Lexmark 2011 Annual Report Download - page 79

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 Company makes this assessment based on
quantitative and qualitative factors of impaired securities that include a time period analysis on
unrealized loss to net book value ratio; severity analysis on unrealized loss to net book value ratio;
credit analysis of the security’s issuer based on rating downgrades; and other qualitative factors that
may include some or all of the following criteria:
• The regulatory and economic environment.
• The sector, industry and geography in which the issuer operates.
• Forecasts about the issuer’s financial performance and near-term prospects, such as earnings
trends and analysts’ or industry specialists’ forecasts.
• Failure of the issuer to make scheduled interest or principal payments.
• Material recoveries or declines in fair value subsequent to the balance sheet date.
Securities that are identified through the analysis using the quantitative and qualitative factors
described above are then assessed to determine whether the entire net book value basis of each
identified security will be recovered. The Company performs this assessment by comparing the present
value of the cash flows expected to be collected from the security with its net book value. If the present
value of cash flows expected to be collected is less than the net book value basis of the security, then
a credit loss is deemed to exist and an other-than-temporary impairment is considered to have
occurred. There are numerous factors to be considered when estimating whether a credit loss exists
and the period over which the debt security is expected to recover, some of which have been
highlighted in the preceding paragraph.
Trade Receivables — Allowance for Doubtful Accounts:
Lexmark maintains allowances for doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company estimates the allowance for doubtful
accounts based on a variety of factors including the length of time receivables are past due, the
financial health of its customers, unusual macroeconomic conditions and historical experience. If the
financial condition of its customers deteriorates or other circumstances occur that result in an
impairment of customers’ ability to make payments, the Company records additional allowances as
needed. The Company writes off uncollectible trade accounts receivable against the allowance for
doubtful accounts when collections efforts have been exhausted and/or any legal action taken by the
Company has concluded.
Inventories:
Inventories are stated at the lower of average cost or market, using standard cost which approximates
the average cost method of valuing its inventories and related cost of goods sold. The Company
considers all raw materials to be in production upon their receipt.
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