Lexmark 2011 Annual Report Download - page 78

Cash Equivalents:
All highly liquid investments with an original maturity of three months or less at the Company’s date of
purchase are considered to be cash equivalents.
Fair Value:
The Company generally uses a market approach, when practicable, in valuing financial instruments. In
certain instances, when observable market data is lacking, the Company uses valuation techniques
consistent with the income approach whereby future cash flows are converted to a single discounted
amount. The Company uses multiple sources of pricing as well as trading and other market data in its
process of reporting fair values and testing default level assumptions. The Company assesses the
quantity of pricing sources available, variability in pricing, trading activity, and other relevant data in
performing this process. The fair value of cash and cash equivalents, trade receivables and accounts
payables approximate their carrying values due to the relatively short-term nature of the instruments.
In determining where measurements lie in the fair value hierarchy, the Company uses default
assumptions regarding the general characteristics of the financial instrument as the starting point. The
Company then adjusts the level assigned to the fair value measurement, as necessary, based on the
weight of the evidence obtained by the Company. For most financial instruments, the Company
reviews the levels assigned to its fair value measurements on a quarterly basis and recognizes
transfers between levels of the fair value hierarchy as of the beginning of the quarter in which the
transfer occurs. For pension plan assets, the Company reviews the levels assigned to its fair value
measurements on an annual basis and recognizes transfers between levels as of the beginning of the
year in which the transfer occurs.
The Company also performs fair value measurements on a nonrecurring basis for various nonfinancial
assets including intangible assets acquired in a business combination, impairment of long-lived assets
held for sale, impairment of held and used fixed assets and goodwill and indefinite-lived intangible
asset impairment testing. The valuation approach(es) selected for each of these measurements
depends upon the specific facts and circumstances.
Marketable Securities:
Based on the Company’s expected holding period, Lexmark has classified all of its marketable
securities as available-for-sale and the majority of these investments are reported in the Consolidated
Statements of Financial Position as current assets. The Company’s available-for-sale auction rate
securities have been classified as noncurrent assets since the expected holding period is assumed to
be greater than one year due to failed market auctions of these securities. Realized gains or losses are
derived using the specific identification method for determining the cost of the securities.
The Company records its investments in marketable securities at fair value through accumulated other
comprehensive earnings using the valuation practices discussed in the previous fair value section.
Once these investments have been marked to market, the Company must assess whether or not its
individual unrealized loss positions contain other-than-temporary impairment (“OTTI”). The Company
recognizes OTTI in earnings for the entire unrealized loss position if the entity intends to sell or it is
more likely than not the entity will be required to sell the debt security before its anticipated recovery of
its amortized cost basis. If the Company does not expect to sell the debt security, but the present value
of cash flows expected to be collected is less than the amortized cost basis, a credit loss is deemed to
exist and OTTI is recognized in earnings.
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