Pitney Bowes 2010 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2010 Pitney Bowes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
45
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 upon shipment. We recognize revenue from the sale of equipment under
sales-type leases as equipment revenue at the inception of the lease. We do not typically 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 subject to capitalization. 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 the software revenue recognition
accounting guidance is not applicable.
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is generally upon shipment.
Standalone Software Sales and Integration Services
In accordance with software revenue accounting guidance, 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
generally 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 three months to five 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. Rental property and equipment, net on our Consolidated Balance Sheets include $36.7 million and $45.2 million of these
deferred costs at December 31, 2010 and 2009, respectively. The Consolidated Statements of Income include the related amortization
expense of $26.6 million, $25.1 million and $27.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Financing Revenue
We provide financing to our customers for the purchase of our products. Equipment sales are financed primarily through sales-type
leases. We also provide revolving lines of credit to our customers for the purchase of postage and related supplies. Financing revenue
includes interest which is earned over the term of the lease or loan and related fees which are recognized as services are provided.
When a sales-type lease is consummated, we record the finance receivable, unearned income and 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 result in an impairment charge as well as a reduction in future financing income. Unearned income represents the excess of the
finance receivable plus the estimated residual value over the sales price of the equipment. We recognize unearned income as
financing revenue using the interest method over the lease term.
Support Services Revenue
We provide support services for our equipment primarily through maintenance contracts. Revenue related to these agreements is
recognized on a straight-line basis over the term of the agreement, which typically is one to five years in length.