Pitney Bowes 2013 Annual Report Download - page 58

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
47
Business Services Revenue
Business services revenue includes revenue from mail services and marketing services. Mail services include the preparation, sortation
and aggregation of mail to earn postal discounts and expedite delivery and e-commerce solutions for cross border transactions. Marketing
services include direct mail marketing services. Revenue for these services is recognized as the services are provided.
Shipping and Handling
Shipping and handling costs are recognized as incurred and 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, 2013 and 2012 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 2013, 2012
and 2011 were $27 million, $30 million and $34 million, respectively. Deferred marketing costs included in other assets in the Consolidated
Balance Sheets were $59 million and $73 million at December 31, 2013 and 2012, respectively. We review individual marketing programs
for impairment on a quarterly basis or as circumstances warrant.
Restructuring Charges
Costs associated with exit or disposal activities, including lease termination costs and employee severance costs associated with
restructuring, are recognized when they are incurred. The cost and related liability for one-time benefit arrangements is recognized when
they are both probable and reasonably estimable.
Derivative Instruments
In the normal course of business, we are exposed to the impact of changes in interest rates and foreign currency exchange rates. We limit
these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative
instruments to manage the related cost of debt and to limit the effects of foreign exchange rate fluctuations on financial results. Derivative
instruments typically consist of interest-rate swaps, forward contracts and currency swaps depending upon the underlying exposure. We
do not use derivatives for trading or speculative purposes.
We record our derivative instruments at fair value and the accounting for changes in fair value depends on the intended use of the derivative,
the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. To qualify as a
hedge, a derivative must be highly effective in offsetting the risk designated for hedging purposes. The hedge relationship must be formally
documented at inception, detailing the particular risk management objective and strategy for the hedge. The effectiveness of the hedge
relationship is evaluated on a retrospective and prospective basis.
The use of derivative instruments exposes us to counterparty credit risk. To mitigate such risks, we enter into contracts with only those
financial institutions that meet stringent credit requirements. We regularly review our credit exposure balances as well as the
creditworthiness of our counterparties. We have not seen a material change in the creditworthiness of those banks acting as derivative
counterparties.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts
of assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that a deferred
tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during
the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date of such change.
Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the year. Diluted earnings per
share also includes the dilutive effect of outstanding stock options, market stock units, restricted stock, preference stock, preferred stock
and stock purchase plans.