PITNEY BOWES INC /DE/ - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 1-3579

PITNEY BOWES INC.

(Exact name of registrant as specified in its charter)



Delaware		06-0495050
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3001 Summer Street, Stamford, Connecticut		06926
(Address of principal executive offices)		(Zip Code)

(203) 356-5000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 26, 2017, 186,728,127 shares of common stock, par value $1 per share, of the registrant were outstanding.

PITNEY BOWES INC.

INDEX



		Page Number

Part I - Financial Information:

Item 1:	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016	3

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	4

	Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4:	Controls and Procedures	39


Part II - Other Information:

Item 1:	Legal Proceedings	39

Item 1A:	Risk Factors	39

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6:	Exhibits	40


Signatures		41

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in thousands, except per share amounts)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Revenue:
Equipment sales	$	157,649	$	173,143		$	479,248	$	485,145
Supplies	58,296		61,306			188,342		198,631
Software	99,600		89,087			264,131		257,760
Rentals	95,901		102,747			291,770		309,706
Financing	81,184		87,883			250,582		276,915
Support services	120,479		123,954			354,625		383,632
Business services	229,711		200,911			672,133		607,717
Total revenue	842,820		839,031			2,500,831		2,519,506
Costs and expenses:
Cost of equipment sales	85,647		86,147			232,398		235,741
Cost of supplies	18,827		20,348			60,207		60,662
Cost of software	25,713		25,698			75,816		79,496
Cost of rentals	20,818		16,041			63,056		54,951
Financing interest expense	12,629		12,965			38,446		41,375
Cost of support services	70,688		74,799			217,232		224,790
Cost of business services	166,984		140,989			470,890		417,357
Selling, general and administrative	304,398		300,983			908,169		916,981
Research and development	32,057		28,680			96,871		89,761
Restructuring charges and asset impairments, net	1,493		16,494			30,502		49,503
Interest expense, net	28,601		22,294			81,877		62,394
Total costs and expenses	767,855		745,438			2,275,464		2,233,011
Income before income taxes	74,965		93,593			225,367		286,495
Provision for income taxes	17,607		23,197			53,975		93,615
Income from continuing operations	57,358		70,396			171,392		192,880
Loss from discontinued operations, net of tax	—		(291		)	—		(1,951		)
Net income	57,358		70,105			171,392		190,929
Less: Preferred stock dividends attributable to noncontrolling interests	—		4,593			—		13,781
Net income attributable to Pitney Bowes Inc.	$	57,358	$	65,512		$	171,392	$	177,148
Amounts attributable to common stockholders:
Net income from continuing operations	$	57,358	$	65,803		$	171,392	$	179,099
Loss from discontinued operations, net of tax	—		(291		)	—		(1,951		)
Net income attributable to Pitney Bowes Inc.	$	57,358	$	65,512		$	171,392	$	177,148
Basic earnings per share attributable to common stockholders ⁽¹⁾:
Continuing operations	$	0.31	$	0.35		$	0.92	$	0.95
Discontinued operations	—		—			—		(0.01		)
Net income attributable to Pitney Bowes Inc.	$	0.31	$	0.35		$	0.92	$	0.94
Diluted earnings per share attributable to common stockholders ⁽¹⁾:
Continuing operations	$	0.31	$	0.35		$	0.92	$	0.94
Discontinued operations	—		—			—		(0.01		)
Net income attributable to Pitney Bowes Inc.	$	0.31	$	0.35		$	0.92	$	0.93
Dividends declared per share of common stock	$	0.1875	$	0.1875		$	0.5625	$	0.5625

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

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Net income	$	57,358	$	70,105		$	171,392		$	190,929
Less: Preferred stock dividends attributable to noncontrolling interests	—		4,593			—			13,781
Net income attributable to Pitney Bowes Inc.	57,358		65,512			171,392			177,148
Other comprehensive income, net of tax:
Foreign currency translations	33,517		6,938			100,223			37,263
Net unrealized gain (loss) on cash flow hedges, net of tax of $122, $(40), $361 and $224, respectively	195		(64		)	579			358
Net unrealized gain on investment securities, net of tax of $220, $956, $1,322 and $4,399, respectively	375		1,628			2,251			7,491
Adjustments to pension and postretirement plans, net of tax of $(304) and $(777) for the nine months ended September 30, 2017 and 2016, respectively.	—		—			(1,482		)	(1,230		)
Amortization of pension and postretirement costs, net of tax of $3,484, $3,243, $10,440 and $10,362, respectively	6,744		5,963			20,078			18,791
Other comprehensive income, net of tax	40,831		14,465			121,649			62,673
Comprehensive income attributable to Pitney Bowes Inc.	$	98,189	$	79,977		$	293,041		$	239,821

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share and per share amounts)



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	1,696,903		$	764,522
Short-term investments	45,508			38,448
Accounts receivable (net of allowance of $15,610 and $14,372, respectively)	408,886			455,527
Short-term finance receivables (net of allowance of $11,921 and $13,323, respectively)	826,122			893,950
Inventories	118,282			92,726
Current income taxes	42,605			11,373
Other current assets and prepayments	82,251			68,637
Total current assets	3,220,557			2,325,183
Property, plant and equipment, net	338,340			314,603
Rental property and equipment, net	185,866			188,054
Long-term finance receivables (net of allowance of $5,999 and $7,177, respectively)	650,793			673,207
Goodwill	1,616,968			1,571,335
Intangible assets, net	145,376			165,172
Noncurrent income taxes	77,188			74,806
Other assets	546,319			524,773
Total assets	$	6,781,407		$	5,837,133

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	1,348,395		$	1,378,822
Current income taxes	13,542			34,434
Current portion of long-term debt	620,256			614,485
Advance billings	282,537			299,878
Total current liabilities	2,264,730			2,327,619
Deferred taxes on income	257,987			204,289
Tax uncertainties and other income tax liabilities	39,671			61,276
Long-term debt	3,562,672			2,750,405
Other noncurrent liabilities	555,514			597,204
Total liabilities	6,680,574			5,940,793

Commitments and contingencies (See Note 12)

Stockholders’ equity (deficit):
Cumulative preferred stock, $50 par value, 4% convertible	1			1
Cumulative preference stock, no par value, $2.12 convertible	457			483
Common stock, $1 par value (480,000,000 shares authorized; 323,337,912 shares issued)	323,338			323,338
Additional paid-in capital	133,394			148,125
Retained earnings	5,174,602			5,107,734
Accumulated other comprehensive loss	(818,484		)	(940,133		)
Treasury stock, at cost (136,777,086 and 137,669,194 shares, respectively)	(4,712,475		)	(4,743,208		)
Total Pitney Bowes Inc. stockholders’ equity (deficit)	100,833			(103,660		)
Total liabilities and stockholders’ equity (deficit)	$	6,781,407		$	5,837,133

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)



	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	171,392		$	190,929
Restructuring payments	(29,976		)	(51,161		)
Special pension plan contributions	—			(36,731		)
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of assets	—			3,938
Gain on sale of technology	(6,085		)	—
Depreciation and amortization	131,989			140,225
Gain on debt forgiveness	—			(10,000		)
Stock-based compensation	18,312			16,014
Restructuring charges and asset impairments, net	30,502			49,503
Changes in operating assets and liabilities, net of acquisitions/divestitures:
Decrease in accounts receivable	55,913			51,853
Decrease in finance receivables	126,599			113,180
Increase in inventories	(22,814		)	(20,489		)
(Increase) decrease in other current assets and prepayments	(11,781		)	3,312
Decrease in accounts payable and accrued liabilities	(46,034		)	(119,818		)
(Decrease) increase in current and noncurrent income taxes	(31,377		)	1,543
Decrease in advance billings	(32,702		)	(47,183		)
Other, net	(23,361		)	11,244
Net cash provided by operating activities	330,577			296,359
Cash flows from investing activities:
Purchases of available-for-sale securities	(108,571		)	(163,134		)
Proceeds from sales/maturities of available-for-sale securities	89,940			167,424
Net change in short-term and other investments	(8,083		)	65,325
Capital expenditures	(119,562		)	(115,532		)
Proceeds from sale of assets	5,458			17,671
Acquisition of businesses, net of cash acquired	(7,889		)	(37,942		)
Change in reserve account deposits	(2,508		)	1,813
Other investing activities	(4,500		)	(7,420		)
Net cash used in investing activities	(155,715		)	(71,795		)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	1,437,659			894,744
Principal payments of long-term debt	(614,449		)	(371,007		)
Net change in short-term borrowings	—			(90,000		)
Dividends paid to stockholders	(104,524		)	(105,791		)
Common stock repurchases	—			(197,267		)
Dividends paid to noncontrolling interests	—			(9,188		)
Other financing activities	(3,624		)	(5,430		)
Net cash provided by financing activities	715,062			116,061
Effect of exchange rate changes on cash and cash equivalents	42,457			3,933
Increase in cash and cash equivalents	932,381			344,558
Cash and cash equivalents at beginning of period	764,522			640,190
Cash and cash equivalents at end of period	$	1,696,903		$	984,748
Cash interest paid	$	131,927		$	132,359
Cash income tax payments, net of refunds	$	88,021		$	95,487

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Description of Business and Basis of Presentation

Pitney Bowes Inc. (we, us, our, or the company), was incorporated in the state of Delaware in 1920. We are a global technology company offering innovative products and solutions that help our clients navigate the complex world of commerce. We provide innovative products and solutions for mailing, shipping and cross border ecommerce that enable the sending of packages globally and products and solutions for customer information management, location intelligence and customer engagement to help our clients market to their customers. Clients around the world rely on our products, solutions and services. For more information about us, our products, services and solutions, visit www.pb.com.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2016 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, 2017. 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, 2016 (2016 Annual Report).

In the fourth quarter of 2016, we determined that certain investments were classified as cash and cash equivalents. Accordingly, the Condensed Consolidated Statement of Cash Flows for the period ended September 30, 2016 has been revised to reduce beginning cash and cash equivalents by $10 million and ending cash and cash equivalents by $7 million with a corresponding adjustment to net change in short-term and other investing activities.

New Accounting Pronouncements - Standards Adopted in 2017

In January 2017, the Financial Accounting Standard Board (FASB) issued Accounting Standard Update (ASU) 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the current two-step goodwill impairment test and requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). The ASU is effective for interim and annual periods beginning after December 15, 2019, and is required to be applied prospectively. We elected to early adopt this standard effective January 1, 2017. The adoption of this standard had no impact on our consolidated financial statements or disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. We retroactively adopted this ASU effective January 1, 2017. Accordingly, the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 has been recast to increase both net cash provided by operating activities and net cash used in financing activities by $5 million.

In July 2015, the FASB issued ASU 2015-11, Inventory - Simplifying the Measurement of Inventory, which requires inventory to be measured at the lower of cost and net realizable value (estimated selling price less reasonably predictable costs of completion, disposal and transportation). Inventory measured using the last-in, first-out (LIFO) basis is not impacted by the new guidance. This standard became effective January 1, 2017 and there was no impact on our consolidated financial statements or disclosures.

New Accounting Pronouncements - Standards Not Yet Adopted

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU changes the recognition and presentation requirements of hedge accounting and reduces the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. The standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. The ASU provides guidance about which changes to terms and conditions of a share-based payment award require an entity to apply modification accounting. The standard is effective for interim and annual periods beginning after December 15, 2017 and would be applied prospectively to awards modified on or after the effective date. We do not expect the adoption of this standard will have any impact on our consolidated financial statements.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The standard will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Benefit Cost. The ASU requires the service cost component of net periodic benefit cost to be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be presented separately, in an appropriately titled line item outside of any subtotal of operating income or disclosed in the footnotes. The standard also limits the amount eligible for capitalization to the service cost component. The standard is effective for interim and annual periods beginning after December 15, 2017 and we are currently assessing the impact this standard will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-06 – Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. The ASU requires separate disclosure in the statement of net assets available for benefits and the statement of changes in net assets available for benefits of changes in any interests held in a Master Trust and other enhanced disclosures. The standard is effective for interim and annual periods beginning after December 15, 2018 and we are currently evaluating the impact of this standard on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for interim and annual periods beginning after December 15, 2017. The impact on our consolidated financial statements will depend on the facts and circumstances of any specific future transactions.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Inter-entity Transfers of Assets other than Inventory, which requires tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects of the transaction are eliminated in consolidation. Under current guidance, the tax effects of transfers are deferred until the transferred asset is sold or otherwise recovered through use. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated financial statements.

In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated statement of cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model which requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability and result in enhanced disclosures. The standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires companies to recognize revenue for the transfer of goods and services to customers in amounts that reflect the consideration the company expects to receive in exchange for those goods and services. In addition, the standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue. There were several amendments to the standard during 2016. The standard is effective beginning January 1, 2018 and can be adopted either retrospectively to each reporting period presented or on a modified retrospective basis with a cumulative effect adjustment at the date of the initial application. We plan to adopt the standard on the modified retrospective basis with a cumulative effect adjustment.

We have substantially completed our assessment of all potential impacts of the standard and do not expect a change in revenue recognition for the majority of our product and service offerings. The standard will have the most impact on timing of certain revenues in our Software Solutions segment. Specifically, we have concluded that for certain data subscription offerings, the portion of the transaction price allocated to the initial data set will be recognized as revenue at the time of initial delivery rather than over the subscription period. We also concluded that for certain software licenses, revenue will be recognized ratably over the specific contract terms rather than predominately at the time of billing and delivery. Also, we concluded that certain marketing costs associated with the acquisition of new customers will be expensed as incurred rather than recognized over their expected revenue stream of eight years. We have also determined that certain sales commission plans will qualify for capitalization under the new standard. We plan to use the practical expedient that allows companies to expense costs to obtain a contract when the estimated amortization period is less than one year. We expect to complete our quantitative assessment of these key changes and the impact on our consolidated financial statements during the fourth quarter of 2017.

We continue to develop our internal controls, accounting policies and new disclosure requirements. We are enhancing our current systems and business processes to facilitate the preparation of financial information that will be required under the new standard. We expect to finalize these activities by the end of the year.

2. Segment Information

Effective January 1, 2017, we revised our segment reporting to reflect a change in how we manage and report office shipping solutions, which we previously reported within the Global Ecommerce segment. The needs of retail and ecommerce clients differ from those of office shipping clients. Accordingly, we now report the results for office shipping solutions within Small & Medium Business Solutions and the retail and ecommerce shipping solutions remain in Global Ecommerce. We have recast prior period results to conform to our current segment presentation. The principal products and services of each of our reportable segments are as follows:

Small & Medium Business Solutions:

North America Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing services, and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in the U.S. and Canada.

International Mailing: Includes the revenue and related expenses from mailing and office shipping solutions, financing services, and supplies for small and medium businesses to efficiently create physical and digital mail, evidence postage and help simplify and save on the sending, tracking and receiving of letters, parcels and flats in areas outside the U.S. and Canada.

Enterprise Business Solutions:

Production Mail: Includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment, high-speed production print systems, supplies and related support services to large enterprise clients to process inbound and outbound mail.

Presort Services: Includes revenue and related expenses from presort mail and parcel services for our large enterprise clients to qualify large mail and parcel volumes for postal worksharing discounts.

Digital Commerce Solutions:

Software Solutions: Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information and location intelligence software solutions and related support services.

Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions.

We determine segment earnings before interest and taxes (EBIT) by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, and other items that are not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

segment level and believes that it provides a useful measure of operating performance and underlying trends of the businesses. 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 EBIT by business segment is presented below:



	Revenue
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
North America Mailing	$	319,966	$	349,785	$	1,016,640	$	1,064,456
International Mailing	93,770		96,730		282,150		309,297
Small & Medium Business Solutions	413,736		446,515		1,298,790		1,373,753
Production Mail	104,387		106,350		278,912		289,649
Presort Services	119,074		114,053		370,203		357,214
Enterprise Business Solutions	223,461		220,403		649,115		646,863
Software Solutions	99,442		89,031		264,087		257,417
Global Ecommerce	106,181		83,082		288,839		241,473
Digital Commerce Solutions	205,623		172,113		552,926		498,890
Total revenue	$	842,820	$	839,031	$	2,500,831	$	2,519,506



	EBIT
	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
North America Mailing	$	107,777		$	141,968		$	369,662		$	449,696
International Mailing	8,729			9,198			35,967			32,842
Small & Medium Business Solutions	116,506			151,166			405,629			482,538
Production Mail	14,920			15,696			31,515			35,434
Presort Services	19,474			19,181			69,461			69,305
Enterprise Business Solutions	34,394			34,877			100,976			104,739
Software Solutions	20,912			10,329			31,216			17,908
Global Ecommerce	(9,594		)	1,544			(17,894		)	(2,608		)
Digital Commerce Solutions	11,318			11,873			13,322			15,300
Total segment EBIT	162,218			197,916			519,927			602,577
Reconciling items:
Interest, net	(41,230		)	(35,259		)	(120,323		)	(103,769		)
Unallocated corporate expenses	(38,848		)	(51,992		)	(144,138		)	(158,536		)
Restructuring charges and asset impairments, net	(1,493		)	(16,494		)	(30,502		)	(49,503		)
Gain from the sale of technology	—			—			6,085			—
Acquisition and disposition-related expenses	(5,682		)	(578		)	(5,682		)	(4,274		)
Income before income taxes	74,965			93,593			225,367			286,495
Provision for income taxes	17,607			23,197			53,975			93,615
Loss from discontinued operations, net of tax	—			(291		)	—			(1,951		)
Net income	$	57,358		$	70,105		$	171,392		$	190,929

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3. Earnings per Share

The calculations of basic and diluted earnings per share are presented below.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Numerator:
Amounts attributable to common stockholders:
Net income from continuing operations	$	57,358	$	65,803		$	171,392	$	179,099
Loss from discontinued operations, net of tax	—		(291		)	—		(1,951		)
Net income attributable to Pitney Bowes Inc. (numerator for diluted EPS)	57,358		65,512			171,392		177,148
Less: Preference stock dividend	9		10			28		29
Income attributable to common stockholders (numerator for basic EPS)	$	57,349	$	65,502		$	171,364	$	177,119
Denominator:
Weighted-average shares used in basic EPS	186,497		185,603			186,257		188,634
Effect of dilutive shares:
Conversion of Preferred stock and Preference stock	281		299			287		301
Employee stock plans	979		781			656		657
Weighted-average shares used in diluted EPS	187,757		186,683			187,200		189,592
Basic earnings per share:
Continuing operations	$	0.31	$	0.35		$	0.92	$	0.95
Discontinued operations	—		—			—		(0.01		)
Net Income	$	0.31	$	0.35		$	0.92	$	0.94
Diluted earnings per share:
Continuing operations	$	0.31	$	0.35		$	0.92	$	0.94
Discontinued operations	—		—			—		(0.01		)
Net Income	$	0.31	$	0.35		$	0.92	$	0.93
Anti-dilutive shares not used in calculating diluted weighted-average shares	9,927		8,036			10,211		8,148

4. Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at September 30, 2017 and December 31, 2016 consisted of the following:



	September 30, 2017			December 31, 2016
Raw materials	$	39,287		$	28,541
Work in process	6,620			6,498
Supplies and service parts	51,854			45,152
Finished products	32,664			24,678
Inventory at FIFO cost	130,425			104,869
Excess of FIFO cost over LIFO cost	(12,143		)	(12,143		)
Total inventory, net	$	118,282		$	92,726

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

5. Finance Assets

Finance Receivables

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our customers for postage and supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Customer acquisition costs are expensed as incurred.

Finance receivables at September 30, 2017 and December 31, 2016 consisted of the following:



	September 30, 2017									December 31, 2016
	North America			International			Total			North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,023,206		$	284,099		$	1,307,305		$	1,088,053		$	273,262		$	1,361,315
Unguaranteed residual values	75,242			14,301			89,543			90,190			13,655			103,845
Unearned income	(213,852		)	(62,343		)	(276,195		)	(223,908		)	(60,458		)	(284,366		)
Allowance for credit losses	(7,103		)	(2,768		)	(9,871		)	(8,247		)	(2,647		)	(10,894		)
Net investment in sales-type lease receivables	877,493			233,289			1,110,782			946,088			223,812			1,169,900
Loan receivables
Loan receivables	339,726			34,456			374,182			374,147			32,716			406,863
Allowance for credit losses	(6,960		)	(1,089		)	(8,049		)	(8,517		)	(1,089		)	(9,606		)
Net investment in loan receivables	332,766			33,367			366,133			365,630			31,627			397,257
Net investment in finance receivables	$	1,210,259		$	266,656		$	1,476,915		$	1,311,718		$	255,439		$	1,567,157

Allowance for Credit Losses

We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Activity in the allowance for credit losses for the nine months ended September 30, 2017 and 2016 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2017	$	8,247		$	2,647		$	8,517		$	1,089		$	20,500
Amounts charged to expense	7,807			895			3,892			438			13,032
Write-offs and other	(8,951		)	(774		)	(5,449		)	(438		)	(15,612		)
Balance at September 30, 2017	$	7,103		$	2,768		$	6,960		$	1,089		$	17,920

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2016	$	6,606		$	3,542		$	10,024		$	1,518		$	21,690
Amounts charged to expense	2,881			464			4,217			688			8,250
Write-offs and other	(3,433		)	(1,419		)	(5,953		)	(1,010		)	(11,815		)
Balance at September 30, 2016	$	6,054		$	2,587		$	8,288		$	1,196		$	18,125

Aging of Receivables

The aging of gross finance receivables at September 30, 2017 and December 31, 2016 was as follows:



	September 30, 2017
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	970,891	$	279,517	$	331,233	$	34,224	$	1,615,865
> 90 days	52,315		4,582		8,493		232		65,622
Total	$	1,023,206	$	284,099	$	339,726	$	34,456	$	1,681,487
Past due amounts > 90 days
Still accruing interest	$	6,726	$	1,781	$	—	$	—	$	8,507
Not accruing interest	45,589		2,801		8,493		232		57,115
Total	$	52,315	$	4,582	$	8,493	$	232	$	65,622

As of September 30, 2017, we had North America sales-type lease receivables aged greater than 90 days with a contract value of $52 million. As of October 31, 2017, we received payments with a contract value of approximately $23 million related to these receivables.



	December 31, 2016
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	1,025,313	$	269,247	$	366,726	$	32,420	$	1,693,706
> 90 days	62,740		4,015		7,421		296		74,472
Total	$	1,088,053	$	273,262	$	374,147	$	32,716	$	1,768,178
Past due amounts > 90 days
Still accruing interest	$	8,831	$	972	$	—	$	—	$	9,803
Not accruing interest	53,909		3,043		7,421		296		64,669
Total	$	62,740	$	4,015	$	7,421	$	296	$	74,472

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process and there is no single credit score model that covers all countries.

The table below shows the North America portfolio at September 30, 2017 and December 31, 2016 by relative risk class based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account in the next 12 month period may become delinquent.


•	Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.


•	Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.


•	High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



	September 30, 2017		December 31, 2016
Sales-type lease receivables
Low	$	817,332	$	879,823
Medium	136,995		135,953
High	21,528		22,600
Not Scored	47,351		49,677
Total	$	1,023,206	$	1,088,053
Loan receivables
Low	$	263,537	$	296,598
Medium	52,630		53,647
High	6,897		7,216
Not Scored	16,662		16,686
Total	$	339,726	$	374,147

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

6. Acquisition, Intangible Assets and Goodwill

Acquisition

On October 2, 2017, we acquired Newgistics, a provider of parcel delivery, returns, fulfillment and digital commerce solutions for retailers and ecommerce brands, for $475 million. Newgistics will be included in the Global Ecommerce segment.

Intangible Assets

Intangible assets at September 30, 2017 and December 31, 2016 consisted of the following:



	September 30, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	455,275	$	(327,947	)	$	127,328	$	445,039	$	(300,906	)	$	144,133
Software & technology	154,571		(142,604		)	11,967		150,037		(136,508		)	13,529
Trademarks & other	37,326		(31,245		)	6,081		36,212		(28,702		)	7,510
Total intangible assets	$	647,172	$	(501,796	)	$	145,376	$	631,288	$	(466,116	)	$	165,172

Amortization expense was $8 million and $10 million for the three months ended September 30, 2017 and 2016, respectively and $24 million and $32 million for the nine months ended September 30, 2017 and 2016, respectively.

Future amortization expense as of September 30, 2017 was as follows:



Remaining for year ending December 31, 2017	$	7,727
Year ending December 31, 2018	27,356
Year ending December 31, 2019	23,977
Year ending December 31, 2020	18,389
Year ending December 31, 2021	15,365
Thereafter	52,562
Total	$	145,376

Actual amortization expense may differ from the amounts above due to, among other things, fluctuations in foreign currency exchange rates, impairments, acquisitions and accelerated amortization.

Goodwill

Changes in the carrying value of goodwill, by reporting segment, for the nine months ended September 30, 2017 are shown in the table below. Prior year amounts have been recast for the change in reportable segments.



	December 31, 2016		Acquisitions		Foreign currency translation		September 30, 2017
North America Mailing	$	354,000	$	—	$	13,208	$	367,208
International Mailing	145,566		—		12,074		157,640
Small & Medium Business Solutions	499,566		—		25,282		524,848
Production Mail	101,099		—		5,734		106,833
Presort Services	196,890		6,229		—		203,119
Enterprise Business Solutions	297,989		6,229		5,734		309,952
Software Solutions	501,591		—		8,388		509,979
Global Ecommerce	272,189		—		—		272,189
Digital Commerce Solutions	773,780		—		8,388		782,168
Total goodwill	$	1,571,335	$	6,229	$	39,404	$	1,616,968

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

7. Fair Value Measurements and Derivative Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:


Level 1 –	Unadjusted quoted prices in active markets for identical assets and liabilities.


Level 2 –	Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3 –	Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at September 30, 2017 and December 31, 2016.



	September 30, 2017
	Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	348,659	$	726,283		$	—	$	1,074,942
Equity securities	—		25,242			—		25,242
Commingled fixed income securities	1,571		22,296			—		23,867
Debt securities - U.S. and foreign governments, agencies and municipalities	118,439		18,140			—		136,579
Debt securities - corporate	—		77,761			—		77,761
Mortgage-backed / asset-backed securities	—		161,461			—		161,461
Derivatives
Interest rate swap	—		1,680			—		1,680
Foreign exchange contracts	—		62			—		62
Total assets	$	468,669	$	1,032,925		$	—	$	1,501,594
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(389	)	$	—	$	(389	)
Total liabilities	$	—	$	(389	)	$	—	$	(389	)

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	December 31, 2016
	Level 1		Level 2			Level 3		Total
Assets:
Investment securities
Money market funds / commercial paper	$	114,471	$	217,175		$	—	$	331,646
Equity securities	—		24,571			—		24,571
Commingled fixed income securities	1,536		22,132			—		23,668
Debt securities - U.S. and foreign governments, agencies and municipalities	116,822		19,358			—		136,180
Debt securities - corporate	—		69,891			—		69,891
Mortgage-backed / asset-backed securities	—		158,996			—		158,996
Derivatives
Interest rate swap	—		1,588			—		1,588
Foreign exchange contracts	—		637			—		637
Total assets	$	232,829	$	514,348		$	—	$	747,177
Liabilities:
Derivatives
Foreign exchange contracts	$	—	$	(3,717	)	$	—	$	(3,717	)
Total liabilities	$	—	$	(3,717	)	$	—	$	(3,717	)

Investment Securities

The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification into the fair value hierarchy:

•

Money Market Funds / Commercial Paper: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. Direct investments in commercial paper are not listed on an exchange in an active market and are classified as Level 2.


•	Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign common stock. These mutual funds are classified as Level 2 as they are not separately listed on an exchange.

•

Commingled Fixed Income Securities: 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. The value of the funds is based on the market 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 commingled funds are not listed on an exchange in an active market and are classified as Level 2.

•

Debt Securities – U.S. and Foreign Governments, Agencies and Municipalities: 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 valued using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities are classified as Level 2.


•	Debt Securities – Corporate: Corporate debt securities are valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are 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. When external index pricing is not observable, these securities are valued based on external price/spread data. These securities are classified as Level 2.

Investment securities include investments held by The Pitney Bowes Bank (the Bank), whose primary business is to provide financing solutions to clients that rent postage meters and purchase supplies. The Bank's assets and liabilities consist primarily of cash, finance receivables, short and long-term investments and deposit accounts.

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

Certain investment securities are classified as available-for-sale and recorded at fair value in the Condensed Consolidated Balance Sheets as cash and cash equivalents, short-term investments and other assets depending on the type of investment and maturity. Unrealized holding gains and losses are recorded, net of tax, in accumulated other comprehensive income (AOCI).

Available-for-sale securities at September 30, 2017 and December 31, 2016 consisted of the following:



	September 30, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. and foreign governments, agencies and municipalities	$	134,134	$	2,024	$	(850	)	$	135,308
Corporate notes and bonds	76,105		1,888		(232		)	77,761
Commingled fixed income securities	1,792		—		(22		)	1,770
Mortgage-backed / asset-backed securities	160,948		1,742		(1,229		)	161,461
Total	$	372,979	$	5,654	$	(2,333	)	$	376,300



	December 31, 2016
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. and foreign governments, agencies and municipalities	$	136,316	$	1,571	$	(1,707	)	$	136,180
Corporate notes and bonds	69,376		1,180		(665		)	69,891
Commingled fixed income securities	1,568		—		(32		)	1,536
Mortgage-backed / asset-backed securities	159,312		1,566		(1,882		)	158,996
Total	$	366,572	$	4,317	$	(4,286	)	$	366,603

At September 30, 2017, investment securities that were in a loss position for 12 or more continuous months had aggregate unrealized holding losses of $1 million and an estimated fair value of $90 million, and investment securities that were in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $1 million and an estimated fair value of $76 million.

At December 31, 2016, investment securities that were in a loss position for 12 or more continuous months had aggregate unrealized holding losses of less than $1 million and an estimated fair value of $12 million, and investment securities that were in a loss position for less than 12 continuous months had aggregate unrealized holding losses of $4 million and an estimated fair value of $171 million.

We have not recognized an other-than-temporary impairment on any of the investment securities in an unrealized loss position because we have the ability and intent to hold these securities until recovery of the unrealized losses and we expect to receive the contractual principal and interest on these investment securities at maturity.

Scheduled maturities of available-for-sale securities at September 30, 2017 were as follows:



	Amortized cost		Estimated fair value
Within 1 year	$	42,982	$	42,865
After 1 year through 5 years	109,866		110,445
After 5 years through 10 years	61,744		62,673
After 10 years	158,387		160,317
Total	$	372,979	$	376,300

The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities as borrowers have the right to prepay obligations with or without prepayment penalties.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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 limit these risks 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 related 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. At September 30, 2017 and December 31, 2016, we had outstanding contracts associated with these anticipated transactions with notional amounts of $12 million and $13 million, respectively.

The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. We have not seen a material change in the creditworthiness of those banks acting as derivative counterparties.

Interest Rate Swap

We entered into an interest rate swap with a notional amount of $300 million to mitigate the interest rate risk associated with our $300 million variable-rate term loans. The swap is designated as a cash flow hedge. The effective portion of the gain or loss on the cash flow hedge 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. Under the terms of the swap agreement, we pay fixed-rate interest of 0.8826% and receive variable-rate interest based on 1-month LIBOR. The variable interest rate resets monthly.

The valuation of our interest rate swap is based on the income approach using a model with inputs that are observable or that can be derived from or corroborated by observable market data.

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 at September 30, 2017 and December 31, 2016 was as follows:



Designation of Derivatives	Balance Sheet Location	September 30, 2017			December 31, 2016
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	$	3		$	487
	Accounts payable and accrued liabilities	(309		)	(136		)

Interest rate swap	Other assets	1,680			1,588

Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	59			150
	Accounts payable and accrued liabilities	(80		)	(3,581		)

	Total derivative assets	$	1,742		$	2,225
	Total derivative liabilities	(389		)	(3,717		)
	Total net derivative asset (liabilities)	$	1,353		$	(1,492	)

The majority of the amounts included in AOCI at September 30, 2017 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.

The following represents the results of cash flow hedging relationships for the three and nine months ended September 30, 2017 and 2016:



	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	2017			2016			Location of Gain (Loss) (Effective Portion)	2017			2016
Foreign exchange contracts	$	(152	)	$	(158	)	Revenue	$	(139	)	$	(443	)
							Cost of sales	(59		)	301
Interest rate swap	(229		)	(591		)	Interest Expense	—			—
	$	(381	)	$	(749	)		$	(198	)	$	(142	)

	Nine Months Ended September 30,
	Derivative Gain (Loss) Recognized in AOCL (Effective Portion)						Location of Gain (Loss) (Effective Portion)	Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion)
Derivative Instrument	2017			2016			Location of Gain (Loss) (Effective Portion)	2017			2016
Foreign exchange contracts	$	(701	)	$	(114	)	Revenue	$	(133	)	$	290
							Cost of sales	89			(69		)
Interest rate swap	92			(591		)	Interest Expense	—			—
	$	(609	)	$	(705	)		$	(44	)	$	221

We also 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 the intercompany loans and interest and the mark-to-market adjustment on the derivatives are both recorded in earnings. All outstanding contracts at September 30, 2017 mature within 12 months.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following represents the results of our non-designated derivative instruments for the three and nine months ended September 30, 2017 and 2016:



		Three Months Ended September 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2017			2016
Foreign exchange contracts	Selling, general and administrative expense	$	(655	)	$	1,719

		Nine Months Ended September 30,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2017			2016
Foreign exchange contracts	Selling, general and administrative expense	$	(1,716	)	$	322

Credit-Risk-Related Contingent Features

Certain derivative instruments contain credit-risk-related contingent features that would require us to post collateral based on a combination of our long-term senior unsecured debt ratings and the net fair value of our derivatives. At September 30, 2017, we did not post any collateral and the maximum amount of collateral that we would be required to post had the credit-risk-related contingent features been triggered was not significant.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value for cash and cash equivalents, accounts receivable, loans receivable, and accounts payable approximate fair value because of the short maturity of these instruments.

The fair value of our debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of our debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of our debt at September 30, 2017 and December 31, 2016 were as follows:



	September 30, 2017		December 31, 2016
Carrying value	$	4,182,928	$	3,364,890
Fair value	$	4,185,628	$	3,412,581

8. Restructuring Charges and Asset Impairments

Restructuring Charges

Activity in our restructuring reserves for the nine months ended September 30, 2017 and 2016 was as follows:



	Severance and benefits costs			Other exit costs			Total
Balance at January 1, 2017	$	28,376		$	281		$	28,657
Expenses, net	25,225			1,712			26,937
Cash payments	(29,259		)	(717		)	(29,976		)
Balance at September 30, 2017	$	24,342		$	1,276		$	25,618

Balance at January 1, 2016	$	43,700		$	3,722		$	47,422
Expenses, net	36,791			1,660			38,451
Cash payments	(47,241		)	(3,920		)	(51,161		)
Balance at September 30, 2016	$	33,250		$	1,462		$	34,712

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The majority of the remaining restructuring reserves are expected to be paid over the next 12 to 24 months; however, due to certain international labor laws and long-term lease agreements, some payments will extend beyond 24 months. We expect to fund these payments from cash flows from operations.

Asset Impairments

During the nine months ended September 30, 2017, we recorded asset impairment charges of $4 million. For the nine months ended September 30, 2016, asset impairment charges totaled $9 million and consisted primarily of a loss of $5 million on the sale of a facility and an impairment charge of $3 million relating to a building.

9. Debt

Total debt at September 30, 2017 and December 31, 2016 consisted of the following:



	Interest rate	September 30, 2017		December 31, 2016
Notes due September 2017	5.75%	$	—	$	385,109
Notes due March 2018	5.6%	250,000		250,000
Notes due May 2018	4.75%	350,000		350,000
Notes due March 2019	6.25%	300,000		300,000
Notes due September 2020	3.625%	300,000		—
Notes due October 2021	3.375%	600,000		600,000
Notes due May 2022	3.875%	400,000		—
Notes due April 2023	4.7%	400,000		—
Notes due March 2024	4.625%	500,000		500,000
Notes due January 2037	5.25%	35,841		115,041
Notes due March 2043	6.7%	425,000		425,000
Term loans	Variable	650,000		450,000
Other debt		5,586		5,677
Principal amount		4,216,427		3,380,827
Less: unamortized debt discount and issuance costs		38,911		28,796
Plus: unamortized interest rate swap proceeds		5,412		12,859
Total debt		4,182,928		3,364,890
Less: current portion long-term debt		620,256		614,485
Long-term debt		$	3,562,672	$	2,750,405

In September 2017, we issued $700 million of fixed rate notes and borrowed an additional $350 million under new term loan agreements. The fixed rate notes consisted of $300 million of 3.625% Notes due September 2020 and $400 million of 4.7% Notes due April 2023. Interest is payable semi-annually and is subject to adjustment from time to time based on changes in our credit ratings. Both of these notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.

The new term loans consist of a $200 million term loan that bears interest at the applicable Eurodollar Rate plus 1.5% and matures in September 2020 and a $150 million term loan that bears interest at the applicable Eurodollar Rate plus 1.125% and matures in August 2018, but includes an option to extend the maturity by one year. For the third quarter of 2017, the effective interest rate for the $200 million term loan was 3.1% and the effective interest rate for the $150 million term loan was 2.4%. The interest rates on these term loans are subject to adjustment from time to time based on changes in our credit ratings.

In May 2017, we issued $400 million of 3.875% Notes. Interest is payable semi-annually and is subject to adjustment based on changes in our credit ratings. The notes mature in May 2022, but may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The net proceeds from these borrowings were used to repay a $150 million term loan in June 2017 and $385 million of 5.75% Notes in September 2017. Additionally, in October 2017, we redeemed $350 million of 4.75% Notes that were due in May 2018 and funded the Newgistics acquisition (see Note 6).

In January 2017, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million of the debt outstanding.

10. Pensions and Other Benefit Programs

The components of net periodic benefit cost (income) 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,
	2017			2016			2017			2016			2017		2016
Service cost	$	34		$	26		$	587		$	549		$	438	$	512
Interest cost	17,122			18,452			4,809			5,366			1,780		1,994
Expected return on plan assets	(24,369		)	(25,480		)	(8,214		)	(7,976		)	—		—
Amortization of transition credit	—			—			(2		)	(2		)	—		—
Amortization of prior service (credit) cost	(15		)	(15		)	(18		)	(19		)	74		74
Amortization of net actuarial loss	7,229			6,779			2,055			1,302			905		904
Settlement ⁽¹⁾	—			183			—			—			—		—
Net periodic benefit cost (income)	$	1		$	(55	)	$	(783	)	$	(780	)	$	3,197	$	3,484


	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,
	2017			2016			2017			2016			2017		2016
Service cost	$	98		$	80		$	1,688		$	1,622		$	1,290	$	1,534
Interest cost	51,488			55,354			13,993			16,773			5,321		5,977
Expected return on plan assets	(73,287		)	(76,439		)	(23,956		)	(25,029		)	—		—
Amortization of transition credit	—			—			(6		)	(6		)	—		—
Amortization of prior service (credit) cost	(45		)	(45		)	(53		)	(54		)	223		222
Amortization of net actuarial loss	21,725			20,336			5,981			4,018			2,693		2,711
Settlement ⁽¹⁾	—			1,971			—			—			—		—
Net periodic benefit cost (income)	$	(21	)	$	1,257		$	(2,353	)	$	(2,676	)	$	9,527	$	10,444

(1) Included in restructuring charges and asset impairments, net in the Condensed Consolidated Statements of Income.

Through September 30, 2017 and 2016, contributions to our U.S. pension plans were $5 million and $8 million, respectively, and contributions to our foreign plans were $11 million and $41 million, respectively. Nonpension postretirement benefit plan contributions were $13 million and $14 million through September 30, 2017 and September 30, 2016, respectively.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

11. Income Taxes

The effective tax rate for the three months ended September 30, 2017 and 2016 was 23.5% and 24.8%, respectively, and the effective tax rate for the nine months ended September 30, 2017 and 2016 was 23.9% and 32.7%, respectively. The effective tax rate for the nine months ended September 30, 2017 and 2016 includes a $4 million and $3 million charge, respectively, from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock. The effective tax rate for the three and nine months ended September 30, 2017 also includes a $6 million and $20 million benefit, respectively, from the resolution of certain tax examinations. Additionally, the effective tax rate for both the three and nine months ended September 30, 2016 include a $15 million benefit from the resolution of certain tax examinations and a $5 million charge from the establishment of a valuation allowance on tax attribute carryovers.

As is the case with other large corporations, our tax returns are examined each year 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 our unrecognized tax benefits will decrease in the next 12 months, and we expect this change could be up to 15% of our unrecognized tax benefits.

The IRS examinations of our consolidated U.S. income tax returns for tax years prior to 2012 are closed to audit; however, various post-2006 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to 2012 are closed to audit, except for the pending application of legal principles to specific issues arising in earlier years. Other significant jurisdictions include France, which is closed to audit through the end of 2012, Germany, which is closed to audit through the end of 2011 and the UK, which, except for an item under appeal, is closed to audit through the end of 2011. We have other less significant tax filings currently subject to examination.

12. 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. However, as litigation is inherently unpredictable, there can be no assurances in this regard.

13. Stockholders’ Equity (Deficit)

Changes in stockholders’ equity (deficit) for the nine months ended September 30, 2017 and 2016 were as follows:



	Preferred stock		Preference stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total equity (deficit)
Balance at January 1, 2017	$	1	$	483		$	323,338	$	148,125		$	5,107,734		$	(940,133	)	$	(4,743,208	)	$	(103,660	)
Net income	—		—			—		—			171,392			—			—			171,392
Other comprehensive income	—		—			—		—			—			121,649			—			121,649
Dividends paid	—		—			—		—			(104,524		)	—			—			(104,524		)
Issuance of common stock	—		—			—		(32,538		)	—			—			30,202			(2,336		)
Conversion to common stock	—		(26		)	—		(505		)	—			—			531			—
Stock-based compensation expense	—		—			—		18,312			—			—			—			18,312
Balance at September 30, 2017	$	1	$	457		$	323,338	$	133,394		$	5,174,602		$	(818,484	)	$	(4,712,475	)	$	100,833

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, 2016	$	1	$	505		$	323,338	$	161,280		$	5,155,537		$	(888,635	)	$	(4,573,305	)	$	178,721
Net income	—		—			—		—			177,148			—			—			177,148
Other comprehensive loss	—		—			—		—			—			62,673			—			62,673
Dividends paid	—		—			—		—			(105,791		)	—			—			(105,791		)
Issuance of common stock	—		—			—		(27,251		)	—			—			25,930			(1,321		)
Conversion to common stock	—		(16		)	—		(321		)	—			—			337			—
Stock-based compensation expense	—		—			—		16,289			—			—			—			16,289
Repurchase of common stock	—		—			—		—			—			—			(197,267		)	(197,267		)
Balance at September 30, 2016	$	1	$	489		$	323,338	$	149,997		$	5,226,894		$	(825,962	)	$	(4,744,305	)	$	130,452

14. Accumulated Other Comprehensive Income

Reclassifications out of AOCI for the three and nine months ended September 30, 2017 and 2016 were as follows:



	Amount Reclassified from AOCI (a)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Gains (losses) on cash flow hedges
Revenue	$	(139	)	$	443		$	(133	)	$	(290	)
Cost of sales	(59		)	(301		)	89			69
Interest expense, net	(507		)	(507		)	(1,521		)	(1,521		)
Total before tax	(705		)	(365		)	(1,565		)	(1,742		)
Benefit for income tax	(274		)	(144		)	(610		)	(679		)
Net of tax	$	(431	)	$	(221	)	$	(955	)	$	(1,063	)

Gains (losses) on available for sale securities
Interest expense, net	$	(298	)	$	(1,125	)	$	(524	)	$	(1,126	)
Benefit provision for income tax	(110		)	(433		)	(194		)	(433		)
Net of tax	$	(188	)	$	(692	)	$	(330	)	$	(693	)

Pension and Postretirement Benefit Plans (b)
Transition credit	$	2		$	2		$	6		$	6
Prior service costs	(41		)	(40		)	(125		)	(123		)
Actuarial losses	(10,189		)	(9,168		)	(30,399		)	(29,036		)
Total before tax	(10,228		)	(9,206		)	(30,518		)	(29,153		)
Benefit from income tax	(3,484		)	(3,243		)	(10,440		)	(10,362		)
Net of tax	$	(6,744	)	$	(5,963	)	$	(20,078	)	$	(18,791	)

(a) Amounts in parentheses indicate reductions to income and increases to other comprehensive income (loss).


(b)	Reclassified from accumulated other comprehensive loss into selling, general and administrative expenses. These amounts are included in the computation of net periodic costs (see Note 10 for additional details).

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Changes in AOCI for the nine months ended September 30, 2017 and 2016 were as follows:



	Cash flow hedges			Available for sale securities		Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2017	$	(1,485	)	$	120	$	(787,813	)	$	(150,955	)	$	(940,133	)
Other comprehensive income (loss) before reclassifications (a)	(376		)	1,921		(1,482		)	100,223			100,286
Reclassifications into earnings (a), (b)	955			330		20,078			—			21,363
Net other comprehensive income	579			2,251		18,596			100,223			121,649
Balance at September 30, 2017	$	(906	)	$	2,371	$	(769,217	)	$	(50,732	)	$	(818,484	)



	Cash flow hedges			Available for sale securities		Pension and postretirement benefit plans			Foreign currency adjustments			Total
Balance at January 1, 2016	$	(3,912	)	$	536	$	(738,768	)	$	(146,491	)	$	(888,635	)
Other comprehensive (loss) income before reclassifications (a)	(705		)	6,798		(1,230		)	37,263			42,126
Reclassifications into earnings (a), (b)	1,063			693		18,791			—			20,547
Net other comprehensive income	358			7,491		17,561			37,263			62,673
Balance at September 30, 2016	$	(3,554	)	$	8,027	$	(721,207	)	$	(109,228	)	$	(825,962	)

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

(b) See table above for additional details of these reclassifications.

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

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We want to caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 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. Factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include, without limitation:


•	the announcement that the Board of Directors of the Company is conducting a review of strategic alternatives and the potential impact of such announcement on the Company's current or potential customers, partners and personnel


•	the cost of the review process with respect to strategic alternatives and the disruption the process may have on the Company's operations, including the diversion of the attention of the Company's management and employees


•	declining physical mail volumes


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


•	our success in developing new products and services, including digital-based products and services, obtaining regulatory approval if required, and the market’s acceptance of these new products and services


•	our ability to fully utilize the enterprise business platform in North America, implemented in 2016, and successfully deploy it in major international markets without significant disruption to existing operations


•	the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws


•	a breach of security, including a cyberattack or other comparable event


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


•	changes in postal or banking regulations


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


•	the loss of some of our larger clients in the Global Ecommerce segment


•	macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates, interest rates and labor conditions


•	third-party suppliers' ability to provide product components, assemblies or inventories


•	our success at managing the relationships with our outsource providers, including the costs of outsourcing functions and operations not central to our business


•	intellectual property infringement claims


•	our success at managing customer credit risk


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


•	income tax adjustments or other regulatory levies for prior audit years and changes in tax laws, rulings or regulations


•	a disruption of our businesses due to changes in international or national political conditions, including the use of the mail for transmitting harmful biological agents or other terrorist attacks


•	acts of nature

Overview

We made progress against our strategic initiatives to stabilize and reinvent our mail business, drive operational excellence and grow our business through digital commerce. We invested in new product development to increase our digital and web-enabled capabilities, bring our digital capabilities to market and better serve our clients.

In Small and Medium Business (SMB) Solutions, late in the third quarter of 2017, we introduced the SendPro C-series in the U.S. This product leverages the latest cloud technology to securely deliver a digital multi-carrier shipping platform, as well as mailing functionality. The SendPro C-series enables offices of all sizes to select the best sending option for parcels, letters and flats, delivering potential savings across carriers, and providing full package tracking capabilities. The introduction of the SendPro C-series was a significant step in our plan to stabilize and reinvent our mail business.

In Enterprise Business Solutions (EBS), we made investments to expand our Presort Services parcel sortation services and our network.

In Digital Commerce Solutions (DCS), we invested in our products and capabilities to bring innovation to our customers. Within Software Solutions, we saw growth in our indirect channel, both in the number of partners in the channel and the revenue generated by these partners. Within Global Ecommerce, we invested in our cross-border solutions, domestic shipping and carrier services capabilities. Our domestic shipping solutions include end-to-end carrier services enabled by our shipping APIs. Shipping APIs allow our clients to integrate shipping functionality into their website or business system. During the third quarter, we added new shipping API features; however, we experienced some stability issues which delayed client adoption.

Financial Results Summary - Three Months Ended September 30:



	2017		2016			Change
Revenue	$	842,820	$	839,031		—	%
Income from continuing operations	$	57,358	$	70,396		(19	)%
Loss from discontinued operations, net of tax	$	—	$	(291	)	100	%
Net income	$	57,358	$	70,105		(18	)%
Earnings per share from continuing operations - diluted	$	0.31	$	0.35		(11	)%

Revenue

Revenue was flat.


•	The results reflect growth in business services revenue and software revenue and declines in equipment sales, financing, support services, supplies and rentals revenues.


•	SMB revenue declined 7% as reported and 8% on a constant currency basis. North America Mailing revenue declined 9% driven by a decline in equipment sales and declines in recurring revenue streams. International Mailing revenue declined 3% as reported and 5% on a constant currency basis due to lower recurring revenue streams.


•	EBS revenue increased 1%. Presort Services revenue grew 4% driven by higher standard mail and parcel volumes processed and higher revenue per piece. Production Mail revenue declined 2% as reported and 3% on a constant currency basis driven by declines in equipment sales and supplies revenue.


•	DCS revenue grew 19%. Global Ecommerce revenue grew 28% driven by growth in domestic shipping and the UK outbound marketplace. Software Solutions revenue increased 12% as reported and 11% on a constant currency basis due to increased licensing revenue in North America, driven in part, by a large Location Intelligence deal in the quarter.

Net Income

Net income declined 18% driven largely by a decline in gross margins, particularly in SMB Solutions, additional investments in Global Ecommerce and higher interest expense partially offset by lower restructuring charges and benefits from productivity initiatives.

Debt activity

In September 2017, we issued $1,050 million of new debt consisting of $700 million of fixed rate notes and $350 million of variable rate term loans. We used the proceeds from these borrowings, along with existing cash, to repay $385 million of fixed rate notes that were due in September 2017, and in October 2017, to redeem $350 million of fixed rate notes that were originally due in May 2018 and to fund the Newgistics acquisition for $475 million.

Financial Results Summary - Nine Months Ended September 30:



	2017		2016			Change
Revenue	$	2,500,831	$	2,519,506		(1	)%
Income from continuing operations	$	171,392	$	192,880		(11	)%
Loss from discontinued operations, net of tax	$	—	$	(1,951	)	100	%
Net income	$	171,392	$	190,929		(10	)%
Earnings per share from continuing operations - diluted	$	0.92	$	0.94		(2	)%
Net Cash Provided by Operations	$	330,577	$	296,359		12	%

Revenue

Revenue declined 1% as reported and was flat on a constant currency basis.


•	The results reflect growth in business services revenue and software revenue and declines in equipment sales, financing, support services, supplies and rentals revenues.


•	SMB revenue declined 5%. North America Mailing revenue declined 4% as reported and 5% on a constant currency basis driven by declines in recurring revenue streams. International Mailing revenue declined 9% as reported and 6% on a constant currency basis primarily due to lower equipment sales and recurring revenue streams.


•	EBS revenue was flat as reported and declined 1% on a constant currency basis. Presort Services revenue grew 4% driven by higher standard mail and parcel volumes processed and higher revenue per piece. Production Mail revenue declined 4% as reported and 3% on a constant currency basis primarily driven by lower support services revenues and equipment sales.


•	DCS revenue grew 11% as reported and 12% on a constant currency basis. Global Ecommerce revenue grew 20% as reported and 21% on a constant currency basis driven by growth in domestic shipping and the UK outbound marketplace. Software Solutions revenue increased 3% as reported and 4% on a constant currency basis, primarily due to an increase in licensing revenue.

Net Income

Net income declined 10% driven largely by a decline in gross margins, continued investment in our Global Ecommerce business, higher bad debt and credit losses provisions and higher interest expense, partially offset by lower restructuring charges and a lower effective tax rate. Additionally, the first nine months of 2016 included $15 million of benefits from the forgiveness of a loan and a favorable state sales tax adjustment.

Cash Flows

Net cash provided by operations was $331 million compared to $296 million in the prior year. The timing of vendor payments and lower variable compensation payments in 2017 primarily drove the increase. During the first nine months of 2017, we used cash to:


•	increase investments by $27 million;


•	pay dividends of $105 million to our common stockholders; and


•	invest $120 million in capital expenditures.

Outlook

We continue to see a shift in our overall portfolio to higher growth, digital and shipping solutions. However, these opportunities have different margin structures than our legacy businesses and are impacting our financial performance. We also expect the normalization of variable compensation, higher marketing and increased spending on innovation will affect full year earnings in 2017. Over the last five years, we have developed a simpler and more digital operating model and reduced our cost structure by $300 million and we now see an opportunity to reduce our overall cost structure by an additional $200 million over the next 24 months. These savings will come from across the organization, including people and programs.

Within SMB Solutions, we expect trends in recurring revenue streams to stabilize with the introduction of the next generation of our SendPro family of products in the U.S. and a refresh of our asset base with new products that combine our mailing offerings with new shipping and parcel capabilities.

Within EBS, we anticipate additional network and parcel services expansion in Presort Services. Production Mail revenue growth is expected to continue to be challenged by consolidation and outsourcing, the timing of deals and pricing pressures on services revenue.

Within DCS, we expect to continue to make investments to grow our indirect channel within Software Solutions and build relationships with additional go-to-market partners. We anticipate continued financial investments in Global Ecommerce that will contribute to future growth from expansion of our marketplace sites (sites where multiple sellers provide their offerings), individual retail clients, new client acquisition and expanded service offerings. We will also continue to expand and globalize our cross-border ecommerce offerings by adding new retail clients in multiple outbound markets, which diversifies the business and helps to mitigate foreign currency risk.

We closed our acquisition of Newgistics in October 2017. Newgistics provides parcel delivery, returns, fulfillment and digital commerce solutions for retailers and ecommerce brands. This acquisition provides for expansion into the domestic market for our Global Ecommerce segment while complementing our cross-border offerings. It also aligns with our Presort Services network and builds on strengths of both Global Ecommerce and Presort Services. We plan to leverage Newgistics' existing network and volumes to drive scale across our parcel platform and provide integration of Global Ecommerce and Presort Services. We expect to achieve significant synergies in this transaction and further anticipate cross-sell opportunities across the clients of Newgistics, Presort Services and Global Ecommerce.

The Company's Board of Directors, together with management, announced on November 1, 2017 that it is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board of Directors has not set a timetable for the process nor has it made any decisions related to any strategic alternatives at this time. There can be no assurance that the exploration of strategic alternatives will result in any particular outcome.

RESULTS OF OPERATIONS

Revenue by source and the related cost of revenue are shown in the following tables:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2017		2016		Actual % change		Constant Currency % change		2017		2016		Actual % change		Constant Currency % change
Equipment sales	$	157,649	$	173,143	(9	)%	(10	)%	$	479,248	$	485,145	(1	)%	(1	)%
Supplies	58,296		61,306		(5	)%	(6	)%	188,342		198,631		(5	)%	(4	)%
Software	99,600		89,087		12	%	11	%	264,131		257,760		2	%	4	%
Rentals	95,901		102,747		(7	)%	(7	)%	291,770		309,706		(6	)%	(6	)%
Financing	81,184		87,883		(8	)%	(8	)%	250,582		276,915		(10	)%	(9	)%
Support services	120,479		123,954		(3	)%	(4	)%	354,625		383,632		(8	)%	(7	)%
Business services	229,711		200,911		14	%	14	%	672,133		607,717		11	%	11	%
Total revenue	$	842,820	$	839,031	—	%	—	%	$	2,500,831	$	2,519,506	(1	)%	—	%



	Three Months Ended September 30,								Nine Months Ended September 30,
					Percentage of Revenue								Percentage of Revenue
	2017		2016		2017		2016		2017		2016		2017		2016
Cost of equipment sales	$	85,647	$	86,147	54.3	%	49.8	%	$	232,398	$	235,741	48.5	%	48.6	%
Cost of supplies	18,827		20,348		32.3	%	33.2	%	60,207		60,662		32.0	%	30.5	%
Cost of software	25,713		25,698		25.8	%	28.8	%	75,816		79,496		28.7	%	30.8	%
Cost of rentals	20,818		16,041		21.7	%	15.6	%	63,056		54,951		21.6	%	17.7	%
Financing interest expense	12,629		12,965		15.6	%	14.8	%	38,446		41,375		15.3	%	14.9	%
Cost of support services	70,688		74,799		58.7	%	60.3	%	217,232		224,790		61.3	%	58.6	%
Cost of business services	166,984		140,989		72.7	%	70.2	%	470,890		417,357		70.1	%	68.7	%
Total cost of revenue	$	401,306	$	376,987	47.6	%	44.9	%	$	1,158,045	$	1,114,372	46.3	%	44.2	%

The discussion below refers to the change in revenue on a constant currency basis to exclude changes in foreign currency exchange rates on the change in revenue. We believe that the use of a constant currency revenue measure provides a better understanding of underlying revenue performance. Constant currency is calculated by converting our current period reported revenue at the prior year's exchange rates.

Revenue and Cost of Revenues - 2017 compared to 2016

Equipment sales

Equipment sales revenue decreased 9% in the quarter. On a constant currency basis, equipment sales decreased 10%, primarily due to:


•	8% from lower equipment sales in North America Mailing due to timing of sales and product mix; and


•	1% from lower equipment sales in Production Mail, primarily from a difficult year-over-year comparison, resulting from a large sorter deal in the third quarter of 2016.

Cost of equipment sales as a percentage of equipment sales increased to 54.3% in the quarter, primarily due to lower margins in North America driven by mix of sales.

Equipment sales revenue decreased 1% in the first nine months of 2017, primarily due to:


•	2% from lower equipment sales in International Mailing particularly in Italy and Germany;


•	1% from lower equipment sales in Production Mail; partially offset by


•	2% from higher equipment sales in North America Mailing, reflecting a favorable comparison to prior year, which was impacted by the enterprise business platform implementation in the second quarter of 2016.

Cost of equipment sales as a percentage of equipment sales was flat in the first nine months of 2017 compared to the first nine months of 2016.

Supplies

Supplies revenue decreased 5% in the quarter. On a constant currency basis, supplies revenue decreased 6% primarily due to:


•	3% from lower supplies revenue in North America Mailing primarily due to a decline in installed mailing equipment and postage volumes;


•	2% from lower supplies revenue in Production Mail primarily from a difficult year-over-year comparison resulting from a large transaction in the prior year; and


•	1% from lower supplies revenue in International Mailing.

Cost of supplies as a percentage of supplies revenue decreased to 32.3% in the quarter primarily due to mix of products sold.

Supplies revenue decreased 5% in the first nine months of 2017. On a constant currency basis, supplies revenue decreased 4% primarily due to:


•	3% from lower supplies revenue in North America Mailing primarily due to a decline in installed mailing equipment and postage volumes; and


•	1% from a decline in International Mailing revenue.

Cost of supplies as a percentage of supplies revenue increased to 32.0% in the first nine months of 2017 due to higher mix of lower margin products.

Software

Software revenue increased 12% in the quarter. On a constant currency basis, revenue increased 11% primarily due to higher licensing fees in North America, driven, in part, by improvements in our indirect channel and a large Location Intelligence deal in the quarter.

Software revenue increased 2% in first nine months of 2017. On a constant currency basis, revenue increased 4% primarily due to:


•	3% from higher licensing revenue; and


•	1% from higher data revenue.

Cost of software as a percentage of software revenue decreased to 25.8% in the quarter and 28.7% in the first nine months of 2017 due to the increase in high margin licensing revenue and cost reduction initiatives.

Rentals

Rentals revenue decreased 7% in the quarter and 6% in the first nine months of 2017 primarily due to a declining meter population. Cost of rentals as a percentage of rentals revenue increased to 21.7% for the quarter and 21.6% in the first nine months of 2017 primarily due to higher scrapping costs associated with retiring aging meters.

Financing

Financing revenue decreased 8% in the quarter and 10% in the first nine months of 2017. On a constant currency basis, financing revenue decreased 8% in the quarter and 9% in the first nine months of 2017 primarily due to a declining portfolio and lower fees.

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. Financing interest expense as a percentage of financing revenue increased to 15.6% for the quarter and 15.3% in the first nine months of 2017 primarily due to a higher effective interest rate.

Support Services

Support services revenue decreased 3% in the quarter. On a constant currency basis, support services revenue decreased 4% primarily due to a decline in installed mailing equipment worldwide. Cost of support services as a percentage of support services revenue decreased to 58.7% for the quarter due to improved margins in North America Mailing and Production Mail.

Support services revenue decreased 8% in the first nine months of 2017. On a constant currency basis, support services revenue decreased 7% primarily due to:


•	6% from a decline in installed mailing equipment worldwide; and


•	1% from lower maintenance revenue on Production Mail equipment as some in-house mailers moved their mail processing to third-party service bureaus who service their own equipment.

Cost of support services as a percentage of support services revenue increased to 61.3% in the first nine months of 2017 as support services margins were impacted by lower services revenue without corresponding cost reduction.

Business Services

Business services revenue increased 14% in the quarter primarily due to:


•	11% from growth in Global Ecommerce due to higher cross-border and retail volumes across all lines of business; and


•	3% from higher volumes of mail processed in Presort Services.

Business services revenue increased 11% in the first nine months of 2017 primarily due to:


•	8% from growth in Global Ecommerce due to higher cross-border and retail volumes; and


•	2% from higher volumes of mail processed in Presort Services.

Cost of business services as a percentage of business services revenue increased to 72.7% in the quarter and 70.1% in the first nine months of 2017 primarily due to continued investment in our Global Ecommerce business.

Selling, general and administrative (SG&A)

SG&A expense increased 1% to $304 million in the quarter primarily due to higher expenses in Global Ecommerce of $9 million for investments in growth opportunities and the settlement of a vendor contract dispute, $5 million of higher bad debt and credit loss provisions, $5 million of acquisition/disposition related expenses, and $4 million of higher residual losses on leased equipment due to the timing of trade-up activity, partially offset by approximately $18 million of benefits from productivity initiatives.

SG&A expense decreased 1% to $908 million in the first nine months of 2017 primarily due to approximately $49 million of benefits from productivity initiatives and a $6 million pre-tax gain from the sale of technology in the second quarter of 2017, partially offset by $14 million of higher expenses in Global Ecommerce, $11 million of higher marketing expenses and $10 million of higher bad debt and credit loss provisions. Additionally, the first nine months of 2016 included a $10 million benefit from the forgiveness of a loan by the State of Connecticut and a $5 million favorable state sales tax adjustment.

Research and development (R&D)

R&D expense increased 12% to $32 million in the quarter primarily due to project timing. R&D expense increased 8% to $97 million for the first nine months of 2017, primarily due to investments in Global Ecommerce and Software Solutions.

Income taxes

See Note 11 to the Condensed Consolidated Financial Statements.

Business segment results - 2017 compared to 2016

The principal products and services of each of our reportable segments are as follows:

Small & Medium Business Solutions:

Enterprise Business Solutions:

Presort Services: Includes revenue and related expenses from presort mail and parcel services for our large enterprise clients to qualify large mail volumes for postal worksharing discounts.

Digital Commerce Solutions:

Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions.

We determine EBIT by deducting from segment revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses and restructuring charges that are not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the segment level. Management believes segment EBIT provides a useful measure to our operating performance and underlying trends of the businesses. Segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. See Note 2 to the Condensed Consolidated Financial Statements for a reconciliation of segment EBIT to net income.

Revenue and EBIT for the three and nine months ended September 30, 2017 and 2016 by reportable segment are presented below:



	Revenue
	Three Months Ended September 30,								Nine Months Ended September 30,
	2017		2016		Actual % change		Constant Currency % change		2017		2016		Actual % change		Constant Currency % change
North America Mailing	$	319,966	$	349,785	(9	)%	(9	)%	$	1,016,640	$	1,064,456	(4	)%	(5	)%
International Mailing	93,770		96,730		(3	)%	(5	)%	282,150		309,297		(9	)%	(6	)%
Small & Medium Business Solutions	413,736		446,515		(7	)%	(8	)%	1,298,790		1,373,753		(5	)%	(5	)%
Production Mail	104,387		106,350		(2	)%	(3	)%	278,912		289,649		(4	)%	(3	)%
Presort Services	119,074		114,053		4	%	4	%	370,203		357,214		4	%	4	%
Enterprise Business Solutions	223,461		220,403		1	%	1	%	649,115		646,863		—	%	1	%
Software Solutions	99,442		89,031		12	%	11	%	264,087		257,417		3	%	4	%
Global Ecommerce	106,181		83,082		28	%	28	%	288,839		241,473		20	%	21	%
Digital Commerce Solutions	205,623		172,113		19	%	19	%	552,926		498,890		11	%	12	%
Total	$	842,820	$	839,031	—	%	—	%	$	2,500,831	$	2,519,506	(1	)%	—	%



	EBIT
	Three Months Ended September 30,							Nine Months Ended September 30,
	2017			2016		% change		2017			2016			% change
North America Mailing	$	107,777		$	141,968	(24	)%	$	369,662		$	449,696		(18	)%
International Mailing	8,729			9,198		(5	)%	35,967			32,842			10	%
Small & Medium Business Solutions	116,506			151,166		(23	)%	405,629			482,538			(16	)%
Production Mail	14,920			15,696		(5	)%	31,515			35,434			(11	)%
Presort Services	19,474			19,181		2	%	69,461			69,305			—	%
Enterprise Business Solutions	34,394			34,877		(1	)%	100,976			104,739			(4	)%
Software Solutions	20,912			10,329		> 100 %		31,216			17,908			74	%
Global Ecommerce	(9,594		)	1,544		> (100)%		(17,894		)	(2,608		)	> (100)%
Digital Commerce Solutions	11,318			11,873		(5	)%	13,322			15,300			(13	)%
Total	$	162,218		$	197,916	(18	)%	$	519,927		$	602,577		(14	)%

Small & Medium Business Solutions

North America Mailing

North America Mailing revenue decreased 9% in the quarter primarily due to:


•	4% from lower equipment sales due to timing of sales and product mix;


•	3% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes; and


•	2% from lower financing revenue primarily due to a declining lease portfolio and lower fees.

North America Mailing revenue decreased 4% in the first nine months of 2017. On a constant currency basis, revenue decreased 5% primarily due to:


•	3% from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes; and


•	2% from lower financing revenue primarily due to a declining lease portfolio and lower fees.

EBIT decreased 24% in the quarter and 18% in the first nine months of 2017, primarily due to the decline in revenue and equipment margins.

International Mailing

International Mailing revenue decreased 3% in the quarter. On a constant currency basis, revenue decreased 5% primarily due to:


•	4% from declines in rentals, financing and support services revenue resulting from a decline in installed mailing equipment and the lease portfolio; and


•	1% from lower equipment sales, primarily in Italy and Japan.

EBIT decreased 5% in the quarter primarily due to the decline in revenue.

International Mailing revenue decreased 9% in the first nine months of 2017. On a constant currency basis, revenue decreased 6% primarily due to:


•	3% from lower equipment sales particularly in Italy and Germany; and


•	3% from declines in rentals, financing and support services revenue resulting from a decline in installed mailing equipment and the lease portfolio.

EBIT increased 10% in the first nine months of 2017, primarily due to lower expenses.

Enterprise Business Solutions

Production Mail

Production Mail revenue decreased 2% in the quarter. On a constant currency basis, revenue decreased 3% primarily due to:


•	2% from lower equipment sales due primarily to lower inserter equipment placements and a large sorter sale in the third quarter of 2016; and


•	1% from lower supplies revenue primarily from a difficult year-over-year comparison resulting from a large transaction in the prior year.

Production Mail revenue decreased 4% in the first nine months of 2017. On a constant currency basis, revenue decreased 3% primarily due to:


•	2% from lower support services revenue as a result of some in-house mailers shifting their mail processing to third-party outsourcers who service their own equipment and;


•	1% from lower equipment sales primarily due to lower sorter placements offset partially by higher inserter equipment sales.

EBIT decreased 5% in the quarter and 11% in the first nine months of 2017, primarily due to the decline in revenue and lower equipment sales margins due to the mix of equipment sales.

Presort Services

Presort Services revenue increased 4% in both the quarter and the first nine months of 2017 primarily due to higher revenue per piece of mail processed and higher volumes of Standard Class Mail and parcels processed, partially offset by lower First Class mail volumes. EBIT increased 2% in the quarter primarily due to higher revenue. EBIT was flat in the first nine months of 2017 compared to the first nine months of 2016, as higher revenue was offset by increased mail processing costs and investments in our new parcel sortation capabilities.

Digital Commerce Solutions

Software Solutions

Software revenue increased 12% in the quarter. On a constant currency basis, revenue increased 11% primarily due to higher licensing fees in North America, driven in part, by growth in the indirect channel and a large Location Intelligence deal in the quarter.

Software revenue increased 3% in first nine months of 2017. On a constant currency basis, revenue increased 4% primarily due to:


•	3% from higher licensing revenue; and


•	1% from higher data revenue.

EBIT increased more than 100% in the quarter and 74% in the first nine months of 2017 primarily due to an increase in high margin licensing revenue.

Global Ecommerce

Global Ecommerce revenue increased 28% in the quarter primarily due to:


•	15% from higher domestic ecommerce shipping revenues primarily from carrier services, which are enabled by our Shipping APIs;


•	10% from higher cross-border marketplace volumes, particularly in the UK; and


•	3% from higher retail volumes.

Global Ecommerce revenue increased 20% in the first nine months of 2017. On a constant currency basis, revenue increased 21% primarily due to:


•	11% from higher domestic ecommerce shipping revenues;


•	6% from higher cross-border marketplace volumes, particularly in the UK; and


•	2% from higher retail volumes.

EBIT was a loss of $10 million in the quarter and a loss of $18 million in the first nine months of 2017 primarily due to investments in market growth opportunities, the resolution of a vendor contractual dispute and a specific marketing program with a cross-border client.

LIQUIDITY AND CAPITAL RESOURCES

We believe that existing cash and investments, cash generated from operations and borrowing capacity under our commercial paper program will be sufficient to support our current cash needs, including discretionary uses such as capital investments, dividends, strategic acquisitions and share repurchases. Cash and cash equivalents and short-term investments were $1,742 million at September 30, 2017 and $803 million at December 31, 2016. We continuously review our credit profile through published credit ratings and the credit default swap market. We also monitor the creditworthiness of those banks acting as derivative counterparties, depository banks or credit providers.

Cash and cash equivalents held by our foreign subsidiaries were $601 million at September 30, 2017 and $475 million at December 31, 2016. Cash and cash equivalents held by our foreign subsidiaries are generally used to support the liquidity needs of these subsidiaries. Most of these amounts could be repatriated to the U.S. but would be subject to additional taxes. Repatriation of some foreign balances is restricted by local laws.

Cash Flow Summary

Changes in cash and cash equivalents for the nine months ended September 30, 2017 and 2016 were as follows:



	2017			2016			Change
Net cash provided by operating activities	$	330,577		$	296,359		$	34,218
Net cash used in investing activities	(155,715		)	(71,795		)	(83,920		)
Net cash provided by financing activities	715,062			116,061			599,001
Effect of exchange rate changes on cash and cash equivalents	42,457			3,933			38,524
Change in cash and cash equivalents	$	932,381		$	344,558		$	587,823

Cash from operations increased $34 million, primarily due to:


•	Lower variable compensation payments in 2017 attributable to 2016 performance;


•	Timing of payments associated with payroll, and the launch of our enterprise business platform and advertising campaigns in 2016;


•	Lower restructuring and tax payments; and


•	A special UK pension contribution of $37 million in 2016.

Cash flows used in investing activities increased $84 million, primarily due to:


•	Higher investment activities of $96 million, primarily due to the investment of residual proceeds from the issuance of debt;


•	Lower proceeds from the sale of assets of $12 million;


•	Decrease in reserve deposits of $4 million; and


•	Higher capital expenditures of $4 million; partially offset by


•	Lower acquisition spending of $30 million.

Cash flows provided by financing activities increased $599 million, primarily due to:


•	a net increase of $389 million from debt activity;


•	$197 million of share repurchases in 2016; and


•	$9 million of dividends paid to non-controlling interests in 2016.

Financings and Capitalization

We are a "Well-Known Seasoned Issuer" within the meaning of Rule 405 under the Securities Act, which allows us to issue debt securities, preferred stock, preference stock, common stock, purchase contracts, depositary shares, warrants and units in an expedited fashion. We have a commercial paper program that is an important source of liquidity for us and a committed credit facility of $1 billion to support our commercial paper issuances. During the second quarter of 2017, we extended the expiration of the credit facility to 2021 under the same terms and conditions. We have not drawn upon the credit facility.

At September 30, 2017 and December 31, 2016, there were no outstanding commercial paper borrowings. During the quarter, commercial paper borrowings averaged less than $1 million at a weighted average interest rate of 1.7% and the maximum amount of commercial paper outstanding at any point during the quarter was $10 million.

In September 2017, we issued $700 million of fixed rate notes and borrowed an additional $350 million under new term loan agreements. The fixed rate notes consisted of a $300 million of 3.625% notes due September 2020 and $400 million of 4.7% notes due April 2023. Interest is payable semi-annually and are subject to adjustment from time to time based on changes in our credit ratings.

Both of these notes may be redeemed, at our option, in whole or in part, at any time at par plus accrued, unpaid interest and a make-whole amount, if any.

The net proceeds from these borrowings were used to repay a $150 million term loan in June 2017 and the $385 million 5.75% Notes in September 2017. Additionally, in October 2017, we redeemed the $350 million 4.75% Notes that were due in May 2018 and funded the Newgistics acquisition (see Note 6).

In January 2017, bondholders of the 5.25% Notes due 2037 caused us to redeem $79 million of the debt outstanding.

Dividends and Share Repurchases

During the nine months ended September 30, 2017, we paid dividends to our stockholders of $105 million. Each quarter, our Board of Directors considers our recent and projected earnings and other capital needs and priorities in deciding whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends.

We did not repurchase any of our common shares during the quarter. We have a remaining board of directors authorization of $21 million to repurchase shares.

Off-Balance Sheet Arrangements

At September 30, 2017, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, results of operations or liquidity.

Critical Accounting Estimates

Finance Receivables and Allowance for Credit Losses

Finance receivables are composed of sales-type lease receivables and unsecured revolving loan receivables. We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. At September 30, 2017, gross finance receivables aged greater than 90 days have grown since the implementation of our North America enterprise business platform in the third quarter of 2016. We believe the majority of the increased delinquency is administrative in nature and the result of a change in our billing format and process under our new enterprise business platform. The billing format under the platform is different and we are continuing to work with clients to reconcile amounts billed under the new format and thus such clients have not made payments. These accounts are considered delinquent in our analysis, but we continue to expect that payment in full will be received. The aging disclosed in Note 5 of the Condensed Consolidated Financial Statements represents full contract value while a smaller portion (approximately 25%) has been billed and recognized in income as of September 30, 2017.

The quality of the portfolio has not changed. Our loan portfolio delinquency has remained fairly constant when compared to loan delinquency in our legacy platform and there has been no significant changes in customers within the portfolio. Also, we use a third party to credit score our lease and loan portfolios. The credit quality of our portfolio as determined by this third party has shown no signs of deterioration suggesting that the increase in delinquency is not a result of our customer's ability to pay, but instead is a result of changes to invoice format and presentation. Accordingly, we do not believe that an increase in the allowance for credit losses as a result of the increase in delinquencies is necessary.

Regulatory Matters

There have been no significant changes to the regulatory matters disclosed in our 2016 Annual Report.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to the disclosures made in the 2016 Annual Report.

Item 4: Controls and Procedures

Disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (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 assure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

Under the direction of our CEO and CFO, we evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal control over financial reporting. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Exchange Act. In addition, no changes in internal control over financial reporting occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. 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, 2017.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

See Note 12 to the Condensed Consolidated Financial Statements.

Item 1A: Risk Factors

There were no material changes to the risk factors identified in our 2016 Annual Report.

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. The following table provides information about purchases of our common stock during the three months ended September 30, 2017:




	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may be purchased under the plans or programs (in thousands)
Beginning balance				$21,022
July 1, 2017 - July 31, 2017	—	—	—	$21,022
August 1, 2017 - August 31, 2017	—	—	—	$21,022
September 1, 2017 - September 30, 2017	—	—	—	$21,022
	—	—	—

Item 6: Exhibits



Exhibit Number	Description	Exhibit Number in this Form 10-Q
2.1	Agreement and Plan of Merger, dated as of September 6, 2017, among Pitney Bowes Inc., Neutron Acquisition Corp., NGS Holdings, Inc. and Littlejohn Fund IV, L.P., solely in its capacity as stockholder representative (incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 7, 2017).*	2.1
4.1	Officer's Certificate establishing the terms of the 3.625% Notes due 2020, dated September 15, 2017 (incorporated by reference to Exhibit 4.1 to Form 8-K filed September 15, 2017)	4.1
4.2	Specimen of 3.625% Notes due 2020 (incorporated by reference to exhibit 4.2 to Form 8-K filed September 15, 2017)	4.2
4.3	Officer's Certificate establishing the terms of the 4.700% Notes due 2023, dated September 15, 2017 (incorporated by reference to Exhibit 4.3 to Form 8-K filed September 15, 2017)	4.3
4.4	Specimen of 4.700% Notes due 2023 (incorporated by reference to exhibit 4.4 to Form 8-K filed September 15, 2017)	4.4
10.1	Credit Agreement $1,000,000,000, dated as of January 6, 2015, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the “Revolving Credit Agreement”).	10.1
10.2	First Amendment to the Revolving Credit Agreement, dated as of May 31, 2017, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.	10.2
10.3	Second Amendment to the Revolving Credit Agreement, dated as of September 12, 2017, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.	10.3
10.4	Credit Agreement $300,000,000, dated as of January 6, 2015, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the “$300M Term Loan”).	10.4
10.5	First Amendment to the $300M Term Loan, dated as of September 12, 2017, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.	10.5
10.6	Credit Agreement $200,000,000, dated as of September 12, 2017, by and among the company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.	10.6
10.7	Term Loan Facility $150,000,000, dated as of August 30, 2017, by and between the company and The Bank of Tokyo-Mitsubishi-UFJ, Ltd.	10.7
12	Computation of ratio of earnings to fixed charges	12
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended	31.1
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended	31.2
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350	32.1
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350	32.2
101.INS	XBRL Report Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

* Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish

supplementally a copy of any omitted attachment to the SEC upon request.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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, 2017

		/s/ Stanley J. Sutula III

		Stanley J. Sutula III
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		/s/ Joseph R. Catapano

		Joseph R. Catapano
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)