Pitney Bowes 2009 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)
48
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 and revenue is recognized as the services are provided. Marketing services include direct mail marketing services,
and revenue is recognized over the term of the agreement as the services are provided.
Multiple Element Arrangements
Certain of our transactions are consummated at the same time. The most common form of these transactions involves the sale or lease
of equipment, a meter rental and/or an equipment maintenance agreement. In these cases, revenue is recognized for each of the
elements based on their relative fair values in accordance with the revenue recognition accounting guidance. Fair values of any meter
rental or equipment maintenance agreement are determined by reference to the prices charged in standalone and renewal transactions.
Fair value of equipment is determined based upon the present value of the minimum lease payments.
Shipping and Handling
We include costs related to shipping and handling in cost of revenues for all periods presented.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet, and retail marketing costs, associated with the acquisition of new customers
in accordance with the advertising costs accounting guidance. These costs are amortized over the expected revenue stream ranging
from 5 to 9 years. We review individual marketing programs for impairment on a periodic basis or as circumstances warrant.
Other assets on our Consolidated Balance Sheets at December 31, 2009 and 2008 include $119.5 million and $130.8 million,
respectively, of deferred marketing costs. The Consolidated Statements of Income include the related amortization expense of $43.5
million, $43.1 million and $43.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.
Restructuring Charges
We apply the provisions of the accounting guidance for costs associated with exit or disposal activities to account for one-time benefit
arrangements and exit or disposal activities. It requires that a liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred. We account for ongoing benefit arrangements in accordance with the nonretirement
postemployment benefits accounting guidance which requires that a liability be recognized when the costs are probable and
reasonably estimable. See Note 14 to the Consolidated Financial Statements.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it
is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax
assets depends on the generation of future taxable income during the period in which related temporary differences become
deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the year, whereas diluted
earnings per share also gives effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential
common shares include preference stock, preferred stock, stock option and purchase plan shares.