Company Quick10K Filing
Quick10K
Pitney Bowes
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$5.39 181 $974
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-07 Shareholder Vote
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-22 Other Events, Exhibits
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
GPN Global Payments 22,960
PCG Pacific Gas & Electric 10,240
LKQ LKQ 8,610
WNS WNS 2,730
POL Polyone 2,100
DXF Dunxin Financial Holdings 50
SLV iShares Silver Trust 0
VPLM Voip-Pal.com 0
ELRA Elray Resources 0
LEXE Liberty Expedia Holdings 0
PBI 2019-03-31
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-31.1 pbi-20190331ex311.htm
EX-31.2 pbi-20190331ex312.htm
EX-32.1 pbi-20190331ex321.htm
EX-32.2 pbi-20190331ex322.htm

Pitney Bowes Earnings 2019-03-31

PBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pbi2019033110q.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 March 31, 2019
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: 1-03579
PITNEY BOWES INC.
(Exact name of registrant as specified in its charter)

State of incorporation: Delaware
 
I.R.S. Employer Identification No. 06-0495050
3001 Summer Street, Stamford, Connecticut 06926
 
 
(203) 356-5000
 
 
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

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 April 30, 2019, 180,725,731 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 Months Ended March 31, 2019 and 2018
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018
 
 
 
 
Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2





PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited; in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2019
 
2018
Revenue:
 

 
 

Equipment sales
$
89,787

 
$
106,708

Supplies
50,953

 
59,993

Software
73,318

 
76,294

Rentals
22,157

 
24,965

Financing
97,043

 
100,349

Support services
128,621

 
140,650

Business services
406,523

 
387,624

Total revenue
868,402

 
896,583

Costs and expenses:
 
 
 
Cost of equipment sales
63,665

 
62,469

Cost of supplies
13,550

 
16,947

Cost of software
23,383

 
24,129

Cost of rentals
9,715

 
12,748

Financing interest expense
11,364

 
11,064

Cost of support services
41,779

 
46,065

Cost of business services
327,046

 
294,379

Selling, general and administrative
300,982

 
302,810

Research and development
21,774

 
24,495

Restructuring charges
3,598

 
904

Interest expense, net
27,602

 
32,014

Other components of net pension and postretirement cost
(638
)
 
(1,719
)
Other expense
17,710

 

Total costs and expenses
861,530

 
826,305

Income from continuing operations before taxes
6,872

 
70,278

Provision for income taxes
8,301

 
18,795

(Loss) income from continuing operations
(1,429
)
 
51,483

(Loss) income from discontinued operations, net of tax
(1,230
)
 
8,487

Net (loss) income
$
(2,659
)
 
$
59,970

Amounts attributable to common stockholders:
 
 
 
(Loss) income from continuing operations
$
(1,429
)
 
$
51,483

(Loss) income from discontinued operations, net of tax
(1,230
)
 
8,487

Net (loss) income
$
(2,659
)
 
$
59,970

Basic (loss) earnings per share (1):
 
 
 
Continuing operations
$
(0.01
)
 
$
0.28

Discontinued operations
(0.01
)
 
0.05

Net (loss) income
$
(0.01
)
 
$
0.32

Diluted (loss) earnings per share (1):
 
 
 
Continuing operations
$
(0.01
)
 
$
0.27

Discontinued operations
(0.01
)
 
0.05

Net (loss) income
$
(0.01
)
 
$
0.32

(1) The sum of the 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 March 31,
 
2019
 
2018
Net (loss) income
$
(2,659
)
 
$
59,970

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation, net of tax of $(4,067) in 2019
21,274

 
15,211

Net unrealized gain on cash flow hedges, net of tax of $56 and $162, respectively
163

 
486

Net unrealized gain (loss) on investment securities, net of tax of $964 and $(1,366), respectively
2,816

 
(3,992
)
Amortization of pension and postretirement costs, net of tax benefits of $2,649 and $2,803, respectively
6,636

 
8,172

Other comprehensive income, net of tax
30,889

 
19,877

Comprehensive income
$
28,230

 
$
79,847









































See Notes to Condensed Consolidated Financial Statements

4


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


 
March 31, 2019
 
December 31, 2018
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
838,905

 
$
867,262

Short-term investments
65,405

 
59,391

Accounts receivable (net of allowance of $21,029 and $17,617, respectively)
412,661

 
456,138

Short-term finance receivables (net of allowance of $13,633 and $12,454, respectively)
684,436

 
758,511

Inventories
68,876

 
62,279

Current income taxes
21,897

 
5,947

Other current assets and prepayments
134,929

 
100,625

Assets of discontinued operations

 
4,854

Total current assets
2,227,109

 
2,315,007

Property, plant and equipment, net
412,727

 
410,114

Rental property and equipment, net
41,862

 
46,228

Long-term finance receivables (net of allowance of $8,518 and $7,768 respectively)
545,360

 
536,369

Goodwill
1,754,259

 
1,766,511

Intangible assets, net
223,005

 
227,137

Operating lease assets
152,139

 
156,788

Noncurrent income taxes
61,700

 
66,326

Other assets
388,104

 
419,677

Total assets
$
5,806,265

 
$
5,944,157

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,313,440

 
$
1,390,362

Current operating lease liabilities
35,219

 
37,208

Current portion of long-term debt
207,231

 
199,535

Advance billings
213,171

 
235,116

Current income taxes
5,697

 
15,284

Liabilities of discontinued operations

 
3,276

Total current liabilities
1,774,758

 
1,880,781

Deferred taxes on income
257,639

 
254,353

Tax uncertainties and other income tax liabilities
51,950

 
39,548

Noncurrent operating lease liabilities
124,873

 
127,237

Long-term debt
3,047,661

 
3,066,073

Other noncurrent liabilities
463,028

 
474,323

Total liabilities
5,719,909

 
5,842,315

 
 
 
 
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
388

 
396

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

 
323,338

Additional paid-in capital
109,166

 
121,475

Retained earnings
5,267,615

 
5,279,682

Accumulated other comprehensive loss
(918,072
)
 
(948,961
)
Treasury stock, at cost (140,812,458 and 135,662,830 shares, respectively)
(4,696,080
)
 
(4,674,089
)
Total stockholders’ equity
86,356

 
101,842

Total liabilities and stockholders’ equity
$
5,806,265

 
$
5,944,157

See Notes to Condensed Consolidated Financial Statements

5


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


 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net (loss) income
$
(2,659
)
 
$
59,970

Loss (income) from discontinued operations, net of tax
1,230

 
(8,487
)
Restructuring payments
(8,144
)
 
(15,585
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
39,365

 
39,738

Stock-based compensation
6,784

 
3,273

Restructuring charges
3,598

 
904

Loss on disposition of businesses
17,710

 

Changes in operating assets and liabilities, net of acquisitions/divestitures:
 

 
 

Decrease in accounts receivable
59,571

 
29,292

Decrease in finance receivables
55,215

 
33,780

(Increase) decrease in inventories
(6,232
)
 
1,783

Increase in other current assets and prepayments
(36,226
)
 
(11,963
)
Decrease in accounts payable and accrued liabilities
(37,260
)
 
(74,805
)
(Decrease) increase in current and non-current income taxes
(2,398
)
 
15,859

Decrease in advance billings
(16,219
)
 
(17,832
)
Other, net
(993
)
 
(11,154
)
   Net cash provided by operating activities - continuing operations
73,342

 
44,773

   Net cash (used in) provided by operating activities - discontinued operations
(3,614
)
 
24,856

   Net cash provided by operating activities
69,728

 
69,629

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale securities

 
(29,922
)
Proceeds from sales/maturities of available-for-sale securities
31,404

 
15,044

Net activity from short-term and other investments
(1,778
)
 
16,562

Capital expenditures
(28,754
)
 
(29,017
)
Acquisitions, net of cash acquired
(4,882
)
 
(2,407
)
Change in reserve account deposits
(23,036
)
 
6,654

Other investing activities
(7,841
)
 
(1,250
)
   Net cash used in investing activities - continuing operations
(34,887
)
 
(24,336
)
   Net cash used in investing activities - discontinued operations

 
(863
)
   Net cash used in investing activities
(34,887
)
 
(25,199
)
Cash flows from financing activities:
 

 
 

Principal payments of long-term debt
(12,541
)
 
(255,045
)
Dividends paid to stockholders
(9,408
)
 
(35,016
)
Common stock repurchases
(39,142
)
 

Other financing activities
(2,901
)
 
(50,256
)
   Net cash used in financing activities
(63,992
)
 
(340,317
)
Effect of exchange rate changes on cash and cash equivalents
794

 
6,741

Change in cash and cash equivalents
(28,357
)
 
(289,146
)
Cash and cash equivalents at beginning of period
867,262

 
1,009,021

Cash and cash equivalents at end of period
$
838,905

 
$
719,875

Cash interest paid
$
33,393

 
$
46,998

Cash income tax payments, net of refunds
$
10,071

 
$
4,560






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
Description of Business
Pitney Bowes Inc. (we, us, our, or the company) is a global technology company providing innovative products and commerce solutions that power billions of transactions and help our clients navigate the complex world of commerce. We offer shipping, mailing, fulfillment, returns and cross-border ecommerce products and solutions that enable the sending of parcels and packages across the globe and customer information management, location intelligence and customer engagement products and solutions to help our clients market to their customers. Clients around the world rely on our products, solutions and services. 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.

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 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. 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 Annual Report).
The accompanying financial statements reflect the adoption of the new lease accounting standard as of January 1, 2017 (see New Accounting Pronouncements). We also determined that based on their nature, certain costs previously classified as research and development and cost of business services should be classified in other line items within costs and expenses. Accordingly, we revised our March 31, 2018 income statement to correct the classification by reducing research and development expense by $6 million and cost of business services by $3 million and increasing cost of equipment sales by $3 million and selling, general and administrative expense by $6 million. Additionally, our March 31, 2018 income statement has also been revised to correct the classification of certain costs of revenue by reducing cost of equipment sales by $1 million and cost of rentals by $1 million, and increasing cost of support services by $2 million to conform to the current year presentation.
In January 2019, we sold the direct operations and moved to a dealer model in six smaller markets within International Mailing (Market Exits). We recognized a pre-tax loss of $18 million in other expense. In July 2018, we sold our Document Messaging Technology production mail business and supporting software (the Production Mail Business). The Production Mail Business qualified as a discontinued operation and accordingly, the assets, liabilities and results of operations of the Production Mail Business are reported as discontinued operations (see Note 4).
New Accounting Pronouncements
Accounting Pronouncements Adopted on January 1, 2019
On January 1, 2019, we adopted Accounting Standards Codification (ASC) 842, Leases (ASC 842), 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 statements have been recast and required disclosures have been provided. We also recorded a cumulative effect adjustment as of January 1, 2017 to reduce retained earnings by $137 million. See Notes 7 and 15 for more information.
From a lessor perspective, the standard simplifies the accounting for lease modifications and aligns accounting of lease contracts with revenue recognition guidance. We continue to classify leases as sales-type or operating, with the determination affecting both the pattern and classification of income recognition. There have been changes in the timing and classification of revenue related to contract modifications. Certain income and costs are now accelerated that were previously recognized over the life of the lease due to conclusions on lease and non-lease components.
From a lessee perspective, the standard requires us to recognize right-of-use assets and lease liabilities for our real estate and equipment operating leases and to provide new disclosures about our leasing activities. We elected the short-term lease recognition exemption and did not recognize right-of-use assets or lease liabilities for leases with a term 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 of ASC 842 are discussed below.

7


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

Equipment Sales: We sell and lease equipment directly to our customers and to distributors (re-sellers) throughout the world. The amount of revenue allocated to the equipment is based on a range of observable selling prices in standalone transactions. We recognize revenue from the sale of equipment under sales-type leases as equipment sales revenue when control of the equipment transfers to the customer, which is upon shipment for self-installed products and upon installation or customer acceptance for other products. We do not typically offer any rights of return.

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

Financing: We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit for the purchase of postage and supplies. We believe that our sales-type lease portfolio contains only normal collection risk. Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease payments plus the estimated residual value as finance receivables. The difference between the finance receivable and the equipment fair value is recorded as unearned income and is amortized as financing income over the lease term using the interest method. Financing also includes amounts related to sales-type leases that customers have extended or renewed for an additional term. Revenue for those contracts will be recognized over the term of the modified lease as financing income using the interest method.
Equipment residual values are determined at inception of the lease using estimates of fair value at the end of the lease term. Fair value estimates are based primarily on historical experience. We also consider forecasted supply and demand for products, product retirement and launch plans, client behavior, regulatory changes, remanufacturing strategies, used equipment markets, competition and technological changes. We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until the equipment is remarketed.

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

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

On January 1, 2019, we also adopted Accounting Standards Update (ASU) 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The adoption of this standard did not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2018, the 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 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 are currently assessing the impact this standard will have on our consolidated financial statements.

8


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 major source and timing of recognition:
 
Three Months Ended March 31, 2019
 
Global Ecommerce
Presort Services
North America Mailing
International Mailing
Software Solutions
Total Revenue recognized under ASC 606
Revenue from leasing transactions and financing
Total Consolidated Revenue
Major products/service lines
 
 
 
 
 
 
 
 
Equipment sales
$

$

$
9,215

$
12,079

$

$
21,294

$
68,493

$
89,787

Supplies


35,103

15,850


50,953


50,953

Software




73,318

73,318


73,318

Rentals






22,157

22,157

Financing






97,043

97,043

Support services

22

107,709

20,890


128,621


128,621

Business services
266,254

134,825

4,517

927


406,523


406,523

Subtotal
266,254

134,847

156,544

49,746

73,318

680,709

$
187,693

$
868,402

 
 
 
 
 
 
 
 
 
Revenue from leasing transactions and financing
 
 
 
 
 
 
 
 
Equipment sales


57,894

10,599


68,493

 
 
Rentals


17,279

4,878


22,157

 
 
Financing


83,757

13,286


97,043

 
 
     Total revenue
$
266,254

$
134,847

$
315,474

$
78,509

$
73,318

$
868,402

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

$

$
44,318

$
27,930

$
20,970

$
93,218

 
 
Products/services transferred over time
266,254

134,847

112,226

21,816

52,348

587,491

 
 
      Total
$
266,254

$
134,847

$
156,544

$
49,746

$
73,318

$
680,709

 
 



9


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

 
Three Months Ended March 31, 2018
 
Global Ecommerce
Presort Services
North America Mailing
International Mailing
Software Solutions
Total Revenue recognized under ASC 606
Revenue from leasing transactions and financing
Total Consolidated Revenue
Major products/service lines
 
 
 
 
 
 
 
 
Equipment sales
$

$

$
10,416

$
11,795

$

$
22,211

$
84,497

$
106,708

Supplies


38,951

21,042


59,993


59,993

Software




76,294

76,294


76,294

Rentals






24,965

24,965

Financing






100,349

100,349

Support services


113,713

26,937


140,650


140,650

Business services
246,590

134,458

4,889

1,687


387,624


387,624

Subtotal
246,590

134,458

167,969

61,461

76,294

686,772

$
209,811

$
896,583

 
 
 
 
 
 
 
 
 
Revenue from leasing transactions and financing
 
 
 
 
 
 
 
 
Equipment sales


68,472

16,025


84,497

 
 
Rentals


19,512

5,453


24,965

 
 
Financing


84,858

15,491


100,349

 
 
     Total revenue
$
246,590

$
134,458

$
340,811

$
98,430

$
76,294

$
896,583

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

$

$
49,367

$
32,836

$
25,001

$
107,204

 
 
Products/services transferred over time
246,590

134,458

118,602

28,625

51,293

579,568

 
 
      Total
$
246,590

$
134,458

$
167,969

$
61,461

$
76,294

$
686,772

 
 

Our performance obligations are as follows:

Equipment sales and supplies: Our performance obligations generally include the sale of mailing equipment, excluding sales-type leases, and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.
Software: Our performance obligations include the sale of software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.
Rentals: Our performance obligations include the fees associated with the rental of mailing equipment under an operating lease contract.
Support services: Performance obligations include providing maintenance, professional services, and subscription and meter services for our mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance, subscription and meter services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Business services: Our performance obligations include providing mail processing services and ecommerce solutions. Revenue is recognized over time as the services are provided. The contract terms for these services vary, with the initial contracts in the range of one to five years, followed by annual renewal periods.
Revenue from leasing transactions and financing include revenue from equipment accounted for as sales-type leases, finance income and late fees that are not accounted for under ASU 2014-09, Revenues from Contracts with Customers (ASC 606).

10


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

Contract Assets and Advance Billings from Contracts with Customers
 
Balance sheet location
 
March 31, 2019
 
December 31, 2018
 
Increase (decrease)
Contracts assets, current
Other current assets and prepayments
 
$
17,319

 
$
16,115

 
$
1,204

Contracts assets, noncurrent
Other assets
 
$
11,385

 
$
13,092

 
$
(1,707
)
Advance billings, current
Advance billings
 
$
203,735

 
$
221,527

 
$
(17,792
)
Advance billings, noncurrent
Noncurrent liabilities
 
$
13,144

 
$
12,778

 
$
366

Contract Assets
We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration is conditional on the satisfaction of another performance obligation within a contract. Contract assets decreased in the period as the invoicing of performance obligations previously satisfied exceeded the contract assets recognized during the period.
Advance Billings from Contracts with Customers
Advance billings are recorded when cash payments are due in advance of our performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.
The net decrease in advance billings at March 31, 2019 is primarily driven by revenues recognized during the period, which includes $80 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 2019
 
2020
 
2021-2024
 
Total
North America Mailing(1)
 
$
196,642

 
$
214,546

 
$
288,869

 
$
700,057

International Mailing(1)
 
23,105

 
19,664

 
21,651

 
64,420

Software Solutions(2)
 
55,521

 
49,884

 
26,118

 
131,523

Total
 
$
275,268

 
$
284,094

 
$
336,638

 
$
896,000

(1) Revenue streams bundled with our leasing contracts, primarily maintenance, meter services and other subscription services
(2) Multiple-year software maintenance contracts, certain software and data licenses and data updates
The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.
3. Segment Information
The principal products and services of each reportable segment are as follows:
Commerce Services:
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions and fulfillment, delivery and return services.
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 (SMB) Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and shipping solutions, financing, services, supplies and other applications for small and medium businesses to efficiently create mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.

11


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

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 mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.
Software Solutions:
Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, 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.
Revenue and EBIT by business segment is presented below:
 
Revenue
 
Three Months Ended March 31,
 
2019
 
2018
Global Ecommerce
$
266,254

 
$
246,590

Presort Services
134,847

 
134,458

Commerce Services
401,101

 
381,048

North America Mailing
315,474

 
340,811

International Mailing
78,509

 
98,430

SMB Solutions
393,983

 
439,241

Software Solutions
73,318

 
76,294

Total revenue
$
868,402

 
$
896,583

 
EBIT
 
Three Months Ended March 31,
 
2019
 
2018
Global Ecommerce
$
(14,600
)
 
$
(7,711
)
Presort Services
15,066

 
27,026

Commerce Services
466

 
19,315

North America Mailing
110,613

 
128,568

International Mailing
11,790

 
16,022

SMB Solutions
122,403

 
144,590

Software Solutions
1,692

 
2,492

Total segment EBIT
124,561

 
166,397

Reconciling items:
 

 
 

Interest, net
(38,966
)
 
(43,078
)
Unallocated corporate expenses
(55,689
)
 
(51,082
)
Restructuring charges
(3,598
)
 
(904
)
Other expense
(17,710
)
 

Transaction costs
(1,726
)
 
(1,055
)
Income from continuing operations before income taxes
6,872

 
70,278

Provision for income taxes
8,301

 
18,795

(Loss) income from discontinued operations, net of tax
(1,230
)
 
8,487

Net (loss) income
$
(2,659
)
 
$
59,970


12


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

4. Discontinued Operations
Selected financial information included in discontinued operations is as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Revenue
$
750

 
$
102,234

 
 
 
 
(Loss) earnings from discontinued operations
$
(663
)
 
$
11,803

Loss on sale
(667
)
 

(Loss) income from discontinued operations before taxes
(1,330
)
 
11,803

Tax (benefit) provision
(100
)
 
3,316

(Loss) income from discontinued operations
$
(1,230
)
 
$
8,487

 
 
 
 
5. Earnings per Share (EPS)
 
Three Months Ended March 31,
 
2019
 
2018
Numerator:
 

 
 

(Loss) income from continuing operations
$
(1,429
)
 
$
51,483

(Loss) income from discontinued operations, net of tax
(1,230
)
 
8,487

Net (loss) income (numerator for diluted EPS)
(2,659
)
 
59,970

Less: Preference stock dividend
8

 
8

(Loss) income attributable to common stockholders (numerator for basic EPS)
$
(2,667
)
 
$
59,962

Denominator:
 

 
 

Weighted-average shares used in basic EPS
185,971

 
186,863

Dilutive effect of common stock equivalents (1)

 
1,312

Weighted-average shares used in diluted EPS
185,971

 
188,175

Basic (loss) earnings per share (2):
 

 
 

Continuing operations
$
(0.01
)
 
$
0.28

Discontinued operations
(0.01
)
 
0.05

Net (loss) income
$
(0.01
)
 
$
0.32

Diluted (loss) earnings per share (2):
 
 
 
Continuing operations
$
(0.01
)
 
$
0.27

Discontinued operations
(0.01
)
 
0.05

Net (loss) income
$
(0.01
)
 
$
0.32

 
 
 
 
Anti-dilutive options excluded from diluted earnings per share:
14,989

 
11,636

(1)
Dilutive effect of common stock equivalents are not included in the calculation of diluted earnings per share for the three months ended March 31, 2019 as the Company is reporting a net loss for the period.
(2)
The sum of the earnings per share amounts may not equal the totals due to rounding.

13


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

6. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at March 31, 2019 and December 31, 2018 consisted of the following:
 
March 31,
2019
 
December 31,
2018
Raw materials
$
13,258

 
$
8,231

Supplies and service parts
23,627

 
21,841

Finished products
36,474

 
36,690

Inventory at FIFO cost
73,359

 
66,762

Excess of FIFO cost over LIFO cost
(4,483
)
 
(4,483
)
Total inventory, net
$
68,876

 
$
62,279


7. Finance Assets and Lessor Operating Leases
Finance Assets
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies. Loan 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 March 31, 2019 and December 31, 2018 consisted of the following:
 
March 31, 2019
 
December 31, 2018
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Sales-type lease receivables
 

 
 

 
 

 
 

 
 

 
 

Gross finance receivables
$
1,099,620

 
$
190,468

 
$
1,290,088

 
$
1,110,896

 
$
247,774

 
$
1,358,670

Unguaranteed residual values
48,204

 
11,671

 
59,875

 
52,637

 
12,772

 
65,409

Unearned income
(370,344
)
 
(43,966
)
 
(414,310
)
 
(383,453
)
 
(55,113
)
 
(438,566
)
Allowance for credit losses
(13,136
)
 
(1,884
)
 
(15,020
)
 
(10,252
)
 
(2,356
)
 
(12,608
)
Net investment in sales-type lease receivables
764,344

 
156,289

 
920,633

 
769,828

 
203,077

 
972,905

Loan receivables
 
 
 

 
 

 
 

 
 

 
 

Loan receivables
286,716

 
29,578

 
316,294

 
300,319

 
29,270

 
329,589

Allowance for credit losses
(6,399
)
 
(732
)
 
(7,131
)
 
(6,777
)
 
(837
)
 
(7,614
)
Net investment in loan receivables
280,317

 
28,846

 
309,163

 
293,542

 
28,433

 
321,975

Net investment in finance receivables
$
1,044,661

 
$
185,135

 
$
1,229,796

 
$
1,063,370

 
$
231,510

 
$
1,294,880















14


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

Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at March 31, 2019 were as follows:
 
Sales-type Lease Receivables
 
North America
 
International
 
Total
Remaining for year ending December 31, 2019
$
486,499

 
$
52,782

 
$
539,281

Year ending December 31, 2020
275,321

 
56,077

 
331,398

Year ending December 31, 2021
186,002

 
41,078

 
227,080

Year ending December 31, 2022
106,014

 
26,276

 
132,290

Year ending December 31, 2023
42,879

 
12,511

 
55,390

Thereafter
2,905

 
1,744

 
4,649

Total
$
1,099,620

 
$
190,468

 
$
1,290,088

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.
Activity in the allowance for credit losses for the three months ended March 31, 2019 and 2018 was as follows:
 
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
3,399

 
231

 
957

 
20

 
4,607

Write-offs and other
(516
)
 
(702
)
 
(1,335
)
 
(125
)
 
(2,678
)
Balance at March 31, 2019
$
13,136

 
$
1,884

 
$
6,399

 
$
732

 
$
22,151

 
 
 
 
 
 
 
 
 
 
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2018
$
7,721

 
$
2,812

 
$
7,098

 
$
1,020

 
$
18,651

Amounts charged to expense
2,186

 
399

 
1,925

 
140

 
4,650

Write-offs and other
(1,145
)
 
(127
)
 
(2,073
)
 
(176
)
 
(3,521
)
Balance at March 31, 2018
$
8,762

 
$
3,084

 
$
6,950

 
$
984

 
$
19,780










15


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

Aging of Receivables
The aging of gross finance receivables at March 31, 2019 and December 31, 2018 was as follows:
 
March 31, 2019
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
1 - 90 days
$
1,065,521

 
$
186,947

 
$
280,124

 
$
29,302

 
$
1,561,894

> 90 days
34,099

 
3,521

 
6,592

 
276

 
44,488

Total
$
1,099,620

 
$
190,468

 
$
286,716

 
$
29,578

 
$
1,606,382

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
6,709

 
$
715

 
$
2,178

 
$
128

 
$
9,730

Not accruing interest
27,390

 
2,806

 
4,414

 
148

 
34,758

Total
$
34,099

 
$
3,521

 
$
6,592

 
$
276

 
$
44,488

 
December 31, 2018
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
1 - 90 days
$
1,069,288

 
$
243,852

 
$
294,126

 
$
29,079

 
$
1,636,345

> 90 days
41,608

 
3,922

 
6,193

 
191

 
51,914

Total
$
1,110,896

 
$
247,774

 
$
300,319

 
$
29,270

 
$
1,688,259

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


Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.
We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process, and there is no single credit score model that covers all countries.
The table below shows the North America portfolio at March 31, 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 company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 months.
Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.
Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.
High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.


16


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

 
March 31,
2019
 
December 31,
2018
Sales-type lease receivables
 

 
 

Low
$
909,353

 
$
922,414

Medium
131,425

 
131,650

High
23,478

 
22,110

Not Scored
35,364

 
34,722

Total
$
1,099,620

 
$
1,110,896

Loan receivables
 

 
 

Low
$
224,517

 
$
238,620

Medium
45,167

 
43,952

High
5,429

 
5,947

Not Scored
11,603

 
11,800

Total
$
286,716

 
$
300,319


Lease income
Lease income from sales-type leases for the three months ended March 31, 2019 and 2018 was as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Profit recognized at commencement (1)
$
36,360

 
$
47,294

Interest income
59,478

 
61,832

Total lease income from sales-type leases
$
95,838

 
$
109,126

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

Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of 1 to 5 years. Maturities of these operating leases are as follows:
Remaining for year ending December 31, 2019
$
26,317

Year ending December 31, 2020
25,322

Year ending December 31, 2021
9,881

Year ending December 31, 2022
4,023

Year ending December 31, 2023
2,590

Thereafter
59

Total
$
68,192



17


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

8. Intangible Assets and Goodwill
Intangible Assets
Intangible assets at March 31, 2019 and December 31, 2018 consisted of the following:
 
March 31, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
484,543

 
$
(286,393
)
 
$
198,150

 
$
480,837

 
$
(281,190
)
 
$
199,647

Software & technology
164,973

 
(145,518
)
 
19,455

 
165,088

 
(143,877
)
 
21,211

Trademarks & other
40,104

 
(34,704
)
 
5,400

 
40,170

 
(33,891
)
 
6,279

Total intangible assets
$
689,620

 
$
(466,615
)
 
$
223,005

 
$
686,095

 
$
(458,958
)
 
$
227,137


Amortization expense was $10 million and $11 million for the three months ended March 31, 2019 and 2018, respectively.
Future amortization expense as of March 31, 2019 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
$
30,303

Year ending December 31, 2020
35,564

Year ending December 31, 2021
31,026

Year ending December 31, 2022
29,798

Year ending December 31, 2023
26,726

Thereafter
69,588

Total
$
223,005


Goodwill
Changes in the carrying value of goodwill, by reporting segment, for the three months ended March 31, 2019 are shown in the table below.
 
December 31, 2018
 
Divestiture
 
Currency impact
 
March 31,
2019
Global Ecommerce
$
609,431

 
$

 
$

 
$
609,431

Presort Services
207,465

 

 

 
207,465

Commerce Services
816,896

 

 

 
816,896

North America Mailing
368,248

 

 
167

 
368,415

International Mailing
147,207

 
(10,490
)
 
(3,573
)
 
133,144

Small & Medium Business Solutions
515,455

 
(10,490
)
 
(3,406
)
 
501,559

Software Solutions
434,160

 

 
1,644

 
435,804

Total goodwill
$
1,766,511

 
$
(10,490
)
 
$
(1,762
)
 
$
1,754,259


In January 2019, we wrote off $10 million of goodwill associated with Market Exits.


18


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

9. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1
Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2
Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
225,808

 
$
398,019

 
$

 
$
623,827

Equity securities

 
21,663

 

 
21,663

Commingled fixed income securities
1,600

 
20,655

 

 
22,255

Government and related securities
85,390

 
9,132

 

 
94,522

Corporate debt securities

 
51,677

 

 
51,677

Mortgage-backed / asset-backed securities

 
89,618

 

 
89,618

Derivatives
 
 
 
 
 

 


Foreign exchange contracts

 
1,610

 

 
1,610

Total assets
$
312,798

 
$
592,374

 
$

 
$
905,172

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$

 
$
(3,430
)
 
$

 
$
(3,430
)
Total liabilities
$

 
$
(3,430
)
 
$

 
$
(3,430
)


19


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

 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Investment securities
 

 
 

 
 

 
 

Money market funds / commercial paper
$
220,756

 
$
391,891

 
$

 
$
612,647

Equity securities

 
19,133

 

 
19,133

Commingled fixed income securities
1,570

 
20,141

 

 
21,711

Government and related securities
98,790

 
9,787

 

 
108,577

Corporate debt securities

 
56,938

 

 
56,938

Mortgage-backed / asset-backed securities

 
98,334

 

 
98,334

Derivatives
 

 
 

 
 

 


Foreign exchange contracts

 
2,031

 

 
2,031

Total assets
$
321,116

 
$
598,255

 
$

 
$
919,371

Liabilities:
 

 
 

 
 

 
 

Derivatives
 

 
 

 
 

 
 

Foreign exchange contracts
$

 
$
(735
)
 
$

 
$
(735
)
Total liabilities
$

 
$
(735
)
 
$

 
$
(735
)
Investment Securities
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.
Equity Securities: 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 2.
Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.
Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2.
Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2.

Available-For-Sale Securities
Certain investment securities are classified as available-for-sale and recorded at fair value. Unrealized holding gains and losses, net of tax are recorded in 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.



20


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 at March 31, 2019 and December 31, 2018 consisted of the following:
 
March 31, 2019
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
Government and related securities
$
94,831

 
$
221

 
$
(575
)
 
$