Lexmark 2011 Annual Report Download - page 102

customer relationships, and non-compete agreements. The analysis was performed over a technology
migration period of eight to ten years for Pallas Athena and nine years for Perceptive Software.
Trade name and trademarks for both acquisitions were valued using the relief from royalty method
under the income approach, which estimates the value of the intangible asset by discounting to fair
value the hypothetical royalty payments a market participant would be willing to pay to enjoy the
benefits of the asset. The royalty rate assumption was developed taking into account data regarding
third party license agreements as well as certain characteristics of the acquirees and their operations.
Royalty rates of 0.25% and 1% were used in the valuation of Pallas Athena trade names. A royalty rate
of 2% was used in the valuation of Perceptive Software trade name and trademarks.
The after-tax cash flows for the intangible assets discussed in Determinations of Fair Value – Pallas
Athena and Perceptive Software were discounted to fair value utilizing a required return of 13% for
Pallas Athena and 14% for Perceptive Software.
The fair value of deferred revenue was determined for both acquisitions based on the direct and
incremental costs to fulfill the performance obligation plus a profit mark-up of 10% based on the
consideration of a hypothetical third-party servicing firm which the Company believes is representative
of market participant assumptions.
Other Acquisitions
On March 29, 2010 the Company acquired certain assets and rights of a privately held company for
$6.7 million cash consideration. The acquired group consisted mostly of technology and other related
assets and processes to be utilized in the Company’s ISS segment.
On January 1, 2009, the Company completed a step acquisition of a wholesaler with an established
presence in Eastern Europe and an existing customer base of wholesale distributors. Final cash
consideration given was approximately $11 million, or $10.1 million net of cash acquired.
5. RESTRUCTURING AND RELATED CHARGES
January 2012 Restructuring Plan
General
As part of Lexmark’s ongoing strategy to increase the focus of its talent and resources on higher usage
business platforms, the Company announced restructuring actions (the “January 2012 Restructuring
Plan”) on January 31, 2012. This action will better align the Company’s sales and marketing resources
with its business customer focus, adjust manufacturing capacity in its declining legacy product lines,
and align and reduce our support structure consistent with our focus on business customers. The
Company expects to redeploy a significant portion of the savings from these initiatives towards
business products, solutions and channels. The January 2012 Restructuring Plan includes reductions
primarily in the areas of manufacturing, marketing, sales and other infrastructure. The Company
expects these actions to be principally complete by the end of the first quarter of 2013.
The January 2012 Restructuring Plan is expected to impact about 625 positions worldwide and will
result in total pre-tax charges of approximately $27 million with approximately $8 million incurred in the
fourth quarter of 2011. Approximately $19 million of remaining charges are expected to be incurred in
2012. The Company expects the total cash cost of the January 2012 Restructuring Plan to be
approximately $16 million.
The Company expects to incur total charges related to the January 2012 Restructuring Plan of
approximately $24 million in ISS and approximately $3 million in All other.
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