Pitney Bowes 2008 Annual Report Download - page 37

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18
Financing revenue increased 9% from the prior year primarily due to higher revenue from payment solutions and equipment leases.
Foreign currency translation accounted for 2% of this growth.
Support services revenue increased 6% from the prior year due primarily to acquisitions, which contributed 2%, and foreign currency
translation, which contributed 3% to this growth.
Business services revenue increased 11% over the prior year. This increase was driven by strong growth in our presort and cross-
border mail services. Acquisitions contributed 5% and foreign currency translation contributed 1% to this growth.
Costs of revenue
(Dollars in millions) Percentage of Revenue
2007 2006 2007 2006
Cost of equipment sales $697 $694 52.2% 50.5%
Cost of supplies $107 $90 27.1% 26.5%
Cost of software $82 $43 23.7% 21.3%
Cost of rentals $171 $171 23.2% 21.8%
Cost of support services $433 $400 56.9% 55.8%
Cost of business services $1,381 $1,242 78.2% 78.2%
Cost of equipment sales as a percentage of revenue increased to 52.2% in 2007 compared with 50.5% in the prior year, primarily due
to the decrease in mix of higher margin equipment sales in the U.S.
Cost of supplies as a percentage of revenue increased to 27.1% in 2007 compared with 26.5% in the prior year, primarily due to
increased sales of private label toner, ink and other supplies which have lower margins than our meter-related supplies.
Cost of software as a percentage of revenue increased to 23.7% in 2007 compared with 21.3% in the prior year, primarily due to the
acquisition of MapInfo.
Cost of rentals as a percentage of revenue increased to 23.2% in 2007 compared with 21.8% in the prior year, primarily due to higher
depreciation costs from placements of new digital meters.
Cost of support services as a percentage of revenue increased to 56.9% in 2007 compared with 55.8% in the prior year, primarily due
to an increase in mix of production mail and international mailing revenue.
Cost of business services as a percentage of revenue remained flat at 78.2%. Improving margins in our presort and cross-border
services were offset by lower margins in our legal solutions business.
Selling, general and administrative expenses
(Dollars in millions) Percentage of Revenue
2007 2006 2007 2006
$ 1,907 $ 1,764 31.1% 30.8%
Selling, general and administrative expenses, as a percentage of total revenue, increased to 31.1% compared with 30.8% in the prior
year. This increase was due to the impact of acquisitions which offset the benefits from productivity initiatives.
Research and development expenses
(Dollars in millions) 2007 2006 % change
$ 186 $ 165 12 %
Research and development expenses increased 12% over the prior year, primarily due to the acquisition of MapInfo. Our investment
in research and development reflects higher expenses for software development and our continued focus on developing new
technologies and enhancing features for all of our different products.