Lexmark 2009 Annual Report Download - page 33

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recurring supplies sales. Management believes that Lexmark has the following strengths related to this
business model:
• Lexmark is exclusively focused on delivering distributed printing and imaging, and related document
solutions and services.
• Lexmark internally develops three of the key print technologies associated with distributed printing,
including inkjet, monochrome laser and color laser.
• Lexmark has leveraged its technological capabilities and its commitment to flexibility and
responsiveness to build strong relationships with large-account customers and channel partners.
Lexmark’s strategy involves the following core strategic initiatives:
• Focus on capturing profitable supplies and service annuities generated from workgroup
monochrome and color laser printers and laser MFPs; and
• Shift the ISD strategy to focus on business customers, markets and channels that drive higher page
generation and supplies usage.
Over the last several years, the Company continues to invest in product and solution development as well
as solution sales. This investment has led to new products and solutions aimed at targeted growth
segments as well as a pipeline of future products.
The Company’s strategy for dot matrix printers is to continue to offer high-quality products while managing
cost to maximize cash flow and profit.
Refer to the section entitled “Strategy” in Item 1, which is incorporated herein by reference, for a further
discussion of the Company’s strategies and initiatives.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Lexmark’s discussion and analysis of its financial condition and results of operations are based upon the
Company’s consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of consolidated financial statements requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, as well as disclosures regarding contingencies. On an ongoing basis, the
Company evaluates its estimates, including those related to customer programs and incentives,
product returns, doubtful accounts, inventories, stock-based compensation, intangible assets, income
taxes, warranty obligations, copyright fees, restructurings, pension and other postretirement benefits,
contingencies and litigation, and fair values that are based on unobservable inputs significant to the overall
measurement. Lexmark bases its estimates on historical experience, market conditions, and various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are uncertain at the time the estimate is made, if different estimates
reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could
materially impact the financial statements. The Company believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of its consolidated financial
statements.
Revenue Recognition
See Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information regarding the
Company’s policy for revenue recognition. For customer programs and incentives, Lexmark records
estimated reductions to revenue at the time of sale for customer programs and incentive offerings including
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