Lexmark 2010 Annual Report Download - page 76

the customer financing, taking into account the customer’s net worth, payment history, long term debt
ratings and/or other information available from recognized credit rating services. If such information is not
available, the Company estimates a rating based on its analysis of the customer’s audited financial
statements prepared and certified in accordance with recognized generally accepted accounting
principles. The portfolio is assessed on an annual basis for significant changes in credit ratings or
other information indicating an increase in exposure to credit risk.
Environmental Remediation Obligations:
Lexmark accrues for losses associated with environmental remediation obligations when such losses are
probable and reasonably estimable. In the early stages of a remediation process, particular components of
the overall obligation may not be reasonably estimable. In this circumstance, the Company recognizes a
liability for the best estimate (or the minimum amount in a range if no best estimate is available) of the cost
of the remedial investigation-feasibility study, related consultant and external legal fees, and for any other
component remediation costs that can be reasonably estimated. Accruals are adjusted as further
information develops or circumstances change. Recoveries from other parties are recorded as assets
when their receipt is deemed probable.
Waste Obligation:
Waste Electrical and Electronic Equipment (“WEEE”) Directives issued by the European Union require
producers of electrical and electronic goods to be financially responsible for specified collection, recycling,
treatment and disposal of past and future covered products. The Company’s estimated liability for these
costs involves a number of uncertainties and takes into account certain assumptions and judgments
including average collection costs, return rates and product lives. The Company adjusts its liability, as
necessary, when a sufficient level of entity-specific experience indicates a change in estimate is warranted.
Warranty:
Lexmark provides for the estimated cost of product warranties at the time revenue is recognized. The
amounts accrued for product warranties are based on the quantity of units sold under warranty, estimated
product failure rates, and material usage and service delivery costs. The estimates for product failure rates
and material usage and service delivery costs are periodically adjusted based on actual results. For
extended warranty programs, the Company defers revenue in short-term and long-term liability accounts
(based on the extended warranty contractual period) for amounts invoiced to customers for these
programs and recognizes the revenue ratably over the contractual period. Costs associated with
extended warranty programs are expensed as incurred.
Shipping and Distribution Costs:
Lexmark includes shipping and distribution costs in Cost of Revenue on the Consolidated Statements of
Earnings.
Segment Data:
The Company is primarily managed along two segments: Imaging Solutions and Services (“ISS”) and
Perceptive Software. ISS offers a broad portfolio of monochrome and color laser printers, laser
multifunction products and inkjet all-in-one devices as well as a wide range of supplies and services
covering its printing products and technology solutions. Perceptive Software offers a complete suite of
enterprise content management software and document workflow solutions.
70