Pitney Bowes 2007 Annual Report Download - page 34

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Mailstream Solutions EBIT increased 5% compared with the prior year. U.S. Mailing’ s EBIT grew 4% driven by revenue
growth and increased demand for higher margin supplies and financing products and services. International Mailing EBIT
margins were adversely impacted by investments to expand sales channels and transitional expenses related to the
consolidation and outsourcing of administrative functions. Production Mail EBIT increased 35% driven primarily by strong
demand for our Infinity meters. Software’ s EBIT increased 24% driven by revenue growth.
Mailstream Services EBIT grew 48% compared with the prior year. Management Services EBIT grew 21%, reflecting our
continued strategy to focus on higher value services while reducing administrative costs. Mail Services EBIT grew 117% as
a result of the ongoing successful integration of acquired sites and increased operating efficiencies. Marketing Services EBIT
grew 97% driven by revenue growth.
Revenue by source
(Dollars in millions) 2006 2005 % change
Equipment sales ............................................... $ 1,373 $ 1,251 10)%
Supplies............................................................. 340 297 14)%
Software............................................................ 202 174 16)%
Rentals .............................................................. 785 801 (2)%
Financing .......................................................... 725 664 9)%
Support services............................................... 717 698 3)%
Business services .............................................. 1,588 1,482 7)%
Total revenue.................................................... $ 5,730 $ 5,367 7)%
Equipment sales revenue increased 10% over the prior year due to growth in sales of networked digital mailing systems,
inserting equipment, and shipping solutions.
Supplies revenue increased 14% driven by customers’ migration to digital technology, price increases and the expansion
through acquisition of our print management business. At December 31, 2006, digital meters represented approximately 93%
of our 1.3 million U.S. meter base, up from 84% in 2005.
Software revenue increased 16% primarily due to higher sales of document composition, and address management products.
Rentals revenue decreased from the prior year due to the continued downsizing by customers to smaller machines, primarily
in the U.S.
Financing revenue increased 9% primarily due to growth in our worldwide equipment leasing volumes and higher demand
for our payment solutions.
Support services revenue increased 3% due to higher placements of equipment and shipping solutions and our acquisitions in
the print management space which contributed 1%.
Business services revenue increased 7% primarily due to growth in mail and marketing services.
Costs of revenue
(Dollars in millions) Percentage of Revenue
2006 2005 2006 2005
Cost of equipment sales ................................... $ 694 $ 625 50.5% 50.0%
Cost of supplies ................................................ $ 90 $ 73 26.5% 24.6%
Cost of software................................................ $ 43 $ 37 21.3% 21.3%
Cost of rentals .................................................. $ 171 $ 166 21.8% 20.7%
Cost of support services................................... $ 400 $ 386 55.8% 55.3%
Cost of business services.................................. $ 1,242 $ 1,196 78.2% 80.7%
Cost of equipment sales as a percentage of revenue increased to 50.5% in 2006 compared with 50.0% in the prior year,
primarily due to the increase in revenue mix of lower margin Production Mail and International Mailing sales.
Cost of supplies as a percentage of revenue increased to 26.5% in 2006 compared with 24.6% in the prior year, primarily due
to sales of toner, ink and other supplies which have lower margins than our traditional meter supplies.
Cost of software as a percentage of revenue in 2006 remained flat at 21.3% compared with the prior year.