This excerpt taken from the LXK 10-K filed Feb 27, 2009.
The Company assesses its marketable securities for other-than-temporary declines in value by considering several factors that include, among other things, any events that may affect the creditworthiness of a securitys issuer, current and expected market conditions, the length of time and extent to which fair value is less than cost, and the Companys ability and intent to hold the security until a forecasted recovery of fair value that may include holding the security to maturity.
Market conditions continue to indicate significant uncertainty on the part of investors on the economic outlook for the U.S. and for financial institutions. This uncertainty has created reduced liquidity across the fixed income investment market, including the securities in which Lexmark is invested. As a result, some of the Companys investments have experienced reduced liquidity including unsuccessful auctions for its auction rate security holdings as well as temporary and other than temporary impairment of other marketable securities.
In 2008 there were several significant market events, including the bankruptcy of Lehman Brothers Holdings and the failure of many auction rate securities. In 2008, Lexmark recognized, based on indicative pricing, charges of $4.4 million for other-than-temporary impairment of its Lehman Brothers corporate debt securities, and $1.0 million for other-than-temporary impairment related to distressed corporate debt, mortgage-backed and asset-backed securities. 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. All charges for other-than-temporary impairment are recognized in Other (income) expense, net on the Consolidated Statements of Earnings. In addition, the Company has recognized a cumulative, pre-tax valuation allowance of $1.7 million included in Accumulated other comprehensive loss on the Consolidated Statements of Financial Position, representing a temporary impairment of the overall portfolio.
The table below is a summary of the Companys marketable securities, at year end, for which the fair value is less than cost (impaired), and for which other-than-temporary impairments have not been recognized. The table is separated into securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer. All securities impaired for 12 months or longer are evaluated individually for other-than-temporary impairment. Additionally, when the Company becomes aware of certain conditions that may affect its securities, such as any events that may affect the creditworthiness of a securitys issuer or current and expected market conditions, securities impaired for less than 12 months are evaluated to determine if an other-than-temporary impairment has occurred. As of December 31, 2008 the Company does not believe that it has a material risk in its current portfolio of investments that would impact its financial condition or liquidity.