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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
☐ 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
Address of Principal Executive Offices: 3001 Summer Street, Stamford, Connecticut 06926
Telephone Number: (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
6.7% Notes due 2043 PBI.PRB New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of October 28, 2020, 173,108,679 shares of common stock, par value $1 per share, of the registrant were outstanding.


PITNEY BOWES INC.
INDEX
Page Number
Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019
4
Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019
5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019
6
7
32
42
42
43
43
44
Item 6:
Exhibits
45
46
2


PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited; in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenue:        
Business services $ 550,954  $ 419,101  $ 1,524,323  $ 1,243,609 
Support services 117,519  126,274  353,320  382,578 
Financing 86,218  90,577  260,758  280,039 
Equipment sales 79,572  89,618  213,682  264,956 
Supplies 39,635  44,818  118,117  142,261 
Rentals 18,000  19,737  55,458  60,339 
Total revenue 891,898  790,125  2,525,658  2,373,782 
Costs and expenses:
Cost of business services 482,965  338,519  1,311,941  1,003,483 
Cost of support services 37,647  41,086  114,132  123,453 
Financing interest expense 11,626  11,026  36,054  33,433 
Cost of equipment sales 59,766  59,859  165,045  182,094 
Cost of supplies 10,132  12,225  30,751  37,533 
Cost of rentals 6,055  5,090  18,455  23,223 
Selling, general and administrative 238,618  254,092  720,882  757,228 
Research and development 9,255  12,272  28,838  38,421 
Restructuring charges and asset impairments 3,766  47,017  12,505  56,616 
Goodwill impairment —  —  198,169  — 
Interest expense, net 27,175  28,704  79,504  84,325 
Other components of net pension and postretirement (income) cost (109) (882) 126  (3,138)
Other (income) expense (6,325) 667  9,787  18,350 
Total costs and expenses 880,571  809,675  2,726,189  2,355,021 
Income (loss) from continuing operations before taxes 11,327  (19,550) (200,531) 18,761 
Provision (benefit) for income taxes 554  (24,895) 7,540  (13,351)
Income (loss) from continuing operations 10,773  5,345  (208,071) 32,112 
Income (loss) from discontinued operations, net of tax 616  (8,470) 7,648  (14,199)
Net income (loss) $ 11,389  $ (3,125) $ (200,423) $ 17,913 
Basic earnings (loss) per share (1):
Continuing operations $ 0.06  $ 0.03  $ (1.21) $ 0.18 
Discontinued operations —  (0.05) 0.04  (0.08)
Net income (loss) $ 0.07  $ (0.02) $ (1.17) $ 0.10 
Diluted earnings (loss) per share (1):
Continuing operations $ 0.06  $ 0.03  $ (1.21) $ 0.18 
Discontinued operations —  (0.05) 0.04  (0.08)
Net income (loss) $ 0.07  $ (0.02) $ (1.17) $ 0.10 

(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 (LOSS)
(Unaudited; in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net income (loss) $ 11,389  $ (3,125) $ (200,423) $ 17,913 
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $1,621, $(655), $(91) and $(1,078), respectively
22,676  (27,962) 5,040  (6,584)
Net unrealized (loss) gain on cash flow hedges, net of tax of $(317), $51, $(796) and $27, respectively
(957) 149  (2,402) 78 
Net unrealized (loss) gain on investment securities, net of tax of $(2,716), $509, $(1,816) and $2,573, respectively
(8,191) 1,487  (5,476) 7,516 
Amortization of pension and postretirement costs, net of tax benefits of 2,875, 2,633, 9,027 and 7,406, respectively
9,162  7,552  29,409  21,499 
Other comprehensive income (loss), net of tax 22,690  (18,774) 26,571  22,509 
Comprehensive income (loss) $ 34,079  $ (21,899) $ (173,852) $ 40,422 






































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, 2020 December 31, 2019
ASSETS    
Current assets:    
Cash and cash equivalents $ 799,177  $ 924,442 
Short-term investments (includes $21,185 and $35,879, respectively, reported at fair value)
21,185  115,879 
Accounts and other receivables (net of allowance of $29,669 and $17,830, respectively)
348,565  373,471 
Short-term finance receivables (net of allowance of $21,289 and $12,556, respectively)
559,148  629,643 
Inventories 66,974  68,251 
Current income taxes 11,477  5,565 
Other current assets and prepayments 115,981  101,601 
Assets of discontinued operations —  17,229 
Total current assets 1,922,507  2,236,081 
Property, plant and equipment, net 367,466  376,177 
Rental property and equipment, net 40,352  41,225 
Long-term finance receivables (net of allowance of $16,779 and $7,095 respectively)
587,548  625,487 
Goodwill 1,142,144  1,324,179 
Intangible assets, net 167,493  190,640 
Operating lease assets 213,490  200,752 
Noncurrent income taxes 69,305  71,903 
Other assets (includes $418,100 and $230,442, respectively, reported at fair value)
533,726  400,456 
Total assets $ 5,044,031  $ 5,466,900 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:    
Accounts payable and accrued liabilities $ 760,363  $ 793,690 
Customer deposits at Pitney Bowes Bank 610,582  591,118 
Current operating lease liabilities 38,007  36,060 
Current portion of long-term debt 63,509  20,108 
Advance billings 102,919  101,920 
Current income taxes 2,527  17,083 
Liabilities of discontinued operations —  9,713 
Total current liabilities 1,577,907  1,569,692 
Long-term debt 2,531,712  2,719,614 
Deferred taxes on income 279,526  274,435 
Tax uncertainties and other income tax liabilities 40,642  38,834 
Noncurrent operating lease liabilities 192,789  177,711 
Other noncurrent liabilities 342,330  400,518 
Total liabilities 4,964,906  5,180,804 
Commitments and contingencies (See Note 14)
Stockholders’ equity:
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)
323,338  323,338 
Additional paid-in capital 67,512  98,748 
Retained earnings 5,190,914  5,438,930 
Accumulated other comprehensive loss (813,572) (840,143)
Treasury stock, at cost (151,413,053 and 152,888,969 shares, respectively)
(4,689,067) (4,734,777)
Total stockholders’ equity 79,125  286,096 
Total liabilities and stockholders’ equity $ 5,044,031  $ 5,466,900 


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,
2020 2019
Cash flows from operating activities:    
Net (loss) income $ (200,423) $ 17,913 
(Income) loss from discontinued operations, net of tax (7,648) 14,199 
Restructuring payments (15,869) (18,845)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 120,403  118,514 
Allowance for credit losses 35,400  22,131 
Stock-based compensation 15,236  15,867 
Restructuring charges and asset impairments 12,505  56,616 
Amortization of debt fees 7,962  8,014 
Goodwill impairment 198,169  — 
Loss on extinguishment of debt 36,987  667 
Gain on sale of investments (21,969) — 
Loss on sale of business —  17,683 
Changes in operating assets and liabilities, net of acquisitions/divestitures:    
Increase in accounts receivable (8,064) (248)
Decrease in finance receivables 85,593  25,300 
Decrease (increase) in inventories 1,051  (14,559)
Increase in other current assets and prepayments (18,400) (30,546)
Increase in accounts payable and accrued liabilities (1,047) 892 
Increase (decrease) in current and noncurrent income taxes 21,682  (30,401)
Increase (decrease) in advance billings 687  (3,802)
Decrease in pension and retiree medical liabilities (25,095) (39,231)
Other, net (8,113) 6,262 
   Net cash provided by operating activities - continuing operations 229,047  166,426 
   Net cash (used in) provided by operating activities - discontinued operations (38,423) 15,858 
   Net cash provided by operating activities 190,624  182,284 
Cash flows from investing activities:    
Capital expenditures (80,787) (95,221)
Purchases of available-for-sale securities (392,427) (45,178)
Proceeds from sales/maturities of available-for-sale securities 241,924  78,024 
Net activity from short-term and other investments 68,464  (92,418)
Acquisitions, net of cash acquired (6,608) (22,100)
Sale of other investments (See Note 8) 58,248  — 
Increase in customer deposits at Pitney Bowes Bank 19,464  3,125 
Other investing activities (1,511) (9,341)
   Net cash used in investing activities - continuing operations (93,233) (183,109)
   Net cash used in investing activities - discontinued operations (2,502) (18,572)
   Net cash used in investing activities (95,735) (201,681)
Cash flows from financing activities:    
Proceeds from the issuance of long-term debt 916,544  — 
Principal payments of long-term debt (1,072,260) (202,640)
Premiums and fees paid to extinguish debt (32,645) — 
Dividends paid to stockholders (25,693) (26,854)
Common stock repurchases —  (105,000)
Other financing activities (3,318) 7,302 
   Net cash used in financing activities (217,372) (327,192)
Effect of exchange rate changes on cash and cash equivalents (2,782) (5,822)
Change in cash and cash equivalents (125,265) (352,411)
Cash and cash equivalents at beginning of period 924,442  867,262 
Cash and cash equivalents at end of period $ 799,177  $ 514,851 
Cash interest paid $ 115,143  $ 110,943 
Cash income tax payments, net of refunds $ 19,861  $ 25,527 


See Notes to Condensed Consolidated Financial Statements
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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 commerce solutions that power billions of transactions. Clients around the world rely on the accuracy and precision delivered by our equipment, solutions, analytics, and application programming interface technology in the areas of ecommerce fulfillment, shipping and returns, cross-border ecommerce, office mailing and shipping, presort services and financing. Pitney Bowes Inc. was incorporated in the state of Delaware in 1920. For more information about us, our products, services and solutions, visit www.pitneybowes.com.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2019 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2020, particularly in light of the novel coronavirus pandemic (COVID-19) and its effect on global businesses and economies. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2019 (2019 Annual Report).
Accounts and other receivables includes other net receivables of $60 million at September 30, 2020 and $91 million at December 31, 2019. In January 2019, we sold the direct operations and moved to a dealer model in six smaller international markets within Sending Technology Solutions (SendTech Solutions). Other receivables includes gross receivables of $20 million related to these direct operations.
Risks and Uncertainties
The effects of COVID-19 on global economies and businesses continues to impact how we conduct business and our operating results, financial position and cash flows. Its impact on our business remains unpredictable and accordingly, we are not able to reasonably estimate the full extent of COVID-19 on our operating results, financial position and cash flows.
We assessed certain accounting matters that require the use of estimates, assumptions and consideration of forecasted financial information in context with the known and projected future impacts of COVID-19. The most significant impacts were to our allowance for credit losses (see Accounting Pronouncements Adopted in 2020 below) and the carrying value of goodwill (see Note 8). Actual results could differ significantly from our estimates and assumptions, possibly resulting in additional impairments or other charges.
Accounting Pronouncements Adopted in 2020
Effective January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses. We adopted this standard using the modified retrospective transition approach with a cumulative effect adjustment to retained earnings. The ASU applies to financial assets measured at amortized cost, including finance receivables, trade and other receivables and investments in debt securities classified as available-for-sale and held-to-maturity. The ASU replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The models to estimate credit losses are required to be based on historical loss experience, current conditions, reasonable and supportable forecasts and current economic outlook. The adoption of the standard resulted in an increase in the opening reserve balance for accounts and other receivables of $15 million and the opening reserve balance for finance receivables of $10 million and a net reduction to retained earnings of $22 million. The impact of COVID-19 on global businesses and economies resulted in an increased probability of recessionary conditions, delinquency rates and business bankruptcy resulting in an additional $11 million provision in the first quarter of 2020. Through September 30, 2020, our credit loss provision was $35 million compared to $22 million through September 30, 2019.

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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 accounts and other receivables for the nine months ended September 30, 2020 is presented below. See Note 7 for additional information pertaining to our finance receivables.
Balance at December 31, 2019 Cumulative effect of accounting change Amounts charged to expense Write-offs, recoveries and currency impact Balance at
September 30, 2020
Allowance for credit losses $ 17,830  $ 15,336  $ 16,856  $ (20,353) $ 29,669 
Accounts receivable greater than 365 days past due, subject to certain exceptions, are written off against the allowance, although collection efforts may continue.

Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective beginning January 1, 2021, with early adoption permitted. We do not expect this standard to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The transition to new reference interest rates will require certain contracts to be modified and the ASU is intended to mitigate the effects of this transition. The accommodations provided by the ASU are effective as of March 12, 2020 through December 31, 2022 and may be applied at the beginning of any interim period within that time frame. We are currently assessing the impact this standard will have on our consolidated financial statements.

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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
2. Revenue
Disaggregated Revenue
The following tables disaggregate our revenue by source and timing of recognition:
Three Months Ended September 30, 2020
Global Ecommerce Presort Services SendTech Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 409,981  $ 127,705  $ 13,268  $ 550,954  $ —  $ 550,954 
Support services —  —  117,519  117,519  —  117,519 
Financing —  —  —  —  86,218  86,218 
Equipment sales —  —  17,935  17,935  61,637  79,572 
Supplies —  —  39,635  39,635  —  39,635 
Rentals —  —  —  —  18,000  18,000 
Subtotal 409,981  127,705  188,357  726,043  $ 165,855  $ 891,898 
Revenue from leasing transactions and financing
Financing —  —  86,218  86,218 
Equipment sales —  —  61,637  61,637 
Rentals —  —  18,000  18,000 
     Total revenue $ 409,981  $ 127,705  $ 354,212  $ 891,898 
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —  $ —  $ 73,602  $ 73,602 
Products/services transferred over time 409,981  127,705  114,755  652,441 
      Total $ 409,981  $ 127,705  $ 188,357  $ 726,043 

Three Months Ended September 30, 2019
Global Ecommerce Presort Services SendTech Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 278,995  $ 131,483  $ 8,623  $ 419,101  $ —  $ 419,101 
Support services —  —  126,274  126,274  —  126,274 
Financing —  —  —  —  90,577  90,577 
Equipment sales —  —  19,062  19,062  70,556  89,618 
Supplies —  —  44,818  44,818  —  44,818 
Rentals —  —  —  —  19,737  19,737 
Subtotal 278,995  131,483  198,777  609,255  $ 180,870  $ 790,125 
Revenue from leasing transactions and financing
Financing —  —  90,577  90,577 
Equipment sales —  —  70,556  70,556 
Rentals —  —  19,737  19,737 
     Total revenue $ 278,995  $ 131,483  $ 379,647  $ 790,125 
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —  $ —  $ 81,547  $ 81,547 
Products/services transferred over time 278,995  131,483  117,230  527,708 
      Total $ 278,995  $ 131,483  $ 198,777  $ 609,255 
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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, 2020
Global Ecommerce Presort Services SendTech Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 1,100,757  $ 386,552  $ 37,014  $ 1,524,323  $ —  $ 1,524,323 
Support services —  —  353,320  353,320  —  353,320 
Financing —  —  —  —  260,758  260,758 
Equipment sales —  —  49,556  49,556  164,126  213,682 
Supplies —  —  118,117  118,117  —  118,117 
Rentals —  —  —  —  55,458  55,458 
Subtotal 1,100,757  386,552  558,007  2,045,316  $ 480,342  $ 2,525,658 
Revenue from leasing transactions and financing
Financing —  —  260,758  260,758 
Equipment sales —  —  164,126  164,126 
Rentals —  —  55,458  55,458 
     Total revenue $ 1,100,757  $ 386,552  $ 1,038,349  $ 2,525,658 
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —  $ —  $ 210,726  $ 210,726 
Products/services transferred over time 1,100,757  386,552  347,281  1,834,590 
      Total $ 1,100,757  $ 386,552  $ 558,007  $ 2,045,316 

Nine Months Ended September 30, 2019
Global Ecommerce Presort Services SendTech Solutions Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 827,568  $ 394,468  $ 21,573  $ 1,243,609  $ —  $ 1,243,609 
Support services —  —  382,578  382,578  —  382,578 
Financing —  —  —  —  280,039  280,039 
Equipment sales —  —  59,739  59,739  205,217  264,956 
Supplies —  —  142,261  142,261  —  142,261 
Rentals —  —  —  —  60,339  60,339 
Subtotal 827,568  394,468  606,151  1,828,187  $ 545,595  $ 2,373,782 
Revenue from leasing transactions and financing
Financing —  —  280,039  280,039 
Equipment sales —  —  205,217  205,217 
Rentals —  —  60,339  60,339 
     Total revenue $ 827,568  $ 394,468  $ 1,151,746  $ 2,373,782 
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ —  $ —  $ 251,214  $ 251,214 
Products/services transferred over time 827,568  394,468  354,937  1,576,973 
      Total $ 827,568  $ 394,468  $ 606,151  $ 1,828,187 


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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Our performance obligations for revenue from products and services are as follows:
Business services includes providing mail processing services, shipping subscription solutions, fulfillment, delivery and return services and cross-border solutions. Revenue for mail processing services, fulfillment, delivery and return services and cross-border solutions is recognized over time as the services are provided and revenue for shipping subscription solutions is recognized ratably over the contract period. Contract terms for these services range from one to five years followed by annual renewal periods.
Support services includes providing maintenance, professional and subscription services for our mailing equipment and professional services for our shipping solutions. Contract terms range from one to five years, depending on the term of the lease contract for the related equipment. Revenue for maintenance and subscription services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.
Equipment sales generally includes the sale of mailing and shipping equipment, excluding sales-type leases. We recognize revenue upon delivery for self-install equipment 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.
Supplies revenue is recognized upon delivery.
Revenue from leasing transactions and financing includes revenue from sales-type and operating leases, finance income, late fees and investment income, gains and losses at Pitney Bowes Bank.

Advance Billings from Contracts with Customers
Balance sheet location September 30, 2020 December 31, 2019 Increase/ (decrease)
Advance billings, current Advance billings $ 94,454  $ 92,464  $ 1,990 
Advance billings, noncurrent Other noncurrent liabilities $ 1,117  $ 1,245  $ (128)

Advance billings are recorded when cash payments are due in advance of our performance. Revenue is recognized ratably over the contract term. Items in advance billings primarily relate to support services on mailing equipment. Revenue recognized during the period includes $78 million of advance billings at the beginning of the period. Advance billings at September 30, 2020 and December 31, 2019 also includes $8 million and $9 million, respectively, from leasing transactions.

Future Performance Obligations
Future performance obligations include revenue streams bundled with our leasing contracts, primarily maintenance and subscription services. The transaction prices allocated to future performance obligations will be recognized as follows:
Remainder of 2020 2021 2022-2025 Total
SendTech Solutions $ 73,963  $ 263,673  $ 388,235  $ 725,871 
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.
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
3. Segment Information
Our reportable segments are Global Ecommerce, Presort Services and SendTech Solutions. Global Ecommerce and Presort Services comprise the Commerce Services reporting group. The principal products and services of each reportable segment are as follows:
Global Ecommerce: Includes the revenue and related expenses from products and services that facilitate domestic retail and ecommerce shipping solutions, including fulfillment and returns, and global cross-border ecommerce transactions.
Presort Services: Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail and Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.
SendTech Solutions: Includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable segments and reconciliation of segment EBIT to net income (loss).

Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Global Ecommerce $ 409,981  $ 278,995  $ 1,100,757  $ 827,568 
Presort Services 127,705  131,483  386,552  394,468 
Commerce Services 537,686  410,478  1,487,309  1,222,036 
SendTech Solutions 354,212  379,647  1,038,349  1,151,746 
Total revenue $ 891,898  $ 790,125  $ 2,525,658  $ 2,373,782 

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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Global Ecommerce $ (19,757) $ (21,793) $ (68,126) $ (51,969)
Presort Services 14,481  17,687  42,758  48,215 
Commerce Services (5,276) (4,106) (25,368) (3,754)
SendTech Solutions 112,599  130,954  323,429  378,095 
Total segment EBIT 107,323  126,848  298,061  374,341 
Reconciliation of Segment EBIT to net income (loss):    
Unallocated corporate expenses (53,429) (58,277) (146,640) (160,283)
Restructuring charges and asset impairments (3,766) (47,017) (12,505) (56,616)
Interest expense, net (38,801) (39,730) (115,558) (117,758)
Gain on sale of equity investment —  —  11,908  — 
Goodwill impairment —  —  (198,169) — 
Loss on extinguishment of debt —  (667) (36,987) (667)
Loss on dispositions —  —  —  (17,683)
Transaction costs —  (707) (641) (2,573)
(Provision) benefit for income taxes (554) 24,895  (7,540) 13,351 
Income (loss) from continuing operations 10,773  5,345  (208,071) 32,112 
Income (loss) from discontinued operations, net of tax 616  (8,470) 7,648  (14,199)
Net income (loss) $ 11,389  $ (3,125) $ (200,423) $ 17,913 

During the three and nine months ended September 30, 2020, we received insurance proceeds of $6 million and $15 million, respectively, related to the October 2019 malware attack, a portion of which has been recorded to the business segments and reflected in segment EBIT.


4. Discontinued Operations
Discontinued operations includes the Software Solutions business, sold in December 2019, with the exception of the software business in Australia, which closed in January 2020, and the Production Mail business, sold in July 2018. Selected financial information of discontinued operations is as follows:
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Software Solutions Production Mail Total Software Solutions Production Mail Total
Revenue $ —  $ —  $ —  $ 73,620  $ —  $ 73,620 
Earnings from discontinued operations $ —  $ —  $ —  $ 8,633  $ —  $ 8,633 
Gain (loss) on sale 474  —  474  (12,447) (5,710) (18,157)
Income (loss) from discontinued operations before taxes $ 474  $ —  474  $ (3,814) $ (5,710) (9,524)
Tax benefit (142) (1,054)
Income (loss) from discontinued operations, net of tax $ 616  $ (8,470)
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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, 2020 Nine Months Ended September 30, 2019
Software Solutions Production Mail Total Software Solutions Production Mail Total
Revenue $ —  $ —  $ —  $ 219,144  $ —  $ 219,144 
Earnings (loss) from discontinued operations $ —  $ —  $ —  $ 13,334  $ (663) $ 12,671 
Gain (loss) on sale 7,343  (167) 7,176  (14,211) (14,967) (29,178)
Income (loss) from discontinued operations before taxes $ 7,343  $ (167) 7,176  $ (877) $ (15,630) (16,507)
Tax benefit (472) (2,308)
Income (loss) from discontinued operations, net of tax $ 7,648  $ (14,199)

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


5. Earnings per Share (EPS)
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator:        
Income (loss) from continuing operations $ 10,773  $ 5,345  $ (208,071) $ 32,112 
Income (loss) from discontinued operations, net of tax 616  (8,470) 7,648  (14,199)
Net income (loss) (numerator for diluted EPS) 11,389  (3,125) (200,423) 17,913 
Less: Preference stock dividend —  —  —  8 
Income (loss) attributable to common stockholders (numerator for basic EPS) $ 11,389  $ (3,125) $ (200,423) $ 17,905 
Denominator:        
Weighted-average shares used in basic EPS 171,828  170,326  171,388  178,048 
Dilutive effect of common stock equivalents (1)
2,876  875  —  1,048 
Weighted-average shares used in diluted EPS 174,704  171,201  171,388  179,096 
Basic earnings (loss) per share (2):
       
Continuing operations $ 0.06  $ 0.03  $ (1.21) $ 0.18 
Discontinued operations —  (0.05) 0.04  (0.08)
Net income (loss) $ 0.07  $ (0.02) $ (1.17) $ 0.10 
Diluted earnings (loss) per share (2):
Continuing operations $ 0.06  $ 0.03  $ (1.21) $ 0.18 
Discontinued operations —  (0.05) 0.04  (0.08)
Net income (loss) $ 0.07  $ (0.02) $ (1.17) $ 0.10 
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive:
14,828  16,182  15,855  16,166 
(1)     Dilutive effect of common stock equivalents for the nine months ended September 30, 2020 was 1,604 shares; however, this amount was not included in the calculation of diluted earnings per share as the impact would have been anti-dilutive.
(2)     The sum of the earnings per share amounts may not equal the totals due to rounding.


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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 consisted of the following:
September 30,
2020 		December 31,
2019
Raw materials $ 16,174  $ 13,514 
Supplies and service parts 22,628  21,840 
Finished products 31,957  36,969 
Inventory at FIFO cost 70,759  72,323 
Excess of FIFO cost over LIFO cost (3,785) (4,072)
Total inventory, net $ 66,974  $ 68,251 


7. Finance Assets and Lessor Operating Leases
Finance Assets
Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies and are generally due monthly; however, clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method. Annual fees are recognized ratably over the annual period covered and client acquisition costs are expensed as incurred.
Finance receivables consisted of the following:
September 30, 2020 December 31, 2019
North America International Total North America International Total
Sales-type lease receivables            
Gross finance receivables $ 981,475  $ 201,590  $ 1,183,065  $ 1,055,852  $ 224,202  $ 1,280,054 
Unguaranteed residual values 37,191  11,609  48,800  41,934  11,789  53,723 
Unearned income (270,499) (58,811) (329,310) (319,281) (65,888) (385,169)
Allowance for credit losses (25,886) (4,902) (30,788) (10,920) (2,085) (13,005)
Net investment in sales-type lease receivables 722,281  149,486  871,767  767,585  168,018  935,603 
Loan receivables          
Loan receivables 259,832  22,377  282,209  298,247  27,926  326,173 
Allowance for credit losses (6,792) (488) (7,280) (5,906) (740) (6,646)
Net investment in loan receivables 253,040  21,889  274,929  292,341  27,186  319,527 
Net investment in finance receivables $ 975,321  $ 171,375  $ 1,146,696  $ 1,059,926  $ 195,204  $ 1,255,130 












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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Maturities of gross sales-type lease receivables and gross loan receivables at September 30, 2020 were as follows:
Sales-type Lease Receivables Loan Receivables
North America International Total North America International Total
Remaining for year ending December 31, 2020 $ 114,724  $ 35,721  $ 150,445  $ 215,593  $ 22,377  $ 237,970 
Year ending December 31, 2021 359,198  75,057  434,255  13,314  —  13,314 
Year ending December 31, 2022 259,729  49,422  309,151  11,507  —  11,507 
Year ending December 31, 2023 155,254  27,279  182,533  6,394  —  6,394 
Year ending December 31, 2024 77,034  11,000  88,034  7,023  —  7,023 
Thereafter 15,536  3,111  18,647  6,001  —  6,001 
Total $ 981,475  $ 201,590  $ 1,183,065  $ 259,832  $ 22,377  $ 282,209 

Aging of Receivables
The aging of gross finance receivables was as follows:
September 30, 2020
Sales-type Lease Receivables Loan Receivables
North
America 		International North
America 		International Total
Past due amounts 0 - 90 days $ 961,346  $ 199,565  $ 254,802  $ 22,096  $ 1,437,809 
Past due amounts > 90 days 20,129  2,025  5,030  281  27,465 
Total $ 981,475  $ 201,590  $ 259,832  $ 22,377  $ 1,465,274 
Past due amounts > 90 days          
Still accruing interest $ 3,365  $ 699  $ 1,461  $ 58  $ 5,583 
Not accruing interest 16,764  1,326  3,569  223  21,882 
Total $ 20,129  $ 2,025  $ 5,030  $ 281  $ 27,465 
December 31, 2019
Sales-type Lease Receivables Loan Receivables
North
America 		International North
America 		International Total
Past due amounts 0 - 90 days $ 1,032,912  $ 220,819  $ 294,001  $ 27,697  $ 1,575,429 
Past due amounts > 90 days 22,940  3,383  4,246  229  30,798 
Total $ 1,055,852  $ 224,202  $ 298,247  $ 27,926  $ 1,606,227 
Past due amounts > 90 days          
Still accruing interest $ 4,835  $ 1,081  $ 2,094  $ 121  $ 8,131 
Not accruing interest 18,105  2,302  2,152  108  22,667 
Total $ 22,940  $ 3,383  $ 4,246  $ 229  $ 30,798 

Allowance for Credit Losses
We estimate an allowance for credit losses based on historical loss experience, the nature of our portfolios, adverse situations that may affect a client's ability to pay, current conditions, reasonable and supportable forecasts and current economic outlook. Credit losses are estimated at the portfolio level based on asset type and geographic market. Historical loss experience was based on actual loss rates over the average term of the asset of five years for sales-type lease receivables and three years for loan receivables (including accrued interest). Additionally, we evaluate current conditions and review third-party economic forecasts on a quarterly basis to determine the impact on the allowance for credit losses. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves. The allowance for credit losses at September 30, 2020 considers the current economic conditions and resulting impact on a client's future ability to pay amounts due.
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We monitor delinquency rates and have experienced a slight increase in our delinquencies during this current economic situation. However, we believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.
Activity in the allowance for credit losses for finance receivables was as follows:
Sales-type Lease Receivables Loan Receivables
North
America 		International North
America 		International Total
Balance at December 31, 2019 $ 10,920  $ 2,085  $ 5,906  $ 740  $ 19,651 
Cumulative effect of accounting change 9,271  1,750  (1,116) (402) 9,503 
Amounts charged to expense 10,009  1,314  6,792  429  18,544 
Write-offs (5,950) (548) (7,370) (343) (14,211)
Recoveries 1,488  91  2,399  1  3,979 
Currency impact 148  210  181  63  602 
Balance at September 30, 2020 $ 25,886  $ 4,902  $ 6,792  $ 488  $ 38,068 
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 4,587  801  3,547  440  9,375 
Write-offs (5,153) (842) (6,882) (608) (13,485)
Recoveries 1,286  157  2,746  9  4,198 
Currency impact 199  (254) (172) 41  (186)
Balance at September 30, 2019 $ 11,172  $ 2,217  $ 6,016  $ 719  $ 20,124 

Credit Quality
The extension of credit and management of credit lines to new and existing clients uses a combination of a client's credit score, where available, and a detailed manual review of their financial condition and payment history or an automated process for certain small dollar applications. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes to 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. The relative scores are determined based on a number of factors, including financial information, payment history, company type and ownership structure. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 months.
•Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.
•Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.
•High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The table below shows the gross sales-type lease receivable and loan receivable balances by relative risk class and year of origination based on the relative scores of the accounts within each class.
Sales Type Lease Receivables Loan Receivables Total
2020 2019 2018 2017 2016 Prior
Low $ 187,763  $ 230,942  $ 178,224  $ 101,307  $ 37,346  $ 15,488  $ 185,709  $ 936,779 
Medium 39,810  58,779  42,501  24,903  10,491  3,924  59,422  239,830 
High 5,752  6,219  4,722  2,605  1,344  184  4,617  25,443 
Not Scored 55,694  79,125  53,395  28,611  12,207  1,729  32,461  263,222 
Total $ 289,019  $ 375,065  $ 278,842  $ 157,426  $ 61,388  $ 21,325  $ 282,209  $ 1,465,274 

The majority of the Not Scored amounts above is within our International portfolio. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process, and there is no single credit score model that covers all countries. International credit applications below $50 thousand are subjected to an automated review process. All other credit applications are manually reviewed. A manual review includes obtaining client financial information, credit reports and other available financial information. Approximately 80% of credit applications are approved or denied through the automated review process.

Lease Income
Lease income from sales-type leases was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Profit recognized at commencement (1)
$ 29,169  $ 39,326  $ 80,349  $ 112,422 
Interest income 33,654  56,522  101,969  174,045 
Total lease income from sales-type leases $ 62,823  $ 95,848  $ 182,318  $ 286,467 
(1) Lease contracts do not include variable lease payments.

Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of one to five years. Maturities of these operating leases are as follows:
Remaining for year ending December 31, 2020 $ 17,351 
Year ending December 31, 2021 36,396 
Year ending December 31, 2022 13,688 
Year ending December 31, 2023 7,172 
Year ending December 31, 2024 2,100 
Thereafter 399 
Total $ 77,106 

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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
8. Intangible Assets, Goodwill and Other Assets
Intangible Assets
Intangible assets consisted of the following:
September 30, 2020 December 31, 2019
Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Carrying
Amount 		Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Carrying
Amount
Customer relationships $ 268,195  $ (108,338) $ 159,857  $ 265,665  $ (88,550) $ 177,115 
Software & technology 31,600  (23,969) 7,631  31,600  (19,999) 11,601 
Trademarks & other 13,324  (13,319) 5  13,324  (11,400) 1,924 
Total intangible assets $ 313,119  $ (145,626) $ 167,493  $ 310,589  $ (119,949) $ 190,640 

Amortization expense for the three months ended September 30, 2020 and 2019 was $8 million and $9 million, respectively, and amortization expense for the nine months ended September 30, 2020 and 2019 was $26 million and $27 million, respectively.
Future amortization expense as of September 30, 2020 is shown in the table below. Actual amortization expense may differ due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.
Remaining for year ending December 31, 2020 $ 7,683 
Year ending December 31, 2021 30,265 
Year ending December 31, 2022 29,315 
Year ending December 31, 2023 26,465 
Year ending December 31, 2024 26,465 
Thereafter 47,300 
Total $ 167,493 

Goodwill
Changes in the carrying value of goodwill, by reporting segment, are shown in the table below.
December 31, 2019 Impairment Acquisition Currency impact September 30,
2020
Global Ecommerce $ 609,431  $ (198,169) $ —  $ —  $ 411,262 
Presort Services 212,529  —  8,463  —  220,992 
Commerce Services 821,960  (198,169) 8,463  —  632,254 
SendTech Solutions 502,219  —  —  7,671  509,890 
Total goodwill $ 1,324,179  $ (198,169) $ 8,463  $ 7,671  $ 1,142,144 

In the first quarter of 2020, we determined that the estimated fair value of the Global Ecommerce reporting unit was less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million.
At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20%. During the first quarter of 2020, our Global Ecommerce reporting unit experienced weaker than expected performance, due in part to the deteriorating macroeconomic conditions and uncertainty brought on by COVID-19, causing us to evaluate the Global Ecommerce goodwill for impairment.
To test the Global Ecommerce goodwill for impairment, we determined the fair value of the Global Ecommerce reporting unit and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
goodwill impairment charge and could result in an additional impairment charge in the future. These estimates and assumptions are considered Level 3 inputs under the fair value hierarchy.
Other Assets
Other assets at September 30, 2020 and December 31, 2019 includes long-term investments of $426 million and $289 million, respectively.
In the second quarter of 2020, we surrendered certain company owned life insurance policies and received proceeds of $46 million. We did not record a gain or loss on the surrender; however, the surrender resulted in a tax expense of $12 million (see Note 13 for further information). Also, in the second quarter of 2020, we sold our interest in an equity investment for $12 million and recognized a gain of $12 million.


9. Fair Value Measurements and Derivative Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 –    Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 –    Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 –    Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis.
September 30, 2020
Level 1 Level 2 Level 3 Total
Assets:        
Investment securities        
Money market funds $ 116,806  $ 440,493  $ —  $ 557,299 
Equity securities —  22,555  —  22,555 
Commingled fixed income securities 1,720  19,537  —  21,257 
Government and related securities
17,408  18,601  —  36,009 
Corporate debt securities —  82,959  —  82,959 
Mortgage-backed / asset-backed securities —  275,352  —  275,352 
Derivatives  
Foreign exchange contracts —  2,603  —  2,603 
Total assets $ 135,934  $ 862,100  $ —  $ 998,034 
Liabilities:        
Derivatives        
Interest rate swaps $ —  $ (2,908) $ —  $ (2,908)
Foreign exchange contracts —  (1,086) —  (1,086)
Total liabilities $ —  $ (3,994) $ —  $ (3,994)
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
December 31, 2019
Level 1 Level 2 Level 3 Total
Assets:        
Investment securities        
Money market funds $ 161,441  $ 240,364  $ —  $ 401,805 
Equity securities —  21,979  —  21,979 
Commingled fixed income securities 1,656  18,404  —  20,060 
Government and related securities
64,572  17,478  —  82,050 
Corporate debt securities —  72,149  —  72,149 
Mortgage-backed / asset-backed securities —  66,339  —  66,339 
Derivatives      
Foreign exchange contracts —  3,256  —  3,256 
Total assets $ 227,669  $ 439,969  $ —  $ 667,638 
Liabilities:        
Derivatives        
Foreign exchange contracts $ —  $ (1,402) $ —  $ (1,402)
Total liabilities $ —  $ (1,402) $ —  $ (1,402)
Investment Securities
The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:
•Money Market Funds: 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.
•Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.
•Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.
•Government and Related Securities: Debt securities are classified as Level 1 where active, high volume trades for identical securities exist. Valuation adjustments are not applied to these securities. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.
•Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2.
•Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2.

Derivative Securities
•Foreign Exchange Contracts: The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties. These securities are classified as Level 2.
•Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2.

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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Available-For-Sale Securities
Available-for-sale securities are predominantly held at our wholly owned subsidiary, the Pitney Bowes Bank (the PB Bank). The PB Bank provides financing solutions to clients that rent or lease postage meters and purchase postage related supplies. The PB Bank also manages and invests excess undeployed deposits in bond investments. Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions (i.e., interest rates) recorded in accumulated other comprehensive income (AOCI), and changes in fair value due to credit conditions recorded in earnings. There were no unrealized losses due to credit losses charged to earnings through September 30, 2020.

Available-for-sale securities consisted of the following:
September 30, 2020
Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value
Government and related securities $ 35,018  $ 144  $ (719) $ 34,443 
Corporate debt securities 84,457  422  (1,920) 82,959 
Commingled fixed income securities 1,699  21  —  1,720 
Mortgage-backed / asset-backed securities 276,880  476  (2,004) 275,352 
Total $ 398,054  $ 1,063  $ (4,643) $ 394,474 
December 31, 2019
Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value
Government and related securities $ 80,732  $ 1,358  $ (114) $ 81,976 
Corporate debt securities 70,426  2,009  (286) 72,149 
Commingled fixed income securities 1,675  —  (19) 1,656 
Mortgage-backed / asset-backed securities 65,679  960  (300) 66,339 
Total $ 218,512  $ 4,327  $ (719) $ 222,120 

Investment securities in a loss position were as follows:
September 30, 2020 December 31, 2019
Fair Value Gross unrealized losses Fair Value Gross unrealized losses
Less than 12 continuous months $ 314,145  $ 4,543  $ 52,521  $ 583 
Greater than 12 continuous months 3,157  100  9,227  136 
Total $ 317,302  $ 4,643  $ 61,748  $ 719 
At September 30, 2020, approximately 30% of total securities in the investment portfolio were in a net loss position. We believe our allowance for credit losses on available-for-sale investment securities is adequate as our investments are primarily in highly liquid U.S. government and agency securities, high grade corporate bonds and municipal bonds. We have not recognized an impairment on investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses or expect to receive the stated principal and interest at maturity.

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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Scheduled maturities of available-for-sale securities at September 30, 2020 were as follows:
Amortized cost Estimated fair value
Within 1 year $ 19,299  $ 19,379 
After 1 year through 5 years 9,354  9,553 
After 5 years through 10 years 54,448  53,476 
After 10 years 314,953  312,066 
Total $ 398,054  $ 394,474 
The scheduled maturities of mortgage-backed and asset-backed securities may not coincide with the actual payment, as borrowers have the right to prepay obligations.
We have not experienced any significant write-offs in our investment portfolio. The majority of our mortgage-backed securities are either guaranteed or supported by the U.S. Government. We have no investments in inactive markets that would warrant a possible change in our pricing methods or classification within the fair value hierarchy.

Held-to-Maturity Securities
Held-to-maturity securities at September 30, 2020 and December 31, 2019, include $25 million and $383 million, respectively, of short-term, highly liquid time deposits. Due to the short-term nature of these securities, the carrying value approximates fair value.

Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We mitigate these exposures by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of exchange rate fluctuations on financial results and manage the cost of debt. We do not use derivatives for trading or speculative purposes. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.
Foreign Exchange Contracts
We enter into foreign exchange contracts to mitigate the currency risk associated with the anticipated purchase of inventory between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCI in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges. At September 30, 2020 and December 31, 2019, we had outstanding contracts associated with these anticipated transactions with notional amounts of $9 million and $7 million, respectively. Amounts included in AOCI at September 30, 2020 will be recognized in earnings within the next 12 months.

Interest Rate Swaps
We have interest rate swap agreements with an aggregate notional amount of $500 million that are designated as cash flow hedges. The fair value of the interest rate swaps is recorded as a derivative asset or liability at the end of each reporting period with the change in fair value reflected in AOCI.









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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The fair value of derivative instruments was as follows:
Designation of Derivatives Balance Sheet Location September 30,
2020 		December 31,
2019
Derivatives designated as
hedging instruments 		   
Foreign exchange contracts Other current assets and prepayments $ 15  $ 207 
  Accounts payable and accrued liabilities (154) (56)
Interest rate swaps Other noncurrent liabilities (2,908) — 
Derivatives not designated as
hedging instruments 		   
Foreign exchange contracts Other current assets and prepayments 2,588  3,049 
  Accounts payable and accrued liabilities (932) (1,346)
  Total derivative assets $ 2,603  $ 3,256 
  Total derivative liabilities (3,994) (1,402)
  Total net derivative (liability) asset $ (1,391) $ 1,854 

Results of cash flow hedging relationships were as follows:
Three Months Ended September 30,
Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion) 		Location of Gain (Loss)
(Effective Portion) 		Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
Derivative Instrument 2020 2019 2020 2019
Foreign exchange contracts $ (80) $ 156  Revenue $ (104) $ (98)
      Cost of sales (6) 54 
Interest rate swap (1,303) —  Interest expense —  — 
  $ (1,383) $ 156    $ (110) $ (44)
  Nine Months Ended September 30,
  Derivative Gain (Loss)
Recognized in AOCI
(Effective Portion) 		Location of Gain (Loss)
(Effective Portion) 		Gain (Loss) Reclassified
from AOCI to Earnings
(Effective Portion)
Derivative Instrument 2020 2019 2020 2019
Foreign exchange contracts $ (361) $ 181  Revenue $ (107) $ (23)
      Cost of sales 36  99 
Interest rate swap (2,908) —  Interest expense —  — 
  $ (3,269) $ 181    $ (71) $ 76 
We enter into foreign exchange contracts to minimize the impact of exchange rate fluctuations on short-term intercompany loans and related interest that are denominated in a foreign currency. The revaluation of intercompany loans and interest and the corresponding mark-to-market adjustment on derivatives are recorded in earnings. All outstanding contracts at September 30, 2020 mature within 12 months.





24

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The mark-to-market adjustments of non-designated derivative instruments were as follows:
Three Months Ended September 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2020 2019
Foreign exchange contracts Selling, general and administrative expense $ 891  $ (11,385)
Nine Months Ended September 30,
Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument Location of Derivative Gain (Loss) 2020 2019
Foreign exchange contracts Selling, general and administrative expense $ (2,776) $ (6,181)

Fair Value of Financial Instruments
Financial instruments not reported at fair value on a recurring basis include cash and cash equivalents, accounts receivable, loan receivables, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable and accounts payable approximate fair value. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt are classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:
September 30, 2020 December 31, 2019
Carrying value $ 2,595,221  $ 2,739,722 
Fair value $ 2,426,516  $ 2,572,794 

10. Restructuring Charges and Asset Impairments
Restructuring Charges
Activity in our restructuring reserves was as follows:
Severance and benefits costs Other exit
costs 		Total
Balance at January 1, 2020 $ 11,937  $ 69  $ 12,006 
Expenses, net 8,748  1,108  9,856 
Cash payments (14,714) (1,155) (15,869)
Balance at September 30, 2020 $ 5,971  $ 22  $ 5,993 
Balance at January 1, 2019 $ 13,641  $ 1,808  $ 15,449 
Expenses, net 12,498  845  13,343 
Cash payments (16,362) (2,483) (18,845)
Balance at September 30, 2019 $ 9,777  $ 170  $ 9,947 
The majority of the restructuring reserves are expected to be paid over the next 12 to 24 months.

Other Charges
Restructuring charges and asset impairments for the nine months ended September 30, 2020 includes $3 million of non-cash charges related to pension settlements and facilities abandonment. Restructuring charges and asset impairments for the nine months ended September 30, 2019 includes $43 million of non-cash charges primarily due to the impairment of capitalized software costs related to the development of a new enterprise resource planning (ERP) system in our international markets.
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
11. Debt
Total debt consisted of the following:


Interest rate September 30, 2020 December 31, 2019
Notes due October 2021 4.625% $ 170,253  $ 600,000 
Notes due May 2022 5.375% 148,792  400,000 
Notes due April 2023 5.70% 271,000  400,000 
Notes due March 2024 4.625% 374,000  500,000 
Notes due January 2037 5.25% 35,841  35,841 
Notes due March 2043 6.70% 425,000  425,000 
Term loan due November 2024 Variable 385,000  400,000 
Term loan due January 2025 Variable 828,750  — 
Other debt 5,000  5,108 
Principal amount 2,643,636  2,765,949 
Less: unamortized costs, net 48,415  26,227 
Total debt 2,595,221  2,739,722 
Less: current portion long-term debt 63,509  20,108 
Long-term debt $ 2,531,712  $ 2,719,614 

Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. As a result of credit rating downgrades in November 2019 and May 2020, the interest rates on the October 2021 notes and April 2023 notes increased 0.50% and the interest rate on the May 2022 notes increased 0.75% in the second quarter of 2020. Further, the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the fourth quarter of 2020.
In February 2020, we secured a five-year $850 million term loan maturing January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly. We have interest rate swap agreements with an aggregate notional amount of $500 million to mitigate the interest rate risk associated with $500 million of our variable-rate term loans. Under the terms of the swap agreements, we pay fixed-rate interest of 0.4443% and receive variable-rate interest based on one-month LIBOR. The variable interest rate under the term loans and the swaps reset monthly.
In March 2020, we purchased under a tender offer $428 million of the October 2021 notes, $250 million of the May 2022 notes, $125 million of the April 2023 notes and $125 million of the March 2024 notes. A $37 million loss was incurred on the early redemption of debt.
During the first nine months of 2020, we repaid $36 million of principal related to our term loans.
We have a $500 million secured revolving credit facility that expires in November 2024 and contains financial and non-financial covenants. At September 30, 2020, we were in compliance with all covenants. In September 2020, we repaid the $100 million under the credit facility that we drew down in April 2020. At September 30, 2020 and December 31, 2019, there were no outstanding borrowings under this facility.
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
12. Pensions and Other Benefit Programs
The components of net periodic benefit (income) cost were as follows:
Defined Benefit Pension Plans Nonpension Postretirement Benefit Plans
United States Foreign
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2020 2019 2020 2019 2020 2019
Service cost $ 16  $ 20  $ 422  $ 385  $ 229  $ 242 
Interest cost 12,719  15,792  3,548  4,435  1,255  1,646 
Expected return on plan assets (20,932) (23,182) (8,297) (8,340) —  — 
Amortization of transition credit —  —  (1) (2) —  — 
Amortization of prior service (credit) cost (15) (15) 62  58  93  80 
Amortization of net actuarial loss 7,972  6,537  2,092  1,543  926  507 
Settlement 75  1,477  833  —  —  — 
Net periodic benefit (income) cost $ (165) $ 629  $ (1,341) $ (1,921) $ 2,503  $ 2,475 
Contributions to benefit plans $ 2,061  $ 3,350  $ 445  $ 652  $ 2,422  $ 4,628 
Defined Benefit Pension Plans Nonpension Postretirement Benefit Plans
United States Foreign
Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
2020 2019 2020 2019 2020 2019
Service cost $ 69  $ 62  $ 1,220  $ 1,157  $ 663  $ 725 
Interest cost 39,077  47,378  10,473  13,231  3,742  4,937 
Expected return on plan assets (63,539) (69,545) (24,474) (25,609) —  — 
Amortization of transition credit —  —  (3) (5) —  — 
Amortization of prior service (credit) cost (45) (45) 182  181  280  241 
Amortization of net actuarial loss 24,367  19,610  6,156  4,727  2,400  1,521 
Settlement 1,076  2,278  4,023  397  —  — 
Net periodic benefit cost (income) $ 1,005  $ (262) $ (2,423) $ (5,921) $ 7,085  $ 7,424 
Contributions to benefit plans $ 5,959  $ 7,401  $ 9,013  $ 9,740  $ 10,493  $ 13,841 



27

PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
13. Income Taxes
The effective tax rate for the three and nine months ended September 30, 2020 was 4.9% and (3.8)%, respectively and includes a $3 million benefit, which is primarily due to regulations enacted into law during the quarter. The effective tax rate for the nine months ended September 30, 2020 also includes a $12 million charge for the surrender of company owned life insurance policies (see Note 8), a benefit of $2 million on the $198 million goodwill impairment charge as the majority of this charge is nondeductible, a benefit of $1 million from the resolution of certain tax examinations and a charge of $3 million for the write-off of deferred tax assets associated with the expiration of out-of-money vested stock options and the vesting of restricted stock.
The effective tax rate for the three and nine months ended September 30, 2019 was 127.3% and (71.2)%, respectively, and includes a benefit of $23 million from the release of a foreign valuation allowance. The effective tax rate for the nine months ended September 30, 2019 also includes a $2 million tax on the $18 million book loss incurred from the disposition of operations in certain international markets, primarily due to nondeductible basis differences as well as a benefit of $6 million from the resolution of certain tax examinations.
As is the case with other large corporations, our tax returns are examined by tax authorities in the U.S. and other global taxing jurisdictions in which we have operations. As a result, it is reasonably possible that the amount of unrecognized tax benefits will decrease in the next 12 months, and this decrease could be up to 10% of our unrecognized tax benefits.
The Internal Revenue Service examinations of our consolidated U.S. income tax returns for tax years prior to 2017 are closed to audit; however, various post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to 2015 are closed to audit. Other significant jurisdictions include France (closed through 2013), Germany (closed through 2016) and the U.K. (closed through 2017). We also have other less significant tax filings currently subject to examination.

14. Commitments and Contingencies
In the ordinary course of business, we are routinely defendants in, or party to, a number of pending and threatened legal actions. These may involve litigation by or against us relating to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of employees, customers or others. In management's opinion, the potential liability, if any, that may result from these actions, either individually or collectively, is not reasonably expected to have a material effect on our financial position, results of operations or cash flows as of September 30, 2020. However, as litigation is inherently unpredictable, there can be no assurances in this regard.
In December 2018 and then in February 2019, certain of the Company’s officers and directors were named as defendants in two virtually identical derivative actions purportedly brought on behalf of the Company, Clem v. Lautenbach et al. and Devolin v. Lautenbach et al. These two actions, both filed by the same counsel in Connecticut state court, allege, among other things, breaches of fiduciary duty relating to these same disclosures, and seek compensatory damages and other relief derivatively for the benefit of the Company. Both of these are derivative claims related to a prior action filed in Connecticut state court, City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes Inc. et al. (“Livonia”). On October 24, 2019, the court had granted the defendants’ motions to dismiss the Livonia case, and that judgment is now final. Given that the defendants prevailed in the Livonia action, the plaintiffs in the Clem and Devolin actions moved to withdraw their complaints, and on February 20, 2020 the court granted the motions. Both cases have now been dismissed.
We have entered into three equipment leases for our Commerce Services operations that will commence in the fourth quarter with terms ranging from seven to nine years. Aggregate lease payments for the three leases will approximate $30 million.

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

Changes in stockholders’ equity were as follows:
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at July 1, 2020 $ 323,338  $ 68,498  $ 5,188,119  $ (836,262) $ (4,699,113) $ 44,580 
Net income —  —  11,389  —  —  11,389 
Other comprehensive income —  —  —  22,690  —  22,690 
Dividends paid ($0.05 per common share)
—  —  (8,594) —  —  (8,594)
Issuance of common stock —  (9,272) —  —  10,046  774 
Stock-based compensation expense
—  8,286  —  —  —  8,286 
Balance at September 30, 2020 $ 323,338  $ 67,512  $ 5,190,914  $ (813,572) $ (4,689,067) $ 79,125 

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

Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at January 1, 2020 $ 323,338  $ 98,748  $ 5,438,930  $ (840,143) $ (4,734,777) $ 286,096 
Cumulative effect of accounting changes —  —  (21,900) —  —  (21,900)
Net loss —  —  (200,423) —  —  (200,423)
Other comprehensive income —  —  —  26,571  —  26,571 
Dividends paid ($0.15 per common share)
—  —  (25,693) —  —  (25,693)
Issuance of common stock —  (46,472) —  —  45,710  (762)
Stock-based compensation expense
—  15,236  —  —  —  15,236 
Balance at September 30, 2020 $ 323,338  $ 67,512  $ 5,190,914  $ (813,572) $ (4,689,067) $ 79,125 
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PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Preferred
stock 		Preference
stock 		Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total equity
Balance at January 1, 2019 $ 1  $ 396  $ 323,338  $ 121,475  $ 5,279,682  $ (948,961) $ (4,674,089) $ 101,842 
Net income —  —  —  —  17,913  —  —  17,913 
Other comprehensive income —  —  —  —  —  22,509  —  22,509 
Dividends paid ($0.15 per common share)
—  —  —  —  (26,854) —  —  (26,854)
Issuance of common stock —  —  —  (32,877) —  —  32,289  (588)
Conversion to common stock —  (130) —  (2,804) —  —  2,934  — 
Redemption of preferred/preference stock
(1) (266) —  (10) —  —  —  (277)
Stock-based compensation expense
—  —  —  15,867  —  —  —  15,867 
Repurchase of common stock —  —  —  —  —  —  (105,000) (105,000)
Balance at September 30, 2019 $ —  $ —  $ 323,338  $ 101,651  $ 5,270,741  $ (926,452) $ (4,743,866) $ 25,412 



16. Accumulated Other Comprehensive Loss (AOCL)
Reclassifications out of AOCL were as follows:
Gain (Loss) Reclassified from AOCL
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Cash flow hedges
Revenue $ (104) $ (98) $ (107) $ (23)
Cost of sales (6) 54  36  99 
Total before tax (110) (44) (71) 76 
Income tax (benefit) provision (27) (11) (18) 19 
Net of tax $ (83) $ (33) $ (53) $ 57 
Available-for-sale securities
Financing revenue $ 6,490  $ 146  $ 10,060  $ 42 
Selling, general and administrative expense 263  —  210  — 
Total before tax 6,753  146  10,270  42 
Income tax provision 1,681  37  2,557  11 
Net of tax $ 5,072  $ 109  $ 7,713  $ 31 
Pension and postretirement benefit plans
Transition credit $ 1  $ 2  $ 3  $ 5 
Prior service costs (140) (123) (417) (377)
Actuarial losses (10,990) (8,587) (32,923) (25,858)
Settlement (908) (1,477) (5,099) (2,675)
Total before tax (12,037) (10,185) (38,436) (28,905)
Income tax benefit (2,875) (2,633) (9,027) (7,406)
Net of tax $ (9,162) $ (7,552) $ (29,409) $ (21,499)







30

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

Changes in AOCL were as follows:
Cash flow hedges Available for sale securities Pension and postretirement benefit plans Foreign currency adjustments Total
Balance at January 1, 2020 $ 337  $ 2,849  $ (819,018) $ (24,311) $ (840,143)
Other comprehensive (loss) income before reclassifications (1)
(2,455) 2,237  —  5,040  4,822 
Reclassifications into earnings (1)
53  (7,713) 29,409  —  21,749 
Net other comprehensive (loss) income
(2,402) (5,476) 29,409  5,040  26,571 
Balance at September 30, 2020 $ (2,065) $ (2,627) $ (789,609) $ (19,271) $ (813,572)

Cash flow hedges Available for sale securities Pension and postretirement benefit plans Foreign currency adjustments Total
Balance at January 1, 2019 $ 191  $ (3,061) $ (846,461) $ (99,630) $ (948,961)
Other comprehensive income (loss) before reclassifications (1)
135  7,547  —  (6,584) 1,098 
Reclassifications into earnings (1)
(57) (31) 21,499  —  21,411 
Net other comprehensive income (loss) 78  7,516  21,499  (6,584) 22,509 
Balance at September 30, 2019 $ 269  $ 4,455  $ (824,962) $ (106,214) $ (926,452)
(1)     Amounts are net of tax.

17. Other (income) expense

Other (income) expense consisted of the following:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Loss on extinguishment of debt $ —  $ 667  $ 36,987  $ 667 
Insurance proceeds (6,325) —  (15,292) — 
Gain on sale of equity investment —  —  (11,908) — 
Loss on sale of business —  —  —  17,683 
Other (income) expense $ (6,325) $ 667  $ 9,787  $ 18,350 




31



Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could differ materially. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. In particular, the uncertainty around the severity, magnitude and duration of the COVID-19 pandemic (COVID-19), including governments' responses to COVID-19, its continuing impact on our operations, employees, the availability and cost of labor, global supply chain and demand across our and our clients' businesses, as well as any deterioration or instability in global macroeconomic conditions, could cause our actual results to differ than those expressed in any forward-looking statement. Other factors which could cause future financial performance to differ materially from the expectations, and which may also be exacerbated by COVID-19 or a negative change in the economy, include, without limitation:
•declining physical mail volumes
•changes in postal regulations or operations, or the financial health of posts, in the U.S. or other major markets or the loss of, or significant changes to the broader postal or shipping industry
•changes in our contractual relationships with the United States Postal Service (USPS)
•our ability to continue to grow and manage volumes, gain additional economies of scale and improve profitability within our Commerce Services group
•the loss of some of our larger clients in our Commerce Services group
•expenses and potential impacts resulting from a breach of security, including cyber-attacks or other comparable events
•changes in labor conditions and transportation costs
•our success at managing customer credit risk
•third-party suppliers' ability to provide products and services required by us and our clients
•capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
•our success in developing and marketing new products and services and obtaining regulatory approvals, if required
•competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
•the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws
•changes in international trade policies, including the imposition or expansion of trade tariffs
•our success at managing relationships and costs with outsource providers of certain functions and operations
•changes in banking regulations or the loss of our Industrial Bank charter or changes in foreign currency exchange rates and interest rates
•the United Kingdom's exit from the European Union
•intellectual property infringement claims
•the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
•acts of nature

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

32



Overview
Financial Results Summary - Three and Nine Months Ended September 30:
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Actual % change Constant Currency % Change 2020 2019 Actual % change Constant Currency % change
Business services $ 550,954  $ 419,101  31  % 31  % $ 1,524,323  $ 1,243,609  23  % 23  %
Support services 117,519  126,274  (7) % (7) % 353,320  382,578  (8) % (8) %
Financing 86,218  90,577  (5) % (5) % 260,758  280,039  (7) % (7) %
Equipment sales 79,572  89,618  (11) % (12) % 213,682  264,956  (19) % (19) %
Supplies 39,635  44,818  (12) % (13) % 118,117  142,261  (17) % (17) %
Rentals 18,000  19,737  (9) % (9) % 55,458  60,339  (8) % (8) %
Total revenue $ 891,898  $ 790,125  13  % 13  % $ 2,525,658  $ 2,373,782  6  % 7  %
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Actual % change Constant currency % change 2020 2019 Actual % change Constant currency % change
Global Ecommerce $ 409,981  $ 278,995  47  % 47  % $ 1,100,757  $ 827,568  33  % 33  %
Presort Services 127,705  131,483  (3) % (3) % 386,552  394,468  (2) % (2) %
Commerce Services 537,686  410,478  31  % 31  % 1,487,309  1,222,036  22  % 22  %
SendTech Solutions 354,212  379,647  (7) % (7) % 1,038,349  1,151,746  (10) % (10) %
Total $ 891,898  $ 790,125  13  % 13  % $ 2,525,658  $ 2,373,782  6  % 7  %
EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 % change 2020 2019 % change
Global Ecommerce $ (19,757) $ (21,793) 9  % $ (68,126) $ (51,969) (31) %
Presort Services 14,481  17,687  (18) % 42,758  48,215  (11) %
Commerce Services (5,276) (4,106) (28) % (25,368) (3,754) >(100%)
SendTech Solutions 112,599  130,954  (14) % 323,429  378,095  (14) %
Total Segment EBIT $ 107,323  $ 126,848  (15) % $ 298,061  $ 374,341  (20) %

Revenue increased 13% in the quarter and 6% as reported and 7% at constant currency for the first nine months of 2020, due to higher business services revenue, driven by significantly higher volumes in our Global Ecommerce segment. This growth more than offset declines in all other revenue line items that resulted in part from the continuing impacts of COVID-19. Within our business segments, Global Ecommerce revenue grew 47% in the quarter and 33% for the year-to-date period due to increased volumes and Presort Services revenue declined 3% in the quarter and 2% for the year-to-date period due to lower First Class and Marketing Mail volumes. SendTech Solutions revenue declined 7% in the quarter and 10% for the year-to-date period, primarily due to lower equipment sales and supplies revenue. Segment EBIT in the quarter declined 15% primarily due to lower revenue in SendTech Solutions. Segment EBIT for the year-to-date period decreased 20% primarily due to a decline in SendTech Solutions from lower revenue and higher EBIT loss in Global Ecommerce due to higher labor costs, continuing investments in our facilities and costs attributed to COVID-19. Segment EBIT for the year-to-date period also declined due to higher credit loss provision largely attributable to COVID-19. Refer to Results of Operations section for further information.
Global Ecommerce EBIT margins improved in the quarter compared to the prior year quarter due to the increase in revenue, partly offset by investments to support growth and incremental costs associated with COVID-19. Global Ecommerce EBIT margins for the year-to-date period were flat compared to the prior year. Presort Services EBIT margins declined slightly in the quarter and year-to-date periods compared to the prior year due to lower volumes. SendTech Solutions EBIT margins declined in the quarter and year-to-date periods compared to the prior year due to declines in revenue, partially offset by lower operating expenses from cost savings initiatives.

33




Impacts of COVID-19
The global spread of COVID-19 and the efforts to contain it are adversely affecting global economies, impacting demand for a broad variety of goods and services and creating disruptions and shortages in supply chains. We have implemented measures in our facilities to protect the health and safety of our employees and contractors, including staggering shifts and breaks to enhance social distancing, providing personal protection equipment, conducting temperature checks and sanitizing equipment and facilities multiple times a day. Employees that have the ability to work remotely are doing so and corporate and local management continue to assess conditions to determine when, and how, these employees should return to their office locations.
COVID-19 has impacted our financial results in different ways in each of our businesses. Global Ecommerce has seen a significant increase in volumes due to the demand for ecommerce solutions in the current environment. Presort Services, on the other hand, has experienced a decline in volumes, in both First Class and Marketing Mail, due to lower market demand and changing client behaviors. However, volumes in the third quarter improved over the second quarter. As a result of the health and safety measures implemented in all our Commerce Services facilities, we have incurred additional costs and reduced productivity.
In SendTech Solutions, the global shut-down of businesses and increase in the number of clients working remotely at the onset of COVID-19 significantly adversely impacted demand for and usage of our mailing equipment and supplies, and our ability to perform on-site installations. We saw improving trends in equipment sales and supplies revenues as we exited the second quarter, and third quarter equipment sales and supplies revenues increased over the second quarter 2020. As businesses continue to operate remotely, we are also seeing improvement in our cloud-enabled shipping and mailing solutions.
Outlook
The duration of COVID-19 and its impact on our business remains unpredictable. The steps we took to reduce and refinance our debt at the end of 2019 and beginning of 2020 have well positioned us to manage through the current economic conditions. We continue to take proactive steps to manage our cash flows and liquidity, including, by prioritizing and timing our capital investments as well as by tight management of our working capital. We will continue to take proactive measures to protect the health and safety of our employees, clients, partners and suppliers; however, these safety measures will result in additional expenses and reduced productivity.
COVID-19 has accelerated the market growth of ecommerce resulting in significant increases in volumes in our Global Ecommerce segment that we anticipate will continue into the fourth quarter. The industry-wide increase in ecommerce volumes has resulted in higher demand and increased competition for labor and pushed our facilities to full capacity, resulting in higher costs. We expect increased competition and higher demand for labor to continue as we enter the peak holiday season. To expand capacity, provide further efficiencies and improve per unit costs, we invested in three new facilities and upgraded an existing facility, which are expected to be operational in advance of the peak holiday season. We also implemented peak pricing due to the dramatic surge in volumes.
In Presort Services, the improvement in First Class Mail and Marketing Mail volumes we saw in the third quarter relative to the second quarter is anticipated to continue in the fourth quarter. Higher demand and increased competition for labor is also impacting Presort Services creating staffing challenges and higher costs, which we anticipate will continue into the fourth quarter. While currently a small part of total volumes and revenue, Marketing Mail Flats and Bound Printed Matter volumes grew 37% in the third quarter and we anticipate these volumes will continue to grow.
Within SendTech Solutions, approximately two-thirds of revenue is recurring in nature and materially contributes to our cash flows. Nonrecurring revenues, primarily equipment sales and to a lesser extent, supplies, are expected to continue to be impacted by COVID-19 due to declining demand and usage. We saw improving trends in both equipment sales and supplies revenues in the third quarter relative to the second quarter and would expect this to continue as businesses re-open; however, a resurgence of COVID-19 cases could adversely impact these revenues in the fourth quarter. As a result of clients working remotely and the necessity of alternate solutions, we are seeing an improvement in our cloud-enabled shipping and mailing solutions and expect this shift in market preference to continue as clients realize the value of our digital capabilities. We continue to monitor cash collections from our recurring revenue streams. Delinquency rates moderated during the third quarter compared to the second quarter and we are starting to see positive changes in customer payment behaviors. There are no assurances that this improvement in delinquency rates and payment behaviors will continue, or that the impacts of COVID-19 will not result in higher client bankruptcies or account write-offs.

34



RESULTS OF OPERATIONS
In our revenue discussion, we may refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates since the prior period under comparison. We believe that excluding the impacts of currency exchange rates provides investors with a better understanding of the underlying revenue performance. Constant currency change is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’s exchange rate. Where constant currency measures are not provided, the actual change and constant currency change are the same.  
Management measures segment profitability and performance using segment earnings before interest and taxes (EBIT). Segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, asset impairment charges, goodwill impairment charges and other items not allocated to a particular business segment. Management believes that it provides investors a useful measure of operating performance and underlying trends of the business. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations.

REVENUE AND SEGMENT EBIT
Global Ecommerce
Global Ecommerce includes the revenue and related expenses from products and services that enable domestic and cross-border ecommerce transactions, including shipping, fulfillment and returns.
Revenue Cost of Revenue Gross Margin
Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 409,981  $ 278,995  47  % 47  % $ 379,409  $ 240,447  7.5  % 13.8  %
Segment EBIT
Three Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ (19,757) $ (21,793) 9  %
Global Ecommerce revenue increased 47% in the third quarter of 2020 due to continued volume growth across all platforms primarily driven by the market shift to ecommerce solutions in part due to COVID-19. An increase in domestic parcel delivery volumes contributed revenue growth of 36%, higher cross-border volumes contributed revenue growth of 7% and higher returns volumes contributed revenue growth of 5%.
Gross margin decreased to 7.5% from 13.8% in the prior year due primarily to investments to support growth, incremental COVID-19 related costs and a shift in the mix of business.
Segment EBIT for the third quarter of 2020 was a loss of $20 million compared to a loss of $22 million in the prior year period. The decline in gross margin reduced EBIT by $8 million compared to the prior year; but was more than offset by lower operating expenses of $6 million and net insurance proceeds of $3 million.
Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 1,100,757  $ 827,568  33  % 33  % $ 1,000,490  $ 702,073  9.1  % 15.2  %
Segment EBIT
Nine Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ (68,126) $ (51,969) (31) %
35



Global Ecommerce revenue increased 33% in the first nine months of 2020 due to higher volumes primarily attributable to increased demand driven by COVID-19. Domestic parcel delivery volumes contributed revenue growth of 30% and increased cross-border volumes contributed growth of 3%.
Gross margin decreased to 9.1% from 15.2% in the prior year due primarily to investments to support growth, incremental COVID-19 related costs and a shift in the mix of business.
Segment EBIT for the nine months ended September 2020 was a loss of $68 million compared to a loss of $52 million in the prior year period. The decline in gross margin reduced EBIT by $25 million compared to the prior year; but was partially offset by lower operating expenses of $4 million and net insurance proceeds of $4 million.

Presort Services
Presort Services includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.
Revenue Cost of Revenue Gross Margin
Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 127,705  $ 131,483  (3) % (3) % $ 97,810  $ 96,438  23.4  % 26.7  %
Segment EBIT
Three Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ 14,481  $ 17,687  (18) %
Presort Services revenue decreased 3% in the third quarter of 2020 compared to the prior year period due to a reduction in volumes of Marketing Mail and First Class Mail, driven primarily by COVID-19. The revenue decrease was comprised of a decline of 5% from lower organic volumes partially offset by an increase of 2% from current year acquisitions.
Gross margin decreased to 23.4% from 26.7% primarily due to the decline in revenue and incremental COVID-19 related costs. Segment EBIT declined 18% in the third quarter of 2020, primarily due to the decline in gross margin, partially offset by lower consulting fees and travel expenses of $1 million and insurance proceeds of $1 million.
Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 386,552  $ 394,468  (2) % (2) % $ 296,591  $ 295,440  23.3  % 25.1  %
Segment EBIT
Nine Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ 42,758  $ 48,215  (11) %
Presort Services revenue decreased 2% in the first nine months of 2020 compared to the prior year period due to lower volumes of Marketing Mail and First Class Mail, driven by COVID-19. Revenue declined 5% due to lower organic volumes but benefited 3% from acquisitions.
Gross margin decreased to 23.3% from 25.1% due to lower revenue and the incremental costs associated with COVID-19. Segment EBIT declined 11%, in the first nine months of 2020, due to the decline in gross margin that adversely impacted EBIT by $9 million, partially offset by $4 million of insurance proceeds.


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SendTech Solutions

SendTech Solutions includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.
Revenue Cost of Revenue Gross Margin
Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 13,268  $ 8,623  54  % 56  % $ 5,666  $ 1,376  57.3  % 84.0  %
Support services 117,519  126,274  (7) % (7) % 36,832  40,376  68.7  % 68.0  %
Financing 86,218  90,577  (5) % (5) % 11,626  11,026  86.5  % 87.8  %
Equipment sales 79,572  89,618  (11) % (12) % 59,685  59,601  25.0  % 33.5  %
Supplies 39,635  44,818  (12) % (13) % 10,132  12,225  74.4  % 72.7  %
Rentals 18,000  19,737  (9) % (9) % 6,055  5,089  66.4  % 74.2  %
Total revenue
$ 354,212  $ 379,647  (7) % (7) % $ 129,996  $ 129,693  63.3  % 65.8  %
Segment EBIT
Three Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ 112,599  $ 130,954  (14) %
SendTech Solutions revenue decreased 7% in the third quarter of 2020 compared to the prior year. Equipment sales decreased 11% as reported and 12% at constant currency as COVID-19 continues to impact our ability to perform on-site installations. This decrease was partially offset by an increase in sales of self-install products due to the current remote environment. Supplies revenue declined 12% as reported and 13% at constant currency driven by reduced usage and demand exacerbated from COVID-19. Support services revenue decreased 7% driven by a declining meter population. Financing revenue decreased 5% primarily driven by a declining lease portfolio. Financing revenue for the quarter also includes $6 million of gains from the sale of investment securities. Business services revenue increased $5 million, or 56% at constant currency, primarily due to additional clients using our shipping products.
Gross margin for the third quarter of 2020 decreased to 63.3% from 65.8% compared to the prior year period, primarily due to a decline in equipment sales gross margin of 9 percentage points to 25%, primarily due to lower revenue and the mix of product sales due in part to delays in scheduling and performing on-site installations of our higher end products. Support services gross margin increased slightly to 68.7% from 68% in the prior period; however, lower revenue resulted in a decrease on gross profit of $5 million. Rentals gross margin decreased to 66.4% from 74.2% primarily due to higher meter scrap costs relative to the prior year.
We allocate a portion of our total cost of borrowing to financing interest expense. In computing financing interest expense, we assume an 8:1 debt to equity leverage ratio and apply our overall effective interest rate to the average outstanding finance receivables.
Segment EBIT decreased 14% in the third quarter of 2020 compared to the prior year, driven by the decline in revenue partially offset by lower expenses of $7 million from cost savings initiatives, including professional fees of $4 million.
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Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30,
2020 2019 Actual % change Constant Currency % change 2020 2019 2020 2019
Business services $ 37,014  $ 21,573  72  % 74  % $ 14,708  $ 5,368  60.3  % 75.1  %
Support services 353,320  382,578  (8) % (8) % 112,656  122,777  68.1  % 67.9  %
Financing 260,758  280,039  (7) % (7) % 36,054  33,433  86.2  % 88.1  %
Equipment sales 213,682  264,956  (19) % (19) % 164,899  181,494  22.8  % 31.5  %
Supplies 118,117  142,261  (17) % (17) % 30,751  37,533  74.0  % 73.6  %
Rentals 55,458  60,339  (8) % (8) % 18,455  23,223  66.7  % 61.5  %
Total revenue
$ 1,038,349  $ 1,151,746  (10) % (10) % $ 377,523  $ 403,828  63.6  % 64.9  %
Segment EBIT
Nine Months Ended September 30,
2020 2019 Actual % change
Segment EBIT $ 323,429  $ 378,095  (14) %

SendTech Solutions revenue decreased 10% in the first nine months of 2020 compared to the prior year. Equipment sales and supplies decreased 19% and 17%, respectively, as the impacts of COVID-19 impacted our ability to perform on-site installations and reduced usage and demand for supplies. Both support services and rentals revenue decreased 8%, primarily driven by a declining meter population. Financing revenue decreased 7%, primarily driven by a declining lease portfolio and was partially offset by $10 million of gains from the sale of investment securities. Business services revenue increased $15 million, or 74% at constant currency, primarily due to additional clients using our shipping products.
Gross margin for the first nine months of 2020 was 63.6% compared to 65.2% in the prior year period. Equipment sales gross margin decreased 9 percentage points to 22.8%, primarily due to lower revenue. Equipment sales margin in the prior year period includes a $9 million charge related to a SendPro C tablet replacement program. Financing gross margin decreased to 86.2% from 88.1% compared to the prior year primarily due to a higher effective interest rate.
Segment EBIT decreased 14% in first nine months of 2020 compared to the prior year, primarily due to the decline in revenue and higher credit loss provision of $10 million due to the current economic recessionary conditions and outlook caused by COVID-19, partially offset by lower expenses of $40 million from cost savings initiatives, including lower professional fees of $12 million, lower marketing expenses of $8 million, lower research and development costs of $7 million and lower travel expenses of $3 million.





















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CONSOLIDATED OPERATING AND OTHER EXPENSES

Selling, general and administrative (SG&A)
SG&A expense of $239 million in the quarter decreased 6% compared to the prior period, primarily due to lower employee-related expenses of $11 million and lower travel of $4 million. SG&A expense of $721 million in the first nine months of 2020 decreased 5% compared to the prior period, primarily due to lower employee-related expenses of $14 million, lower professional fees of $12 million, lower travel related expenses of $7 million and lower marketing expenses of $4 million.

Research and development (R&D)
R&D expense decreased 25%, or $3 million and $10 million, in both the third quarter of 2020 and first nine months of 2020, respectively, compared to the prior year periods, primarily due to lower project spending and cost savings initiatives.

Restructuring charges and asset impairments
Restructuring charges and asset impairments for the three and nine months ended September 30, 2020 were $4 million and $13 million, respectively. See Note 10 to the Condensed Consolidated Financial Statements for further information.

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

Other (income) expense
Other income for the three months ended September 30, 2020 includes $6 million of insurance proceeds related to the 2019 malware attack. Other expense for the nine months ended September 30, 2020 includes a $37 million loss on the early extinguishment of debt, partially offset by $15 million of insurance proceeds and a $12 million gain on the sale of an equity investment.

Income taxes
The tax provision for the three months ended September 30, 2020 includes a $3 million benefit, which is primarily due to regulations enacted into law during the quarter. The tax provision for the nine months ended September 30, 2020 also includes a $12 million charge for the surrender of company owned life insurance policies for which no gain or loss was recognized and a benefit of $2 million on the $198 million goodwill impairment charge as the majority of this charge is nondeductible. See Note 13 to the Condensed Consolidated Financial Statements for further information.

Discontinued Operations
Discontinued operations includes the Software Solutions business, sold in December 2019, with the exception of the software business in Australia, which closed in January 2020, and the Production Mail business, sold in July 2018. (Income) loss from discontinued operations for the three and nine months ended September 30, 2020 primarily includes the net gain on the sale of the Australia software business. See Note 4 to the Condensed Consolidated Financial Statements for further information.

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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2020, we had cash, cash equivalents and short-term investments of $820 million. This includes $185 million held at our foreign subsidiaries used to support the liquidity needs of those subsidiaries. Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our clients ability to pay their balances on a timely basis, the length and severity of COVID-19 and its impact on macroeconomic conditions and our ability to take further cost savings and cash conservation measures if necessary. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our $500 million revolving credit facility will be sufficient to fund our cash needs for the next 12 months.

Cash Flow Summary
Changes in cash and cash equivalents were as follows:
2020 2019 Change
Net cash provided by operating activities $ 190,624  $ 182,284  $ 8,340 
Net cash used in investing activities (95,735) (201,681) 105,946 
Net cash used in financing activities (217,372) (327,192) 109,820 
Effect of exchange rate changes on cash and cash equivalents (2,782) (5,822) 3,040 
Change in cash and cash equivalents $ (125,265) $ (352,411) $ 227,146 
Operating Activities
Cash provided by operating activities of $191 million in the first nine months of 2020 increased $8 million compared to the prior year. Cash flows from continuing operations was $229 million through September 30, 2020 compared to $166 million through September 30, 2019. The increase of $63 million was primarily due to working capital changes including finance receivables and income taxes. This was partially offset by a decrease in cash flows from discontinued operations of $54 million primarily due to taxes paid related to the gain on the sale of our Software Solutions business in 2020.
Investing Activities
Cash used in investing activities in the first nine months of 2020 of $96 million includes $81 million in capital expenditures and $82 million of net investment purchases, partially offset by $58 million in proceeds from the surrender of COLI policies ($46 million) and the sale of an equity investment ($12 million) and higher customer deposits at the Pitney Bowes Bank of $19 million.
Financing Activities
Cash used in financing activities in the first nine months of 2020 was $217 million, and includes the net repayment of debt of $156 million, payments of $33 million for premiums and fees associated with the early extinguishment of debt and $26 million of dividend payments. See Financings and Capitalization below for additional information.

Financings and Capitalization
In the first quarter of 2020, we secured a five-year, $850 million term loan scheduled to mature January 2025 (the 2025 Term Loan). The 2025 Term Loan bears interest at LIBOR plus 5.5% and resets monthly. We used the net proceeds plus available cash to purchase under a tender offer $428 million of the October 2021 notes, $250 million of the May 2022 notes, $125 million of the April 2023 notes and $125 million of the March 2024 notes. We incurred a loss of $37 million on the early redemption of debt. During the first nine months of 2020, we repaid $36 million of principal related to our term loans.
We have a $500 million secured revolving credit facility that expires in November 2024 and contains financial and non-financial covenants. We drew down $100 million under the credit facility in April 2020 as a precautionary measure, but repaid this borrowing in September 2020. At September 30, 2020, we were in compliance with all covenants.
Interest rates on certain notes are subject to adjustment based on changes in our credit ratings. As a result of credit rating downgrades in November 2019 and May 2020, the interest rates on the October 2021 notes and April 2023 notes will increase an additional 0.25% in the fourth quarter of 2020.




40



Dividends and Share Repurchases
Each quarter, our Board of Directors considers our recent and projected earnings and other capital needs and priorities in deciding whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends. We expect to continue to pay a quarterly dividend; however, no assurances can be given.
We did not repurchase any shares of our common stock during the first nine months of 2020. We have remaining authorization to repurchase up to $16 million of our common stock.

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

At September 30, 2020, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.

Critical Accounting Estimates
Goodwill impairment review
At December 31, 2019, the fair value of our Global Ecommerce business exceeded its carrying value by less than 20%. During the first quarter of 2020, our Global Ecommerce reporting unit experienced weaker than expected performance, in part due to the macroeconomic conditions resulting from COVID-19, causing us to evaluate the Global Ecommerce goodwill for impairment.

To test the Global Ecommerce goodwill for impairment, we determined the fair value of the Global Ecommerce reporting unit and compared it to the reporting unit's carrying value, including goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The determination of fair value, and the resulting impairment charge, relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge and could result in an additional impairment charge in the future.
We determined that the reporting unit's estimated fair value was less than its carrying value and recorded a non-cash, pre-tax goodwill impairment charge of $198 million in the first quarter to reduce the carrying value of the Global Ecommerce reporting unit to its estimated fair value.
Regulatory Matters
There have been no significant changes to the regulatory matters disclosed in our 2019 Annual Report.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosures made in our 2019 Annual Report.
Item 4: Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding disclosures.
With the participation of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controls over financial reporting as of the end of the period covered by this report. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. Further, we have not experienced any material impact to our internal controls over financial reporting given that most of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.
It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of September 30, 2020.
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PART II. OTHER INFORMATION
Item 1: Legal Proceedings
See Note 14 to the Condensed Consolidated Financial Statements.
Item 1A: Risk Factors
There were no material changes to the risk factors identified in our 2019 Annual Report. However, we are supplementing the risk factors described in Item 1A of our 2019 Annual Report with the following additional risk factor:
Our operations and financial performance are being affected and will continue to be affected by the global coronavirus outbreak. The duration and severity of the COVID-19 crisis is unknown and constantly changing, and a prolonged duration of this crisis or a reoccurrence of COVID-19 or other similar virus in the future could have a significantly material effect on our operations, financial condition and liquidity
The COVID-19 pandemic is negatively impacting, and is expected to continue to negatively impact, our business, operations and financial performance. Given the unpredictability of the severity, magnitude and duration of the COVID-19 pandemic, including various governments’ responses to the pandemic, and its effect on the global economy, the ultimate impact of the pandemic on our business, operations and financial performance remains uncertain. There are many factors, not within our control, which could affect the pandemic’s ultimate outcome on our business and our ability to execute our business strategies and initiatives in the expected time frame. These include, but are not limited to: government's, businesses' and individuals’ actions in response to the pandemic; an acceleration of the decline in the use of physical mail; the impact of the pandemic on the global economy and economic activity; the changing spending habits of consumers and businesses; disruptions in global supply chains; and significant volatility and disruption of financial markets. A prolonged duration of this crisis or a reoccurrence of COVID-19 could exacerbate the impact on our business, operations and financial performance. It is also uncertain the extent to which COVID-19 will permanently affect aspects of the economy to the detriment of our business, including:

•The dramatic acceleration in the decline of physical mail volume in the geographies in which we operate, which adversely affects both our Presort Services and SendTech Solutions segments. We cannot yet assess the extent to which these declines in mail volumes, and resulting impact to our business, are permanent or temporary. Further detail on the risk of physical mail volume decline, including an acceleration of that decline, is described in the risk factor in our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report) relating to the “The Continuing Decline in the Volume of Physical Mail Delivered via Traditional Postal Services”.
•The adverse effect that declines in physical mail are having on the financial health of posts around the world, especially that of the United States Postal Service. If these financial difficulties are not resolved, or if any resolution requires them to operate differently, price in a manner that hurts their competitiveness or reduces postal volume, or causes them to change their contractual relationships with their partners or vendors, these changes could have a material adverse effect on our business. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Significant Disruptions to Postal Operations”.
•Significant declines in the retail industry caused by the pandemic. Although our Global Ecommerce segment has seen an increase in volume of packages in the short-term, should there be a long-term change in consumer sentiment or purchasing habits it could have a material effect on our retail clients, including some of our largest clients, which could have an adverse impact on our financial performance. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Material Change in Consumer Sentiment or Spending Habits”.
•The decline in frequency of long-distance airplane flights has increased the costs of, and, at times, the demand for, products purchased in our Global Ecommerce cross-border offerings.
•The effect that social distancing rules and heightened security policies have inhibited, and will continue to inhibit, our ability to sell products and provide services to our clients, fulfill orders and install equipment on a timely basis and market to prospective new clients.
•Increased costs and reduced labor productivity associated with extended safety protocols, including sanitizing facilities and equipment multiple times a day and incremental costs that may be required to hire temporary labor or redirect volumes to other facilities.
•The sudden and significant increase in volumes in Global Ecommerce due to COVID-19 may create capacity issues, causing a potential decline in productivity, increased labor costs, difficulty in hiring sufficient employees to operate the facilities for maximum throughput, and other facility costs, especially during the peak holiday season.
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•We could experience further increases in delinquencies in collections and bankruptcies in our clients, which could affect our cash flow. Client requests for potential payment deferrals or other contract modifications could also reduce the profitability or ongoing cash flow from some of our current customers.
•Given the impacts and uncertainties of the pandemic, our suppliers and third-party service providers may not be able to satisfy their obligations to us. If they are unable to satisfy these obligations, it could affect our ability to satisfy service or sales obligations to our clients, or it may affect other aspects of our internal operations. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Third-party Suppliers and Outsource Providers”.
•A prolonged duration or resurgence of COVID-19 could adversely impact our earnings or cash flows, which could result in additional credit rating downgrades, higher costs of borrowing, or limit our access to additional debt. Further detail on this risk is described in the risk factor in our 2019 Annual Report related to “Future Credit Rating Downgrades or Capital Market Disruptions”.

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

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We periodically repurchase shares of our common stock in the open market to manage the dilution created by shares issued under employee stock plans and for other purposes. We did not repurchase any shares during the nine months ended September 30, 2020 and maintain Board authorization to repurchase up to $16 million of our common stock.
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Item 6: Exhibits
Exhibit
Number 		Description   Exhibit Number in this Form 10-Q
3(i)(a) 3(i)(a)
3 3
31.1   31.1
31.2   31.2
32.1   32.1
32.2   32.2
101.SCH Inline XBRL Taxonomy Extension Schema Document    
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document    
101.DEF Inline XBRL Taxonomy Definition Linkbase Document    
101.LAB Inline XBRL Taxonomy Label Linkbase Document    
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document    
104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL. (included as Exhibit 101).
* Pursuant to Item 601(a)(5) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish
supplementally a copy of any omitted attachment to the SEC upon request.

45



Signatures  
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  PITNEY BOWES INC.
   
Date: November 2, 2020  
   
  /s/ Stanley J. Sutula III
  Stanley J. Sutula III
  Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
   
  /s/ Joseph R. Catapano
  Joseph R. Catapano
  Vice President and Chief Accounting Officer
  (Duly Authorized Officer and Principal Accounting Officer)

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