Lexmark 2010 Annual Report Download - page 67

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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, 2010, the fair value of the Company’s senior notes was estimated at $693.8 million based
on the prices the bonds have recently traded in the market as well as the overall market conditions on the
date of valuation. The fair value of the senior notes exceeded the carrying value as recorded in the
Consolidated Statements of Financial Position at December 31, 2010 by approximately $44.7 million.
Market risk is estimated as the potential change in fair value resulting from a hypothetical 10% adverse
change in interest rates and amounts to approximately $12.7 million at December 31, 2010.
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
a hypothetical 10% adverse change in interest rates and was approximately $17.5 million at December 31,
2009.
See the section titled “LIQUIDITY AND CAPITAL RESOURCES — Investing Activities:” in Item 7 of this
report for a discussion of the Company’s auction rate securities portfolio which is incorporated herein by
reference.
Foreign Currency Exchange Rates
The Company has employed, from time to time, a foreign currency hedging strategy to limit potential losses
in earnings or cash flows from adverse foreign currency exchange rate movements. Foreign currency
exposures arise from transactions denominated in a currency other than the Company’s functional
currency and from foreign denominated revenue and profit translated into U.S. dollars. The primary
currencies to which the Company is exposed include the Euro, the Canadian dollar, the British pound, the
Philippine peso, the Mexican peso, as well as other currencies. Exposures may be hedged with foreign
currency forward contracts, put options, and call options generally with maturity dates of twelve months or
less. The potential gain in fair value at December 31, 2010 for such contracts resulting from a hypothetical
10% adverse change in all foreign currency exchange rates is approximately $15.2 million. This gain would
be mitigated by corresponding losses on the underlying exposures. The potential gain in fair value at
December 31, 2009 for such contracts resulting from a hypothetical 10% adverse change in all foreign
currency exchange rates was approximately $1.5 million. This gain would have been mitigated by
corresponding losses on the underlying exposures.
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