Lexmark 2011 Annual Report Download - page 57

additional expenses including product engineering expenses, costs related to the certification of new
parts and suppliers and increased freight expense. These additional costs, after the consideration of
insurance recoveries, were not material. For 2012, the Company does not expect to face any supplies
availability issues related to the Japan crisis. In recent years, sales in Japan have made up less than
1% of the Company’s total revenue.
Flooding in Thailand in the second half of calendar year 2011 significantly impacted much of the
country’s industrial and manufacturing plants. Although the Company does not have a significant
manufacturing or logistics presence in Thailand, the Company does have a number of suppliers that
were impacted by this crisis. The Company has worked closely with suppliers to understand the
impacts to the supply of materials and components and developed alternative solutions as needed.
The crisis impacts only a portion of the Company’s laser and inkjet hardware product lines, and has no
direct impact on the delivery of supplies. The Company expects to incur costs of $10-$15 million, net of
anticipated insurance recoveries, in the first quarter of 2012 related to the Thailand floods. Costs
beyond the first quarter of 2012 are expected to be less than $5 million. These costs principally reflect
the expediting costs and increased cost of components and local manufacturing to improve hardware
availability to meet demand. Although the Company believes the majority of these costs will be covered
by insurance, recoveries from insurance may not be recognized in the same period as the incurred
costs due to the nature and timing of the claims review process. It is likely that a majority of the
recovery of these costs will be reflected later in 2012.
RESTRUCTURING AND RELATED CHARGES AND PROJECT COSTS
Summary of Restructuring Impacts
The Company’s 2011 financial results are impacted by its restructuring plans and related projects.
Project costs consist of additional charges related to the execution of the restructuring plans. These
project costs are incremental to the Company’s normal operating charges and are expensed as
incurred, and include such items as compensation costs for overlap staffing, travel expenses,
consulting costs and training costs.
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, including project costs, of approximately $35 million, with total cash cost
expected to be approximately $24 million. Lexmark expects the January 2012 Restructuring Plan to
generate savings of approximately $15 million in 2012 and ongoing cash savings beginning in 2013 of
approximately $28 million. These ongoing savings should be split approximately 80% to operating
expense and 20% to cost of revenue.
Refer to Note 5 of Notes to Consolidated Financial Statements for a description of October 2009
Restructuring Plan and the Other Restructuring Actions. The October 2009 Restructuring Plan and the
Other Restructuring Actions are substantially completed and any remaining charges to be incurred are
expected to be immaterial.
The October 2009 Restructuring Plan is expected to impact about 770 positions worldwide. Total
pre-tax charges, including project costs, of approximately $120 million are expected for the October
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