Lexmark 2011 Annual Report Download - page 72

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVITY
The market risk inherent in the Company’s financial instruments and positions represents the potential
loss arising from adverse changes in interest rates and foreign currency exchange rates.
Interest Rates
At December 31, 2011, the fair value of the Company’s senior notes was estimated at $696.6 million
based on the prices the bonds have recently traded in the market as well as the overall market
conditions on the date of valuation. The fair value of the senior notes exceeded the carrying value as
recorded in the Consolidated Statements of Financial Position at December 31, 2011 by approximately
$47.3 million. Market risk is estimated as the potential change in fair value resulting from a hypothetical
10% adverse change in interest rates and amounts to approximately $9.5 million at December 31,
2011.
At December 31, 2010, the fair value of the Company’s senior notes was estimated at $693.8 million
based on the prices the bonds have recently traded in the market as well as the overall market
conditions on the date of valuation. The fair value of the senior notes exceeded the carrying value as
recorded in the Consolidated Statements of Financial Position at December 31, 2010 by approximately
$44.7 million. Market risk is estimated as the potential change in fair value resulting from a hypothetical
10% adverse change in interest rates and amounted to approximately $12.7 million at December 31,
2010.
See the section titled “LIQUIDITY AND CAPITAL RESOURCES — Investing Activities:” in Item 7 of
this report for a discussion of the Company’s auction rate securities portfolio which is incorporated
herein by reference.
Foreign Currency Exchange Rates
Foreign currency exposures arise from transactions denominated in a currency other than the
functional currency of the Company or the respective foreign currency of each of the Company’s
subsidiaries. The primary currencies to which the Company was exposed on a transaction basis as of
the end of the fourth quarter include the Euro, the Canadian dollar, the Swiss franc, the Singapore
dollar, the British pound, the Japanese yen, the Hong Kong dollar and the Australian dollar. The
Company primarily hedges its transaction foreign exchange exposures with foreign currency forward
contracts with maturity dates of approximately three months or less. The potential loss in fair value at
December 31, 2011 for such contracts resulting from a hypothetical 10% adverse change in all foreign
currency exchange rates is approximately $4.8 million. This loss would be mitigated by corresponding
gains on the underlying exposures. The potential gain in fair value at December 31, 2010 for such
contracts resulting from a hypothetical 10% adverse change in all foreign currency exchange rates was
approximately $15.2 million. This gain would have been mitigated by corresponding losses on the
underlying exposures.
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