Lexmark Newsroom

Earnings Per Share

2Q12

2Q11

 GAAP

$0.55

$1.27

   Restructuring-related adjustments

0.10

0.05

   Acquisition-related adjustments

0.24

0.05

 Non-GAAP

$0.89

$1.36

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(In Millions, Except Per Share Amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30

June 30

2012

2011

2012

2011

Revenue

$  918.6

$1,044.2

$1,911.1

$2,078.6

Cost of revenue

557.9

630.7

1,169.0

1,275.8

Gross profit

360.7

413.5

742.1

802.8

Research and development

94.4

90.4

191.1

181.3

Selling, general and administrative

205.3

186.3

395.8

373.1

Restructuring and related charges (reversals)

0.8

(1.1)

5.6

(2.7)

Operating expense

300.5

275.6

592.5

551.7

Operating income

60.2

137.9

149.6

251.1

Interest expense (income), net

7.4

7.2

14.4

14.8

Other expense (income), net 

0.4

(0.4)

0.7

(0.3)

Earnings before income taxes

52.4

131.1

134.5

236.6

Provision for income taxes 

13.2

29.8

34.5

52.1

Net earnings

$    39.2

$   101.3

$   100.0

$  184.5

Net earnings per share:

Basic

$    0.55

$     1.28

$     1.41

$    2.33

Diluted

$    0.55

$     1.27

$     1.39

$    2.31

Shares used in per share calculation:

Basic

70.7

79.3

71.0

79.1

Diluted

71.5

80.0

71.9

79.9

Cash dividends declared per common share

$   0.30

$     0.00

$    0.55

$    0.00

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

(In Millions)

(Unaudited)

June 30

December 31

2012

2011

ASSETS

Current assets:

Cash and cash equivalents

$         147.2

$         356.1

Marketable securities

768.6

793.3

Trade receivables, net

479.1

457.8

Inventories

305.7

335.5

Prepaid expenses and other current assets

247.6

266.1

Total current assets

1,948.2

2,208.8

Property, plant and equipment, net

877.9

888.8

Marketable securities

8.8

11.5

Goodwill

358.5

216.4

Intangibles, net

224.3

151.2

Other assets

157.4

160.3

Total assets

$      3,575.1

$      3,637.0

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$         349.9

$                -

Accounts payable

429.2

486.5

Accrued liabilities

593.5

636.8

Total current liabilities

1,372.6

1,123.3

Long-term debt

299.5

649.3

Other liabilities

474.5

472.7

Total liabilities

2,146.6

2,245.3

Stockholders' equity:

Common stock and capital in excess of par

887.3

867.5

Retained earnings

1,542.2

1,482.3

Treasury stock, net

(709.4)

(654.4)

Accumulated other comprehensive loss

(291.6)

(303.7)

Total stockholders' equity

1,428.5

1,391.7

Total liabilities and stockholders' equity

$      3,575.1

$      3,637.0

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

Net Earnings (In Millions)

2Q12

2Q11

GAAP

$             39

$            101

Restructuring-related charges & project costs 

7

4

Acquisition-related adjustments

17

4

Non-GAAP

$             64

$            109

Six months ended June 30

Net Earnings (In Millions)

2012

2011

GAAP

$            100

$            185

Restructuring-related charges & project costs 

15

6

Acquisition-related adjustments

25

10

Non-GAAP

$            139

$            200

Earnings Per Share 

2Q12

2Q11

GAAP

$           0.55

$           1.27

Restructuring-related charges & project costs

0.10

0.05

Acquisition-related adjustments

0.24

0.05

Non-GAAP

$           0.89

$           1.36

Six months ended June 30

Earnings Per Share 

2012

2011

GAAP

$           1.39

$           2.31

Restructuring-related charges & project costs

0.21

0.07

Acquisition-related adjustments

0.34

0.13

Non-GAAP

$           1.94

$           2.51

Earnings Per Share Guidance

3Q12

3Q11

GAAP

 $0.52 - $0.62 

$           0.86

Restructuring-related charges & project costs

0.07

0.03

Acquisition-related adjustments

0.16

0.06

Non-GAAP

 $0.75 - $0.85 

$           0.95

Refer to Appendix 1 for discussion of management's use of GAAP and Non-GAAP measures.

Totals may not foot due to rounding.

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

Revenue (In Millions) *

2Q12

2Q11

GAAP

$            919

$         1,044

Acquisition-related adjustments (1)(2)

2

1

Non-GAAP

$            921

$         1,045

Software and Other Revenue (In Millions) **

2Q12

2Q11

GAAP

$             87

$             70

Acquisition-related adjustments (1)(2)

2

1

Non-GAAP

$             90

$             71

Perceptive Software Revenue (In Millions) ***

2Q12

2Q11

GAAP

$             44

$             24

Acquisition-related adjustments (1)(2)

2

1

Non-GAAP

$             46

$             25

Gross Profit (In Millions)

2Q12

2Q11

GAAP

$            361

$            413

Restructuring-related charges & project costs (3)(4)

3

0

Acquisition-related adjustments (1)(2)

9

5

Non-GAAP

$            373

$            418

Gross Profit Margin (%)

2Q12

2Q11

GAAP

39.3%

39.6%

Restructuring-related charges & project costs

0.4%

0.0%

Acquisition-related adjustments

0.9%

0.5%

Non-GAAP

40.5%

40.0%

Operating Expense (In Millions)

2Q12

2Q11

GAAP

$            301

$            276

Restructuring-related charges & project costs (3)(4)

(6)

(5)

Acquisition-related adjustments (1)(2)

(14)

(0)

Non-GAAP

$            280

$            270

Operating Income  (In Millions)

2Q12

2Q11

GAAP

$             60

$            138

Restructuring-related charges & project costs (3)(4)

10

5

Acquisition-related adjustments (1)(2)

23

5

Non-GAAP

$             93

$            148

Operating Income Margin (%)  

2Q12

2Q11

GAAP

6.6%

13.2%

Restructuring-related charges & project costs

1.0%

0.5%

Acquisition-related adjustments

2.5%

0.5%

Non-GAAP

10.1%

14.2%

Refer to Appendix 1 for discussion of management's use of GAAP and Non-GAAP measures.

Totals may not foot due to rounding.

*

Year-to-year Revenue growth was approximately -12% on a GAAP basis and -12% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij acquired in the first quarter of 2012.

**

Year-to-year Software and Other Revenue growth was approximately 24% on a GAAP basis and 26% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij acquired in the first quarter of 2012.

***

Year-to-year Perceptive Software Revenue growth was approximately 84% on a GAAP basis and 88% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij acquired in the first quarter of 2012.

⁽¹⁾ 

Amounts for the three months ended June 30, 2012, include total acquisition-related adjustments of $23.0 million with $2.4 million, $6.1 million, $0.2 million and $14.3 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽²⁾ 

Amounts for the three months ended June 30, 2011, include total acquisition-related adjustments of $5.0 million with $0.8 million, $3.9 million, $0.1 million and $0.2 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽³⁾ 

Amounts for the three months ended June 30, 2012, include total restructuring-related charges and project costs of $9.6 million with $3.5 million and $5.3 million included in Cost of revenue and Selling, general and administrative,respectively, in addition to the $0.8 million in Restructuring and related charges (reversals).

⁽⁴⁾ 

Amounts for the three months ended June 30, 2011, include total restructuring-related charges and project costs of $5.1 million with $0.2 million and $6.0 million included in Cost of revenue and Selling, general and administrative,respectively, in addition to the $(1.1) million in Restructuring and related charges (reversals).

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

Six months ended June 30

Revenue (In Millions) *

2012

2011

GAAP

$         1,911

$         2,079

Acquisition-related adjustments (1)(2)

3

4

Non-GAAP

$         1,914

$         2,082

Software and Other Revenue (In Millions) **

2012

2011

GAAP

$            158

$            135

Acquisition-related adjustments (1)(2)

3

4

Non-GAAP

$            160

$            139

Perceptive Software Revenue (In Millions) ***

2012

2011

GAAP

$             74

$             42

Acquisition-related adjustments (1)(2)

3

4

Non-GAAP

$             76

$             46

Gross Profit (In Millions)

2012

2011

GAAP

$            742

$            803

Restructuring-related charges & project costs (3)(4)

8

0

Acquisition-related adjustments (1)(2)

14

11

Non-GAAP

$            764

$            814

Gross Profit Margin (%)

2012

2011

GAAP

38.8%

38.6%

Restructuring-related charges & project costs

0.4%

0.0%

Acquisition-related adjustments

0.7%

0.5%

Non-GAAP

39.9%

39.1%

Operating Expense (In Millions)

2012

2011

GAAP

$            592

$            552

Restructuring-related charges & project costs (3)(4)

(12)

(7)

Acquisition-related adjustments (1)(2)

(18)

(2)

Non-GAAP

$            562

$            543

Operating Income  (In Millions)

2012

2011

GAAP

$            150

$            251

Restructuring-related charges & project costs (3)(4)

20

7

Acquisition-related adjustments (1)(2)

33

13

Non-GAAP

$            202

$            272

Operating Income Margin (%)  

2012

2011

GAAP

7.8%

12.1%

Restructuring-related charges & project costs

1.0%

0.3%

Acquisition-related adjustments

1.7%

0.6%

Non-GAAP

10.5%

13.0%

Refer to Appendix 1 for discussion of management's use of GAAP and Non-GAAP measures.

Totals may not foot due to rounding.

*

Year-to-year Revenue growth was approximately -8% on a GAAP basis and -8% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij subsequent to the date of acquisition.

**

Year-to-year Software and Other Revenue growth was approximately 17% on a GAAP basis and 16% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij subsequent to the date of acquisition.

***

Year-to-year Perceptive Software Revenue growth was approximately 73% on a GAAP basis and 66% on a non-GAAP basis.  Financial results of 2012 include those of Brainware, ISYS, and Nolij subsequent to the date of acquisition.

⁽¹⁾ 

Amounts for the six months ended June 30, 2012, include total acquisition-related adjustments of $32.7 million with $2.8 million, $11.4 million, $0.3 million and $18.2 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽²⁾ 

Amounts for the six months ended June 30, 2011, include total acquisition-related adjustments of $13.3 million with $3.5 million, $7.5 million, $0.2 million and $2.1 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽³⁾ 

Amounts for the six months ended June 30, 2012, include total restructuring-related charges and project costs of $19.6 million with $7.8 million and $6.2 million included in Cost of revenue and Selling, general and administrative,respectively, in addition to the $5.6 million in Restructuring and related charges (reversals).

⁽⁴⁾ 

Amounts for the six months ended June 30, 2011, include total restructuring-related charges and project costs of $7.2 million with $0.3 million and $9.6 million included in Cost of revenue and Selling, general and administrative, respectively, in addition to the $(2.7) million in Restructuring and related charges (reversals).

Appendix 1

Note:

Management believes that presenting non-GAAP measures is useful because they enhance investors' understanding of how management assesses the performance of the Company's businesses. Management uses non-GAAP measures for budgeting purposes, measuring actual results to budgeted projections, allocating resources and in certain circumstances for employee incentive compensation. Adjustments to GAAP results in determining non-GAAP results fall into two broad general categories that are described below:

1) Restructuring-related charges
In recent years, the Company has initiated restructuring plans which have resulted in operating expenses which otherwise would not have been incurred. The size of these items can vary significantly from period to period and the Company does not consider these items to be core operating expenses of the business.  Restructuring and related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of accelerated depreciation, asset impairments, employee termination benefits and contract termination and lease charges. They also include project costs that relate to the execution of the restructuring plans. These project costs are incremental to normal operating charges and are expensed as incurred, such as compensation costs for overlap staffing, travel expenses, consulting costs and training costs.

2) Acquisition-related adjustments
In connection with acquisitions, management provides supplementary non-GAAP financial measures of revenue and expenses to normalize for the impact of business combination accounting rules as well as to exclude certain expenses which would not have been incurred otherwise.

a. Adjustments to Revenue
Due to business combination accounting rules, deferred revenue balances for service contracts assumed as part of acquisitions are adjusted down to fair value. Fair value approximates the cost of fulfilling the service obligation, plus a reasonable profit margin. Subsequent to acquisitions, management adds back the amount of amortized revenue that would have been recognized had the acquired company remained independent and had the deferred revenue balances not been adjusted to fair value.   Management reviews non-GAAP revenue to allow for more complete comparisons to historical performance as well as to forward-looking projections and also uses it as a metric for employee incentive compensation.

b. Amortization of intangible assets
Due to business combination accounting rules, intangible assets are recognized which were not previously presented on the balance sheet of the acquired company. These intangible assets consist primarily of purchased technology, customer relationships, trade names, in-process R&D and non-compete agreements. Subsequent to the acquisition date, some of these intangible assets begin amortizing and represent an expense that would not have been recorded had the acquired company remained independent. The total amortization of the acquired intangible assets varies from period to period, due to the mix in value and useful lives of the different assets. For the purpose of comparing financial results to historical performance as well as for defining targets for employee incentive compensation, management excludes the amortization of the acquired intangible assets on a non-GAAP basis.

c. Acquisition and integration costs
In connection with its acquisitions, the Company incurs expenses that would not have been incurred otherwise. The acquisition costs include items such as investment banking fees, legal and accounting fees, and costs of retention bonus programs for the senior management of the acquired company. Integration costs may consist of information technology expenses, consulting costs and travel expenses. The costs are expensed as incurred and can vary substantially in size from one period to the next. For these reasons, management excludes these expenses from non-GAAP earnings in order to evaluate the Company's performance on a continuing and comparable basis.

In addition to GAAP results, management presents these non-GAAP financial measures to provide investors with additional information that they can utilize in their own methods of evaluating the Company's performance.

Management compensates for the material limitations associated with the use of non-GAAP financial measures by having specific initiatives associated with restructuring actions and acquisitions approved by management, along with their budgeted costs. Subsequently, actual costs incurred as a part of these approved restructuring plans and acquisitions are monitored and compared to budgeted costs to assure that the Company's non-GAAP financial measures only exclude pre-approved restructuring-related costs and acquisition-related adjustments. Any non-GAAP measures provided by the Company may not be comparable to similar measures of other companies as not all companies calculate these measures in the same manner.