Pitney Bowes 2008 Annual Report Download - page 66

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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
47
In accordance with GAAP, the Company recognizes revenue from these sources as follows:
Sales Revenue
Sales of Equipment
We sell equipment to our customers, as well as to distributors and dealers (re-sellers) throughout the world. We recognize revenue
from these sales upon the transfer of title, which is generally at the point of shipment. We do not offer any rights of return or stock
balancing rights.
Our sales revenue from customized equipment, mail creation equipment and shipping products is generally recognized when installed.
Embedded Software Sales
We sell equipment with embedded software to our customers. The embedded software is not sold separately, it is not a significant
focus of the marketing effort and we do not provide post-contract customer support specific to the software or incur significant costs
that are within the scope of SFAS No. 86. Additionally, the functionality that the software provides is marketed as part of the overall
product. The software embedded in the equipment is incidental to the equipment as a whole such that SOP No. 97-2, Software
Revenue Recognition, is not applicable. Sales of these products are recognized in accordance with either SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, or SFAS No. 13, Accounting for Leases, for sales-type leases.
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 No. 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 $47.2 million and $57.1 million of these deferred costs at
December 31, 2008 and 2007, respectively. The Consolidated Statements of Income include the related amortization expense of $24.9
million, $23.7 million and $22.3 million for the years ended December 31, 2008, 2007 and 2006, 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.