Pitney Bowes 2007 Annual Report Download - page 63

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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
45
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is upon shipment.
Standalone Software Sales and Integration Services
In accordance with SOP 97-2, we recognize revenue from standalone software licenses upon delivery of the product when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectibility is
probable. For software licenses that are included in a lease contract, we recognize revenue upon shipment of the software
unless the lease contract specifies that the license expires at the end of the lease or the price of the software is deemed not
fixed or determinable based on historical evidence of similar software leases. In these instances, revenue is recognized on a
straight-line basis over the term of the lease contract. We recognize revenue from software requiring integration services at
the point of customer acceptance. We recognize revenue related to off-the-shelf perpetual software licenses upon transfer of
title, which is upon shipment.
Rentals Revenue
We rent equipment to our customers, primarily postage meters and mailing equipment, under short-term rental agreements,
generally for periods of 3 months to 5 years. Rental revenue includes revenue from the subscription for digital meter
services. We invoice in advance for postage meter rentals. We defer the billed revenue and include it initially in advance
billings. Rental revenue is recognized on a straight-line basis over the term of the rental agreement. We defer certain initial
direct costs incurred in consummating a transaction and amortize these costs over the term of the agreement. The initial
direct costs are primarily personnel related costs. Other assets on our Consolidated Balance Sheets include $39.0 million and
$42.9 million of these deferred costs at December 31, 2007 and 2006, respectively. The Consolidated Statements of Income
include the related amortization expense of $19.1 million, $21.6 million and $24.8 million for the years ended December 31,
2007, 2006 and 2005, respectively.
Financing Revenue
We provide lease financing of our products primarily through sales-type leases. When a sales-type lease is consummated, we
record the gross finance receivable, unearned income and the estimated residual value of the leased equipment. Residual
values are estimated based upon the average expected proceeds to be received at the end of the lease term. We evaluate
recorded residual values at least on an annual basis or as circumstances warrant. A reduction in estimated residual values
could require an impairment charge as well as a reduction in future financing income.
Unearned income represents the excess of the gross finance receivable plus the estimated residual value over the sales price
of the equipment. We recognize the equipment sale at the inception of the lease. We recognize unearned income as
financing revenue using the interest method over the lease term.
We provide financing to our customers for the purchase of postage and related supplies. Financing revenue includes interest
which is earned over the term of the loan and related fees which are recognized as services are provided.
Support Services Revenue
We provide support services for our equipment through maintenance contracts. Revenue related to these agreements is
recognized on a straight-line basis over the term of the agreement, which typically is 1 to 5 years in length.
Business Services Revenue
Business services revenue includes revenue from management services, mail services, and marketing services. Management
services, which includes outsourcing of mailrooms, copy centers, or other document management functions, are typically 1 to
5 year contracts that contain a monthly service fee and in many cases a “click” charge based on the number of copies made,
machines in use, etc. Revenue is recognized over the term of the agreement, based on monthly service charges, with the
exception of the “click” charges, which are recognized as earned. Mail services include the preparation, sortation and
aggregation of mail to earn postal discounts and expedite delivery. Marketing services include direct mail marketing
services, and revenue is recognized over the term of the agreement as the services are provided.