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adjusted the fair values provided by the third party in order to better reflect the risk adjustments that market
participants would make for nonperformance and liquidity risks. Level 3 fair value measurements are
based on inputs that are unobservable and significant to the overall valuation. The Company’s Level 3
recurring fair value measurements include security types that do not have readily determinable market
values and/or are not priced by independent data sources, including failed auction rate securities valued at
$24.7 million (discussed previously), certain distressed debt instruments valued at $0.8 million (including
Lehman corporate debt valued at $0.5 million) and other thinly traded corporate debt securities and
mortgage-backed securities valued at $0.6 million. These measurements were roughly 3.6% of the
Company’s total available-for-sale marketable securities portfolio.
The discounted cash flow analysis performed by the Company on its auction rate securities at year-end
2008 used current coupon rates, a first quarter 2010 redemption date and a 50 basis point liquidity
premium factored into the discount rate. The result was the Company’s best estimate of fair value using
assumptions that the Company believes market participants would make for nonperformance and liquidity
risk at the measurement date. For certain debt instruments that the Company considers distressed due to
reasons such as bankruptcy or a significant downgrade in credit rating, the securities are generally valued
using non-binding quotes from brokers or other indicative pricing sources. For certain corporate debt and
mortgage-backed securities held by the Company, current pricing data was no longer available at the
measurement date, representing a decline in the volume and level of trading activity. These securities are
also generally valued using non-binding quotes from brokers or other indicative pricing sources.
Refer to Part II, Item 8, Note 3 of the Notes to Consolidated Financial Statements for additional information
regarding FAS 157 Fair Value Measurements. Refer to Part II, Item 8, Note 6 of the Notes to Consolidated
Financial Statements for additional information regarding marketable securities.
In addition to investing in marketable securities, the Company also invested $217.7 million, $182.7 million
and $200.2 million into property, plant and equipment for the years 2008, 2007 and 2006 respectively.
Further discussion regarding 2008 capital expenditures as well as anticipated spending for 2009 are
provided near the end of Item 7.
Other notable investing cash flows include $4.6 million proceeds received from the sale of the Company’s
inkjet supplies assembly plant located in Juarez, Mexico in the third quarter of 2008 as well as $8.1 million
proceeds received from the sale of the Scotland facility that occurred in the first quarter of 2007. These
events are presented in Proceeds from sale of facilities in the Investing section of the Consolidated
Statements of Cash Flows for their respective periods.
Financing activities
The fluctuations in the net cash flows used for financing activities were principally due to the Company’s
share repurchase activity, offset partially by the repayment of debt and issuance of new debt that occurred
in the second quarter of 2008. The Company repurchased $0.6 billion, $0.2 billion and $0.9 billion of
treasury stock during 2008, 2007 and 2006, respectively. Refer to the sections that follow for additional
information regarding these financing activities.
Share Repurchases
In May 2008, the Company received authorization from the board of directors to repurchase an additional
$750 million of its Class A Common Stock for a total repurchase authority of $4.65 billion. As of
December 31, 2008, there was approximately $0.5 billion of share repurchase authority remaining.
This repurchase authority allows the Company, at management’s discretion, to selectively repurchase
its stock from time to time in the open market or in privately negotiated transactions depending upon
market price and other factors. During 2008, the Company repurchased approximately 17.5 million shares
at a cost of approximately $0.6 billion, including two accelerated share repurchase agreements discussed
below. As of December 31, 2008, since the inception of the program in April 1996, the Company had
repurchased approximately 91.6 million shares for an aggregate cost of approximately $4.2 billion. As of
December 31, 2008, the Company had reissued approximately 0.5 million shares of previously
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