Lexmark 2008 Annual Report Download - page 73

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guidance on derecognition, classification, interest and penalties, accounting for income taxes in interim
periods, financial statement disclosure and transition rules.
The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is
recognition: The enterprise determines whether it is more likely than not that a tax position will be sustained
upon examination, including resolution of any litigation. The second step is measurement: A tax position
that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit
to recognize in the financial statements. The tax position is measured at the largest amount of benefit that
is greater than 50 percent likely of being realized upon ultimate resolution.
Derivatives:
All derivatives, including foreign currency exchange contracts, are recognized in the Statements of
Financial Position at fair value. Derivatives that are not hedges must be recorded at fair value through
earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of underlying assets or liabilities through
earnings or recognized in Accumulated other comprehensive earnings (loss) until the underlying hedged
item is recognized in earnings. Any ineffective portion of a derivative’s change in fair value is immediately
recognized in earnings. Derivatives qualifying as hedges are included in the same section of the
Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged.
Net Earnings Per Share:
Basic net earnings per share is calculated by dividing net income by the weighted average number of
shares outstanding during the reported period. The calculation of diluted net earnings per share is similar
to basic, except that the weighted average number of shares outstanding includes the additional dilution
from potential common stock such as stock options and stock under long-term incentive plans.
Accumulated Other Comprehensive (Loss) Earnings:
Accumulated other comprehensive (loss) earnings refers to revenues, expenses, gains and losses that
under accounting principles generally accepted in the U.S. are included in comprehensive earnings (loss)
but are excluded from net income as these amounts are recorded directly as an adjustment to
stockholders’ equity, net of tax. Lexmark’s Accumulated other comprehensive (loss) earnings is
composed of deferred gains and losses related to pension or other postretirement benefits, foreign
currency exchange rate adjustments, deferred gains and losses on cash flow hedges and net unrealized
gains and losses on marketable securities.
Segment Data:
Lexmark manufactures and sells a variety of printing and multifunction products and related supplies and
services and is primarily managed along divisional lines: the Printing Solutions and Services Division
(“PSSD”), formerly known as the Business market segment, and the Imaging Solutions Division (“ISD”),
formerly known as the Consumer market segment.
Recent Accounting Pronouncements:
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. FAS 157 defines fair
value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value
measurements. The adoption of FAS 157 in the first quarter of 2008 did not have a material impact on the
Company’s financial position, results of operations or cash flows. Refer to Note 3 of the Notes to the
Consolidated Financial Statements for the Company’s FAS 157 fair value disclosures. In February 2008,
the FASB issued FASB Staff Position No. FAS 157-2 (“FSP FAS 157-2”) which defers the effective date of
FAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.
As permitted by FSP FAS 157-2, the Company has only partially applied the provisions of FAS 157. The
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