Pitney Bowes 2011 Annual Report Download - page 36

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18
actions to align costs with changing volumes through a more variable cost infrastructure, ongoing productivity initiatives and a focus
on more profitable contracts. Foreign currency translation had a less than 1% impact on both revenue and EBIT.
Mail Services revenue was flat compared to last year at $573 million, while EBIT decreased 28% to $63 million. Mail Services
revenue and EBIT were adversely impacted by $21 million and $16 million, respectively, due to a one-time out of period adjustment
in the International Mail Services portion of the business primarily related to a correction to the rates used to estimate earned but
unbilled revenue for the periods 2007 through the first quarter of 2010. The impact of this adjustment was not material on any
individual quarter or year during these periods. Excluding the impact of this adjustment, revenue increased 4% over the prior year, but
EBIT decreased 11%. The revenue increase was driven partially by increased volumes of presort mail and Standard Class mail
processed and acquisitions (2%). The decrease in EBIT was driven by higher shipping rates charged by international carriers for our
International Mail Services business, which more than offset the favorable margin impacts in our Presort business.
Marketing Services revenue of $142 million was flat compared to the prior year. Revenue was impacted by increased vendor
advertising for Movers’ Source kits offset by a decline in household moves compared to prior year. EBIT increased 14% over last
year due to more profitable vendor revenue per transaction.
Revenues and cost of revenues by source
The following tables show revenues and costs of revenues by source for the years ended December 31, 2010 and 2009:
Revenue by source
2010 2009 % change
Equipment sales $ 1,023 $ 1,000 2 %
Supplies 318 336 (5)%
Software 390 372 5 %
Rentals 601 647 (7)%
Financing 638 694 (8)%
Support services 712 714 - %
Business services 1,744 1,805 (3)%
Total revenue $ 5,425 $ 5,569 (3)%
Cost of revenue by source
Percentage of Revenue
2010 2009 2010 2009
Cost of equipment sales $469 $ 450 45.9% 45.0%
Cost of supplies 97 94 30.5% 27.9%
Cost of software 93 88 23.9% 23.7%
Cost of rentals 141 159 23.6% 24.5%
Financing interest expense 88 98 13.8% 14.1%
Cost of support services 452 467 63.5% 65.4%
Cost of business services 1,337 1,382 76.7% 76.6%
Total cost of revenue $2,678 $ 2,738 49.4% 49.2%
Equipment sales
Equipment sales revenue increased 2% to $1,023 million compared to the prior year. Foreign currency translation had a positive
impact of 1%. The growth was primarily driven by higher sales of production mail equipment in the U.S. and higher equipment sales
in Canada and parts of Europe. Period revenue was adversely affected by lease extensions. Cost of equipment sales as a percentage
of revenue was 45.9% compared with 45.0% in the prior year, primarily due to the higher mix of lower margin production mail
equipment sales, which more than offset the positive impacts of higher levels of lease extensions and ongoing productivity
improvements.
Supplies
Supplies revenue decreased 5% to $318 million compared to the prior year due to lower supplies usage resulting from lower mail
volumes and fewer installed meters due to customer consolidations worldwide. Foreign currency translation had less than a 1%
favorable impact. Cost of supplies as a percentage of revenue was 30.5% compared with 27.9% in the prior year primarily due to the
increasing mix of lower margin non-compatible supplies sales worldwide.