Lexmark 2011 Annual Report Download - page 114

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be required to sell the securities before anticipated recovery of their net book values, which may be at
maturity, the Company does not consider securities in its corporate debt portfolio to be other-than-
temporarily impaired at December 31, 2011.
Asset-backed and mortgage-backed securities
Credit losses for the asset-backed and mortgage-backed securities are derived by examining the
significant drivers that affect loan performance such as pre-payment speeds, default rates, and current
loan status. These drivers are used to apply specific assumptions to each security and are further
divided in order to separate the underlying collateral into distinct groups based on loan performance
characteristics. For instance, more weight is placed on higher risk categories such as collateral that
exhibits higher than normal default rates, those loans originated in high risk states where home
appreciation has suffered the most severe correction, and those loans which exhibit longer delinquency
rates. Based on these characteristics, collateral-specific assumptions are applied to build a model to
project future cash flows expected to be collected. These cash flows are then discounted at the current
yield used to accrete the beneficial interest, which approximates the effective interest rate implicit in the
bond at the date of acquisition for those securities purchased at par. The unrealized losses on the
Company’s remaining asset-backed and mortgage-backed securities are due to constraints in market
liquidity for certain portions of these sectors in which the Company has investments, and are not due to
credit quality. Because the Company does not intend to sell and will not be required to sell the
securities before anticipated recovery of their net book values, the Company does not consider the
remainder of its asset-backed and mortgage-backed debt portfolio to be other-than-temporarily
impaired at December 31, 2011.
Government and Agency securities
The unrealized losses on the Company’s investments in government and agency securities are the
result of interest rate effects. Because the Company does not intend to sell the securities and it is not
more likely than not that the Company will be required to sell the securities before anticipated recovery
of their net book values, the Company does not consider these investments to be other-than-
temporarily impaired at December 31, 2011.
8. TRADE RECEIVABLES
The Company’s trade receivables are reported in the Consolidated Statements of Financial Position
net of allowances for doubtful accounts and product returns. Trade receivables consisted of the
following at December 31:
2011 2010
Gross trade receivables ................................................ $485.8 $512.4
Allowances ........................................................... (28.0) (32.8)
Trade receivables, net .................................................. $457.8 $479.6
In the U.S., the Company transfers a majority of its receivables to its wholly-owned subsidiary,
Lexmark Receivables Corporation (“LRC”), which then may transfer the receivables on a limited
recourse basis to an unrelated third party. The financial results of LRC are included in the Company’s
consolidated financial results since it is a wholly owned subsidiary. LRC is a separate legal entity with
its own separate creditors who, in a liquidation of LRC, would be entitled to be satisfied out of LRC’s
assets prior to any value in LRC becoming available for equity claims of the Company. The Company
accounts for transfers of receivables from LRC to the unrelated third party as a secured borrowing with
the pledge of its receivables as collateral since LRC has the ability to repurchase the receivables
interests at a determinable price.
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