Lexmark 2011 Annual Report Download - page 82

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Warranty:
Lexmark provides for the estimated cost of product warranties at the time revenue is recognized. The
amounts accrued for product warranties are based on the quantity of units sold under warranty,
estimated product failure rates, and material usage and service delivery costs. The estimates for
product failure rates and material usage and service delivery costs are periodically adjusted based on
actual results. For extended warranty programs, the Company defers revenue in short-term and long-
term liability accounts (based on the extended warranty contractual period) for amounts invoiced to
customers for these programs and recognizes the revenue ratably over the contractual period. Costs
associated with extended warranty programs are expensed as incurred.
Shipping and Distribution Costs:
Lexmark includes shipping and distribution costs in Cost of revenue on the Consolidated Statements of
Earnings.
Segment Data:
The Company is primarily managed along two segments: Imaging Solutions and Services (“ISS”) and
Perceptive Software. ISS offers a broad portfolio of monochrome and color laser printers, laser MFPs
and inkjet all-in-one devices as well as a wide range of supplies and services covering its printing
products and technology solutions. Perceptive Software offers a complete suite of ECM and BPM
software products and solutions.
Revenue Recognition:
General
Lexmark recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue as
reported in the Company’s Consolidated Statements of Earnings is reported net of any taxes (e.g.,
sales, use, value added) assessed by a governmental entity that is directly imposed on a revenue-
producing transaction between a seller and a customer.
The following are the policies applicable to Lexmark’s major categories of revenue transactions:
Printing Products
Revenue from product sales, including sales to distributors and resellers, is recognized when title and
risk of loss transfer to the customer, generally when the product is shipped to the customer. Lexmark
customers include distributors, resellers and end-users of Lexmark products. When other significant
obligations remain after products are delivered, such as contractual requirements pertaining to
customer acceptance, revenue is recognized only after such obligations are fulfilled. At the time
revenue is recognized, the Company provides for the estimated cost of post-sales support, principally
product warranty, and reduces revenue for estimated product returns.
Lexmark records estimated reductions to revenue at the time of sale for customer programs and
incentive offerings including special pricing agreements, promotions and other volume-based
incentives. Estimated reductions in revenue are based upon historical trends and other known factors
at the time of sale. Lexmark also records estimated reductions to revenue for price protection, which it
provides to substantially all of its distributors and reseller customers.
Printing Services
Revenue from support or maintenance contracts, including extended warranty programs, is recognized
ratably over the contractual period. Amounts invoiced to customers in excess of revenue recognized on
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