Lexmark 2009 Annual Report Download - page 68

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Company may use existing cash, cash equivalents, and proceeds from sales of marketable securities or
additional sources of liquidity as discussed above.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Revenue derived from international sales, including exports from the U.S., accounts for approximately
57% of the Company’s consolidated revenue, with Europe accounting for approximately two-thirds of
international sales. Substantially all foreign subsidiaries maintain their accounting records in their local
currencies. Consequently, period-to-period comparability of results of operations is affected by fluctuations
in currency exchange rates. Certain of the Company’s Latin American and European entities use the
U.S. dollar as their functional currency.
Currency exchange rates had an unfavorable impact on international revenue in 2009 when compared to
2008. Currency exchange rates had a favorable impact on international revenue in 2008 and 2007 when
compared with 2007 and 2006, respectively. The Company may act to mitigate the effects of exchange rate
fluctuations through the use of operational hedges, such as pricing actions and product sourcing decisions.
The Company’s exposure to exchange rate fluctuations generally cannot be minimized solely through the
use of operational hedges. Therefore, the Company utilizes financial instruments, from time to time, such
as forward exchange contracts to reduce the impact of exchange rate fluctuations on certain assets and
liabilities, which arise from transactions denominated in currencies other than the functional currency. The
Company does not purchase currency-related financial instruments for purposes other than exchange rate
risk management.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Part II, Item 8, Note 2 of the Notes to Consolidated Financial Statements for a discussion of recent
accounting pronouncements which is incorporated herein by reference. In addition, refer to Critical
Accounting Policies and Estimates in Part II, Item 7, for a description of the Company’s
implementation of accounting guidance issued in 2009 related to fair value measurement and
impairment of marketable debt securities. There are no known material changes and trends nor any
recognized future impact of new accounting guidance beyond the disclosures provided in these two
sections.
INFLATION
The Company is subject to the effects of changing prices and operates in an industry where product prices
are very competitive and subject to downward price pressures. As a result, future increases in production
costs or raw material prices could have an adverse effect on the Company’s business. In an effort to
minimize the impact on earnings of any such increases, the Company must continually manage its product
costs and manufacturing processes. Additionally, monetary assets such as cash, cash equivalents and
marketable securities lose purchasing power during inflationary periods and thus, the Company’s cash
and marketable securities balances could be more susceptible to the effects of increasing inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVITY
The market risk inherent in the Company’s financial instruments and positions represents the potential loss
arising from adverse changes in interest rates and foreign currency exchange rates.
Interest Rates
At December 31, 2009, the fair value of the Company’s senior notes was estimated at $666.5 million using
quoted market prices obtained from an independent broker. The fair value of the senior notes exceeded
the carrying value as recorded in the Consolidated Statements of Financial Position at December 31, 2009
by approximately $17.6 million. Market risk is estimated as the potential change in fair value resulting from
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