Lexmark 2013 Annual Report Download - page 68

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64
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 payable 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. Except for its pension plan assets, 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 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 in
accordance with the accounting guidance for available-for-sale securities. 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”). If an
unrealized position is deemed OTTI, then the unrealized loss, or a portion thereof, must be recognized in earnings. The Company
recognizes OTTI in earnings for the entire unrealized loss position if it intends to sell or it is more likely than not that the Company
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 shall be considered to have occurred. The OTTI is separated into two components, the amount representing
the credit loss which is recognized in earnings and the amount related to all other factors which is recognized in other comprehensive
income.
In determining whether it is more likely than not that the Company will be required to sell impaired securities before recovery of net
book or carrying values, the Company considers various factors that include:
The Company’s current cash flow projections,
Other sources of funds available to the Company such as borrowing lines,
The value of the security relative to the Company’s overall cash position,
The length of time remaining until the security matures, and
The potential that the security will need to be sold to raise capital.
If the Company determines that it does not intend to sell the security and it is not more likely than not that the Company will be
required to sell the security, the Company assesses whether it expects to recover the net book or carrying value of the security. The
64