Company Quick10K Filing
Quick10K
Pitney Bowes
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$7.21 187 $1,350
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-07-09 Officers
8-K 2018-07-03 Regulation FD, Exhibits
8-K 2018-07-02 M&A, Regulation FD, Other Events, Exhibits
8-K 2018-06-18 Officers
8-K 2018-05-08 Shareholder Vote
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-05-01 Enter Agreement, Regulation FD, Exhibits
8-K 2018-01-31 Earnings, Exhibits
GWW Grainger W W
HDS HD Supply Holdings
NCR NCR
MLHR Miller Herman
HNI HNI
KNL Knoll
PAR Par Technology
USAT USA Technologies
DBD Diebold Nixdorf
AEY Addvantage Technologies Group
PBI 2018-09-30
Part I. Financial Information
Item 1: Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II. Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 6: Exhibits
EX-12 pbi-20180930ex12.htm
EX-31.1 pbi-20180930ex311.htm
EX-31.2 pbi-20180930ex312.htm
EX-32.1 pbi-20180930ex321.htm
EX-32.2 pbi-20180930ex322.htm

Pitney Bowes Earnings 2018-09-30

PBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pbi2018093010q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-3579
PITNEY BOWES INC.
(Exact name of registrant as specified in its charter)

Delaware
 
06-0495050
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3001 Summer Street, Stamford, Connecticut
 
06926
(Address of principal executive offices)
 
(Zip Code)
(203) 356-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
 
Indicate by check mark whether the registrant has submitted electronically 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 o
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
 
As of October 30, 2018, 187,621,135 shares of common stock, par value $1 per share, of the registrant were outstanding.
 
 
 

1




PITNEY BOWES INC.
INDEX

 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2





PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 

 
 

 
 

 
 

Equipment sales
$
100,937

 
$
103,514

 
$
317,058

 
$
349,401

Supplies
50,403

 
53,627

 
165,853

 
173,321

Software
76,026

 
94,226

 
244,022

 
248,391

Rentals
91,115

 
95,333

 
277,550

 
290,087

Financing
76,730

 
81,079

 
233,504

 
250,477

Support services
74,117

 
75,783

 
219,311

 
223,056

Business services
363,528

 
229,711

 
1,117,942

 
672,133

Total revenue
832,856

 
733,273

 
2,575,240

 
2,206,866

Costs and expenses:
 

 
 

 
 

 
 

Cost of equipment sales
39,353

 
49,328

 
132,513

 
145,450

Cost of supplies
13,967

 
15,209

 
46,652

 
48,277

Cost of software
24,743

 
24,107

 
75,257

 
70,622

Cost of rentals
21,827

 
20,447

 
66,959

 
61,869

Financing interest expense
11,954

 
12,629

 
36,525

 
38,446

Cost of support services
43,259

 
39,468

 
125,995

 
122,889

Cost of business services
291,650

 
166,984

 
882,529

 
470,890

Selling, general and administrative
269,387

 
288,093

 
847,281

 
861,738

Research and development
32,760

 
29,316

 
94,155

 
88,598

Restructuring charges and asset impairments, net
7,232

 
1,470

 
19,639

 
29,109

Other components of net pension and postretirement cost
(1,852
)
 
1,356

 
(6,070
)
 
4,079

Interest expense, net
25,483

 
28,601

 
85,959

 
81,877

Other expense
7,964

 

 
7,964

 

Total costs and expenses
787,727

 
677,008

 
2,415,358

 
2,023,844

Income from continuing operations before taxes
45,129

 
56,265

 
159,882

 
183,022

(Benefit) provision for income taxes
(1,976
)
 
10,828

 
20,745

 
38,700

Income from continuing operations
47,105

 
45,437

 
139,137

 
144,322

Income from discontinued operations, net of tax
29,848

 
11,921

 
39,543

 
27,070

Net income
$
76,953

 
$
57,358

 
$
178,680

 
$
171,392

Basic earnings per share (1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.24

 
$
0.74

 
$
0.77

Discontinued operations
0.16

 
0.06

 
0.21

 
0.15

Net income
$
0.41

 
$
0.31

 
$
0.95

 
$
0.92

Diluted earnings per share (1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.24

 
$
0.74

 
$
0.77

Discontinued operations
0.16

 
0.06

 
0.21

 
0.14

Net income
$
0.41

 
$
0.31

 
$
0.95

 
$
0.92

Dividends declared per share of common stock
$
0.1875

 
$
0.1875

 
$
0.5625

 
$
0.5625

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





See Notes to Condensed Consolidated Financial Statements

3


PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)



 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
76,953

 
$
57,358

 
$
178,680

 
$
171,392

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(2,472
)
 
33,517

 
(31,545
)
 
100,223

Net unrealized gain on cash flow hedges, net of tax of $174, $122, $474 and $361, respectively
522

 
195

 
773

 
579

Net unrealized (loss) gain on investment securities, net of tax of $(417), $220, $(2,230) and $1,322, respectively
(1,218
)
 
375

 
(6,514
)
 
2,251

Adjustments to pension and postretirement plans, net of tax of $(304)

 

 

 
(1,482
)
Amortization of pension and postretirement costs, net of tax benefits of $2,399, $3,484, $7,766 and $10,440, respectively
8,810

 
6,744

 
24,850

 
20,078

Other comprehensive income (loss), net of tax
5,642

 
40,831

 
(12,436
)
 
121,649

Comprehensive income
$
82,595

 
$
98,189

 
$
166,244

 
$
293,041






































See Notes to Condensed Consolidated Financial Statements

4


PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share and per share amounts)


 
September 30, 2018
 
December 31, 2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
759,231

 
$
1,009,021

Short-term investments
55,929

 
48,988

Accounts receivable (net of allowance of $17,108 and $14,786, respectively)
378,036

 
427,022

Short-term finance receivables (net of allowance of $12,570 and $12,187, respectively)
787,121

 
828,003

Inventories
48,199

 
40,769

Current income taxes
11,395

 
58,439

Other current assets and prepayments
92,916

 
74,589

Assets of discontinued operations
18,273

 
334,848

Total current assets
2,151,100

 
2,821,679

Property, plant and equipment, net
399,347

 
373,503

Rental property and equipment, net
179,058

 
183,956

Long-term finance receivables (net of allowance of $8,070 and $6,446 respectively)
600,129

 
652,087

Goodwill
1,765,083

 
1,774,645

Intangible assets, net
238,167

 
272,186

Noncurrent income taxes
54,114

 
59,909

Other assets
526,937

 
540,750

Total assets
$
5,913,935

 
$
6,678,715

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,342,097

 
$
1,450,149

Current income taxes
40,018

 
8,823

Current portion of long-term debt
192,649

 
271,057

Advance billings
224,141

 
257,766

Liabilities of discontinued operations
10,446

 
72,808

Total current liabilities
1,809,351

 
2,060,603

Deferred taxes on income
230,663

 
234,643

Tax uncertainties and other income tax liabilities
101,362

 
116,551

Long-term debt
3,076,968

 
3,559,278

Other noncurrent liabilities
443,925

 
519,079

Total liabilities
5,662,269

 
6,490,154

 
 
 
 
Commitments and contingencies (See Note 14)


 


 
 
 
 
Stockholders’ equity:
 
 
 
Cumulative preferred stock, $50 par value, 4% convertible
1

 
1

Cumulative preference stock, no par value, $2.12 convertible
403

 
441

Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
323,338

 
323,338

Additional paid-in capital
117,918

 
138,367

Retained earnings
5,290,761

 
5,229,584

Accumulated other comprehensive loss
(804,609
)
 
(792,173
)
Treasury stock, at cost (135,722,534 and 136,734,174 shares, respectively)
(4,676,146
)
 
(4,710,997
)
Total stockholders’ equity
251,666

 
188,561

Total liabilities and stockholders’ equity
$
5,913,935

 
$
6,678,715



See Notes to Condensed Consolidated Financial Statements

5


PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)


 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
178,680

 
$
171,392

Income from discontinued operations, net of tax
(39,543
)
 
(27,070
)
Restructuring payments
(39,100
)
 
(28,442
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
152,181

 
129,888

Loss on extinguishment of debt
7,964

 

Stock-based compensation
15,771

 
18,312

Restructuring charges and asset impairments, net
19,639

 
29,109

Gain on sale of technology

 
(6,085
)
Changes in operating assets and liabilities, net of acquisitions/divestitures:
 

 
 

Decrease in accounts receivable
43,905

 
43,715

Decrease in finance receivables
80,358

 
126,774

Increase in inventories
(6,159
)
 
(8,137
)
Increase in other current assets and prepayments
(24,436
)
 
(11,800
)
Decrease in accounts payable and accrued liabilities
(76,848
)
 
(38,789
)
Increase (decrease) in current and non-current income taxes
223

 
(31,410
)
Decrease in advance billings
(34,309
)
 
(32,102
)
Other, net
(31,900
)
 
(22,798
)
   Net cash provided by operating activities - continuing operations
246,426

 
312,557

   Net cash provided by operating activities - discontinued operations
44,200

 
18,020

   Net cash provided by operating activities
290,626

 
330,577

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale securities
(74,270
)
 
(108,571
)
Proceeds from sales/maturities of available-for-sale securities
67,354

 
89,940

Net activity from short-term and other investments
8,479

 
(8,082
)
Capital expenditures
(140,533
)
 
(118,351
)
Proceeds from sale of assets

 
5,458

Acquisition of businesses, net of cash acquired
(2,407
)
 
(7,889
)
Change in reserve account deposits
6,864

 
(2,508
)
Other investing activities
(2,500
)
 
(4,500
)
   Net cash used in investing activities - continuing operations
(137,013
)
 
(154,503
)
   Net cash provided by (used in) investing activities - discontinued operations
339,198

 
(1,212
)
   Net cash provided by (used in) investing activities
202,185

 
(155,715
)
Cash flows from financing activities:
 

 
 

Proceeds from the issuance of long-term debt

 
1,437,659

Principal payments of long-term debt
(565,141
)
 
(614,449
)
Dividends paid to stockholders
(105,296
)
 
(104,524
)
Other financing activities
(55,485
)
 
(3,624
)
   Net cash (used in) provided by financing activities
(725,922
)
 
715,062

Effect of exchange rate changes on cash and cash equivalents
(15,653
)
 
42,457

(Decrease) increase in cash and cash equivalents
(248,764
)
 
932,381

Cash and cash equivalents at beginning of period
1,009,021

 
764,522

Cash and cash equivalents at end of period
760,257

 
1,696,903

Less: Cash and cash equivalents of discontinued operations
1,026

 

Cash and cash equivalents of continuing operations at end of period
$
759,231

 
$
1,696,903

 
 
 
 
Cash interest paid
$
127,624

 
$
131,927

Cash income tax payments, net of refunds
$
17,168

 
$
88,021

See Notes to Condensed Consolidated Financial Statements

6


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)


1. Description of Business and Basis of Presentation
Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are a global technology company offering innovative products and solutions that help our clients navigate the complex world of commerce. We provide innovative products and solutions for mailing, shipping and cross border ecommerce that enable the sending of packages globally and products and solutions for customer information management, location intelligence and customer engagement to help our clients market to their customers. Clients around the world rely on our products, solutions and services. For more information about us, our products, services and solutions, visit www.pb.com.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2017 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2018. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2017 (2017 Annual Report).
During the third quarter of 2018, we completed the sale of our Document Messaging Technologies production mail business and supporting software (collectively, the Production Mail Business). Accordingly, the Production Mail Business is now reported as a discontinued operation in our condensed consolidated financial statements. Prior periods have been recast to conform to the current period presentation. See Note 4 for further details.
Accounting Pronouncements Adopted on January 1, 2018
We adopted Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606), which requires companies to recognize revenue when or as control of a promised good or service is transferred to a client in amounts that reflect consideration the company expects to receive in exchange for those goods and services. See Note 2 for more information on the adoption of ASC 606.
We adopted ASU No. 2016-16, Income Taxes: Intra-entity Transfers of Assets other than Inventory, which requires tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects of the transaction are eliminated in consolidation. Under prior guidance, the tax effects of transfers were deferred until the transferred asset was sold or otherwise recovered through use. We recognized the cumulative effect of initially applying this standard as a net reduction of $3 million to opening retained earnings.
We adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Benefit Cost. The ASU requires that the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs, while other components of net periodic benefit cost be presented in a separate line item in the Consolidated Statements of Income. Prior period information has been recast to conform to the current period presentation.
We adopted ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. There was no impact on our consolidated financial statements.
We early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU changes the recognition and presentation requirements as well as the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. There was no impact on our consolidated financial statements.
We adopted ASU 2017-09, Scope of Modification Accounting. The ASU provides guidance about which changes to terms and conditions of a share-based payment award require an entity to apply modification accounting. There was no impact on our consolidated financial statements.
We adopted ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as an acquisition or disposal of assets or a business. There was no impact on our consolidated financial statements.



7


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

New Accounting Pronouncements - Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective beginning January 1, 2020, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU impacts disclosure requirements only. The standard is effective beginning January 1, 2021, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU modifies certain disclosure requirements of fair value measurements. The standard is effective beginning January 1, 2020, with early adoption permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI). The ASU permits a reclassification of the disproportionate income tax effects of the 2017 Tax Cuts and Jobs Act (the Act) on items within AOCI to retained earnings and requires certain new disclosures. The standard is effective beginning January 1, 2019, with early adoption permitted. We anticipate that the reclassification of the disproportionate income tax effects of the Act from AOCI to retained earnings could be material; however there will be no impact to total Stockholder's equity.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU requires that the premium of certain callable debt securities be amortized to the earliest call date rather than the scheduled maturity date. The standard is effective beginning January 1, 2019 and will be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the period of adoption. Early adoption is permitted. We currently do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model, which requires companies to measure expected credit losses for all financial instruments held at the reporting date based on historical experience, current conditions and reasonably supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective beginning January 1, 2020. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Additionally, the standard requires enhanced qualitative and quantitative disclosures to help readers assess the amount, timing and uncertainty of cash flows arising from leases. From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with the new revenue recognition guidance. This standard is effective beginning January 1, 2019. We will adopt the standard using a modified retrospective approach and recognize and measure leases in the period of adoption. We plan to utilize a package of optional practical expedients that allows companies to maintain prior accounting conclusions regarding whether a contract contains a lease, lease classification and initial direct costs for any expired or existing leases. Prior periods will not be restated.
With regard to our lessor portfolio, we expect changes in the timing and classification of revenue and associated costs related to contract modifications, as well as conclusions on lease and non-lease components. We are still determining the impact of these changes on our consolidated financial statements; however, the changes could materially impact the timing of revenue and expense recognition over the lease term. We do not expect the economics and overall profitability of our lease offerings to be materially impacted.
From the lessee perspective, we are reviewing our lease portfolio to evaluate the impact on our consolidated financial statements, accounting policies and internal controls; however, we expect that recognizing a right-of-use asset and liability will materially impact our balance sheet. We are implementing a new lease accounting software solution that will determine the right-of-use asset and lease liability related to our operating lease portfolio as well as meet the disclosure requirements.

8


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

2. Revenue from Contracts with Customers
Adoption of ASC 606
We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) using the modified retrospective approach.  Prior period information was not restated and continues to be reported under the accounting standards in effect for those periods. We recognized a cumulative effect adjustment from the adoption of this standard that reduced opening retained earnings by $9 million. Significant components of the cumulative effect adjustment include:
The write-off of previously capitalized deferred marketing costs that did not meet the criteria for capitalization under ASC 606.
The capitalization of certain costs to obtain a contract, primarily sales commissions, that are permitted to be capitalized under ASC 606.
The establishment of deferred revenue related to the early renewal of software and data license contracts with terms beginning in 2018, as ASC 606 requires revenue recognition at the commencement of the license term.
The write-off of deferred revenues and related costs for certain software licenses bundled with a lease that are recognized at time of delivery under ASC 606.
The write-off of advance billings related to certain software data products that are recognized upon delivery under ASC 606.
The impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
As reported
 
Prior guidance
 
Increase (decrease)
 
As reported
 
Prior guidance
 
Increase (decrease)
Income Statement
 
 
 
 
 
 
 
 
 
 
 
Total revenue
$
832,856

 
$
828,999

 
$
3,857

 
$
2,575,240

 
$
2,553,059

 
$
22,181

Equipment sales
$
100,937

 
$
101,632

 
$
(695
)
 
$
317,058

 
$
319,165

 
$
(2,107
)
Software
$
76,026

 
$
71,081

 
$
4,945

 
$
244,022

 
$
218,410

 
$
25,612

Business services
$
363,528

 
$
363,921

 
$
(393
)
 
$
1,117,942

 
$
1,119,266

 
$
(1,324
)
 
 
 
 
 
 
 
 
 
 
 
 
Total costs and expenses
$
787,727

 
$
790,565

 
$
(2,838
)
 
$
2,415,358

 
$
2,420,406

 
$
(5,048
)
Cost of equipment sales
$
39,353

 
$
39,409

 
$
(56
)
 
$
132,513

 
$
132,628

 
$
(115
)
Cost of software
$
24,743

 
$
23,957

 
$
786

 
$
75,257

 
$
72,499

 
$
2,758

Selling, general and administrative
$
269,387

 
$
272,955

 
$
(3,568
)
 
$
847,281

 
$
854,972

 
$
(7,691
)
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before taxes
$
45,129

 
$
38,434

 
$
6,695

 
$
159,882

 
$
132,653

 
$
27,229

(Benefit) provision for income taxes
$
(1,976
)
 
$
(3,768
)
 
$
1,792

 
$
20,745

 
$
13,666

 
$
7,079

Net income from continuing operations
$
47,105

 
$
42,202

 
$
4,903

 
$
139,137

 
$
118,987

 
$
20,150

 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings - continuing operations
$
0.25

 
$
0.22

 
$
0.03

 
$
0.74

 
$
0.63

 
$
0.11

Diluted earnings per share - continuing operations
$
0.25

 
$
0.22

 
$
0.03

 
$
0.74

 
$
0.63

 
$
0.11

The most significant change to the Consolidated Statements of Income under ASC 606 for the three and nine months ended September 30, 2018, was higher software revenue of $5 million and $26 million, respectively, and higher net income from continuing operations before taxes of $4 million and $23 million for the three and nine months ended September 30, 2018, respectively.

9


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

 
September 30, 2018
 
As reported
 
Prior guidance
 
Increase (decrease)
Balance Sheet
 
 
 
 
 
Total Assets
$
5,913,935

 
$
5,911,188

 
$
2,747

Accounts receivable
$
378,036

 
$
377,484

 
$
552

Current income taxes
$
11,395

 
$
11,593

 
$
(198
)
Other current assets and prepayments
$
92,916

 
$
92,174

 
$
742

Noncurrent income taxes
$
54,114

 
$
54,117

 
$
(3
)
Other assets
$
526,937

 
$
525,283

 
$
1,654

 
 
 
 
 
 
Total Liabilities
$
5,662,269

 
$
5,671,251

 
$
(8,982
)
Accounts payable and accrued liabilities
$
1,342,097

 
$
1,339,257

 
$
2,840

Current income taxes
$
40,018

 
$
32,960

 
$
7,058

Advance billings
$
224,141

 
$
237,546

 
$
(13,405
)
Liabilities of discontinued operations
$
10,446

 
$
10,359

 
$
87

Deferred taxes on income
$
230,663

 
$
234,365

 
$
(3,702
)
Other noncurrent liabilities
$
443,925

 
$
445,785

 
$
(1,860
)
 
 
 
 
 
 
Total Stockholders' equity
$
251,666

 
$
239,256

 
$
12,410

Retained earnings
$
5,290,761

 
$
5,278,691

 
$
12,070

Accumulated other comprehensive loss
$
(804,609
)
 
$
(804,949
)
 
$
340

The most significant change to the Consolidated Balance Sheet at September 30, 2018 was lower advance billings due to the write-off of deferred revenue from software licenses bundled with leases and data products, which are now recognized at time of delivery rather than ratably under previous guidance.
Cash Flow Statement
The adoption of ASC 606 had no impact on our Consolidated Statements of Cash Flows.
Significant Accounting Policies
The most significant impact of ASC 606 on our consolidated financial statements will be in the timing of recognizing certain revenues and costs to obtain a contract related to software and software related products. We will continue to recognize revenue from equipment sales under sales-type leases and related financing income and rental of postage meters and mailing equipment in accordance with ASC 840, Leases.
We applied the following practical expedients and policy elections when adopting ASC 606:
Costs incurred to obtain a contract with a customer are expensed if the amortization period is one year or less.
With the exception of certain services contracts, all taxes assessed by government authorities, such as sales and use taxes, value added taxes and excise taxes, are excluded from the transaction price.
The transaction price is not adjusted for a significant financing component when a performance obligation is satisfied within one year.
Revenue is recognized based on the amount billable to the customer when that amount corresponds to the value transferred to the customer.
Shipping and handling activities are accounted for as a fulfillment activity rather than a separate performance obligation.
We reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price.
Significant changes to accounting policies disclosed in our 2017 Annual Report due to the adoption of ASC 606 are discussed below.



10


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Software Sales and Integration Services
A majority of our software and data license products are considered "right to use" and are generally distinct from other promised goods and services within a contract. Revenue for right to use software and data licenses is recognized at a point in time when control has transferred to the customer, which is generally upon delivery or acceptance for those licenses requiring significant integration or customization. Revenue from renewals are recognized at the beginning of the license term.
We generally invoice customers upon delivery of our software and data licenses. Data contracts that include both data and data updates are invoiced in one or more equal installments. A contract asset is recognized on data licenses for which consideration will be received in future periods.
We allocate the transaction price based on relative standalone selling prices, which are generally based on observable selling prices in standalone transactions for our data products, maintenance and professional services. We estimate the standalone selling prices for our software licenses using the residual approach, as the selling prices are highly variable and when observable standalone selling prices exist for the other goods and services in the contract.
We often bundle software licenses with lease contracts. Revenue is recognized upon delivery of those software licenses considered distinct and functional in nature.
Costs to Obtain a Contract and Marketing Costs
Certain incremental costs to obtain a contract are capitalized if we expect the benefit of those costs to be realized over a period greater than one year. These costs primarily relate to sales commission on multi-year equipment and software support service contracts. These costs are amortized in a manner consistent with the timing of the related revenue over the contract performance period or longer, if renewals are expected and the renewal commission is not commensurate with the initial commission. Amortization expense for the three and nine months ended September 30, 2018 was $4 million and $11 million, respectively, and is included in selling, general and administrative expenses. Unamortized contract costs at September 30, 2018 were $28 million and are included in other assets.
Certain marketing costs associated with the acquisition of new customers are expensed as incurred since these costs do not meet the criteria of a cost to obtain a contract.














11


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Revenue from Contracts with Customers
The following tables disaggregate our revenue by major source:
 
Three Months Ended September 30, 2018
 
Global Ecommerce
Presort Services
North America Mailing
International Mailing
Software Solutions
Total Revenue from sales and services (ASC 606)
Revenue from leasing transactions and financing
Total Consolidated Revenue
Equipment sales
$

$

$
13,615

$
11,974

$

$
25,589

$
75,348

$
100,937

Supplies


33,854

16,549


50,403


50,403

Software



284

75,742

76,026


76,026

Rentals


4,357

1,971


6,328

84,787

91,115

Financing


15,478

2,636


18,114

58,616

76,730

Support services


53,987

20,130


74,117


74,117

Business services
232,845

125,334

4,022

1,327


363,528


363,528

 
$
232,845

$
125,334

$
125,313

$
54,871

$
75,742

$
614,105

$
218,751

$
832,856

 
 
 
 
 
 
 
 
 
Revenue from sales and services (ASC 606)
$
232,845

$
125,334

$
125,313

$
54,871

$
75,742

$
614,105

$

$
614,105

Revenue from leasing transactions and financing


188,652

30,099



218,751

218,751

     Total revenue
$
232,845

$
125,334

$
313,965

$
84,970

$
75,742

$
614,105

$
218,751

$
832,856

 
 
 
 
 
 
 
 
 
Timing of revenue recognition (ASC 606)
 
 
 
 
 
 
Products/services transferred at a point in time
$

$

$
47,467

$
28,809

$
24,262

$
100,538

 
 
Products/services transferred over time
232,845

125,334

77,846

26,062

51,480

513,567

 
 
      Total revenue
$
232,845

$
125,334

$
125,313

$
54,871

$
75,742

$
614,105

 
 

12


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

 
Nine Months Ended September 30, 2018
 
Global Ecommerce
Presort Services
North America Mailing
International Mailing
Software Solutions
Total Revenue from sales and services (ASC 606)
Revenue from leasing transactions and financing
Total Consolidated Revenue
Equipment sales
$

$

$
46,061

$
36,992

$

$
83,053

$
234,005

$
317,058

Supplies


109,077

56,776


165,853


165,853

Software



284

243,738

244,022


244,022

Rentals


15,189

6,276


21,465

256,085

277,550

Financing


47,768

8,478


56,246

177,258

233,504

Support services


155,635

63,676


219,311


219,311

Business services
718,535

382,522

12,278

4,607


1,117,942


1,117,942

 
$
718,535

$
382,522

$
386,008

$
177,089

$
243,738

$
1,907,892

$
667,348

$
2,575,240

 
 
 
 
 
 
 
 
 
Revenue from sales and services (ASC 606)
$
718,535

$
382,522

$
386,008

$
177,089

$
243,738

$
1,907,892

$

$
1,907,892

Revenue from leasing transactions and financing


568,072

99,276



667,348

667,348

     Total revenue
$
718,535

$
382,522

$
954,080

$
276,365

$
243,738

$
1,907,892

$
667,348

$
2,575,240

 
 
 
 
 
 
 
 
 
Timing of revenue recognition (ASC 606)
 
 
 
 
 
 
Products/services transferred at a point in time
$

$

$
155,138

$
94,052

$
89,282

$
338,472

 
 
Products/services transferred over time
718,535

382,522

230,870

83,037

154,456

1,569,420

 
 
      Total revenue
$
718,535

$
382,522

$
386,008

$
177,089

$
243,738

$
1,907,892

 
 
Our performance obligations are as follows:
Equipment Sales and Supplies: We sell mailing equipment and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.
Software: We sell software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.
Rentals: We charge our customers fees associated with postage refills for meters.
Financing: We provide services under our equipment replacement program. The fees received for this program are recognized ratably over the contract term.
Support Services: We provide maintenance and professional services for our North America and International mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Maintenance revenue is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Business Services: We provide 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 ranging from one to five years followed by annual renewal periods.
Revenue from leasing transactions and financing include revenue from sales-type leases, operating leases, finance income and late fees that are not accounted for under ASC 606.


13


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Contract Assets and Advance Billings from Contracts with Customers
 
September 30, 2018
 
January 1, 2018 (1)
 
Increase (decrease)
Contracts assets, current
$
8,472

 
$
5,075

 
$
3,397

Contracts assets, noncurrent
$
7,520

 
$
648

 
$
6,872

Advance billings, current
$
171,682

 
$
209,098

 
$
(37,416
)
Advance billings, noncurrent
$
14,891

 
$
17,765

 
$
(2,874
)
(1) Balances adjusted for the cumulative effect of accounting change
Contract assets are recorded in other current assets and prepayments and other assets, respectively. Advance billings are recorded in advance billings and other noncurrent liabilities.
Contract Assets
We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration is conditional on the satisfaction of another performance obligation within a contract. The net increase is driven by revenue recognized on data contracts during the third quarter, for which consideration will be invoiced in future periods.
Advance Billings from Contracts with Customers
Advance billings are recorded when cash payments are due in advance of our performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.
The net decrease in advance billings at September 30, 2018 is primarily driven by revenues recognized during the period, which includes $162 million of advance billings at the beginning of the period, partially offset by advance billings in the quarter.
Future Performance Obligations
The transaction prices allocated to future performance obligations will be recognized as follows:
 
 
Remainder of 2018
 
2019
 
2020-2025
 
Total
North America Mailing(1)
 
$
39,160

 
$
136,602

 
$
209,758

 
$
385,520

International Mailing(1)
 
12,174

 
35,227

 
48,822

 
96,223

Software Solutions(2)
 
22,780

 
39,503

 
32,645

 
94,928

Total
 
$
74,114

 
$
211,332

 
$
291,225

 
$
576,671

(1) Revenue streams bundled with our leasing contracts, primarily maintenance and other services
(2) Multiple-year software maintenance contracts, certain software and data licenses and data updates
The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.

14


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

3. Segment Information
In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market.  The Commerce Services group was formed and includes our Global Ecommerce and Presort Services segments. Additionally, the operating results of the Production Mail Business have been classified as discontinued operations and segment operating results for the prior year have been recast to conform to the current year presentation. The principal products and services of each of our reportable segments are as follows:
Commerce Services:
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.
Presort Services: Includes revenue and related expenses from sortation services that allow clients to qualify large volumes of First Class Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound Printed Matter) for postal worksharing discounts.
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and shipping solutions, financing services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.
International Mailing: Includes the revenue and related expenses from mailing and shipping solutions, financing services and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Software Solutions:
Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, and location intelligence software, data solutions and related support services.
Management uses segment earnings before interest and taxes (EBIT) to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the business. We determine segment EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges and other items not allocated to a particular business segment. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable segments and reconciliation of segment EBIT to net income.

15


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Revenue and EBIT by business segment is presented below:
 
Revenue
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Global Ecommerce
$
232,845

 
$
106,181

 
$
718,535

 
$
288,839

Presort Services
125,334

 
119,074

 
382,522

 
370,203

Commerce Services
358,179

 
225,255

 
1,101,057

 
659,042

North America Mailing
313,965

 
320,091

 
954,080

 
1,016,993

International Mailing
84,970

 
93,858

 
276,365

 
282,482

Small & Medium Business Solutions
398,935

 
413,949

 
1,230,445

 
1,299,475

Software Solutions
75,742

 
94,069

 
243,738

 
248,349

Total revenue
$
832,856

 
$
733,273

 
$
2,575,240


$
2,206,866


 
EBIT
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Global Ecommerce
$
(14,330
)
 
$
(9,594
)
 
$
(28,034
)
 
$
(17,894
)
Presort Services
17,435

 
19,474

 
57,026

 
69,461

Commerce Services
3,105

 
9,880

 
28,992

 
51,567

North America Mailing
118,070

 
107,963

 
352,833

 
370,004

International Mailing
12,794

 
8,809

 
42,040

 
36,239

Small & Medium Business Solutions
130,864

 
116,772

 
394,873

 
406,243

Software Solutions
3,525

 
18,531

 
24,450

 
24,928

Total segment EBIT
137,494

 
145,183

 
448,315

 
482,738

Reconciling items:
 
 
 
 
 

 
 

Unallocated corporate expenses
(39,696
)
 
(41,322
)
 
(137,257
)
 
(151,473
)
Interest, net
(37,437
)
 
(41,230
)
 
(122,484
)
 
(120,323
)
Restructuring charges and asset impairments, net
(7,232
)
 
(1,470
)
 
(19,639
)
 
(29,109
)
Gain from the sale of technology

 

 

 
6,085

Transaction costs
(36
)
 
(4,896
)
 
(1,089
)
 
(4,896
)
Other expense
(7,964
)
 

 
(7,964
)
 

Income from continuing operations before income taxes
45,129

 
56,265

 
159,882

 
183,022

(Benefit) provision for income taxes
(1,976
)
 
10,828

 
20,745

 
38,700

Income from discontinued operations, net of tax
29,848

 
11,921

 
39,543

 
27,070

Net income
$
76,953

 
$
57,358

 
$
178,680

 
$
171,392



16


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

4. Discontinued Operations
On July 2, 2018, we completed the sale of the Production Mail Business, other than in certain non-U.S. jurisdictions, to an affiliate of Platinum Equity, LLC, a leading global private equity firm. Subsequently during the third quarter, we closed on the sale of additional non-U.S. jurisdictions, and expect to close on the sale of the majority of the remaining non-U.S. jurisdictions in the fourth quarter, subject to local regulatory requirements. Cash proceeds received in the third quarter were $340 million. Net proceeds from the sale after the payment of closing costs, transaction fees and taxes are estimated to be approximately $270 million.
In connection with the sale of the Production Mail Business, we entered into Transition Services Agreements (TSAs) with the purchaser whereby we will perform certain support functions for periods of a year or less. None of these TSAs will have a material effect on our financial performance.
Selected financial information of the Production Mail Business included in discontinued operations is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
19,557

 
$
109,547

 
$
211,000

 
$
293,965

 
 
 
 
 
 
 
 
(Loss) earnings from discontinued operations
$
(1,316
)
 
$
18,700

 
$
20,304

 
$
42,345

Gain on sale, including transaction costs
86,640

 

 
77,863

 

Income from discontinued operations before taxes
85,324

 
18,700

 
98,167

 
42,345

Tax provision
55,476

 
6,779

 
58,624

 
15,275

Income from discontinued operations, net of tax
$
29,848

 
$
11,921

 
$
39,543

 
$
27,070


The major categories of assets and liabilities of the Production Mail Business included in assets of discontinued operations and liabilities of discontinued operations are as follows:
 
September 30, 2018
 
December 31, 2017
Cash and cash equivalents
$
1,026

 
$

Accounts receivable, net
2,900

 
97,402

Inventories
4,360

 
48,910

Other current assets and prepayments
188

 
3,365

Property, plant and equipment, net
578

 
5,541

Rental property and equipment, net
386

 
1,786

Goodwill
8,787

 
177,799

Other assets
48

 
45

Assets of discontinued operations
$
18,273

 
$
334,848

 
 
 
 
Accounts payable and accrued liabilities
$
2,261

 
$
36,592

Advance billings
2,534

 
30,607

Other noncurrent liabilities
5,651

 
5,609

Liabilities of discontinued operations
$
10,446

 
$
72,808



17


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

5. Earnings per Share
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 

 
 

 
 

 
 

Net income from continuing operations
$
47,105

 
$
45,437

 
$
139,137

 
$
144,322

Income from discontinued operations, net of tax
29,848

 
11,921

 
39,543

 
27,070

Net income (numerator for diluted EPS)
76,953

 
57,358

 
178,680

 
171,392

Less: Preference stock dividend
8

 
9

 
24

 
28

Income attributable to common stockholders (numerator for basic EPS)
$
76,945

 
$
57,349

 
$
178,656

 
$
171,364

Denominator:
 

 
 

 
 

 
 

Weighted-average shares used in basic EPS
187,470

 
186,497

 
187,167

 
186,257

Effect of dilutive shares
945

 
1,260

 
1,023

 
943

Weighted-average shares used in diluted EPS
188,415

 
187,757

 
188,190

 
187,200

Basic earnings per share(1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.24

 
$
0.74

 
$
0.77

Discontinued operations
0.16

 
0.06

 
0.21

 
0.15

Net income
$
0.41

 
$
0.31

 
$
0.95

 
$
0.92

Diluted earnings per share(1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.24

 
$
0.74

 
$
0.77

Discontinued operations
0.16

 
0.06

 
0.21

 
0.14

Net income
$
0.41

 
$
0.31

 
$
0.95

 
$
0.92

 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
12,195

 
9,927

 
12,097

 
10,211

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

6. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at September 30, 2018 and December 31, 2017 consisted of the following:
 
September 30,
2018
 
December 31,
2017
Raw materials
$
11,998

 
$
11,767

Supplies and service parts
22,213

 
21,475

Finished products
16,993

 
13,261

Inventory at FIFO cost
51,204

 
46,503

Excess of FIFO cost over LIFO cost
(3,005
)
 
(5,734
)
Total inventory, net
$
48,199

 
$
40,769


18


PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

7. Finance Assets
Finance Receivables
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies. Loan receivables are generally due each month; however, clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Client acquisition costs are expensed as incurred.
Finance receivables at September 30, 2018 and December 31, 2017 consisted of the following:
 
September 30, 2018
 
December 31, 2017
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

 
 

 
 

 
 

Gross finance receivables
$
1,000,825

 
$
268,733

 
$
1,269,558

 
$
1,023,549

 
$
292,059

 
$
1,315,608

Unguaranteed residual values
58,565

 
13,163

 
71,728

 
74,093

 
14,202

 
88,295

Unearned income
(210,001
)
 
(56,613
)
 
(266,614
)
 
(216,720
)
 
(62,325
)
 
(279,045
)
Allowance for credit losses
(10,779
)
 
(2,264
)
 
(13,043
)
 
(7,721
)
 
(2,794
)
 
(10,515
)
Net investment in sales-type lease receivables
838,610

 
223,019

 
1,061,629

 
873,201

 
241,142

 
1,114,343

Loan receivables
 

 
 

 
 

 
 

 
 

 
 

Loan receivables
301,575

 
31,643

 
333,218

 
339,373

 
34,492

 
373,865

Allowance for credit losses
(6,712
)
 
(885
)
 
(7,597
)
 
(7,098
)
 
(1,020
)
 
(8,118
)
Net investment in loan receivables
294,863

 
30,758

 
325,621

 
332,275

 
33,472

 
365,747

Net investment in finance receivables
$
1,133,473

 
$
253,777

 
$
1,387,250

 
$
1,205,476

 
$
274,614

 
$
1,480,090


Allowance for Credit Losses
We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.














19


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, 2018 and 2017 was as follows:
 
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

 
 
 
 
 
 
 
 
 
 
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2017
$
8,247

 
$
2,647

 
$
8,517

 
$
1,089

 
$
20,500

Amounts charged to expense
7,807

 
895

 
3,892

 
438

 
13,032

Write-offs and other
(8,951
)
 
(774
)
 
(5,449
)
 
(438
)