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 ~~September~~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 ~~October~~July 31, ~~2019~~2020, ~~170,848,234~~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 ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3

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

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

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~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 September 30,						Nine Months Ended September 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	$	89,618		$	88,799		$	264,956		$	289,318		57,837			85,551			134,110			175,338
Supplies	44,818			50,403			142,261			165,853			32,773			46,490			78,482			97,443
Rentals	19,737			21,432			60,339			65,852			18,644			18,445			37,458			40,602
Financing	90,577			96,799			280,039			294,277
Support services	126,274			138,055			382,578			417,303
Business services	419,101			364,793			1,243,609			1,121,505
Total revenue	790,125			760,281			2,373,782			2,354,108			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	59,859			52,209			182,094			173,626			47,920			58,570			105,279			122,235
Cost of supplies	12,225			13,967			37,533			46,652			8,379			11,758			20,619			25,308
Cost of rentals	5,090			9,174			23,223			30,386			6,022			8,418			12,400			18,133
Financing interest expense	11,026			10,849			33,433			33,107
Cost of support services	41,086			45,872			123,453			134,204
Cost of business services	338,519			287,237			1,003,483			872,183
Selling, general and administrative	254,092			241,350			757,228			759,469			233,631			241,467			482,264			503,136
Research and development	12,272			15,636			38,421			44,651			7,467			13,572			19,583			26,149
Restructuring charges and asset impairments, net	47,017			6,099			56,616			18,771
Restructuring charges and asset impairments													4,922			5,899			8,739			9,599
Goodwill impairment													—			—			198,169			—
Interest expense, net	28,704			26,588			84,325			89,377			26,446			28,019			52,329			55,621
Other components of net pension and postretirement cost	(882		)	(1,852		)	(3,138		)	(6,070		)
Other expense	667			7,964			18,350			7,964
Other components of net pension and postretirement cost (income)													386			(1,618		)	235			(2,256		)
Other (income) expense													(17,375		)	(27		)	16,112			17,683
Total costs and expenses	809,675			715,093			2,355,021			2,204,320			820,773			755,539			1,845,618			1,545,346
(Loss) income from continuing operations before taxes	(19,550		)	45,188			18,761			149,788
(Benefit) provision for income taxes	(24,895		)	(2,468		)	(13,351		)	17,235
Income from continuing operations	5,345			47,656			32,112			132,553
Income (loss) from continuing operations before taxes													16,719			33,034			(211,858		)	38,311
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	(8,470		)	32,621			(14,199		)	59,289			(3,032		)	(5,613		)	7,032			(5,729		)
Net (loss) income	$	(3,125	)	$	80,277		$	17,913		$	191,842		$	(3,329	)	$	23,697		$	(211,812	)	$	21,038
Basic earnings (loss) per share ⁽¹⁾:
Basic (loss) earnings per share ⁽¹⁾:
Continuing operations	$	0.03		$	0.25		$	0.18		$	0.71		$	—		$	0.17		$	(1.28	)	$	0.15
Discontinued operations	(0.05		)	0.17			(0.08		)	0.32			(0.02		)	(0.03		)	0.04			(0.03		)
Net (loss) income	$	(0.02	)	$	0.43		$	0.10		$	1.02		$	(0.02	)	$	0.13		$	(1.24	)	$	0.12
Diluted earnings (loss) per share ⁽¹⁾:
Diluted (loss) earnings per share ⁽¹⁾:
Continuing operations	$	0.03		$	0.25		$	0.18		$	0.70		$	—		$	0.16		$	(1.28	)	$	0.15
Discontinued operations	(0.05		)	0.17			(0.08		)	0.32			(0.02		)	(0.03		)	0.04			(0.03		)
Net (loss) income	$	(0.02	)	$	0.43		$	0.10		$	1.02		$	(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 September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net (loss) income $ (3,125 ) $ 80,277
$ 17,913
$ 191,842
Other comprehensive (loss) income, net of tax:
Foreign currency translation, net of tax of $(655), $(3,474), $(1,078) and $(3,474), respectively (27,962 ) (2,475 ) (6,584 ) (30,334 )
Net unrealized gain on cash flow hedges, net of tax of $51, $174, $27 and $474, respectively 149
522
78
773
Net unrealized gain (loss) on investment securities, net of tax of $509, $(417), $2,573 and $(2,230), respectively 1,487
(1,218 ) 7,516
(6,514 )
Amortization of pension and postretirement costs, net of tax benefits of $2,633, $2,399, $7,406 and $7,766, respectively 7,552
8,810
21,499
24,850
Other comprehensive (loss) income, net of tax (18,774 ) 5,639
22,509
(11,225 )
Comprehensive (loss) income $ (21,899 ) $ 85,916
$ 40,422
$ 180,617



	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)


	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	514,851		$	867,262		$	862,897		$	924,442
Short-term investments	137,032			59,391
Accounts and other receivables (net of allowance of $20,971 and $17,443, respectively)	365,522			371,797
Short-term finance receivables (net of allowance of $12,819 and $12,418, respectively)	617,178			653,236
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	76,339			62,279			73,653			68,251
Current income taxes	25,598			5,947			1,893			5,565
Other current assets and prepayments	101,829			74,782			121,924			101,601
Assets of discontinued operations	568,413			602,823			—			17,229
Total current assets	2,406,762			2,697,517			2,160,532			2,236,081
Property, plant and equipment, net	371,666			398,501			375,465			376,177
Rental property and equipment, net	39,400			46,228			40,875			41,225
Long-term finance receivables (net of allowance of $7,305 and $7,804 respectively)	616,746			635,908
Long-term finance receivables (net of allowance of $17,115 and $7,095 respectively)							583,839			625,487
Goodwill	1,317,037			1,332,351			1,132,785			1,324,179
Intangible assets, net	199,715			213,200			175,460			190,640
Operating lease assets	172,617			152,554			199,162			200,752
Noncurrent income taxes	80,561			65,001			68,449			71,903
Other assets	392,720			397,159
Other assets (includes $264,500 and $230,442, respectively, reported at fair value)							379,611			400,456
Total assets	$	5,597,224		$	5,938,419		$	5,116,178		$	5,466,900

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,337,214		$	1,348,127		$	732,048		$	793,690
Customer deposits at Pitney Bowes Bank							613,449			591,118
Current operating lease liabilities	34,091			35,208			35,432			36,060
Current portion of long-term debt	501,728			199,535			163,257			20,108
Advance billings	106,968			116,862			122,606			101,920
Current income taxes	8,525			15,284			11,723			17,083
Liabilities of discontinued operations	157,034			174,798			—			9,713
Total current liabilities	2,145,560			1,889,814			1,678,515			1,569,692
Long-term debt	2,567,363			3,066,073			2,553,490			2,719,614
Deferred taxes on income	253,151			253,560			270,376			274,435
Tax uncertainties and other income tax liabilities	45,179			39,548			35,928			38,834
Noncurrent operating lease liabilities	148,125			125,294			177,901			177,711
Other noncurrent liabilities	412,434			462,288			355,388			400,518
Total liabilities	5,571,812			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	101,651			121,475			68,498			98,748
Retained earnings	5,270,741			5,279,682			5,188,119			5,438,930
Accumulated other comprehensive loss	(926,452		)	(948,961		)	(836,262		)	(840,143		)
Treasury stock, at cost (153,182,446 and 135,662,830 shares, respectively)	(4,743,866		)	(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	25,412			101,842			44,580			286,096
Total liabilities and stockholders’ equity	$	5,597,224		$	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)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	17,913		$	191,842
Loss (income) from discontinued operations, net of tax	14,199			(59,289		)
Net (loss) income							$	(211,812	)	$	21,038
(Income) loss from discontinued operations, net of tax							(7,032		)	5,729
Restructuring payments	(18,845		)	(39,242		)	(11,365		)	(13,005		)
Adjustments to reconcile net income to net cash provided by operating activities:
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	118,514			112,155			81,787			77,977
Goodwill impairment							198,169			—
Stock-based compensation	15,867			15,771			6,950			9,165
Restructuring charges and asset impairments, net	56,616			18,771
Loss on disposition of businesses	17,683			—
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:
Decrease in accounts receivable	12,509			1,655
(Increase) decrease in accounts receivable							(49,403		)	18,565
Decrease in finance receivables	34,674			63,128			84,342			34,984
Increase in inventories	(14,559		)	(1,889		)	(6,306		)	(10,881		)
Increase in other current assets and prepayments	(30,546		)	(10,585		)	(24,067		)	(33,476		)
Decrease in accounts payable and accrued liabilities	(17,526		)	(80,905		)	(25,168		)	(53,885		)
(Decrease) increase in current and noncurrent income taxes	(30,401		)	194
Decrease in advance billings	(3,802		)	(12,403		)
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	(5,870		)	(9,061		)	(4,873		)	1,174
Net cash provided by operating activities - continuing operations	166,426			190,142			125,232			81,248
Net cash provided by operating activities - discontinued operations	15,858			68,428
Net cash (used in) provided by operating activities - discontinued operations							(38,423		)	5,534
Net cash provided by operating activities	182,284			258,570			86,809			86,782
Cash flows from investing activities:
Purchases of available-for-sale securities	(45,178		)	(74,270		)	(115,565		)	(6,391		)
Proceeds from sales/maturities of available-for-sale securities	78,024			67,354			94,425			54,964
Net activity from short-term and other investments	(92,418		)	8,479			(44,035		)	(1,608		)
Capital expenditures	(95,221		)	(105,295		)	(59,954		)	(59,187		)
Acquisitions, net of cash acquired	(22,100		)	(2,407		)	(6,608		)	(4,882		)
Change in reserve account deposits	3,125			6,864
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	(9,341		)	(2,500		)	(885		)	(8,591		)
Net cash used in investing activities - continuing operations	(183,109		)	(101,775		)	(52,043		)	(34,011		)
Net cash (used in) provided by investing activities - discontinued operations	(18,572		)	336,016
Net cash (used in) provided by investing activities	(201,681		)	234,241
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	(202,640		)	(565,141		)	(948,224		)	(25,087		)
Premiums and fees paid to extinguish debt							(32,645		)	—
Dividends paid to stockholders	(26,854		)	(105,296		)	(17,099		)	(18,346		)
Common stock repurchases	(105,000		)	—			—			(100,000		)
Other financing activities	7,302			(55,485		)	(3,174		)	(3,337		)
Net cash used in financing activities	(327,192		)	(725,922		)	(84,598		)	(146,770		)
Effect of exchange rate changes on cash and cash equivalents	(5,822		)	(15,653		)	(9,211		)	(81		)
Change in cash and cash equivalents	(352,411		)	(248,764		)	(61,545		)	(96,220		)
Cash and cash equivalents at beginning of period	867,262			1,009,021			924,442			867,262
Cash and cash equivalents at end of period	514,851			760,257			$	862,897		$	771,042
Less: Cash and cash equivalents of discontinued operations	—			1,026
Cash and cash equivalents of continuing operations at end of period	$	514,851		$	759,231

Cash interest paid	$	110,943		$	127,624		$	82,732		$	78,280
Cash income tax payments, net of refunds	$	25,527		$	17,168		$	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.transactions. Clients around the world rely on the accuracy and precision delivered by ~~Pitney Bowes solutions.~~our equipment, solutions, analytics, and 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).

In Certain prior year amounts have been reclassified to conform to the quarter, we recast our segment reporting to combine North America Mailing and International Mailing into the Sending Technology Solutions (SendTech Solutions) segment to reflect how we manage these operations and the products and services provided to our clients.current year presentation.

In August 2019, we entered into a definitive agreement to sell our Software Solutions ~~business. Software Solutions offers customer information management, location intelligence~~business and ~~customer engagement products and solutions~~recast prior periods to ~~help clients market to their customers. The~~reflect the operating results of the Software Solutions business ~~is now reported~~ as a discontinued ~~operation~~operations. The sale was completed in ~~our Condensed Consolidated Financial Statements and prior periods have been recast to conform to~~December 2019, with the ~~current period presentation.~~exception of the software business in Australia, which closed in January 2020. See Note 4 for ~~further details.~~additional information.

Accounts and other receivables includes other receivables of $61 million at June 30, 2020 and $91 million at December 31, 2019. In January 2019, we sold the direct operations and moved to a dealer model in 6 smaller international markets within ~~the SendTech~~Sending Technology Solutions ~~segment (Market Exits) and recognized a pre-tax loss of $18 million in other expense.~~

~~Accounts and other~~(SendTech Solutions). Other receivables includes ~~other~~gross receivables of ~~$102~~$24 million ~~at September 30, 2019~~related to these direct operations.

Risks and ~~$75 million at December 31, 2018.~~Uncertainties

~~Based~~The effects of COVID-19 on ~~their nature,~~global economies and businesses continues to impact how we ~~determined that certain costs previously classified~~conduct business and 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 ~~research~~parts of the country are experiencing a resurgence in COVID-19 cases and ~~development~~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 ~~cost of business services should be classified in other line items within costs and expenses. Accordingly, the income statement~~liquidity for the ~~three months ended September 30, 2018 has been revised to correct~~remainder of the ~~classification~~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 ~~these costs by reducing research~~estimates, assumptions and ~~development expense~~consideration of forecasted financial information in context with the known and ~~cost~~projected future impacts of ~~business services by $8 million and $4 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $9 million and $3 million, respectively.~~COVID-19. The income statement for the nine months ended September 30, 2018 has been revised to correct the classification of these costs by reducing research and development expense and cost of business services by $20 million and $10 million, respectively, and increasing selling, general and administrative expense and cost of equipment sales by $22 million and $8 million, respectively.most significant impacts are included below.

The ~~classification~~determination of ~~certain prior year costs of revenue have been revised to correct and conform to the current year presentation. Accordingly,~~our provision for ~~the three months ended September 30, 2018, both cost of equipment sales and cost of rentals were reduced~~credit losses is now impacted by $1 million and cost of support services was increased by $2 million. For the nine months ended September 30, 2018, cost of equipment sales and cost of rentals were reduced by $4 million and $3 million, respectively, and cost of support services increased by $7 million.

The December 31, 2018 balance sheet has been revised to correct the classification of assets and liabilities by reducing short-term finance receivables and advance billings by $106 million and $6 million, respectively, and increasing long-term finance receivables by $100 million.

~~New Accounting Pronouncements~~

changes in forecasted economic conditions (see Accounting Pronouncements Adopted in ~~2019~~

~~On January 1, 2019, we adopted Accounting Standards Codification (ASC) 842,~~ ~~Leases~~ ~~(ASC 842)~~, ~~using~~2020 below). The impact of COVID-19 on global economies and businesses resulted in an increased probability of recessionary conditions, delinquency rates and business bankruptcy. As a result, our credit loss provision for the ~~modified retrospective transition approach of applying the standard at the beginning of the earliest comparative period presented in the financial statements. We~~

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~recognized a cumulative effect adjustment at January 1, 2017 to reduce retained earnings by $137~~three and six months ended June 30, 2020 was $12 million and ~~recast prior period financial statements. See Notes 7~~$28 million compared to $4 million and 15$15 million for ~~more information.~~the three and six months ended June 30, 2019.

~~From a lessor perspective,~~At December 31, 2019, the ~~standard simplifies the accounting for lease modifications and aligns accounting~~fair value 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 were changes in the timing and classification of revenue related to contract modifications. There were also 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 and the second as an operating lease. Under ASC 842, the two components are generally accounted for as sales-type leases and certain income and costs previously recognized over the life of the lease are now accelerated.

~~From a lessee perspective, the standard requires us to recognize right-of-use assets and lease liabilities for 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 term~~Global 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 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. Revenue from the sale of equipment under sales-type leases is recognized 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 is recognized as rentals revenue.

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

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 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 and on a net basis when we act as an agent between a client and vendor. In determining whether we are acting as principal or agent, we consider several factors such as whether we are the primary obligor to the client, have control over 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.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~In July 2019, we prospectively adopted 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 early adoption of this standard did not have a material impact on our consolidated financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~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 ~~finalizing models to measure expected credit losses.~~

~~2. Revenue~~

~~Disaggregated Revenue~~

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

Three Months Ended September 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
Equipment sales $ —
$ —
$ 19,062
$ 19,062
$ 70,556
$ 89,618
Supplies —
—
44,818
44,818
—
44,818
Rentals —
—
—
—
19,737
19,737
Financing —
—
—
—
90,577
90,577
Support services —
—
126,274
126,274
—
126,274
Business services 278,995
131,483
8,623
419,101
—
419,101
Subtotal 278,995
131,483
198,777
609,255
$ 180,870
$ 790,125

Revenue from leasing transactions and financing
Equipment sales —
—
70,556
70,556

Rentals —
—
19,737
19,737

Financing —
—
90,577
90,577

Total revenue $ 278,995
$ 131,483
$ 379,647
$ 790,125

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 63,880
$ 63,880

Products/services transferred over time 278,995
131,483
134,897
545,375

Total $ 278,995
$ 131,483
$ 198,777
$ 609,255

Three Months Ended September 30, 2018
Global Ecommerce Presort Services SendTech Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Equipment sales $ —
$ —
$ 20,428
$ 20,428
$ 68,371
$ 88,799
Supplies —
—
50,403
50,403
—
50,403
Rentals —
—
—
—
21,432
21,432
Financing —
—
—
—
96,799
96,799
Support services —
—
138,055
138,055
—
138,055
Business services 232,845
125,334
6,614
364,793
—
364,793
Subtotal 232,845
125,334
215,500
573,679
$ 186,602
$ 760,281

Revenue from leasing transactions and financing
Equipment sales —
—
68,371
68,371

Rentals —
—
21,432
21,432

Financing —
—
96,799
96,799

Total revenue $ 232,845
$ 125,334
$ 402,102
$ 760,281

Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —
$ —
$ 70,831
$ 70,831

Products/services transferred over time 232,845
125,334
144,669
502,848

Total $ 232,845
$ 125,334
$ 215,500
$ 573,679

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

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:


	Nine Months Ended September 30, 2019												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		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	$	—	$	—	$	59,739	$	59,739	$	205,217	$	264,956	—		—		14,492		14,492		43,345		57,837
Supplies	—		—		142,261		142,261		—		142,261		—		—		32,773		32,773		—		32,773
Rentals	—		—		—		—		60,339		60,339		—		—		—		—		18,644		18,644
Financing	—		—		—		—		280,039		280,039
Support services	—		—		382,578		382,578		—		382,578
Business services	827,568		394,468		21,573		1,243,609		—		1,243,609
Subtotal	827,568		394,468		606,151		1,828,187		$	545,595	$	2,373,782	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	—		—		205,217		205,217						—		—		43,345		43,345
Rentals	—		—		60,339		60,339						—		—		18,644		18,644
Financing	—		—		280,039		280,039
Total revenue	$	827,568	$	394,468	$	1,151,746	$	2,373,782					$	398,453	$	118,127	$	320,912	$	837,492

Timing of revenue recognition from products and services	Timing of revenue recognition from products and services												Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	202,000	$	202,000					$	—	$	—	$	58,750	$	58,750
Products/services transferred over time	827,568		394,468		404,151		1,626,187						398,453		118,127		114,711		631,291
Total	$	827,568	$	394,468	$	606,151	$	1,828,187					$	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)


	Nine Months Ended September 30, 2018												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		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	$	—	$	—	$	64,482	$	64,482	$	224,836	$	289,318	—		—		31,621		31,621		102,489		134,110
Supplies	—		—		165,853		165,853		—		165,853		—		—		78,482		78,482		—		78,482
Rentals	—		—		—		—		65,852		65,852		—		—		—		—		37,458		37,458
Financing	—		—		—		—		294,277		294,277
Support services	—		—		417,303		417,303		—		417,303
Business services	718,535		382,522		20,448		1,121,505		—		1,121,505
Subtotal	718,535		382,522		668,086		1,769,143		$	584,965	$	2,354,108	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	—		—		224,836		224,836						—		—		102,489		102,489
Rentals	—		—		65,852		65,852						—		—		37,458		37,458
Financing	—		—		294,277		294,277
Total revenue	$	718,535	$	382,522	$	1,253,051	$	2,354,108					$	690,776	$	258,847	$	684,137	$	1,633,760

Timing of revenue recognition from products and services	Timing of revenue recognition from products and services												Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	230,335	$	230,335					$	—	$	—	$	137,124	$	137,124
Products/services transferred over time	718,535		382,522		437,751		1,538,808						690,776		258,847		232,526		1,182,149
Total	$	718,535	$	382,522	$	668,086	$	1,769,143					$	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)

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: 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.

~~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 servicesSupplies revenue is recognized ~~ratably over the contract period and revenue for professional services is recognized when services are provided.~~

~~Business services~~: 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.upon delivery.

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

Advance Billings from Contracts with Customers


	Balance sheet location	September 30, 2019		December 31, 2018		Increase (decrease)			Balance sheet location	June 30, 2020		December 31, 2019		Increase/ (decrease)
Advance billings, current	Advance billings	$	97,666	$	111,829	$	(14,163	)	Advance billings	$	113,799	$	92,464	$	21,335
Advance billings, noncurrent	Other noncurrent liabilities	$	1,413	$	1,985	$	(572	)	Other noncurrent liabilities	$	1,102	$	1,245	$	(143	)

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 ~~subscription services. 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 ~~September~~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 ~~$114~~$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 ~~meter services~~ and ~~other~~ subscription services. The transaction prices allocated to future performance obligations will be recognized as follows:

Remainder of 2019 2020 2021-2024 Total
SendTech Solutions $ 77,171
$ 272,621
$ 421,746
$ 771,538



	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.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 products and services that ~~enable~~facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce ~~transactions, including shipping, fulfillment and returns.~~transactions.

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~~Marketing Mail Flats and Bound Printed ~~Matter)~~Matter for postal worksharing discounts.

SendTech Solutions: Includes the revenue and related expenses from ~~sending technology solutions for~~ physical ~~mailing,~~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 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. 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
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Global Ecommerce $ 278,995
$ 232,845
$ 827,568
$ 718,535
Presort Services 131,483
125,334
394,468
382,522
Commerce Services 410,478
358,179
1,222,036
1,101,057
SendTech Solutions 379,647
402,102
1,151,746
1,253,051
Total revenue $ 790,125
$ 760,281
$ 2,373,782
$ 2,354,108

EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Global Ecommerce $ (21,793 ) $ (14,330 ) $ (51,969 ) $ (28,034 )
Presort Services 17,687
17,435
48,215
57,026
Commerce Services (4,106 ) 3,105
(3,754 ) 28,992
SendTech Solutions 130,954
134,607
378,095
412,427
Total segment EBIT 126,848
137,712
374,341
441,419
Reconciliation of Segment EBIT to net income:

Unallocated corporate expenses (58,277 ) (40,988 ) (160,283 ) (141,321 )
Restructuring charges and asset impairments, net (47,017 ) (6,099 ) (56,616 ) (18,771 )
Interest, net (39,730 ) (37,437 ) (117,758 ) (122,484 )
Other expense (667 ) (7,964 ) (18,350 ) (7,964 )
Transaction costs (707 ) (36 ) (2,573 ) (1,091 )
Benefit (provision) for income taxes 24,895
2,468
13,351
(17,235 )
Income from continuing operations 5,345
47,656
32,112
132,553
(Loss) income from discontinued operations, net of tax (8,470 ) 32,621
(14,199 ) 59,289
Net (loss) income $ (3,125 ) $ 80,277
$ 17,913
$ 191,842



	Revenue
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Global Ecommerce	$	398,453	$	282,319	$	690,776	$	548,573
Presort Services	118,127		128,138		258,847		262,985
Commerce Services	516,580		410,457		949,623		811,558
SendTech Solutions	320,912		378,116		684,137		772,099
Total revenue	$	837,492	$	788,573	$	1,633,760	$	1,583,657

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~4. Discontinued Operations~~

In August 2019, we entered into a definitive agreement to sell our Software Solutions business for $700 million, subject to certain adjustments. The transaction is subject to customary closing conditions, and we expect it to be completed by the end of 2019.

The operating results of the Software Solutions business are now reported as discontinued operations. Discontinued operations also includes our Document Messaging Technology production mail business and supporting software (Production Mail Business) that was sold in July 2018.

~~Selected financial information of discontinued operations is as follows:~~

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
Software Solutions Production Mail Total Software Solutions Production Mail Total
Revenue $ 73,620
$ —
$ 73,620
$ 75,743
$ 19,557
$ 95,300

Earnings (loss) from discontinued operations $ 8,633
$ —
$ 8,633
$ 4,533
$ (1,316 ) $ 3,217
(Loss) gain on sale (including transaction costs) (12,447 ) (5,710 ) (18,157 ) —
86,640
86,640
(Loss) income from discontinued operations before taxes $ (3,814 ) $ (5,710 ) (9,524 ) $ 4,533
$ 85,324
89,857
Tax (benefit) provision (1,054 ) 57,236
(Loss) income from discontinued operations, net of tax $ (8,470 ) $ 32,621

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
Software Solutions Production Mail Total Software Solutions Production Mail Total
Revenue $ 219,144
$ —
$ 219,144
$ 243,738
$ 211,000
$ 454,738

Earnings (loss) from discontinued operations $ 13,334
$ (663 ) $ 12,671
$ 28,497
$ 20,304
$ 48,801
(Loss) gain on sale (including transaction costs) (14,211 ) (14,967 ) (29,178 ) —
77,863
77,863
(Loss) income from discontinued operations before taxes $ (877 ) $ (15,630 ) (16,507 ) $ 28,497
$ 98,167
126,664
Tax (benefit) provision (2,308 ) 67,375
(Loss) income from discontinued operations, net of tax $ (14,199 ) $ 59,289

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~The major categories~~



	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 ~~assets~~$5 million and ~~liabilities included~~$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 the Software Solutions business, sold in ~~assets~~December 2019, with the exception of the software business in Australia, which closed in January 2020, and the Production Mail business, sold in July 2018. Selected financial information of discontinued operations is as follows:



	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 ~~are as follows:~~at December 31, 2019 includes the assets and liabilities of the software business in Australia.

September 30, 2019 December 31, 2018
Cash and cash equivalents $ —
$ 1,965
Accounts and other receivables, net 55,077
85,399
Inventories —
855
Other current assets and prepayments 29,801
26,121
Property, plant and equipment, net 11,495
12,140
Rental property and equipment, net —
179
Goodwill 430,995
434,160
Intangible assets 10,379
13,937
Operating lease asset 3,587
4,234
Other assets 27,079
23,833
Assets of discontinued operations $ 568,413
$ 602,823

Accounts payable and accrued liabilities $ 38,163
$ 42,896
Current operating lease liabilities 1,441
2,000
Advance billings 98,699
113,110
Other current liabilities —
2,021
Noncurrent operating lease liabilities 1,823
1,943
Other noncurrent liabilities 16,908
12,828
Liabilities of discontinued operations $ 157,034
$ 174,798

5. Earnings per Share (EPS)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Numerator:
(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 (numerator for diluted EPS)	(3,329		)	23,697			(211,812		)	21,038
Less: Preference stock dividend	—			—			—			8
(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	171,478			177,192			171,167			181,446
Dilutive effect of common stock equivalents ⁽¹⁾	—			1,089			—			1,192
Weighted-average shares used in diluted EPS	171,478			178,281			171,167			182,638
Basic earnings (loss) per share ⁽²⁾:
Continuing operations	$	—		$	0.17		$	(1.28	)	$	0.15
Discontinued operations	(0.02		)	(0.03		)	0.04			(0.03		)
Net (loss) income	$	(0.02	)	$	0.13		$	(1.24	)	$	0.12
Diluted earnings (loss) per share ⁽²⁾:
Continuing operations	$	—		$	0.16		$	(1.28	)	$	0.15
Discontinued operations	(0.02		)	(0.03		)	0.04			(0.03		)
Net (loss) income	$	(0.02	)	$	0.13		$	(1.24	)	$	0.12

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)

~~5. Earnings per Share (EPS)~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Numerator:

Income from continuing operations $ 5,345
$ 47,656
$ 32,112
$ 132,553
(Loss) income from discontinued operations, net of tax (8,470 ) 32,621
(14,199 ) 59,289
Net (loss) income (numerator for diluted EPS) (3,125 ) 80,277
17,913
191,842
Less: Preference stock dividend —
8
8
24
(Loss) income attributable to common stockholders (numerator for basic EPS) $ (3,125 ) $ 80,269
$ 17,905
$ 191,818
Denominator:

Weighted-average shares used in basic EPS 170,326
187,470
178,048
187,167
Dilutive effect of common stock equivalents 875
945
1,048
1,023
Weighted-average shares used in diluted EPS 171,201
188,415
179,096
188,190
Basic earnings (loss) per share ⁽¹⁾:

Continuing operations $ 0.03
$ 0.25
$ 0.18
$ 0.71
Discontinued operations (0.05 ) 0.17
(0.08 ) 0.32
Net (loss) income $ (0.02 ) $ 0.43
$ 0.10
$ 1.02
Diluted earnings (loss) per share ⁽¹⁾:

Continuing operations $ 0.03
$ 0.25
$ 0.18
$ 0.70
Discontinued operations (0.05 ) 0.17
(0.08 ) 0.32
Net (loss) income $ (0.02 ) $ 0.43
$ 0.10
$ 1.02

Anti-dilutive options excluded from diluted earnings per share: 16,182
12,195
16,166
12,097


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

6. Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories ~~at September 30, 2019 and December 31, 2018~~ consisted of the following:


	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Raw materials	$	18,683		$	8,229		$	20,021		$	13,514
Supplies and service parts	24,283			21,841			22,787			21,840
Finished products	37,856			36,692			34,681			36,969
Inventory at FIFO cost	80,822			66,762			77,489			72,323
Excess of FIFO cost over LIFO cost	(4,483		)	(4,483		)	(3,836		)	(4,072		)
Total inventory, net	$	76,339		$	62,279		$	73,653		$	68,251

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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


	September 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	$	1,064,996		$	215,110		$	1,280,106		$	1,110,898		$	242,036		$	1,352,934		$	998,450		$	196,767		$	1,195,217		$	1,055,852		$	224,202		$	1,280,054
Unguaranteed residual values	43,621			11,264			54,885			52,637			12,772			65,409			37,742			11,283			49,025			41,934			11,789			53,723
Unearned income	(331,085		)	(63,121		)	(394,206		)	(383,453		)	(55,113		)	(438,566		)	(282,027		)	(58,487		)	(340,514		)	(319,281		)	(65,888		)	(385,169		)
Allowance for credit losses	(11,172		)	(2,217		)	(13,389		)	(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	766,360			161,036			927,396			769,830			197,339			967,169			727,562			144,820			872,382			767,585			168,018			935,603
Loan receivables
Loan receivables	285,163			28,100			313,263			300,319			29,270			329,589			254,786			18,635			273,421			298,247			27,926			326,173
Allowance for credit losses	(6,016		)	(719		)	(6,735		)	(6,777		)	(837		)	(7,614		)	(6,482		)	(286		)	(6,768		)	(5,906		)	(740		)	(6,646		)
Net investment in loan receivables	279,147			27,381			306,528			293,542			28,433			321,975			248,304			18,349			266,653			292,341			27,186			319,527
Net investment in finance receivables	$	1,045,507		$	188,417		$	1,233,924		$	1,063,372		$	225,772		$	1,289,144		$	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)

Maturities of gross ~~loan~~sales-type lease receivables and gross ~~sales-type lease~~loan receivables at ~~September~~June 30, ~~2019~~2020 were as follows:


	Sales-type Lease Receivables						Loan Receivables						Sales-type Lease Receivables						Loan Receivables
	North America		International		Total		North America		International		Total		North America		International		Total		North America		International		Total
Remaining for year ending December 31, 2019	$	132,964	$	25,592	$	158,556	$	245,197	$	28,100	$	273,297
Year ending December 31, 2020	383,029		74,364		457,393		12,927		—		12,927
Remaining for year ending December 31, 2020													$	220,405	$	41,451	$	261,856	$	216,777	$	18,635	$	235,412
Year ending December 31, 2021	276,009		55,152		331,161		10,463		—		10,463		336,863		68,465		405,328		12,032		—		12,032
Year ending December 31, 2022	171,049		35,937		206,986		8,990		—		8,990		234,552		47,971		282,523		10,414		—		10,414
Year ending December 31, 2023	83,306		18,521		101,827		3,782		—		3,782		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	18,639		5,544		24,183		3,804		—		3,804		9,519		2,153		11,672		3,174		—		3,174
Total	$	1,064,996	$	215,110	$	1,280,106	$	285,163	$	28,100	$	313,263	$	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 September 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.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Activity in the allowance for credit losses for ~~the nine months ended September 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 4,587
801
3,547
440
9,375
Write-offs and other (3,667 ) (940 ) (4,308 ) (558 ) (9,473 )
Balance at September 30, 2019 $ 11,172
$ 2,217
$ 6,016
$ 719
$ 20,124

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 7,037
829
4,896
331
13,093
Write-offs and other (3,979 ) (1,359 ) (5,282 ) (466 ) (11,086 )
Balance at September 30, 2018 $ 10,779
$ 2,264
$ 6,712
$ 885
$ 20,640

~~Aging of Receivables~~

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

September 30, 2019
Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
1 - 90 days $ 1,032,400
$ 211,442
$ 280,114
$ 27,722
$ 1,551,678
> 90 days 32,596
3,668
5,049
378
41,691
Total $ 1,064,996
$ 215,110
$ 285,163
$ 28,100
$ 1,593,369
Past due amounts > 90 days

Still accruing interest $ 4,751
$ 1,074
$ 1,797
$ 53
$ 7,675
Not accruing interest 27,845
2,594
3,252
325
34,016
Total $ 32,596
$ 3,668
$ 5,049
$ 378
$ 41,691

December 31, 2018
Sales-type Lease Receivables Loan Receivables

North
America
International
North
America
International Total
1 - 90 days $ 1,069,290
$ 238,114
$ 294,126
$ 29,079
$ 1,630,609
> 90 days 41,608
3,922
6,193
191
51,914
Total $ 1,110,898
$ 242,036
$ 300,319
$ 29,270
$ 1,682,523
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

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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 September 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.

September 30,
2019 December 31,
2018
Sales-type lease receivables

Low $ 853,156
$ 922,414
Medium 160,969
131,650
High 22,315
22,110
Not Scored 28,556
34,724
Total $ 1,064,996
$ 1,110,898
Loan receivables

Low $ 215,319
$ 238,620
Medium 53,176
43,952
High 5,379
5,947
Not Scored 11,289
11,800
Total $ 285,163
$ 300,319

~~Lease Income~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Profit recognized at commencement ⁽¹⁾
$ 38,086
$ 38,204
$ 108,743
$ 125,133
Interest income 56,522
60,653
174,045
183,340
Total lease income from sales-type leases $ 94,608
$ 98,857
$ 282,788
$ 308,473

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

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.



	Sales Type Lease Receivables												Loan Receivables		Total
	2020		2019		2018		2017		2016		Prior		Loan Receivables		Total
Low	$	136,197	$	252,315	$	199,078	$	118,201	$	49,013	$	19,906	$	187,311	$	962,021
Medium	25,754		57,452		45,269		28,693		10,886		5,688		53,748		227,490
High	3,249		6,342		5,295		3,380		1,802		323		4,210		24,601
Not Scored	35,880		82,099		56,596		33,466		15,450		2,883		28,152		254,526
Total	$	201,080	$	398,208	$	306,238	$	183,740	$	77,151	$	28,800	$	273,421	$	1,468,638

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 was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Profit recognized at commencement ⁽¹⁾	$	21,271	$	36,508	$	51,166	$	73,112
Interest income	34,055		58,045		68,315		117,523
Total lease income from sales-type leases	$	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	$	9,092
Year ending December 31, 2020	30,986
Remaining for year ending December 31, 2020			$	20,222
Year ending December 31, 2021	15,600		27,899
Year ending December 31, 2022	6,886		10,881
Year ending December 31, 2023	3,154		4,899
Year ending December 31, 2024			1,528
Thereafter	412		200
Total	$	66,130	$	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 September 30, 2019 and December 31, 2018~~ consisted of the following:


	September 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	$	347,515	$	(164,336	)	$	183,179	$	338,320	$	(149,539	)	$	188,781	$	268,178	$	(101,688	)	$	166,490	$	265,665	$	(88,550	)	$	177,115
Software & technology	52,309		(38,517		)	13,792		54,297		(35,325		)	18,972		31,600		(23,012		)	8,588		31,600		(19,999		)	11,601
Trademarks & other	21,365		(18,621		)	2,744		22,305		(16,858		)	5,447		13,324		(12,942		)	382		13,324		(11,400		)	1,924
Total intangible assets	$	421,189	$	(221,474	)	$	199,715	$	414,922	$	(201,722	)	$	213,200	$	313,102	$	(137,642	)	$	175,460	$	310,589	$	(119,949	)	$	190,640

Amortization expense was $9 million ~~and $10 million~~ for both the three months ended ~~September~~June 30, 2020 and 2019, and ~~2018, respectively, and $27 million and $29~~$18 million for both the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively.~~2019.

Future amortization expense as of ~~September~~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	$	9,171
Year ending December 31, 2020	33,368
Remaining for year ending December 31, 2020			$	15,699
Year ending December 31, 2021	29,972		30,227
Year ending December 31, 2022	29,026		29,281
Year ending December 31, 2023	26,188		26,443
Year ending December 31, 2024			26,443
Thereafter	71,990		47,367
Total	$	199,715	$	175,460

Goodwill

Changes in the carrying value of goodwill, by reporting segment, are shown in the table below.



	December 31, 2019		Impairment			Acquisition		Currency impact			June 30, 2020
Global Ecommerce	$	609,431	$	(198,169	)	$	—	$	—		$	411,262
Presort Services	212,529		—			8,463		—			220,992
Commerce Services	821,960		(198,169		)	8,463		—			632,254
SendTech Solutions	502,219		—			—		(1,688		)	500,531
Total goodwill	$	1,324,179	$	(198,169	)	$	8,463	$	(1,688	)	$	1,132,785

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 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 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)

~~Goodwill~~

~~Changes~~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 ~~goodwill, by~~the Global Ecommerce reporting ~~segment, for the nine months ended September 30, 2019 are shown in the table below.~~

December 31, 2018 Acquisition/(divestiture) Currency impact September 30,
2019
Global Ecommerce $ 609,431
$ —
$ —
$ 609,431
Presort Services 207,465
5,064
—
212,529
Commerce Services 816,896
5,064
—
821,960
SendTech Solutions 515,455
(10,490 ) (9,888 ) 495,077
Total goodwill $ 1,332,351
$ (5,426 ) $ (9,888 ) $ 1,317,037

unit to its estimated fair value.

~~In January 2019,~~Other Assets

During the second quarter of 2020, we ~~wrote off $10~~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 ~~goodwill associated with Market Exits.~~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 September 30, 2019 and December 31, 2018.~~basis.


	September 30, 2019										June 30, 2020
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / certificates of deposit	$	157,114	$	260,383		$	—	$	417,497
Money market funds											$	85,243	$	441,600		$	—	$	526,843
Equity securities	—		21,814			—		21,814			—		20,822			—		20,822
Commingled fixed income securities	1,655		20,819			—		22,474			1,713		19,376			—		21,089
Government and related securities	71,908		18,079			—		89,987			39,525		18,583			—		58,108
Corporate debt securities	—		73,332			—		73,332			—		75,557			—		75,557
Mortgage-backed / asset-backed securities	—		74,718			—		74,718			—		115,742			—		115,742
Derivatives
Foreign exchange contracts	—		729			—		729			—		308			—		308
Total assets	$	230,677	$	469,874		$	—	$	700,551		$	126,481	$	691,988		$	—	$	818,469
Liabilities:
Derivatives
Interest rate swaps											$	—	$	(1,605	)	$	—	$	(1,605	)
Foreign exchange contracts	$	—	$	(5,454	)	$	—	$	(5,454	)	—		(1,106		)	—		(1,106		)
Total liabilities	$	—	$	(5,454	)	$	—	$	(5,454	)	$	—	$	(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 / certificates of deposit	$	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 / Certificates of Deposit:~~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. Certificates of deposit typically invest with financial institutions and have specific maturity dates and a fixed rate of return, and are classified as Level 2. Direct investments in commercial paper, classified as Level 2, comprised 3% of the December 2018 balance.


•	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 classified as available-for-sale are recorded at fair value with unrealized holding gains and losses, net of tax, 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 ~~September 30, 2019~~the Pitney Bowes Bank, whose primary business is to provide financing solutions to clients that rent postage meters and ~~December 31, 2018~~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 consisted of the following:


	September 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	$	88,050	$	1,946	$	(47	)	$	89,949	$	55,576	$	1,289	$	(338	)	$	56,527
Corporate debt securities	71,763		1,907		(338		)	73,332		71,689		4,558		(690		)	75,557
Commingled fixed income securities	1,666		—		(11		)	1,655		1,692		21		—			1,713
Mortgage-backed / asset-backed securities	73,777		1,269		(328		)	74,718		113,497		2,520		(275		)	115,742
Total	$	235,256	$	5,122	$	(724	)	$	239,654	$	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 September 30, 2019 and December 31, 2018~~ were as follows:


	September 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	$	35,784	$	360	$	48,318	$	847	$	46,650	$	1,192	$	52,521	$	583
Greater than 12 continuous months	28,235		364		177,331		4,355		4,441		111		9,227		136
Total	$	64,019	$	724	$	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 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 ~~September~~June 30, ~~2019~~2020 were as follows:


	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Within 1 year	$	39,047	$	39,133	$	26,274	$	26,407
After 1 year through 5 years	58,494		59,246		56,027		58,709
After 5 years through 10 years	69,077		70,267		47,838		49,663
After 10 years	68,638		71,008		112,315		114,760
Total	$	235,256	$	239,654	$	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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had outstanding contracts associated with these anticipated transactions with notional amounts of $8$7 million.

The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties in the three months ended September 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~~ ~~September 30, 2019~~ ~~and~~ ~~December 31, 2018~~ ~~was as follows:~~

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

Foreign exchange contracts Other current assets and prepayments $ 113
$ 61
Accounts payable and accrued liabilities (52 ) (104 )

Derivatives not designated as
hedging instruments

Foreign exchange contracts Other current assets and prepayments 616
1,970
Accounts payable and accrued liabilities (5,402 ) (631 )

Total derivative assets $ 729
$ 2,031
Total derivative liabilities (5,454 ) (735 )
Total net derivative (liability) asset $ (4,725 ) $ 1,296

Amounts included in AOCI at ~~September~~June 30, ~~2019 related to derivative instruments~~2020 will be recognized in earnings within the next 12 months.

Interest Rate Swaps

During the quarter, we entered into interest rate swap agreements with an aggregate notional amount of $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 nine months ended September 30, 2019 and 2018:~~were as follows:


	Three Months Ended September 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	$	156	$	(42	)	Location of Gain (Loss) (Effective Portion)	Revenue		$	(98	)		$	(38	)		$	(121	)		$	(320	)		Revenue		$	(64	)		$	(36	)
						Cost of sales		54				52												Cost of sales		32				29
Interest rate swap	—		(824		)	Interest Expense		—				—				(1,605		)		—				Interest expense		—				—
	$	156	$	(866	)			$	(44	)		$	14			$	(1,726	)		$	(320	)				$	(32	)		$	(7	)

	Nine Months Ended September 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	$	181	$	111		Location of Gain (Loss) (Effective Portion)	Revenue		$	(23	)		$	38			$	(281	)		$	25			Revenue		$	(3	)		$	75
						Cost of sales		99				(33		)										Cost of sales		42				45
Interest rate swap	—		(1,776		)	Interest Expense		—				—				(1,605		)		—				Interest expense		—				—
	$	181	$	(1,665	)			$	76			$	5			$	(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 nine months ended September 30, 2019 and 2018.~~ All outstanding contracts at ~~September~~June 30, ~~2019~~2020 mature within 12 months.

Three Months Ended September 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2019 2018
Foreign exchange contracts Selling, general and administrative expense $ (11,385 ) $ (1,948 )

Nine Months Ended September 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2019 2018
Foreign exchange contracts Selling, general and administrative expense $ (6,181 ) $ (20,344 )

~~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 September 30, 2019, we had 0 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.

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 ~~our~~ debt at ~~September 30, 2019~~ ~~and~~ ~~December 31, 2018~~ ~~were~~was as follows:


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Carrying value	$	3,069,091	$	3,265,608	$	2,716,747	$	2,739,722
Fair value	$	2,953,853	$	3,003,678	$	2,156,837	$	2,572,794

10. Restructuring Charges and Asset Impairments

Restructuring Charges

Activity in our restructuring reserves ~~for the nine months ended September 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	12,498			845			13,343			7,101			707			7,808
Cash payments	(16,362		)	(2,483		)	(18,845		)	(10,786		)	(2,219		)	(13,005		)
Balance at September 30, 2019	$	9,777		$	170		$	9,947

Balance at January 1, 2018	$	42,151		$	1,569		$	43,720
Expenses, net	13,637			5,134			18,771
Cash payments	(37,492		)	(1,750		)	(39,242		)
Balance at September 30, 2018	$	18,296		$	4,953		$	23,249
Balance at June 30, 2019										$	9,956		$	296		$	10,252

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 $42 million~~and asset impairments for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and primarily include the impairment~~also includes $2 million of ~~capitalized software costs~~non-cash charges related to ~~the development of a new enterprise resource planning (ERP) system in our international markets.~~ asset impairments, pension settlements and facilities abandonment.

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

11. Debt

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


	Interest rate	September 30, 2019		December 31, 2018		Interest rate	June 30, 2020		December 31, 2019
Notes due September 2020	4.125%	$	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	427,500		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		5,158		5,297			5,052		5,108
Principal amount		3,093,499		3,296,138			2,767,724		2,765,949
Less: unamortized costs, net		24,408		30,530			50,977		26,227
Total debt		3,069,091		3,265,608			2,716,747		2,739,722
Less: current portion long-term debt		501,728		199,535			163,257		20,108
Long-term debt		$	2,567,363	$	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 credit rating from Ba1 to Ba2.~~ As a result ~~the interest rates on the~~of credit rating downgrades in November 2019 and May ~~2022 notes and September~~ 2020, ~~notes increased 0.25% since December 31, 2018, and~~ 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 0.75%. Further, the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the 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 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 ~~1, 2019.~~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 ~~2019,~~the first half of 2020, we repaid ~~$38~~$21 million of principal related to our term loans. ~~In September 2019, we repaid the remaining $165~~

We have a $500 million ~~of our $200 million term loan and recorded a loss of $1 million on the early redemption of debt.~~

~~In November 2019, we repaid the $150 million term loan due November 2019 and the remaining balance of the $300 million term loan due December 2020,~~ secured ~~a new five-year $400 million term loan and replaced our~~ revolving credit facility ~~scheduled to mature~~that expires in ~~January 2021 for $500 million.~~

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
	September 30,						September 30,						September 30,				June 30,						June 30,						June 30,
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	20		$	23		$	385		$	567		$	242	$	298	$	27		$	21		$	399		$	388		$	217	$	228
Interest cost	15,792			15,363			4,435			4,434			1,646		1,676		13,179			15,708			3,407			4,308			1,242		1,637
Expected return on plan assets	(23,182		)	(25,281		)	(8,340		)	(8,730		)	—		—		(21,303		)	(23,184		)	(7,969		)	(8,505		)	—		—
Amortization of transition credit	—			—			(2		)	(2		)	—		—		—			—			(1		)	(1		)	—		—
Amortization of prior service (credit) cost	(15		)	(15		)	58			(18		)	80		112		(15		)	(15		)	59			60			94		81
Amortization of net actuarial loss	6,537			7,851			1,543			1,807			507		338		8,197			6,037			2,005			1,572			738		503
Settlement	1,477			796			—			—			—		339
Settlement ⁽¹⁾																	612			801			3,190			397			—		—
Net periodic benefit cost (income)	$	629		$	(1,263	)	$	(1,921	)	$	(1,942	)	$	2,475	$	2,763	$	697		$	(632	)	$	1,090		$	(1,781	)	$	2,291	$	2,449
Contributions to benefit plans	$	3,350		$	2,479		$	652		$	661		$	4,628	$	4,442	$	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
	Nine Months Ended						Nine Months Ended						Nine Months Ended				Six Months Ended						Six Months Ended						Six Months Ended
	September 30,						September 30,						September 30,				June 30,						June 30,						June 30,
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	62		$	69		$	1,157		$	1,731		$	725	$	1,109	$	53		$	42		$	798		$	772		$	434	$	483
Interest cost	47,378			46,087			13,231			13,721			4,937		4,888		26,358			31,586			6,925			8,796			2,487		3,291
Expected return on plan assets	(69,545		)	(75,815		)	(25,609		)	(27,045		)	—		—		(42,607		)	(46,363		)	(16,177		)	(17,269		)	—		—
Amortization of transition credit	—			—			(5		)	(5		)	—		—		—			—			(2		)	(3		)	—		—
Amortization of prior service (credit) cost	(45		)	(45		)	181			(54		)	241		287		(30		)	(30		)	120			123			187		161
Amortization of net actuarial loss	19,610			23,555			4,727			5,590			1,521		2,153		16,395			13,073			4,064			3,184			1,474		1,014
Settlement ⁽¹⁾	2,278			796			397			—			—		339		1,001			801			3,190			397			—		—
Net periodic benefit (income) cost	$	(262	)	$	(5,353	)	$	(5,921	)	$	(6,062	)	$	7,424	$	8,776
Net periodic benefit cost (income)																	$	1,170		$	(891	)	$	(1,082	)	$	(4,000	)	$	4,582	$	4,949
Contributions to benefit plans	$	7,401		$	5,674		$	9,740		$	10,640		$	13,841	$	13,552	$	3,898		$	4,051		$	8,568		$	9,088		$	8,071	$	9,213

⁽¹⁾Approximately ~~$1.4~~$2.6 million and ~~$1.0~~$0.5 million of total settlement charges were recorded in discontinued operations and restructuring charges, ~~and discontinued operations,~~ respectively, for the ~~nine~~three and six months ended ~~September~~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 and six months ended ~~September~~June 30, 2019 and 2018 was 127.3% and (5.5)%, respectively. The effective tax rate for the three months ended September 30, 2019 includes a benefit of $23 million from the release of a foreign valuation allowance. The effective tax rate for the three months ended September 30, 2018 includes a benefit from the resolution of certain tax examinations of $7 million and a benefit of $8 million related to the re-measurement of deferred tax assets and liabilities and revisions of the U.S. tax on unremitted earnings of our foreign subsidiaries.2019.

The effective tax rate for the nine months ended September 30, 2019 and 2018 was (71.2)% and 11.5%, respectively. The effective tax rate for the nine months ended September 30, 2019 includes a benefit of $23 million from the release of a foreign valuation allowance as well as a $2 million tax on the $18 million book loss from Market Exits, primarily due to nondeductible basis differences. The effective tax rate for the nine months ended September 30, 2019 and 2018 includes a benefit of $6 million and $13 million, respectively, from the resolution of certain tax examinations. The effective tax rate for the nine months ended September 30, 2018 also includes a benefit of

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~$17~~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 ~~related to~~charge for the ~~re-measurement~~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 ~~liabilities~~the vesting of restricted stock.

The effective tax rate for the three and ~~revisions~~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 ~~U.S.~~six months ended June 30, 2019 also includes a $2 million tax on ~~unremitted earnings~~the $18 million book loss incurred from the disposition of ~~our foreign subsidiaries.~~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 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 ~~September~~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. On October 24, 2019, the court granted the defendants' motions to strike the complaint for failure to state a claim.

~~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.~~Livonia case, and 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.

Beginning on October 12, 2019, we were affected by a malware attack ("the attack") that encrypted information on some systems and disrupted client access to our services. Upon discovering the unauthorized access, we took immediate actions to contain and remediate the malware attack. We engaged third-party cybersecurity experts and informed various law enforcement agencies. We have ~~identified~~entered into 3 equipment leases for our Commerce Services operations that will commence in the ~~malware that affected our systems as~~fourth quarter with terms ranging from seven to nine years. Aggregate lease payments for the Ryuk virus, which specifically targets Microsoft Windows based operating systems. Our financial information is not stored on a Microsoft Windows operating system, and was therefore not affected. Additionally, the backup data storage systems for virtually all our client, employee and other business data was not impacted by the attack. Based on the work performed to date, we do not believe that any sensitive or confidential client or employee data has been improperly accessed or extracted from our network. We have made substantial progress in bringing critical systems back online, re-enabling client access to our services and restoring access to data that was encrypted. We maintain insurance coverage for these types of incidents and have been working with our carriers throughout the attack. It is not yet possible to reasonably estimate the impact on our financial results or the extent to which wethree leases will ~~receive reimbursement from our insurers.~~

approximate $30 million.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

15. ~~Leased Assets and Liabilities~~Stockholders’ Equity

We lease real estate and equipment under operating and finance lease agreements. Our leases have terms of up to 15 years, some of which include the option to extend the lease for up to 5 years. At lease commencement, a lease liability and corresponding right-of-use asset is recognized. Lease liabilities represent the present value of 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 all fixed payments and variable payments tied to an index. Variable payments excluded from the right-of-use asset and lease liability 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

Changes in stockholders’ equity were as follows:

Leases Balance Sheet Location September 30, 2019 December 31, 2018
Assets
Operating Operating lease assets $ 172,617
$ 152,554
Finance Property, plant and equipment, net 11,250
10,683
Total leased assets $ 183,867
$ 163,237

Liabilities
Operating Current operating lease liabilities $ 34,091
$ 35,208
Noncurrent operating lease liabilities 148,125
125,294
Finance Accounts payable and accrued liabilities 2,773
2,708
Other noncurrent liabilities 7,589
7,054
Total lease liabilities $ 192,578
$ 170,264



	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

Three Months Ended September 30, Nine Months Ended September 30,
Lease Cost 2019 2018 2019 2018
Operating lease expense $ 12,347
$ 12,395
$ 34,750
$ 33,835
Finance lease expense
Amortization of leased assets 838
692
2,529
1,934
Interest on lease liabilities 172
135
520
378
Variable lease expense 4,969
4,272
18,821
16,486
Sublease income (381 ) (680 ) (1,726 ) (1,132 )
Total expense $ 17,945
$ 16,814
$ 54,894
$ 51,501



	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

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

Future Lease Payments Operating Leases Finance Leases Total
Remaining for year ending December 31, 2019 $ 11,233
$ 907
$ 12,140
Year ending December 31, 2020 42,292
3,242
45,534
Year ending December 31, 2021 35,970
2,850
38,820
Year ending December 31, 2022 27,799
2,278
30,077
Year ending December 31, 2023 21,392
1,626
23,018
Thereafter 88,779
983
89,762
Total 227,465
11,886
239,351
Less: present value discount 45,249
1,524
46,773
Lease liability $ 182,216
$ 10,362
$ 192,578

~~Operating leases exclude $28 million of minimum lease payments for leases signed but not yet commenced at September 30, 2019.~~



	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)

Lease Term and Discount Rate September 30, 2019 December 31, 2018
Weighted-average remaining lease term
Operating leases 7.5 years 7.2 years
Finance leases 4.0 years 4.1 years
Weighted-average discount rate
Operating leases 5.9% 4.5%
Finance leases 6.7% 6.2%

Three Months Ended September 30, Nine Months Ended September 30,
Cash Flow Information 2019 2018 2019 2018
Operating cash outflows - operating leases $ 10,440
$ 12,319
$ 32,041
$ 33,075
Operating cash outflows - finance leases $ 172
$ 135
$ 520
$ 378
Financing cash outflows - finance leases $ 758
$ 630
$ 2,278
$ 1,786

Leased assets obtained in exchange for new lease obligations
Operating leases $ 3,123
$ 26,134
$ 51,504
$ 33,128
Finance leases $ 1,124
$ 2,983
$ 3,227
$ 4,143

~~16. Stockholders’ Equity~~

~~Changes in stockholders’ equity for the three months ended September 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 July 1, 2019 $ —
$ —
$ 323,338
$ 105,341
$ 5,282,374
$ (907,678 ) $ (4,750,403 ) $ 52,972
Net loss —
—
—
—
(3,125 ) —
—
(3,125 )
Other comprehensive loss —
—
—
—
—
(18,774 ) —
(18,774 )
Dividends paid ($0.05 per common share) —
—
—
—
(8,508 ) —
—
(8,508 )
Issuance of common stock —
—
—
(10,146 ) —
—
11,291
1,145
Conversion to common stock —
—
—
(246 ) —
—
246
—
Stock-based compensation expense —
—
—
6,702
—
—
—
6,702
Repurchase of common stock —
—
—
—
—
—
(5,000 ) (5,000 )
Balance at September 30, 2019 $ —
$ —
$ 323,338
$ 101,651
$ 5,270,741
$ (926,452 ) $ (4,743,866 ) $ 25,412



	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

Preferred
stock

Preference
stock
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at July 1, 2018 $ 1
$ 415
$ 323,338
$ 122,732
$ 5,103,588
$ (811,804 ) $ (4,689,309 ) $ 48,961
Net income —
—
—
—
80,277
—
—
80,277
Other comprehensive income —
—
—
—
—
5,639
—
5,639
Dividends paid ($0.1875 per common share) —
—
—
—
(35,183 ) —
—
(35,183 )
Issuance of common stock —
—
—
(11,190 ) —
—
12,909
1,719
Conversion to common stock —
(12 ) —
(242 ) —
—
254
—
Stock-based compensation expense —
—
—
6,618
—
—
—
6,618
Balance at September 30, 2018 $ 1
$ 403
$ 323,338
$ 117,918
$ 5,148,682
$ (806,165 ) $ (4,676,146 ) $ 108,031
16. Accumulated Other Comprehensive Loss (AOCL)

Reclassifications out of AOCL were as follows:



	Gain (Loss) Reclassified from AOCL
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Cash flow hedges
Revenue	$	(64	)	$	(36	)	$	(3	)	$	75
Cost of sales	32			29			42			45
Total before tax	(32		)	(7		)	39			120
Income tax (benefit) provision	(8		)	(1		)	10			31
Net of tax	$	(24	)	$	(6	)	$	29		$	89

Available-for-sale securities
Interest expense, net	$	3,233		$	(81	)	$	3,517		$	(104	)
Income tax provision (benefit)	805			(21		)	876			(27		)
Net of tax	$	2,428		$	(60	)	$	2,641		$	(77	)

Pension and postretirement benefit plans
Transition credit	$	1		$	1		$	2		$	3
Prior service costs	(138		)	(126		)	(277		)	(254		)
Actuarial losses	(10,940		)	(8,112		)	(21,933		)	(17,271		)
Settlement	(3,802		)	(1,198		)	(4,191		)	(1,198		)
Total before tax	(14,879		)	(9,435		)	(26,399		)	(18,720		)
Income tax benefit	(3,502		)	(2,124		)	(6,152		)	(4,773		)
Net of tax	$	(11,377	)	$	(7,311	)	$	(20,247	)	$	(13,947	)

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Changes in ~~stockholders’ equity for the nine months ended September 30, 2019 and 2018~~AOCL 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 January 1, 2019 $ 1
$ 396
$ 323,338
$ 121,475
$ 5,279,682
$ (948,961 ) $ (4,674,089 ) $ 101,842
Net income —
—
—
—
17,913
—
—
17,913
Other comprehensive income —
—
—
—
—
22,509
—
22,509
Dividends paid ($0.15 per common share) —
—
—
—
(26,854 ) —
—
(26,854 )
Issuance of common stock —
—
—
(32,877 ) —
—
32,289
(588 )
Conversion to common stock —
(130 ) —
(2,804 ) —
—
2,934
—
Redemption of preferred/preference stock (1 ) (266 ) —
(10 ) —
—
—
(277 )
Stock-based compensation expense —
—
—
15,867
—
—
—
15,867
Repurchase of common stock —
—
—
—
—
—
(105,000 ) (105,000 )
Balance at September 30, 2019 $ —
$ —
$ 323,338
$ 101,651
$ 5,270,741
$ (926,452 ) $ (4,743,866 ) $ 25,412

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 —
—
—
—
191,842
—
—
191,842
Other comprehensive loss —
—
—
—
—
(11,225 ) —
(11,225 )
Dividends paid ($0.5625 per common share) —
—
—
—
(105,296 ) —
—
(105,296 )
Issuance of common stock —
—
—
(35,457 ) —
—
34,050
(1,407 )
Conversion to common stock —
(38 ) —
(763 ) —
—
801
—
Stock-based compensation expense —
—
—
15,771
—
—
—
15,771
Balance at September 30, 2018 $ 1
$ 403
$ 323,338
$ 117,918
$ 5,148,682
$ (806,165 ) $ (4,676,146 ) $ 108,031

~~PITNEY BOWES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~17. Accumulated Other Comprehensive Income~~

~~Reclassifications out of AOCI for the three and nine months ended September 30, 2019 and 2018 were as follows:~~

Amount Reclassified from AOCI⁽¹⁾
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Losses) gains on cash flow hedges
Revenue $ (98 ) $ (38 ) $ (23 ) $ 38
Cost of sales 54
52
99
(33 )
Interest expense, net —
(825 ) —
(1,839 )
Total before tax (44 ) (811 ) 76
(1,834 )
Income tax benefit (provision) 11
206
(19 ) 468
Net of tax $ (33 ) $ (605 ) $ 57
$ (1,366 )

Gains (losses) on available for sale securities
Interest expense, net $ 146
$ (40 ) $ 42
$ 150
Income tax (provision) benefit (37 ) 10
(11 ) (38 )
Net of tax $ 109
$ (30 ) $ 31
$ 112

Pension and Postretirement Benefit Plans ⁽²⁾

Transition credit $ 2
$ 2
$ 5
$ 5
Prior service costs (123 ) (79 ) (377 ) (188 )
Actuarial losses (8,587 ) (9,996 ) (25,858 ) (31,298 )
Settlements (1,477 ) (1,135 ) (2,675 ) (1,135 )
Total before tax (10,185 ) (11,208 ) (28,905 ) (32,616 )
Income tax benefit 2,633
2,399
7,406
7,766
Net of tax $ (7,552 ) $ (8,809 ) $ (21,499 ) $ (24,850 )


⁽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).~~

~~Changes in AOCI for the nine months ended September 30, 2019 and 2018 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 (loss) before reclassifications ⁽¹⁾
135
7,547
—
(6,584 ) 1,098
Reclassifications into earnings ^{(1), (2)}
(57 ) (31 ) 21,499
—
21,411
Net other comprehensive income (loss) 78
7,516
21,499
(6,584 ) 22,509
Balance at September 30, 2019 $ 269
$ 4,455
$ (824,962 ) $ (106,214 ) $ (926,452 )



	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 loss before reclassifications ⁽¹⁾
(593 ) (6,402 ) —
(30,334 ) (37,329 )
Reclassifications into earnings ^{(1), (2)}
1,366
(112 ) 24,850
—
26,104
Net other comprehensive income (loss) 773
(6,514 ) 24,850
(30,334 ) (11,225 )
Balance at September 30, 2018 $ 367
$ (4,917 ) $ (723,950 ) $ (77,665 ) $ (806,165 )



	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 relationship with the United States Postal Service (USPS)

expenses and potential ~~impact on client relationships~~impacts resulting from ~~the October 2019 malware attack that affected the Company's operations~~

a breach of security, including ~~a future cyber-attack~~cyber-attacks or other comparable ~~event~~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 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 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 continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws

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

~~changes in postal regulations~~

~~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

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

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. In January 2019, we also sold the direct operations and moved to a dealer model in six smaller markets within the SendTech Solutions segment (Market Exits).

In the quarter, we recast our segment reporting to combine North America Mailing and International Mailing into the Sending Technology Solutions (SendTech Solutions) segment to reflect how we manage these operations and the products and services provided to our clients.

In August 2019, we entered into a definitive agreement to sell our Software Solutions business for $700 million, subject to certain adjustments. We anticipate net proceeds from the sale, after closing costs, transaction fees and taxes, to be approximately $625 million and will use a majority of these proceeds to repay debt. The transaction is expected to be completed by the end of the year. The Software Solutions business is now reported as a discontinued operation in our Condensed Consolidated Financial Statements and prior periods have been recast to conform to the current period presentation.

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

2019 2018 Change
Revenue $ 790,125
$ 760,281
4%
Segment earnings before interest and taxes (EBIT) $ 126,848
$ 137,712
(8)%
Income from continuing operations $ 5,345
$ 47,656
(89)%
Diluted earnings per share - continuing operations $ 0.03
$ 0.25
(88)%



	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	)%

Revenue increased ~~4% from the prior year period,~~6% as reported and 6% excluding the impact from Market Exits. The increase was driven by a 15% increase in Business services revenue due to growth in Commerce Services partially offset by an 11% decrease in Supplies revenue, a 9% decrease in Support services revenue and a 6% decrease in Financing revenue, driven by overall declines in our SendTech Solutions shipping and mailing business.

~~On a segment basis, Global Ecommerce revenue increased 20% and Presort Services revenue increased 5%, partially offset by a decline in SendTech Solutions revenue of 6%. Excluding~~7% at constant currency ~~and Market Exits, SendTech Solutions revenue decreased 3%. Commerce Services was the largest contributor of revenue and accounted for 52% of revenue~~ for the ~~current~~ quarter ~~compared to 47% from the prior year period.~~

Segment EBIT declined 8% from the prior year period. Global Ecommerce reported an EBIT loss of $22 million compared to a loss of $14 million in the prior year, primarily driven by a decline in margins as the mix of business continues to shift to faster growing, but lower margin services. Presort Services EBIT was relatively flat compared to the prior ~~year period, primarily due to higher volumes and labor cost per unit improvement, offset by higher costs. SendTech Solutions EBIT declined 3% due to the decline in revenue and impact of Market Exits.~~

Income from continuing operations declined in the quarter, primarily due to higher restructuring and asset impairment charges and a decline in gross margins, partially offset by a tax benefit from the release of a foreign valuation allowance.

~~Financial Results Summary - Nine Months Ended September 30:~~

2019 2018 Change
Revenue $ 2,373,782
$ 2,354,108
1%
Segment earnings before interest and taxes (EBIT) $ 374,341
$ 441,419
(15)%
Income from continuing operations $ 32,112
$ 132,553
(76)%
Diluted earnings per share - continuing operations $ 0.18
$ 0.70
(74)%
Net cash provided by operations $ 182,284
$ 258,570
(30)%

~~Revenue increased 1% from the prior year period, and 3% excluding the unfavorable impact from Market Exits.~~year. Business services revenue increased ~~11%~~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,~~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 partially offset by declines in ~~all~~ other revenue ~~lines driven by a decline in~~line items. In our ~~SendTech Solutions shipping and mailing business.~~

~~On a segment basis,~~business segments, Global Ecommerce revenue grew 26% due to increased ~~15% and~~volumes, Presort Services revenue ~~increased 3%~~declined 2% and SendTech Solutions revenue declined 11%. Segment EBIT decreased 23%, ~~which was partially offset by a decline~~primarily due to lower revenue in SendTech Solutions, ~~revenue~~higher credit losses and the mix of 8%business in ~~total~~Global Ecommerce and ~~5% excluding~~increased costs attributed to COVID-19. Refer to Results of Operations section for further information.

Commerce Services EBIT margins in the ~~impact of Market Exits~~quarter and ~~currency.~~year-to-date periods were adversely impacted by increased labor and 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 15%~~in the second quarter was improved from the first quarter 2020 and prior year ~~period. Global Ecommerce reported an~~period reflecting scale-related benefits in per unit transportation and warehousing costs. SendTech Solutions EBIT ~~loss of $52 million compared to a loss of $28 million~~margins in the ~~prior year,~~quarter and Presort Services EBIT declined 15%. The decline in Global Ecommerce was primarily driven by a decline in margins resulting from a shift in the mix of business to faster growing, but lower margin services. The decline in Presort Services was primarily due to higher consulting fees, transportation costs and bad debt expense, partially offset by labor cost per unit improvement. SendTech EBIT declined 8% due to the decline in revenue, lower margins attributable in part to increased costs from tariffs and a charge related to a SendPro C tablet replacement program to address an underlying battery longevity issue.

~~Income from continuing operations declined~~year-to-date periods were relatively unchanged compared to the prior year ~~period,~~periods despite double-digit declines in revenue, primarily due to ~~higher restructuring~~lower operating expenses from cost savings initiatives.

Second Quarter Highlights

We drew down $100 million under our revolving credit facility as a precautionary measure and ~~asset impairment charges, lower margins,~~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 ~~from Market Exits, primarily due~~related to the ~~write-off of cumulative translation adjustments and a tax benefit from the release of a foreign valuation allowance.~~October 2019 malware attack that temporarily disrupted customer access to some services.

~~Outlook~~

We are creating a more focused and streamlined portfolio that is shifting to higher growth markets. We continue to invest in market opportunities and new services and solutions across all our businesses and optimize our cost structure to drive long-term value. We expect revenue to continue to grow as we transform our portfolio and margins to improve as we build scale and realize the full benefits of our investments.

Within Global Ecommerce, we expect continued revenue growth from the expansion of our domestic parcel business and shipping solutions. We anticipate higher shipping volumes in the fourth quarter as we enter the holiday season. We are implementing organizational changes designed to reduce costs and improve margins and profitability. With Presort Services, we expect revenue and EBIT growth from higher volumes, improving margins and operational efficiencies.

Within SendTech Solutions, we expect the magnitude of the revenue decline to be mitigated by the introduction of new services and products, opportunities through natural adjacencies in the business, sales of our SendPro C product and expanded third-party equipment financing alternatives. We expect trade tariffs to continue to adversely impact EBIT and equipment sales margins.

~~Beginning on October 12, 2019,~~In May 2020, we were affected by a ~~malware~~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") that encrypted information on some systems~~attack.

Impacts of COVID-19

The global spread of COVID-19 and ~~disrupted client access to our services. Upon discovering~~ the ~~unauthorized access, we took immediate actions~~efforts to contain it adversely affected the U.S. and ~~remediate~~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 ~~malware attack. We engaged third-party cybersecurity experts~~ability to work remotely are doing so. Our facilities continue to operate, and ~~informed various law enforcement agencies.~~many employees continue to report to work at these facilities. We have ~~identified~~implemented additional measures to protect the ~~malware that affected~~health and safety of our ~~systems as~~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 ~~Ryuk virus, which specifically targets Microsoft Windows based operating systems. Our financial information is not stored on~~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 ~~Microsoft Windows operating system,~~result of the additional health and ~~was therefore not affected. Additionally, the backup data storage systems for virtually~~safety measures implemented in all our ~~client, employee and other business data was not impacted by the attack. Based on the work performed to date,~~Commerce Services facilities, we do not believe that any sensitive or confidential client or employee data has been improperly accessed or extracted from our network. We have made substantial progress in bringing critical systems back online, re-enabling client access to our services and restoring access to data that was encrypted.

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 ~~remediate~~ 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 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

The severity, duration and governmental responses of COVID-19 are uncertain, and we 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 continue to take proactive measures to protect the health and safety of our employees, clients, partners and suppliers. These additional safety measures will result in additional expenses and reduced productivity. Corporate and local management will continue to 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, domestic parcel delivery volumes have increased significantly due to a global market shift to ecommerce solutions. While we cannot predict the magnitude of volume increases, we expect

this ~~attack, determine how unauthorized users gained access~~shift to continue throughout the remainder of the year. We signed on over 100 new clients in the second quarter and volumes from these clients will benefit the second half of the year. Cross-border volumes are still experiencing declines and we expect this to 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 second quarter as we needed to react quickly to process and deliver these parcels. However, the higher volumes resulted in scale-related benefits in per unit transportation and warehousing costs. We expect continued improvements in 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 from current levels; however, the timing and magnitude of this improvement would be contingent on the 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 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 ~~systems~~cash flows. Nonrecurring revenues, primarily equipment sales and ~~implement enhanced security features and monitoring procedures. Our fourth quarter operating results~~to a lesser extent, supplies, will continue to be adversely ~~affected as we were~~impacted by COVID-19 due to declining demand and usage. We are unable to ~~provide revenue-generating services~~predict the duration and magnitude of these declines or determine when, or if, demand and usage will return to ~~some~~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 second quarter and expect this shift in market preference to continue as clients realize the value of our ~~clients for a few days~~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 balance sheet that we believe will ~~incur additional costs~~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, ~~costs~~prioritizing our capital expenditures to ~~meet client service level agreements, consulting fees~~essential and ~~hardware replacement costs.~~necessary investments and reducing targeted loan originations at Wheeler Financial. We ~~maintain insurance coverage~~estimate that these actions alone will benefit annual cash flows by approximately $75 million. Refer to the Liquidity and Capital Resources section for these types of incidents and have been working with our carriers throughout the attack. It is not yet possible to reasonably estimate the impact on our financial results or the extent to which we will receive reimbursement from our insurers.

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 September 30, Nine Months Ended September 30,
2019 2018 Actual % change Constant Currency % change 2019 2018 Actual % change Constant currency % change
Equipment sales $ 89,618
$ 88,799
1 % 2 % $ 264,956
$ 289,318
(8 )% (7 )%
Supplies 44,818
50,403
(11 )% (10 )% 142,261
165,853
(14 )% (13 )%
Rentals 19,737
21,432
(8 )% (7 )% 60,339
65,852
(8 )% (7 )%
Financing 90,577
96,799
(6 )% (6 )% 280,039
294,277
(5 )% (4 )%
Support services 126,274
138,055
(9 )% (8 )% 382,578
417,303
(8 )% (7 )%
Business services 419,101
364,793
15 % 15 % 1,243,609
1,121,505
11 % 11 %
Total revenue $ 790,125
$ 760,281
4 % 4 % $ 2,373,782
$ 2,354,108
1 % 2 %

Three Months Ended September 30, Nine Months Ended September 30,
Percentage of Revenue Percentage of Revenue
2019 2018 2019 2018 2019 2018 2019 2018
Cost of equipment sales $ 59,859
$ 52,209
66.8 % 58.8 % $ 182,094
$ 173,626
68.7 % 60.0 %
Cost of supplies 12,225
13,967
27.3 % 27.7 % 37,533
46,652
26.4 % 28.1 %
Cost of rentals 5,090
9,174
25.8 % 42.8 % 23,223
30,386
38.5 % 46.1 %
Financing interest expense 11,026
10,849
12.2 % 11.2 % 33,433
33,107
11.9 % 11.3 %
Cost of support services 41,086
45,872
32.5 % 33.2 % 123,453
134,204
32.3 % 32.2 %
Cost of business services 338,519
287,237
80.8 % 78.7 % 1,003,483
872,183
80.7 % 77.8 %
Total cost of revenue $ 467,805
$ 419,308
59.2 % 55.2 % $ 1,403,219
$ 1,290,158
59.1 % 54.8 %

~~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 in the quarter increased 1% as reported and 2% at constant currency, primarily due to a large deal in France. Equipment sales in the first nine months of 2019 decreased 8% as reported and 7% at constant currency, primarily due to lower sales of our bottom-of-the-line products. Market Exits had an adverse effect on equipment sales of 2% in both the quarter and year-to-date periods.

Supplies revenue decreased 11% as reported and 10% at constant currency in the quarter and 14% as reported and 13% at constant currency in the first nine months of 2019. Market Exits accounted for 4% of the decline in both the quarter and year-to-date periods, and the remainder of the decrease was due to a worldwide decline in our shipping and mailing business.

~~Rentals revenue decreased 8% as reported and 7% at constant currency both in the quarter and year-to-date periods, primarily due to a worldwide decline in our meter population.~~

Financing revenue decreased 6% in the quarter and 5% as reported and 4% at constant currency in the first nine months of 2019, primarily due to a declining portfolio. Market Exits accounted for 1% of the decline in both the quarter and year-to-date periods.

Support services revenue decreased 9% as reported and 8% at constant currency in the quarter and 8% as reported and 7% at constant currency in the first nine months of 2019, primarily due to a worldwide decline in our meter population.

Business services revenue increased 15% in the quarter and 11% in the first nine months of 2019, primarily due to growth in domestic parcel and shipping solutions volumes and mail volumes at Presort Services.

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

Cost of revenue as a percent of revenue in the quarter increased to 59.2% from 55.2% in the prior year period. Cost of equipment sales as a percent of equipment revenue increased to 66.8% from 58.8%. Trade tariffs and higher engineering costs impacted equipment sales margins by 3 percentage points and 2 percentage points, respectively. The decline in equipment sales revenue primarily contributed to the remaining decline in margin. Cost of rentals as a percent of rentals revenue decreased to 25.8% from 42.8%, primarily due to a favorable adjustment to cost of rentals recorded in the current quarter. Cost of business services as a percent of business service revenue increased to 80.8% from 78.7% in the prior year period primarily due to a shift in the mix of business to faster growing, but lower-margin services, investments in market growth opportunities and higher fulfillment costs to bring on new clients.

Cost of revenue as a percent of revenue in the first nine months of 2019 increased to 59.1% from 54.8% in the prior year period. Cost of equipment sales as a percent of equipment revenue increased to 68.7% from 60.0%. A charge related to a SendPro C tablet replacement program to address an underlying battery longevity issue recorded in the first quarter adversely impacted equipment sales margins by 3 percentage points, trade tariffs reduced equipment sales margins 2 percentage points and higher engineering costs adversely impacted equipment sales margins by one percentage point. The remaining decline in margin was due to the decrease in revenue. Costs of rentals as a percent of rentals revenue decreased to 38.5% from 46.1%, primarily due to the favorable adjustment to cost of rentals recorded in the third quarter. Cost of business services as a percent of business service revenue increased to 80.7% from 77.8% in the prior year period primarily due to higher labor, transportation and postage costs, a shift in the mix of business to faster growing, but lower-margin services and investments in market growth opportunities.

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. Cost of financing expense as a percentage of finance revenue was relatively consistent in the quarter and year-to-date periods compared to the prior year periods.

~~Selling, general and administrative (SG&A)~~

SG&A expense of $254 million in the quarter increased 5% compared to the prior period, primarily due to higher employee-related costs of $10 million and higher bad debt expense of $2 million. SG&A expense of $757 million for the first nine months of 2019, was flat compared to the prior period.

~~Research and development (R&D)~~

R&D expense decreased 22% in the quarter primarily due to lower spending of $3 million in SendTech Solutions. R&D expense decreased 14% in the year-to-date period, primarily due to lower spending of $3 million in both Global Ecommerce and SendTech Solutions.

~~Restructuring charges and asset impairments, net~~

Restructuring charges and asset impairments, net in the three and nine months ended September 30, 2019 were $47 million and $57 million, respectively. Restructuring related charges for the three and nine months ended September 30, 2019 were $6 million and $15 million, respectively.

Asset impairment charges for the three and nine months ended September 30, 2019 were $41 million and $42 million, respectively, and primarily include the write-off of capitalized software costs related to the development of a new enterprise resource planning (ERP) system in our international markets. As a result of the sale of our Production Mail business in 2018, the January 2019 Market Exits and the pending sale of our Software Solutions business, our international footprint has been significantly reduced. Accordingly, we re-evaluated our international strategy. In the third quarter, we decided to permanently cease the development and implementation of this ERP system and recorded an impairment charge to write-off the investment.

Restructuring charges and asset impairments, net in the three and nine months ended September 30, 2018 were $6 million and $19 million, respectively, and consisted of restructuring related charges. See Note 10 to the Condensed Consolidated Financial Statements for further information.

~~Other expense~~

Other expense for the current quarter in 2019 represents a loss on the early extinguishment of debt. Other expense for the nine months ended September 30, 2019 also includes the loss on Market Exits of $18 million, primarily from the write-off of cumulative translation adjustments. Other expense for 2018 represents a loss on the early extinguishment of debt.

~~Income taxes~~

~~See Note 13 to the Condensed Consolidated Financial Statements for further information.~~

~~Discontinued Operations~~

Discontinued operations includes the our Software Solutions business and Document Messaging Technology production mail business and supporting software (Production Mail Business), which was sold in July 2018. See Note 4 to the Condensed Consolidated Financial Statements for further information.

~~Business Segment Results~~

~~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.~~

~~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.

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

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.

~~Segment information for~~REVENUE AND SEGMENT EBIT

Global Ecommerce

Global Ecommerce includes the ~~three~~revenue and ~~nine months ended September 30, 2019~~related expenses from products and ~~2018 is presented below:~~services that enable domestic and cross-border ecommerce transactions, including shipping, fulfillment and returns.

Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 Actual % change Constant currency % change 2019 2018 Actual % change Constant currency % change
Global Ecommerce $ 278,995
$ 232,845
20 % 20 % $ 827,568
$ 718,535
15 % 16 %
Presort Services 131,483
125,334
5 % 5 % 394,468
382,522
3 % 3 %
Commerce Services 410,478
358,179
15 % 15 % 1,222,036
1,101,057
11 % 11 %
SendTech Solutions 379,647
402,102
(6 )% (5 )% 1,151,746
1,253,051
(8 )% (7 )%
Total $ 790,125
$ 760,281
4 % 4 % $ 2,373,782
$ 2,354,108
1 % 2 %



	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 to 10.7% from 15.4% in the prior year primarily due to higher labor, postage and other incremental costs driven by COVID-19.

Segment EBIT for the second quarter of 2020 was a loss of $19 million compared to a loss of $16 million in the 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 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.

EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 % change 2019 2018 % change
Global Ecommerce $ (21,793 ) $ (14,330 ) (52 )% $ (51,969 ) $ (28,034 ) (85 )%
Presort Services 17,687
17,435
1 % 48,215
57,026
(15 )%
Commerce Services (4,106 ) 3,105
>(100%)
(3,754 ) 28,992
>(100%)
SendTech Solutions 130,954
134,607
(3 )% 378,095
412,427
(8 )%
Total Segment EBIT $ 126,848
$ 137,712
(8 )% $ 374,341
$ 441,419
(15 )%



	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 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 to 10.1% from 15.9% in the prior year primarily due to a shift in the mix of business and incremental costs driven by COVID-19.

Segment EBIT for the first half of 2020 was a loss of $48 million compared to a loss of $30 million in the prior year period. The increased loss was primarily driven by higher credit loss expense of $8 million, higher labor and postal costs, incremental costs related to sanitizing and safety measures, the shift in the mix of business and incremental costs associated with new facilities that opened during the fourth quarter of 2019.

Presort Services

Presort Services includes revenue and related expenses from sortation services to 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 of 2020 compared to the prior year period due to 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 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 2020. The decrease in gross margin was primarily due to the decline in revenue and increased 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 malware attack in 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.



	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 decreased 2% in the first half of 2020 compared to the prior year period due to lower volumes of Marketing Mail and First Class Mail, driven by COVID-19. Revenue declined 5% due to lower organic volumes but benefited 3% from acquisitions.

Gross margin decreased to 23.2% from 24.3% and segment EBIT declined $2 million, or 7%, in the first 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 declining meter population and financing revenue decreased 7% at constant currency primarily driven by a declining lease portfolio. Business services revenue increased $5 million, or 68% at constant currency, primarily due to 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 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 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.

~~Global Ecommerce~~

~~Global Ecommerce revenue increased 20%~~CONSOLIDATED OPERATING AND OTHER EXPENSES

Selling, general and administrative (SG&A)

SG&A expense of $234 million in the quarter across all platforms, but primarily due to 11% growth in domestic parcel and fulfillment volumes and 9% growth in shipping solutions volumes. EBIT loss for the quarter increased to $22 million compared to a loss of $14 million in the prior year period primarily driven by a decline in margins resulting from a shift in the mix of business to faster growing, but lower margin services, facility investments and higher incremental fulfillment costs to bring on new clients. The EBIT loss was partially offset by volume growth in shipping API labels.

Global Ecommerce revenue increased 15% as reported and 16% at constant currency in the first nine months of 2019 primarily due to growth in domestic parcel and shipping solutions volumes of 12% and 6%, respectively, partially offset by a decline of 2% in cross border volumes. EBIT for the first nine months of 2019 was a loss of $52 million compared to a loss of $28 million in the prior year period. The higher loss was primarily driven by a decline in margins resulting from a shift in the mix of business to fast growing, but lower margin services, investments in new facilities and marketing programs and higher transportation, fulfillment and labor costs.

~~Presort Services~~

Presort Services revenue increased 5% in the quarter. Volumes processed increased 6% primarily due to First Class and Marketing Mail; however, lower revenue per piece adversely impacted revenue by 1%. EBIT was relatively flatdecreased 3% compared to the prior ~~year~~ period, driven by higher revenue and $4 million in lower labor costs per unit resulting from implemented productivity actions, offset by higher consulting fees of $1 million and higher investments in the business of $1 million.

Presort Services revenue increased 3% in the first nine months of 2019. Higher volumes of mail processed increased revenue 4%; however, lower revenue per piece adversely impacted revenue by 1%. EBIT decreased 15% in the first nine months of 2019. Higher consulting fees of $4 million, higher transportation costs of $3 million and higher bad debt expense of $2 million were partially offset by lower labor costs per unit of $4 million resulting from implemented productivity actions.

~~SendTech Solutions~~

~~SendTech Solutions revenue decreased 6% as reported and 5% at constant currency in the quarter, primarily due to:~~

~~2% from Market Exits;~~

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

~~1% from lower financing fees; offset by~~

~~1% from higher equipment sales primarily due to a large deal in France.~~

~~EBIT decreased 3% in the quarter, primarily due to a 7% decline in gross profit, driven by the decline in revenue, partially offset by lower operating expenses of $15 million.~~

~~SendTech Solutions revenue decreased 8% as reported and 7% at constant currency in the first nine months of 2019, primarily due to:~~

~~2% from Market Exits;~~

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

~~1% from lower financing fees; and~~

~~1% from lower equipment sales~~ primarily due to lower ~~sales~~travel related expenses of ~~our bottom-of-the-line products.~~

~~EBIT decreased 8%~~$7 million as we imposed travel restrictions in ~~first nine months~~response to COVID-19, lower professional fees of ~~2019, primarily~~$5 million due to ~~a 10% decline in gross profit, primarily due to the decline in revenue, a charge~~contract renegotiations and lower marketing expenses of ~~$9 million related to a SendPro C tablet replacement program to address an underlying battery longevity issue and higher costs from trade tariffs of $6~~$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 ~~operating~~professional fees of $15 million, lower employee costs of $8 million and lower travel related expenses of ~~$47~~$7 million, partially offset by higher credit loss provision of $13 million.

Research and development (R&D)

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

Restructuring charges and asset impairments

Restructuring charges and asset impairments 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 $9 million and $10 million, 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 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 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 ~~cost savings initiatives.~~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.

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~~ ~~$652 million~~ at ~~September 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 $154 million at September 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 nine months ended September 30, 2019 and 2018~~ were as follows:


	2019			2018			Change			2020			2019			Change
Net cash provided by operating activities	$	182,284		$	258,570		$	(76,286	)	$	86,809		$	86,782		$	27
Net cash (used in) provided by investing activities	(201,681		)	234,241			(435,922		)
Net cash used in investing activities										(54,545		)	(36,151		)	(18,394		)
Net cash used in financing activities	(327,192		)	(725,922		)	398,730			(84,598		)	(146,770		)	62,172
Effect of exchange rate changes on cash and cash equivalents	(5,822		)	(15,653		)	9,831			(9,211		)	(81		)	(9,130		)
Change in cash and cash equivalents	$	(352,411	)	$	(248,764	)	$	(103,647	)	$	(61,545	)	$	(96,220	)	$	34,675

Operating Activities

Cash provided by operating activities of $87 million in the first ~~nine months~~half of ~~2019 declined $76 million~~2020 was flat compared to the prior ~~year period.~~year. Cash flows from continuing operations ~~decreased $24~~increased $44 million, primarily due to lower income from continuing operations of $100 million, partially offset by higher asset impairment charges of $38 million, lower restructuring payments of $20 million, a non-cash loss on Market Exits of $18 million, and working capital changes ~~of $6 million, primarily related to~~including the timing of payments of accounts ~~payable and accrued liabilities.~~payable. Cash flows from discontinued operations declined ~~$53 million as we entered into an agreement~~due to ~~sell~~taxes related to the gain on the sale of our Software Solutions ~~business in August 2019 and sold the Production Mail Business in July 2018.~~

business.

Investing Activities

Cash used in investing activities in the first ~~nine months~~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 ~~$202~~$36 million, consisting primarily of capital expenditures of ~~$95~~$59 million ~~a $22~~and lower customer deposits at the PB Bank of $8 million, ~~use~~partially offset by net proceeds of ~~cash for a Presort acquisition, and net purchases of $60~~$47 million from investment activities.

Financing Activities

Cash ~~provided by investing~~used in financing activities in the first ~~nine months~~half of ~~2018~~2020 was ~~$234~~$85 million, ~~consisting primarily~~and includes payments of ~~proceeds~~$33 million for premiums and fees associated with the early extinguishment of ~~$340~~debt, net cash of $32 million ~~from the sale~~used for debt activities, including $21 million of ~~the Production Mail Business, partially offset by capital expenditures~~scheduled term loan repayments and $17 million of ~~$105 million.~~

~~Financing Activities~~

dividend payments. See Financings and Capitalization below for additional information. In the first ~~nine months~~half of 2019, cash used in financing activities included ~~$105~~$100 million to repurchase ~~18.6~~17.4 million shares of common stock, $25 million to repay term loan debt ~~repayments of $203 million~~ and ~~$27~~$18 million of ~~common stock~~ dividend payments.

In the first nine months of 2018, cash was used to repay $565 million of debt and pay dividends of $105 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

~~Through September 30, 2019,~~In the first quarter of 2020, we ~~repaid the remaining $165 million of our $200~~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 ~~made $38~~resets monthly. We used the net proceeds plus available cash to purchase under a tender offer $428 million of ~~scheduled payments under other term loans. In April 2019, Moody's lowered our corporate credit rating from Ba1 to Ba2. As a result,~~ the ~~interest rates on~~October 2021 notes, $250 million of the May 2022 notes, $125 million of the April 2023 notes and ~~September~~$125 million of the March 2024 notes. We incurred a loss of a $37 million on the early redemption of debt.

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. At June 30, 2020, we were in compliance with all covenants.

Interest rates on certain notes ~~increased 0.25% since December 31, 2018,~~are subject to adjustment based on changes in our credit ratings. As a result of credit rating downgrades in November 2019 and May 2020, the interest rates on the October 2021 notes and April 2023 notes increased ~~0.25% on October 1, 2019.~~

~~In November 2019, we repaid the $150 million term loan due November 2019~~0.50% and the ~~remaining balance~~interest rate on the May 2022 notes increased 0.75%. Further, the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the fourth quarter of ~~the $300 million term loan due December 2020, secured a new five-year $400 million term loan and replaced our revolving credit facility scheduled to mature in January 2021 for $500 million.~~

We are a "Well-Known Seasoned Issuer" within the meaning of Rule 405 under the Securities Act, which allows us to issue debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion.2020.

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 nine months of 2019, we repurchased 18.6 million shares at an aggregate cost of $105 million. At September 30, 2019, we had remaining authorization to repurchase up to $16 million of our common shares. Also, during the first nine months of the year, we paid dividends of $27 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 ~~September~~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 September 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.~~

to 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 ~~September~~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 September 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 $21,022
July 1, 2019 - July 31, 2019 1,160,123
$ 4.31
1,160,123
$16,022
August 1, 2019 - August 31, 2019 —
$ —
—
$16,022
September 1, 2019 - September 30, 2019 —
$ —
—
$16,022
1,160,123
$ —
1,160,123

Item 6: Exhibits

Exhibit

Number

Description

Exhibit Number in this Form 10-Q

Description

Exhibit Number in this Form 10-Q

2.1

Stock and Asset Purchase Agreement, dated as of August 23, 2019, between Pitney Bowes Inc. and Starfish Parent, LP* (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the Commission on August 27, 2019)

2.1

3(i)(a)

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)

3~~(a)~~

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)

10(a)

Second Amendment to the $150,000,000 Term Loan Facility, dated as of July 19, 2019, by and between the company and the Bank of Tokyo-Mitsubishi-UFJ, Ltd. (Exhibit 10(a))

10(a)

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.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document

104

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL. (included as Exhibit 101).

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(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:	~~November 5, 2019~~August 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 September 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
Equipment sales	$	—	$	—	$	19,062	$	19,062	$	70,556	$	89,618
Supplies	—		—		44,818		44,818		—		44,818
Rentals	—		—		—		—		19,737		19,737
Financing	—		—		—		—		90,577		90,577
Support services	—		—		126,274		126,274		—		126,274
Business services	278,995		131,483		8,623		419,101		—		419,101
Subtotal	278,995		131,483		198,777		609,255		$	180,870	$	790,125

Revenue from leasing transactions and financing
Equipment sales	—		—		70,556		70,556
Rentals	—		—		19,737		19,737
Financing	—		—		90,577		90,577
Total revenue	$	278,995	$	131,483	$	379,647	$	790,125

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	63,880	$	63,880
Products/services transferred over time	278,995		131,483		134,897		545,375
Total	$	278,995	$	131,483	$	198,777	$	609,255



	Three Months Ended September 30, 2018
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Equipment sales	$	—	$	—	$	20,428	$	20,428	$	68,371	$	88,799
Supplies	—		—		50,403		50,403		—		50,403
Rentals	—		—		—		—		21,432		21,432
Financing	—		—		—		—		96,799		96,799
Support services	—		—		138,055		138,055		—		138,055
Business services	232,845		125,334		6,614		364,793		—		364,793
Subtotal	232,845		125,334		215,500		573,679		$	186,602	$	760,281

Revenue from leasing transactions and financing
Equipment sales	—		—		68,371		68,371
Rentals	—		—		21,432		21,432
Financing	—		—		96,799		96,799
Total revenue	$	232,845	$	125,334	$	402,102	$	760,281

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	70,831	$	70,831
Products/services transferred over time	232,845		125,334		144,669		502,848
Total	$	232,845	$	125,334	$	215,500	$	573,679



	Remainder of 2019		2020		2021-2024		Total
SendTech Solutions	$	77,171	$	272,621	$	421,746	$	771,538



	December 31, 2018		Acquisition/(divestiture)			Currency impact			September 30, 2019
Global Ecommerce	$	609,431	$	—		$	—		$	609,431
Presort Services	207,465		5,064			—			212,529
Commerce Services	816,896		5,064			—			821,960
SendTech Solutions	515,455		(10,490		)	(9,888		)	495,077
Total goodwill	$	1,332,351	$	(5,426	)	$	(9,888	)	$	1,317,037



Leases	Balance Sheet Location	September 30, 2019		December 31, 2018
Assets
Operating	Operating lease assets	$	172,617	$	152,554
Finance	Property, plant and equipment, net	11,250		10,683
Total leased assets		$	183,867	$	163,237

Liabilities
Operating	Current operating lease liabilities	$	34,091	$	35,208
	Noncurrent operating lease liabilities	148,125		125,294
Finance	Accounts payable and accrued liabilities	2,773		2,708
	Other noncurrent liabilities	7,589		7,054
Total lease liabilities		$	192,578	$	170,264



	Three Months Ended September 30,						Nine Months Ended September 30,
Lease Cost	2019			2018			2019			2018
Operating lease expense	$	12,347		$	12,395		$	34,750		$	33,835
Finance lease expense
Amortization of leased assets	838			692			2,529			1,934
Interest on lease liabilities	172			135			520			378
Variable lease expense	4,969			4,272			18,821			16,486
Sublease income	(381		)	(680		)	(1,726		)	(1,132		)
Total expense	$	17,945		$	16,814		$	54,894		$	51,501



Future Lease Payments	Operating Leases		Finance Leases		Total
Remaining for year ending December 31, 2019	$	11,233	$	907	$	12,140
Year ending December 31, 2020	42,292		3,242		45,534
Year ending December 31, 2021	35,970		2,850		38,820
Year ending December 31, 2022	27,799		2,278		30,077
Year ending December 31, 2023	21,392		1,626		23,018
Thereafter	88,779		983		89,762
Total	227,465		11,886		239,351
Less: present value discount	45,249		1,524		46,773
Lease liability	$	182,216	$	10,362	$	192,578



Lease Term and Discount Rate	September 30, 2019	December 31, 2018
Weighted-average remaining lease term
Operating leases	7.5 years	7.2 years
Finance leases	4.0 years	4.1 years
Weighted-average discount rate
Operating leases	5.9%	4.5%
Finance leases	6.7%	6.2%



	Three Months Ended September 30,				Nine Months Ended September 30,
Cash Flow Information	2019		2018		2019		2018
Operating cash outflows - operating leases	$	10,440	$	12,319	$	32,041	$	33,075
Operating cash outflows - finance leases	$	172	$	135	$	520	$	378
Financing cash outflows - finance leases	$	758	$	630	$	2,278	$	1,786

Leased assets obtained in exchange for new lease obligations
Operating leases	$	3,123	$	26,134	$	51,504	$	33,128
Finance leases	$	1,124	$	2,983	$	3,227	$	4,143



	Amount Reclassified from AOCI⁽¹⁾
	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
(Losses) gains on cash flow hedges
Revenue	$	(98	)	$	(38	)	$	(23	)	$	38
Cost of sales	54			52			99			(33		)
Interest expense, net	—			(825		)	—			(1,839		)
Total before tax	(44		)	(811		)	76			(1,834		)
Income tax benefit (provision)	11			206			(19		)	468
Net of tax	$	(33	)	$	(605	)	$	57		$	(1,366	)

Gains (losses) on available for sale securities
Interest expense, net	$	146		$	(40	)	$	42		$	150
Income tax (provision) benefit	(37		)	10			(11		)	(38		)
Net of tax	$	109		$	(30	)	$	31		$	112

Pension and Postretirement Benefit Plans ⁽²⁾
Transition credit	$	2		$	2		$	5		$	5
Prior service costs	(123		)	(79		)	(377		)	(188		)
Actuarial losses	(8,587		)	(9,996		)	(25,858		)	(31,298		)
Settlements	(1,477		)	(1,135		)	(2,675		)	(1,135		)
Total before tax	(10,185		)	(11,208		)	(28,905		)	(32,616		)
Income tax benefit	2,633			2,399			7,406			7,766
Net of tax	$	(7,552	)	$	(8,809	)	$	(21,499	)	$	(24,850	)



	Three Months Ended September 30,								Nine Months Ended September 30,
					Percentage of Revenue								Percentage of Revenue
	2019		2018		2019		2018		2019		2018		2019		2018
Cost of equipment sales	$	59,859	$	52,209	66.8	%	58.8	%	$	182,094	$	173,626	68.7	%	60.0	%
Cost of supplies	12,225		13,967		27.3	%	27.7	%	37,533		46,652		26.4	%	28.1	%
Cost of rentals	5,090		9,174		25.8	%	42.8	%	23,223		30,386		38.5	%	46.1	%
Financing interest expense	11,026		10,849		12.2	%	11.2	%	33,433		33,107		11.9	%	11.3	%
Cost of support services	41,086		45,872		32.5	%	33.2	%	123,453		134,204		32.3	%	32.2	%
Cost of business services	338,519		287,237		80.8	%	78.7	%	1,003,483		872,183		80.7	%	77.8	%
Total cost of revenue	$	467,805	$	419,308	59.2	%	55.2	%	$	1,403,219	$	1,290,158	59.1	%	54.8	%



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance					$21,022
July 1, 2019 - July 31, 2019	1,160,123	$	4.31	1,160,123	$16,022
August 1, 2019 - August 31, 2019	—	$	—	—	$16,022
September 1, 2019 - September 30, 2019	—	$	—	—	$16,022
	1,160,123	$	—	1,160,123

3001 Summer Street,

Connecticut

Telephone Number: