Lexmark 2011 Annual Report Download - page 48

• Forecasts about the issuer’s financial performance and near-term prospects, such as earnings
trends and analysts’ or industry specialists’ forecasts.
• Failure of the issuer to make scheduled interest or principal payments.
• Material recoveries or declines in fair value subsequent to the balance sheet date.
Securities that are identified through the analysis using the quantitative and qualitative factors
described above are then assessed to determine whether the entire net book value basis of each
identified security will be recovered. The Company performs this assessment by comparing the present
value of the cash flows expected to be collected from the security with its net book value. If the present
value of cash flows expected to be collected is less than the net book value basis of the security, then
a credit loss is deemed to exist and an other-than-temporary impairment is considered to have
occurred. There are numerous factors to be considered when estimating whether a credit loss exists
and the period over which the debt security is expected to recover, some of which have been
highlighted in the preceding paragraph.
Given the level of judgment required to make the assessments above, the final outcomes of the
Company’s investments in debt securities could prove to be different than the results reported. Issuers
with good credit standings and relatively solid financial conditions today may not be able to fulfill their
obligations ultimately. Furthermore, the Company could reconsider its decision not to sell a security
depending on changes in its own cash flow projections as well as changes in the regulatory and
economic environment that may indicate that selling a security is advantageous to the Company.
Historically, the Company has incurred a low amount of realized losses from sales of marketable
securities.
See Note 7 of the Notes to the Consolidated Financial Statements in Part II, Item 8 for more
information regarding the Company’s marketable securities.
Business Combinations
The application of the acquisition method of accounting for business combinations requires the use of
significant estimates and assumptions in the determination of the fair value of assets acquired and
liabilities assumed in order to properly allocate purchase price consideration between identifiable
intangible assets and goodwill. The fair values of identifiable intangible assets were determined using
an income approach, which requires projected financial information and market participant
assumptions. See Note 4 of the Notes to the Consolidated Financial Statements in Part II, Item 8 for
information regarding the methods used to determine fair value related to the Company’s business
acquisitions.
Goodwill and Intangible Assets
Lexmark assesses its goodwill and indefinite-lived intangible assets for impairment each fiscal year as
of December 31 or between annual tests if an event occurs or circumstances change that lead
management to believe it is more likely than not that an impairment exists. Examples of such events or
circumstances include a significant adverse change in the business climate, a significant decrease in
the projected cash flows of a reporting unit, or a decline in the market capitalization of the overall
Company below its carrying value. Goodwill is tested at the reporting unit level. The Company
generally considers both a discounted cash flow analysis, which requires judgments such as projected
future earnings and weighted average cost of capital, as well as certain market-based measurements,
including multiples developed from prices paid in observed market transactions of comparable
companies, in its estimation of fair value for goodwill impairment testing. The Company estimates the
fair value of its trade names and trademarks indefinite-lived intangible asset using the relief from
royalty method.
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