Pitney Bowes 2012 Annual Report Download - page 31

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13
Cost of revenue
Year Ended December 31,
2012 2011 2010
$ % of revenue $ % of revenue $ % of revenue
Cost of equipment sales $ 459 48.9% $ 449 45.6 % $ 469 45.9%
Cost of supplies 88 30.9% 97 31.6 % 97 30.5%
Cost of software 93 22.5% 99 23.2 % 93 23.9%
Cost of rentals 115 20.3% 139 22.4 % 155 23.9%
Financing interest expense 81 16.4% 88 16.0 % 88 15.0%
Cost of support services 440 63.8% 453 64.1 % 452 63.5%
Cost of business services 1,157 76.4% 1,161 76.0 % 1,173 74.3%
Total cost of revenue $ 2,433 49.6% $ 2,486 48.5 % $ 2,529 48.1%
Equipment sales
Equipment sales revenue decreased 5% to $938 million in 2012 compared to 2011 as worldwide economic conditions continue to impact
customer purchasing behavior. Foreign currency translation had an unfavorable impact on revenue of 2%. Cost of equipment sales as
a percentage of revenue increased to 48.9% compared to 45.6% in the prior year primarily due to a higher mix of lower margin product
sales, pricing pressure on competitive placements and a decline in the number of lease extensions relative to prior year.
In 2011, equipment sales revenue decreased 4% to $986 million compared to 2010, including a positive impact of 2% from foreign
currency translation. Equipment sales were adversely impacted as many customers delayed capital investment commitments and extended
leases of existing equipment. Cost of equipment sales as a percentage of revenue improved to 45.6% compared with 45.9% in the prior
year due to the mix of higher margin product sales and lease extensions.
Supplies
Supplies revenue decreased 8% to $284 million in 2012 compared to 2011 primarily due to reduced mail volumes, fewer installed meters
worldwide and lower ink and toner sales. Foreign currency translation had a 2% unfavorable impact on revenue. Cost of supplies as a
percentage of revenue was 30.9% compared to 31.6% in the prior year primarily due to a favorable mix of higher margin core supplies
sales.
Supplies revenue in 2011 decreased 3% to $308 million compared to 2010 due to reduced mail volumes and fewer installed meters
worldwide. Foreign currency translation had a 2% favorable impact. Cost of supplies as a percentage of revenue was 31.6% compared
with 30.5% in the prior year primarily due to the mix of lower margin supply sales worldwide.
Software
Software revenue decreased 3% to $413 million in 2012 compared to 2011. Foreign currency translation had a 1% unfavorable impact
on revenue. The decrease was primarily attributable to weak economic conditions and constrained public sector spending in Europe and
lower sales in Asia Pacific. Cost of software as a percentage of revenue improved to 22.5% compared with 23.2% in the prior year
primarily due to reduced headcount.
Software revenue in 2011 increased 9% to $427 million compared to 2010 driven by higher licensing revenue (3%), the full year impact
of 2010 acquisitions (3%) and foreign currency translation (3%). Cost of software as a percentage of revenue improved to 23.2% compared
with 23.9% in the prior year due to the increase in high margin licensing revenue.
Rentals
Rentals revenue decreased 8% to $570 million in 2012 compared to 2011 primarily due to declines in North America from fewer meters
in service and lower rentals in France due to a change in mix from rental to equipment sales. Foreign currency translation had an
unfavorable impact on revenue of 1%. Cost of rentals as a percentage of revenue improved to 20.3% compared with 22.4% in the prior
year mainly due to lower depreciation expense.
Rentals revenue decreased 5% to $619 million in 2011 compared to 2010 as customers in the U.S. continued to downsize to smaller, fully
featured machines and fewer installed meters worldwide. Foreign currency translation had a 1% positive impact. Cost of rentals as a
percentage of revenue improved to 22.4% compared with 23.9% in the prior year primarily due to lower depreciation associated with
higher levels of lease extensions.