Lexmark Newsroom

(1)

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP earnings per share amounts and related income statement items which management believes provides useful information to investors. When used in this press release, "non-GAAP" earnings per share amounts and related income statement items exclude restructuring-related, acquisition and divestiture-related, and debt extinguishment-related adjustments.  The rationale for management's use of non-GAAP measures is included in Appendix A to the financial information attached hereto.

(2)

Inkjet Exit revenue is defined as consumer and business inkjet hardware and supplies that the company is exiting.

(3)

MPS revenue is defined as ISS laser hardware, supplies and fleet management solutions sold through a managed services agreement.

(4)

Non-MPS revenue is defined as ISS laser hardware, laser supplies, dot matrix hardware, and dot matrix supplies not sold as a part of an MPS agreement. Non-MPS also includes parts and service related to hardware maintenance.

(5)

Free Cash Flow is defined as net cash flows provided by operating activities minus purchases of property, plant and equipment plus proceeds from sale of fixed assets.

(6)

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose © 2013 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. For more information, email info@gartner.com or visit gartner.com. Used with permission.

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(In Millions, Except Per Share Amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30

September 30

2013

2012

2013

2012

Revenue:

Product

$     782.3

$     829.3

$   2,353.8

$   2,575.5

Service

108.2

89.9

307.7

254.7

Total Revenue

890.5

919.2

2,661.5

2,830.2

Cost of revenue:

Product

460.8

492.2

1,389.2

1,516.0

Service

78.4

69.8

233.0

207.3

Restructuring and related charges

5.1

28.8

18.4

36.5

Total Cost of revenue

544.3

590.8

1,640.6

1,759.8

Gross profit

346.2

328.4

1,020.9

1,070.4

Research and development

83.4

93.5

245.5

284.7

Selling, general and administrative

202.9

199.9

610.5

595.6

Gain on sale of inkjet-related technology and assets

-

-

(73.5)

-

Restructuring and related charges

7.6

22.7

4.8

28.2

Operating expense

293.9

316.1

787.3

908.5

Operating income

52.3

12.3

233.6

161.9

Interest expense (income), net

8.1

7.7

25.4

22.1

Other expense (income), net

0.7

(0.2)

3.2

0.5

Loss on extinguishment of debt

-

-

3.3

-

Earnings before income taxes

43.5

4.8

201.7

139.3

Provision for income taxes

15.0

4.8

49.5

39.3

Net earnings

$       28.5

$         0.0

$     152.2

$     100.0

Net earnings per share:

Basic

$       0.45

$       0.00

$       2.41

$       1.43

Diluted

$       0.45

$       0.00

$       2.37

$       1.41

Shares used in per share calculation:

Basic

62.8

68.1

63.2

70.0

Diluted

64.0

68.9

64.3

70.9

Cash dividends declared per common share

$       0.30

$       0.30

$       0.90

$       0.85

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

(In Millions)

(Unaudited)

September 30

December 31

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$         229.7

$         212.4

Marketable securities

743.9

693.4

Trade receivables, net

488.0

523.6

Inventories

295.0

277.3

Prepaid expenses and other current assets

236.3

214.6

Total current assets

1,992.9

1,921.3

Property, plant and equipment, net

799.0

845.3

Marketable securities

6.8

6.3

Goodwill

431.6

378.7

Intangibles, net

245.5

231.4

Other assets

113.3

142.0

Total assets

$      3,589.1

$      3,525.0

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$                -

$         350.0

Accounts payable

484.1

512.6

Accrued liabilities

605.7

582.1

Total current liabilities

1,089.8

1,444.7

Long-term debt

699.6

299.6

Other liabilities

494.9

499.5

2,284.3

2,243.8

Stockholders' equity:

Common stock and capital in excess of par

912.6

901.6

Retained earnings

1,601.0

1,507.5

Treasury stock, net

(906.4)

(844.4)

Accumulated other comprehensive loss

(302.4)

(283.5)

Total stockholders' equity

1,304.8

1,281.2

Total liabilities and stockholders' equity

$      3,589.1

$      3,525.0

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

Net Earnings (In Millions)

3Q13

3Q12

GAAP

$             29

$               0

Restructuring-related charges & project costs 

13

52

Acquisition and divestiture-related adjustments

19

13

Non-GAAP

$             61

$             65

Nine Months Ended September 30

Net Earnings (In Millions)

2013

2012

GAAP

$            152

$            100

Restructuring-related charges & project costs 

30

67

Acquisition and divestiture-related adjustments

(6)

38

Loss on extinguishment of debt

2

-

Non-GAAP

$            179

$            204

Earnings Per Share 

3Q13

3Q12

GAAP

$           0.45

$           0.00

Restructuring-related charges & project costs

0.21

0.75

Acquisition and divestiture-related adjustments

0.29

0.19

Non-GAAP

$           0.95

$           0.94

Nine Months Ended September 30

Earnings Per Share 

2013

2012

GAAP

$           2.37

$           1.41

Restructuring-related charges & project costs

0.47

0.94

Acquisition and divestiture-related adjustments

(0.09)

0.53

Loss on extinguishment of debt

0.04

-

Non-GAAP

$           2.78

$           2.88

Earnings Per Share Guidance

4Q13

4Q12

GAAP

 $0.57 - $0.67 

$           0.10

Restructuring-related charges & project costs

0.19

0.35

Acquisition and divestiture-related adjustments

0.31

0.17

Non-GAAP

 $1.07 - $1.17 

$           0.61

        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) *

3Q13

3Q12

GAAP

$            890

$            919

Acquisition-related adjustments (1)(2)

5

2

Non-GAAP

$            896

$            921

Software and Other Revenue (In Millions) **

3Q13

3Q12

GAAP

$            102

$             85

Acquisition-related adjustments (1)(2)

5

2

Non-GAAP

$            107

$             87

Perceptive Software Revenue (In Millions) ***

3Q13

3Q12

GAAP

$             54

$             41

Acquisition-related adjustments (1)(2)

5

2

Non-GAAP

$             59

$             43

Revenue, excluding Inkjet Exit (In Millions) ****

3Q13

3Q12

GAAP

$            806

$            769

Acquisition-related adjustments (1)(2)

5

2

Non-GAAP

$            811

$            771

Gross Profit (In Millions)

3Q13

3Q12

GAAP

$            346

$            328

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

5

29

Acquisition-related adjustments (1)(2)

14

11

Non-GAAP

$            365

$            368

Gross Profit Margin (%)

3Q13

3Q12

GAAP

38.9%

35.7%

Restructuring-related charges & project costs

0.6%

3.1%

Acquisition-related adjustments

1.6%

1.1%

Non-GAAP

40.8%

39.9%

Operating Expense (In Millions)

3Q13

3Q12

GAAP

$            294

$            316

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

(13)

(40)

Acquisition and divestiture-related adjustments (1)(2)

(11)

(7)

Non-GAAP

$            270

$            269

Operating Income  (In Millions)

3Q13

3Q12

GAAP

$             52

$             12

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

18

69

Acquisition and divestiture-related adjustments (1)(2)

25

17

Non-GAAP

$             95

$             99

Operating Income Margin (%)  

3Q13

3Q12

GAAP

5.9%

1.3%

Restructuring-related charges & project costs

2.0%

7.5%

Acquisition and divestiture-related adjustments

2.8%

1.9%

Non-GAAP

10.6%

10.7%

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 -3% on a GAAP basis and -3% on a non-GAAP basis. Financial results in the third quarter of 2013 include those of Acuo, acquired in the fourth quarter of 2012, those of AccessVia and Twistage, acquired in the first quarter of 2013, and those of Saperion subsequent to the date of acquisition.

**

Year-to-year Software and Other Revenue growth was approximately 21% on a GAAP basis and 24% on a non-GAAP basis. Financial results in the third quarter of 2013 include those of Acuo, acquired in the fourth quarter of 2012, those of AccessVia and Twistage, acquired in the first quarter of 2013, and those of Saperion subsequent to the date of acquisition.

***

Year-to-year Perceptive Software Revenue growth was approximately 32% on a GAAP basis and 38% on a non-GAAP basis. Financial results in the third quarter of 2013 include those of Acuo, acquired in the fourth quarter of 2012, those of AccessVia and Twistage, acquired in the first quarter of 2013, and those of Saperion subsequent to the date of acquisition.

****

Year-to-year Revenue growth, excluding Inkjet Exit, was approximately 5% on a GAAP basis and 5% on a non-GAAP basis. Financial results in the third quarter of 2013 include those of Acuo, acquired in the fourth quarter of 2012, those of AccessVia and Twistage, acquired in the first quarter of 2013, and those of Saperion subsequent to the date of acquisition.

⁽¹⁾

Amounts for the three months ended September 30, 2013, include total acquisition and divestiture-related adjustments of $25.2 million with $5.0 million, $9.0 million, $0.2 million and $11.0 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. Selling, general and administrative includes $9.9 million of acquisition-related expenses and $1.1 million of divestiture-related expenses.

⁽²⁾

Amounts for the three months ended September 30, 2012, include total acquisition-related adjustments of $17.3 million with $2.0 million, $8.5 million, $0.4 million and $6.4 million included in Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽³⁾

Amounts for the three months ended September 30, 2013, include total restructuring-related charges and project costs of $17.7 million with $5.1 million and $5.0 million included in Cost of revenue and Selling, general and administrative, respectively, in addition to the $7.6 million in Restructuring and related charges (reversals).

⁽⁴⁾

Amounts for the three months ended September 30, 2012, include total restructuring-related charges and project costs of $69.1 million with $28.8 million and $17.6 million included in Cost of revenue and Selling, general and administrative, respectively, in addition to the $22.7 million in Restructuring and related charges (reversals).

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

Nine Months Ended September 30

Revenue (In Millions) *

2013

2012

GAAP

$         2,661

$         2,830

Acquisition-related adjustments (1)(2)

11

5

Non-GAAP

$         2,672

$         2,835

Software and Other Revenue (In Millions) **

2013

2012

GAAP

$            304

$            242

Acquisition-related adjustments (1)(2)

11

5

Non-GAAP

$            315

$            247

Perceptive Software Revenue (In Millions) ***

2013

2012

GAAP

$            157

$            114

Acquisition-related adjustments (1)(2)

11

5

Non-GAAP

$            167

$            119

Revenue, excluding Inkjet Exit (In Millions) ****

2013

2012

GAAP

$         2,356

$         2,337

Acquisition-related adjustments (1)(2)

11

5

Non-GAAP

$         2,367

$         2,342

Gross Profit (In Millions)

2013

2012

GAAP

$         1,021

$         1,070

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

18

37

Acquisition-related adjustments (1)(2)

37

25

Non-GAAP

$         1,076

$         1,132

Gross Profit Margin (%)

2013

2012

GAAP

38.4%

37.8%

Restructuring-related charges & project costs

0.7%

1.3%

Acquisition-related adjustments

1.4%

0.9%

Non-GAAP

40.3%

39.9%

Operating Expense (In Millions)

2013

2012

GAAP

$            787

$            909

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

(22)

(52)

Acquisition and divestiture-related adjustments (1)(2)

45

(25)

Non-GAAP

$            811

$            831

Operating Income  (In Millions)

2013

2012

GAAP

$            234

$            162

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

40

89

Acquisition and divestiture-related adjustments (1)(2)

(8)

50

Non-GAAP

$            266

$            301

Operating Income Margin (%)  

2013

2012

GAAP

8.8%

5.7%

Restructuring-related charges & project costs

1.5%

3.1%

Acquisition and divestiture-related adjustments

-0.3%

1.8%

Non-GAAP

9.9%

10.6%

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 -6% on a GAAP basis and -6% on a non-GAAP basis. Financial results of 2013 include full year results of Acuo, acquired in the fourth quarter of 2012, and those of AccessVia, Twistage and Saperion subsequent to the date of acquisition. 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 26% on a GAAP basis and 27% on a non-GAAP basis. Financial results of 2013 include full year results of Acuo, acquired in the fourth quarter of 2012, and those of AccessVia, Twistage and Saperion subsequent to the date of acquisition. 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 37% on a GAAP basis and 40% on a non-GAAP basis. Financial results of 2013 include full year results of Acuo, acquired in the fourth quarter of 2012, and those of AccessVia, Twistage and Saperion subsequent to the date of acquisition. Financial results of 2012 include those of Brainware, ISYS, and Nolij subsequent to the date of acquisition.

****

Year-to-year Revenue, excluding Inkjet Exit, growth was approximately 1% on a GAAP basis and 1% on a non-GAAP basis. Financial results of 2013 include full year results of Acuo, acquired in the fourth quarter of 2012, and those of AccessVia, Twistage and Saperion subsequent to the date of acquisition. Financial results of 2012 include those of Brainware, ISYS, and Nolij subsequent to the date of acquisition.

⁽¹⁾

Amounts for the nine months ended September 30, 2013, include total acquisition and divestiture-related adjustments of $(8.1) million with $10.6 million, $26.3 million, $0.5 million, $28.0 million and $(73.5) million included in Revenue, Cost of revenue, Research and development, Selling, general and administrative and Gain on sale of inkjet-related technology and assets, respectively.  Selling, general and administrative includes $24.2 million of acquisition-related expenses and $3.8 million of divestiture-related expenses.

⁽²⁾

Amounts for the nine months ended September 30, 2012, include total acquisition-related adjustments of $50.0 million with $4.8 million, $19.9 million, $0.7 million and $24.6 million included in  Revenue, Cost of revenue, Research and development and Selling, general and administrative, respectively. 

⁽³⁾

Amounts for the nine months ended September 30, 2013, include total restructuring-related charges and project costs of $40.1 million with $18.4 million and $16.9 million included in Cost of revenue and Selling, general and administrative, respectively, in addition to the $4.8 million in Restructuring and related charges (reversals).

⁽⁴⁾

Amounts for the nine months ended September 30, 2012, include total restructuring-related charges and project costs of $88.7 million with $36.5 million and $24.0 million included in Cost of revenue and Selling, general and administrative, respectively, in addition to the $28.2 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 three 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 part of 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, pension and post-retirement plan curtailments, inventory-related charges 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 and divestiture-related adjustments
In connection with acquisitions and divestitures, 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 as well as non-cash charges related to the abandonment of assets under construction by the Company that are determined to be duplicative of assets of the acquired company. 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.

d. Divestiture-related adjustments
In connection with divestitures, management provides supplementary non-GAAP financial measures of expenses to normalize for the impact of certain earnings and   expenses which would not have been incurred otherwise. The Company recognized a net gain on the sale of inkjet-related technology and assets, which consisted of a   subsidiary, intellectual property and other assets, and transition services.  In addition, the Company has incurred costs related to the divestiture, such as employee   travel expenses and compensation, consulting costs, training costs, and transition services. These costs are incremental to normal operating charges and are expensed as incurred. Management excluded the income and  expenses from non-GAAP earnings in order to evaluate the Company's performance on a continuing and comparable basis.

3) Loss on Early Extinguishment of Debt
The Company has extinguished debt prior to its scheduled maturity which has resulted in non-operating expenses which otherwise would not have been incurred. The size of these items can vary significantly depending on timing of the debt maturity versus execution of the redemption and the Company does not consider these items to be part of typical non-operating expenses of the business.  Debt extinguishment related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of premium and redemption fees paid as well as the write-off of unamortized debt issuance costs and original issue discount. 

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.