Lexmark 2011 Annual Report Download - page 52

ISS Segment
During 2011, revenue in ISS decreased $84.2 million or 2% compared to 2010 due to the 7% decrease
in hardware revenue. Strong revenue growth in high-end hardware was more than offset by the decline
in low-end hardware, principally in inkjet. Supplies revenue during 2011 was essentially flat with 2010.
The decrease in hardware revenue was driven by a 40% reduction in inkjet hardware revenue. Inkjet
units declined 37% as the Company continues to exit the legacy consumer focused portion of the inkjet
product line. Inkjet average unit revenue (“AUR”) decreased 4% YTY. Laser hardware revenue
increased 2% YTY, driven by a 6% increase in AUR, again driven by improved product mix toward
high-end laser devices, which was partially offset by a 3% reduction in units due to lower unit sales of
low-end laser units.
Supplies revenue was flat YTY as the 11% growth in core laser and inkjet supplies was more than
offset by a 32% decline in legacy inkjet supplies.
During 2010, revenue in ISS increased $282.5 million or 7% compared to 2009 due to a 13% increase
in hardware revenue and a 6% increase in supplies revenue.
The increased hardware revenue was due to a 23% growth in laser hardware revenue, partially offset
by an 11% decline in inkjet hardware revenue. The higher laser revenue was driven by an 8% increase
in laser hardware unit sales, further enhanced by a favorable mix impact. Laser hardware AUR, which
reflects the change in pricing and mix, increased approximately 14% due to a positive mix shift towards
workgroup laser products and laser MFPs. The decline in inkjet hardware revenue was due to a 23%
decline in inkjet units, partially offset by a 15% improvement in AUR, both of those changes YTY
originating from the continuous shift towards high-end focused inkjets and away from low-end devices.
The supplies revenue grew 6% YTY, primarily driven by a strong unit growth in laser supplies,
somewhat offset by a decline in inkjet supplies as a result of the decrease in the installed base of inkjet
hardware devices.
Perceptive Software Segment
Perceptive Software was acquired by the Company on June 7, 2010. The 2010 financial results for
Perceptive Software include only the activity occurring after the acquisition and is the primary reason
behind the 154% increase in revenue compared to last year. For comparison purposes, revenue for
Perceptive Software grew 69% in the second half of 2011 versus the second half of 2010. In addition,
Pallas Athena was acquired by the Company on October 18, 2011. Activity occurring after the
acquisition of Pallas Athena is included in the Perceptive Software reportable segment.
Under the accounting guidance for business combinations, deferred revenue related to service
contracts assumed as part of an acquisition must be recognized initially at fair value. As a result, the
Company was not able to recognize as revenue in 2010 a large portion of the amortization of
Perceptive Software’s deferred revenue that originated prior to acquisition. In addition, the Company
was not able to recognize as revenue in the fourth quarter of 2011 a large portion of Pallas Athena’s
deferred revenue that originated prior to acquisition. After considering these acquisition-related
adjustments, revenue for 2011 increased 98% compared to 2010. After considering these acquisition-
related adjustments, revenue for the second half of 2011 increased 28% compared to the second half
of 2010.
See “Acquisition-related Adjustments” section that follows for further discussion.
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