Pitney Bowes 2013 Annual Report Download - page 57

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
46
Sales Revenue
Sales of Equipment
We sell equipment directly to our customers and to distributors (re-sellers) throughout the world. We recognize revenue from these sales
when the risks and rewards of ownership transfer to the customer, which is generally upon shipment or acceptance by the customer. 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. Sales revenue from customized equipment, mail creation equipment and
shipping products is generally recognized when installed.
Sales of Supplies
Revenue related to supplies is recognized at the point of title transfer, which is generally upon delivery.
Standalone Software Sales and Integration Services
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 collectability 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, 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 2013, 2012 and 2011 were $11 million, $13 million and $19 million, respectively. Initial direct
costs deferred at December 31, 2013 and 2012 were $26 million. These costs are included in rental property and equipment, net on our
Consolidated Balance Sheets.
During the year, we determined that certain revenue previously reported as rentals revenue included a service component and should
have been classified as support services revenue. Accordingly, the Consolidated Statements of Income for the years ended December 31,
2012 and 2011 have been revised to reflect the correct classification, resulting in a decrease in rentals revenue and corresponding increase
in support services revenue of $19 million and $21 million, respectively. This revision did not impact previously reported revenue, net
income or earnings per share amounts and was not material to any of our previously issued financial statements.
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. 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.