Document



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

Delaware
 
06-0495050
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3001 Summer Street, Stamford, Connecticut
 
06926
(Address of principal executive offices)
 
(Zip Code)
(203) 356-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
 
Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 of this chapter) 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 (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
 
As of July 25, 2018, 188,021,682 shares of common stock, par value $1 per share, of the registrant were outstanding.
 
 
 

1



PITNEY BOWES INC.
INDEX

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

2




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

 
 

 
 

 
 

Equipment sales
$
105,750

 
$
121,384

 
$
216,121

 
$
245,887

Supplies
55,457

 
58,639

 
115,450

 
119,694

Software
91,702

 
81,319

 
167,996

 
154,165

Rentals
91,809

 
95,447

 
186,435

 
194,754

Financing
76,671

 
83,653

 
156,774

 
169,398

Support services
72,171

 
72,068

 
145,194

 
147,273

Business services
367,876

 
217,903

 
754,414

 
442,422

Total revenue
861,436

 
730,413

 
1,742,384

 
1,473,593

Costs and expenses:
 

 
 

 
 

 
 

Cost of equipment sales
47,106

 
51,506

 
93,160

 
96,122

Cost of supplies
15,738

 
16,216

 
32,685

 
33,068

Cost of software
26,459

 
23,361

 
50,514

 
46,515

Cost of rentals
21,078

 
21,143

 
45,132

 
41,422

Financing interest expense
12,346

 
12,843

 
24,571

 
25,817

Cost of support services
39,609

 
41,772

 
82,736

 
83,421

Cost of business services
293,480

 
153,063

 
590,879

 
303,906

Selling, general and administrative
282,456

 
283,073

 
577,894

 
573,645

Research and development
31,073

 
30,328

 
61,395

 
59,282

Restructuring charges and asset impairments, net
11,503

 
25,990

 
12,407

 
27,639

Other components of net pension and postretirement cost
(2,499
)
 
1,267

 
(4,218
)
 
2,723

Interest expense, net
29,623

 
27,600

 
60,476

 
53,276

Total costs and expenses
807,972

 
688,162

 
1,627,631

 
1,346,836

Income from continuing operations before taxes
53,464

 
42,251

 
114,753

 
126,757

Provision for income taxes
6,458

 
790

 
22,721

 
27,872

Income from continuing operations
47,006

 
41,461

 
92,032

 
98,885

Income from discontinued operations, net of tax
1,208

 
7,440

 
9,695

 
15,149

Net income
$
48,214

 
$
48,901

 
$
101,727

 
$
114,034

Basic earnings per share (1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.22

 
$
0.49

 
$
0.53

Discontinued operations
0.01

 
0.04

 
0.05

 
0.08

Net income
$
0.26

 
$
0.26

 
$
0.54

 
$
0.61

Diluted earnings per share (1):
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.22

 
$
0.49

 
$
0.53

Discontinued operations
0.01

 
0.04

 
0.05

 
0.08

Net income
$
0.26

 
$
0.26

 
$
0.54

 
$
0.61

Dividends declared per share of common stock
$
0.1875

 
$
0.1875

 
$
0.375

 
$
0.375

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






See Notes to Condensed Consolidated Financial Statements

3

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



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
48,214

 
$
48,901

 
$
101,727

 
$
114,034

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(44,584
)
 
46,791

 
(29,073
)
 
66,706

Net unrealized (loss) gain on cash flow hedges, net of tax of $(78), $(120), $154 and $235, respectively
(235
)
 
(196
)
 
251

 
383

Net unrealized (loss) gain on investment securities, net of tax of $(447), $758, $(1,813) and $1,102, respectively
(1,305
)
 
1,291

 
(5,296
)
 
1,876

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

 
—

 
—

 
(1,482
)
Amortization of pension and postretirement costs, net of tax benefits of $2,564, $3,442, $5,368 and $6,956, respectively
7,868

 
6,624

 
16,040

 
13,335

Other comprehensive (loss) income, net of tax
(38,256
)
 
54,510

 
(18,078
)
 
80,818

Comprehensive income
$
9,958

 
$
103,411

 
$
83,649

 
$
194,852








































See Notes to Condensed Consolidated Financial Statements

4

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


 
June 30, 2018
 
December 31, 2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
689,870

 
$
1,009,021

Short-term investments
55,699

 
48,988

Accounts receivable (net of allowance of $13,515 and $14,786, respectively)
408,703

 
427,022

Short-term finance receivables (net of allowance of $14,924 and $12,187, respectively)
812,055

 
828,003

Inventories
49,051

 
40,769

Current income taxes
39,100

 
58,439

Other current assets and prepayments
102,104

 
74,589

Assets of discontinued operations
313,356

 
334,848

Total current assets
2,469,938

 
2,821,679

Property, plant and equipment, net
398,909

 
373,503

Rental property and equipment, net
180,585

 
183,956

Long-term finance receivables (net of allowance of $6,420 and $6,446 respectively)
597,302

 
652,087

Goodwill
1,767,848

 
1,774,645

Intangible assets, net
249,125

 
272,186

Noncurrent income taxes
54,099

 
59,909

Other assets
528,945

 
540,750

Total assets
$
6,246,751

 
$
6,678,715

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
1,349,344

 
$
1,450,149

Current income taxes
5,686

 
8,823

Current portion of long-term debt
334,999

 
271,057

Advance billings
237,709

 
257,766

Liabilities of discontinued operations
84,219

 
72,808

Total current liabilities
2,011,957

 
2,060,603

Deferred taxes on income
234,190

 
234,643

Tax uncertainties and other income tax liabilities
105,803

 
116,551

Long-term debt
3,237,810

 
3,559,278

Other noncurrent liabilities
461,074

 
519,079

Total liabilities
6,050,834

 
6,490,154

 
 
 
 
Commitments and contingencies (See Note 14)


 


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

 
1

Cumulative preference stock, no par value, $2.12 convertible
415

 
441

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

 
323,338

Additional paid-in capital
122,732

 
138,367

Retained earnings
5,248,991

 
5,229,584

Accumulated other comprehensive loss
(810,251
)
 
(792,173
)
Treasury stock, at cost (136,104,630 and 136,734,174 shares, respectively)
(4,689,309
)
 
(4,710,997
)
Total stockholders’ equity
195,917

 
188,561

Total liabilities and stockholders’ equity
$
6,246,751

 
$
6,678,715



See Notes to Condensed Consolidated Financial Statements

5

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


 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
101,727

 
$
114,034

Income from discontinued operations
(9,695
)
 
(15,149
)
Restructuring payments
(27,528
)
 
(17,651
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
101,862

 
86,710

Stock-based compensation
9,153

 
12,531

Restructuring charges and asset impairments, net
12,407

 
27,639

Gain on sale of technology
—

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

 
 

Decrease in accounts receivable
14,323

 
58,263

Decrease in finance receivables
60,563

 
76,915

Increase in inventories
(6,706
)
 
(3,762
)
Increase in other current assets and prepayments
(33,041
)
 
(18,728
)
Decrease in accounts payable and accrued liabilities
(47,118
)
 
(69,146
)
Increase (decrease) in current and non-current income taxes
4,570

 
(40,856
)
Decrease in advance billings
(22,643
)
 
(22,972
)
Other, net
(24,612
)
 
(11,192
)
   Net cash provided by operating activities - continuing operations
133,262

 
170,551

   Net cash provided by operating activities - discontinued operations
41,772

 
14,096

   Net cash provided by operating activities
175,034

 
184,647

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale securities
(48,303
)
 
(70,405
)
Proceeds from sales/maturities of available-for-sale securities
36,157

 
61,913

Net activity from short-term and other investments
10,959

 
(131,303
)
Capital expenditures
(100,022
)
 
(75,844
)
Acquisition of businesses, net of cash acquired
(2,407
)
 
(7,889
)
Change in reserve account deposits
5,959

 
2,514

Other investing activities
(2,500
)
 
(3,000
)
   Net cash used in investing activities - continuing operations
(100,157
)
 
(224,014
)
   Net cash used in investing activities - discontinued operations
(1,169
)
 
(777
)
   Net cash used in investing activities
(101,326
)
 
(224,791
)
Cash flows from financing activities:
 

 
 

Proceeds from the issuance of long-term debt
—

 
395,772

Principal payments of long-term debt
(260,099
)
 
(229,323
)
Dividends paid to stockholders
(70,113
)
 
(69,527
)
Other financing activities
(49,606
)
 
(5,551
)
   Net cash (used in) provided by financing activities
(379,818
)
 
91,371

Effect of exchange rate changes on cash and cash equivalents
(13,041
)
 
24,815

(Decrease) increase in cash and cash equivalents
(319,151
)
 
76,042

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

 
764,522

Cash and cash equivalents at end of period
$
689,870

 
$
840,564

 
 
 
 
Cash interest paid
$
89,339

 
$
82,405

Cash income tax payments, net of refunds
$
19,244

 
$
78,649




See Notes to Condensed Consolidated Financial Statements

6

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


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



7

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

New Accounting Pronouncements - Not Yet Adopted
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI). The ASU permits a reclassification of the disproportionate income tax effects of the 2017 Tax Cuts and Jobs Act (the Act) on items within AOCI to retained earnings. The ASU also requires certain new disclosures, some of which are applicable for all companies. The standard is effective beginning January 1, 2019; however, 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 2017-08, 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 as of the beginning of the period of adoption. The standard is effective beginning January 1, 2019; however, early adoption is permitted. 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 beginning January 1, 2019. We are currently evaluating the impact this standard will have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model, which requires companies to measure expected credit losses for all financial instruments held at the reporting date based on historical experience, current conditions and reasonably supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective beginning January 1, 2020. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This standard, among other things, requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability and provide enhanced disclosures. The standard is effective beginning January 1, 2019. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures.
2. Revenue from Contracts with Customers
Adoption of ASC 606
We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) using the modified retrospective approach.  Prior period information was not restated and continues to be reported under the accounting standards in effect for those periods. We recognized a cumulative effect adjustment from the adoption of this standard that reduced opening retained earnings by $9 million. Significant components of the cumulative effect adjustment include:
•
The write-off of previously capitalized deferred marketing costs that did not meet the criteria for capitalization under ASC 606.
•
The capitalization of certain costs to obtain a contract, primarily sales commissions, that are permitted to be capitalized under ASC 606.
•
The establishment of deferred revenue related to the early renewal of software and data license contracts with terms beginning in 2018, as ASC 606 requires revenue recognition at the commencement of the license term.
•
The write-off of deferred revenues and related costs for certain software licenses bundled with a lease that are recognized at time of delivery under ASC 606.
•
The write-off of advance billings related to certain software data products that are recognized upon delivery under ASC 606.








8

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


The impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:
 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
 
As reported
 
Prior guidance
 
Total increase (decrease)
 
As reported
 
Prior guidance
 
Total increase (decrease)
Income Statement
 
 
 
 
 
 
 
 
 
 
 
Total revenue
$
861,436

 
$
852,781

 
$
8,655

 
$
1,742,384

 
$
1,724,060

 
$
18,324

Equipment sales
$
105,750

 
$
106,301

 
$
(551
)
 
$
216,121

 
$
217,533

 
$
(1,412
)
Software
$
91,702

 
$
82,054

 
$
9,648

 
$
167,996

 
$
147,329

 
$
20,667

Business services
$
367,876

 
$
368,318

 
$
(442
)
 
$
754,414

 
$
755,345

 
$
(931
)
 
 
 
 
 
 
 
 
 
 
 
 
Total costs and expenses
$
807,972

 
$
810,342

 
$
(2,370
)
 
$
1,627,631

 
$
1,629,841

 
$
(2,210
)
Cost of equipment sales
$
47,106

 
$
47,035

 
$
71

 
$
93,160

 
$
93,219

 
$
(59
)
Cost of software
$
26,459

 
$
25,769

 
$
690

 
$
50,514

 
$
48,542

 
$
1,972

Selling, general and administrative
$
282,456

 
$
285,587

 
$
(3,131
)
 
$
577,894

 
$
582,017

 
$
(4,123
)
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before taxes
$
53,464

 
$
42,439

 
$
11,025

 
$
114,753

 
$
94,221

 
$
20,532

Provision for income taxes
$
6,458

 
$
3,640

 
$
2,818

 
$
22,721

 
$
17,434

 
$
5,287

Net income from continuing operations
$
47,006

 
$
38,799

 
$
8,207

 
$
92,032

 
$
76,787

 
$
15,245

 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share attributable to common stockholders - continuing operations
$
0.25

 
$
0.21

 
$
0.04

 
$
0.49

 
$
0.41

 
$
0.08

Diluted earnings per share attributable to common stockholders - continuing operations
$
0.25

 
$
0.22

 
$
0.03

 
$
0.49

 
$
0.41

 
$
0.08

The most significant change to the Consolidated Statements of Income for the three and six months ended June 30, 2018, was due to higher software revenue of $10 million and $21 million, respectively, under ASC 606 primarily as a result of the change in timing of revenue recognition related to certain software licenses and data subscriptions. These higher software revenues also resulted in higher income from continuing operations before taxes of $9 million and $19 million for the three and six months ended June 30, 2018, respectively.

9

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

 
June 30, 2018
 
As reported
 
Prior guidance
 
Total increase (decrease)
Balance Sheet
 
 
 
 
 
Total Assets
$
6,246,751

 
$
6,250,943

 
$
(4,192
)
Accounts receivable
$
408,703

 
$
407,204

 
$
1,499

Current income taxes
$
39,100

 
$
39,298

 
$
(198
)
Other current assets and prepayments
$
102,104

 
$
102,760

 
$
(656
)
Assets of discontinued operations
$
313,356

 
$
312,922

 
$
434

Noncurrent income taxes
$
54,099

 
$
54,429

 
$
(330
)
Other assets
$
528,945

 
$
533,886

 
$
(4,941
)
 
 
 
 
 
 
Total Liabilities
$
6,050,834

 
$
6,062,221

 
$
(11,387
)
Accounts payable and accrued liabilities
$
1,349,344

 
$
1,347,837

 
$
1,507

Current income taxes
$
5,686

 
$
43

 
$
5,643

Advance billings
$
237,709

 
$
250,948

 
$
(13,239
)
Liabilities of discontinued operations
$
84,219

 
$
84,132

 
$
87

Deferred taxes on income
$
234,190

 
$
238,539

 
$
(4,349
)
Other noncurrent liabilities
$
461,074

 
$
462,110

 
$
(1,036
)
 
 
 
 
 
 
Total Stockholders' equity
$
195,917

 
$
188,722

 
$
7,195

Retained earnings
$
5,248,991

 
$
5,241,824

 
$
7,167

Accumulated other comprehensive loss
$
(810,251
)
 
$
(810,279
)
 
$
28

The most significant changes to the Consolidated Balance Sheet at June 30, 2018 were:
•
Higher accounts receivable, net and accounts payable and accrued liabilities due to reserves for refunds to customers that were recorded in accounts receivable, net under previous guidance.
•
Lower other assets primarily due to the write-off of deferred marketing costs at January 1, 2018, offset by the capitalization of certain costs to obtain a contract, including sales commissions and other contract costs.
•
Lower advance billings and other noncurrent liabilities due to the write-off of deferred revenue from software licenses bundled with leases and data products, which are now recognized at time of delivery rather than ratably under previous guidance.
Cash Flow Statement
The adoption of ASC 606 had no impact on our Consolidated Statements of Cash Flows.
Significant Accounting Policies
The most significant impact of ASC 606 on our consolidated financial statements will be in the timing of recognizing certain revenues and costs to obtain a contract related to software and software related products. We will continue to recognize revenue from equipment sales under sales-type leases and related financing income and rental of postage meters and mailing equipment in accordance with ASC 840, Leases.
We applied the following practical expedients and policy elections when adopting ASC 606:
•
Costs incurred to obtain a contract with a customer are expensed if the amortization period is one year or less.
•
With the exception of certain services contracts, all taxes assessed by government authorities, such as sales and use taxes, value added taxes and excise taxes, are excluded from the transaction price.
•
The transaction price is not adjusted for a significant financing component when a performance obligation is satisfied within one year.
•
Revenue is recognized based on the amount billable to the customer when that amount corresponds to the value transferred to the customer.
•
Shipping and handling activities are accounted for as a fulfillment activity rather than a separate performance obligation.
•
We reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price.

10

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

Significant changes to accounting policies disclosed in our 2017 Annual Report due to the adoption of ASC 606 are discussed below.
Software Sales and Integration Services
Our software products include software and data licenses that are either “right to use” or “right to access”. A majority of our software and data license products are considered right to use and are generally distinct from other promised goods and services within a contract. Revenue for right to use software and data licenses is recognized at a point in time when control has transferred to the customer, which is generally upon delivery or acceptance for those licenses requiring significant integration or customization. Revenue from renewals are recognized at the beginning of the license term.
Right to access licenses generally bundle certain software licenses, data licenses and data updates that are highly interdependent and the updates are critical to the continued use of the license by the customer. Revenue for these arrangements are deferred and recognized ratably over the license term.
We generally invoice customers upon delivery of our software and data licenses. Data contracts that include both data and data updates are invoiced in one or more equal installments. A contract asset is recognized on data licenses for which consideration will be received in future periods.
We allocate the transaction price based on relative standalone selling prices, which are generally based on observable selling prices in standalone transactions for our data products, maintenance and professional services. We estimate the standalone selling prices for our software licenses using the residual approach, as the selling prices are highly variable and when observable standalone selling prices exist for the other goods and services in the contract.
We often bundle software licenses with lease contracts. Revenue is recognized upon delivery of those software licenses considered distinct and functional in nature.
Costs to Obtain a Contract and Marketing Costs
Certain incremental costs to obtain a contract are capitalized if we expect the benefit of those costs to be realized over a period greater than one year. These costs primarily relate to sales commission on multi-year equipment and software support service contracts. These costs are amortized in a manner consistent with the timing of the related revenue over the contract performance period or longer, if renewals are expected and the renewal commission is not commensurate with the initial commission. Amortization expense for the three and six months ended June 30, 2018 was $3 million and $7 million, respectively, and is included in selling, general and administrative expenses. Unamortized contract costs at June 30, 2018 were $26 million and are included in other assets.
Certain marketing costs associated with the acquisition of new customers are expensed as incurred since these costs do not meet the criteria of a cost to obtain a contract.












11

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

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

$
—

$
15,303

$
11,654

$
—

$
26,957

$
78,793

$
105,750

Supplies
—

—

36,271

19,186

—

55,457

—

55,457

Software
—

—

—

—

91,702

91,702

—

91,702

Rentals
—

—

5,121

2,139

—

7,260

84,549

91,809

Financing
—

—

15,714

2,866

—

18,580

58,091

76,671

Support services
—

—

50,902

21,269

—

72,171


72,171

Business services
239,100

122,730

4,453

1,593

—

367,876

—

367,876

 
$
239,100

$
122,730

$
127,764

$
58,707

$
91,702

$
640,003

$
221,433

$
861,436

 
 
 
 
 
 
 
 
 
Revenue from sales and services (ASC 606)
$
239,100

$
122,730

$
127,764

$
58,707

$
91,702

$
640,003

$
—

$
640,003

Revenue from leasing transactions and financing
—

—

186,782

34,651

—

—

221,433

221,433

     Total revenue
$
239,100

$
122,730

$
314,546

$
93,358

$
91,702

$
640,003

$
221,433

$
861,436

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

$
—

$
51,574

$
30,840

$
38,963

$
121,377

 
 
Products/services transferred over time
239,100

122,730

76,190

27,867

52,739

518,626

 
 
      Total revenue
$
239,100

$
122,730

$
127,764

$
58,707

$
91,702

$
640,003

 
 

12

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

 
Six months ended June 30, 2018
 
Global Ecommerce
Presort Services
North America Mailing
International Mailing
Software Solutions
Total Revenue from sales and services (ASC 606)
Revenue from leasing transactions and financing
Total Consolidated Revenue
Equipment sales
$
—

$
—

$
32,449

$
25,018

$
—

$
57,467

$
158,654

$
216,121

Supplies
—

—

75,223

40,227

—

115,450

—

115,450

Software
—

—

—

—

167,996

167,996

—

167,996

Rentals
—

—

10,832

4,305

—

15,137

171,298

186,435

Financing
—

—

32,290

5,842

—

38,132

118,642

156,774

Support services
—

—

101,647

43,547

—

145,194

—

145,194

Business services
485,690

257,188

8,255

3,281

—

754,414

—

754,414

 
$
485,690

$
257,188

$
260,696

$
122,220

$
167,996

$
1,293,790

$
448,594

$
1,742,384

 
 
 
 
 
 
 
 
 
Revenue from sales and services (ASC 606)
$
485,690

$
257,188

$
260,696

$
122,220

$
167,996

$
1,293,790

$
—

$
1,293,790

Revenue from leasing transactions and financing
—

—

379,419

69,175

—

—

448,594

448,594

     Total revenue
$
485,690

$
257,188

$
640,115

$
191,395

$
167,996

$
1,293,790

$
448,594

$
1,742,384

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

$
—

$
107,672

$
65,245

$
65,020

$
237,937

 
 
Products/services transferred over time
485,690

257,188

153,024

56,975

102,976

1,055,853

 
 
      Total revenue
$
485,690

$
257,188

$
260,696

$
122,220

$
167,996

$
1,293,790

 
 
Our performance obligations are as follows:
Equipment sales and supplies: Our performance obligations generally include the sale of mailing equipment, excluding sales-type leases, and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.
Software: Our performance obligations include the sale of software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.
Rentals: Our performance obligations include the fees associated with postage refills for meters.
Financing: Our performance obligations for financing revenue include services under our equipment replacement program. The fees received for this program are recognized ratably over the contract term.
Support services: Our performance obligations include providing maintenance and professional services for our equipment. Maintenance contract revenue is recognized ratably over the contract period and revenue for professional services is recognized when services are complete.
Business services: Our performance obligations include mail processing services and ecommerce solutions. Revenue is recognized as the services are provided as these services represent a series of distinct services that are similar and the revenue is recognized as the services are provided.
Revenue from leasing transactions and financing include revenue from sales-type leases, finance income and late fees that are not accounted for under ASC 606.


13

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

Contract Assets and Advance Billings from Contracts with Customers
 
June 30, 2018
 
January 1, 2018 (1)
 
Total increase (decrease)
Contracts assets, current
$
8,213

 
$
5,075

 
$
3,138

Contracts assets, noncurrent
$
4,006

 
$
648

 
$
3,358

Advance billings, current
$
186,778

 
$
209,098

 
$
(22,320
)
Advance billings, noncurrent
$
14,658

 
$
17,765

 
$
(3,107
)
(1) Balances adjusted for the cumulative effect of accounting change
Contract assets are recorded in other current assets and prepayments and other assets, respectively. Advance billings are recorded in advance billings and other noncurrent liabilities.
Contract Assets
We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration is conditional on the satisfaction of another performance obligation within a contract. The net increase is driven by revenue recognized on data contracts during the second quarter, for which consideration will be invoices in future periods.
Advance Billings from Contracts with Customers
Advance billings are recorded when cash payments are due in advance of our performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term.
The net decrease in advance billings at June 30, 2018 is primarily driven by revenues recognized during the period, which includes $128 million of advance billings at the beginning of the period, partially offset by advance billings in the quarter.
Future Performance Obligations
The transaction prices allocated to future performance obligations will be recognized as follows:
 
Total
 
Remainder of 2018
 
2019
 
2020-2025
North America Mailing(1)
$
233,955

 
$
57,793

 
$
89,529

 
$
86,633

International Mailing(1)
117,562

 
29,432

 
36,415

 
51,715

Software Solutions(2)
102,383

 
41,674

 
36,120

 
24,589

Total
$
453,900

 
$
128,899

 
$
162,064

 
$
162,937

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

14

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

3. Segment Information
In January 2018, we revised our business reporting groups to reflect how we manage these groups and clients served in each market.  The Commerce Services group was formed and includes our Global Ecommerce and Presort Services segments. We have classified the operating results of the Production Mail Business as discontinued operations and as such, segment operating results for prior years have been recast to conform to this presentation. The principal products and services of each of our reportable segments are as follows:
Commerce Services:
Global Ecommerce: Includes the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns.
Presort Services: Includes revenue and related expenses from sortation services which allow clients to qualify large mail volumes for postal worksharing discounts.
Small & Medium Business Solutions:
North America Mailing: Includes the revenue and related expenses from mailing and office 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 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.
Software Solutions:
Includes the worldwide revenue and related expenses from the licensing of customer engagement, customer information, and location intelligence software and data solutions and related support services.
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, which are not allocated to a particular business segment. Management uses segment EBIT to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the 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. The following tables provide information about our reportable segments.

15

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

Revenue and EBIT by business segment is presented below:
 
Revenue
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Global Ecommerce
$
239,100

 
$
94,506

 
$
485,690

 
$
182,658

Presort Services
122,730

 
118,452

 
257,188

 
251,129

Commerce Services
361,830

 
212,958

 
742,878

 
433,787

North America Mailing
314,546

 
340,949

 
640,115

 
696,902

International Mailing
93,358

 
95,425

 
191,395

 
188,624

Small & Medium Business Solutions
407,904

 
436,374

 
831,510

 
885,526

Software Solutions
91,702

 
81,081

 
167,996

 
154,280

Total revenue
$
861,436

 
$
730,413

 
$
1,742,384


$
1,473,593


 
EBIT
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Global Ecommerce
$
(5,993
)
 
$
(4,030
)
 
$
(13,704
)
 
$
(8,300
)
Presort Services
12,565

 
19,270

 
39,591

 
49,987

Commerce Services
6,572

 
15,240

 
25,887

 
41,687

North America Mailing
115,193

 
120,797

 
234,763

 
262,041

International Mailing
13,215

 
14,020

 
29,246

 
27,430

Small & Medium Business Solutions
128,408

 
134,817

 
264,009

 
289,471

Software Solutions
18,433

 
5,091

 
20,925

 
6,397

Total segment EBIT
153,413

 
155,148

 
310,821

 
337,555

Reconciling items:
 
 
 
 
 

 
 

Unallocated corporate expenses
(46,477
)
 
(52,549
)
 
(97,561
)
 
(110,151
)
Interest, net
(41,969
)
 
(40,443
)
 
(85,047
)
 
(79,093
)
Restructuring charges and asset impairments, net
(11,503
)
 
(25,990
)
 
(12,407
)
 
(27,639
)
Gain from the sale of technology
—

 
6,085

 
—

 
6,085

Transaction costs
—

 
—

 
(1,053
)
 
—

Income from continuing operations before income taxes
53,464

 
42,251

 
114,753

 
126,757

Provision for income taxes
6,458

 
790

 
22,721

 
27,872

Income from discontinued operations, net of tax
1,208

 
7,440

 
9,695

 
15,149

Net income
$
48,214

 
$
48,901

 
$
101,727

 
$
114,034



16

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

4. Discontinued Operations
On July 2, 2018, we completed the sale of the Production Mail Business, other than in certain non-U.S. jurisdictions, to an affiliate of Platinum Equity, LLC, a leading global private equity firm. Cash proceeds received at the closing were $316 million. We expect to close the other non-U.S. jurisdiction sales in the third and fourth quarters, subject to local regulatory requirements. On August 1, 2018, following the completion of certain local requirements in a non-U.S. jurisdiction, we received an additional $24 million.
Net proceeds from the sale after the payment of closing costs, transaction fees and taxes are estimated to be approximately $270 million.
In connection with the sale of the Production Mail Business, we entered into Transition Services Agreements (TSAs) with the purchaser whereby we will perform certain support functions for periods of a year or less. None of these TSAs will have a material effect on our financial performance.
Selected financial information of the Production Mail Business included in discontinued operations is as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
89,201

 
$
90,958

 
$
191,435

 
$
184,418

 
 
 
 
 
 
 
 
Earnings from discontinued operations
$
8,278

 
$
11,602

 
$
21,620

 
$
23,645

Transaction costs
(7,238
)
 
—

 
(8,777
)
 
—

Income from discontinued operations before taxes
1,040

 
11,602

 
12,843

 
23,645

Tax (benefit) provision
(168
)
 
4,162

 
3,148

 
8,496

Income from discontinued operations, net of tax
$
1,208

 
$
7,440

 
$
9,695

 
$
15,149


The assets and liabilities of the Production Mail Business have been classified as assets of discontinued operations and liabilities of discontinued operations on the Condensed Consolidated Balance Sheets. The major categories of assets and liabilities of the Production Mail Business included in assets of discontinued operations and liabilities of discontinued operations are as follows:
 
June 30, 2018
 
December 31, 2017
Accounts receivable, net
$
69,924

 
$
97,402

Inventories
54,808

 
48,910

Other current assets and prepayments
6,653

 
3,365

Property, plant and equipment, net
3,185

 
5,541

Rental property and equipment, net
1,041

 
1,786

Goodwill
176,501

 
177,799

Other assets
1,244

 
45

Total assets of discontinued operations
$
313,356

 
$
334,848

 
 
 
 
Accounts payable and accrued liabilities
$
34,244

 
$
36,592

Advance billings
44,694

 
30,607

Other noncurrent liabilities
5,281

 
5,609

Total liabilities of discontinued operations
$
84,219

 
$
72,808



17

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

5. Earnings per Share
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 

 
 

 
 

 
 

Net income from continuing operations
$
47,006

 
$
41,461

 
$
92,032

 
$
98,885

Income from discontinued operations, net of tax
1,208

 
7,440

 
9,695

 
15,149

Net income (numerator for diluted EPS)
48,214

 
48,901

 
101,727

 
114,034

Less: Preference stock dividend
8

 
10

 
16

 
19

Income attributable to common stockholders (numerator for basic EPS)
$
48,206

 
$
48,891

 
$
101,711

 
$
114,015

Denominator:
 

 
 

 
 

 
 

Weighted-average shares used in basic EPS
187,180

 
186,333

 
187,004

 
186,136

Effect of dilutive shares
934

 
1,044

 
1,053

 
809

Weighted-average shares used in diluted EPS
188,114

 
187,377

 
188,057

 
186,945

Basic earnings per share:
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.22

 
$
0.49

 
$
0.53

Discontinued operations
0.01

 
0.04

 
0.05

 
0.08

Net Income
$
0.26

 
$
0.26

 
$
0.54

 
$
0.61

Diluted earnings per share:
 

 
 

 
 

 
 

Continuing operations
$
0.25

 
$
0.22

 
$
0.49

 
$
0.53

Discontinued operations
0.01

 
0.04

 
0.05

 
0.08

Net Income
$
0.26

 
$
0.26

 
$
0.54

 
$
0.61

 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
12,453

 
9,916

 
11,959

 
11,379


6. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the last-in, first-out (LIFO) basis for most U.S. inventories and the first-in, first-out (FIFO) basis for most non-U.S. inventories. Inventories at June 30, 2018 and December 31, 2017 consisted of the following:
 
June 30,
2018
 
December 31,
2017
Raw materials
$
13,502

 
$
11,767

Supplies and service parts
21,822

 
21,475

Finished products
19,461

 
13,261

Inventory at FIFO cost
54,785

 
46,503

Excess of FIFO cost over LIFO cost
(5,734
)
 
(5,734
)
Total inventory, net
$
49,051

 
$
40,769


18

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

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

 
 

 
 

 
 

 
 

 
 

Gross finance receivables
$
1,004,241

 
$
273,118

 
$
1,277,359

 
$
1,023,549

 
$
292,059

 
$
1,315,608

Unguaranteed residual values
62,358

 
13,391

 
75,749

 
74,093

 
14,202

 
88,295

Unearned income
(209,870
)
 
(58,527
)
 
(268,397
)
 
(216,720
)
 
(62,325
)
 
(279,045
)
Allowance for credit losses
(11,129
)
 
(2,406
)
 
(13,535
)
 
(7,721
)
 
(2,794
)
 
(10,515
)
Net investment in sales-type lease receivables
845,600

 
225,576

 
1,071,176

 
873,201

 
241,142

 
1,114,343

Loan receivables
 

 
 

 
 

 
 

 
 

 
 

Loan receivables
313,049

 
32,941

 
345,990

 
339,373

 
34,492

 
373,865

Allowance for credit losses
(6,869
)
 
(940
)
 
(7,809
)
 
(7,098
)
 
(1,020
)
 
(8,118
)
Net investment in loan receivables
306,180

 
32,001

 
338,181

 
332,275

 
33,472

 
365,747

Net investment in finance receivables
$
1,151,780

 
$
257,577

 
$
1,409,357

 
$
1,205,476

 
$
274,614

 
$
1,480,090


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














19

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

Activity in the allowance for credit losses for the six months ended June 30, 2018 and 2017 was as follows:
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
Balance at January 1, 2018
$
7,721

 
$
2,794

 
$
7,098

 
$
1,020

 
$
18,633

Amounts charged to expense
5,946

 
545

 
7,008

 
250

 
13,749

Write-offs and other
(2,538
)
 
(933
)
 
(7,237
)
 
(330
)
 
(11,038
)
Balance at June 30, 2018
$
11,129

 
$
2,406

 
$
6,869

 
$
940

 
$
21,344

 
 
 
 
 
 
 
 
 
 
 
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
5,182

 
466

 
2,891

 
450

 
8,989

Write-offs and other
(4,973
)
 
(617
)
 
(3,905
)
 
(382
)
 
(9,877
)
Balance at June 30, 2017
$
8,456

 
$
2,496

 
$
7,503

 
$
1,157

 
$
19,612


Aging of Receivables
The aging of gross finance receivables at June 30, 2018 and December 31, 2017 was as follows:
 
June 30, 2018
 
Sales-type Lease Receivables
 
Loan Receivables
 
 
 
North
America
 
International
 
North
America
 
International
 
Total
1 - 90 days
$
961,356

 
$
266,146

 
$
305,116

 
$
32,706

 
$
1,565,324

> 90 days
42,885

 
6,972

 
7,933

 
235

 
58,025

Total
$
1,004,241

 
$
273,118

 
$
313,049

 
$
32,941

 
$
1,623,349

Past due amounts > 90 days
 

 
 

 
 

 
 

 
 

Still accruing interest
$
6,297

 
$
1,672

 
$
—

 
$
—

 
$
7,969

Not accruing interest
36,588

 
5,300

 
7,933

 
235

 
50,056

Total
$
42,885

 
$
6,972

 
$
7,933

 
$