Lexmark 2010 Annual Report Download - page 113

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Tax Positions
The amount of unrecognized tax benefits at December 31, 2010, was $25.5 million, all of which would
affect the Company’s effective tax rate if recognized. The amount of unrecognized tax benefits at
December 31, 2009, was $33.0 million, all of which would affect the Company’s effective tax rate if
recognized. The amount of unrecognized tax benefits at December 31, 2008, was $29.3 million, all of
which would affect the Company’s effective tax rate if recognized.
The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of
its income tax provision. As of December 31, 2010, the Company had $2.9 million of accrued interest and
penalties. For 2010, the Company recognized in its statement of earnings a net benefit of $1.6 million for
interest and penalties. As of December 31, 2009, the Company had $4.5 million of accrued interest and
penalties. For 2009, the Company recognized in its statement of earnings a net expense of $0.8 million for
interest and penalties. As of December 31, 2008, the Company had $3.7 million of accrued interest and
penalties. For 2008, the Company recognized in its statement of earnings a net benefit of $1.0 million
related to interest and penalties.
It is reasonably possible that the total amount of unrecognized tax benefits will increase or decrease in the
next 12 months. Such changes could occur based on the expiration of various statutes of limitations or the
conclusion of ongoing tax audits in various jurisdictions around the world. If those events occur within the
next 12 months, the Company estimates that its unrecognized tax benefits amount could decrease by an
amount in the range of $0 to $10 million, the impact of which would affect the Company’s effective tax rate.
Several tax years are subject to examination by major tax jurisdictions. In the U.S., federal tax years 2008
and after are subject to examination. The Internal Revenue Service (“IRS”) is currently auditing tax years
2008 and 2009. In France, tax years 2008 and after are subject to examination. The French Tax
Administration has informed the Company that they will begin an audit of tax years 2008 and 2009
starting in 2011. In Switzerland, tax years 2006 and after are subject to examination. In most of the other
countries where the Company files income tax returns, 2005 is the earliest tax year that is subject to
examination. The Company believes that adequate amounts have been provided for any adjustments that
may result from those examinations.
A reconciliation of the total beginning and ending amounts of unrecognized tax benefits is as follows:
2010 2009 2008
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33.0 $29.3 $ 53.5
Increases/(decreases) in unrecognized tax benefits as a result of tax
positions taken during a prior period . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 (0.6) (5.1)
Increases/(decreases) in unrecognized tax benefits as a result of tax
positions taken during the current period . . . . . . . . . . . . . . . . . . . . . . . . 5.1 5.8 5.9
Increases/(decreases) in unrecognized tax benefits relating to
settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.2) (0.2) (24.2)
Reductions to unrecognized tax benefits as a result of a lapse of the
applicable statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9.6) (1.3) (0.8)
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.5 $33.0 $ 29.3
Other
Cash paid for income taxes was $77.4 million, $41.3 million, and $97.8 million in 2010, 2009 and 2008,
respectively.
On November 10, 2005, the FASB issued accounting guidance on accounting for the tax effects of share-
based payment awards. The Company elected to adopt the alternative transition method provided in this
guidance for calculating the tax effects of stock-based compensation pursuant to the adoption of the share-
based payment guidance. The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee
107