Pitney Bowes 2009 Annual Report Download - page 64

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
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carrying value, the second step of the goodwill impairment test is performed to measure the amount of impairment, if any. In the
second step, the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had just been
acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the
fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill.
The implied fair value of the reporting unit’s goodwill is then compared to the actual carrying value of goodwill. If the implied fair
value is less than the carrying value, an impairment loss is recognized for that excess. The fair values of our reporting units are
determined based on a combination of various techniques, including the present value of future cash flows, earnings multiples of
competitors and multiples from sales of like businesses.
Impairment Review for Intangible Assets and Other Long-Lived Assets
Intangible assets and other long-lived assets are reviewed for impairment on an annual basis or whenever events or changes in
circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related
estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is compared to the
carrying amount. If the sum of the expected cash flows is less than the carrying amount, we record an impairment charge. The
impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of
impaired asset is determined using probability weighted expected cash flow estimates, quoted market prices when available and
appraisals as appropriate.
Retirement Plans
In accordance with the retirement benefits accounting guidance, actual results that differ from our assumptions and estimates are
accumulated and amortized over the estimated future working life of the plan participants and will therefore affect pension expense
recognized in future periods. Net pension expense is based primarily on current service costs, interest costs and the returns on plan
assets. In accordance with this approach, differences between the actual and expected return on plan assets are recognized over a five-
year period. We recognize the overfunded or underfunded status of pension and other postretirement benefit plans on the balance
sheet. Gains and losses, prior service costs and credits, and any remaining transition amounts that have not yet been recognized in net
periodic benefit costs are recognized in accumulated other comprehensive income, net of tax, until they are amortized as a component
of net periodic benefit cost. We use a measurement date of December 31 for all of our retirement plans. See Note 19 to the
Consolidated Financial Statements for further details.
During 2009, the Board of Directors approved and adopted a resolution amending both U.S. pension plans, the Pitney Bowes Pension
Plan and the Pitney Bowes Pension Restoration Plan, to provide that benefit accruals as of December 31, 2014, will be determined and
frozen and no future benefit accruals under the plans will occur after that date. See Note 19 to the Consolidated Financial Statements
for further details.
Stock-based Compensation
We account for stock-based awards exchanged for employee service in accordance with the share-based payment accounting
guidance. We measure stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognize the
cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period. We estimate the fair
value of stock options using a Black-Scholes valuation model. The expense is recorded in costs; selling, general and administrative
expense; and research and development expense in the Consolidated Statements of Income based on the employees’ respective
functions.
We record deferred tax assets for awards that will result in deductions on our income tax returns, based on the amount of
compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between
the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported in our income tax return are
recorded in expense or in capital in excess of par value (if the tax deduction exceeds the deferred tax asset or to the extent that
previously recognized credits to paid-in-capital are still available if the tax deduction is less than the deferred tax asset).
Revenue Recognition
We derive our revenue from the sale of equipment, supplies, and software, rentals, financing, and support and business services.
Revenue is recognized when earned. More specifically, revenue related to our offerings is recognized as follows: