Lexmark 2007 Annual Report Download - page 38

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alleging the copyright owners are entitled to compensation because these devices enable reproducing
copyrighted content. Other countries are also considering imposing fees on certain devices. The amount of
fees, if imposed, would depend on the number of products sold and the amounts of the fee on each
product, which will vary by product and by country. The Company has accrued amounts that it believes are
adequate to address the risks related to the copyright fee issues currently pending. The financial impact on
the Company, which will depend in large part upon the outcome of local legislative processes, the
Company’s and other industry participants’ outcome in contesting the fees and the Company’s ability to
mitigate that impact by increasing prices, which ability will depend upon competitive market conditions,
remains uncertain.
Contingencies and Litigation
In accordance with SFAS No. 5, Accounting for Contingencies, Lexmark records a provision for a loss
contingency when management believes that it is both probable that a liability has been incurred and the
amount of loss can be reasonably estimated. The Company believes it has adequate provisions for any
such matters.
RESULTS OF OPERATIONS
Operations Overview
Key Messages
Lexmark is focused on driving long-term performance by strategically investing in technology, demand
generation and brand development to enable the Company to profitably capture supplies in high page-
growth segments of the distributed printing market.
• The Business market segment strategy is focused on growth in higher page-generating workgroup
class lasers including monochrome and color laser printers and MFPs. During 2007, the Company
experienced double-digit unit growth in its branded workgroup and laser MFP units and growth in
laser supplies.
• The Company is aggressively shifting its focus in the Consumer market segment to geographic
regions, product segments, and customers that generate higher page usage. This strategy shift will
increase the Company’s focus on higher priced, higher usage devices, customers and countries and
will accelerate its investments to better meet the needs of those customers and product segments.
The Company’s initiative in wireless inkjets is a part of the strategic shift and although wireless is a
small part of the overall inkjet market, the Company believes it’s the fastest growing part of the
market and it has already captured some significant market share.
Lexmark is taking actions to improve its cost and expense structure including continuing to implement a
restructuring of its business to lower its cost and better allow it to fund these strategic initiatives.
Lexmark continues to maintain a strong financial position with good cash generation and a solid balance
sheet, which positions it to invest in the future of the business and compete effectively even during
challenging times.
2007 Business Factors
Business segment
During 2007, Lexmark continued its investments in the Business market segment through new products
and technology. The Company expects these investments to produce a steady stream of new products.
Lexmark continued to make progress on its product expansion initiative with the introduction of a new line
of color multifunction devices.
Lexmark continued to make progress on its brand development initiative with the continuation and
evolution of its advertising campaign from 2006. The Company continued its investment in the
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