Lexmark 2010 Annual Report Download - page 92

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The trade names and trademarks are considered to have an indefinite life taking into account their
substantial recognition among customers, the intellectual property rights are secure and can be
maintained with relatively little cost and effort, and there are no current plans to change or abandon
usage of them. Declaration of use and renewals of key registrations will take place in the second quarter of
2011, 2014, and 2015.
The Company assumed $3.1 million of long term debt in the acquisition. The debt was repaid in the second
quarter of 2010 after the acquisition date and is included in Decrease in long term debt in the financing
section of the Company’s Consolidated Statements of Cash Flows. There was no gain or loss recognized
on the early extinguishment of long term debt.
Other liabilities of $14.5 million assumed in the transaction were made up mostly of accrued expenses,
such as accrued payroll and related taxes, vacation, incentive compensation, and commissions. Certain of
these liabilities are provisional by nature and could require measurement period adjustments in future
periods. Although the amount of recognized contingent liabilities was insignificant, changes in facts and
circumstances within the measurement period could also result in future adjustments to the purchase price
allocation.
Goodwill of $159.6 million arising from the acquisition consisted largely of projected future revenue and
profit growth, including benefits from Lexmark’s international structure and sales channels, and the
synergies expected from combining the businesses. All of the goodwill was assigned to Perceptive
Software, which remains a stand-alone business within the Company for purposes of segment reporting.
None of the goodwill recognized is expected to be deductible for income tax purposes.
The acquisition of Perceptive Software is included in Purchases of companies net of cash acquired in the
investing section of the Consolidated Statements of Cash Flows in the amount of $266.8 million, which is
the total purchase price of $280 million net of cash acquired of $13.2 million. Of the total purchase price,
$28 million has been placed in escrow for a period of 15 months from the date of acquisition to secure
indemnification obligations of Perceptive Software and its former stockholders relating to the accuracy of
representations and warranties and the satisfaction of covenants. The acquisition consideration held in
escrow does not meet the definition of contingent consideration as provided under the accounting
guidance for business combinations. The amount held in escrow was included in the acquisition
accounting as part of the consideration transferred by the Company as representations and warranties
were expected to be valid as of the acquisition date.
Although the acquisition did not include contingent consideration, certain executives of Perceptive
Software will be eligible to receive performance-based incentive compensation, which is accounted for
as post-combination expense as incurred.
Acquisition-related costs in the amount of $5.8 million were charged directly to operations and were
included in Selling, general and administrative on the Consolidated Statements of Earnings. Acquisition-
related costs include legal, advisory, valuation, accounting, and other fees incurred to effect the business
combination.
Because Perceptive Software’s current levels of revenue and net earnings are not material to the
Company’s Consolidated Statements of Earnings, supplemental pro forma revenue and net earnings
disclosures have been omitted. Refer to Note 20 for Perceptive Software segment data.
Perceptive Software — Determinations of Fair Value
The total amount recognized for the acquired identifiable net assets was driven by the fair values of
intangible assets. Valuation techniques and key inputs and assumptions used to value the most significant
identifiable intangible assets are included below.
Customer relationships were valued using the with and without method of the income approach, which
estimates the value of the intangible asset by quantifying the lost profits under a hypothetical condition
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