245	$	(7,330	)	$	378,130	$	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 June 30, 2018,~~The aggregate unrealized holding losses of investment securities in a loss position ~~for 12 or more continuous months had aggregate unrealized holding losses of $6 million~~at September 30, 2018 and an estimated fair value of $228 million, and investment securities in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $1 million and an estimated fair value of $90 million.

At December 31, 2017 investment securities 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 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.were 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 expect to receive the stated principal and interest at maturity.

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


	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Within 1 year	$	56,012	$	55,705	$	54,573	$	54,230
After 1 year through 5 years	114,973		113,720		111,948		110,591
After 5 years through 10 years	58,066		56,867		59,377		57,862
After 10 years	154,164		151,838		145,930		142,395
Total	$	383,215	$	378,130	$	371,828	$	365,078

The scheduled maturities of mortgage-backed and asset-backed securities may not coincide with the actual payment as borrowers have the right to prepay 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.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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 mitigate these 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 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 ~~June~~both September 30, 2018 and December 31, 2017, we had outstanding contracts associated with these anticipated transactions with notional amounts of ~~$11 million and~~ $10 ~~million, respectively.~~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 of the swap agreement, we pay fixed-rate interest of 0.8826% and receive variable-rate interest based on 1-month LIBOR. The variable interest rate resets monthly.~~

~~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 ~~June~~September 30, 2018 and December 31, 2017 was as follows:


Designation of Derivatives	Balance Sheet Location	June 30, 2018			December 31, 2017			Balance Sheet Location	September 30, 2018			December 31, 2017
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	$	114		$	57		Other current assets and prepayments	$	80		$	57
	Accounts payable and accrued liabilities	(39		)	(144		)	Accounts payable and accrued liabilities	(60		)	(144		)

Interest rate swap	Other assets	824			1,776			Other assets	—			1,776

Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	2,559			65			Other current assets and prepayments	2,427			65
	Accounts payable and accrued liabilities	(139		)	(191		)	Accounts payable and accrued liabilities	(3,828		)	(191		)

	Total derivative assets	$	3,497		$	1,898		Total derivative assets	$	2,507		$	1,898
	Total derivative liabilities	(178		)	(335		)	Total derivative liabilities	(3,888		)	(335		)
	Total net derivative asset	$	3,319		$	1,563		Total net derivative (liability) asset	$	(1,381	)	$	1,563

The majority of the amounts included in AOCI at ~~June~~September 30, 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 six months ended June 30,~~ ~~2018~~ ~~and~~ ~~2017~~:

Three Months Ended June 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 Instrument 2018 2017 2018 2017
Foreign exchange contracts $ 119
$ (599 ) Revenue $ 79
$ 34

Cost of sales (1 ) 36
Interest rate swap (771 ) (147 ) Interest Expense —
—
$ (652 ) $ (746 ) $ 78
$ 70

Six Months Ended June 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 $ 154
$ (549 ) Revenue $ 76
$ 6

Cost of sales (85 ) 148
Interest rate swap (952 ) 321
Interest Expense —
—
$ (798 ) $ (228 ) $ (9 ) $ 154

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 cash flow hedging relationships for the three and nine months ended September 30, 2018 and 2017:



	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 Instrument	2018			2017			Location of Gain (Loss) (Effective Portion)	2018			2017
Foreign exchange contracts	$	(42	)	$	(152	)	Revenue	$	(38	)	$	(139	)
							Cost of sales	52			(59		)
Interest rate swap	(824		)	(229		)	Interest Expense	—			—
	$	(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			Location of Gain (Loss) (Effective Portion)	2018			2017
Foreign exchange contracts	$	111		$	(701	)	Revenue	$	38		$	(133	)
							Cost of sales	(33		)	89
Interest rate swap	(1,776		)	92			Interest Expense	—			—
	$	(1,665	)	$	(609	)		$	5		$	(44	)

We 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 intercompany loans and interest and the corresponding mark-to-market adjustment on derivatives are recorded in earnings. The table below represents the mark-to-market adjustments of non-designated derivative instruments for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and ~~2017~~.2017. All outstanding contracts at ~~June~~September 30, 2018 mature within 12 months.


		Three Months Ended June 30,							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	$	(14,828	)	$	789		Selling, general and administrative expense	$	(1,948	)	$	(655	)

		Six Months Ended June 30,							Nine 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	$	(18,396	)	$	(1,061	)	Selling, general and administrative expense	$	(20,344	)	$	(1,716	)

Credit-Risk-Related Contingent Features

Certain derivative instruments contain credit-risk-related contingent features that 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 ~~June~~September 30, 2018, we had ~~$4 million of~~no cash collateral posted with certain counterparties. ~~Due to the change in net fair value of our derivatives, the amount was returned in full on July 2, 2018.~~

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 ~~June~~September 30, 2018 and December 31, 2017 were as follows:


	June 30, 2018		December 31, 2017
��					September 30, 2018		December 31, 2017
Carrying value	$	3,572,809	$	3,830,335	$	3,269,617	$	3,830,335
Fair value	$	3,381,964	$	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

~~10.~~ Restructuring Charges

Activity in our restructuring reserves for the ~~six~~nine months ended ~~June~~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	7,990			4,417			12,407			13,655			6,274			19,929
Cash payments	(26,942		)	(586		)	(27,528		)	(37,511		)	(1,589		)	(39,100		)
Balance at June 30, 2018	$	23,199		$	5,400		$	28,599
Balance at September 30, 2018										$	18,295		$	6,254		$	24,549

Balance at January 1, 2017	$	28,234		$	281		$	28,515		$	28,234		$	281		$	28,515
Expenses, net	22,489			1,560			24,049			23,832			1,712			25,544
Cash payments	(17,154		)	(497		)	(17,651		)	(27,724		)	(718		)	(28,442		)
Balance at June 30, 2017	$	33,569		$	1,344		$	34,913
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

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

11. Debt

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



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

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 interest rate on 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 0.25% effective after the next interest payment date.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~11. Debt~~

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

Interest rate June 30, 2018 December 31, 2017
Notes due March 2018 5.60% $ —
$ 250,000
Notes due March 2019 6.25% 300,000
300,000
Notes due September 2020 3.625% 300,000
300,000
Notes due October 2021 3.625% 600,000
600,000
Notes due May 2022 4.375% 400,000
400,000
Notes due April 2023 4.7% 400,000
400,000
Notes due March 2024 4.625% 500,000
500,000
Notes due January 2037 5.25% 35,841
35,841
Notes due March 2043 6.7% 425,000
425,000
Term loans Variable 640,000
650,000
Other debt 5,378
5,476
Principal amount 3,606,219
3,866,317
Less: unamortized costs, net 33,410
35,982
Total debt 3,572,809
3,830,335
Less: current portion long-term debt 334,999
271,057
Long-term debt $ 3,237,810
$ 3,559,278

The interest rate on certain notes and term loans are subject to adjustment based on changes in our credit ratings. During the quarter, Standard & Poor's lowered our corporate credit rating from BBB- to BB+. As a result, the interest rate on the May 2022 Notes and term loans increased 0.25% and the interest rate on the September 2020 notes, the October 2021 notes, and the April 2023 notes will increase 0.25% effective after the next interest payment date.

~~During the year, we repaid the $250 million of 5.6% Notes that matured in March 2018 and $10 million of principal on our term loans.~~

On August 2, 2018, we redeemed the $300 million 6.25% ~~Notes~~notes due March 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 $15 million of principal on our term loans.

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

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

12. Pensions and Other Benefit Programs

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


	Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans				Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans
	United States						Foreign										United States						Foreign
	Three Months Ended						Three Months Ended						Three Months Ended				Three Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						June 30,				September 30,						September 30,						September 30,
	2018			2017			2018			2017			2018		2017		2018			2017			2018			2017			2018		2017
Service cost	$	9		$	34		$	575		$	559		$	405	$	434	$	23		$	34		$	567		$	587		$	298	$	438
Interest cost	15,108			17,121			4,591			4,640			1,607		1,770		15,363			17,122			4,434			4,809			1,676		1,780
Expected return on plan assets	(25,119		)	(24,369		)	(9,118		)	(7,961		)	—		—		(25,281		)	(24,369		)	(8,730		)	(8,214		)	—		—
Amortization of transition credit	—			—			(2		)	(2		)	—		—		—			—			(2		)	(2		)	—		—
Amortization of prior service (credit) cost	(15		)	(15		)	(18		)	(17		)	88		74		(15		)	(15		)	(18		)	(18		)	112		74
Amortization of net actuarial loss	7,628			7,229			1,870			1,892			881		905		7,851			7,229			1,807			2,055			338		905
Settlement/Curtailment																	796			—			—			—			339		—
Net periodic benefit (income) cost	$	(2,389	)	$	—		$	(2,102	)	$	(889	)	$	2,981	$	3,183	$	(1,263	)	$	1		$	(1,942	)	$	(783	)	$	2,763	$	3,197
Contributions to benefit plans	$	1,906		$	1,046		$	769		$	1,319		$	4,316	$	4,426	$	2,479		$	1,792		$	661		$	1,000		$	4,442	$	4,009

	Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans				Defined Benefit Pension Plans												Nonpension Postretirement Benefit Plans
	United States						Foreign										United States						Foreign
	Six Months Ended						Six Months Ended						Six Months Ended				Nine Months Ended						Nine Months Ended						Nine Months Ended
	June 30,						June 30,						June 30,				September 30,						September 30,						September 30,
	2018			2017			2018			2017			2018		2017		2018			2017			2018			2017			2018		2017
Service cost	$	46		$	64		$	1,164		$	1,101		$	811	$	853	$	69		$	98		$	1,731		$	1,688		$	1,109	$	1,290
Interest cost	30,724			34,366			9,287			9,184			3,210		3,541		46,087			51,488			13,721			13,993			4,888		5,321
Expected return on plan assets	(50,543		)	(48,917		)	(18,304		)	(15,742		)	—		—		(75,815		)	(73,287		)	(27,045		)	(23,956		)	—		—
Amortization of transition credit	—			—			(3		)	(4		)	—		—		—			—			(5		)	(6		)	—		—
Amortization of prior service (credit) cost	(30		)	(30		)	(37		)	(35		)	176		148		(45		)	(45		)	(54		)	(53		)	287		223
Amortization of net actuarial loss	15,704			14,497			3,783			3,926			1,815		1,789		23,555			21,725			5,590			5,981			2,153		2,693
Settlement/Curtailment																	796			—			—			—			339		—
Net periodic benefit (income) cost	$	(4,099	)	$	(20	)	$	(4,110	)	$	(1,570	)	$	6,012	$	6,331	$	(5,353	)	$	(21	)	$	(6,062	)	$	(2,353	)	$	8,776	$	9,527
Contributions to benefit plans	$	3,194		$	2,594		$	9,979		$	10,391		$	9,111	$	9,124	$	5,674		$	4,691		$	10,640		$	11,391		$	13,552	$	13,027

13. Income Taxes

The effective tax rate for the three months ended ~~June~~September 30, 2018 and 2017 was ~~12.1%~~(4.4)% and ~~1.9%~~19.2%, respectively, and the effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 was ~~19.8%~~13.0% and ~~22.0%~~21.1%, respectively. The effective tax rate for the ~~six~~three and nine months ended ~~June~~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 ~~included~~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. The effective tax rate for the three and six months ended June 30 2018 included a $3 million and $6 million benefit, respectively, from the resolution of certain tax examinations. The effective tax rate for the three and six months ended June 30, 2017 included a $10 million and $14 million benefit, respectively, from the resolution of certain tax examinations.

The provisional amounts recorded ~~under Staff Accounting Bulletin No. 118~~to reflect the impact of tax legislation in 2017 have been adjusted ~~and~~for both the three and ~~six~~nine month periods ended ~~June~~September 30, 2018 and include a benefit of $9$8 million and $17 million, respectively, related to the re-measurement of deferred tax ~~assets.~~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 ~~June~~September 30, 2018 remain provisional and further adjustments are expected to be made during the 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 unrecognized tax benefits will decrease in the next 12 months, and this decrease could be up to 20% of our unrecognized tax benefits.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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.

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.

15. Stockholders’ Equity

Changes in stockholders’ equity for the ~~six~~nine months ended ~~June~~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	—		—			—		—			101,727			—			—			101,727			—		—			—		—			178,680			—			—			178,680
Other comprehensive income	—		—			—		—			—			(18,078		)	—			(18,078		)
Other comprehensive loss																							—		—			—		—			—			(12,436		)	—			(12,436		)
Dividends paid	—		—			—		—			(70,113		)	—			—			(70,113		)	—		—			—		—			(105,296		)	—			—			(105,296		)
Issuance of common stock	—		—			—		(24,267		)	—			—			21,141			(3,126		)	—		—			—		(35,457		)	—			—			34,050			(1,407		)
Conversion to common stock	—		(26		)	—		(521		)	—			—			547			—			—		(38		)	—		(763		)	—			—			801			—
Stock-based compensation expense	—		—			—		9,153			—			—			—			9,153			—		—			—		15,771			—			—			—			15,771
Balance at June 30, 2018	$	1	$	415		$	323,338	$	122,732		$	5,248,991		$	(810,251	)	$	(4,689,309	)	$	195,917
Balance at September 30, 2018																							$	1	$	403		$	323,338	$	117,918		$	5,290,761		$	(804,609	)	$	(4,676,146	)	$	251,666

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 )
Net income —
—
—
—
114,034
—
—
114,034
Other comprehensive loss —
—
—
—
—
80,818
—
80,818
Dividends paid —
—
—
—
(69,527 ) —
—
(69,527 )
Issuance of common stock —
—
—
(28,567 ) —
—
23,744
(4,823 )
Conversion to common stock —
(20 ) —
(398 ) —
—
418
—
Stock-based compensation expense —
—
—
12,531
—
—
—
12,531
Balance at June 30, 2017 $ 1
$ 463
$ 323,338
$ 131,691
$ 5,152,241
$ (859,315 ) $ (4,719,046 ) $ 29,373

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) equity
Balance at December 31, 2016	$	1	$	483		$	323,338	$	148,125		$	5,107,734		$	(940,133	)	$	(4,743,208	)	$	(103,660	)
Net income	—		—			—		—			171,392			—			—			171,392
Other comprehensive income	—		—			—		—			—			121,649			—			121,649
Dividends paid	—		—			—		—			(104,524		)	—			—			(104,524		)
Issuance of common stock	—		—			—		(32,538		)	—			—			30,202			(2,336		)
Conversion to common stock	—		(26		)	—		(505		)	—			—			531			—
Stock-based compensation expense	—		—			—		18,312			—			—			—			18,312
Balance at September 30, 2017	$	1	$	457		$	323,338	$	133,394		$	5,174,602		$	(818,484	)	$	(4,712,475	)	$	100,833

16. Accumulated Other Comprehensive Income

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


	Amount Reclassified from AOCI^(a)												Amount Reclassified from AOCI^(a)
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Gains (losses) on cash flow hedges
Revenue	$	79		$	34		$	76		$	6		$	(38	)	$	(139	)	$	38		$	(133	)
Cost of sales	(1		)	36			(85		)	148			52			(59		)	(33		)	89
Interest expense, net	(507		)	(507		)	(1,014		)	(1,014		)	(825		)	(507		)	(1,839		)	(1,521		)
Total before tax	(429		)	(437		)	(1,023		)	(860		)	(811		)	(705		)	(1,834		)	(1,565		)
Benefit from income taxes	110			170			261			336			206			274			468			610
Net of tax	$	(319	)	$	(267	)	$	(762	)	$	(524	)	$	(605	)	$	(431	)	$	(1,366	)	$	(955	)

Gains (losses) on available for sale securities
Interest expense, net	$	214		$	(117	)	$	190		$	(226	)	$	(40	)	$	(298	)	$	150		$	(524	)
(Provision) benefit from income taxes	(54		)	44			(48		)	84
Benefit (provision) from income taxes													10			110			(38		)	194
Net of tax	$	160		$	(73	)	$	142		$	(142	)	$	(30	)	$	(188	)	$	112		$	(330	)

Pension and Postretirement Benefit Plans ^(b)
Transition credit(b)	$	2		$	2		$	3		$	4		$	2		$	2		$	5		$	6
Prior service costs(b)	(55		)	(42		)	(109		)	(83		)	(79		)	(41		)	(188		)	(125		)
Actuarial losses(b)	(10,379		)	(10,026		)	(21,302		)	(20,212		)	(9,996		)	(10,189		)	(31,298		)	(30,399		)
Settlements ^(b)													(1,135		)	—			(1,135		)	—
Total before tax	(10,432		)	(10,066		)	(21,408		)	(20,291		)	(11,208		)	(10,228		)	(32,616		)	(30,518		)
Benefit from income taxes	2,564			3,442			5,368			6,956			2,399			3,484			7,766			10,440
Net of tax	$	(7,868	)	$	(6,624	)	$	(16,040	)	$	(13,335	)	$	(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 other components of net pension and postretirement ~~cost. These amounts are included~~

~~in the computation of net periodic costs~~cost (see Note 12 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 ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 were as follows:


	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, 2018	$	(406	)	$	1,597		$	(748,800	)	$	(44,564	)	$	(792,173	)	$	(406	)	$	1,597		$	(748,800	)	$	(44,564	)	$	(792,173	)
Other comprehensive loss before reclassifications (a)	(511		)	(5,154		)	—			(29,073		)	(34,738		)	(593		)	(6,402		)	—			(31,545		)	(38,540		)
Reclassifications into earnings (a), (b)	762			(142		)	16,040			—			16,660			1,366			(112		)	24,850			—			26,104
Net other comprehensive income (loss)	251			(5,296		)	16,040			(29,073		)	(18,078		)	773			(6,514		)	24,850			(31,545		)	(12,436		)
Balance at June 30, 2018	$	(155	)	$	(3,699	)	$	(732,760	)	$	(73,637	)	$	(810,251	)
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)	(141		)	1,734		(1,482		)	66,706			66,817			(376		)	1,921		(1,482		)	100,223			100,286
Reclassifications into earnings (a), (b)	524			142		13,335			—			14,001			955			330		20,078			—			21,363
Net other comprehensive income	383			1,876		11,853			66,706			80,818			579			2,251		18,596			100,223			121,649
Balance at June 30, 2017	$	(1,102	)	$	1,996	$	(775,960	)	$	(84,249	)	$	(859,315	)
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.

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 and tariffs~~

~~economic tensions between governments and changes in international trade policies~~

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

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

In the first half of 2018, total revenue increased 18% and our gross margin declined to 48.6% from 59% as compared to the prior year. We continued to see a shift in our overall portfolio 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.

Our strategy is focused around three core principles: to invest in offerings that reduce the complexity of mailing and shipping for our clients; to continue to focus on operational excellence initiatives to reduce ~~the costs in the business;~~costs; and to focus on ~~re-using~~integrating and leveraging technologies across the enterprise.

Year-to-date, total revenue increased 17% over the prior year, but total earnings before interest and ~~our expertise~~taxes (EBIT) has declined. The decline in ~~one line of our business~~EBIT is largely due to ~~improve~~continued investments in opportunities to reduce the ~~capabilities~~complexity in mailing and ~~results of other lines of business.~~shipping and the overall portfolio shift to higher growth digital and shipping solutions.

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. Our attainment ~~through the first half of 2018~~to date leaves us well positioned to achieve ~~$120 million in~~or exceed our savings ~~this year.~~objectives.

~~During the second quarter of 2018,~~In connection with our shift to higher growth markets that align with our strategic focus on shipping, we ~~announced our intention to sell~~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 ~~other than in~~while the sale of the majority of certain non-U.S. jurisdictions ~~which~~closed later in the third quarter or are expected to close in the ~~third and~~ fourth ~~quarters,~~quarter, subject to local regulatory requirements. ~~We utilized~~Proceeds from the sale were $340 million, the majority of ~~the proceeds~~which was used to repay ~~debt in August 2018. This transaction supports the move to higher growth markets and aligns with our strategic focus on shipping and enhancing the value for clients.~~debt.

Financial Results Summary - Three Months Ended ~~June~~September 30:


	2018		2017		Change	2018		2017		Change
Revenue	$	861,436	$	730,413	18%	$	832,856	$	733,273	14%
Net income from continuing operations	$	47,006	$	41,461	13%	$	47,105	$	45,437	4%
Diluted earnings per share - continuing operations	$	0.25	$	0.22	14%	$	0.25	$	0.24	4%

Revenue

Revenue increased ~~18%~~14% as reported and ~~17% on a~~at constant ~~currency basis.~~currency.

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

Commerce Services grew ~~70%~~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 ~~69% on a~~3% at constant currency. North America Mailing revenue declined 2% and International Mailing revenue declined 9% as reported and 7% at constant currency ~~basis primarily~~ 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 ~~Global Ecommerce.~~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 ~~19% primarily~~15% due to higher shipping and marketplace revenue. Presort Services revenue grew 4%3% due to higher mail processing volumes.

~~Small and Medium Business Solutions (SMB)~~SMB revenue declined 7%5% as reported and ~~8% on a~~6% at constant ~~currency basis.~~currency. North America Mailing revenue declined ~~8% as reported and on a constant currency basis~~6% primarily due to a decline in equipment sales and stream revenues. International Mailing revenue ~~declined~~decreased 2% as reported and 7% ~~on a~~at constant currency ~~basis due to lower equipment sales, and stream revenues.~~

Software Solutions revenue increased 13% as reported and 12% on a constant currency basis due to growth in Data, Customer Information Management and Location Intelligence, in part from the implementation of the new revenue recognition accounting standard (ASC 606). See Note 2 to the Condensed Consolidated Financial Statements for further information.

~~Net Income from Continuing Operations~~

~~Net income from continuing operations increased 13% driven largely by restructuring charges and pension expense, partially offset by lower gross margins and higher effective tax rate.~~

~~Financial Results Summary - Six Months Ended June 30:~~

2018 2017 Change
Revenue $ 1,742,384
$ 1,473,593
18%
Net income from continuing operations $ 92,032
$ 98,885
(7)%
Diluted earnings per share - continuing operations $ 0.49
$ 0.53
(8)%
Net cash provided by operating activities - continuing operations $ 133,262
$ 170,551
(22)%

~~Revenue~~

~~Revenue increased 18% as reported and 17% on a constant currency basis.~~

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

Commerce Services grew 71% as reported and 70% on a constant currency basis primarily due to growth in Global Ecommerce. Revenue for Global Ecommerce more than doubled over the prior year, and excluding revenue from Newgistics, grew 25% due to higher shipping and marketplace revenue. Presort Services revenue grew 2% due to higher mail processing volumes.

SMB revenue declined 6% as reported and 8% on a constant currency basis. North America Mailing revenue declined 8% as reported and on a constant currency basis primarily due to a decline in equipment sales and stream revenues. International Mailing revenue increased 1% as reported, but declined 6% on a constant currency basis due to lower equipment sales, supplies and support services revenue.

Software Solutions revenue ~~increased 9%~~decreased 2% as reported and ~~7% on a~~3% at constant currency ~~basis~~ due to ~~the implementation of ASC 606. See Note 2 to the Condensed Consolidated Financial Statements for further information.~~lower licensing revenue.

Net Income from Continuing Operations

Net income from continuing operations ~~declined 7%~~was $139 million compared to $144 million in the prior year. The decrease was driven ~~largely~~ by lower overall margins as our portfolio continues to shift to higher ~~revenue~~ 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 ~~decline in our~~lower effective tax rate.

Cash Flows from Continuing Operations

Net cash provided by operating activities from continuing operations was ~~$133~~$246 million compared to ~~$171~~$313 million in the prior year. ~~The decline primarily relates to working capital changes.~~We also received $340 million from the sale of the Production Mail Business. During the first ~~six~~nine months of 2018, we used cash to:

repay ~~$260~~$565 million of debt;

pay dividends of ~~$70~~$105 million to our stockholders; and

invest ~~$100~~$141 million in capital expenditures.

Outlook

AsWe expect continued revenue growth as we ~~continue to execute on the three core principles and shift~~move our portfolio into high growth, albeit lower margin, areas. We expect continued progress in our efforts to ~~higher revenue growth, lower-margin areas, we expect 2018 revenue to grow, but our overall gross profit margins to contract due largely to the changing mix of the business. We will continue to drive~~improve productivity and ~~expect to execute~~reduce spend. We are addressing challenges such as higher transportation and labor costs, and are on ~~our commitment~~target to deliver ~~at least $200 million of spend reduction over 24 months.~~cost savings this year.

We are integrating and leveraging the Newgistics network into our Commerce Services businesses. Shipping solutions will become a larger contributor to ~~overall~~ revenue and ~~we continue to integrate and leverage the Newgistics network into our business within Commerce Services.~~ Shipping APIs, cross-border volume expansion and carrier services offerings will continue to ~~add~~contribute to revenue growth toin Global Ecommerce. Presort Services revenue is expected to continue to perform around the market ranges.

WeWithin our mailing business, we expect ~~trends~~that the introduction of new services and products, including the SendPro products and expanded finance offerings, will contribute to improvements in equipment sales and stream ~~revenues~~revenue trends in North America ~~to improve~~ over the ~~long-term as we continue to sell the SendPro products. We have introduced new and expanded finance offerings to our clients and expect to see benefits from these offerings over time.~~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 June 30,								Six Months Ended June 30,								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		2018		2017		Actual % change		Constant Currency % change
Equipment sales	$	105,750	$	121,384	(13	)%	(14	)%	$	216,121	$	245,887	(12	)%	(14	)%	$	100,937	$	103,514	(2	)%	(2	)%	$	317,058	$	349,401	(9	)%	(10	)%
Supplies	55,457		58,639		(5	)%	(7	)%	115,450		119,694		(4	)%	(7	)%	50,403		53,627		(6	)%	(5	)%	165,853		173,321		(4	)%	(6	)%
Software	91,702		81,319		13	%	11	%	167,996		154,165		9	%	7	%	76,026		94,226		(19	)%	(19	)%	244,022		248,391		(2	)%	(3	)%
Rentals	91,809		95,447		(4	)%	(5	)%	186,435		194,754		(4	)%	(5	)%	91,115		95,333		(4	)%	(4	)%	277,550		290,087		(4	)%	(5	)%
Financing	76,671		83,653		(8	)%	(9	)%	156,774		169,398		(7	)%	(9	)%	76,730		81,079		(5	)%	(5	)%	233,504		250,477		(7	)%	(8	)%
Support services	72,171		72,068		—	%	(2	)%	145,194		147,273		(1	)%	(4	)%	74,117		75,783		(2	)%	(2	)%	219,311		223,056		(2	)%	(3	)%
Business services	367,876		217,903		69	%	68	%	754,414		442,422		71	%	70	%	363,528		229,711		58	%	58	%	1,117,942		672,133		66	%	66	%
Total revenue	$	861,436	$	730,413	18	%	17	%	$	1,742,384	$	1,473,593	18	%	17	%	$	832,856	$	733,273	14	%	14	%	$	2,575,240	$	2,206,866	17	%	16	%


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
					Percentage of Revenue								Percentage of Revenue								Percentage of Revenue								Percentage of Revenue
	2018		2017		2018		2017		2018		2017		2018		2017		2018		2017		2018		2017		2018		2017		2018		2017
Cost of equipment sales	$	47,106	$	51,506	44.5	%	42.4	%	$	93,160	$	96,122	43.1	%	39.1	%	$	39,353	$	49,328	39.0	%	47.7	%	$	132,513	$	145,450	41.8	%	41.6	%
Cost of supplies	15,738		16,216		28.4	%	27.7	%	32,685		33,068		28.3	%	27.6	%	13,967		15,209		27.7	%	28.4	%	46,652		48,277		28.1	%	27.9	%
Cost of software	26,459		23,361		28.9	%	28.7	%	50,514		46,515		30.1	%	30.2	%	24,743		24,107		32.5	%	25.6	%	75,257		70,622		30.8	%	28.4	%
Cost of rentals	21,078		21,143		23.0	%	22.2	%	45,132		41,422		24.2	%	21.3	%	21,827		20,447		24.0	%	21.4	%	66,959		61,869		24.1	%	21.3	%
Financing interest expense	12,346		12,843		16.1	%	15.4	%	24,571		25,817		15.7	%	15.2	%	11,954		12,629		15.6	%	15.6	%	36,525		38,446		15.6	%	15.3	%
Cost of support services	39,609		41,772		54.9	%	58.0	%	82,736		83,421		57.0	%	56.6	%	43,259		39,468		58.4	%	52.1	%	125,995		122,889		57.5	%	55.1	%
Cost of business services	293,480		153,063		79.8	%	70.2	%	590,879		303,906		78.3	%	68.7	%	291,650		166,984		80.2	%	72.7	%	882,529		470,890		78.9	%	70.1	%
Total cost of revenue	$	455,816	$	319,904	52.9	%	43.8	%	$	919,677	$	630,271	52.8	%	42.8	%	$	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 ~~13%~~2% in the quarter, primarily due to

3% from lower equipment sales in International Mailing, primarily driven by declines in the U.K. and ~~12%~~France partially offset by growth in Australia and Japan; offset partially by

1% from higher equipment sales in North American Mailing.

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

Equipment sales revenue decreased 9% in the first ~~six~~nine months of 2018. ~~On a~~At constant currency, ~~basis,~~ equipment sales decreased ~~14% in both periods,~~10% primarily due to:

~~12%~~8% from lower equipment sales in North America Mailing reflecting a change in product ~~mix and lower backlog at the beginning of the quarter compared to prior year periods;~~mix; and

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 ~~increased to 44.5% in the quarter and 43.1%~~of 41.8% in the first ~~six~~nine months of 2018 ~~primarily due~~was relatively flat compared to ~~a higher mix of lower margin product sales.~~the prior year.

Supplies

Supplies revenue decreased 5%6% in the quarter. ~~On a~~At constant currency, ~~basis,~~ supplies revenue decreased 7%5% primarily due to:

6%3% from lower supplies revenue in ~~North America~~International Mailing; and

2% from lower supplies revenue in ~~International~~North America Mailing.

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

Supplies revenue decreased 4% in the first ~~six~~nine months of 2018. ~~On a~~At constant currency, ~~basis,~~ supplies revenue decreased 7%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 ~~increased slightly to 28.4% in the quarter and 28.3%~~of 28.1% was relatively flat in the first ~~six~~nine months of ~~2018.~~2018 as compared to the prior year.

Software

Software revenue ~~increased 13%~~decreased 19% in the third quarter ~~and 11% on a constant currency basis~~ primarily due to ~~growth in Data, Customer Information Management~~lower licensing revenue and a large Location Intelligence deal in ~~part due to~~ the ~~adoption~~third quarter of ~~ASC 606.~~2017.

Software revenue ~~increased 9%~~decreased 2% in the first ~~six~~nine months of 2018. ~~On a~~Software revenue decreased 3% at constant currency ~~basis, software revenue increased 7%~~ primarily due to ~~$21 million from the adoption of ASC 606.~~lower licensing revenue.

Cost of software as a percentage of software revenue ~~was consistent with prior year at 28.9%~~increased to 32.5% in the quarter and ~~30.1%~~30.8% in the first ~~six~~nine months of ~~2018.~~2018 due to a decline in higher margin licensing revenue.

Rentals

Rentals revenue declined 4% in the quarter and 4% as reported and 5% ~~on a~~at constant currency ~~basis in both~~for the ~~quarter and~~ first ~~six~~nine months of 2018, primarily due to a declining meter population. Cost of rentals as a percentage of rentals revenue increased to ~~23.0%~~24.0% for the quarter and ~~24.2%~~24.1% for the first ~~six~~nine months of 2018 primarily due to higher residual losses.

Financing

Financing revenue decreased ~~8% and 7% on a reported basis~~5% in the quarter and ~~first six months of 2018, respectively. On a~~7% as reported and 8% at constant currency ~~basis, financing revenue declined 9% in both~~for the ~~quarter and~~ first ~~six~~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 16.1%~~was flat at 15.6% for the quarter and ~~15.7%~~increased slightly to 15.6% for the first ~~six~~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 2% primarily due to:~~

~~2% from a decline in support services revenue in International Mailing; offset partially by~~

~~1% from an increase in support services revenue in North America Mailing.~~

~~Cost of support services as a percentage of support services revenue decreased to 54.9% in the second quarter primarily due to cost savings initiatives in North America.~~

~~Support services revenue decreased 1% in~~for the first ~~six~~nine months of ~~2018. On a constant currency basis, support services revenue decreased 4%~~2018 primarily due to a worldwide decline in installed mailing equipment.

Cost of support services as a percentage of support services revenue increased to ~~57%~~58.4% in the quarter and 57.5% in the first ~~six~~nine months of 2018 primarily due to higher costs.

Business Services

Business services revenue increased ~~69%~~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 ~~68%~~66% in the first nine months of 2018 primarily due to:

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

8%7% from growth in ~~Global Ecommerce, excluding Newgistics, due to higher shipping revenues; and~~

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

~~Business services revenue increased 71% in the first six months of 2018. On a constant currency basis, business services revenue increased 70% primarily due to:~~

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

~~10% from growth in Global Ecommerce, excluding Newgistics, due to higher~~ shipping and cross-border 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 ~~79.8%~~80.2% in the quarter and ~~78.3%~~78.9% in the first ~~six~~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 ~~was relatively flat at $282~~decreased 6% to $269 million in the ~~second~~third quarter ~~primarily due to savings from cost reduction initiatives, including lower marketing expenses, offset by $17 million of~~despite additional expenses from Newgistics of $16 million, primarily due to cost savings initiatives, including lower salaries and $3benefits of $10 million ~~impact from foreign currency.~~and lower professional services of $9 million.

SG&A expense ~~increased 1%~~decreased 2% to ~~$578~~$847 million in the first ~~six~~nine months of 2018 ~~primarily due to $35 million of~~despite additional expenses from Newgistics ~~and $10~~of $51 million, ~~from the impact of foreign currency offset partially by~~primarily due to cost savings ~~from cost reduction~~ initiatives, including lower ~~marketing expenses.~~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 2%12% to ~~$31~~$33 million in the quarter, and 4%6% to ~~$61~~$94 million in the first ~~six~~nine months of 2018, primarily due to continued investments in ~~our~~SMB and Global ~~Ecommerce business.~~Ecommerce.

Income taxes

See Note 13 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 ~~may~~will incur ~~material~~ non-cash pension settlement charges ~~during~~in the ~~second half~~fourth quarter of ~~2018; however the amount and timing~~2018 of ~~the~~$40 to $60 million. The actual settlement ~~charges~~charge will depend on the ~~election of benefits~~lump-sum elections made by ~~the impacted employees.~~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:

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 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 ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 is presented below:


	Revenue																Revenue
	Three Months Ended June 30,								Six Months Ended June 30,								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		2018		2017		Actual % change		Constant Currency % change
Global Ecommerce	$	239,100	$	94,506	>100%		>100%		$	485,690	$	182,658	>100%		>100%		$	232,845	$	106,181	> 100%		> 100%		$	718,535	$	288,839	> 100%		> 100%
Presort Services	122,730		118,452		4	%	4	%	257,188		251,129		2	%	2	%	125,334		119,074		5	%	5	%	382,522		370,203		3	%	3	%
Commerce Services	361,830		212,958		70	%	69	%	742,878		433,787		71	%	70	%	358,179		225,255		59	%	59	%	1,101,057		659,042		67	%	67	%
North America Mailing	314,546		340,949		(8	)%	(8	)%	640,115		696,902		(8	)%	(8	)%	313,965		320,091		(2	)%	(2	)%	954,080		1,016,993		(6	)%	(6	)%
International Mailing	93,358		95,425		(2	)%	(7	)%	191,395		188,624		1	%	(6	)%	84,970		93,858		(9	)%	(7	)%	276,365		282,482		(2	)%	(7	)%
Small & Medium Business Solutions	407,904		436,374		(7	)%	(8	)%	831,510		885,526		(6	)%	(8	)%	398,935		413,949		(4	)%	(3	)%	1,230,445		1,299,475		(5	)%	(6	)%
Software Solutions	91,702		81,081		13	%	12	%	167,996		154,280		9	%	7	%	75,742		94,069		(19	)%	(19	)%	243,738		248,349		(2	)%	(3	)%
Total	$	861,436	$	730,413	18	%	17	%	$	1,742,384	$	1,473,593	18	%	17	%	$	832,856	$	733,273	14	%	14	%	$	2,575,240	$	2,206,866	17	%	16	%


	EBIT																EBIT
	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018			2017			% change		2018			2017			% change		2018			2017			% change		2018			2017			% change
Global Ecommerce	$	(5,993	)	$	(4,030	)	(49	)%	$	(13,704	)	$	(8,300	)	(65	)%	$	(14,330	)	$	(9,594	)	(49	)%	$	(28,034	)	$	(17,894	)	(57	)%
Presort Services	12,565			19,270			(35	)%	39,591			49,987			(21	)%	17,435			19,474			(10	)%	57,026			69,461			(18	)%
Commerce Services	6,572			15,240			(57	)%	25,887			41,687			(38	)%	3,105			9,880			(69	)%	28,992			51,567			(44	)%
North America Mailing	115,193			120,797			(5	)%	234,763			262,041			(10	)%	118,070			107,963			9	%	352,833			370,004			(5	)%
International Mailing	13,215			14,020			(6	)%	29,246			27,430			7	%	12,794			8,809			45	%	42,040			36,239			16	%
Small & Medium Business Solutions	128,408			134,817			(5	)%	264,009			289,471			(9	)%	130,864			116,772			12	%	394,873			406,243			(3	)%
Software Solutions	18,433			5,091			>100%		20,925			6,397			> 100%		3,525			18,531			(81	)%	24,450			24,928			(2	)%
Total Segment EBIT	$	153,413		$	155,148		(1	)%	$	310,821		$	337,555		(8	)%	$	137,494		$	145,183		(5	)%	$	448,315		$	482,738		(7	)%


	EBITDA																EBITDA
	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018			2017			% change		2018			2017			% change		2018			2017			% change		2018			2017			% change
Global Ecommerce	$	9,474		$	3,157		>100%		$	16,193		$	6,210		>100%		$	820		$	(1,970	)	>100%		$	17,013		$	4,240		>100%
Presort Services	19,188			26,196			(27	)%	52,376			64,111			(18	)%	24,302			25,778			(6	)%	76,678			89,889			(15	)%
Commerce Services	28,662			29,353			(2	)%	68,569			70,321			(2	)%	25,122			23,808			6	%	93,691			94,129			—	%
North America Mailing	132,569			137,157			(3	)%	268,996			294,427			(9	)%	135,332			124,516			9	%	404,328			418,943			(3	)%
International Mailing	17,469			18,368			(5	)%	38,021			36,475			4	%	16,204			13,372			21	%	54,225			49,847			9	%
Small & Medium Business Solutions	150,038			155,525			(4	)%	307,017			330,902			(7	)%	151,536			137,888			10	%	458,553			468,790			(2	)%
Software Solutions	20,819			7,381			>100%		25,732			10,775			>100%		6,042			20,754			(71	)%	31,774			31,529			1	%
Total Segment EBITDA	199,519			192,259			4	%	401,318			411,998			(3	)%	182,700			182,450			—	%	584,018			594,448			(2	)%
Less: Segment depreciation and amortization⁽¹⁾	(46,106		)	(37,111		)	24	%	(90,497		)	(74,443		)	22	%	(45,206		)	(37,267		)	21	%	(135,703		)	(111,710		)	21	%
Total Segment EBIT	$	153,413		$	155,148		(1	)%	$	310,821		$	337,555		(8	)%	$	137,494		$	145,183		(5	)%	$	448,315		$	482,738		(7	)%

⁽¹⁾Excludes corporate depreciation and amortization expense.

Global Ecommerce

Global Ecommerce revenue increased ~~153%~~119% in the ~~quarter. On a constant currency basis, revenue increased 152%~~quarter primarily due ~~to:~~

~~134%, or $127~~to the $126 million ~~from the~~of additional revenue from ~~Newgistics; and~~Newgistics.

~~18% from higher shipping revenues due to increased domestic volumes.~~

EBIT for the quarter was a loss of $6$14 million compared to a loss of $4$10 million in the prior year. The higher loss was primarily due to $8 million of ~~additional~~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, revenue increased 148% primarily due to:

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

15% from higher shipping revenues due to increased volumes.

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

~~Global Ecommerce revenue increased 166% in the first six months of 2018. On a constant currency basis, revenue increased 164% primarily due to:~~

~~140%, or $256 million, from the additional revenue from Newgistics;~~

~~19% from higher shipping revenues due to increased volumes; and~~

~~5% from higher cross-border marketplace volumes, particularly in the U.S.~~

EBIT for the first six months of 2018 was a loss of $14 million compared to a loss of $8 million in the prior year. The higher loss was primarily due to $15 million of additional depreciation and amortization expense primarily from the acquisition of Newgistics, investments in market growth opportunities and higher transportation and labor costs, partially offset by higher revenue. The acquisition of Newgistics did not have a material impact on EBIT. EBITDA in the first six months of 2018 more than doubled compared to the prior year due to the increase in revenue.

Presort Services

Presort Services revenue increased 4%5% in the quarter and 2%3% in the first ~~six~~nine months of 2018 ~~primarily~~ due to higher volumes of ~~First Class mail, partially offset by lower volumes of Standard Class~~ mail processed. ~~Revenue was also impacted by lower revenue per piece, in part driven by higher volumes of mail processed from larger clients.~~ EBIT decreased ~~35%~~10% in the quarter and ~~21%~~18% in the first ~~six~~nine months of 2018 primarily due to lower ~~revenue per piece and~~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% from lower equipment sales due to lower sales of certain products and lower backlog at the beginning of the quarter compared to the prior year period;~~

~~2% from lower financing revenue primarily due to a declining lease portfolio and lower fees; and~~

1% from a decline in rentals revenue due to a decline in installed mailing equipment and lower postage ~~volumes.~~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 8%6% in the first ~~six~~nine months of 2018 primarily due to:

4%3% from lower equipment sales due to lower ~~sales of certain products, lower~~revenue from client lease ~~extensions and a large prior year deal that impacted the year-over-year comparison;~~extensions;

2% from lower financing revenue primarily due to a declining lease portfolio and 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.

EBIT decreased 5% in the ~~quarter and 10% in the~~ first ~~six~~nine months of 2018 primarily due to ~~a decline in recurring stream revenues and equipment sales,~~lower revenue partially offset by lower expenses.

International Mailing

International Mailing revenue decreased 2%9% in the ~~quarter; however, on a~~quarter. At constant currency, ~~basis,~~ revenue decreased 7% primarily due to:

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

2%4% from lower equipment sales, primarily in the UKU.K. and ~~Italy.~~

~~EBIT decreased 6% in the quarter primarily due to lower gross margins partially offset by lower expenses.~~France.

International Mailing revenue ~~increased 1%~~decreased 2% in the first ~~six~~nine months of ~~2018; however, on a~~2018. At constant currency, ~~basis,~~ revenue decreased 6%7% primarily due to:

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

2%3% from lower equipment sales, primarily in the ~~UK.~~U.K.

EBIT increased 7%45% in the quarter and 16% in the first ~~six~~nine months of 2018 primarily due to lower expenses.

Software Solutions

Software revenue ~~increased 13%~~decreased 19% in the quarter ~~and 12% on a constant currency basis~~ primarily due to ~~growth in Data, Customer Information Management~~lower license revenue and a large Location Intelligence deal in ~~part due to~~ the ~~adoption~~third quarter of ~~ASC 606.~~2017.

Software revenue ~~increased 9%~~decreased 2% as reported and 3% at constant currency in the first ~~six months of 2018. On a constant currency basis, software revenue increased 7% primarily due to $21 million from the adoption of ASC 606.~~

~~EBIT more than doubled in both the quarter and the first six~~nine months of 2018 primarily due to ~~higher revenue~~lower licensing revenue.

EBIT declined 81% in the quarter and 2% in the first nine months of 2018 primarily due to lower ~~expenses.~~high-margin licensing revenue. The implementation of ASC 606 had a favorable impact of $9$4 million and ~~$19~~$23 million in the quarter and first ~~six~~nine months of 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 $~~746~~815 million at ~~June~~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 ~~$200~~$157 million at ~~June~~September 30, 2018 compared to ~~$608~~$608 million at December 31, ~~2017~~.2017. Through ~~June~~September 30, 2018, we repatriated ~~$471~~$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.

Cash Flow Summary

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

2018 2017 Change
Net cash provided by operating activities $ 175,034
$ 184,647
$ (9,613 )
Net cash used in investing activities (101,326 ) (224,791 ) 123,465
Net cash (used in) provided by financing activities (379,818 ) 91,371
(471,189 )
Effect of exchange rate changes on cash and cash equivalents (13,041 ) 24,815
(37,856 )
Change in cash and cash equivalents $ (319,151 ) $ 76,042
$ (395,193 )

Net cash provided by operating activities included $42 million and $14 million of cash flow from discontinued operations in 2018 and 2017, respectively. Net cash provided by operating activities of continuing operations was $133 million and $170 million for the six months ended June 30, 2018 and 2017, respectively. The decrease of $37 million was primarily due to lower net income, higher restructuring payments and changes in working capital.



	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 ~~improved $123~~decreased $40 million, primarily due to:

~~Lower~~Working capital changes including lower cash ~~outflows~~from finance receivables of $46 million and the timing of accounts payable payments of $38 million;

Higher restructuring payments of $11 million; partially offset by

Higher cash 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 ~~$139~~$28 million due to the investment of residual proceeds from the issuance of debt in the prior year; partially offset by

Higher capital expenditures of ~~$24~~$22 million.

Cash flows from financing activities decreased ~~$471~~$1,441 million, primarily due to:

~~Net proceeds of $396 million in 2017 from issuance of debt;~~

~~Repayment of $260 million~~The repayment of debt of $565 million in ~~the first six months of~~ 2018 compared to the ~~repayment~~net issuance of ~~$229~~debt of $823 million in the prior 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 ~~June~~September 30, 2018, we have not drawn upon the credit facility.

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

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

The interest rate on certain notes and term loans are subject to adjustment based on changes in our credit ratings. ~~During~~In the second quarter, Standard & Poor's lowered our corporate credit rating from BBB- to BB+. As a result, the interest rate on the May 2022 ~~Notes~~notes, September 2020 notes and term loans increased 0.25% and the interest rate on ~~the September 2020 notes,~~ the October 2021 notes and the April 2023 notes will increase 0.25% effective after the next interest payment date.

~~During~~Pursuant to an extension option, the ~~year, we repaid the $250~~maturity of our $150 million ~~of 5.6% Notes that matured in March 2018 and $10 million of principal on our~~ term ~~loans.~~

Onloan was extended to August ~~2, 2018 we redeemed the $300 million 6.25% Notes due March~~ 2019. ~~As a result of this redemption, we will recognize an $8 million loss in the third quarter of 2018.~~

Dividends and Share Repurchases

During the ~~six~~nine months ended ~~June~~September 30, 2018, we paid dividends of ~~$70~~$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 ~~June~~September 30, 2018, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material 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 ~~June~~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 14 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 ~~June~~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
~~April~~July 1, 2018 - ~~April 30, 2018~~	—	—	—	~~$21,022~~
~~May 1, 2018 - May~~July 31, 2018	—	—	—	$21,022
~~June~~August 1, 2018 - ~~June~~August 31, 2018	—	—	—	$21,022
September 1, 2018 - 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.

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:	~~August 2,~~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)

4746