LEXMARK INTERNATIONAL INC LEXINGTON, Ky., July 29, 2016 /PRNewswire/ -- Lexmark International, Inc. today announced financial results for the second quarter of 2016.
Results(1)
---------
GAAP Summary 2Q16 2Q15 Year-to-Year
Change
--- ------
Revenue (millions) $863 $879 -2%
ISS(2) $698 $740 -6%
ES(3) $165 $139 +18%
Core4 $848 $845 0%
Higher Value Solutions5 $371 $342 +9%
Gross Profit Margin 39.1% 41.2%
Operating Income Margin 2.7% -2.5%
EPS -$0.56 -$0.56
Non-GAAP Summary 2Q16 2Q15 Year-to-Year Year-to-Year
Change Change at
Constant
Currency6
--- ---------
Revenue (millions) $865 $891 -3% +1%
ISS $698 $740 -6% -2%
ES $167 $150 +11% +12%
Core $850 $856 -1% +3%
Higher Value Solutions $374 $353 +6% +8%
Gross Profit Margin 41.5% 43.8%
Operating Income Margin 8.6% 10.6%
Adjusted EBITDA7 $114 $139
EPS $0.69 $0.97
Balance Sheet / Cash Flow (millions) 2Q16
------------------------------------ ----
Cash8 $103
U.S. $6
Non-U.S. $97
Net debt9 $886
Operating cash flow $24
Free cash flow10 $9
Quarterly dividend ($0.36/share) $23
Lexmark Paid Second Quarter Dividend, Declared Third Quarter Dividend
-- Lexmark today announced that its Board of Directors declared a quarterly
cash dividend of $0.36 per share of Lexmark Class A Common Stock payable
on Sept. 16, 2016, to shareholders of record as of the close of business
on Sept. 2, 2016.
-- During the second quarter, Lexmark paid a quarterly dividend of $0.36
per share, which totaled $23 million.
Shareholders Approved Merger Agreement
-- On July 22, 2016, Lexmark announced that its shareholders approved the
definitive merger agreement with a consortium of investors led by Apex
Technology Co., Ltd. and PAG Asia Capital. Legend Capital Management
Co., Ltd. is also a member of the consortium.
-- The transaction remains subject to certain regulatory approvals,
including among others the Committee on Foreign Investment in the U.S.,
and other customary closing conditions.
-- The acquisition remains on track to be completed in the second half of
2016.
-- At closing, this all-cash transaction will provide Lexmark's
shareholders $40.50 per share in cash, representing a 30 percent premium
to the undisturbed stock price on Oct. 21, 2015.
Looking forward
-- The company will not conduct quarterly conference calls while the
transaction is pending.
-- Upon closing, Lexmark common stock will cease to be publicly traded on
the New York Stock Exchange.
Earnings materials
This earnings release, including reconciliations between GAAP and non-GAAP financial measures, will be available on Lexmark's investor relations website at http://investor.lexmark.com.
GAAP to non-GAAP Financial Measures
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 financial measures such as Adjusted EBITDA, 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" Adjusted EBITDA, earnings per share amounts and related income statement items exclude restructuring charges and project costs, acquisition and divestiture-related adjustments, pension plan actuarial gains/losses, and remediation-related adjustments. The rationale for management's use of non-GAAP measures is included in Appendix A to the financial information attached hereto.
About Lexmark
Lexmark (NYSE: LXK) creates enterprise software, hardware and services that remove the inefficiencies of information silos and disconnected processes, connecting people to the information they need at the moment they need it. Open the possibilities at www.Lexmark.com.
Lexmark, the Lexmark logo and Open the possibilities are trademarks of Lexmark International, Inc., registered in the U.S. and/or other countries. All other trademarks are the property of their respective owners.
Safe Harbor
Statements in this release which are not historical facts are forward-looking and involve risks and uncertainties which may cause the company's actual results or performance to be materially different from the results or performance expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include, but are not limited to, Lexmark may not be able to complete the proposed transaction on the terms described herein or other acceptable terms or at all because of a number of factors, including without limitation (i) the occurrence of any event, change or other circumstances that could give rise to the expected timing of completion or termination of the Merger Agreement, (ii) failure to satisfy the other closing conditions, (iii) risks related to disruption of management's attention from Lexmark's ongoing business operations due to the pending transaction and (iv) the effect of the announcement of the pending transaction on the ability of Lexmark to retain and hire key personnel, maintain relationships with its customers and suppliers, and maintain its operating results and business generally; fluctuations in foreign currency exchange rates; decreased supplies consumption; excessive inventory for the company's reseller channel; aggressive pricing from competitors and resellers; failure to successfully integrate newly acquired businesses; inability to realize all of the anticipated benefits of the company's acquisitions; failure to manage inventory levels or production capacity; possible changes in the size of expected restructuring costs, charges, and savings; market acceptance of new products; continued economic uncertainty related to volatility of the global economy; inability to execute the company's strategy to become an end-to-end solutions provider; changes in the company's tax provisions or tax liabilities; periodic variations affecting revenue and profitability; the failure of information technology systems, including data breaches or cyberattacks; the inability to develop new products and enhance existing products to meet customer needs on a cost competitive basis; reliance on international production facilities, manufacturing partners and certain key suppliers; business disruptions; increased competition in the aftermarket supplies business; inability to obtain and protect the company's intellectual property rights and defend against claims of infringement and/or anticompetitive conduct; ineffective internal controls; customer demands and new regulations related to conflict-free minerals; fees on the company's products or litigation costs required to protect the company's rights; inability to perform under managed print services contracts; terrorist acts; acts of war or other political conflicts; increased investment to support product development and marketing; the financial failure or loss of business with a key customer or reseller; credit risk associated with the company's customers, channel partners, and investment portfolio; the outcome of litigation or regulatory proceedings to which the company may be a party; unforeseen cost impacts as a result of new legislation; changes in a country's political or economic conditions; disruptions at important points of exit and entry and distribution centers; and other risks described in the company's Securities and Exchange Commission filings. The company undertakes no obligation to update any forward-looking statement.
Footnotes
---------
(1) Financial results for 2Q15
include Kofax subsequent to the
May 21,2015 acquisition of
Kofax. Totals may not foot due
to rounding.
(2) ISS is the acronym for Lexmark's
Imaging Solutions and Services
segment.
--------------------------------
(3) ES is the acronym for Lexmark's
Enterprise Software segment.
--------------------------------
(4) Core revenue is defined as total
Lexmark revenue minus Inkjet
Exit revenue. Inkjet Exit is
defined as consumer and
business inkjet hardware and
supplies that the company is
exiting.
--------------------------------
(5) Higher Value Solutions revenue
is defined as combined Managed
Print Services (MPS) and
Enterprise Software revenue.
MPS is defined as ISS laser
hardware, supplies, and fleet
management solutions sold
through a managed print
services agreement.
-------------------------------
(6) Constant currency is calculated
by translating prior period
results at current period
exchange rates and removing
related hedge gains and losses.
--------------------------------
(7) Adjusted EBITDA, a non-GAAP
measure, is defined as net
earnings plus net interest
expense (income), provision for
income taxes, depreciation and
amortization, excluding
restructuring charges and
project costs, acquisition and
divestiture related
adjustments, pension plan
actuarial gains or losses, and
remediation related
adjustments.
--------------------------------
(8) Cash is defined as cash and cash
equivalents.
--------------------------------
(9) Net debt, a non-GAAP measure,
is defined as Cash minus long-
term and short-term debt.
------------------------------
(10) Free cash flow, a non-GAAP
measure, is defined as net cash
flows provided by operating
activities minus purchases of
property, plant and equipment
plus proceeds from sale of
fixed assets if applicable.
--------------------------------
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
------- -------
2016 2015 2016 2015
---- ---- ---- ----
Revenue:
Product $665.4 $719.9 $1,292.2 $1,434.6
Service 197.2 159.4 376.6 296.7
------- ----- ----- ----- -----
Total Revenue 862.6 879.3 1,668.8 1,731.3
Cost of revenue:
Product 426.1 415.8 821.1 844.2
Service 99.5 100.7 204.3 194.3
Restructuring-related costs - 0.7 - 0.8
--------------------------- --- --- --- ---
Total Cost of revenue 525.6 517.2 1,025.4 1,039.3
--------------------- ----- ----- ------- -------
Gross profit 337.0 362.1 643.4 692.0
Research and development 75.8 85.5 159.5 163.2
Selling, general and administrative 241.8 265.0 514.7 475.2
Restructuring and related
(reversals) charges (3.5) 33.8 (15.2) 33.6
------------------------- ---- ---- ----- ----
Operating expense 314.1 384.3 659.0 672.0
----------------- ----- ----- ----- -----
Operating income (loss) 22.9 (22.2) (15.6) 20.0
Interest expense (income), net 11.1 10.0 22.3 17.7
Other expense (income), net 0.7 (0.6) 1.2 0.2
--------------------------- --- ---- --- ---
Earnings (loss) before income taxes 11.1 (31.6) (39.1) 2.1
Provision for income taxes 46.5 3.1 35.7 16.6
-------------------------- ---- --- ---- ----
Net loss $(35.4) $(34.7) $(74.8) $(14.5)
Net loss per share:
Basic $(0.56) $(0.56) $(1.19) $(0.24)
Diluted $(0.56) $(0.56) $(1.19) $(0.24)
Shares used in per share
calculation:
Basic 62.9 61.5 62.6 61.4
Diluted 62.9 61.5 62.6 61.4
Cash dividends declared
per common share $0.36 $0.36 $0.72 $0.72
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions)
(Unaudited)
June 30, December 31,
2016 2015
---- ----
ASSETS
Current assets:
Cash and cash equivalents $103.1 $158.3
Trade receivables, net 373.1 434.2
Inventories 236.7 231.9
Prepaid expenses and other current assets 191.4 204.9
----------------------------------------- ----- -----
Total current assets 904.3 1,029.3
Property, plant and equipment, net 702.1 740.2
Goodwill 1,326.1 1,325.1
Intangibles, net 464.1 532.5
Other assets 273.8 285.3
------------ ----- -----
Total assets $3,670.4 $3,912.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $452.6 $501.7
Accrued liabilities 645.8 669.8
------------------- ----- -----
Total current liabilities 1,098.4 1,171.5
Long-term debt, net of unamortized issuance costs 988.7 1,061.3
Other liabilities 575.5 561.6
----------------- ----- -----
Total liabilities 2,662.6 2,794.4
Stockholders' equity:
Common stock and capital in excess of par 1,056.9 1,026.9
Retained earnings 1,171.0 1,292.8
Treasury stock, net (1,040.4) (1,036.7)
Accumulated other comprehensive loss (179.7) (165.0)
------------------------------------ ------ ------
Total stockholders' equity 1,007.8 1,118.0
-------------------------- ------- -------
Total liabilities and stockholders' equity $3,670.4 $3,912.4
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2016 2015 2016 2015
---- ---- ---- ----
Net (Loss) Earnings
GAAP $(35) $(35) $(75) $(15)
Pre-tax adjustments:
--------------------
Restructuring (reversals) charges and project costs (4) 37 (11) 39
Acquisition and strategic alternatives-related adjustments 44 80 105 116
Actuarial loss on pension plan 9 - 26 -
Remediation-related charges 2 - 9 -
--- --- --- ---
Total pre-tax adjustments 51 117 129 156
Tax effects of non-GAAP adjustments and constant non-GAAP tax rate 28 (22) 9 (31)
Non-GAAP $44 $60 $63 $110
EBITDA and Adjusted EBITDA
GAAP Net Loss $(35) $(35) $(75) $(15)
Interest expense (income), net 11 10 22 18
Provision for income taxes 47 3 36 17
Depreciation and amortization 71 77 144 143
--- --- --- ---
EBITDA $94 $55 $127 $162
--- --- ---- ----
Restructuring (reversals) charges and project costs (5) 37 (12) 38
Acquisition and strategic alternatives-related adjustments 14 47 45 61
Actuarial loss on pension plan 9 - 26 -
Remediation-related charges 2 - 9 -
--- --- --- ---
Adjusted EBITDA $114 $139 $195 $262
(Loss) Earnings Per Share
GAAP $(0.56) $(0.56) $(1.19) $(0.24)
Pre-tax adjustments:
--------------------
Restructuring (reversals) charges and project costs (0.07) 0.60 (0.18) 0.64
Acquisition and strategic alternatives-related adjustments 0.70 1.29 1.67 1.90
Actuarial loss on pension plan 0.14 0.00 0.42 0.00
Remediation-related charges 0.04 - 0.14 -
---- --- ---- ---
Total pre-tax adjustments 0.81 1.90 2.06 2.54
Tax effects of non-GAAP adjustments and constant non-GAAP tax rate 0.44 (0.37) 0.14 (0.50)
---- ----- ---- -----
Non-GAAP $0.69 $0.97 $1.00 $1.80
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
(In Millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2016 2015 2016 2015
---- ---- ---- ----
Revenue (1)
GAAP $863 $879 $1,669 $1,731
Acquisition-related adjustments [A][B] 3 11 9 15
--- --- --- ---
Non-GAAP $865 $891 $1,677 $1,746
---- ---- ------ ------
Constant currency adjustments 1 (30) - (69)
--- --- --- ---
Non-GAAP, at constant currency $866 $861 $1,677 $1,677
Higher Value Solutions Revenue (2)
GAAP $863 $879 $1,669 $1,731
Inkjet Exit Revenue (15) (35) (35) (83)
Non-MPS Revenue (477) (503) (936) (1,035)
---- ---- ---- ------
Higher Value Solutions Revenue $371 $342 $697 $613
---- ---- ---- ----
Acquisition-related adjustments [A][B] 3 11 9 15
--- --- --- ---
Higher Value Solutions Revenue,
excluding acquisition-related adjustments $374 $353 $706 $628
---- ---- ---- ----
Constant currency adjustments - (9) - (20)
--- --- --- ---
Non-GAAP, at constant currency $374 $345 $706 $608
Core Revenue (3)
GAAP $863 $879 $1,669 $1,731
Inkjet Exit Revenue (15) (35) (35) (83)
--- --- --- ---
Core Revenue $848 $845 $1,634 $1,649
---- ---- ------ ------
Acquisition-related adjustments [A][B] 3 11 9 15
--- --- --- ---
Core Revenue, excluding acquisition-related
adjustments $850 $856 $1,642 $1,664
---- ---- ------ ------
Constant currency adjustments 1 (30) - (68)
--- --- --- ---
Non-GAAP, at constant currency $851 $826 $1,642 $1,596
Enterprise Software Revenue (4)
GAAP $165 $139 $302 $225
Acquisition-related adjustments [A][B] 3 11 9 15
--- --- --- ---
Non-GAAP $167 $150 $310 $240
---- ---- ---- ----
Constant currency adjustments - (1) - (2)
--- --- --- ---
Non-GAAP, at constant currency $167 $149 $310 $238
Imaging Solutions and Services ("ISS") Revenue (5)
GAAP $698 $740 $1,367 $1,506
Constant currency adjustments 1 (29) - (66)
--- --- --- ---
Non-GAAP, at constant currency $699 $712 $1,367 $1,440
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2016 2015 2016 2015
---- ---- ---- ----
Free Cash Flow (6)
GAAP Cash Flows Provided by (Used for) Operating Activities $24 $(7) $103 $(17)
Purchases of property, plant and equipment (17) (28) (40) (65)
Proceeds from sale of fixed assets 2 - 2 -
Non-GAAP Free Cash Flow $9 $(35) $65 $(82)
June 30 December 31
2016 2015
---- ----
Net (Debt) Cash (7)
GAAP Cash and Cash Equivalents $103 $158
Long-term debt (989) (1,061)
---- ------
Non-GAAP Net Debt $(886) $(903)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2016 2015 2016 2015
---- ---- ---- ----
Gross Profit
GAAP $337 $362 $643 $692
Restructuring charges and project costs [C][D] - 1 - 1
Acquisition-related adjustments [A][B] 21 28 45 44
Actuarial loss on pension plan [E][F] 2 - 6 -
--- --- --- ---
Non-GAAP $359 $390 $694 $737
Gross Profit Margin (%)
GAAP 39.1% 41.2% 38.6% 40.0%
Restructuring charges and project costs - 0.1% 0.0% 0.0%
Acquisition-related adjustments 2.4% 3.1% 2.7% 2.5%
Actuarial loss on pension plan 0.2% 0.0% 0.4% 0.0%
--- --- --- ---
Non-GAAP 41.5% 43.8% 41.4% 42.2%
Operating (Loss) Income
GAAP $23 $(22) $(16) $20
Restructuring (reversals) charges and project costs [C][D] (4) 37 (11) 39
Acquisition and strategic alternatives-related adjustments [A][B] 44 80 105 116
Actuarial loss on pension plan [E][F] 9 - 26 -
Remediation-related charges [G] 2 - 9 -
Non-GAAP $74 $95 $113 $175
Operating Income Margin (%)
GAAP 2.7% (2.5)% (0.9)% 1.2%
Restructuring (reversals) charges and project costs (0.5)% 4.2% (0.7)% 2.2%
Acquisition and strategic alternatives-related adjustments 5.1% 8.9% 6.2% 6.7%
Actuarial loss on pension plan 1.0% 0.0% 1.6% 0.0%
Remediation-related charges 0.3% - 0.5% -
Non-GAAP 8.6% 10.6% 6.7% 10.0%
Refer to Appendix 1 for discussion of management's use of GAAP and Non-GAAP measures.
Totals may not foot due to rounding.
(1) Year-to-year Revenue growth for
the three months ended June 30,
2016 was approximately -2% on a
GAAP basis, -3% on a non-GAAP
basis, excluding acquisition-
related adjustments, and 1% on a
non-GAAP basis at constant
currency. Financial results in
the second quarter of 2015
include those of Kofax subsequent
to the date of acquisition.
Year-to-year Revenue growth for
the six months ended June 30,
2016 was approximately -4% on a
GAAP basis, -4% on a non-GAAP
basis, excluding acquisition-
related adjustments, and 0% on a
non-GAAP basis at constant
currency. Financial results in
the second quarter of 2015
include those of Kofax subsequent
to the date of acquisition.
(2) Year-to-year Higher Value
Solutions Revenue growth for the
three months ended June 30, 2016
was approximately 9% on a GAAP
basis, 6% on a non-GAAP basis,
excluding acquisition-related
adjustments, and 8% on a non-
GAAP basis at constant currency.
Financial results in the second
quarter of 2015 include those of
Kofax subsequent to the date of
acquisition.
Year-to-year Higher Value
Solutions Revenue growth for the
six months ended June 30, 2016
was approximately 14% on a GAAP
basis, 12% on a non-GAAP basis,
excluding acquisition-related
adjustments, and 16% on a non-
GAAP basis at constant currency.
Financial results in the second
quarter of 2015 include those of
Kofax acquired in the subsequent
to the date of acquisition.
(3) Year-to-year Core Revenue growth
for the three months ended June
30, 2016 was approximately 0% on
a GAAP basis, -1% on a non-GAAP
basis, excluding Inkjet Exit and
acquisition-related adjustments,
and 3% on a non-GAAP basis at
constant currency. Financial
results in the second quarter of
2015 include those of Kofax
subsequent to the date of
acquisition.
Year-to-year Core Revenue growth
for the six months ended June 30,
2016 was approximately -1% on a
GAAP basis, -1% on a non-GAAP
basis, excluding Inkjet Exit and
acquisition-related adjustments,
and 3% on a non-GAAP basis at
constant currency. Financial
results in the second quarter of
2015 include those of Kofax
subsequent to the date of
acquisition.
(4) Year-to-year Enterprise Software
Revenue growth for the three
months ended June 30, 2016 was
approximately 18% on a GAAP
basis, 11% on a non-GAAP basis,
excluding acquisition-related
adjustments, and 12% on a non-
GAAP basis at constant currency.
Financial results in the second
quarter of 2015 include those of
Kofax subsequent to the date of
acquisition.
Year-to-year Enterprise Software
Revenue growth for the six months
ended June 30, 2016 was
approximately 34% on a GAAP
basis, 29% on a non-GAAP basis,
excluding acquisition-related
adjustments, and 31% on a non-
GAAP basis at constant currency.
Financial results in the second
quarter of 2015 include those of
Kofax subsequent to the date of
acquisition.
(5) Year-to-year ISS Revenue growth
for the three months ended June
30, 2016 was approximately -6%
on a GAAP basis and -2% on a
non-GAAP basis at constant
currency.
Year-to-year ISS Revenue growth
for the six months ended June 30,
2016 was approximately -9% on a
GAAP basis and -5% on a non-
GAAP basis at constant currency.
(6) Free Cash Flow, a non-GAAP
measure, is defined as net cash
flows provided by operating
activities minus purchases of
property, plant and equipment
plus proceeds from sale of fixed
assets, if applicable.
(7) Net Debt or Net Cash, a non-GAAP
measure, is defined as cash and
cash equivalents minus long-term
and short-term debt.
[A] Amounts for the three months ended
June 30, 2016, include total
acquisition and strategic
alternatives-related adjustments of
$44.3 million with $2.6 million,
$18.2 million, $0.3 million and
$23.2 million included in Revenue,
Cost of revenue, Research and
development and Selling, general and
administrative, respectively.
Selling, general and administrative
includes $19.2 million of
acquisition-related expenses and
$4.0 million of strategic
alternatives-related adjustments.
Amounts for the six months ended June
30, 2016, include total acquisition
and strategic alternatives-related
adjustments of $104.6 million with
$8.5 million, $36.3 million, $0.6
million and $59.2 million included
in Revenue, Cost of revenue,
Research and development and
Selling, general and administrative,
respectively. Selling, general and
administrative includes $46.5
million of acquisition-related
expenses and $12.7 million of
strategic alternatives-related
adjustments.
[B] Amounts for the three months ended
June 30, 2015, include total
acquisition-related adjustments of
$79.6 million with $11.5 million,
$16.1 million, $0.3 million and
$51.7 million included in Revenue,
Cost of revenue, Research and
development and Selling, general and
administrative, respectively.
Selling, general and administrative
includes $51.3 million of
acquisition-related expenses and
$0.4 million of divestiture-related
expenses.
Amounts for the six months ended June
30, 2015, include total acquisition-
related adjustments of $116.4
million with $14.7 million, $29.4
million, $0.5 million and $71.8
million included in Revenue, Cost of
revenue, Research and development
and Selling, general and
administrative, respectively.
Selling, general and administrative
includes $71.4 million of
acquisition-related expenses and
$0.4 million of divestiture-related
expenses.
[C] Amounts for the three months ended
June 30, 2016, include total
restructuring (reversals) charges
and project costs of $(4.3) million
with $(0.8) million included in
Selling, general and administrative
and $(3.5) million included in
Restructuring and related
(reversals) charges.
Amounts for the six months ended
June 30, 2016, include total
restructuring (reversals) charges
and project costs of $(11.3)
million with $3.9 million included
in Selling, general and
administrative and $(15.2) million
included in Restructuring and
related (reversals) charges.
[D] Amounts for the three months ended
June 30, 2015, include total
restructuring charges and project
costs of $37.2 million with $0.7
million and $2.7 million included in
Restructuring-related costs and
Selling, general and administrative,
respectively, in addition to $33.8
million in Restructuring and related
(reversals) charges.
Amounts for the six months ended June
30, 2015, include total
restructuring charges and project
costs of $39.1 million with $0.8
million and $4.7 million included in
Restructuring-related costs and
Selling, general and administrative,
respectively, in addition to $33.6
million in Restructuring and related
(reversals) charges.
[E] Amounts for the three months ended
June 30, 2016, include actuarial
loss on pension plan of $8.7
million with $1.6 million, $2.2
million and $4.9 million included
in Cost of revenue, Research and
development and Selling, general
and administrative, respectively.
Amounts for the six months ended
June 30, 2016, include actuarial
loss on pension plan of $26.4
million with $6.0 million, $4.3
million and $16.1 million included
in Cost of revenue, Research and
development and Selling, general
and administrative, respectively.
[F] Amounts for the three months ended
June 30, 2015, include actuarial
loss on pension plan of $0.3
million with $0.1 million, $0.1
million and $0.1 million included
in Cost of revenue, Research and
development and Selling, general
and administrative, respectively.
Amounts for the six months ended
June 30, 2015, include actuarial
loss on pension plan of $0.3
million with $0.1 million, $0.1
million and $0.1 million included
in Cost of revenue, Research and
development and Selling, general
and administrative, respectively.
[G] Amounts for the three months ended
June 30, 2016, include remediation-
related charges of $2.4 million
included in Selling, general and
administrative.
Amounts for the six months ended
June 30, 2016, include remediation-
related costs of $9.0 million
included in Selling, general and
administrative.
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.
Effective first quarter 2015, the Company
is using a constant non-GAAP tax rate,
which management believes reflects the
long-term average tax rate based on our
international structure and geographic
distribution of earnings. In addition,
the Company is also using constant
currency which removes estimated currency
rate impacts and related hedge gains and
losses from key performance indicators,
which management believes facilitates a
better understanding of trends in our
business. Adjustments to GAAP results in
determining non-GAAP results fall into
the categories that are described below:
1) Restructuring charges and project costs
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 postretirement 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-related, divestiture-
related and strategic alternatives-
related adjustments
In connection with acquisitions,
divestitures and the exploration of
strategic alternatives 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, stock based compensation
expense related to replacement awards
issued to employees of acquired companies
and costs of retention bonus programs for
the senior management of acquired
companies. Integration costs may consist
of information technology expenses
including software and systems to be
implemented in acquired companies,
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 and non-cash charges related to
certain assets which are abandoned as
systems are integrated across the
combined entity. Acquisition and
integration expenses also include costs
associated with the Company's rebranding
announcement in April 2015 as well as
related non-cash charges for the
abandonment of certain obsolete marketing
assets. 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. In 2013 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.
e. Strategic alternative-related
adjustments
In connection with the exploration of
strategic alternatives, management
provides supplementary non-GAAP
financial measures of expenses to
normalize for the impact of certain
expenses which would not have been
incurred otherwise. In 2015, the Company
announced that its Board of Directors
authorized the exploration of strategic
alternatives to unlock shareholder value.
The Company has incurred costs related to
the exploration of strategic
alternatives, and anticipates incurring
additional related costs such as legal
and accounting fees, employee travel
expenses and compensation, and consulting
costs. These costs are incremental to
normal operating charges and are expensed
as incurred. Management excluded these
expenses from non-GAAP earnings in order
to evaluate the Company's performance on
a continuing and comparable basis.
3) Actuarial gain/loss on pension plan
Lexmark elected during the fourth quarter
of 2013 to change its method of
accounting for mark-to-market ("MTM")
asset and actuarial gains and losses for
its pension and other postretirement
plans to improve transparency of
operational performance. MTM is also a
more preferable approach under generally
accepted accounting principles. Under
this MTM accounting approach, asset and
actuarial gains and losses will be
recognized in net periodic benefit cost
in the period in which they occur, rather
than being recognized in accumulated
other comprehensive income and amortized
over future periods. Lexmark management
believes that it is appropriate to
exclude MTM asset and actuarial gains and
losses from non-GAAP financial measures
due to the nature and underlying
volatility of these gains and losses.
Further, management believes that MTM
asset and actuarial gains and losses
relate to market performance of assets,
discount rates, and actuarial
assumptions, which do not directly arise
from the Company's core operations, and
the exclusion of these items from non-
GAAP financial measures facilitates
meaningful comparison both across periods
and among entities.
4) Remediation-related adjustments
The Company implemented various remedial
actions to address previously identified
material weaknesses in internal control
over accounting for income taxes. In
connection with its remediation actions,
the Company incurs expenses that would
not have been incurred otherwise. The
remediation-related costs include
professional fees associated with the
remediation actions being taken. These
costs are incremental to normal operating
charges and are expensed as incurred.
Management excluded these expenses from
non-GAAP earnings in order to evaluate
the Company's performance on a continuing
and comparable basis.
Tax effects of non-GAAP adjustments and
constant non-GAAP tax rate
This line item shows tax effect of the
non-GAAP adjustments and the difference
between the GAAP effective tax rate and
the constant non-GAAP tax rate.
Effective the first quarter of 2015,
Lexmark is using a constant non-GAAP tax
rate of 30%, which management believes
reflects the long-term average tax rate
based on our global supply chain,
including our geographic distribution of
earnings. The long-term average rate is
calculated after excluding the tax effect
of the non-GAAP items described above.
Further, the non-GAAP tax rate removes
the variability introduced by discrete
events such as tax law changes, tax
authority settlements and other non-
recurring items. The Company believes
the long-term non-GAAP tax rate
eliminates the effects of non-recurring
and period specific items which can vary
in size and frequency, facilitating a
meaningful comparison across periods.
This rate is subject to change over time
for various reasons, including material
changes in our geographic business mix,
acquisitions and/or modifications to
statutory tax rates.
-----------------------------------------
Constant Currency
Lexmark presents certain measures, such as
period-over-period revenue growth and
operating income, on a constant currency
basis, which excludes the effects of
foreign currency translation. Due to the
continuing strengthening of the U.S.
dollar against foreign currencies and the
overall variability of foreign exchange
rates from period to period, Lexmark's
management uses these measures on a
constant currency basis to evaluate
period-over-period operating
performance. Measures presented on a
constant currency basis are calculated by
translating prior period results at
current period exchange rates and
removing related hedge gains and losses.
------------------------------------------
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.
http://photos.prnewswire.com/prnvar/20150406/196765LOGO
Logo - http://photos.prnewswire.com/prnh/20150406/196765LOGO
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/lexmark-reports-second-quarter-results-300305708.html
SOURCE Lexmark International, Inc.
