Revenue from Contracts with Customers

Adoption of ASC 606

We recorded a net decrease to opening retained earnings of $9 million as of January 1, 2018 for the cumulative effect of adopting ASC 606. Significant components of this cumulative effect adjustment include:


•	The write-off of previously capitalized deferred marketing costs that did not meet the criteria for capitalization under ASC 606;


•	The capitalization of certain costs to obtain a contract, primarily sales commissions, that are permitted to be capitalized under ASC 606;


•	The establishment of deferred revenue related to the early renewal of software and data license contracts with terms beginning in 2018, as ASC 606 requires revenue recognition at the commencement of the license term;


•	The write-off of deferred revenues and related costs for certain software licenses bundled with a lease that are recognized at time of delivery under ASC 606; and


•	The write-off of advance billings related to certain software data products that are recognized upon delivery under ASC 606.

The impact on our consolidated financial statements as if they were presented under the prior guidance is as follows:



	Year ended December 31, 2018
	As reported		Prior guidance		Increase (decrease)
Income Statement
Total revenue	$	3,522,380	$	3,483,757	$	38,623
Equipment sales	$	430,451	$	432,911	$	(2,460	)
Software	$	340,855	$	297,976	$	42,879
Business services	$	1,561,522	$	1,563,318	$	(1,796	)

Total costs and expenses	$	3,310,019	$	3,318,288	$	(8,269	)
Cost of equipment sales	$	181,766	$	181,957	$	(191	)
Cost of software	$	100,681	$	96,332	$	4,349
Selling, general and administrative	$	1,123,116	$	1,135,543	$	(12,427	)

Income from continuing operations before taxes	$	212,361	$	165,469	$	46,892

The most significant impact to the Consolidated Statement of Income for the year December 31, 2018, was higher software revenue of $43 million primarily due to the acceleration of data subscription revenues which were previously recognized on a ratable basis and the renewal of software data licenses with a term beginning in 2018. Additionally, selling, general and administrative expenses were lower due to the deferral of certain sales commissions and lower amortization of deferred marketing costs.



	December 31, 2018
	As reported			Prior guidance			Increase (decrease)
Balance Sheet
Total assets	$	5,972,903		$	5,951,075		$	21,828
Accounts receivable, net	$	455,807		$	454,414		$	1,393
Other current assets and prepayments	$	99,332		$	90,659		$	8,673
Other assets	$	413,239		$	400,955		$	12,284

Total liabilities	$	5,733,431		$	5,737,751		$	(4,320	)
Accounts payable and accrued liabilities	$	1,401,635		$	1,396,650		$	4,985
Advance billings	$	237,529		$	252,472		$	(14,943	)
Other noncurrent liabilities	$	474,862		$	477,208		$	(2,346	)

Total stockholders' equity	$	239,472		$	213,325		$	26,147
Retained earnings	$	5,416,777		$	5,389,732		$	27,045
Accumulated other comprehensive loss	$	(948,426	)	$	(947,528	)	$	(898	)

The most significant impacts to the Consolidated Balance Sheet at December 31, 2018 were:


•	Higher other current assets and prepayments primarily due to contract assets that are recognized when data licenses are delivered in advance to the right to invoice. This was offset by lower prepaid costs related to software licenses and software data products, which are now recognized at time of delivery rather than ratably under previous guidance;


•	Higher other assets primarily due to contract assets that are recognized when data licenses are delivered in advance to the right to invoice;


•	Higher accounts payable and other accrued liabilities due to higher costs directly related to the higher data license revenue that is recorded at the time of delivery under ASC 606 rather than ratably under the previous guidance; and


•	Lower advance billings primarily due to our data license products for which revenue is recognized at time of delivery but invoicing occurs in future periods. Under previous guidance data subscriptions were billed in advance and recognized on a ratable basis over the contract term.

Disaggregated Revenue

The following tables disaggregate our revenue by major source:



	Year ended December 31, 2018
Major products/service lines	Global Ecommerce		Presort Services		North America Mailing		International Mailing		Software Solutions		Total Revenue from sales and services (ASC 606)		Revenue from leasing transactions and financing		Total Consolidated Revenue
Equipment sales	$	—	$	—	$	59,589	$	52,467	$	—	$	112,056	$	318,395	$	430,451
Supplies	—		—		144,283		74,021		—		218,304		—		218,304
Software	—		—		—		—		340,855		340,855		—		340,855
Rentals	—		—		19,390		8,214		—		27,604		335,453		363,057
Financing	—		—		64,279		11,508		—		75,787		238,991		314,778
Support services	—		—		208,855		84,558		—		293,413		—		293,413
Business services	1,022,862		515,795		16,997		5,868		—		1,561,522		—		1,561,522
	$	1,022,862	$	515,795	$	513,393	$	236,636	$	340,855	$	2,629,541	$	892,839	$	3,522,380

Revenue from sales and services (ASC 606)	$	1,022,862	$	515,795	$	513,393	$	236,636	$	340,855	$	2,629,541	$	—	$	2,629,541
Revenue from leasing transactions and financing	—		—		761,632		131,207		—		—		892,839		892,839
Total revenue	$	1,022,862	$	515,795	$	1,275,025	$	367,843	$	340,855	$	2,629,541	$	892,839	$	3,522,380

Timing of revenue recognition (ASC 606)
Products/services transferred at a point in time	$	—	$	—	$	203,872	$	126,488	$	134,360	$	464,720
Products/services transferred over time	1,022,862		515,795		309,521		110,148		206,495		2,164,821
Total revenue	$	1,022,862	$	515,795	$	513,393	$	236,636	$	340,855	$	2,629,541

Our performance obligations are as follows:

Equipment sales and supplies: Our performance obligations generally include the sale of mailing equipment, excluding sales-type leases, and supplies. We recognize revenue upon delivery for self-install equipment and supplies and upon acceptance or installation for other equipment. We provide a warranty that our equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.

Software: Our performance obligations include the sale of software licenses, maintenance, data products and professional services. Revenue for licenses is generally recognized upon delivery or over time for those licenses that require critical updates over the term of the contract.

Rentals: Our performance obligations include the fees associated with postage refills for meters.

Financing: Our performance obligations include services under our equipment replacement program. The fees received for this program are recognized ratably over the contract term.

Support Services: Our performance obligations include providing maintenance and professional services for our North America and International mailing equipment. Contract terms range from one year to five years, depending on the term of the lease contract for the related equipment. Maintenance revenue is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.

Business Services: Our performance obligations primarily include mail processing services and ecommerce solutions. Revenue is recognized over time as the services are provided. The contract terms for these services vary, with the initial contracts in the range of one to five years followed by annual renewal periods.

Revenue from leasing transactions and financing include revenue from sales-type leases, finance income and late fees that are not accounted for under ASC 606.

Contract Assets and Advance Billings from Contracts with Customers

Contract assets are recorded in other current assets and prepayments (current portion) and other assets (noncurrent portion) and advance billings are recorded in advance billings (current portion) and other noncurrent liabilities (noncurrent portion) in the Consolidated Balance Sheet. The following table summarizes our contract assets and advanced billings balances:



	December 31, 2018		January 1, 2018		Total increase (decrease)
Contracts assets, current portion	$	16,115	$	5,075	$	11,040
Contracts assets, noncurrent portion	$	13,092	$	648	$	12,444
Advance billings, current portion	$	185,322	$	209,098	$	(23,776	)
Advance billings, noncurrent portion	$	12,778	$	17,765	$	(4,987	)

Contract Assets

We record contract assets when performance obligations are satisfied in advance of invoicing the customer when the right to consideration is conditional on the satisfaction of another performance obligation within a contract. The increase in contract assets is primarily due to an increase in multiple year data contracts where the license was delivered in 2018 but the right to invoice will occur in future periods.

Advance Billings from Contracts with Customers

Advance billings are recorded when cash payments are due in advance of performance. Items in advance billings primarily relate to support services on equipment and software licenses, subscription services and certain software data products. Revenue is recognized ratably over the contract term. The net decrease in advance billings at December 31, 2018 is primarily driven by revenues recognized during the period, which includes $190 million of advance billings at the beginning of the period, partially offset by advance billings for the year.

Future Performance Obligations

The transaction prices allocated to future performance obligations will be recognized as follows:



	2019		2020		2021-2023		Total
North America Mailing⁽¹⁾	$	144,989	$	110,930	$	133,738	$	389,657
International Mailing⁽¹⁾	37,921		24,552		38,068		100,541
Software Solutions⁽²⁾	66,185		38,373		22,170		126,728
Total	$	249,095	$	173,855	$	193,976	$	616,926

⁽¹⁾Revenue streams bundled with our leasing contracts, primarily maintenance and other services.

⁽²⁾Multiple-year software maintenance contracts, certain software and data licenses and data updates.

The table above does not include revenue related to performance obligations for contracts with terms less than 12 months and expected consideration for those performance obligations where revenue is recognized based on the amount billable to the customer.