~~0000078814 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2019-04-01 2019-06-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2019~~2020

☐ 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: 1-03579

PITNEY BOWES INC.

(Exact name of registrant as specified in its charter)



State of incorporation:	Delaware	I.R.S. Employer Identification No.	06-0495050

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $1 par value per share	PBI	New York Stock Exchange
6.7% Notes due 2043	PBI.PRB	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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
Smaller reporting company	☐	Emerging growth company	☐

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 ☐ No þ

As of July ~~29, 2019~~31, 2020, ~~170,900,031~~173,082,121 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 (Loss) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Balance Sheets at June 30, ~~2019~~2020 and December 31, ~~2018~~2019	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3331

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4:	Controls and Procedures	42


Part II - Other Information:

Item 1:	Legal Proceedings	43

Item 1A:	Risk Factors	43

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4344

Item 6:	Exhibits	4445


Signatures		4546

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited; in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenue:
Business services													$	528,990		$	417,963		$	973,369		$	824,508
Support services													113,786			127,705			235,801			256,304
Financing													85,462			92,419			174,540			189,462
Equipment sales	$	85,551		$	93,811		$	175,338		$	200,519		57,837			85,551			134,110			175,338
Supplies	46,490			55,457			97,443			115,450			32,773			46,490			78,482			97,443
Software	72,206			91,703			145,524			167,997
Rentals	18,445			19,454			40,602			44,419			18,644			18,445			37,458			40,602
Financing	92,419			97,129			189,462			197,478
Support services	127,683			138,598			256,304			279,248
Business services	417,985			369,088			824,508			756,712
Total revenue	860,779			865,240			1,729,181			1,761,823			837,492			788,573			1,633,760			1,583,657
Costs and expenses:
Cost of business services													454,311			337,918			828,976			664,964
Cost of support services													36,725			40,520			76,485			82,367
Financing interest expense													11,939			11,043			24,428			22,407
Cost of equipment sales	58,570			58,948			122,235			121,417			47,920			58,570			105,279			122,235
Cost of supplies	11,758			15,738			25,308			32,685			8,379			11,758			20,619			25,308
Cost of software	23,419			26,957			46,802			51,086
Cost of rentals	8,418			8,464			18,133			21,212			6,022			8,418			12,400			18,133
Financing interest expense	11,043			11,194			22,407			22,258
Cost of support services	40,448			42,306			82,227			88,371
Cost of business services	337,918			290,567			664,964			584,946
Selling, general and administrative	278,545			289,427			579,527			592,237			233,631			241,467			482,264			503,136
Research and development	22,630			23,574			44,404			48,069			7,467			13,572			19,583			26,149
Restructuring charges and asset impairments, net	7,279			11,503			10,877			12,407
Restructuring charges and asset impairments													4,922			5,899			8,739			9,599
Goodwill impairment													—			—			198,169			—
Interest expense, net	28,019			30,775			55,621			62,789			26,446			28,019			52,329			55,621
Other components of net pension and postretirement cost	(1,618		)	(2,499		)	(2,256		)	(4,218		)
Other components of net pension and postretirement cost (income)													386			(1,618		)	235			(2,256		)
Other (income) expense	(27		)	—			17,683			—			(17,375		)	(27		)	16,112			17,683
Total costs and expenses	826,402			806,954			1,687,932			1,633,259			820,773			755,539			1,845,618			1,545,346
Income from continuing operations before taxes	34,377			58,286			41,249			128,564
Income (loss) from continuing operations before taxes													16,719			33,034			(211,858		)	38,311
Provision for income taxes	4,099			7,899			12,400			26,694			17,016			3,724			6,986			11,544
Income from continuing operations	30,278			50,387			28,849			101,870
(Loss) income from continuing operations													(297		)	29,310			(218,844		)	26,767
(Loss) income from discontinued operations, net of tax	(6,581		)	1,208			(7,811		)	9,695			(3,032		)	(5,613		)	7,032			(5,729		)
Net income	$	23,697		$	51,595		$	21,038		$	111,565
Basic earnings (loss) per share ⁽¹⁾:
Net (loss) income													$	(3,329	)	$	23,697		$	(211,812	)	$	21,038
Basic (loss) earnings per share ⁽¹⁾:
Continuing operations	$	0.17		$	0.27		$	0.16		$	0.54		$	—		$	0.17		$	(1.28	)	$	0.15
Discontinued operations	(0.04		)	0.01			(0.04		)	0.05			(0.02		)	(0.03		)	0.04			(0.03		)
Net income	$	0.13		$	0.28		$	0.12		$	0.60
Diluted earnings (loss) per share ⁽¹⁾:
Net (loss) income													$	(0.02	)	$	0.13		$	(1.24	)	$	0.12
Diluted (loss) earnings per share ⁽¹⁾:
Continuing operations	$	0.17		$	0.27		$	0.16		$	0.54		$	—		$	0.16		$	(1.28	)	$	0.15
Discontinued operations	(0.04		)	0.01			(0.04		)	0.05			(0.02		)	(0.03		)	0.04			(0.03		)
Net income	$	0.13		$	0.27		$	0.12		$	0.59
Net (loss) income													$	(0.02	)	$	0.13		$	(1.24	)	$	0.12

⁽¹⁾The sum of the 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 (LOSS)

(Unaudited; in thousands)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net income $ 23,697
$ 51,595
$ 21,038
$ 111,565
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $(1,347) and $(423) in 2019, respectively 104
(42,942 ) 21,378
(27,859 )
Net unrealized (loss) gain on cash flow hedges, net of tax of $(80), $(78), $(24) and $154, respectively (234 ) (235 ) (71 ) 251
Net unrealized gain (loss) on investment securities, net of tax of $1,100, $(447), $2,064 and $(1,813), respectively 3,213
(1,305 ) 6,029
(5,296 )
Amortization of pension and postretirement costs, net of tax benefits of $2,124, $2,564, $4,773 and $5,368, respectively 7,311
7,868
13,947
16,040
Other comprehensive income (loss), net of tax 10,394
(36,614 ) 41,283
(16,864 )
Comprehensive income $ 34,091
$ 14,981
$ 62,321
$ 94,701



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net (loss) income	$	(3,329	)	$	23,697		$	(211,812	)	$	21,038
Other comprehensive income, net of tax:
Foreign currency translation, net of tax of $1,105, $(1,347), $(1,712) and $(423), respectively	10,099			10			(17,636		)	21,378
Net unrealized loss on cash flow hedges, net of tax of $(421), $(80), $(479) and $(24), respectively	(1,271		)	(234		)	(1,445		)	(71		)
Net unrealized gain on investment securities, net of tax of $467, $1,100, $900 and $2,064, respectively	1,407			3,213			2,715			6,029
Amortization of pension and postretirement costs, net of tax benefits of $3,502, $2,124, $6,152 and $4,773, respectively	11,377			7,311			20,247			13,947
Other comprehensive income, net of tax	21,612			10,300			3,881			41,283
Comprehensive income (loss)	$	18,283		$	33,997		$	(207,931	)	$	62,321

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, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	771,042		$	867,262		$	862,897		$	924,442
Short-term investments	59,516			59,391
Accounts and other receivables (net of allowance of $19,804 and $17,617, respectively)	419,776			456,138
Short-term finance receivables (net of allowance of $12,537 and $12,454, respectively)	682,828			752,773
Short-term investments (includes $28,221 and $35,879, respectively, reported at fair value)							153,221			115,879
Accounts and other receivables (net of allowance of $32,474 and $17,830, respectively)							391,748			373,471
Short-term finance receivables (net of allowance of $20,999 and $12,556, respectively)							555,196			629,643
Inventories	73,347			62,279			73,653			68,251
Current income taxes	22,474			5,947			1,893			5,565
Other current assets and prepayments	132,878			100,625			121,924			101,601
Assets of discontinued operations	—			4,854			—			17,229
Total current assets	2,161,861			2,309,269			2,160,532			2,236,081
Property, plant and equipment, net	416,512			410,114			375,465			376,177
Rental property and equipment, net	36,917			46,228			40,875			41,225
Long-term finance receivables (net of allowance of $8,180 and $7,768 respectively)	554,075			536,369
Long-term finance receivables (net of allowance of $17,115 and $7,095 respectively)							583,839			625,487
Goodwill	1,754,610			1,766,511			1,132,785			1,324,179
Intangible assets, net	212,596			227,137			175,460			190,640
Operating lease assets	180,983			156,788			199,162			200,752
Noncurrent income taxes	63,013			66,326			68,449			71,903
Other assets	377,420			419,677
Other assets (includes $264,500 and $230,442, respectively, reported at fair value)							379,611			400,456
Total assets	$	5,757,987		$	5,938,419		$	5,116,178		$	5,466,900

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,295,712		$	1,390,362		$	732,048		$	793,690
Customer deposits at Pitney Bowes Bank							613,449			591,118
Current operating lease liabilities	34,612			37,208			35,432			36,060
Current portion of long-term debt	214,927			199,535			163,257			20,108
Advance billings	211,061			229,379			122,606			101,920
Current income taxes	6,011			15,284			11,723			17,083
Liabilities of discontinued operations	—			3,276			—			9,713
Total current liabilities	1,762,323			1,875,044			1,678,515			1,569,692
Long-term debt	3,029,246			3,066,073			2,553,490			2,719,614
Deferred taxes on income	264,191			254,353			270,376			274,435
Tax uncertainties and other income tax liabilities	45,586			39,548			35,928			38,834
Noncurrent operating lease liabilities	154,648			127,237			177,901			177,711
Other noncurrent liabilities	449,021			474,322			355,388			400,518
Total liabilities	5,705,015			5,836,577			5,071,598			5,180,804

Commitments and contingencies (See Note 14)

Stockholders’ equity:
Cumulative preferred stock, $50 par value, 4% convertible	—			1
Cumulative preference stock, no par value, $2.12 convertible	—			396
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	105,341			121,475			68,498			98,748
Retained earnings	5,282,374			5,279,682			5,188,119			5,438,930
Accumulated other comprehensive loss	(907,678		)	(948,961		)	(836,262		)	(840,143		)
Treasury stock, at cost (152,393,129 and 135,662,830 shares, respectively)	(4,750,403		)	(4,674,089		)
Treasury stock, at cost (151,737,399 and 152,888,969 shares, respectively)							(4,699,113		)	(4,734,777		)
Total stockholders’ equity	52,972			101,842			44,580			286,096
Total liabilities and stockholders’ equity	$	5,757,987		$	5,938,419		$	5,116,178		$	5,466,900

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

Six Months Ended June 30,
2019 2018
Cash flows from operating activities:

Net income $ 21,038
$ 111,565
Loss (income) from discontinued operations, net of tax 7,811
(9,695 )
Restructuring payments (14,283 ) (27,528 )
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 82,813
80,335
Stock-based compensation 9,165
9,153
Restructuring charges and asset impairments, net 10,877
12,407
Loss on disposition of businesses 17,683
—
Changes in operating assets and liabilities, net of acquisitions/divestitures:

Decrease in accounts receivable 51,721
9,907
Decrease in finance receivables 41,744
43,249
Increase in inventories (10,881 ) (3,441 )
Increase in other current assets and prepayments (35,325 ) (23,657 )
Decrease in accounts payable and accrued liabilities (74,868 ) (54,616 )
Increase in current and non-current income taxes 733
8,539
Decrease in advance billings (12,711 ) (18,598 )
Other, net (1,854 ) (24,899 )
   Net cash provided by operating activities - continuing operations 93,663
112,721
   Net cash (used in) provided by operating activities - discontinued operations (6,881 ) 41,772
   Net cash provided by operating activities 86,782
154,493
Cash flows from investing activities:

Purchases of available-for-sale securities (6,391 ) (48,303 )
Proceeds from sales/maturities of available-for-sale securities 54,964
36,157
Net activity from short-term and other investments (1,608 ) 10,959
Capital expenditures (61,327 ) (79,481 )
Acquisitions, net of cash acquired (4,882 ) (2,407 )
Change in reserve account deposits (8,316 ) 5,959
Other investing activities (8,591 ) (2,500 )
   Net cash used in investing activities - continuing operations (36,151 ) (79,616 )
   Net cash used in investing activities - discontinued operations —
(1,169 )
   Net cash used in investing activities (36,151 ) (80,785 )
Cash flows from financing activities:

Principal payments of long-term debt (25,087 ) (260,099 )
Dividends paid to stockholders (18,346 ) (70,113 )
Common stock repurchases (100,000 ) —
Other financing activities (3,337 ) (49,606 )
   Net cash used in financing activities (146,770 ) (379,818 )
Effect of exchange rate changes on cash and cash equivalents (81 ) (13,041 )
Change in cash and cash equivalents (96,220 ) (319,151 )
Cash and cash equivalents at beginning of period 867,262
1,009,021
Cash and cash equivalents at end of period $ 771,042
$ 689,870
Cash interest paid $ 78,280
$ 89,339
Cash income tax payments, net of refunds $ 17,348
$ 19,244



	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(211,812	)	$	21,038
(Income) loss from discontinued operations, net of tax	(7,032		)	5,729
Restructuring payments	(11,365		)	(13,005		)
Adjustments to reconcile net loss to net cash provided by operating activities:
Restructuring charges and asset impairments	8,739			9,599
Loss on disposition of businesses	—			17,683
Gain on sale of equity investment	(11,908		)	—
Loss on extinguishment of debt	36,987			—
Depreciation and amortization	81,787			77,977
Goodwill impairment	198,169			—
Stock-based compensation	6,950			9,165
Allowance for credit losses	27,941			14,707
Amortization of debt fees	5,054			4,924
Changes in operating assets and liabilities, net of acquisitions/divestitures:
(Increase) decrease in accounts receivable	(49,403		)	18,565
Decrease in finance receivables	84,342			34,984
Increase in inventories	(6,306		)	(10,881		)
Increase in other current assets and prepayments	(24,067		)	(33,476		)
Decrease in accounts payable and accrued liabilities	(25,168		)	(53,885		)
Increase in current and noncurrent income taxes	29,959			663
Increase (decrease) in advance billings	21,402			(941		)
Decrease in pension and retiree medical liabilities	(24,164		)	(22,772		)
Other, net	(4,873		)	1,174
Net cash provided by operating activities - continuing operations	125,232			81,248
Net cash (used in) provided by operating activities - discontinued operations	(38,423		)	5,534
Net cash provided by operating activities	86,809			86,782
Cash flows from investing activities:
Purchases of available-for-sale securities	(115,565		)	(6,391		)
Proceeds from sales/maturities of available-for-sale securities	94,425			54,964
Net activity from short-term and other investments	(44,035		)	(1,608		)
Capital expenditures	(59,954		)	(59,187		)
Acquisitions, net of cash acquired	(6,608		)	(4,882		)
Sale of other investments (See Note 8)	58,248			—
Increase (decrease) in customer deposits at Pitney Bowes Bank	22,331			(8,316		)
Other investing activities	(885		)	(8,591		)
Net cash used in investing activities - continuing operations	(52,043		)	(34,011		)
Net cash used in investing activities - discontinued operations	(2,502		)	(2,140		)
Net cash used in investing activities	(54,545		)	(36,151		)
Cash flows from financing activities:
Increase in short-term borrowings	100,000			—
Proceeds from the issuance of long-term debt	816,544			—
Principal payments of long-term debt	(948,224		)	(25,087		)
Premiums and fees paid to extinguish debt	(32,645		)	—
Dividends paid to stockholders	(17,099		)	(18,346		)
Common stock repurchases	—			(100,000		)
Other financing activities	(3,174		)	(3,337		)
Net cash used in financing activities	(84,598		)	(146,770		)
Effect of exchange rate changes on cash and cash equivalents	(9,211		)	(81		)
Change in cash and cash equivalents	(61,545		)	(96,220		)
Cash and cash equivalents at beginning of period	924,442			867,262
Cash and cash equivalents at end of period	$	862,897		$	771,042

Cash interest paid	$	82,732		$	78,280
Cash income tax payments, net of refunds	$	12,176		$	17,348

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

Description of Business

Pitney Bowes Inc. (we, us, our, or the company) is a global technology company providing ~~innovative products and~~ commerce solutions that power billions of transactions and help our clients navigate the complex world of commerce. We offer shipping, mailing, fulfillment, returns and cross-border ecommerce products and solutions that enable the sending of parcels and packages across the globe and customer information management, location intelligence and customer engagement products and solutions to help our clients market to their customers.transactions. Clients around the world rely on the accuracy and precision delivered by our ~~products,~~equipment, solutions, analytics, and ~~services.~~application programming interface technology in the areas of ecommerce fulfillment, shipping and returns, cross-border ecommerce, office mailing and shipping, presort services and financing. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920. For more information about us, our products, services and solutions, visit ~~www.pb.com~~www.pitneybowes.com.

Basis of Presentation

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, ~~2018~~2019 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, ~~2019~~2020., particularly in light of the novel coronavirus pandemic (COVID-19) and its effects on domestic and global businesses and economies. 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, ~~2018 (2018~~2019 (2019 Annual Report).

Based on their nature, we determined that certain costs previously classified as research and development and cost of business services should be classified in other line items within costs and expenses. Accordingly, the income statement for the three months ended June 30, 2018 has been revised to correct the classification of these costs by reducing research and development expense and cost of business services by $7 million and $3 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $7 million and $3 million, respectively. The income statement for the six months ended June 30, 2018 has been revised to correct the classification of these costs by reducing research and development expense and cost of business services by $13 million and $5 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $13 million and $5 million, respectively.

~~The classification of certain costs of revenue recognized in the~~ Certain prior year amounts have been ~~revised~~reclassified to ~~correct and~~ conform to the current year presentation. As

In August 2019, we entered into a ~~result,~~definitive agreement to sell our Software Solutions business and recast prior periods to reflect the operating results of the Software Solutions business as discontinued operations. The sale was completed in December 2019, with the ~~income statement~~exception of the software business in Australia, which closed in January 2020. See Note 4 for ~~the three months ended~~additional information.

Accounts and other receivables includes other receivables of $61 million at June 30, ~~2018, we reduced cost of equipment sales by $1~~2020 and $91 million and cost of rentals by $1 million, and increased cost of support services by $2 million. In the income statement for the six months ended June 30, 2018, we reduced cost of equipment sales by $3 million and cost of rentals by $2 million, and increased cost of support services by $5 million.

at December 31, 2019. In January 2019, we sold the direct operations and moved to a dealer model in ~~six~~6 smaller international markets within ~~the International Mailing segment (Market Exits)~~Sending Technology Solutions (SendTech Solutions). Other receivables includes gross receivables of $24 million related to these direct operations.

Risks and ~~recognized a pre-tax loss of $18 million in other (income) expense.~~Uncertainties

The ~~December 31, 2018 balance sheet has been revised~~effects of COVID-19 on global economies and businesses continues to ~~reduce short-term finance receivables~~impact how we conduct business and ~~advance billings~~our operating results, financial position and cash flows. There still remains uncertainty around the severity, duration and governments' responses to COVID-19, particularly in the United States as parts of the country are experiencing a resurgence in COVID-19 cases and taking actions to modify re-opening plans. Accordingly, we are not able to reasonably estimate the full extent of the impact of the pandemic on our operating results, financial position and liquidity for the remainder of the year. Actual results could differ significantly from our estimates and assumptions, possibly resulting in additional impairments or other charges in future reporting periods.

We assessed certain accounting matters that require the use of estimates, assumptions and consideration of forecasted financial information in context with the known and projected future impacts of COVID-19. The most significant impacts are included below.

The determination of our provision for credit losses is now impacted by ~~$6 million.~~

~~Accounts and other receivables includes other receivables of $101 million at June 30, 2019 and $76 million at December 31, 2018.~~

~~New Accounting Pronouncements~~

changes in forecasted economic conditions (see Accounting Pronouncements Adopted in 2020 below). The impact of COVID-19 on ~~January 1, 2019~~

~~On January 1, 2019, we adopted Accounting Standards Codification (ASC) 842,~~ ~~Leases~~ ~~(ASC 842)~~, ~~using the modified retrospective transition approach~~global economies and businesses resulted in an increased probability of ~~applying the standard at the beginning of the earliest comparative period presented in the financial statements. Accordingly, prior period financial statements have been recast~~recessionary conditions, delinquency rates and ~~required disclosures have been provided. We also recorded a cumulative effect adjustment as of January 1, 2017 to reduce retained earnings by $137 million. See Notes 7 and 15 for more information.~~

From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with revenue recognition guidance. We continue to classify leases as sales-type or operating, with the determination affecting both the pattern and classification of income recognition. There have been changes in the timing and classification of revenue related to contract modifications. There also have been changes related to the definition of a leased asset, which requires us to account for two lease components as a single lease component. Under prior guidance, one of the components was generally accounted for as a sales-type lease

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~and the second as an operating lease. Under ASC 842, the two components are generally accounted for as a sales-type lease.~~business bankruptcy. As a result, ~~certain income~~our credit loss provision for the three and ~~costs are now accelerated that were previously recognized over~~six months ended June 30, 2020 was $12 million and $28 million compared to $4 million and $15 million for the ~~life~~three and six months ended June 30, 2019.

At December 31, 2019, the fair value of ~~the lease.~~

~~From a lessee perspective, the standard requires us to recognize right-of-use assets and lease liabilities for~~ our real estate and equipment operating leases and to provide new disclosures about our leasing activities. We elected the short-term lease recognition exemption and did not recognize right-of-use assets or lease liabilities for leases with a termGlobal Ecommerce business exceeded its carrying value by less than ~~12 months. We also elected the practical expedient to not separate lease and non-lease components for our lessee portfolio.~~

~~Updates to significant accounting policies disclosed in our 2018 Annual Report due to the adoption~~20%. The determination of ~~ASC 842 are discussed below.~~

~~Equipment sales:~~ ~~We sell and lease equipment directly to our customers and to distributors (re-sellers) throughout the world. The amount of revenue allocated to the equipment~~fair value is based on a ~~range~~number of ~~observable selling prices~~estimates and assumptions, including, but not limed to, projected revenue growth, profitability and cash flows. During the first quarter of 2020, our Global Ecommerce business experienced weaker than expected performance in ~~standalone transactions. We recognize revenue from the sale of equipment under sales-type leases as equipment sales revenue when control of the equipment transfers~~part due to the ~~customer, which is upon shipment~~macroeconomic conditions resulting from COVID-19. As a result, we evaluated the Global Ecommerce goodwill for ~~self-installed products~~impairment and ~~upon installation or customer acceptance for other products. We do not typically offer any rights~~recorded a non-cash, pre-tax goodwill impairment charge of ~~return.~~

~~Rentals:~~ Rentals revenue includes revenue from mailing equipment that does not meet the criteria to be accounted for as a sales-type lease. We may invoice in advance for rentals according to the terms of the agreement. We initially defer these advanced billings and recognize rentals revenue on a straight-line basis over the rental period. Revenue generated from financing clients for the continued use of equipment subsequent to the expiration of the original lease are recognized as rentals revenue.

~~Financing:~~ We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit for the purchase of postage and supplies. We believe that our sales-type lease portfolio contains only normal collection risk. We record financing income over the lease term using the effective interest method. Financing also includes amounts related to sales-type leases that customers have extended or renewed for an additional term. Revenue for those contracts will be recognized over the term of the modified lease as financing income using the interest method.

Equipment residual values are determined at the inception of the lease using estimates of fair value at the end of the lease term. Fair value estimates are based primarily on historical experience. We also consider forecasted supply and demand for products, product retirement and launch plans, client behavior, regulatory changes, remanufacturing strategies, used equipment markets, competition and technological changes. We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the equipment is remarketed.

~~Support services:~~ Support services revenue includes revenue from equipment service contracts, subscriptions and meter services. Revenue is allocated to these services using selling prices charged in standalone replacement and renewal transactions. Since we have a stand-ready obligation to provide these services over the entire contract term, revenue related to these agreements is recognized on a straight-line basis over the term of the agreement.

~~Business services:~~ Business services revenue includes revenue from mail processing services and ecommerce solutions. These services represent a series of distinct services that are similar in nature, and revenue is recognized as the services are provided. We review third party relationships and record revenue on a gross basis when we act as a principal in a transaction or net basis when we act as an agent between a client and vendor. We consider several factors in determining whether we are acting as principal or agent, such as whether we are the primary obligor to the client, have control over the pricing or have inventory risk.

~~On January 1, 2019, we also adopted Accounting Standards Update (ASU) 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~, which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The adoption of this standard did not have a material impact on our consolidated financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In August 2018, the Financial Accounting Standards Board (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.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses~~. The ASU sets forth a current expected credit loss 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 have completed the scoping of financial assets that will be impacted by the standard and are$198 million in the ~~process~~first quarter of ~~developing models to measure expected credit losses. We are continuing to assess the impact this standard will have on our consolidated financial statements.~~

~~2. Revenue~~

~~Disaggregated Revenue~~

~~The following tables disaggregate our revenue by major source and timing of recognition:~~

Three Months Ended June 30, 2019
Global Ecommerce Presort Services North America Mailing International Mailing Software Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Equipment sales $ —
$ —
$ 7,882
$ 11,502
$ —
$ 19,384
$ 66,167
$ 85,551
Supplies —
—
32,461
14,029
—
46,490
—
46,490
Software —
—
—
—
72,206
72,206
—
72,206
Rentals —
—
—
—
—
—
18,445
18,445
Financing —
—
—
—
—
—
92,419
92,419
Support services —
(22 ) 108,851
18,854
—
127,683
—
127,683
Business services 282,319
128,160
6,517
989
—
417,985
—
417,985
Subtotal 282,319
128,138
155,711
45,374
72,206
683,748
$ 177,031
$ 860,779

Revenue from leasing transactions and financing
Equipment sales —
—
54,191
11,976
—
66,167

Rentals —
—
13,540
4,905
—
18,445

Financing —
—
79,975
12,444
—
92,419

Total revenue $ 282,319
$ 128,138
$ 303,417
$ 74,699
$ 72,206
$ 860,779

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 40,343
$ 25,531
$ 20,470
$ 86,344

Products/services transferred over time 282,319
128,138
115,368
19,843
51,736
597,404

Total $ 282,319
$ 128,138
$ 155,711
$ 45,374
$ 72,206
$ 683,748

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Three Months Ended June 30, 2018
Global Ecommerce Presort Services North America Mailing International Mailing Software Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Equipment sales $ —
$ —
$ 10,566
$ 11,278
$ —
$ 21,844
$ 71,967
$ 93,811
Supplies —
—
36,271
19,186
—
55,457
—
55,457
Software —
—
—
—
91,703
91,703
—
91,703
Rentals —
—
—
—
—
—
19,454
19,454
Financing —
—
—
—
—
—
97,129
97,129
Support services —
—
113,977
24,621
—
138,598
—
138,598
Business services 239,100
122,730
5,664
1,594
—
369,088
—
369,088
Subtotal 239,100
122,730
166,478
56,679
91,703
676,690
$ 188,550
$ 865,240

Revenue from leasing transactions and financing
Equipment sales —
—
55,957
16,010
—
71,967

Rentals —
—
14,339
5,115
—
19,454

Financing —
—
82,127
15,002
—
97,129

Total revenue $ 239,100
$ 122,730
$ 318,901
$ 92,806
$ 91,703
$ 865,240

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 46,837
$ 30,464
$ 40,020
$ 117,321

Products/services transferred over time 239,100
122,730
119,641
26,215
51,683
559,369

Total $ 239,100
$ 122,730
$ 166,478
$ 56,679
$ 91,703
$ 676,690

2020 (see Note 8 for additional information).

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Accounting Pronouncements Adopted in 2020

Six Months Ended June 30, 2019
Global Ecommerce Presort Services North America Mailing International Mailing Software Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Equipment sales $ —
$ —
$ 17,097
$ 23,580
$ —
$ 40,677
$ 134,661
$ 175,338
Supplies —
—
67,563
29,880
—
97,443
—
97,443
Software —
—
—
—
145,524
145,524
—
145,524
Rentals —
—
—
—
—
—
40,602
40,602
Financing —
—
—
—
—
—
189,462
189,462
Support services —
—
216,562
39,742
—
256,304
—
256,304
Business services 548,573
262,985
11,035
1,915
—
824,508
—
824,508
Subtotal 548,573
262,985
312,257
95,117
145,524
1,364,456
$ 364,725
$ 1,729,181

Revenue from leasing transactions and financing
Equipment sales —
—
112,086
22,575
—
134,661

Rentals —
—
30,819
9,783
—
40,602

Financing —
—
163,729
25,733
—
189,462

Total revenue $ 548,573
$ 262,985
$ 618,891
$ 153,208
$ 145,524
$ 1,729,181

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 84,660
$ 53,460
$ 41,442
$ 179,562

Products/services transferred over time 548,573
262,985
227,597
41,657
104,082
1,184,894

Total $ 548,573
$ 262,985
$ 312,257
$ 95,117
$ 145,524
$ 1,364,456

Effective January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses. We adopted this standard using the modified retrospective transition approach with a cumulative effect adjustment to retained earnings. The adoption of the standard resulted in an increase in the opening reserve balance for Accounts and other receivables of $15 million and the opening reserve balance for finance receivables of $10 million and a net reduction to retained earnings of $22 million. The ASU applies to financial assets measured at amortized cost, including finance receivables, trade and other receivables and investments in debt securities classified as available-for-sale and held-to-maturity. The ASU replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The models to estimate credit losses are required to be based on historical loss experience, current conditions, reasonable and supportable forecasts and current economic outlook.

Activity in the allowance for credit losses for accounts and other receivables for the six months ended June 30, 2020 is presented below. See Note 7 for additional information pertaining to our finance receivables.



	Balance at December 31, 2019		Cumulative effect of accounting change		Amounts charged to expense		Write-offs, recoveries and currency impact			Balance at June 30, 2020
Allowance for credit losses	$	17,830	$	15,336	$	12,692	$	(13,384	)	$	32,474

Accounts receivable greater than 365 days past due, subject to certain exceptions, are written off against the allowance, although collection efforts may continue.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective beginning January 1, 2021, with early adoption permitted. We do not expect this standard to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The transition to new reference interest rates will require certain contracts to be modified and the ASU is intended to mitigate the effects of this transition. The accommodations provided by the ASU are effective as of March 12, 2020 through December 31, 2022 and may be applied at the beginning of any interim period within that time frame. We are currently assessing the impact this standard will have 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)

2. Revenue

Disaggregated Revenue

The following tables disaggregate our revenue by source and timing of recognition:



	Three Months Ended June 30, 2020
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	398,453	$	118,127	$	12,410	$	528,990	$	—	$	528,990
Support services	—		—		113,786		113,786		—		113,786
Financing	—		—		—		—		85,462		85,462
Equipment sales	—		—		14,492		14,492		43,345		57,837
Supplies	—		—		32,773		32,773		—		32,773
Rentals	—		—		—		—		18,644		18,644
Subtotal	398,453		118,127		173,461		690,041		$	147,451	$	837,492

Revenue from leasing transactions and financing
Financing	—		—		85,462		85,462
Equipment sales	—		—		43,345		43,345
Rentals	—		—		18,644		18,644
Total revenue	$	398,453	$	118,127	$	320,912	$	837,492

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	58,750	$	58,750
Products/services transferred over time	398,453		118,127		114,711		631,291
Total	$	398,453	$	118,127	$	173,461	$	690,041



	Three Months Ended June 30, 2019
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	282,319	$	128,138	$	7,506	$	417,963	$	—	$	417,963
Support services	—		—		127,705		127,705		—		127,705
Financing	—		—		—		—		92,419		92,419
Equipment sales	—		—		19,384		19,384		66,167		85,551
Supplies	—		—		46,490		46,490		—		46,490
Rentals	—		—		—		—		18,445		18,445
Subtotal	282,319		128,138		201,085		611,542		$	177,031	$	788,573

Revenue from leasing transactions and financing
Financing	—		—		92,419		92,419
Equipment sales	—		—		66,167		66,167
Rentals	—		—		18,445		18,445
Total revenue	$	282,319	$	128,138	$	378,116	$	788,573

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	82,790	$	82,790
Products/services transferred over time	282,319		128,138		118,295		528,752
Total	$	282,319	$	128,138	$	201,085	$	611,542

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, 2020
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	690,776	$	258,847	$	23,746	$	973,369	$	—	$	973,369
Support services	—		—		235,801		235,801		—		235,801
Financing	—		—		—		—		174,540		174,540
Equipment sales	—		—		31,621		31,621		102,489		134,110
Supplies	—		—		78,482		78,482		—		78,482
Rentals	—		—		—		—		37,458		37,458
Subtotal	690,776		258,847		369,650		1,319,273		$	314,487	$	1,633,760

Revenue from leasing transactions and financing
Financing	—		—		174,540		174,540
Equipment sales	—		—		102,489		102,489
Rentals	—		—		37,458		37,458
Total revenue	$	690,776	$	258,847	$	684,137	$	1,633,760

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	137,124	$	137,124
Products/services transferred over time	690,776		258,847		232,526		1,182,149
Total	$	690,776	$	258,847	$	369,650	$	1,319,273



	Six Months Ended June 30, 2019
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	548,573	$	262,985	$	12,950	$	824,508	$	—	$	824,508
Support services	—		—		256,304		256,304		—		256,304
Financing	—		—		—		—		189,462		189,462
Equipment sales	—		—		40,677		40,677		134,661		175,338
Supplies	—		—		97,443		97,443		—		97,443
Rentals	—		—		—		—		40,602		40,602
Subtotal	548,573		262,985		407,374		1,218,932		$	364,725	$	1,583,657

Revenue from leasing transactions and financing
Financing	—		—		189,462		189,462
Equipment sales	—		—		134,661		134,661
Rentals	—		—		40,602		40,602
Total revenue	$	548,573	$	262,985	$	772,099	$	1,583,657

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	169,666	$	169,666
Products/services transferred over time	548,573		262,985		237,708		1,049,266
Total	$	548,573	$	262,985	$	407,374	$	1,218,932

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
Global Ecommerce Presort Services North America Mailing International Mailing Software Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Equipment sales $ —
$ —
$ 20,981
$ 23,074
$ —
$ 44,055
$ 156,464
$ 200,519
Supplies —
—
75,223
40,227
—
115,450
—
115,450
Software —
—
—
—
167,997
167,997
—
167,997
Rentals —
—
—
—
—
—
44,419
44,419
Financing —
—
—
—
—
—
197,478
197,478
Support services —
—
227,690
51,558
—
279,248
—
279,248
Business services 485,690
257,188
10,553
3,281
—
756,712
—
756,712
Subtotal 485,690
257,188
334,447
118,140
167,997
1,363,462
$ 398,361
$ 1,761,823

Revenue from leasing transactions and financing
Equipment sales —
—
124,429
32,035
—
156,464

Rentals —
—
33,851
10,568
—
44,419

Financing —
—
166,985
30,493
—
197,478

Total revenue $ 485,690
$ 257,188
$ 659,712
$ 191,236
$ 167,997
$ 1,761,823

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 96,204
$ 63,301
$ 65,021
$ 224,526

Products/services transferred over time 485,690
257,188
238,243
54,839
102,976
1,138,936

Total $ 485,690
$ 257,188
$ 334,447
$ 118,140
$ 167,997
$ 1,363,462

Our performance obligations for revenue from products and services are as follows:

Business services includes providing mail processing services, shipping subscription solutions, fulfillment, delivery and return services and cross-border solutions. Revenue for mail processing services, fulfillment, delivery and return services and cross-border solutions is recognized over time as the services are provided and revenue for shipping subscription solutions is recognized ratably over the contract period. Contract terms for these services range from one to five years followed by annual renewal periods.

Support services includes providing maintenance, professional and subscription services for our mailing equipment and professional services for our shipping solutions. Contract terms range from one to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance and subscription services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.

Equipment sales ~~and supplies: Our performance obligations~~ generally ~~include~~includes the sale of mailing and shipping equipment, excluding sales-type ~~leases, and supplies.~~leases. 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 software licenses, maintenance, data products and professional services. Revenue for licenses~~Supplies revenue 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 fees associated with the rental of mailing equipment under an operating lease contract.~~

~~Support services:~~ Performance obligations include providing maintenance, professional services, and subscription and meter services for our mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance, subscription and meter services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.

~~Business services~~: Our performance obligations include providing mail processing services and ecommerce solutions. Revenue is recognized over time as the services are provided. The contract terms for these services vary, with the initial contracts in the range of one to five years, followed by annual renewal periods.delivery.

Revenue from leasing transactions and financing includes revenue from ~~equipment accounted for as~~ sales-type leases, operating leases, finance income and late fees.

~~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



	Balance sheet location	June 30, 2020		December 31, 2019		Increase/ (decrease)
Advance billings, current	Advance billings	$	113,799	$	92,464	$	21,335
Advance billings, noncurrent	Other noncurrent liabilities	$	1,102	$	1,245	$	(143	)

Balance sheet location June 30, 2019 December 31, 2018 Increase (Decrease)
Contracts assets, current Other current assets and prepayments $ 17,050
$ 16,115
$ 935
Contracts assets, noncurrent Other assets $ 10,050
$ 13,092
$ (3,042 )
Advance billings, current Advance billings $ 200,224
$ 215,790
$ (15,566 )
Advance billings, noncurrent Other noncurrent liabilities $ 12,832
$ 12,778
$ 54

~~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. Contract assets decreased in the period as the invoicing of performance obligations previously satisfied exceeded the contract assets recognized during the period.

~~Advance Billings from Contracts with Customers~~

Advance billings are recorded when cash payments are due in advance of our performance. Revenue is recognized ratably over the contract term. Items in advance billings primarily relate to support services on ~~equipment~~mailing equipment. Advance billings at both June 30, 2020 and ~~software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.~~December 31, 2019 also includes $9 million from leasing transactions.

The net ~~decrease~~increase in advance billings at June 30, ~~2019~~2020 is due to ~~revenue~~new advance billings recognized during the period in excess of ~~advance billings.~~revenue recognized. Revenue recognized during the period includes ~~$109~~$75 million of advance billings at the beginning of the ~~period, partially offset by advance billings in the quarter.~~period.

Future Performance Obligations

Future performance obligations include revenue streams bundled with our leasing contracts, primarily maintenance and subscription services. The transaction prices allocated to future performance obligations will be recognized as follows:

Remainder of 2019 2020 2021-2024 Total
North America Mailing⁽¹⁾
$ 133,984
$ 231,394
$ 338,435
$ 703,813
International Mailing⁽¹⁾
15,799
21,938
27,583
65,320
Software Solutions⁽²⁾
34,805
57,111
33,295
125,211
Total $ 184,588
$ 310,443
$ 399,313
$ 894,344

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

⁽²⁾~~Multiple-year software maintenance contracts, certain software and data licenses and data updates.~~



	Remainder of 2020		2021		2022-2025		Total
SendTech Solutions	$	146,357	$	252,289	$	346,874	$	745,520

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.

~~3. Segment Information~~

~~The principal products and services of each reportable segment are as follows:~~

~~Commerce Services:~~

~~Global Ecommerce:~~ ~~Includes the revenue and related expenses from global 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 to qualify large volumes of First Class Mail, Marketing Mail and Bound and Packet Mail (Marketing Mail Flats and Bound Printed Matter) for postal worksharing discounts.

~~Small & Medium Business (SMB) Solutions:~~

~~North America Mailing~~: Includes the revenue and related expenses from mailing and shipping solutions, financing, services, supplies and other applications for small and medium businesses to 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 shipping solutions, financing, services and supplies for small and medium businesses to help simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~Software Solutions:~~3. Segment Information

Our reportable segments are Global Ecommerce, Presort Services and SendTech Solutions. Global Ecommerce and Presort Services comprise the Commerce Services reporting group. The principal products and services of each reportable segment are as follows:

Global Ecommerce: Includes the revenue and related expenses from ~~customer engagement, customer information, location intelligence software~~products and ~~data.~~services that facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce transactions.

Presort Services: Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail and Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.

SendTech Solutions: Includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.

Management ~~uses~~measures segment profitability and performance using segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides investors a useful measure of operating performance and underlying trends of the business. We determine segment. Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. 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 and reconciliation of segment EBIT to net (loss) income.

~~Revenue and EBIT by business segment is presented below:~~


	Revenue								Revenue
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Global Ecommerce	$	282,319	$	239,100	$	548,573	$	485,690	$	398,453	$	282,319	$	690,776	$	548,573
Presort Services	128,138		122,730		262,985		257,188		118,127		128,138		258,847		262,985
Commerce Services	410,457		361,830		811,558		742,878		516,580		410,457		949,623		811,558
North America Mailing	303,417		318,901		618,891		659,712
International Mailing	74,699		92,806		153,208		191,236
SMB Solutions	378,116		411,707		772,099		850,948
Software Solutions	72,206		91,703		145,524		167,997
SendTech Solutions									320,912		378,116		684,137		772,099
Total revenue	$	860,779	$	865,240	$	1,729,181	$	1,761,823	$	837,492	$	788,573	$	1,633,760	$	1,583,657

EBIT
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Global Ecommerce $ (15,576 ) $ (5,993 ) $ (30,176 ) $ (13,704 )
Presort Services 15,462
12,565
30,528
39,591
Commerce Services (114 ) 6,572
352
25,887
North America Mailing 112,804
120,139
223,417
248,707
International Mailing 11,934
13,091
23,724
29,113
SMB Solutions 124,738
133,230
247,141
277,820
Software Solutions 2,002
18,433
3,694
20,925
Total segment EBIT 126,626
158,235
251,187
324,632
Reconciliation of Segment EBIT to net income:

Unallocated corporate expenses (43,785 ) (46,477 ) (99,474 ) (97,559 )
Restructuring charges and asset impairments, net (7,279 ) (11,503 ) (10,877 ) (12,407 )
Interest, net (39,062 ) (41,969 ) (78,028 ) (85,047 )
Other income (expense) 27
—
(17,683 ) —
Transaction costs (2,150 ) —
(3,876 ) (1,055 )
Provision for income taxes (4,099 ) (7,899 ) (12,400 ) (26,694 )
Income from continuing operations 30,278
50,387
28,849
101,870
(Loss) income from discontinued operations, net of tax (6,581 ) 1,208
(7,811 ) 9,695
Net income $ 23,697
$ 51,595
$ 21,038
$ 111,565

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	EBIT
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Global Ecommerce	$	(18,894	)	$	(15,576	)	$	(48,369	)	$	(30,176	)
Presort Services	12,582			15,462			28,277			30,528
Commerce Services	(6,312		)	(114		)	(20,092		)	352
SendTech Solutions	104,268			124,738			210,830			247,141
Total segment EBIT	97,956			124,624			190,738			247,493
Reconciliation of Segment EBIT to net (loss) income:
Unallocated corporate expenses	(49,489		)	(45,048		)	(93,211		)	(102,006		)
Restructuring charges and asset impairments	(4,922		)	(5,899		)	(8,739		)	(9,599		)
Interest expense, net	(38,385		)	(39,062		)	(76,757		)	(78,028		)
Gain on sale of equity investment	11,908			—			11,908			—
Goodwill impairment	—			—			(198,169		)	—
Loss on extinguishment of debt	—			—			(36,987		)	—
Loss on dispositions and transaction costs	(349		)	(1,581		)	(641		)	(19,549		)
Provision for income taxes	(17,016		)	(3,724		)	(6,986		)	(11,544		)
(Loss) income from continuing operations	(297		)	29,310			(218,844		)	26,767
(Loss) income from discontinued operations, net of tax	(3,032		)	(5,613		)	7,032			(5,729		)
Net (loss) income	$	(3,329	)	$	23,697		$	(211,812	)	$	21,038

During the three and six months ended June 30, 2020, we received insurance proceeds of $5 million and $9 million, respectively, related to the October 2019 malware attack, a portion of which has been allocated to the business segments.

4. Discontinued Operations

Discontinued operations includes ~~our Document Messaging Technology production mail~~the Software Solutions business, sold in December 2019, with the exception of the software business in Australia, which closed in January 2020, and ~~supporting software that was~~the Production Mail business, sold in July 2018. Selected financial information of discontinued operations is as follows:

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenue $ —
$ 89,201
$ —
$ 191,435

Earnings (loss) from discontinued operations $ —
$ 8,278
$ (663 ) $ 21,620
Loss on sale (8,589 ) (7,238 ) (9,257 ) (8,777 )
(Loss) income from discontinued operations before taxes (8,589 ) 1,040
(9,920 ) 12,843
Tax (benefit) provision (2,008 ) (168 ) (2,109 ) 3,148
(Loss) income from discontinued operations, net of tax $ (6,581 ) $ 1,208
$ (7,811 ) $ 9,695



	Three Months Ended June 30, 2020								Three Months Ended June 30, 2019
	Software Solutions			Production Mail		Total			Software Solutions		Production Mail			Total
Revenue	$	—		$	—	$	—		$	72,206	$	—		$	72,206

Earnings from discontinued operations	$	—		$	—	$	—		$	1,342	$	—		$	1,342
(Loss) gain on sale	(3,416		)	245		(3,171		)	—		(8,589		)	(8,589		)
(Loss) income from discontinued operations before taxes	$	(3,416	)	$	245	(3,171		)	$	1,342	$	(8,589	)	(7,247		)
Tax benefit						(139		)						(1,634		)
Loss from discontinued operations, net of tax						$	(3,032	)						$	(5,613	)

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, 2020								Six Months Ended June 30, 2019
	Software Solutions		Production Mail			Total			Software Solutions		Production Mail			Total
Revenue	$	—	$	—		$	—		$	145,524	$	—		$	145,524

Earnings (loss) from discontinued operations	$	—	$	—		$	—		$	2,938	$	(663	)	$	2,275
Gain (loss) on sale	6,869		(167		)	6,702			—		(9,257		)	(9,257		)
Income (loss) from discontinued operations before taxes	$	6,869	$	(167	)	6,702			$	2,938	$	(9,920	)	(6,982		)
Tax benefit						(330		)						(1,253		)
Income (loss) from discontinued operations, net of tax						$	7,032							$	(5,729	)

Assets of discontinued operations and liabilities of discontinued operations at December 31, 2019 includes the assets and liabilities of the software business in Australia.

5. Earnings per Share (EPS)


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018		2019			2018		2020			2019			2020			2019
Numerator:
Income from continuing operations	$	30,278		$	50,387	$	28,849		$	101,870
(Loss) income from continuing operations											$	(297	)	$	29,310		$	(218,844	)	$	26,767
(Loss) income from discontinued operations, net of tax	(6,581		)	1,208		(7,811		)	9,695		(3,032		)	(5,613		)	7,032			(5,729		)
Net income (numerator for diluted EPS)	23,697			51,595		21,038			111,565
Net (loss) income (numerator for diluted EPS)											(3,329		)	23,697			(211,812		)	21,038
Less: Preference stock dividend	—			8		8			16		—			—			—			8
Income attributable to common stockholders (numerator for basic EPS)	$	23,697		$	51,587	$	21,030		$	111,549
(Loss) income attributable to common stockholders (numerator for basic EPS)											$	(3,329	)	$	23,697		$	(211,812	)	$	21,030
Denominator:
Weighted-average shares used in basic EPS	177,192			187,180		181,446			187,004		171,478			177,192			171,167			181,446
Dilutive effect of common stock equivalents(1)	1,089			934		1,192			1,053		—			1,089			—			1,192
Weighted-average shares used in diluted EPS	178,281			188,114		182,638			188,057		171,478			178,281			171,167			182,638
Basic earnings (loss) per share ⁽¹⁾:
Basic earnings (loss) per share ⁽²⁾:
Continuing operations	$	0.17		$	0.27	$	0.16		$	0.54	$	—		$	0.17		$	(1.28	)	$	0.15
Discontinued operations	(0.04		)	0.01		(0.04		)	0.05		(0.02		)	(0.03		)	0.04			(0.03		)
Net income	$	0.13		$	0.28	$	0.12		$	0.60
Diluted earnings (loss) per share ⁽¹⁾:
Net (loss) income											$	(0.02	)	$	0.13		$	(1.24	)	$	0.12
Diluted earnings (loss) per share ⁽²⁾:
Continuing operations	$	0.17		$	0.27	$	0.16		$	0.54	$	—		$	0.16		$	(1.28	)	$	0.15
Discontinued operations	(0.04		)	0.01		(0.04		)	0.05		(0.02		)	(0.03		)	0.04			(0.03		)
Net income	$	0.13		$	0.27	$	0.12		$	0.59
Net (loss) income											$	(0.02	)	$	0.13		$	(1.24	)	$	0.12

Anti-dilutive options excluded from diluted earnings per share:	16,297			12,453		16,077			11,959
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive:											19,963			16,297			18,297			16,077


⁽¹⁾	Dilutive effect of common stock equivalents for the three and six months ended June 30, 2020 was 1,019 and 1,190, respectively; however, is not included in the calculation of diluted earnings per share as the Company is reporting a net loss for both periods.


⁽²⁾	The sum of the earnings per share amounts may not equal the totals due to rounding.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 30, 2019 and December 31, 2018~~ consisted of the following:


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Raw materials	$	13,740		$	8,231		$	20,021		$	13,514
Supplies and service parts	23,701			21,841			22,787			21,840
Finished products	40,389			36,690			34,681			36,969
Inventory at FIFO cost	77,830			66,762			77,489			72,323
Excess of FIFO cost over LIFO cost	(4,483		)	(4,483		)	(3,836		)	(4,072		)
Total inventory, net	$	73,347		$	62,279		$	73,653		$	68,251

7. Finance Assets and Lessor Operating Leases

Finance Assets

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~~Most 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 30, 2019 and December 31, 2018~~ consisted of the following:


	June 30, 2019									December 31, 2018									June 30, 2020									December 31, 2019
	North America			International			Total			North America			International			Total			North America			International			Total			North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,081,063		$	197,145		$	1,278,208		$	1,110,896		$	242,036		$	1,352,932		$	998,450		$	196,767		$	1,195,217		$	1,055,852		$	224,202		$	1,280,054
Unguaranteed residual values	45,279			11,676			56,955			52,637			12,772			65,409			37,742			11,283			49,025			41,934			11,789			53,723
Unearned income	(349,996		)	(47,367		)	(397,363		)	(383,453		)	(55,113		)	(438,566		)	(282,027		)	(58,487		)	(340,514		)	(319,281		)	(65,888		)	(385,169		)
Allowance for credit losses	(11,322		)	(2,262		)	(13,584		)	(10,252		)	(2,356		)	(12,608		)	(26,603		)	(4,743		)	(31,346		)	(10,920		)	(2,085		)	(13,005		)
Net investment in sales-type lease receivables	765,024			159,192			924,216			769,828			197,339			967,167			727,562			144,820			872,382			767,585			168,018			935,603
Loan receivables
Loan receivables	289,694			30,126			319,820			300,319			29,270			329,589			254,786			18,635			273,421			298,247			27,926			326,173
Allowance for credit losses	(6,374		)	(759		)	(7,133		)	(6,777		)	(837		)	(7,614		)	(6,482		)	(286		)	(6,768		)	(5,906		)	(740		)	(6,646		)
Net investment in loan receivables	283,320			29,367			312,687			293,542			28,433			321,975			248,304			18,349			266,653			292,341			27,186			319,527
Net investment in finance receivables	$	1,048,344		$	188,559		$	1,236,903		$	1,063,370		$	225,772		$	1,289,142		$	975,866		$	163,169		$	1,139,035		$	1,059,926		$	195,204		$	1,255,130

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~Loans receivable are due within one year.~~ Maturities of gross sales-type lease ~~finance~~receivables and gross loan receivables at June 30, ~~2019~~2020 were as follows:


	Sales-type Lease Receivables						Sales-type Lease Receivables						Loan Receivables
	North America		International		Total		North America		International		Total		North America		International		Total
Remaining for year ending December 31, 2019	$	381,156	$	39,908	$	421,064
Year ending December 31, 2020	298,935		56,712		355,647
Remaining for year ending December 31, 2020							$	220,405	$	41,451	$	261,856	$	216,777	$	18,635	$	235,412
Year ending December 31, 2021	209,673		44,544		254,217		336,863		68,465		405,328		12,032		—		12,032
Year ending December 31, 2022	125,705		29,828		155,533		234,552		47,971		282,523		10,414		—		10,414
Year ending December 31, 2023	57,256		16,823		74,079		138,308		26,324		164,632		5,582		—		5,582
Year ending December 31, 2024							58,803		10,403		69,206		6,807		—		6,807
Thereafter	8,338		9,330		17,668		9,519		2,153		11,672		3,174		—		3,174
Total	$	1,081,063	$	197,145	$	1,278,208	$	998,450	$	196,767	$	1,195,217	$	254,786	$	18,635	$	273,421

Aging of Receivables

The aging of gross finance receivables was as follows:



	June 30, 2020
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Past due amounts 0 - 90 days	$	974,864	$	194,055	$	246,491	$	18,288	$	1,433,698
Past due amounts > 90 days	23,586		2,712		8,295		347		34,940
Total	$	998,450	$	196,767	$	254,786	$	18,635	$	1,468,638
Past due amounts > 90 days
Still accruing interest	$	4,982	$	1,091	$	5,205	$	191	$	11,469
Not accruing interest	18,604		1,621		3,090		156		23,471
Total	$	23,586	$	2,712	$	8,295	$	347	$	34,940



	December 31, 2019
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Past due amounts 0 - 90 days	$	1,032,912	$	220,819	$	294,001	$	27,697	$	1,575,429
Past due amounts > 90 days	22,940		3,383		4,246		229		30,798
Total	$	1,055,852	$	224,202	$	298,247	$	27,926	$	1,606,227
Past due amounts > 90 days
Still accruing interest	$	4,835	$	1,081	$	2,094	$	121	$	8,131
Not accruing interest	18,105		2,302		2,152		108		22,667
Total	$	22,940	$	3,383	$	4,246	$	229	$	30,798

Allowance for Credit Losses

We ~~provide~~estimate 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~~current conditions, reasonable and supportable forecasts and current economic outlook. Credit losses are estimated at the portfolio level based on asset type and geographic market. Historical loss experience was based on actual loss rates over the average term of the asset of five years for sales-type lease receivables and three years for loan receivables (including accrued interest). Additionally, we evaluate current conditions and ~~our ability~~review third-party economic forecasts on a quarterly basis to ~~manage~~determine the ~~collateral. We continually evaluate the adequacy of~~impact on the allowance for credit ~~losses and make adjustments as necessary.~~losses. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves. The allowance for credit losses for the six months ended June 30, 2020 considers the current economic conditions and resulting impact on a client's future ability to pay amounts due.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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. ~~As of June 30, 2019,~~We monitor delinquency rates and have experienced a slight increase in our delinquencies during this current economic situation. However, 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.

Activity in the allowance for credit losses for ~~the six months ended June 30, 2019 and 2018~~finance receivables was as follows:

Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
Balance at January 1, 2019 $ 10,252
$ 2,356
$ 6,777
$ 837
$ 20,222
Amounts charged to expense 3,660
455
2,329
315
6,759
Write-offs and other (2,590 ) (549 ) (2,732 ) (393 ) (6,264 )
Balance at June 30, 2019 $ 11,322
$ 2,262
$ 6,374
$ 759
$ 20,717

Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
Balance at January 1, 2018 $ 7,721
$ 2,794
$ 7,098
$ 1,020
$ 18,633
Amounts charged to expense 5,946
545
3,506
250
10,247
Write-offs and other (2,538 ) (933 ) (3,735 ) (330 ) (7,536 )
Balance at June 30, 2018 $ 11,129
$ 2,406
$ 6,869
$ 940
$ 21,344

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Aging of Receivables~~

~~The aging of gross finance receivables at June 30, 2019 and December 31, 2018 was as follows:~~

June 30, 2019
Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
1 - 90 days $ 1,051,352
$ 192,135
$ 283,809
$ 29,866
$ 1,557,162
> 90 days 29,711
5,010
5,885
260
40,866
Total $ 1,081,063
$ 197,145
$ 289,694
$ 30,126
$ 1,598,028
Past due amounts > 90 days

Still accruing interest $ 6,467
$ 1,410
$ 1,932
$ 116
$ 9,925
Not accruing interest 23,244
3,600
3,953
144
30,941
Total $ 29,711
$ 5,010
$ 5,885
$ 260
$ 40,866

December 31, 2018
Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
1 - 90 days $ 1,069,288
$ 238,114
$ 294,126
$ 29,079
$ 1,630,607
> 90 days 41,608
3,922
6,193
191
51,914
Total $ 1,110,896
$ 242,036
$ 300,319
$ 29,270
$ 1,682,521
Past due amounts > 90 days

Still accruing interest $ 7,917
$ 1,111
$ 1,769
$ 72
$ 10,869
Not accruing interest 33,691
2,811
4,424
119
41,045
Total $ 41,608
$ 3,922
$ 6,193
$ 191
$ 51,914



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at December 31, 2019	$	10,920		$	2,085		$	5,906		$	740		$	19,651
Cumulative effect of accounting change	9,271			1,750			(1,116		)	(402		)	9,503
Amounts charged to expense	9,025			1,257			4,758			208			15,248
Write-offs	(3,536		)	(386		)	(4,542		)	(297		)	(8,761		)
Recoveries	946			44			1,386			1			2,377
Other	(23		)	(7		)	90			36			96
Balance at June 30, 2020	$	26,603		$	4,743		$	6,482		$	286		$	38,114

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2019	$	10,253		$	2,355		$	6,777		$	837		$	20,222
Amounts charged to expense	3,660			455			2,329			315			6,759
Write-offs	(3,452		)	(533		)	(4,649		)	(451		)	(9,085		)
Recoveries	813			167			1,909			4			2,893
Other	48			(182		)	8			54			(72		)
Balance at June 30, 2019	$	11,322		$	2,262		$	6,374		$	759		$	20,717

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of ~~an automated~~a client's credit score, where available, and a detailed manual review of ~~the client's~~their financial condition and ~~when applicable,~~ payment ~~history.~~history or an automated process for certain small dollar applications. 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 ~~are~~ in place to track 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 30, 2019 and December 31, 2018 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~~financial information, payment history, company type and ownership ~~structure, payment history and financial information.~~structure. 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.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The table below shows the gross sales-type lease receivable and loan receivable balances by relative risk class and year of origination based on the relative scores of the accounts within each class.


	June 30, 2019		December 31, 2018		Sales Type Lease Receivables												Loan Receivables		Total
Sales-type lease receivables																			Total
					2020		2019		2018		2017		2016		Prior		Loan Receivables	Loan Receivables		Total
Low	$	893,068	$	922,414	$	136,197	$	252,315	$	199,078	$	118,201	$	49,013	$	19,906		Loan Receivables		Total
Medium	131,312		131,650		25,754		57,452		45,269		28,693		10,886		5,688		53,748		227,490
High	20,930		22,110		3,249		6,342		5,295		3,380		1,802		323		4,210		24,601
Not Scored	35,753		34,722		35,880		82,099		56,596		33,466		15,450		2,883		28,152		254,526
Total	$	1,081,063	$	1,110,896	$	201,080	$	398,208	$	306,238	$	183,740	$	77,151	$	28,800	$	273,421	$	1,468,638
Loan receivables
Low	$	229,888	$	238,620
Medium	42,731		43,952
High	5,703		5,947
Not Scored	11,372		11,800
Total	$	289,694	$	300,319

The majority of the Not Scored amounts above is within our International portfolio. 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. International credit applications below $50 thousand are subjected to an automated review process. All other credit applications are manually reviewed. A manual review includes obtaining client financial information, credit reports and other available financial information. Approximately 80% of credit applications are approved or denied through the automated review process.

Lease Income

Lease income from sales-type leases ~~for the three and six months ended June 30, 2019 and 2018~~ was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Profit recognized at commencement ⁽¹⁾	$	34,320	$	39,642	$	70,678	$	86,929	$	21,271	$	36,508	$	51,166	$	73,112
Interest income	58,045		60,855		117,523		122,687		34,055		58,045		68,315		117,523
Total lease income from sales-type leases	$	92,365	$	100,497	$	188,201	$	209,616	$	55,326	$	94,553	$	119,481	$	190,635

⁽¹⁾ Lease contracts do not include variable lease payments.

Lessor Operating Leases

We also lease mailing equipment under operating leases with terms of one to five years. Maturities of these operating leases are as follows:


Remaining for year ending December 31, 2019	$	18,383
Year ending December 31, 2020	27,684
Remaining for year ending December 31, 2020			$	20,222
Year ending December 31, 2021	12,394		27,899
Year ending December 31, 2022	6,348		10,881
Year ending December 31, 2023	2,886		4,899
Year ending December 31, 2024			1,528
Thereafter	182		200
Total	$	67,877	$	65,629

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

8. Intangible Assets, Goodwill and ~~Goodwill~~Other Assets

Intangible Assets

Intangible assets ~~at June 30, 2019 and December 31, 2018~~ consisted of the following:


	June 30, 2019							December 31, 2018							June 30, 2020							December 31, 2019
	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	$	484,597	$	(294,244	)	$	190,353	$	480,837	$	(281,190	)	$	199,647	$	268,178	$	(101,688	)	$	166,490	$	265,665	$	(88,550	)	$	177,115
Software & technology	164,849		(147,130		)	17,719		165,088		(143,877		)	21,211		31,600		(23,012		)	8,588		31,600		(19,999		)	11,601
Trademarks & other	40,105		(35,581		)	4,524		40,170		(33,891		)	6,279		13,324		(12,942		)	382		13,324		(11,400		)	1,924
Total intangible assets	$	689,551	$	(476,955	)	$	212,596	$	686,095	$	(458,958	)	$	227,137	$	313,102	$	(137,642	)	$	175,460	$	310,589	$	(119,949	)	$	190,640

Amortization expense was ~~$10~~$9 million ~~and $11 million~~ for both the three months ended June 30, 2020 and 2019, and ~~2018, respectively, and $21~~$18 million ~~and $22 million~~ for both the six months ended June 30, ~~2019~~2020 and ~~2018, respectively.~~2019.

Future amortization expense as of June 30, ~~2019~~2020 is shown in the table below. Actual amortization expense may differ due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.


Remaining for year ending December 31, 2019	$	19,898
Year ending December 31, 2020	35,551
Remaining for year ending December 31, 2020			$	15,699
Year ending December 31, 2021	31,033		30,227
Year ending December 31, 2022	29,801		29,281
Year ending December 31, 2023	26,726		26,443
Year ending December 31, 2024			26,443
Thereafter	69,587		47,367
Total	$	212,596	$	175,460

Goodwill

Changes in the carrying value of goodwill, by reporting segment, ~~for the six months ended June 30, 2019~~ are shown in the table below.


	December 31, 2018		Divestiture			Currency impact			June 30, 2019		December 31, 2019		Impairment			Acquisition		Currency impact			June 30, 2020
Global Ecommerce	$	609,431	$	—		$	—		$	609,431	$	609,431	$	(198,169	)	$	—	$	—		$	411,262
Presort Services	207,465		—			—			207,465		212,529		—			8,463		—			220,992
Commerce Services	816,896		—			—			816,896		821,960		(198,169		)	8,463		—			632,254
North America Mailing	368,248		—			326			368,574
International Mailing	147,207		(10,490		)	(1,537		)	135,180
SMB Solutions	515,455		(10,490		)	(1,211		)	503,754
Software Solutions	434,160		—			(200		)	433,960
SendTech Solutions											502,219		—			—		(1,688		)	500,531
Total goodwill	$	1,766,511	$	(10,490	)	$	(1,411	)	$	1,754,610	$	1,324,179	$	(198,169	)	$	8,463	$	(1,688	)	$	1,132,785

~~In January~~During the first quarter of 2020, our Global Ecommerce reporting unit experienced weaker than expected performance, in part due to the macroeconomic conditions resulting from COVID-19. At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20%, and the deteriorating macroeconomic conditions and uncertainty brought on by COVID-19 caused us to evaluate the Global Ecommerce goodwill for impairment.

To test the Global Ecommerce goodwill for impairment, we ~~wrote off $10 million~~determined the fair value of the Global Ecommerce reporting unit and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill ~~associated with Market Exits.~~

impairment charge and could result in an additional impairment charge in the future. These estimates and assumptions are considered Level 3 inputs under 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)

We determined that the reporting unit's estimated fair value was less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter to reduce the carrying value of the Global Ecommerce reporting unit to its estimated fair value.

Other Assets

During the second quarter of 2020, we surrendered certain company owned life insurance policies and received proceeds of $46 million. We did not record a gain or loss on the surrender; however, the surrender resulted in a tax expense of $12 million (see Note 13 for further information). Also, during the second quarter of 2020, we sold our interest in an equity investment for $12 million and recognized a gain of $12 million.

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 30, 2019 and December 31, 2018.~~basis.

June 30, 2019
Level 1 Level 2 Level 3 Total
Assets:

Investment securities

Money market funds / commercial paper $ 237,848
$ 321,863
$ —
$ 559,711
Equity securities —
22,372
—
22,372
Commingled fixed income securities 1,632
21,212
—
22,844
Government and related securities 78,842
7,550
—
86,392
Corporate debt securities —
50,774
—
50,774
Mortgage-backed / asset-backed securities —
85,415
—
85,415
Derivatives

Foreign exchange contracts —
345
—
345
Total assets $ 318,322
$ 509,531
$ —
$ 827,853
Liabilities:

Derivatives

Foreign exchange contracts $ —
$ (297 ) $ —
$ (297 )
Total liabilities $ —
$ (297 ) $ —
$ (297 )



	June 30, 2020
	Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds	$	85,243	$	441,600		$	—	$	526,843
Equity securities	—		20,822			—		20,822
Commingled fixed income securities	1,713		19,376			—		21,089
Government and related securities	39,525		18,583			—		58,108
Corporate debt securities	—		75,557			—		75,557
Mortgage-backed / asset-backed securities	—		115,742			—		115,742
Derivatives
Foreign exchange contracts	—		308			—		308
Total assets	$	126,481	$	691,988		$	—	$	818,469
Liabilities:
Derivatives
Interest rate swaps	$	—	$	(1,605	)	$	—	$	(1,605	)
Foreign exchange contracts	—		(1,106		)	—		(1,106		)
Total liabilities	$	—	$	(2,711	)	$	—	$	(2,711	)

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


	December 31, 2018										December 31, 2019
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	220,756	$	391,891		$	—	$	612,647
Money market funds											$	161,441	$	240,364		$	—	$	401,805
Equity securities	—		19,133			—		19,133			—		21,979			—		21,979
Commingled fixed income securities	1,570		20,141			—		21,711			1,656		18,404			—		20,060
Government and related securities	98,790		9,787			—		108,577			64,572		17,478			—		82,050
Corporate debt securities	—		56,938			—		56,938			—		72,149			—		72,149
Mortgage-backed / asset-backed securities	—		98,334			—		98,334			—		66,339			—		66,339
Derivatives
Foreign exchange contracts	—		2,031			—		2,031			—		3,256			—		3,256
Total assets	$	321,116	$	598,255		$	—	$	919,371		$	227,669	$	439,969		$	—	$	667,638
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(735	)	$	—	$	(735	)	$	—	$	(1,402	)	$	—	$	(1,402	)
Total liabilities	$	—	$	(735	)	$	—	$	(735	)	$	—	$	(1,402	)	$	—	$	(1,402	)

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:~~Funds: 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: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.

•

Commingled Fixed Income Securities: Commingled fixed income securities are 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 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.

•

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.

~~Available-For-Sale~~Derivative Securities


•	Foreign Exchange Contracts: 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. These securities are classified as Level 2.


•	Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2.

Investment securities are classified as available-for-sale and recorded at fair value. Unrealized holding gains and losses, net of tax, are recorded in accumulated other comprehensive income (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.

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

Available-for-sale 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. Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions (i.e. interest rates) recorded in accumulated other comprehensive income (AOCI) and changes in fair value due to credit conditions recorded in earnings. Individual securities are considered impaired when the fair value declines below amortized cost. We use a discounted cash flow model to determine the amount of unrealized losses due to credit losses. Unrealized losses recorded during the period due to credit conditions were immaterial.

Available-for-sale securities ~~at June 30, 2019 and December 31, 2018~~ consisted of the following:


	June 30, 2019									June 30, 2020
	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	$	85,292	$	1,063	$	(47	)	$	86,308	$	55,576	$	1,289	$	(338	)	$	56,527
Corporate debt securities	49,507		1,320		(53		)	50,774		71,689		4,558		(690		)	75,557
Commingled fixed income securities	1,656		—		(24		)	1,632		1,692		21		—			1,713
Mortgage-backed / asset-backed securities	85,058		905		(548		)	85,415		113,497		2,520		(275		)	115,742
Total	$	221,513	$	3,288	$	(672	)	$	224,129	$	242,454	$	8,388	$	(1,303	)	$	249,539


	December 31, 2018									December 31, 2019
	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	$	109,776	$	47	$	(1,336	)	$	108,487	$	80,732	$	1,358	$	(114	)	$	81,976
Corporate debt securities	58,714		4		(1,780		)	56,938		70,426		2,009		(286		)	72,149
Commingled fixed income securities	1,637		—		(67		)	1,570		1,675		—		(19		)	1,656
Mortgage-backed / asset-backed securities	100,186		167		(2,019		)	98,334		65,679		960		(300		)	66,339
Total	$	270,313	$	218	$	(5,202	)	$	265,329	$	218,512	$	4,327	$	(719	)	$	222,120

~~The aggregate unrealized holding losses of investment~~Investment securities in a loss position ~~at June 30, 2019 and December 31, 2018~~ were as follows:


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Fair Value		Gross unrealized losses		Fair Value		Gross unrealized losses		Fair Value		Gross unrealized losses		Fair Value		Gross unrealized losses
Less than 12 continuous months	$	502	$	2	$	48,318	$	847	$	46,650	$	1,192	$	52,521	$	583
Greater than 12 continuous months	56,970		670		177,331		4,355		4,441		111		9,227		136
Total	$	57,472	$	672	$	225,649	$	5,202	$	51,091	$	1,303	$	61,748	$	719

Our allowance for credit losses on available-for-sale investment securities was not significant at June 30, 2020. At June 30, 2020, approximately 10% of total securities in the investment portfolio were in a net loss position. We believe our allowance for credit losses on available-for-sale investment securities is adequate as the majority of our investments are in short-term, highly liquid investments, high grade corporate securities and U.S. government securities. 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~~or expect to receive the stated principal and interest at maturity.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Scheduled maturities of available-for-sale securities at June 30, ~~2019~~2020 were as follows:


	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Within 1 year	$	47,535	$	47,589	$	26,274	$	26,407
After 1 year through 5 years	68,901		69,407		56,027		58,709
After 5 years through 10 years	34,951		36,121		47,838		49,663
After 10 years	70,126		71,012		112,315		114,760
Total	$	221,513	$	224,129	$	242,454	$	249,539

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.

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.

Held-to-Maturity Securities

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Held-to-maturity securities at June 30, 2020 and December 31, 2019, include $257 million and $383 million, respectively, of short-term, highly liquid time deposits. Due to the short-term nature of these securities, the carrying value approximates fair value.

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. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges. At both June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had outstanding contracts associated with these anticipated transactions with notional amounts of ~~$9 million and $8 million, respectively.~~

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 in the three months ended June 30, 2019.

~~Interest Rate Swap~~

We 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. This swap matured in September 2018. While outstanding, the swap was designated as a cash flow hedge and the effective portion of the gain or loss on the cash flow hedge was included in AOCI in the period that the change in fair value occurred and reclassified to earnings in the period that the hedged item was recorded in earnings.

~~The fair value of derivative instruments at~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018~~ ~~was as follows:~~

Designation of Derivatives Balance Sheet Location June 30,
2019 December 31,
2018
Derivatives designated as
hedging instruments

Foreign exchange contracts Other current assets and prepayments $ 51
$ 61
Accounts payable and accrued liabilities (190 ) (104 )

Derivatives not designated as
hedging instruments

Foreign exchange contracts Other current assets and prepayments 294
1,970
Accounts payable and accrued liabilities (107 ) (631 )

Total derivative assets $ 345
$ 2,031
Total derivative liabilities (297 ) (735 )
Total net derivative asset $ 48
$ 1,296

~~The majority of the amounts~~$7 million. Amounts included in AOCI at June 30, ~~2019~~2020 will be recognized in earnings within the next 12 months. No

Interest Rate Swaps

During the quarter, we entered into interest rate swap agreements with an aggregate notional amount of ~~ineffectiveness was recorded in earnings for these~~$500 million that are designated as cash flow hedges. The fair value of the interest rate swaps is recorded as a derivative asset or liability at the end of each reporting period with the change in fair value reflected in AOCI.

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~~fair value of derivative instruments was as follows:



Designation of Derivatives	Balance Sheet Location	June 30, 2020			December 31, 2019
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	$	46		$	207
	Accounts payable and accrued liabilities	(214		)	(56		)

Interest rate swaps	Other noncurrent liabilities	(1,605		)	—

Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	262			3,049
	Accounts payable and accrued liabilities	(892		)	(1,346		)

	Total derivative assets	$	308		$	3,256
	Total derivative liabilities	(2,711		)	(1,402		)
	Total net derivative (liability) asset	$	(2,403	)	$	1,854

Results of cash flow hedging relationships ~~for the three and six months ended June 30, 2019 and 2018:~~were as follows:


	Three Months Ended June 30,																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 Gain (Loss) Recognized in AOCI (Effective Portion)								Location of Gain (Loss) (Effective Portion)		Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)
Derivative Instrument	2019			2018				2019				2018				2020				2019					Location of Gain (Loss) (Effective Portion)	2020				2019
Foreign exchange contracts	$	(320	)	$	119		Location of Gain (Loss) (Effective Portion)	Revenue		$	(36	)		$	79			$	(121	)		$	(320	)		Revenue		$	(64	)		$	(36	)
							Cost of sales		29				(1		)										Cost of sales		32				29
Interest rate swap	—			(771		)	Interest Expense		—				—				(1,605		)		—				Interest expense		—				—
	$	(320	)	$	(652	)			$	(7	)		$	78			$	(1,726	)		$	(320	)				$	(32	)		$	(7	)

	Six Months Ended June 30,																Six 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 Gain (Loss) Recognized in AOCI (Effective Portion)								Location of Gain (Loss) (Effective Portion)		Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)
Derivative Instrument	2019			2018				2019				2018				2020				2019					Location of Gain (Loss) (Effective Portion)	2020				2019
Foreign exchange contracts	$	25		$	154		Location of Gain (Loss) (Effective Portion)	Revenue		$	75			$	76			$	(281	)		$	25			Revenue		$	(3	)		$	75
							Cost of sales		45				(85		)										Cost of sales		42				45
Interest rate swap	—			(952		)	Interest Expense		—				—				(1,605		)		—				Interest expense		—				—
	$	25		$	(798	)			$	120			$	(9	)		$	(1,886	)		$	25					$	39			$	120

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 months ended June 30, 2019 and 2018.~~ All outstanding contracts at June 30, ~~2019~~2020 mature within 12 months.

Three Months Ended June 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2019 2018
Foreign exchange contracts Selling, general and administrative expense $ (65 ) $ (14,828 )

Six Months Ended June 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2019 2018
Foreign exchange contracts Selling, general and administrative expense $ 5,205
$ (18,396 )

~~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 30, 2019, we had no cash collateral posted.

~~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 30, 2019~~ ~~and~~ ~~December 31, 2018~~ ~~were as follows:~~

June 30, 2019 December 31, 2018
Carrying value $ 3,244,173
$ 3,265,608
Fair value $ 3,101,477
$ 3,003,678

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The mark-to-market adjustments of non-designated derivative instruments were as follows:



		Three Months Ended June 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2020			2019
Foreign exchange contracts	Selling, general and administrative expense	$	1,200		$	(65	)

		Six Months Ended June 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2020			2019
Foreign exchange contracts	Selling, general and administrative expense	$	(3,667	)	$	5,205

Fair Value of Financial Instruments

Financial instruments not reported at fair value on a recurring basis include cash and cash equivalents, accounts receivable, loan receivables, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable and accounts payable approximate fair value. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt are classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:



	June 30, 2020		December 31, 2019
Carrying value	$	2,716,747	$	2,739,722
Fair value	$	2,156,837	$	2,572,794

10. Restructuring Charges and Asset Impairments

Restructuring Charges

Activity in our restructuring reserves ~~for the six months ended June 30, 2019 and 2018~~ was as follows:


										Severance and benefits costs			Other exit costs			Total
Balance at January 1, 2020										$	11,937		$	69		$	12,006
Expenses, net										6,357			546			6,903
Cash payments										(10,772		)	(593		)	(11,365		)
Balance at June 30, 2020										$	7,522		$	22		$	7,544
	Severance and benefits costs			Other exit costs			Total
Balance at January 1, 2019	$	13,641		$	1,808		$	15,449		$	13,641		$	1,808		$	15,449
Expenses, net	8,379			707			9,086			7,101			707			7,808
Cash payments	(12,064		)	(2,219		)	(14,283		)	(10,786		)	(2,219		)	(13,005		)
Balance at June 30, 2019	$	9,956		$	296		$	10,252		$	9,956		$	296		$	10,252

Balance at January 1, 2018	$	42,151		$	1,569		$	43,720
Expenses, net	7,990			4,417			12,407
Cash payments	(26,942		)	(586		)	(27,528		)
Balance at June 30, 2018	$	23,199		$	5,400		$	28,599

The majority of the ~~remaining~~ restructuring reserves are expected to be paid over the next 12 to 24 months.

~~Asset Impairments~~

~~Asset impairment~~Other Charges

Restructuring charges ~~were $1 million~~and asset impairments for the ~~three and~~ six months ended June 30, ~~2019.~~

2020 and 2019 also includes $2 million of non-cash charges related to asset impairments, pension settlements and facilities abandonment.

11. Debt

Total debt ~~at June 30, 2019 and December 31, 2018~~ consisted of the following:


	Interest rate	June 30, 2019		December 31, 2018		Interest rate	June 30, 2020		December 31, 2019
Notes due September 2020	3.875%	$	300,000	$	300,000
Notes due October 2021	3.875%	600,000		600,000		4.625%	$	172,456	$	600,000
Notes due May 2022	4.625%	400,000		400,000		5.375%	150,000		400,000
Notes due April 2023	4.95%	400,000		400,000		5.70%	275,000		400,000
Notes due March 2024	4.625%	500,000		500,000		4.625%	375,000		500,000
Notes due January 2037	5.25%	35,841		35,841		5.25%	35,841		35,841
Notes due March 2043	6.7%	425,000		425,000		6.70%	425,000		425,000
Term loans	Variable	605,000		630,000
Term loan due November 2024						Variable	390,000		400,000
Term loan due January 2025						Variable	839,375		—
Credit Facility						Variable	100,000		—
Other debt		5,210		5,297			5,052		5,108
Principal amount		3,271,051		3,296,138			2,767,724		2,765,949
Less: unamortized costs, net		26,878		30,530			50,977		26,227
Total debt		3,244,173		3,265,608			2,716,747		2,739,722
Less: current portion long-term debt		214,927		199,535			163,257		20,108
Long-term debt		$	3,029,246	$	3,066,073		$	2,553,490	$	2,719,614

Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. ~~In April 2019, Moody's lowered our corporate~~As a result of credit rating ~~from Ba1 to Ba2. As a result,~~downgrades in November 2019 and May 2020, the interest rates on the October 2021 notes and April 2023 notes increased 0.50% and the interest rate on the May 2022 notes increased ~~0.25% in the quarter and~~0.75%. Further, the interest rates on the ~~September 2020 notes,~~ October 2021 notes and April 2023 notes will increase an additional 0.25% ~~effective after~~in the ~~next~~fourth quarter of 2020.

In February 2020, we secured a five-year $850 million term loan maturing January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest ~~payment date.~~at LIBOR plus 5.5% and resets monthly. In May 2020, we entered into interest rate swap agreements with an aggregate notional amount of $500 million to mitigate the interest rate risk associated with $500 million of our variable-rate term loans. Under the terms of the swap agreements, we pay fixed-rate interest of 0.4443% and receive variable-rate interest based on one-month LIBOR. The variable interest rate under the term loans and the swaps reset monthly.

In March 2020, we purchased under a tender offer $428 million of the October 2021 notes, $250 million of the May 2022 notes, $125 million of the April 2023 notes and $125 million of the March 2024 notes. A $37 million loss was incurred on the early redemption of debt.

During the first half of ~~2019,~~2020, we repaid ~~$25~~$21 million of principal related to our term loans.

We have a $500 million secured revolving credit facility that expires in November 2024 and contains financial and non-financial covenants. In April 2020, in light of the current macroeconomic environment, we drew down $100 million under the credit facility as a precautionary measure. This borrowing is considered short-term as the amount is due and interest resets monthly. At June 30, 2020, we were in compliance with all covenants.

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) ~~cost~~ 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,				June 30,						June 30,						June 30,
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	21		$	9		$	388		$	575		$	228	$	405	$	27		$	21		$	399		$	388		$	217	$	228
Interest cost	15,708			15,108			4,308			4,591			1,637		1,607		13,179			15,708			3,407			4,308			1,242		1,637
Expected return on plan assets	(23,184		)	(25,119		)	(8,505		)	(9,118		)	—		—		(21,303		)	(23,184		)	(7,969		)	(8,505		)	—		—
Amortization of transition credit	—			—			(1		)	(2		)	—		—		—			—			(1		)	(1		)	—		—
Amortization of prior service (credit) cost	(15		)	(15		)	60			(18		)	81		88		(15		)	(15		)	59			60			94		81
Amortization of net actuarial loss	6,037			7,628			1,572			1,870			503		881		8,197			6,037			2,005			1,572			738		503
Settlement ⁽¹⁾	801			—			397			—			—		—		612			801			3,190			397			—		—
Net periodic benefit (income) cost	$	(632	)	$	(2,389	)	$	(1,781	)	$	(2,102	)	$	2,449	$	2,981
Net periodic benefit cost (income)																	$	697		$	(632	)	$	1,090		$	(1,781	)	$	2,291	$	2,449
Contributions to benefit plans	$	2,423		$	1,906		$	878		$	769		$	4,457	$	4,316	$	1,969		$	2,423		$	580		$	878		$	3,616	$	4,457

	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				Six Months Ended						Six Months Ended						Six Months Ended
	June 30,						June 30,						June 30,				June 30,						June 30,						June 30,
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	42		$	46		$	772		$	1,164		$	483	$	811	$	53		$	42		$	798		$	772		$	434	$	483
Interest cost	31,586			30,724			8,796			9,287			3,291		3,210		26,358			31,586			6,925			8,796			2,487		3,291
Expected return on plan assets	(46,363		)	(50,543		)	(17,269		)	(18,304		)	—		—		(42,607		)	(46,363		)	(16,177		)	(17,269		)	—		—
Amortization of transition credit	—			—			(3		)	(3		)	—		—		—			—			(2		)	(3		)	—		—
Amortization of prior service (credit) cost	(30		)	(30		)	123			(37		)	161		176		(30		)	(30		)	120			123			187		161
Amortization of net actuarial loss	13,073			15,704			3,184			3,783			1,014		1,815		16,395			13,073			4,064			3,184			1,474		1,014
Settlement ⁽¹⁾	801			—			397			—			—		—		1,001			801			3,190			397			—		—
Net periodic benefit (income) cost	$	(891	)	$	(4,099	)	$	(4,000	)	$	(4,110	)	$	4,949	$	6,012
Net periodic benefit cost (income)																	$	1,170		$	(891	)	$	(1,082	)	$	(4,000	)	$	4,582	$	4,949
Contributions to benefit plans	$	4,051		$	3,194		$	9,088		$	9,979		$	9,213	$	9,111	$	3,898		$	4,051		$	8,568		$	9,088		$	8,071	$	9,213

⁽¹⁾Approximately ~~$0.7~~$2.6 million and ~~$0.3~~$0.5 million of total settlement charges were recorded in discontinued operations and restructuring charges, ~~and discontinued operations,~~ respectively, for the three and six months ended June 30, ~~2019.~~

~~13. Income Taxes~~

~~The effective tax rate~~2020 and approximately $0.3 million and $0.7 million of total settlement charges were recorded in discontinued operations and restructuring charges, respectively, for the three ~~months ended June 30, 2019~~ and ~~2018 was 11.9% and 13.6%, respectively. These rates include benefits from the resolution of certain tax examinations of $4 million and $3 million, respectively.~~

~~The effective tax rate for the~~ six months ended June 30, 2019 and 2018 was 30.1% and 20.8%, respectively. The effective tax rate for the six months ended June 30, 2019 includes a $2 million tax on the $18 million book loss from Market Exits, primarily due to nondeductible basis differences. The effective tax rate for each of the six months ended June 30, 2019 and 2018 includes a benefit of $6 million from the resolution of certain tax examinations and a charge of $2 million 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.2019.

At December 31, 2018, we had a deferred tax asset valuation allowance of $142 million. It is reasonably possible that within the next 12 months, there may be sufficient positive evidence to release approximately $20 million of the valuation allowance. The release of this allowance would result in a decrease to income tax expense.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

13. Income Taxes

The effective tax rate for the three and six months ended June 30, 2020 was 101.8% and (3.3)%, respectively and includes a $12 million charge for the surrender of company owned life insurance policies (see Note 8). The effective tax rate for the six months ended June 30, 2020 also includes a benefit of $2 million on the $198 million goodwill impairment charge as the majority of this charge is nondeductible, a benefit of $2 million from the resolution of certain tax examinations and a charge of $3 million for the write-off of deferred tax assets associated with the expiration of out-of-money vested stock options and the vesting of restricted stock.

The effective tax rate for the three and six months ended June 30, 2019 was 11.3% and 30.1%, respectively, and includes benefits from the resolution of certain tax examinations of $3 million and $6 million, respectively. The effective tax rate for the six months ended June 30, 2019 also includes a $2 million tax on the $18 million book loss incurred from the disposition of operations in certain international markets, primarily due to nondeductible basis differences and a charge of $2 million for the write-off of deferred tax assets associated with the expiration of out-of-money vested stock options and the vesting of restricted stock.

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 ~~30%~~10% of our unrecognized tax benefits.

The Internal Revenue Service ~~(IRS)~~ examinations of our consolidated U.S. income tax returns for tax years prior to 2017 are closed to audit; however, various post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to ~~2014~~2015 are closed to audit. Other significant jurisdictions include France (closed through ~~2014)~~2016), Germany (closed through 2016) and the U.K. ~~(except for an item under appeal, closed~~(closed through ~~2016)~~2017). 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 as of June 30, ~~2019.~~2020. 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. In addition, in December 2018 and then in February 2019, certain of the Company’s officers and directors were named as defendants in ~~two~~2 virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court, allege, among other things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for the benefit of the Company. ~~Although litigation outcomes~~Both of these are ~~inherently unpredictable, we believe these matters are without merit~~derivative claims related to a prior action filed in Connecticut state court, City of Livonia Retiree Health and ~~intend~~Disability Benefits Plan v. Pitney Bowes Inc. et al. (“Livonia”). On October 24, 2019, the court had granted the defendants’ motions to ~~defend them vigorously. A reasonable estimate of~~dismiss the ~~amount of any possible loss or range of loss cannot be made at this time.~~

~~15. Leased Assets~~Livonia case, and ~~Liabilities~~that judgment is now final. Given that the defendants prevailed in the Livonia action, the plaintiffs in the Clem and Devolin actions moved to withdraw their complaints, and on February 20, 2020 the court granted the motions. Both cases have now been dismissed.

We ~~lease real estate and~~have entered into 3 equipment ~~under operating and finance lease agreements. Our~~ leases ~~have terms of up to 15 years, some of which may include~~for our Commerce Services operations that will commence in the option to extend the lease for up to 5 years. At lease commencement, we record a lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of our future lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. Lease payments include fixed payments and variable payments that are tied to an index. Variable payments not tied to an index are excluded from the right-of-use asset and lease liability and primarily include common area maintenance charges, property taxes, insurance and mileage. The present value of our lease liability is determined using our incremental borrowing rate at lease inception. Information regarding our operating and financing leases are as follows:

Leases Balance Sheet Location June 30, 2019 December 31, 2018
Assets
Operating Operating lease assets $ 180,983
$ 156,788
Finance Property, plant and equipment, net 11,501
10,683
Total leased assets $ 192,484
$ 167,471

Liabilities
Operating Current operating lease liabilities $ 34,612
$ 37,208
Noncurrent operating lease liabilities 154,648
127,237
Finance Accounts payable and accrued liabilities 2,809
2,708
Other noncurrent liabilities 7,739
7,054
Total lease liabilities $ 199,808
$ 174,207

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Three Months Ended June 30, Six Months Ended June 30,
Lease Cost 2019 2018 2019 2018
Operating lease expense $ 11,695
$ 11,145
$ 23,786
$ 23,422
Finance lease expense
Amortization of leased assets 811
640
1,691
1,242
Interest on lease liabilities 176
125
348
243
Variable lease expense 7,988
7,952
13,852
13,094
Sublease income (679 ) (203 ) (1,345 ) (452 )
Total expense $ 19,991
$ 19,659
$ 38,332
$ 37,549

~~Operating lease expense includes immaterial amounts related to leases~~fourth quarter with terms ~~of 12 months or less.~~

Future Lease Payments Operating Leases Finance Leases Total
Remaining for year ending December 31, 2019 $ 22,257
$ 1,803
$ 24,060
Year ending December 31, 2020 42,878
3,105
45,983
Year ending December 31, 2021 35,937
2,712
38,649
Year ending December 31, 2022 27,637
2,162
29,799
Year ending December 31, 2023 21,032
1,518
22,550
Thereafter 89,177
813
89,990
Total 238,918
12,113
251,031
Less: present value discount 49,658
1,565
51,223
Lease liability $ 189,260
$ 10,548
$ 199,808

~~Operating leases exclude $28 million of minimum~~ranging from seven to nine years. Aggregate lease payments for the three leases ~~signed but not yet commenced at June 30, 2019.~~will approximate $30 million.

Lease Term and Discount Rate June 30, 2019 December 31, 2018
Weighted-average remaining lease term
Operating leases 7.5 years 5.9 years
Finance leases 4.1 years 3.8 years
Weighted-average discount rate
Operating leases 5.8% 4.7%
Finance leases 6.6% 6.2%

Three Months Ended June 30, Six Months Ended June 30,
Cash Flow Information 2019 2018 2019 2018
Operating cash outflows - operating leases $ 11,073
$ 10,987
$ 22,870
$ 22,738
Operating cash outflows - finance leases $ 176
$ 125
$ 348
$ 243
Financing cash outflows - finance leases $ 775
$ 592
$ 1,520
$ 1,156

Leased assets obtained in exchange for new lease obligations
Operating leases $ 40,907
$ 3,998
$ 49,060
$ 6,994
Finance leases $ 430
$ 88
$ 2,103
$ 1,160

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~16.~~15. Stockholders’ Equity

~~Changes in stockholders’ equity for the three months ended June 30, 2019 and 2018 were as follows:~~

Preferred
stock

Preference
stock
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at April 1, 2019 $ 1
$ 388
$ 323,338
$ 109,166
$ 5,267,615
$ (918,072 ) $ (4,696,080 ) $ 86,356
Net income —
—
—
—
23,697
—
—
23,697
Other comprehensive income —
—
—
—
—
10,394
—
10,394
Dividends paid ($0.05 per common share) —
—
—
—
(8,938 ) —
—
(8,938 )
Issuance of common stock —
—
—
(3,807 ) —
—
4,024
217
Conversion to common stock —
(122 ) —
(2,389 ) —
—
2,511
—
Redemption of preferred/preference stock (1 ) (266 ) —
(10 ) —
—
—
(277 )
Stock-based compensation expense —
—
—
2,381
—
—
—
2,381
Repurchase of common stock —
—
—
—
—
—
(60,858 ) (60,858 )
Balance at June 30, 2019 $ —
$ —
$ 323,338
$ 105,341
$ 5,282,374
$ (907,678 ) $ (4,750,403 ) $ 52,972

Preferred
stock

Preference
stock
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at April 1, 2018 $ 1
$ 422
$ 323,338
$ 119,647
$ 5,087,090
$ (775,190 ) $ (4,692,394 ) $ 62,914
Net income —
—
—
—
51,595
—
—
51,595
Other comprehensive loss —
—
—
—
—
(36,614 ) —
(36,614 )
Dividends paid ($0.1875 per common share) —
—
—
—
(35,097 ) —
—
(35,097 )
Issuance of common stock —
—
—
(2,660 ) —
—
2,943
283
Conversion to common stock —
(7 ) —
(135 ) —
—
142
—
Stock-based compensation expense —
—
—
5,880
—
—
—
5,880
Balance at June 30, 2018 $ 1
$ 415
$ 323,338
$ 122,732
$ 5,103,588
$ (811,804 ) $ (4,689,309 ) $ 48,961

Changes in stockholders’ equity ~~for the six months ended June 30, 2019 and 2018~~ were as follows:



	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at April 1, 2020	$	323,338	$	69,553		$	5,200,024		$	(857,874	)	$	(4,705,611	)	$	29,430
Net loss	—		—			(3,329		)	—			—			(3,329		)
Other comprehensive income	—		—			—			21,612			—			21,612
Dividends paid ($0.05 per common share)	—		—			(8,576		)	—			—			(8,576		)
Issuance of common stock	—		(6,484		)	—			—			6,498			14
Stock-based compensation expense	—		5,429			—			—			—			5,429
Balance at June 30, 2020	$	323,338	$	68,498		$	5,188,119		$	(836,262	)	$	(4,699,113	)	$	44,580



	Preferred stock			Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at April 1, 2019	$	1		$	388		$	323,338	$	109,166		$	5,267,615		$	(917,978	)	$	(4,696,080	)	$	86,450
Net income	—			—			—		—			23,697			—			—			23,697
Other comprehensive income	—			—			—		—			—			10,300			—			10,300
Dividends paid ($0.05 per common share)	—			—			—		—			(8,938		)	—			—			(8,938		)
Issuance of common stock	—			—			—		(3,807		)	—			—			4,024			217
Conversion to common stock	—			(122		)	—		(2,389		)	—			—			2,511			—
Redemption of preferred/preference stock	(1		)	(266		)	—		(10		)	—			—			—			(277		)
Stock-based compensation expense	—			—			—		2,381			—			—			—			2,381
Repurchase of common stock	—			—			—		—			—			—			(60,858		)	(60,858		)
Balance at June 30, 2019	$	—		$	—		$	323,338	$	105,341		$	5,282,374		$	(907,678	)	$	(4,750,403	)	$	52,972

Preferred
stock

Preference
stock
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at January 1, 2019 $ 1
$ 396
$ 323,338
$ 121,475
$ 5,279,682
$ (948,961 ) $ (4,674,089 ) $ 101,842
Net income —
—
—
—
21,038
—
—
21,038
Other comprehensive income —
—
—
—
—
41,283
—
41,283
Dividends paid ($0.10 per common share) —
—
—
—
(18,346 ) —
—
(18,346 )
Issuance of common stock —
—
—
(22,731 ) —
—
20,998
(1,733 )
Conversion to common stock —
(130 ) —
(2,558 ) —
—
2,688
—
Redemption of preferred/preference stock (1 ) (266 ) —
(10 ) —
—
—
(277 )
Stock-based compensation expense —
—
—
9,165
—
—
—
9,165
Repurchase of common stock —
—
—
—
—
—
(100,000 ) (100,000 )
Balance at June 30, 2019 $ —
$ —
$ 323,338
$ 105,341
$ 5,282,374
$ (907,678 ) $ (4,750,403 ) $ 52,972



	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at January 1, 2020	$	323,338	$	98,748		$	5,438,930		$	(840,143	)	$	(4,734,777	)	$	286,096
Cumulative effect of accounting changes	—		—			(21,900		)	—			—			(21,900		)
Net loss	—		—			(211,812		)	—			—			(211,812		)
Other comprehensive income	—		—			—			3,881			—			3,881
Dividends paid ($0.10 per common share)	—		—			(17,099		)	—			—			(17,099		)
Issuance of common stock	—		(37,200		)	—			—			35,664			(1,536		)
Stock-based compensation expense	—		6,950			—			—			—			6,950
Balance at June 30, 2020	$	323,338	$	68,498		$	5,188,119		$	(836,262	)	$	(4,699,113	)	$	44,580

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 equity
Balance at January 1, 2018 $ 1
$ 441
$ 323,338
$ 138,367
$ 5,074,343
$ (794,940 ) $ (4,710,997 ) $ 30,553
Cumulative effect of accounting change —
—
—
—
(12,207 ) —
—
(12,207 )
Net income —
—
—
—
111,565
—
—
111,565
Other comprehensive loss —
—
—
—
—
(16,864 ) —
(16,864 )
Dividends paid ($0.375 per common share) —
—
—
—
(70,113 ) —
—
(70,113 )
Issuance of common stock —
—
—
(24,267 ) —
—
21,141
(3,126 )
Conversion to common stock —
(26 ) —
(521 ) —
—
547
—
Stock-based compensation expense —
—
—
9,153
—
—
—
9,153
Balance at June 30, 2018 $ 1
$ 415
$ 323,338
$ 122,732
$ 5,103,588
$ (811,804 ) $ (4,689,309 ) $ 48,961



	Preferred stock			Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at January 1, 2019	$	1		$	396		$	323,338	$	121,475		$	5,279,682		$	(948,961	)	$	(4,674,089	)	$	101,842
Net income	—			—			—		—			21,038			—			—			21,038
Other comprehensive income	—			—			—		—			—			41,283			—			41,283
Dividends paid ($0.10 per common share)	—			—			—		—			(18,346		)	—			—			(18,346		)
Issuance of common stock	—			—			—		(22,731		)	—			—			20,998			(1,733		)
Conversion to common stock	—			(130		)	—		(2,558		)	—			—			2,688			—
Redemption of preferred/preference stock	(1		)	(266		)	—		(10		)	—			—			—			(277		)
Stock-based compensation expense	—			—			—		9,165			—			—			—			9,165
Repurchase of common stock	—			—			—		—			—			—			(100,000		)	(100,000		)
Balance at June 30, 2019	$	—		$	—		$	323,338	$	105,341		$	5,282,374		$	(907,678	)	$	(4,750,403	)	$	52,972

~~17.~~16. Accumulated Other Comprehensive ~~Income~~Loss (AOCL)

Reclassifications out of ~~AOCI for the three and six months ended June 30, 2019 and 2018~~AOCL were as follows:


	Amount Reclassified from AOCI⁽¹⁾												Gain (Loss) Reclassified from AOCL
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
(Losses) gains on cash flow hedges
Cash flow hedges
Revenue	$	(36	)	$	79		$	75		$	76		$	(64	)	$	(36	)	$	(3	)	$	75
Cost of sales	29			(1		)	45			(85		)	32			29			42			45
Interest expense, net	—			(507		)	—			(1,014		)
Total before tax	(7		)	(429		)	120			(1,023		)	(32		)	(7		)	39			120
Income tax benefit (provision)	1			110			(31		)	261
Income tax (benefit) provision													(8		)	(1		)	10			31
Net of tax	$	(6	)	$	(319	)	$	89		$	(762	)	$	(24	)	$	(6	)	$	29		$	89

(Losses) gains on available for sale securities
Available-for-sale securities
Interest expense, net	$	(81	)	$	214		$	(104	)	$	190		$	3,233		$	(81	)	$	3,517		$	(104	)
Income tax benefit (provision)	21			(54		)	27			(48		)
Income tax provision (benefit)													805			(21		)	876			(27		)
Net of tax	$	(60	)	$	160		$	(77	)	$	142		$	2,428		$	(60	)	$	2,641		$	(77	)

Pension and Postretirement Benefit Plans ⁽²⁾
Pension and postretirement benefit plans
Transition credit	$	1		$	2		$	3		$	3		$	1		$	1		$	2		$	3
Prior service costs	(126		)	(55		)	(254		)	(109		)	(138		)	(126		)	(277		)	(254		)
Actuarial losses	(8,112		)	(10,379		)	(17,271		)	(21,302		)	(10,940		)	(8,112		)	(21,933		)	(17,271		)
Settlements	(1,198		)	—			(1,198		)	—
Settlement													(3,802		)	(1,198		)	(4,191		)	(1,198		)
Total before tax	(9,435		)	(10,432		)	(18,720		)	(21,408		)	(14,879		)	(9,435		)	(26,399		)	(18,720		)
Income tax benefit	2,124			2,564			4,773			5,368			(3,502		)	(2,124		)	(6,152		)	(4,773		)
Net of tax	$	(7,311	)	$	(7,868	)	$	(13,947	)	$	(16,040	)	$	(11,377	)	$	(7,311	)	$	(20,247	)	$	(13,947	)


⁽¹⁾	~~Amounts in parentheses indicate reductions to income and increases to other comprehensive income.~~


⁽²⁾	~~Reclassified from AOCI into other components of net pension and postretirement 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 months ended June 30, 2019 and 2018~~AOCL were as follows:

Cash flow hedges Available for sale securities Pension and postretirement benefit plans Foreign currency adjustments Total
Balance at January 1, 2019 $ 191
$ (3,061 ) $ (846,461 ) $ (99,630 ) $ (948,961 )
Other comprehensive income before reclassifications ⁽¹⁾
18
5,952
—
21,378
27,348
Reclassifications into earnings ^{(1), (2)}
(89 ) 77
13,947
—
13,935
Net other comprehensive income (71 ) 6,029
13,947
21,378
41,283
Balance at June 30, 2019 $ 120
$ 2,968
$ (832,514 ) $ (78,252 ) $ (907,678 )



	Cash flow hedges			Available for sale securities			Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2020	$	337		$	2,849		$	(819,018	)	$	(24,311	)	$	(840,143	)
Other comprehensive (loss) income before reclassifications ⁽¹⁾	(1,416		)	5,356			—			(17,636		)	(13,696		)
(Gain) loss reclassified into earnings ⁽¹⁾	(29		)	(2,641		)	20,247			—			17,577
Net other comprehensive (loss) income	(1,445		)	2,715			20,247			(17,636		)	3,881
Balance at June 30, 2020	$	(1,108	)	$	5,564		$	(798,771	)	$	(41,947	)	$	(836,262	)

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 ) $ (47,331 ) $ (794,940 )
Other comprehensive income (loss) before reclassifications ⁽¹⁾
(511 ) (5,154 ) —
(27,859 ) (33,524 )
Reclassifications into earnings ^{(1), (2)}
762
(142 ) 16,040
—
16,660
Net other comprehensive income (loss) 251
(5,296 ) 16,040
(27,859 ) (16,864 )
Balance at June 30, 2018 $ (155 ) $ (3,699 ) $ (732,760 ) $ (75,190 ) $ (811,804 )



	Cash flow hedges			Available for sale securities			Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2019	$	191		$	(3,061	)	$	(846,461	)	$	(99,630	)	$	(948,961	)
Other comprehensive income before reclassifications ⁽¹⁾	18			5,952			—			21,378			27,348
(Gain) loss reclassified into earnings ⁽¹⁾	(89		)	77			13,947			—			13,935
Net other comprehensive (loss) income	(71		)	6,029			13,947			21,378			41,283
Balance at June 30, 2019	$	120		$	2,968		$	(832,514	)	$	(78,252	)	$	(907,678	)

⁽¹⁾ Amounts are net of tax. ~~Amounts in parentheses indicate debits to AOCI.~~

⁽²⁾ ~~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 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) 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, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. ~~Factors~~In particular, the uncertainty around the severity, magnitude and duration of the COVID-19 pandemic (COVID-19), including governments' responses to COVID-19, its continuing impact on our operations, employees, the availability and cost of labor, global supply chain and demand across our and our clients' businesses, as well as any deterioration or instability in global macroeconomic conditions, could cause our actual results to differ than those expressed in any forward-looking statement. Other factors which could cause future financial performance to differ materially from the expectations, ~~as expressed~~and which may also be exacerbated by COVID-19 or a negative change in ~~any forward-looking statement made by or on our behalf~~the economy, include, without limitation:

declining physical mail volumes

changes in postal regulations, or the financial health of posts, in the U.S. or other major markets or the loss of, or significant changes to, our contractual ~~relationships~~relationship with the ~~U.S.~~United States Postal Service (USPS)

expenses and potential impacts resulting from a breach of security, including cyber-attacks or ~~posts~~other comparable events

our ability to continue to grow volumes, gain additional economies of scale and improve profitability within our Commerce Services group

the loss of some of our larger clients in ~~other major markets~~our Commerce Services group

our success at managing customer credit risk

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

changes in ~~postal regulations~~labor conditions and transportation costs

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

our success in developing and marketing new products and services and obtaining regulatory approvals, if required

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

~~the United Kingdom's potential exit from the European Union (Brexit)~~

~~our success in developing and marketing new products and services and obtaining regulatory approvals, if required~~

~~changes in banking regulations or the loss of our Industrial Bank charter~~

~~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~~

~~changes in global political conditions and international trade policies, including the imposition or expansion of trade 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~~changes in global political conditions and international trade policies, including the imposition or expansion of ~~security, including a cyber-attack or other comparable event~~

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

our success at managing ~~the~~ relationships and costs with outsource providers ~~including the costs~~ of ~~outsourcing~~certain functions and operations

~~capital market disruptions~~changes in banking regulations or ~~credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs~~

~~our success at managing customer credit risk~~

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

~~our ability to continue to grow volumes to gain additional economies of scale~~

the loss of ~~some of~~ our ~~larger clients~~Industrial Bank charter or changes in ~~our Commerce Services group~~foreign currency exchange rates and interest rates

the United Kingdom's exit from the European Union

intellectual property infringement claims


•	~~significant changes in pension, health care and retiree medical costs~~

~~income tax adjustments or other regulatory levies from tax audits and changes in tax laws, rulings or regulations~~

the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks

acts of nature

Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in our 2019 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q.

Overview

~~Effective January 1, 2019, we adopted Accounting Standards Codification 842,~~ ~~Leases,~~ using the modified retrospective transition approach of applying the standard at the beginning of the earliest comparative period presented in the financial statements. Accordingly, prior period financial results have been recast (see Note 1).

We continue our transformation to higher growth markets that align with our focus on reducing the complexity of mailing and shipping. Commerce Services was the largest contributor of revenue and accounted for 48% of revenue for the current quarter compared to 42% from the prior year period.

In January 2019, we sold the direct operations and moved to a dealer model in six smaller markets within the International Mailing segment (Market Exits). We recorded a pre-tax loss on the sale of $18 million, primarily due to the write-off of cumulative translation adjustments.

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

2019 2018 Change
Revenue $ 860,779
$ 865,240
(1)%
Segment earnings before interest and taxes (EBIT) $ 126,626
$ 158,235
(20)%
Income from continuing operations $ 30,278
$ 50,387
(40)%
Diluted earnings per share - continuing operations $ 0.17
$ 0.27
(37)%

~~Revenue decreased 1% from the prior year period; however, this included a 2% unfavorable impact from Market Exits~~ and an additional 1% unfavorable impact from foreign currency. Software revenue declined 21% in the quarter due to a lower level of license renewals. Supplies revenue declined 16% due to a worldwide decline in our mailing business. Business services revenue increased 13% due to growth in Commerce Services, partially offsetting these declines.

Commerce Services revenue grew 13%, driven by growth of 18% in Global Ecommerce and 4% in Presort Services. Small and Medium Business (SMB) Solutions revenue declined 8%, with North America Mailing declining 5% and International Mailing declining 20%. Market Exits and currency adversely impacted International Mailing revenue by 12% and 5%, respectively. Software Solutions revenue declined 21%.

Segment EBIT declined 20% from the prior year period as Software Solutions EBIT declined 89%, primarily due to a lower level of license renewals. Within Commerce Services, Global Ecommerce reported an EBIT loss of $16 million compared to a loss of $6 million in the prior year, driven by a shift in the mix of business to faster growing, lower margin services and investments in market growth opportunities. Presort EBIT increased 23%, primarily due to higher volumes and revenue per piece improvement. SMB EBIT declined 6% due to the decline in revenue and impact of Market Exits.

Income from continuing operations declined in the quarter, primarily due to a decline in gross margins and revenue. This decline was partially offset by lower operating expenses and a lower effective tax rate.

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

2019 2018 Change
Revenue $ 1,729,181
$ 1,761,823
(2)%
Segment earnings before interest and taxes (EBIT) $ 251,187
$ 324,632
(23)%
Income from continuing operations $ 28,849
$ 101,870
(72)%
Diluted earnings per share - continuing operations $ 0.16
$ 0.54
(70)%
Net cash provided by operations $ 86,782
$ 154,493
(44)%



	Revenue
	Three Months Ended June 30,								Six Months Ended June 30,
	2020		2019		Actual % change		Constant Currency % Change		2020		2019		Actual % change		Constant Currency % change
Business services	$	528,990	$	417,963	27	%	27	%	$	973,369	$	824,508	18	%	18	%
Support services	113,786		127,705		(11	)%	(10	)%	235,801		256,304		(8	)%	(8	)%
Financing	85,462		92,419		(8	)%	(7	)%	174,540		189,462		(8	)%	(7	)%
Equipment sales	57,837		85,551		(32	)%	(32	)%	134,110		175,338		(24	)%	(23	)%
Supplies	32,773		46,490		(30	)%	(29	)%	78,482		97,443		(19	)%	(19	)%
Rentals	18,644		18,445		1	%	2	%	37,458		40,602		(8	)%	(7	)%
Total revenue	$	837,492	$	788,573	6	%	7	%	$	1,633,760	$	1,583,657	3	%	3	%



	Revenue
	Three Months Ended June 30,								Six Months Ended June 30,
	2020		2019		Actual % change		Constant currency % change		2020		2019		Actual % change		Constant currency % change
Global Ecommerce	$	398,453	$	282,319	41	%	41	%	$	690,776	$	548,573	26	%	26	%
Presort Services	118,127		128,138		(8	)%	(8	)%	258,847		262,985		(2	)%	(2	)%
Commerce Services	516,580		410,457		26	%	26	%	949,623		811,558		17	%	17	%
SendTech Solutions	320,912		378,116		(15	)%	(15	)%	684,137		772,099		(11	)%	(11	)%
Total	$	837,492	$	788,573	6	%	7	%	$	1,633,760	$	1,583,657	3	%	3	%



	EBIT
	Three Months Ended June 30,								Six Months Ended June 30,
	2020			2019			% change		2020			2019			% change
Global Ecommerce	$	(18,894	)	$	(15,576	)	(21	)%	$	(48,369	)	$	(30,176	)	(60	)%
Presort Services	12,582			15,462			(19	)%	28,277			30,528			(7	)%
Commerce Services	(6,312		)	(114		)	>(100%)		(20,092		)	352			>(100%)
SendTech Solutions	104,268			124,738			(16	)%	210,830			247,141			(15	)%
Total Segment EBIT	$	97,956		$	124,624		(21	)%	$	190,738		$	247,493		(23	)%

~~For~~Revenue increased 6% as reported and 7% at constant currency for the ~~year-to-date period, revenue decreased 2% from~~quarter compared to the prior ~~year period, primarily due to unfavorable impacts of 1% from each of currency and Market Exits.~~year. Business services revenue increased 9%27% driven by significantly higher volumes in our Global Ecommerce business, which more than offset double digit declines in equipment sales, supplies and support services driven in part by the continuing impacts of COVID-19. In our business segments, Global Ecommerce revenue grew 41% due to ~~growth~~increased volumes, Presort Services revenue declined 8% due to lower First Class and Marketing Mail volumes and SendTech Solutions revenue declined 15%, primarily due to lower equipment sales and supplies revenue. Segment EBIT decreased 21%, primarily due to lower revenue in ~~Commerce Services; however, this increase~~SendTech Solutions, higher credit losses in Global Ecommerce and increased costs attributed to COVID-19.

Revenue increased 3% for the first half of 2020 compared to the prior year. Business services revenue increased 18% due to higher Global Ecommerce volumes but was ~~more than~~partially offset by declines in ~~all~~ other revenue ~~lines~~line items. In our business segments, Global Ecommerce revenue grew 26% due to ~~declines in our mailing business and lower software license revenue.~~

~~Commerce~~increased volumes, Presort Services revenue ~~grew 9%~~declined 2% and SendTech Solutions revenue declined 11%. Segment EBIT decreased 23%, ~~driven by growth~~primarily due to lower revenue in SendTech Solutions, higher credit losses and the mix of ~~13%~~business in Global Ecommerce and 2%increased costs attributed to COVID-19. Refer to Results of Operations section for further information.

Commerce Services EBIT margins in ~~Presort Services. SMB Solutions revenue declined 9%, with North America Mailing declining 6%~~the quarter and ~~International Mailing declining 20%. Market Exits and currency~~year-to-date periods were adversely impacted ~~International Mailing revenue~~ by ~~10%~~increased labor and ~~5%, respectively. Software Solutions revenue declined 13%.~~postal costs at Global Ecommerce due to the sudden and significant increase in volumes, higher credit losses at Global Ecommerce, lower volumes at Presort Services and increased costs and reduced productivity driven by COVID-19. However, the Global Ecommerce EBIT margin

~~Segment EBIT declined 23%~~in the second quarter was improved from the first quarter 2020 and prior year ~~period. Within Commerce Services, Global Ecommerce reported an~~period reflecting scale-related benefits in per unit transportation and warehousing costs. SendTech Solutions EBIT ~~loss of $30 million compared to a loss of $14 million~~margins in the ~~prior year,~~quarter and Presort Services EBIT declined 23%. The decline in Global Ecommerce was driven by a shift in the mix of business to faster growing, lower margin services, investments in market growth opportunities and higher labor, transportation and postal costs. The decline in Presort Services was primarily due to higher labor and transportation costs and lower revenue per piece. SMB EBIT declined 11% due to the decline in revenue, increased tariff costs and a charge related to a SendPro C tablet replacement program to address an underlying battery longevity issue. Software Solutions EBIT declined 82% due to the decline in revenue.

~~Income from continuing operations for the first six months of 2019 declined~~year-to-date periods were relatively unchanged compared to the prior year ~~period,~~periods despite double-digit declines in revenue, primarily due to lower ~~margins~~operating expenses from cost savings initiatives.

Second Quarter Highlights

We drew down $100 million under our revolving credit facility as a precautionary measure and ~~revenue~~invested these proceeds in highly liquid, short-term investments.

We surrendered certain company owned life insurance (COLI) policies and sold our interest in an equity investment for aggregate proceeds of $58 million. We recognized a gain of $12 million on the sale of the equity investment and while the surrender of the COLI policies did not result in a pre-tax gain or loss, the surrender resulted in a $12 million tax charge.

We also received insurance proceeds of ~~$18~~$5 million related to the October 2019 malware attack that temporarily disrupted customer access to some services.

In May 2020, we were affected by a Maze ransomware attack. Although the Maze attackers were able to exfiltrate a small amount of our confidential data, working with our third-party security consultants, we were able to successfully thwart the attack before any of our operations could be disrupted or any data encrypted. The attempted attack did not have any impact on our financial results, and we satisfied all regulatory obligations arising out of the attack.

Impacts of COVID-19

The global spread of COVID-19 and the efforts to contain it adversely affected the U.S. and international economies, impacting demand for a broad variety of goods and services, creating disruptions and shortages in global supply chains and causing significant volatility in financial markets. Our employees worldwide that have the ability to work remotely are doing so. Our facilities continue to operate, and many employees continue to report to work at these facilities. We have implemented additional measures to protect the health and safety of our employees and contractors, including staggering shifts and breaks to enhance social distancing, providing personal protection equipment, conducting temperature checks and sanitizing equipment and facilities multiple times a day.

COVID-19 has impacted our financial results in different ways in each of our businesses. In Global Ecommerce, we saw significantly higher volumes in the quarter due to the demand for ecommerce solutions in the current environment. In Presort Services, First Class and Marketing Mail volumes have declined due to lower market demand and changing client behaviors in the current environment. As a result of the additional health and safety measures implemented in all our Commerce Services facilities, we have incurred, and will continue to incur, additional costs and reduced productivity.

In SendTech Solutions, the global shut-down of businesses and increase in the number of clients working remotely significantly adversely impacted demand for and usage of our mailing equipment and supplies, as well as our ability to contact and service clients and perform on-site installations. Despite the negative impacts of COVID-19, we saw improving trends in equipment sales and supplies revenues as we exited the quarter. Also, as businesses continue to operate remotely, we are seeing improvement in our cloud-enabled shipping and mailing solutions.

In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed into law in response to market volatility and instability resulting from ~~Market Exits.~~

COVID-19. The CARES Act includes provisions relating to the deferment of the employer portion of certain payroll taxes, net operating loss carryback periods and modifications to the net interest deduction limitations. We continue to assess the impact of these provisions; which we believe could affect the timing of certain cash payments but not materially impact our financial position or results of operations.

Outlook

WeThe severity, duration and governmental responses of COVID-19 are ~~taking actions that~~uncertain, and we ~~expect~~are not able to reasonably estimate the full extent of the impact on our operating results, liquidity, cash flows or financial position for the remainder of the year. As COVID-19 continues to affect global economies and how businesses operate, we will ~~set the foundation to drive long-term value, including new client value offerings and spend optimization. We expect revenue to~~ continue to ~~grow as we transform~~take proactive measures to protect the health and safety of our ~~portfolio~~employees, clients, partners and suppliers. These additional safety measures will result in additional expenses and reduced productivity. Corporate and local management will continue to ~~growth markets.~~assess conditions to determine when, or how, employees currently working remotely should return to office locations.

Our Commerce Services businesses are more demand-driven and it is difficult to predict how demand and volumes will trend and the impact to productivity throughout the duration of COVID-19. Within Global Ecommerce, ~~we expect continued revenue growth from our investments in the expansion of our~~ domestic parcel ~~business and domestic shipping solutions. We anticipate higher shipping~~delivery volumes ~~during the second half of 2019 as we enter the holiday season. We expect revenue and EBIT growth in Presort Services~~have increased significantly due to ~~higher volumes, improving margins and operational efficiencies.~~

~~In SMB Solutions,~~a global market shift to ecommerce solutions. While we ~~expect continued declines in revenue due to lower mail volumes, lower lease opportunities and a declining meter population. However, we expect~~cannot predict the magnitude of volume increases, we expect

this shift to continue throughout the ~~decline to be mitigated by~~remainder of the ~~introduction of~~year. We signed on over 100 new ~~services and products, the continued success of our SendPro C product in North America, planned launches in several international markets and by identifying opportunities through natural adjacencies~~clients in the ~~business. EBIT~~second quarter and ~~equipment sales margins have been impacted by trade tariffs, and we expect~~volumes from these ~~tariffs to continue to adversely impact the SMB business in~~clients will benefit the second half of the year.

We Cross-border volumes are ~~now offering expanded third-party equipment financing alternatives, primarily~~still experiencing declines and we expect this to ~~our existing SMB clients~~continue as long as there are restrictions on international shipments. The sudden and significant increase in volumes resulted in higher labor and postal costs in the ~~United States, to finance or lease other manufacturers' equipment to meet their business needs. We expect that cash flows will be negatively impacted during the year~~second quarter as we ~~invest~~needed to react quickly to process and deliver these parcels. However, the higher volumes resulted in ~~the origination of third-party equipment leases~~scale-related benefits in per unit transportation and ~~build a finance receivable portfolio.~~

Within Software Solutions, we expect continued benefits from our partner channel. We expect revenue growth will be driven by a combination of sales opportunities from customer information, location intelligence, data and customer engagement.

warehousing costs. We expect continued ~~progress~~improvements in ~~our efforts~~per unit transportation and warehousing costs as volumes increase and improvements in per unit labor costs as the business sizes itself to handle the higher volumes.

In Presort Services, approximately 80% of mail volumes processed are First Class Mail with the remaining 20% primarily Marketing Mail. There were declines in mail volumes from the onset of COVID-19; however, these volume declines started to moderate as we exited the second quarter. For the remainder of the year, we expect volumes of First Class Mail and Marketing Mail to be lower compared to the prior year. As businesses begin to re-open and clients return to their normal behaviors, we expect volumes to improve ~~productivity~~from current levels; however, the timing and ~~reduce spend. Over~~magnitude of this improvement would be contingent on the ~~last five years,~~severity and duration of COVID-19. While currently a small part of total volumes, volumes in Marketing Mail Flats and Bound Printed Matter grew over 30% in the second quarter and we ~~have transformed~~anticipate these volumes will continue to grow throughout the remainder of the year.

Within SendTech Solutions, approximately two-thirds of revenue is recurring in nature and materially contributes to our cash flows. Nonrecurring revenues, primarily equipment sales and to a more digital operating model and have reduced our cost structure. In 2017, we announced our intention to reduce gross spend by $200 million over a 24-month period. We achieved over $150 million of this target in 2018 and expect to recognize the remainder in 2019. A large portion of these gross savings has been, andlesser extent, supplies, will continue to be ~~reinvested~~adversely impacted by COVID-19 due to declining demand and usage. We are unable to predict the duration and magnitude of these declines or determine when, or if, demand and usage will return to normal levels; however, we would expect to see improving trends as more businesses start to re-open. As a result of clients working remotely and the necessity of alternate solutions, we saw an improvement in our cloud-enabled shipping and mailing solutions during the ~~business, particularly~~second quarter and expect this shift in ~~Commerce Services~~market preference to continue as clients realize the value of our digital capabilities. We continue to monitor cash collections from our recurring revenue streams. There was an increase in delinquency rates during the second quarter that was in-line with our expectations, but we are starting to see an improvement in delinquency rates and positive changes in customer payment behaviors. There are no assurances that this improvement in delinquency rates and payment behaviors will continue, or that the impacts of COVID-19 will not result in higher client bankruptcies or account write-offs.

Before the onset of COVID-19 and the resulting economic decline, we had taken steps to reduce and refinance debt, improve liquidity and strengthen our ~~third-party equipment financing initiative.~~balance sheet that we believe will enable us to manage through the current economic downturn. We are taking further actions to manage cash flows and maintain liquidity, including, but not limited to, prioritizing our capital expenditures to essential and necessary investments and reducing targeted loan originations at Wheeler Financial. We estimate that these actions alone will benefit annual cash flows by approximately $75 million. Refer to the Liquidity and Capital Resources section for further information.

RESULTS OF OPERATIONS

~~Revenue by source~~In our Results of Operations discussion, we present and ~~the related~~discuss revenue and cost of revenue at the segment level since our revenue and related costs of revenue sources are ~~shown~~predominantly specific to the segments. Operating and other expenses are presented and discussed on a consolidated basis as this basis provides a better understanding of the underlying drivers of change in ~~the following tables:~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 Actual % change Constant Currency % change 2019 2018 Actual % change Constant currency % change
Equipment sales $ 85,551
$ 93,811
(9 )% (7 )% $ 175,338
$ 200,519
(13 )% (11 )%
Supplies 46,490
55,457
(16 )% (15 )% 97,443
115,450
(16 )% (14 )%
Software 72,206
91,703
(21 )% (20 )% 145,524
167,997
(13 )% (11 )%
Rentals 18,445
19,454
(5 )% (4 )% 40,602
44,419
(9 )% (7 )%
Financing 92,419
97,129
(5 )% (4 )% 189,462
197,478
(4 )% (3 )%
Support services 127,683
138,598
(8 )% (7 )% 256,304
279,248
(8 )% (7 )%
Business services 417,985
369,088
13 % 14 % 824,508
756,712
9 % 9 %
Total revenue $ 860,779
$ 865,240
(1 )% — % $ 1,729,181
$ 1,761,823
(2 )% (1 )%

Three Months Ended June 30, Six Months Ended June 30,
Percentage of Revenue Percentage of Revenue
2019 2018 2019 2018 2019 2018 2019 2018
Cost of equipment sales $ 58,570
$ 58,948
68.5 % 62.8 % $ 122,235
$ 121,417
69.7 % 60.6 %
Cost of supplies 11,758
15,738
25.3 % 28.4 % 25,308
32,685
26.0 % 28.3 %
Cost of software 23,419
26,957
32.4 % 29.4 % 46,802
51,086
32.2 % 30.4 %
Cost of rentals 8,418
8,464
45.6 % 43.5 % 18,133
21,212
44.7 % 47.8 %
Financing interest expense 11,043
11,194
11.9 % 11.5 % 22,407
22,258
11.8 % 11.3 %
Cost of support services 40,448
42,306
31.7 % 30.5 % 82,227
88,371
32.1 % 31.6 %
Cost of business services 337,918
290,567
80.8 % 78.7 % 664,964
584,946
80.6 % 77.3 %
Total cost of revenue $ 491,574
$ 454,174
57.1 % 52.5 % $ 982,076
$ 921,975
56.8 % 52.3 %

~~Revenue - 2019 compared~~these expense line items or they are not allocated to ~~2018~~a specific segment.

In ~~this~~our revenue discussion, we may refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates since the prior period under comparison. We believe that excluding the impacts of currency exchange rates provides a better understanding of the underlying revenue performance. Constant currency change is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’s exchange rate. Where constant currency measures are not provided, the actual change and constant currency change are the same.

~~Equipment sales~~Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges, goodwill impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.

REVENUE AND SEGMENT EBIT

Global Ecommerce

Global Ecommerce includes the revenue and related expenses from products and services that enable domestic and cross-border ecommerce transactions, including shipping, fulfillment and returns.



	Revenue										Cost of Revenue				Gross Margin
	Three Months Ended June 30,										Three Months Ended June 30,				Three Months Ended June 30,
	2020			2019			Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	398,453		$	282,319		41	%	41	%	$	355,861	$	238,854	10.7	%	15.4	%

	Segment EBIT
	Three Months Ended June 30,
	2020			2019			Actual % change
Segment EBIT	$	(18,894	)	$	(15,576	)	(21	)%

Global Ecommerce revenue increased 41% in the second quarter of 2020 due to significant growth in domestic parcel delivery volumes driven in part, by the market shift to ecommerce solutions as a result of COVID-19, and higher digital domestic and fulfillment services volumes. This volume growth contributed revenue growth of 47%, while a decline in domestic returns and cross-border volumes contributed a 6% decline in revenue.

Gross margin decreased ~~9% as reported and 7% at constant currency. Equipment sales~~to 10.7% from 15.4% in ~~North America Mailing accounted for 5% of~~ the ~~decrease,~~prior year primarily due to ~~lower sales~~higher labor, postage and other incremental costs driven by COVID-19.

Segment EBIT for the second quarter of ~~our bottom-of-the-line products. International Mailing equipment sales accounted for 2%~~2020 was a loss of $19 million compared to a loss of $16 million in the ~~decline, mainly~~prior year period. The increased loss was primarily driven by incremental costs associated with COVID-19 including higher credit loss expense of $6 million, higher labor and postal costs of $3 million due to ~~Market Exits.~~the rapid increase in volumes and incremental costs of $1 million related to sanitizing and safety measures. Segment EBIT margin of (4.7)% improved from the prior year period reflecting scale-related benefits in transportation and warehouse costs offset by increased labor and postal costs driven by COVID-19.

~~Equipment sales~~



	Revenue										Cost of Revenue				Gross Margin
	Six Months Ended June 30,										Six Months Ended June 30,				Six Months Ended June 30,
	2020			2019			Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	690,776		$	548,573		26	%	26	%	$	621,082	$	461,312	10.1	%	15.9	%

	Segment EBIT
	Six Months Ended June 30,
	2020			2019			Actual % change
Segment EBIT	$	(48,369	)	$	(30,176	)	(60	)%

Global Ecommerce revenue increased 26% in the first half of ~~2019~~2020 with higher domestic parcel delivery volumes driven in part, by the market shift to ecommerce solutions as a result of COVID-19, and higher digital domestic and fulfillment services volumes contributing revenue growth of 30%, partially offset by domestic returns volumes contributing a revenue decline of 4%.

Gross margin decreased ~~13% as reported and 11% at constant currency. Equipment sales~~to 10.1% from 15.9% in ~~North America Mailing accounted for 8% of~~ the ~~decrease~~prior year primarily due to ~~lower sales of our bottom-of-the-line products. International Mailing equipment sales accounted for 3% of the decline mainly due to Market Exits.~~

~~Supplies revenue decreased 16% as reported~~a shift in the ~~quarter~~mix of business and ~~first half of 2019. At constant currency, supplies decreased 15% in the quarter and 14% in~~incremental costs driven by COVID-19.

Segment EBIT for the first half of ~~2019. Market Exits accounted for 5% and 4%~~2020 was a loss of ~~the decline in the quarter and year-to-date periods, respectively, and the remainder of the decline was due~~$48 million compared to a ~~worldwide decline in our mailing business.~~

Software revenue decreased 21% as reported and 20% at constant currency in the quarter, primarily due to lower license revenue partially offset by higher data updates revenue. Software revenue decreased 13% as reported and 11% at constant currency in the first halfloss of ~~2019, primarily due to lower license revenue, as the prior year period benefited from a large Location Intelligence deal, partially offset by higher data updates and SaaS revenue.~~

Rentals revenue declined 5% as reported and 4% at constant currency in the quarter and decreased 9% as reported and 7% at constant currency in the first half of 2019, primarily due to a worldwide decline in our meter population.

Financing revenue decreased 5% as reported and 4% at constant currency in the quarter, and decreased 4% as reported and 3% at constant currency in the first half of 2019, primarily due to a declining portfolio. Market Exits accounted for 1% of the decline in the quarter and year-to-date periods, respectively.

~~Support services revenue decreased 8% as reported and 7% at constant currency in both the quarter and first half of 2019, primarily due to a worldwide decline in our meter population.~~

Business services revenue increased 13% as reported and 14% at constant currency in the quarter and increased 9% in the first half of 2019, primarily due to growth in domestic parcel and shipping solutions volumes, partially offset by lower cross border volumes.

~~Cost of Revenue - 2019 compared to 2018~~

~~Cost of revenue as a percent of revenue in the quarter increased to 57.1% from 52.5%~~$30 million in the prior year period. ~~Cost~~The increased loss was primarily driven by higher credit loss expense of ~~equipment sales as a percent~~$8 million, higher labor and postal costs, incremental costs related to sanitizing and safety measures, the shift in the mix of ~~equipment~~business and incremental costs associated with new facilities that opened during the fourth quarter of 2019.

Presort Services

Presort Services includes revenue ~~increased~~and related expenses from sortation services to ~~68.5% from 62.8%. During~~qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.



	Revenue								Cost of Revenue				Gross Margin
	Three Months Ended June 30,								Three Months Ended June 30,				Three Months Ended June 30,
	2020		2019		Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	118,127	$	128,138	(8	)%	(8	)%	$	93,542	$	97,040	20.8	%	24.3	%

	Segment EBIT
	Three Months Ended June 30,
	2020		2019		Actual % change
Segment EBIT	$	12,582	$	15,462	(19	)%

Presort Services revenue decreased 8% in the second quarter ~~higher tariffs impacted equipment sales margins by 2 percentage points and higher engineering costs impacted equipment sales margins by 1 percentage point. The remaining decline was mainly~~of 2020 compared to the prior year period due to ~~product mix. Cost~~a reduction in volumes. Volumes decreased in the second quarter compared to the prior year primarily due to lower Marketing Mail and First Class Mail, driven by COVID-19, partially offset by higher volumes of ~~software as a percent~~Marketing Mail Flats and Bound Printed Matter. Revenue declined 11% due to lower organic volumes but benefited 3% from acquisitions.

Gross margin decreased to 20.8% from 24.3% and segment EBIT declined 19% in the second quarter of ~~software revenue increased to 32.4% from 29.4%,~~2020. The decrease in gross margin was primarily due to the decline in ~~license revenue. Cost of rentals as a percent of rentals~~ revenue and increased ~~to 45.6% from 43.5%, primarily~~costs associated with COVID-19, including $2 million for sanitizing and safety measures and quarantine payments. The increased costs were partially offset by improvements in transportation due to ongoing productivity initiatives. Segment EBIT includes $3 million from insurance proceeds related to the ~~decline~~malware attack in ~~revenue.~~late 2019. Segment EBIT margin of 10.7% was down 1 percentage point from the prior year period largely driven by reduced volumes and increased labor costs driven by COVID-19.

~~Cost of~~



	Revenue								Cost of Revenue				Gross Margin
	Six Months Ended June 30,								Six Months Ended June 30,				Six Months Ended June 30,
	2020		2019		Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	258,847	$	262,985	(2	)%	(2	)%	$	198,781	$	199,002	23.2	%	24.3	%

	Segment EBIT
	Six Months Ended June 30,
	2020		2019		Actual % change
Segment EBIT	$	28,277	$	30,528	(7	)%

Presort Services revenue ~~as a percent of revenue~~decreased 2% in the first half of ~~2019 increased~~2020 compared to ~~56.8% from 52.3% in~~ the prior year ~~period. Cost~~period due to lower volumes of ~~equipment sales as a percent of equipment revenue increased~~Marketing Mail and First Class Mail, driven by COVID-19. Revenue declined 5% due to ~~69.7%~~lower organic volumes but benefited 3% from ~~60.6%. In~~acquisitions.

Gross margin decreased to 23.2% from 24.3% and segment EBIT declined $2 million, or 7%, in the first ~~quarter, we recorded~~half of 2020. Gross margins were adversely impacted by lower revenue and the incremental costs associated with COVID-19. The decline in segment EBIT was driven by lower revenue and a $2 million charge for losses on certain investment securities driven by market conditions, partially offset by $3 million of insurance proceeds related to the malware attack in late 2019.

SendTech Solutions

SendTech Solutions includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.



	Revenue								Cost of Revenue				Gross Margin
	Three Months Ended June 30,								Three Months Ended June 30,				Three Months Ended June 30,
	2020		2019		Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	12,410	$	7,506	65	%	68	%	$	4,856	$	1,803	60.9	%	76.0	%
Support services	113,786		127,705		(11	)%	(10	)%	36,196		40,637		68.2	%	68.2	%
Financing	85,462		92,419		(8	)%	(7	)%	11,939		11,043		86.0	%	88.1	%
Equipment sales	57,837		85,551		(32	)%	(32	)%	47,866		58,486		17.2	%	31.6	%
Supplies	32,773		46,490		(30	)%	(29	)%	8,377		11,758		74.4	%	74.7	%
Rentals	18,644		18,445		1	%	2	%	6,021		8,418		67.7	%	54.4	%
Total revenue	$	320,912	$	378,116	(15	)%	(15	)%	$	115,255	$	132,145	64.1	%	65.1	%

	Segment EBIT
	Three Months Ended June 30,
	2020		2019		Actual % change
Segment EBIT	$	104,268	$	124,738	(16	)%

SendTech Solutions revenue decreased 15% in the second quarter of 2020 compared to the prior year. Equipment sales and supplies decreased 32% and 29% at constant currency, respectively, as the impacts of COVID-19 impacted our ability to contact and service clients and perform on-site installations and reduced usage and demand for supplies. Support services revenue decreased 10% at constant currency driven by a ~~SendPro C tablet replacement program to address an underlying battery longevity issue. This adversely impacted equipment sales margins~~declining meter population and financing revenue decreased 7% at constant currency primarily driven by five percentage points. In addition, the impact of tariffs reduced equipment sales margins one percentage point and higher engineering costs adversely impacted equipment sales margins by just under one percentage point. Costs of business services as a ~~percent of business~~declining lease portfolio. Business services revenue increased $5 million, or 68% at constant currency, primarily due to ~~80.6%~~an overall increase in our shipping offerings.

The total gross margin decreased 1 percentage point compared to the prior year. Business services gross margin decreased to 60.9% from ~~77.3%~~76.0% primarily driven by an increase in sales of lower margin solutions. Equipment sales gross margin decreased 14 percentage points

to 17.2%, primarily due to lower revenue and the mix of product sales due to delays in scheduling and performing on-site installations of our higher ~~labor, transportation and postal~~end products. Rentals gross margin increased to 67.7% from 54.4% primarily due to lower scrap costs.

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. The financing gross margin decreased to 86.0% from 88.1% compared to the prior year primarily due to a higher effective interest rate.

Segment EBIT decreased 16% in the second quarter of 2020 compared to the prior year, driven by the decline in revenue partially offset by lower expenses of $15 million from cost savings initiatives, including professional fees of $3 million, marketing and advertising costs of $3 million, travel related expenses of $2 million and research and development costs of $4 million. Segment EBIT margin of 32.5% was flat compared to the prior year period as lower costs offset the decline in revenue.



	Revenue								Cost of Revenue				Gross Margin
	Six Months Ended June 30,								Six Months Ended June 30,				Six Months Ended June 30,
	2020		2019		Actual % change		Constant Currency % change		2020		2019		2020		2019
Business services	$	23,746	$	12,950	83	%	86	%	$	9,042	$	3,992	61.9	%	69.2	%
Support services	235,801		256,304		(8	)%	(8	)%	75,823		82,400		67.8	%	67.9	%
Financing	174,540		189,462		(8	)%	(7	)%	24,428		22,407		86.0	%	88.2	%
Equipment sales	134,110		175,338		(24	)%	(23	)%	105,214		121,893		21.5	%	30.5	%
Supplies	78,482		97,443		(19	)%	(19	)%	20,619		25,308		73.7	%	74.0	%
Rentals	37,458		40,602		(8	)%	(7	)%	12,400		18,133		66.9	%	55.3	%
Total revenue	$	684,137	$	772,099	(11	)%	(11	)%	$	247,526	$	274,133	63.8	%	64.5	%

	Segment EBIT
	Six Months Ended June 30,
	2020		2019		Actual % change
Segment EBIT	$	210,830	$	247,141	(15	)%

SendTech Solutions revenue decreased 11% in the first half of 2020 compared to the prior year. Equipment sales and supplies decreased 23% and 19% at constant currency, respectively, as the impacts of COVID-19 impacted our ability to contact and service clients and perform on-site installations and reduced usage and demand for supplies. Financing revenue decreased 7% at constant currency, primarily driven by a declining lease portfolio. Support services and rentals revenue decreased 8% and 7% at constant currency, respectively, primarily driven by a declining meter population. Business services revenue increased $11 million, or 86% at constant currency, primarily due to an increase in our shipping offerings, including the SendPro Online product.

The total gross margin remained relatively flat compared to the prior year. Business services gross margin decreased to 61.9% from 69.2%, primarily driven by higher sales of lower margin solutions. Equipment sales gross margin decreased 9 percentage points to 21.5%, primarily due to lower revenue and the mix of product sales. Equipment sales margin in the prior year period was impacted by a $9 million charge related to a SendPro C tablet replacement program. Rentals gross margin increased to 66.9% from 55.3%, primarily due to lower scrap costs in the current year and a $2 million favorable inventory provision adjustment. Financing gross margin decreased to 86.0% from 88.2% compared to the prior year primarily due to a higher effective interest rate.

Segment EBIT decreased 15% in first half of 2020 compared to the prior year, primarily due to the decline in revenue and higher credit loss provision of $10 million due to the current economic recessionary conditions and outlook caused by COVID-19, partially offset by lower expenses of $33 million from cost savings initiatives, including lower professional fees of $8 million, lower research and development costs of $6 million and lower marketing expenses of $5 million.

CONSOLIDATED OPERATING AND OTHER EXPENSES

Selling, general and administrative (SG&A)

SG&A expense of ~~$279~~$234 million in the quarter decreased 3% compared to the prior period, primarily due to lower travel related expenses of $7 million as we imposed travel restrictions in response to COVID-19, lower professional fees of $5 million due to contract renegotiations and lower marketing expenses of $3 million, partially offset by higher credit loss provision of $8 million. SG&A expense of $482 million in the first half of 2020 decreased 4% compared to the prior period, primarily due to lower professional fees of $15 million, lower employee costs of $8 million and lower ~~bad debt expense~~travel related expenses of ~~$5 million. SG&A expense~~$7 million, partially offset by higher credit loss provision of ~~$580 million for the first half of 2019, decreased 2% compared to the prior period, primarily due to lower employee-related costs of $18 million and lower professional fees of $7~~$13 million.

Research and development (R&D)

R&D expense decreased 4%45%, or $6 million, in the second quarter of 2020 and 8%decreased 25%, or $7 million, in the first half of ~~2019,~~2020 primarily due to lower ~~spending in Global Ecommerce.~~project spending.

Restructuring charges and asset impairments ~~net~~

Restructuring charges and asset impairments ~~net in~~for the three months ended June 30, 2020 and 2019 were $5 million and $6 million, respectively, and restructuring charges and asset impairments for the six months ended June 30, 2020 and 2019 were ~~$7 million and $11 million, respectively. These charges consisted of $6~~$9 million and $10 million, respectively, of restructuring related charges and $1 million of asset impairment charges. Restructuring charges and asset impairments, net in the three and six months ended June 30, 2018 were $12 million and consisted of restructuring related charges.respectively. See Note 10 to the Condensed Consolidated Financial Statements for further information.

Goodwill impairment

We recorded a non-cash, pre-tax goodwill impairment charge of $198 million associated with our Global Ecommerce reporting unit in the first quarter of 2020. See Critical Accounting Estimates for further information.

Other (income) expense

Other (income) expense ~~represents~~for the three months ended June 30, 2020 includes a $12 million gain on the sale of an equity investment and insurance proceeds of $5 million related to the 2019 malware attack. Other (income) expense for the six months ended June 30, 2020 includes a $37 million loss on ~~Market Exits.~~the early extinguishment of debt, partially offset by the $12 million gain on the sale of an equity investment and $9 million of insurance proceeds related to the 2019 malware attack. Other (income) expense for the six months ended June 30, 2019 includes a loss of $18 million, primarily from the write-off of cumulative translation adjustments, in connection with the disposition of operations in certain international markets.

Income taxes

Provision for income taxes for the three and six months ended June 30, 2020 includes a tax charge of $12 million in connection with the surrender of company owned life insurance policies for which no pre-tax income or loss was recognized. The provision for income taxes for the six months ended June 30, 2020 also includes a benefit of $2 million on the $198 million goodwill impairment charge as most of this charge is nondeductible. See Note 13 to the Condensed Consolidated Financial Statements for further information.

Discontinued Operations

Loss from discontinued operations for the three months ended June 30, 2020 primarily includes a pension settlement charge related to the Software Solutions sale. Income from discontinued operations for the six months ended June 30, 2020 primarily includes the gain on the sale of the Australia software business, which closed in January 2020, and the pension settlement charge related to the Software Solutions sale. See Note 4 to the Condensed Consolidated Financial Statements for further information.

~~Business Segment Results~~

~~The principal products and services of each reportable segment are as follows:~~

~~Commerce Services:~~

~~Small & Medium Business (SMB) Solutions:~~

~~Software Solutions:~~

~~Includes the revenue and related expenses from customer engagement, customer information, location intelligence software and data.~~

Management uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides investors 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 not allocated to a particular business segment. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.

~~Segment information for the three and six months ended June 30, 2019 and 2018 is presented below:~~

Revenue
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 Actual % change Constant currency % change 2019 2018 Actual % change Constant currency % change
Global Ecommerce $ 282,319
$ 239,100
18 % 19 % $ 548,573
$ 485,690
13 % 14 %
Presort Services 128,138
122,730
4 % 4 % 262,985
257,188
2 % 2 %
Commerce Services 410,457
361,830
13 % 14 % 811,558
742,878
9 % 10 %
North America Mailing 303,417
318,901
(5 )% (5 )% 618,891
659,712
(6 )% (6 )%
International Mailing 74,699
92,806
(20 )% (15 )% 153,208
191,236
(20 )% (15 )%
SMB Solutions 378,116
411,707
(8 )% (7 )% 772,099
850,948
(9 )% (8 )%
Software Solutions 72,206
91,703
(21 )% (20 )% 145,524
167,997
(13 )% (11 )%
Total $ 860,779
$ 865,240
(1 )% — % $ 1,729,181
$ 1,761,823
(2 )% (1 )%

EBIT
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % change 2019 2018 % change
Global Ecommerce $ (15,576 ) $ (5,993 ) (160 )% $ (30,176 ) $ (13,704 ) (120 )%
Presort Services 15,462
12,565
23 % 30,528
39,591
(23 )%
Commerce Services (114 ) 6,572
(102 )% 352
25,887
(99 )%
North America Mailing 112,804
120,139
(6 )% 223,417
248,707
(10 )%
International Mailing 11,934
13,091
(9 )% 23,724
29,113
(19 )%
SMB Solutions 124,738
133,230
(6 )% 247,141
277,820
(11 )%
Software Solutions 2,002
18,433
(89 )% 3,694
20,925
(82 )%
Total Segment EBIT $ 126,626
$ 158,235
(20 )% $ 251,187
$ 324,632
(23 )%

~~Global Ecommerce~~

Global Ecommerce revenue increased 18% as reported and 19% at constant currency in the quarter and 13% as reported and 14% at constant currency in the first half of 2019 primarily due to growth in domestic parcel and shipping solutions volumes, partially offset by lower cross border volumes. EBIT for the quarter was a loss of $16 million compared to a loss of $6 million in the prior year and EBIT for the first half of 2019 was a loss of $30 million compared to a loss of $14 million in the prior year period. The higher loss was primarily driven by a decline in margins as the business continues to shift to faster growing, lower margin services plus continued investments in market growth opportunities, including marketing programs and new facilities, and higher labor costs. EBIT for the first half of the year was also impacted by higher postal costs in the first quarter due to a temporary delay in the approval of our Negotiated Service Agreement with the USPS.

~~Presort Services~~

Presort Services revenue increased 4% in the quarter. Higher volumes of mail processed contributed 2% of the increase, product mix contributed 1% of the increase and higher revenue per piece, primarily related to First Class mail, contributed an additional 1%. EBIT increased 23% in the quarter, primarily due to the increase in revenue and lower labor costs of $1 million, partially offset by higher consulting fees of $1 million.

Presort Services revenue increased 2% in the first half of 2019, primarily due to higher volumes of mail processed. EBIT decreased 23% in the first half of 2019, primarily due to higher transportation costs of $3 million, higher consulting fees of $3 million and higher bad debt expense of $2 million.

~~North America Mailing~~

~~North America Mailing revenue decreased 5% in the quarter, primarily due to:~~

~~2% from lower rentals and 1% from lower supplies due to a declining meter population;~~

~~1% from lower equipment sales primarily due to lower sales of our bottom-of-the-line products; and~~

~~1% from lower financing fees.~~

~~EBIT decreased 6% in the quarter, primarily due to the decline in revenue and increased costs from tariffs, partially offset by lower operating expenses of $8 million from cost savings initiatives.~~

~~North America Mailing revenue decreased 6% in the first half of 2019, primarily due to:~~

~~2% from lower rentals, 1% from supplies and 1% from support services, all due to a declining meter population; and~~

~~2% from lower equipment sales, primarily due to lower sales of our bottom-of-the-line products.~~

EBIT decreased 10% in first half of 2019, primarily due to the decline in revenue and lower margins from a charge in the first quarter related to a SendPro C tablet replacement program to address an underlying battery longevity issue and increased costs from tariffs, partially offset by lower operating expenses of $12 million from cost savings initiatives.

~~International Mailing~~

~~International Mailing revenue decreased 20% as reported and 15% at constant currency in the quarter primarily due to Market Exits and lower supplies revenue.~~

~~International Mailing revenue decreased 20% as reported and 15% at constant currency in the first half of 2019, primarily due to:~~

~~10% from Market Exits, and~~

~~2% from lower supplies, 1% from lower support services and 1% from lower business services due to a declining meter population.~~

~~EBIT decreased 9% in the quarter and 19% during the first half of 2019, primarily due to the decline in revenue, partially offset by lower costs due to cost savings initiatives.~~

~~Software Solutions~~

~~Software revenue decreased 21% as reported and 20% at constant currency in the quarter, primarily due to:~~

~~22% from lower license revenue, primarily related to the timing of new license deals and renewals; partially offset by~~

~~2% from higher data updates revenue.~~

~~Software revenue decreased 13% as reported and 11% at constant currency in the first half of 2019, primarily due to:~~

~~14% from lower license revenue and a prior year benefit from a large license deal; partially offset by~~

~~3% from higher data updates and SaaS revenue.~~

~~EBIT declined 89% in the quarter and 82% in the first half of 2019, primarily due to the decline in revenue.~~

LIQUIDITY AND CAPITAL RESOURCES

WeAt June 30, 2020, we had cash and cash equivalents and short-term investments of $1 billion, of which $182 million was held by our foreign subsidiaries. Cash held by our foreign subsidiaries is generally used to support the liquidity needs of those subsidiaries. Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our clients ability to pay their balances on a timely basis, the length and severity of COVID-19 and its impact on macroeconomic conditions and our ability to take further cost-savings and cash conservation measures if necessary. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity ~~through the capital markets~~under our $500 million revolving credit facility will be sufficient to ~~support~~fund 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~~ ~~$831 million~~ at ~~June 30, 2019~~ ~~and~~ ~~$927 million~~ at ~~December 31, 2018~~.for the next 12 months. 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 $165 million at June 30, 2019 and $189 million at December 31, 2018, and are generally used to support the liquidity needs of these subsidiaries.

Cash Flow Summary

Changes in cash and cash equivalents ~~for the six months ended June 30, 2019 and 2018~~ were as follows:


	2019			2018			Change			2020			2019			Change
Net cash provided by operating activities	$	86,782		$	154,493		$	(67,711	)	$	86,809		$	86,782		$	27
Net cash used in investing activities	(36,151		)	(80,785		)	44,634			(54,545		)	(36,151		)	(18,394		)
Net cash used in financing activities	(146,770		)	(379,818		)	233,048			(84,598		)	(146,770		)	62,172
Effect of exchange rate changes on cash and cash equivalents	(81		)	(13,041		)	12,960			(9,211		)	(81		)	(9,130		)
Change in cash and cash equivalents	$	(96,220	)	$	(319,151	)	$	222,931		$	(61,545	)	$	(96,220	)	$	34,675

Operating Activities

Cash provided by operating activities of $87 million in the first half of ~~2019 declined $68 million~~2020 was flat compared to the prior ~~year period.~~year. Cash flows from continuing operations ~~decreased $19~~increased $44 million, primarily due to ~~lower income from continuing operations of $73 million, partially offset by lower restructuring payments of $13 million, a non-cash loss on Market Exits of $18 million, and~~ working capital changes ~~of $22 million, primarily related to collection of accounts receivable and~~including the timing of payments of accounts ~~payable and accrued liabilities.~~payable. Cash flows from discontinued operations declined ~~$49 million as we sold~~due to taxes related to the ~~Production Mail Business in July 2018.~~

gain on the sale of our Software Solutions business.

Investing Activities

Cash used in investing activities in the first half of 2020 of $55 million includes $65 million of net investment activity and $60 million in capital expenditures, partially offset by $46 million in proceeds from the surrender of COLI policies, higher customer deposits at the PB Bank of $22 million and proceeds of $12 million from the sale of an equity investment. Cash used in investing activities in the first half of 2019 was $36 million, consisting primarily of capital expenditures of ~~$61~~$59 million and ~~a decline in reserve account balances~~lower customer deposits at the PB Bank of $8 million, partially offset by net proceeds of $47 million from investment activities.

Financing Activities

Cash used in ~~investing~~financing activities in the first half of ~~2018~~2020 was ~~$81~~$85 million, ~~consisting primarily~~and includes payments of ~~capital expenditures~~$33 million for premiums and fees associated with the early extinguishment of ~~$79 million.~~

~~Financing Activities~~

debt, net cash of $32 million used for debt activities, including $21 million of scheduled term loan repayments and $17 million of dividend payments. See Financings and Capitalization below for additional information. In the first half of 2019, cash used in financing activities included $100 million to repurchase 17.4 million shares of common stock, $25 million to repay term loan debt and $18 million of ~~common stock~~ dividend payments.

In the first half of 2018, cash was used to repay $260 million of debt and pay dividends of $70 million. Cash used in financing activities was also impacted by 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 transfer at year end.

Financings and Capitalization

In the first quarter of 2020, we secured a five-year, $850 million term loan scheduled to mature January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly. We ~~are~~used the net proceeds plus available cash to purchase under a ~~"Well-Known Seasoned Issuer" within~~tender offer $428 million of the ~~meaning~~October 2021 notes, $250 million 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~~May 2022 notes, $125 million of the April 2023 notes and ~~units in an expedited fashion.~~ $125 million of the March 2024 notes. We incurred a loss of a $37 million on the early redemption of debt.

We have a ~~committed~~$500 million secured revolving credit facility ~~of $1 billion~~ that expires in ~~January 2021. As~~November 2024 and contains financial and non-financial covenants. In April 2020, in light of the current macroeconomic environment, we drew down $100 million under the credit facility as a precautionary measure. At June 30, ~~2019,~~2020, we ~~have not drawn upon the credit facility.~~were in compliance with all covenants.

~~In July 2019, we extended the maturity date of a $150 million term loan from August 2019 to November 2019.~~

Dividends and Share Repurchases

In February 2019, our Board of Directors approved an incremental $100 million for share repurchases, raising our authorization level to $121 million. During the first half of 2019, we repurchased 17.4 million shares at an aggregate cost of $100 million. At June 30, 2019, we had remaining authorization to repurchase up to $21 million of our common shares. Also, during the first half of the year, we paid dividends of $18 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 expect to continue to pay a quarterly dividend, however; in light of COVID-19 and the current macroeconomic conditions, no assurances can be given.

~~In June 2019, we redeemed of all of the outstanding~~We did not repurchase any shares of ~~4% Convertible Cumulative Preferred Stock (Preferred Stock) and $2.12 Convertible Preference Stock (Preference Stock). The redemption~~our common stock during the first half of ~~these shares did not~~2020. We have ~~a material impact on~~remaining authorization to repurchase up to $16 million of our ~~consolidated financial statements.~~common stock.

Contractual Obligations and Off-Balance Sheet Arrangements

We have entered into three equipment leases for our Commerce Services operations that will commence in the fourth quarter with terms ranging from seven to nine years. Aggregate lease payments for the three leases will approximate $30 million.

At June 30, ~~2019,~~2020, 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.

Critical Accounting Estimates

Goodwill impairment review

~~Based on~~During the ~~year-to-date operating results~~first quarter of 2020, our Global Ecommerce reporting unit ~~we performed a goodwill impairment test~~experienced weaker than expected performance, in part due to ~~assess~~ the ~~adequacy of~~macroeconomic conditions resulting from COVID-19. At December 31, 2019, the ~~carrying value of goodwill. As a result of our test, we determined that the estimated~~ fair value of ~~the reporting unit~~our Global Ecommerce business exceeded its carrying value by less than 20%~~. The assumptions used~~ and the deteriorating macroeconomic conditions and uncertainty brought on by COVID-19 caused us to ~~estimate~~evaluate the Global Ecommerce goodwill for impairment.

To test the Global Ecommerce goodwill for impairment, we determined the fair value were based on projections incorporated in our current operating plans as well as other available information. By their nature, projections are uncertain. Potential events and circumstances, such as declining revenue, loss of ~~client contracts and inability to acquire new clients could have an adverse effect on our assumptions.~~

~~The goodwill balance related to~~ the Global Ecommerce reporting unit ~~at June 30, 2019~~and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge and could result in an additional impairment charge to be recorded in the future. These estimates and assumptions are considered Level 3 inputs under the fair value hierarchy.

We determined that the reporting unit's estimated fair value was ~~$609 million. We will continue~~less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter to ~~monitor and evaluate~~reduce the carrying value of ~~goodwill for this~~the Global Ecommerce reporting unit ~~and should facts and circumstances change, a non-cash impairment charge could be recorded in the future.~~

~~Property, Plant and Equipment, net~~

~~Included in property, plant and equipment, net is $37 million of capitalized software related~~ to the development of a new enterprise resource planning (ERP) system in certain of our international markets. In connection with recent market exits in six international markets and transition to higher growth markets, we are currently reviewing our international infrastructure, including ERP system scope and implementation plans. The time period required to successfully implement a large scale ERP, as well as potential changes to our infrastructure, could necessitate a reduced implementation footprint and impact our ability to fully recover the value of this asset.

its estimated fair value.

Regulatory Matters

There have been no significant changes to the regulatory matters disclosed in our ~~2018~~2019 Annual Report.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosures made in our ~~2018~~2019 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 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), to allow timely decisions regarding disclosures.

With the participation 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 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 required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. Further, we have not experienced any material impact to our internal controls over financial reporting given that most of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.

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 30, ~~2019.~~

2020.

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 ~~2018~~2019 Annual Report. However, we are supplementing the risk factors described in Item 1A of our 2019 Annual Report with the following additional risk factor:

Our operations and financial performance are being affected and will continue to be affected by the global coronavirus outbreak. The duration and severity of the COVID-19 crisis is unknown and constantly changing, and a prolonged duration of this crisis or a reoccurrence of COVID-19 or other similar virus in the future could have a significantly material effect on our operations, financial condition and liquidity

The COVID-19 pandemic is negatively impacting, and is expected to continue to negatively impact, our business, operations and financial performance. Given the unpredictability of the severity, magnitude and duration of the COVID-19 pandemic, including various governments’ responses to the pandemic, and its effect on the global economy, the ultimate impact of the pandemic on our business, operations and financial performance remains uncertain. There are many factors, not within our control, which could affect the pandemic’s ultimate outcome on our business and our ability to execute our business strategies and initiatives in the expected time frame. These include, but are not limited to: government, businesses and individuals’ actions in response to the pandemic; an acceleration of the decline on the use of physical mail; the impact of the pandemic on the global economy and economic activity; the changing spending habits of consumers and businesses; disruptions in global supply chains; and significant volatility and disruption of financial markets. A prolonged duration of this crisis or a reoccurrence of the COVID-19 pandemic could exacerbate the impact on our business, operations and financial performance. It is also uncertain the extent to which the COVID-19 will permanently affect aspects of the economy to the detriment of our business, including:

•

The dramatic acceleration in the decline of physical mail volume in the geographies in which we operate, which adversely affects both our Presort Services and SendTech Solutions businesses. We cannot yet assess the extent to which these declines in mail volumes, and resulting impact to our business, are permanent or temporary. Further detail on the risk of physical mail volume decline, including an acceleration of that decline, is described in the risk factor in our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report) relating to the “The Continuing Decline in the Volume of Physical Mail Delivered via Traditional Postal Services”.

•

The adverse effect that declines in physical mail are having on the financial health of posts around the world, especially that of the United States Postal Service. If these financial difficulties are not resolved, or if any resolution requires them to operate differently, price in a manner that hurts their competitiveness or reduces postal volume, or causes them to change their contractual relationships with their partners or vendors, these changes could have a material adverse effect on our business. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Significant Disruptions to Postal Operations”.

•

Significant declines in the retail industry caused by the pandemic. Although our Global Ecommerce business has seen an increase in volume of packages in the short-term, should there be a long-term change in consumer sentiment or purchasing habits it could have a material effect on our retail clients, including some of our largest clients, which could have an adverse impact on our financial performance. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Material Change in Consumer Sentiment or Spending Habits”.

The decline in frequency of long-distance airplane flights has increased the costs of, and therefore the demand for, products purchased in our Global Ecommerce service’s cross-border business.

The effect that social distancing rules and heightened security policies have inhibited, and will continue to inhibit, our ability to sell products and provide services to our clients, fulfill orders and install equipment on a timely basis and market to prospective new clients.

Increased costs and reduced labor productivity associated with extended safety protocols, including sanitizing facilities and equipment multiple times a day, implemented in our facilities and incremental costs that may be required to hire temporary labor or redirect volumes to other facilities.

We could experience further increases in delinquencies in collections and bankruptcies in our clients, which could affect our cash flow. Client requests for potential payment deferrals or other contract modifications could also reduce the profitability or ongoing cash flow from some of our current customers.

•

Given the severity of the pandemic, the business continuity plans of our suppliers and third-party service providers may not be sufficient to enable them to satisfy their obligations to us. If they are unable to satisfy these obligations, it could affect our ability to satisfy service or sales obligations to our clients, or it may affect other aspects of our internal operations. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Third-party Suppliers and Outsource Providers”.


•	A prolonged period of generating lower earnings or cash from operations could result in additional credit rating downgrades, higher costs of borrowing, or limit our access to additional debt. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Future Credit Rating Downgrades or Capital Market Disruptions”.

As the COVID-19 pandemic continues to adversely affect our business, operations and financial performance, it may also have the effect of heightening many of the other risks described in the risk factors in our 2019 Annual Report, including the risks described above. Further, the COVID-19 pandemic may also affect our business, operations and financial performance in a manner that is not presently known to us.

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. ~~In February 2019,~~We did not repurchase any shares during the six months ended June 30, 2020 and maintain Board ~~of Directors approved an additional $100 million for share repurchases giving us the ability~~authorization to repurchase up to ~~$121~~$16 million of our ~~shares.~~

~~The following table provides information about purchases of our~~ common ~~stock during the three months ended June 30, 2019:~~stock.

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 $81,880
April 1, 2019 - April 30, 2019 2,645,774
$ 6.93
2,645,774
$63,553
May 1, 2019 - May 31, 2019 4,616,043
$ 5.17
4,616,043
$39,684
June 1, 2019 - June 30, 2019 4,532,041
$ 4.12
4,532,041
$21,022
11,793,858
$ 5.16
11,793,858

Item 6: Exhibits

Exhibit

Number

Description

Exhibit Number in this Form 10-Q

Description

Exhibit Number in this Form 10-Q

3~~(c)~~(a)

Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(c) to the Form 8-K filed with the Commission on May 12, 2011)

3(c)

Amended and Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(i)(a) to the Form 8-K filed with the Commission on September 30, 2019)

3(i)(a)

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

Amended and Restated Pitney Bowes Inc. 2018 Stock Plan (incorporated by reference to Annex A to the Definitive Proxy Statement for the 2019 Annual Meeting of Stockholder filed with the Commission on March 15, 2019)

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

Inline XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

Inline XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

Inline XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

Inline XBRL Taxonomy Presentation Linkbase Document

104

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL.

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL. (included as Exhibit 101).

* Pursuant to Item ~~601(b)(2)~~601(a)(5) 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, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PITNEY BOWES INC.

Date:	August ~~6, 2019~~3, 2020

		/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)

4546



	Three Months Ended June 30, 2018
	Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Equipment sales	$	—	$	—	$	10,566	$	11,278	$	—	$	21,844	$	71,967	$	93,811
Supplies	—		—		36,271		19,186		—		55,457		—		55,457
Software	—		—		—		—		91,703		91,703		—		91,703
Rentals	—		—		—		—		—		—		19,454		19,454
Financing	—		—		—		—		—		—		97,129		97,129
Support services	—		—		113,977		24,621		—		138,598		—		138,598
Business services	239,100		122,730		5,664		1,594		—		369,088		—		369,088
Subtotal	239,100		122,730		166,478		56,679		91,703		676,690		$	188,550	$	865,240

Revenue from leasing transactions and financing
Equipment sales	—		—		55,957		16,010		—		71,967
Rentals	—		—		14,339		5,115		—		19,454
Financing	—		—		82,127		15,002		—		97,129
Total revenue	$	239,100	$	122,730	$	318,901	$	92,806	$	91,703	$	865,240

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	46,837	$	30,464	$	40,020	$	117,321
Products/services transferred over time	239,100		122,730		119,641		26,215		51,683		559,369
Total	$	239,100	$	122,730	$	166,478	$	56,679	$	91,703	$	676,690



	Six Months Ended June 30, 2018
	Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Equipment sales	$	—	$	—	$	20,981	$	23,074	$	—	$	44,055	$	156,464	$	200,519
Supplies	—		—		75,223		40,227		—		115,450		—		115,450
Software	—		—		—		—		167,997		167,997		—		167,997
Rentals	—		—		—		—		—		—		44,419		44,419
Financing	—		—		—		—		—		—		197,478		197,478
Support services	—		—		227,690		51,558		—		279,248		—		279,248
Business services	485,690		257,188		10,553		3,281		—		756,712		—		756,712
Subtotal	485,690		257,188		334,447		118,140		167,997		1,363,462		$	398,361	$	1,761,823

Revenue from leasing transactions and financing
Equipment sales	—		—		124,429		32,035		—		156,464
Rentals	—		—		33,851		10,568		—		44,419
Financing	—		—		166,985		30,493		—		197,478
Total revenue	$	485,690	$	257,188	$	659,712	$	191,236	$	167,997	$	1,761,823

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	96,204	$	63,301	$	65,021	$	224,526
Products/services transferred over time	485,690		257,188		238,243		54,839		102,976		1,138,936
Total	$	485,690	$	257,188	$	334,447	$	118,140	$	167,997	$	1,363,462



	Remainder of 2019		2020		2021-2024		Total
North America Mailing⁽¹⁾	$	133,984	$	231,394	$	338,435	$	703,813
International Mailing⁽¹⁾	15,799		21,938		27,583		65,320
Software Solutions⁽²⁾	34,805		57,111		33,295		125,211
Total	$	184,588	$	310,443	$	399,313	$	894,344



Leases	Balance Sheet Location	June 30, 2019		December 31, 2018
Assets
Operating	Operating lease assets	$	180,983	$	156,788
Finance	Property, plant and equipment, net	11,501		10,683
Total leased assets		$	192,484	$	167,471

Liabilities
Operating	Current operating lease liabilities	$	34,612	$	37,208
	Noncurrent operating lease liabilities	154,648		127,237
Finance	Accounts payable and accrued liabilities	2,809		2,708
	Other noncurrent liabilities	7,739		7,054
Total lease liabilities		$	199,808	$	174,207



	Three Months Ended June 30,						Six Months Ended June 30,
Lease Cost	2019			2018			2019			2018
Operating lease expense	$	11,695		$	11,145		$	23,786		$	23,422
Finance lease expense
Amortization of leased assets	811			640			1,691			1,242
Interest on lease liabilities	176			125			348			243
Variable lease expense	7,988			7,952			13,852			13,094
Sublease income	(679		)	(203		)	(1,345		)	(452		)
Total expense	$	19,991		$	19,659		$	38,332		$	37,549



Future Lease Payments	Operating Leases		Finance Leases		Total
Remaining for year ending December 31, 2019	$	22,257	$	1,803	$	24,060
Year ending December 31, 2020	42,878		3,105		45,983
Year ending December 31, 2021	35,937		2,712		38,649
Year ending December 31, 2022	27,637		2,162		29,799
Year ending December 31, 2023	21,032		1,518		22,550
Thereafter	89,177		813		89,990
Total	238,918		12,113		251,031
Less: present value discount	49,658		1,565		51,223
Lease liability	$	189,260	$	10,548	$	199,808



Lease Term and Discount Rate	June 30, 2019	December 31, 2018
Weighted-average remaining lease term
Operating leases	7.5 years	5.9 years
Finance leases	4.1 years	3.8 years
Weighted-average discount rate
Operating leases	5.8%	4.7%
Finance leases	6.6%	6.2%



	Three Months Ended June 30,				Six Months Ended June 30,
Cash Flow Information	2019		2018		2019		2018
Operating cash outflows - operating leases	$	11,073	$	10,987	$	22,870	$	22,738
Operating cash outflows - finance leases	$	176	$	125	$	348	$	243
Financing cash outflows - finance leases	$	775	$	592	$	1,520	$	1,156

Leased assets obtained in exchange for new lease obligations
Operating leases	$	40,907	$	3,998	$	49,060	$	6,994
Finance leases	$	430	$	88	$	2,103	$	1,160



	Three Months Ended June 30,								Six Months Ended June 30,
					Percentage of Revenue								Percentage of Revenue
	2019		2018		2019		2018		2019		2018		2019		2018
Cost of equipment sales	$	58,570	$	58,948	68.5	%	62.8	%	$	122,235	$	121,417	69.7	%	60.6	%
Cost of supplies	11,758		15,738		25.3	%	28.4	%	25,308		32,685		26.0	%	28.3	%
Cost of software	23,419		26,957		32.4	%	29.4	%	46,802		51,086		32.2	%	30.4	%
Cost of rentals	8,418		8,464		45.6	%	43.5	%	18,133		21,212		44.7	%	47.8	%
Financing interest expense	11,043		11,194		11.9	%	11.5	%	22,407		22,258		11.8	%	11.3	%
Cost of support services	40,448		42,306		31.7	%	30.5	%	82,227		88,371		32.1	%	31.6	%
Cost of business services	337,918		290,567		80.8	%	78.7	%	664,964		584,946		80.6	%	77.3	%
Total cost of revenue	$	491,574	$	454,174	57.1	%	52.5	%	$	982,076	$	921,975	56.8	%	52.3	%



	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					$81,880
April 1, 2019 - April 30, 2019	2,645,774	$	6.93	2,645,774	$63,553
May 1, 2019 - May 31, 2019	4,616,043	$	5.17	4,616,043	$39,684
June 1, 2019 - June 30, 2019	4,532,041	$	4.12	4,532,041	$21,022
	11,793,858	$	5.16	11,793,858

3001 Summer Street,

Connecticut

Telephone Number: