Lexmark 2011 Annual Report Download - page 70

As of December 31, 2011, the Company had accrued approximately $63.3 million for pending
copyright fee issues, including litigation proceedings, local legislative initiatives and/or negotiations with
the parties involved. These accruals are included in Accrued liabilities on the Consolidated Statements
of Financial Position. The liability is not included in the table above due to the level of uncertainty
regarding the timing of payments and ultimate settlement of the litigation. Refer to Part II, Item 8,
Note 19 of the Notes to Consolidated Financial Statements for additional information. Payment of such
potential obligations could have a material impact on the Company’s future operating cash flows.
Capital Expenditures
Capital expenditures totaled $156.5 million, $161.2 million, and $242 million in 2011, 2010 and 2009,
respectively. The capital expenditures for 2011 principally related to infrastructure support (including
internal-use software expenditures) and new product development. The Company expects capital
expenditures to be approximately $185 million for full year 2012, attributable mostly to infrastructure
support and new product development. Capital expenditures in 2012 are expected to be funded
through cash from operations; however, if necessary, the Company may use existing cash and cash
equivalents, proceeds from sales of marketable securities or additional sources of liquidity as
discussed in the preceding sections.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Revenue derived from international sales, including exports from the U.S., accounts for approximately
58% of the Company’s consolidated revenue, with EMEA accounting for 37% of worldwide sales.
Substantially all foreign subsidiaries maintain their accounting records in their local currencies.
Consequently, period-to-period comparability of results of operations is affected by fluctuations in
currency exchange rates. Certain of the Company’s Latin American and European entities use the
U.S. dollar as their functional currency.
Currency exchange rates had a 2% favorable impact on international revenue in 2011 when compared
to 2010. Currency exchange rates had a negligible impact on international revenue in 2010 when
compared to 2009. The Company may act to mitigate the effects of exchange rate fluctuations through
the use of operational hedges, such as pricing actions and product sourcing decisions.
The Company’s exposure to exchange rate fluctuations generally cannot be minimized solely through
the use of operational hedges. Therefore, the Company utilizes financial instruments, from time to time,
such as forward exchange contracts to reduce the impact of exchange rate fluctuations on certain
assets and liabilities, which arise from transactions denominated in currencies other than the functional
currency. The Company does not purchase currency-related financial instruments for purposes other
than exchange rate risk management.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Part II, Item 8, Note 2 of the Notes to Consolidated Financial Statements for a discussion of
recent accounting pronouncements which is incorporated herein by reference. There are no known
material changes and trends nor any recognized future impact of new accounting guidance beyond the
disclosures provided in Note 2.
INFLATION
The Company is subject to the effects of changing prices and operates in an industry where product
prices are very competitive and subject to downward price pressures. As a result, future increases in
production costs or raw material prices could have an adverse effect on the Company’s business. In an
effort to minimize the impact on earnings of any such increases, the Company must continually
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