Pitney Bowes 2012 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2012 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 116

  • 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

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
43
Rentals Revenue
We rent equipment, primarily postage meters and mailing equipment, under short-term rental agreements. Rental revenue includes
revenue from the subscription for digital meter services. We may invoice in advance for postage meter rentals according to the terms of
the agreement. We initially defer these advanced billings and recognize rental revenue on a straight-line basis over the invoice period.
Revenues generated from financing customers for the continued use of equipment subsequent to the expiration of the original lease term
are classified within rentals revenue.
We defer certain initial direct costs incurred in consummating a transaction and recognize these costs over the expected term of the
agreement. Initial direct costs amortized in 2012, 2011 and 2010 were $13 million, $19 million and $27 million, respectively. Initial
direct costs deferred at December 31, 2012 and 2011 were $26 million and $31 million, respectively. These costs are included in rental
property and equipment, net on our Consolidated Balance Sheets.
Financing Revenue
We provide lease financing for our products primarily through sales-type leases. We also provide revolving lines of credit to our customers
for the purchase of postage and related supplies. The vast majority of our leases qualify as sales-type leases using the present value of
minimum lease payments classification criteria. We believe that our sales-type lease portfolio contains only normal collection risk.
Accordingly, we record the fair value of equipment as sales revenue, the cost of equipment as cost of sales and the minimum lease
payments plus the estimated residual value as finance receivables. The difference between the finance receivable and the equipment fair
value is recorded as unearned income and is amortized as income over the lease term using the interest method.
Equipment residual values are determined at inception of the lease using estimates of equipment fair value at the end of the lease term.
Estimates of future equipment fair value are based primarily on our historical experience. We also consider forecasted supply and demand
for our various products, product retirement and future product launch plans, end of lease customer behavior, regulatory changes,
remanufacturing strategies, used equipment markets, if any, competition and technological changes. We evaluate residual values on an
annual basis or as changes to the above considerations occur.
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.
Business Services Revenue
Business services revenue includes revenue from management services, mail services and marketing services. Management services
include outsourcing of mailrooms, copy centers, print management or other document management functions. These service agreements
are typically one to five year contracts that contain a monthly service fee and in many cases a “click” charge based on the number of
copies made, documents processed, machines in use, etc. The monthly service fee is recognized over the term of the agreement and the
“click” charges are recognized as earned. Mail services include the preparation, sortation and aggregation of mail to earn postal discounts
and expedite delivery and ecommerce solutions for cross border transactions. Marketing services include direct mail marketing services.
Revenue from mail services and marketing services is recognized as the services are provided.
Shipping and Handling
Shipping and handling costs are recorded in cost of revenues.
Product Warranties
We provide product warranties in conjunction with the sale of certain products, generally for a period of 90 days from the date of
installation. We estimate our liability for product warranties based on historical claims experience and other currently available evidence.
Our product warranty liability at December 31, 2012 and 2011 was not material.
Deferred Marketing Costs
We capitalize certain direct mail, telemarketing, Internet and retail marketing costs associated with the acquisition of new customers and
recognize these costs over the expected revenue stream ranging from five to nine years. Deferred marketing costs expensed in 2012,
2011 and 2010 were $30 million, $34 million and $39 million, respectively. Deferred marketing costs included in other assets in the
Consolidated Balance Sheets were $73 million and $84 million at December 31, 2012 and 2011, respectively. We review individual
marketing programs for impairment annually or as circumstances warrant.