Pitney Bowes 2014 Annual Report Download - page 56

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
46
are acting as principal or agent such as whether we are the primary obligor to the customer, have control over the pricing and have credit
risk.
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, 2014 and 2013 was not material.
Deferred Marketing Costs
We capitalize certain costs associated with the acquisition of new customers and recognize these costs over the expected revenue stream
of eight years. Amortization of deferred marketing costs was $23 million, $27 million and $30 million in 2014, 2013 and 2012, respectively.
Deferred marketing costs included in other assets in the Consolidated Balance Sheets at December 31, 2014 and 2013 were $49 million
and $59 million, 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 termination 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 foreign currency exchange rates and interest rates. We limit
these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative
instruments to limit the effects of foreign exchange rate fluctuations on financial results and manage the related cost of debt. 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 of a change in tax rates on deferred tax assets and liabilities 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 stock awards, preference stock, preferred stock and stock purchase plans.
Translation of Non-U.S. Currency Amounts
In general, the functional currency of our foreign operations is the local currency. Assets and liabilities of subsidiaries operating outside
the U.S. are translated at rates in effect at the end of the period and revenue and expenses are translated at average monthly rates during
the period. Net deferred translation gains and losses are included as a component of accumulated other comprehensive income.