Lexmark 2011 Annual Report Download - page 49

Goodwill recognized by the Company at December 31, 2011 was $216.4 million and was allocated to
the Perceptive Software and ISS reporting units in the amount of $193.5 million and $22.9 million,
respectively. The fair values of these reporting units were substantially in excess of their carrying
values on this date. Key assumptions to the valuation of Perceptive Software include its ability to
expand internationally and the revenue growth that would be accelerated by such expansion. Applying
a hypothetical 10% decrease to the fair value of each reporting unit would not result in the Company
failing step one of the goodwill impairment test.
Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line
method. In certain instances where consumption could be greater in the earlier years of the asset’s life,
the Company has selected, as a compensating measure, a shorter period over which to amortize the
asset. The Company’s intangible assets with finite lives are tested for impairment in accordance with
its policy for long-lived assets below.
Long-Lived Assets Held and Used
Lexmark performs reviews for the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated
undiscounted future cash flows expected to result from the use of the assets and their eventual
disposition are insufficient to recover the carrying value of the assets, then an impairment loss is
recognized based upon the excess of the carrying value of the assets over the fair value of the assets.
Such an impairment review incorporates estimates of forecasted revenue and costs that may be
associated with an asset as well as the expected periods that an asset may be utilized. Fair value is
determined based on the highest and best use of the assets considered from the perspective of market
participants, which may be different than the Company’s actual intended use of the asset.
Lexmark also reviews any legal and contractual obligations associated with the retirement of its long-
lived assets and records assets and liabilities, as necessary, related to such obligations. The asset
recorded is amortized over the useful life of the related long-lived tangible asset. The liability recorded
is relieved when the costs are incurred to retire the related long-lived tangible asset. Each obligation is
estimated based on current law and technology; accordingly, such estimates could change as the
Company periodically evaluates and revises such estimates based on expenditures against
established reserves and the availability of additional information. The Company’s asset retirement
obligations are currently not material to the Company’s Consolidated Statements of Financial Position.
RESULTS OF OPERATIONS
Operations Overview
Key Messages
Lexmark is focused on driving long-term performance by strategically investing in technology,
hardware and software products and solutions to secure high value product installations and capture
profitable supplies, software maintenance and service annuities in document-intensive industries and
business processes in distributed environments.
While focusing on core strategic initiatives, Lexmark has taken actions over the last few years to
improve its cost and expense structure. As a result of restructuring initiatives, significant changes have
been implemented, from the consolidation and reduction of the manufacturing and support
infrastructure to the increased use of shared service centers in low-cost countries.
Lexmark continues to maintain a strong financial position with good cash generation and a solid
balance sheet, which positions it to prudently invest in the future of the business and successfully
compete even during challenging times. Going forward, the Company plans to return more than 50
percent of free cash flow to its shareholders through dividends and share repurchases.
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