Lexmark 2009 Annual Report Download - page 129

limit the impact of nonperformance. Lexmark sells a large portion of its products through third-party
distributors and resellers and original equipment manufacturer (“OEM”) customers. If the financial
condition or operations of these distributors, resellers and OEM customers were to deteriorate
substantially, the Company’s operating results could be adversely affected. The three largest
distributor, reseller and OEM customer trade receivable balances collectively represented $189 million
or approximately 29% of total trade receivables at December 31, 2009 and $188 million or approximately
30% of total trade receivables at December 31, 2008, of which Dell receivables were $116 million or
approximately 18% of total trade receivables at December 31, 2009, and $125 million or approximately
20% of total trade receivables at December 31, 2008. However, Lexmark performs ongoing credit
evaluations of the financial position of its third-party distributors, resellers and other customers to
determine appropriate credit limits.
Lexmark generally has experienced longer accounts receivable cycles in its emerging markets, in
particular, Latin America, when compared to its U.S. and European markets. In the event that
accounts receivable cycles in these developing markets lengthen further, the Company could be
adversely affected.
Lexmark also procures a wide variety of components used in the manufacturing process. Although many of
these components are available from multiple sources, the Company often utilizes preferred supplier
relationships to better ensure more consistent quality, cost and delivery. The Company also sources some
printer engines and finished products from OEMs. Typically, these preferred suppliers maintain alternate
processes and/or facilities to ensure continuity of supply. Although Lexmark plans in anticipation of its
future requirements, should these components not be available from any one of these suppliers, there can
be no assurance that production of certain of the Company’s products would not be disrupted.
17. COMMITMENTS AND CONTINGENCIES
Commitments
Lexmark is committed under operating leases (containing various renewal options) for rental of office and
manufacturing space and equipment. Rent expense (net of rental income) was $48.3 million, $55.6 million
and $55.1 million in 2009, 2008 and 2007, respectively. Future minimum rentals under terms of non-
cancelable operating leases (net of sublease rental income commitments) as of December 31, 2009, were
as follows:
2010 2011 2012 2013 2014 Thereafter
Minimum lease payments (net of sublease
rental income) $29.6 $19.9 $14.4 $7.3 $5.3 $3.9
Contingencies
In accordance with FASB guidance on 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.
Legal proceedings
Lexmark v. Static Control Components, Inc. & Lexmark v. Clarity Imaging Technologies, Inc. & David
Abraham
On December 30, 2002 (“02 action”) and March 16, 2004 (“04 action”), the Company filed claims against
Static Control Components, Inc. (“SCC”) in the U.S. District Court for the Eastern District of Kentucky (the
“District Court”) alleging violation of the Company’s intellectual property and state law rights. Similar claims
in a separate action were filed by the Company in the District Court against David Abraham and Clarity
Imaging Technologies, Inc. (“Clarity”) on October 8, 2004. SCC and Clarity have filed counterclaims
against the Company in the District Court alleging that the Company engaged in anti-competitive and
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