Lexmark 2009 Annual Report Download - page 60

pension contributions and the German copyright settlement discussed previously, that did not allow the
Company to invest these funds in marketable securities during the year. The YTY variations in cash flows
(used for) provided by investing activities were driven by the Company’s marketable securities investment
activities as well as the increase in capital expenditures discussed below.
The Company’s investments in marketable securities are classified and accounted for as
available-for-sale. At December 31, 2009 and December 31, 2008, the Company’s marketable
securities portfolio consisted of asset-backed and mortgage-backed securities, corporate debt
securities, preferred and municipal debt securities, U.S. government and agency debt securities,
international government, commercial paper and certificates of deposit. The Company’s auction rate
securities, valued at $22.0 million and $24.7 at year-end 2009 and 2008, respectively, are reported in the
noncurrent assets section of the Company’s Consolidated Statements of Financial Position.
For the year ended December 31, 2009, the Company recognized $2.7 million in net losses on its
marketable securities, including $3.3 million for other-than-temporary impairment (“OTTI”) of debt
securities. Of the total OTTI charges, $3.1 million were recorded in Net Impairment Losses on
Securities and calculated in accordance with the new FASB OTTI guidance and $0.2 million were
recognized in Other (income) expense, net in the first quarter of 2009 as determined under the prior
OTTI guidance. The Company assesses its marketable securities for other-than-temporary declines in
value in accordance with the new model provided under the FASB’s amended guidance, which was
adopted in the second quarter of 2009. The Company has disclosed in the Critical Accounting Policies and
Estimates portion of Management’s Discussion and Analysis its policy regarding the factors it considers
and significant judgments made in applying the new guidance. Of the $3.1 million total above,
approximately $1.2 million were related to Lehman Brothers debt securities credit losses and
$1.4 million represent credit losses recognized for one of the Company’s municipal auction rate
securities. It should be noted that all of the 2009 charges related to Lehman Brothers and $0.7 million
of the 2009 charge related to the municipal auction rate security are recycled charges that were recognized
in 2008 and partially reversed through Retained earnings on April 1, 2009 in the transition adjustment
required under the amended FASB OTTI guidance. The majority, but not all, of the OTTI charges in 2009
were related to assets deemed Level 3 in the fair value hierarchy and are included in the Level 3 disclosures
provided in Part II, Item 8, Note 3 of the Notes to Consolidated Financial Statements. In addition, at
December 31, 2009, the Company recognized a cumulative, pre-tax valuation allowance of $0.9 million
included in Accumulated other comprehensive loss on the Consolidated Statements of Financial Position,
representing a temporary impairment of the overall portfolio. The pre-tax valuation allowance consists of
gross unrealized losses of $4.4 million, primarily related to certain asset-backed and mortgage-backed
securities and auction rate securities, offset partially by $3.5 million of gross unrealized holding gains
related to various types of securities.
For the year ended December 31, 2008, the Company recognized $7.9 million in net losses on its
marketable securities, including $7.3 million for other-than-temporary impairment of debt securities held
by the Company on December 31, 2008, under the OTTI accounting guidance effective at that time. In
2008 there were several significant market events, including the bankruptcy of Lehman Brothers Holdings
and the failed auctions of many of the Company’s auction rate securities. In 2008, Lexmark transferred its
Lehman Brothers corporate debt securities into the Level 3 category of the fair value hierarchy, and
subsequently took a charge of $4.4 million based on the estimated fair value of the investments determined
from indicative pricing sources. Additionally in 2008, the Company recognized a $1.9 million charge for
other-than-temporary impairment in connection with its auction rate fixed income securities; the fair value
of which was determined using an internal discount cash flow valuation model discussed later in this
section. The Company also incurred another $1.0 million of charges related to other-than-temporary
impairments of certain distressed corporate debt, mortgage-backed and asset-backed securities. The
$7.3 million in total losses were recognized in Other (income) expense, net on the Consolidated
Statements of Earnings and included in the Company’s Level 3 rollforward table in Part II, Item 8,
Note 3 of the Notes to Consolidated Financial Statements. In addition, at December 31, 2008, the
Company recognized a cumulative, pre-tax valuation allowance of $1.7 million included in Accumulated
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