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Employee Pension And Postretirement Plans
 12 Months Ended
Dec. 31, 2013
Employee Pension And Postretirement Plans [Abstract]  
Employee Pension And Postretirement Plans
17.           EMPLOYEE PENSION AND POSTRETIREMENT PLANS
 
Lexmark and its subsidiaries have defined benefit and defined contribution pension plans that cover certain of its regular employees, and a supplemental plan that covers certain executives. Medical, dental and life insurance plans for retirees are provided by the Company and certain of its non-U.S. subsidiaries.
 
During the fourth quarter of 2013, the Company changed its accounting policy for pension and other postretirement benefit plan asset and actuarial gains and losses. Under the new accounting policy, these gains and losses will be recognized in net periodic benefit cost in the year in which they occur rather than amortized over time. Results for all periods presented in this Annual Report on Form 10-K reflect the retrospective application of this accounting policy change. Refer to Note 2 of the Notes to Consolidated Financial Statements for additional information.
 
Defined Benefit Plans
 
The non-U.S. pension plans are not significant and use economic assumptions similar to the U.S. pension plan and therefore are not shown separately in the following disclosures.
 
Obligations and funded status at December 31:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
 
2013
2012
Change in Benefit Obligation:
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
883.2
$
817.3
 
$
37.9
$
40.7
Service cost
 
4.8
 
3.6
 
 
0.7
 
0.8
Interest cost
 
32.3
 
34.0
 
 
1.1
 
1.4
Contributions by plan participants
 
2.7
 
2.7
 
 
3.7
 
3.4
Actuarial (gain) loss
 
(63.3
 ) 
63.7
 
 
(2.4
 ) 
(1.6
)
Benefits paid
 
(57.0
 ) 
(52.7
 ) 
 
(7.4
 ) 
(7.6
)
Foreign currency exchange rate changes
 
4.1
 
5.3
 
 
-
 
-
Plan amendments and adjustments
 
(0.2
 ) 
2.6
 
 
(2.7
 ) 
0.1
Settlement, curtailment or termination benefit loss
 
-
 
6.7
 
 
-
 
0.7
Benefit obligation at end of year
 
806.6
 
883.2
 
 
30.9
 
37.9
Change in Plan Assets:
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
660.6
 
587.2
 
 
-
 
-
Actual return on plan assets
 
60.3
 
83.5
 
 
-
 
-
Contributions by the employer
 
21.1
 
35.2
 
 
3.7
 
4.2
Benefits paid
 
(57.0
 ) 
(52.7
 ) 
 
(7.4
 ) 
(7.6
)
Foreign currency exchange rate changes
 
3.9
 
4.6
 
 
-
 
-
Plan adjustments
 
0.5
 
0.1
 
 
-
 
-
Contributions by plan participants
 
2.7
 
2.7
 
 
3.7
 
3.4
Fair value of plan assets at end of year
 
692.1
 
660.6
 
 
-
 
-
Unfunded status at end of year
$
(114.5
 )$
(222.6
 ) 
$
(30.9
 )$
(37.9
)
 
For 2012, the Settlement, curtailment or termination benefit loss in the table above were primarily due to restructuring related activities in the U.S. and France.
 
Amounts recognized in the Consolidated Statements of Financial Position:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
 
2013
2012
Noncurrent assets
$
8.3
$
5.7
 
$
-
$
-
Current liabilities
 
(1.4
 ) 
(1.4
 ) 
 
(3.7
 ) 
(4.5
)
Noncurrent liabilities
 
(121.4
 ) 
(226.9
 ) 
 
(27.2
 ) 
(33.4
)
Net amount recognized
$
(114.5
 )$
(222.6
 ) 
$
(30.9
 )$
(37.9
)
 
Amounts recognized in Accumulated Other Comprehensive Income and Deferred Tax Accounts:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
 
2013
2012
Prior service credit (cost)
$
0.5
$
(0.2
 ) 
$
2.0
$
-
 
The accumulated benefit obligation for all of the Company's defined benefit pension plans was $798.5 million and $873.8 million at December 31, 2013 and 2012, respectively.
 
Pension plans with a benefit obligation in excess of plan assets at December 31:
 
 
2013
 
2012
 
Benefit Obligation
Plan Assets
 
Benefit Obligation
Plan Assets
Plans with projected benefit obligation in excess of plan assets
$
767.8
$
645.0
 
$
846.9
$
618.6
Plans with accumulated benefit obligation in excess of plan assets
 
760.8
 
645.0
 
 
839.3
 
618.6
 
Components of net periodic benefit cost:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
2011
 
2013
2012
2011
Net Periodic Benefit Cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4.8
$
3.6
$
3.2
 
$
0.7
$
0.8
$
0.9
Interest cost
 
32.3
 
34.0
 
38.6
 
 
1.1
 
1.4
 
1.8
Expected return on plan assets
 
(43.0
 ) 
(42.1
 ) 
(43.0
 ) 
 
-
 
-
 
-
Amortization of prior service cost (credit)
 
-
 
-
 
-
 
 
(0.8
 ) 
(0.2
 ) 
(3.4
)
Immediate recognition of net (gain) loss
 
(80.6
 ) 
23.4
 
96.1
 
 
(2.4
 ) 
(1.6
 ) 
(1.4
)
Settlement, curtailment or termination benefit loss (gain)
 
-
 
6.7
 
(0.3
 ) 
 
-
 
0.7
 
-
Net periodic benefit cost  
$
(86.5
 )$
25.6
$
94.6
 
$
(1.4
 )$
1.1
$
(2.1
)
 
The Settlement, curtailment or termination benefit losses totaling $7.4 million in 2012 are the net result of restructuring losses in the U.S. of $7.9 million and a curtailment gain in France of $0.5 million.
 
 
Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive income (“AOCI”) (pre-tax) for the years ended December 31:
 
 
2013
 
2012
 
2011
 
Pension Benefits
Other Postretirement Benefits
Total
 
Pension Benefits
Other Postretirement Benefits
Total
 
Pension Benefits
Other Postretirement Benefits
Total
New prior service cost
$
(0.7
 )$
(2.7
 )$
(3.4
 ) 
$
-
$
0.1
$
0.1
 
$
-
$
-
$
-
Net (gain) loss arising during the period
 
(80.6
 ) 
(2.4
 ) 
(83.0
 ) 
 
23.4
 
(1.6
 ) 
21.8
 
 
96.2
 
(1.4
 ) 
94.8
Less amounts recognized as a component of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization or curtailment recognition of prior service (cost) credit
 
-
 
0.8
 
0.8
 
 
-
 
0.2
 
0.2
 
 
(0.1
 ) 
3.4
 
3.3
Immediate recognition of net gain (loss)
 
80.6
 
2.4
 
83.0
 
 
(23.4
 ) 
1.6
 
(21.8
 ) 
 
(96.2
 ) 
1.4
 
(94.8
)
Total amount recognized in AOCI for the period
 
(0.7
 ) 
(1.9
 ) 
(2.6
 ) 
 
-
 
0.3
 
0.3
 
 
(0.1
 ) 
3.4
 
3.3
Net periodic benefit cost
 
(86.5
 ) 
(1.4
 ) 
(87.9
 ) 
 
25.6
 
1.1
 
26.7
 
 
94.6
 
(2.1
 ) 
92.5
Total amount recognized in net periodic benefit cost and AOCI for the period
$
(87.2
 )$
(3.3
 )$
(90.5
 ) 
$
25.6
$
1.4
$
27.0
 
$
94.5
$
1.3
$
95.8
 
The estimated prior service credit for the other defined benefit postretirement plans that will be amortized from Accumulated other comprehensive earnings (loss) into net periodic benefit cost over the next fiscal year is $0.7 million.
 
Assumptions:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
 
2013
2012
Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31:
 
 
 
 
 
 
 
 
 
Discount rate
4.6
%
3.9
%
 
3.9
%
3.5
%
Rate of compensation increase
3.0
%
3.1
%
 
4.0
%
4.0
%
 
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
2012
2011
 
2013
2012
2011
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.9
%
4.5
%
5.2
%
 
3.5
%
4.0
%
4.7
%
Expected long-term return on plan assets
6.9
%
7.2
%
7.2
%
 
-
 
-
 
-
 
Rate of compensation increase
3.1
%
2.6
%
2.6
%
 
4.0
%
4.0
%
4.0
%
 
Plan assets:
 
Plan assets are invested in equity securities, government and agency securities, mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, corporate debt, annuity contracts and other securities. The U.S. defined benefit plan comprises a significant portion of the assets and liabilities relating to the defined benefit plans. The investment goal of the U.S. defined benefit plan is to achieve an adequate net investment return in order to provide for future benefit payments to its participants. Asset allocation percentages are targeted to be 40% equity and 60% fixed income investments. The U.S. pension plan employs professional investment managers to invest in U.S. equity, global equity, international developed equity, emerging market equity, U.S. fixed income, high yield bonds and emerging market debt. Each investment manager operates under an investment management contract that includes specific investment guidelines, requiring among other actions, adequate diversification, prudent use of derivatives and standard risk management practices such as portfolio constraints relating to established benchmarks. The plan currently uses a combination of both active management and passive index funds to achieve its investment goals.
 
The Company uses third parties to report the fair values of its plan assets. The Company tested the fair value of the portfolio and default level assumptions provided by the third parties as of December 31, 2013 and December 31, 2012 using the following procedures:
  • assessment of trading activity and other market data,
  • assessment of variability in pricing by comparison to independent source(s) of pricing, and
  • back-testing of transactions to determine historical accuracy of net asset value per share/unit as an exit price.
 
The following is a description of the valuation methodologies used for pension assets measured at fair value. Refer to Note 3 of the Notes to Consolidated Financial Statements for details on the accounting framework for measuring fair value and the related fair value hierarchy.
 
Commingled trust funds: Valued at the closing price reported on the active market on which the funds are traded or at the net asset value per unit at year end as quoted by the funds as the basis for current transactions.
 
Mutual and money market funds: Valued at the per share (unit) published as the basis for current transactions.
 
Fixed income: Valued at quoted prices, broker dealer quotations, or other methods by which all significant inputs are generally observable, either directly or indirectly. If significant inputs are unobservable, the security is classified as Level 3.
 
U.S. equity securities: Valued at the closing price reported on the active market on which the securities are traded or at quoted prices in markets that are not active, broker dealer quotations, or other methods by which all significant inputs are observable, either directly or indirectly.
 
The following table sets forth by level, within the fair value hierarchy, plan assets measured at fair value on a recurring basis as of December 31, 2013 and 2012:
 
 
December 31, 2013
 
December 31, 2012
 
Level 1
Level 2
Level 3
Total
 
Level 1
Level 2
Level 3
Total
Commingled trust funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income
$
-
$
210.1
$
-
$
210.1
 
$
-
$
245.4
$
-
$
245.4
International equity large-cap
 
-
 
92.9
 
-
 
92.9
 
 
-
 
124.1
 
-
 
124.1
International equity small-cap
 
-
 
20.8
 
-
 
20.8
 
 
-
 
30.5
 
-
 
30.5
Emerging market equity
 
-
 
24.5
 
-
 
24.5
 
 
-
 
27.8
 
-
 
27.8
Emerging market debt
 
-
 
26.6
 
-
 
26.6
 
 
-
 
27.5
 
-
 
27.5
Global equity
 
-
 
39.2
 
-
 
39.2
 
 
-
 
46.7
 
-
 
46.7
U.S. equity
 
-
 
89.8
 
-
 
89.8
 
 
-
 
96.8
 
-
 
96.8
Real estate
 
-
 
4.8
 
-
 
4.8
 
 
-
 
3.6
 
-
 
3.6
Mutual and money market funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Small mid-cap value
 
-
 
-
 
-
 
-
 
 
13.8
 
-
 
-
 
13.8
Money market fund
 
-
 
-
 
-
 
-
 
 
-
 
1.3
 
-
 
1.3
Fixed income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government and agency debt securities
 
-
 
33.0
 
-
 
33.0
 
 
-
 
-
 
-
 
-
Corporate debt securities
 
-
 
133.0
 
1.6
 
134.6
 
 
-
 
27.7
 
2.0
 
29.7
Asset-backed and mortgage-backed securities
 
-
 
11.1
 
2.5
 
13.6
 
 
-
 
-
 
-
 
-
U.S. equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Small mid-cap growth
 
-
 
-
 
-
 
-
 
 
13.2
 
-
 
-
 
13.2
Cash equivalent
 
-
 
2.3
 
-
 
2.3
 
 
-
 
0.2
 
-
 
0.2
Subtotal
 
-
 
688.1
 
4.1
 
692.2
 
 
27.0
 
631.6
 
2.0
 
660.6
Cash
 
-
 
-
 
-
 
2.2
 
 
-
 
-
 
-
 
-
Employer and benefits payable
 
-
 
-
 
-
 
(2.3
 ) 
 
-
 
-
 
-
 
-
Total assets at fair value
$
-
$
688.1
$
4.1
$
692.1
 
$
27.0
$
631.6
$
2.0
$
660.6
 
The following table sets forth a summary of changes in the fair value of level 3 assets at December 31:
 
 
2013
 
2012
 
Total
Fixed Income - Corporate debt securities
Fixed Income - Asset-backed securities
 
Fixed Income - Corporate debt securities
Fair value at beginning of year
$
2.0
$
2.0
$
-
 
$
2.0
Actual return on plan assets - assets held at reporting date
 
-
 
-
 
-
 
 
-
Actual return on plan assets - assets sold during period
 
(0.1
 ) 
-
 
(0.1
 ) 
 
-
Purchases, sales and settlements, net
 
2.6
 
-
 
2.6
 
 
0.1
Transfers in/(transfers out), net
 
(0.4
 ) 
(0.4
 ) 
-
 
 
(0.1
)
Fair value at end of year
$
4.1
$
1.6
$
2.5
 
$
2.0
 
Defined Contribution Plans
 
Lexmark also sponsors defined contribution plans for employees in certain countries. Company contributions are generally based upon a percentage of employees' contributions. The Company's expense under these plans was $28.3 million, $26.0 million and $25.6 million in 2013, 2012 and 2011, respectively.
 
Additional Information
 
Other postretirement benefits:
 
For measurement purposes, a 7.4% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2014. The rate is assumed to decrease gradually to 4.5% for 2028 and remain at that level thereafter. A one-percentage-point change in the health care cost trend rate would have a de minimus effect on the benefit cost and obligation since preset caps have been met for the net employer cost of postretirement medical benefits.
 
Related to Lexmark's acquisition of the Information Products Corporation from IBM in 1991, IBM agreed to pay for its pro rata share (currently estimated at $13.2 million) of future postretirement benefits for all the Company's U.S. employees based on prorated years of service with IBM and the Company.
 
Cash flows:
 
In 2014, the Company is currently expecting to contribute approximately $34 million to its pension and other postretirement plans.
 
Lexmark estimates that the future benefits payable for the pension and other postretirement plans are as follows:
 
 
Pension Benefits
Other Postretirement Benefits
2014
$
51.2
$
3.7
2015
 
49.8
 
3.4
2016
 
49.6
 
3.3
2017
 
48.8
 
3.3
2018
 
48.8
 
3.2
2019-2023
 
251.3
 
14.1