Lexmark 2009 Annual Report Download - page 128

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As of December 31, 2009 and 2008, the Company had the following net derivative assets recorded at fair
value in Prepaid expenses and other current assets on the Consolidated Statements of Financial Position
at December 31:
Foreign Exchange Contracts 2009 2008
Gross liability position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.4) $—
Gross asset position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 —
Net asset position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.2 $—
As of December 31, 2009 and 2008, the Company had the following net derivative liabilities recorded at fair
value in Accrued liabilities on the Consolidated Statements of Financial Position at December 31:
Foreign Exchange Contracts 2009 2008
Gross liability position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.7) $(2.7)
Gross asset position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 1.2
Net liability position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.3) $(1.5)
The Company had the following (gains) and losses related to derivative instruments qualifying and
designated as hedging instruments in fair value hedges and related hedged items recorded in Cost of
Revenue on the Consolidated Statements of Earnings:
Fair Value Hedging Relationships 2009 2008 2007
Foreign Exchange Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.6 $13.1 $6.0
Underlying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.7) 5.4 2.2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2.1) $18.5 $8.2
Lexmark formally documents all relationships between hedging instruments and hedged items, as well as
its risk management objective and strategy for undertaking various hedge items. This process includes
linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the
balance sheet. The Company also formally assesses, both at the hedge’s inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair value of hedged items. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
Lexmark discontinues hedge accounting prospectively when (1) it is determined that a derivative is no
longer effective in offsetting changes in the fair value of a hedged item or (2) the derivative expires or is
sold, terminated or exercised. When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, the derivative will continue to be carried on
the Consolidated Statements of Financial Position at its fair value. In all other situations in which hedge
accounting is discontinued, the derivative will be carried at its fair value on the Consolidated Statements of
Financial Position, with changes in its fair value recognized in current period earnings.
Additional information regarding derivatives can be referenced in Note 3, Fair Value, of the Notes to the
Consolidated Financial Statements.
Concentrations of Risk
Lexmark’s main concentrations of credit risk consist primarily of short-term cash investments, marketable
securities and trade receivables. Short-term cash and marketable securities investments are made in a
variety of high quality securities with prudent diversification requirements. The Company seeks
diversification among its cash investments by limiting the amount of cash investments that can be
made with any one obligor. Credit risk related to trade receivables is dispersed across a large number
of customers located in various geographic areas. Collateral such as letters of credit and bank guarantees
is required in certain circumstances. In addition, the Company uses credit issuance for specific obligors to
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