Lexmark 2007 Annual Report Download - page 90

Download and view the complete annual report

Please find page 90 of the 2007 Lexmark annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 113

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113

Defined Contribution Plans
Lexmark also sponsors defined contribution plans for employees in certain countries. Company
contributions are generally based upon a percentage of employees’ contributions. The Company’s
expense under these plans was $25.8 million, $20.5 million and $13.6 million in 2007, 2006 and 2005,
respectively.
Additional Information
Other postretirement benefits:
For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2008. The rate is assumed to decrease gradually to 5.25% in 2013 and remain at
that level thereafter. A one-percentage-point change in the health care cost trend rate would have a
de minimus effect on the benefit cost and obligation since preset caps have been met for the net employer
cost of postretirement medical benefits.
Related to Lexmark’s acquisition of the Information Products Corporation from IBM in 1991, IBM agreed to
pay for its pro rata share (currently estimated at $30.5 million) of future postretirement benefits for all the
Company’s U.S. employees based on pro rated years of service with IBM and the Company.
Cash flows:
In 2008, the Company is currently expecting to contribute approximately $7.5 million to its pension and
other postretirement plans.
Lexmark estimates that the future benefits payable for the pension and other postretirement plans are as
follows:
Pension Benefits
Other Postretirement
Benefits
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.7 $ 3.5
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.6 4.0
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.5 4.3
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.8 4.7
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.1 4.7
2013-2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261.8 24.7
15. DERIVATIVES, FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Derivative Instruments and Hedging Activities
Lexmark’s activities expose it to a variety of market risks, including the effects of changes in foreign
currency exchange rates and interest rates. The Company’s risk management program seeks to reduce
the potentially adverse effects that market risks may have on its operating results.
Lexmark maintains a foreign currency risk management strategy that uses derivative instruments to
protect its interests from unanticipated fluctuations in earnings and cash flows caused by volatility in
currency exchange rates. The Company does not hold or issue financial instruments for trading purposes
nor does it hold or issue leveraged derivative instruments. Lexmark maintains an interest rate risk
management strategy that may, from time to time use derivative instruments to minimize significant,
unanticipated earnings fluctuations caused by interest rate volatility. By using derivative financial
instruments to hedge exposures to changes in exchange rates and interest rates, the Company
exposes itself to credit risk and market risk. Lexmark manages exposure to counterparty credit risk by
entering into derivative financial instruments with highly rated institutions that can be expected to fully
perform under the terms of the agreement. Market risk is the adverse effect on the value of a financial
instrument that results from a change in currency exchange rates or interest rates. The Company manages
84