LEXMARK INTERNATIONAL INC LEXINGTON, Ky., July 22, 2014 /PRNewswire/ -- Lexmark International, Inc. (NYSE: LXK) today announced financial results for the second quarter of 2014.
"In the second quarter, our higher value solutions portfolio revenue, comprised of Managed Print Services and Perceptive Software, grew 11 percent, accounted for nearly 30 percent of Lexmark's total revenue and is expected to exceed $1 billion this year," said Paul Rooke, Lexmark chairman and chief executive officer. "This growth is fueled by the disciplined execution of our capital allocation framework, which funds the company's transformation while concurrently rewarding our shareholders with both a 20 percent dividend increase and share repurchases, returning $41 million this past quarter.
"Our strong second-quarter results reflect the synergies we are creating with our unique imaging and software solutions, which help our customers solve their unstructured information challenges," added Rooke. "Considering our continued strong performance, we are increasing our full-year 2014 revenue and earnings per share guidance."
Second Quarter Results
-- Second quarter revenue and earnings per share exceeded the company's
April guidance.
Revenue (millions) 2Q14 2Q13
----------------- ---- ----
GAAP $892 $887
Adjustments 2 3
Non-GAAP $894 $890
-------- ---- ----
Earnings Per Share 2Q14 2Q13
------------------ ---- ----
GAAP $0.59 $1.47
Adjustments 0.40 (0.43)
Non-GAAP $0.99 $1.04
-------- ----- -----
-- GAAP revenue of $892 million includes acquisition-related adjustments of
$2 million. Non-GAAP(1) revenue of $894 million increased slightly year
to year, but grew 5 percent excluding the planned and ongoing decline in
Inkjet Exit(2) revenue.
-- GAAP earnings per share for the second quarter of 2014 were $0.59.
Second quarter 2014 non-GAAP adjustments were $0.40 per share.
-- Second quarter 2014 non-GAAP earnings were $0.99 per share compared with
non-GAAP earnings of $1.04 per share in the second quarter of 2013.
Higher Value Solutions Portfolio
-- Lexmark's higher value solutions portfolio revenue, comprised of Managed
Print Services (MPS)(3) and Perceptive Software, is expected to exceed
$1 billion in 2014.
-- Combined MPS and Perceptive Software revenue of $259 million, excluding
acquisition-related adjustments of $2 million, grew 11 percent year to
year and accounted for 29 percent of total revenue, up from 26 percent
in the same period last year.
Segment Revenue
-- Imaging Solutions and Services (ISS) revenue of $830 million increased
slightly compared to the same period last year. ISS revenue, excluding
Inkjet Exit revenue, grew 5 percent compared to last year. On a
year-to-year basis:
-- MPS revenue of $195 million grew 14 percent.
-- Non-MPS revenue(4) of $569 million grew 2 percent.
-- Inkjet Exit revenue of $67 million declined 33 percent and
represented 7 percent of total revenue.
-- Perceptive Software revenue was $61 million. Excluding
acquisition-related adjustments, Perceptive Software revenue of $64
million grew 3 percent compared to the same period in 2013.
Product Revenue
-- Hardware revenue of $183 million grew 7 percent compared to last year.
-- Supplies revenue of $602 million declined 1 percent year to year. Laser
supplies revenue grew 5 percent.
-- Software and Other revenue of $106 million ($109 million non-GAAP)
declined 1 percent compared to last year.
GAAP Results
-- Revenue was $892 million compared to $887 million last year.
-- Gross profit margin was 39.4 percent versus 38.6 percent in 2013.
-- Operating expense was $289 million compared to $206 million last year.
-- Operating income was $62 million compared to $136 million in 2013, which
included a pretax gain of $71 million, net of related costs, on the sale
of inkjet-related technology and assets.
-- Operating income margin was 7.0 percent compared to 15.3 percent in
2013.
-- Net earnings were $37 million compared to 2013 net earnings of $94
million.
Non-GAAP Results
-- Revenue was $894 million compared to $890 million last year.
-- Gross profit margin was 40.8 percent versus 40.4 percent in 2013.
-- Operating expense was $267 million compared to $262 million last year.
-- Operating income was $98 million compared to $98 million in 2013.
-- Operating income margin was 10.9 percent compared to 11.0 percent last
year.
-- Net earnings were $62 million compared to $67 million in 2013.
Cash Flow
-- Net cash provided by operating activities was $102 million.
-- Free cash flow(5) was $76 million. The company continues to expect 2014
free cash flow to be in the range of 90 percent to 100 percent of
non-GAAP net earnings.
-- Capital expenditures were $26 million.
-- Depreciation and amortization was $65 million.
-- Cash, including cash equivalents and current marketable securities, was
$1.031 billion at quarter end.
Maintaining Capital Allocation Discipline to Deliver Shareholder Value
-- Lexmark is executing on its stated capital allocation framework of
returning more than 50 percent of free cash flow to shareholders, on
average, through quarterly dividends and share repurchases while
building and growing its solutions and software business through
expansion and acquisitions.
-- Lexmark has returned 90 percent of free cash flow generated since the
first quarter of 2011 to shareholders through dividends and share
repurchases.
-- In the second quarter of 2014, Lexmark returned $41 million to
shareholders:
-- The company increased its quarterly dividend by 20 percent to $0.36
per share ($1.44 annually). This was Lexmark's 11th consecutive
quarterly dividend.
-- The company repurchased 0.4 million Lexmark shares for $19 million.
The company's remaining share repurchase authorization at quarter
end was $129 million.
Healthcare Clients Select Lexmark's Perceptive Software for Solutions Expertise
-- Lexmark's Perceptive Software announced three healthcare customer wins
in the second quarter spanning North America and EMEA.
-- Tulsa-based Saint Francis Health System will deploy Perceptive
Software Acuo Vendor Neutral Archive (VNA) to consolidate medical
image management for radiologists and clinical users across all
hospital and clinic locations. This deployment improves clinical
workflow and archiving capabilities and will enable all clinical
content to be easily shared across the enterprise -- providing
greater freedom and flexibility in implementing departmental systems
that best meet patient care, clinical quality and business process
needs. St. Francis Health System also currently utilizes Perceptive
Software to handle other content management demands across the
enterprise.
-- England-based Nottingham University Hospitals NHS Trust, one of the
largest in the country, announced that it will use Perceptive
Software to help with its picture archive and communications (PACS)
data migration. The implementation of Perceptive Software Acuo VNA
will form part of a comprehensive media imaging IT system that will
see the data migration of about 3 million existing imaging studies
from the legacy PACS system at Nottingham University Hospitals NHS
Trust.
-- Buffalo, New York-based Catholic Health will deploy Perceptive
Capture and Perceptive Content to complement the Infor Financial
Management and Human Capital Management Suites being implemented by
the health system at its corporate finance and human resources
offices. Perceptive Software was chosen due to its seamless
integration with the Infor applications.
Lexmark and Perceptive Software Leadership Recognition
-- Lexmark announced recently that it has been positioned as a leader in
MPS by leading European-based industry analyst firm Quocirca for the
third consecutive year. The report notes that by combining Enterprise
Content Management with Business Process Management technology with
intelligent distributed capture solutions, including workgroup
multifunction printers and mobile devices, Lexmark has a strong
proposition for connecting unstructured print and digital information
with structured information.(6)
-- Lexmark recently announced that Perceptive Software has been positioned
by Gartner, Inc. in the Leaders Quadrant for enterprise search
solutions, 2014. Gartner's evaluation is based on completeness of vision
and ability to execute.(7)
Looking Forward
-- Third quarter 2014 revenue, excluding Inkjet Exit revenue, is expected
to grow year to year. The company expects a continued negative impact
from the 2012 decision to exit inkjet.
-- Total revenue in the third quarter is currently expected to be in the
range of flat to down 2 percent compared to last year.
-- GAAP earnings per share in the third quarter of 2014 are expected to be
around $0.44 to $0.54.
-- Non-GAAP earnings per share in the third quarter of 2014 are expected to
be around $0.85 to $0.95, compared with non-GAAP earnings per share of
$1.02 in the third quarter of 2013.
-- Full-year 2014 total revenue is currently expected to be in the range of
flat to down 2 percent year to year. The previous guidance range was for
revenue to decline 2 percent to 4 percent year to year for full-year
2014.
-- Full-year 2014 GAAP earnings per share are expected to be around $2.27
to $2.47.
-- Full-year 2014 non-GAAP earnings per share are expected to be around
$3.95 to $4.15, an increase compared with previous non-GAAP earnings per
share guidance of $3.80 to $4.00 per share for full-year 2014.
Conference Call Today
-- The company will be hosting a conference call with securities analysts
today at 8:30 a.m. (EDT). A live broadcast and a complete replay of this
call can be accessed from Lexmark's investor relations website at
http://investor.lexmark.com. If you are unable to connect to the
Internet, you can access the call via telephone at 888-693-3477 (outside
the U.S. by calling 973-582-2710) using access code 63433790.
-- Lexmark's earnings presentation slides, including reconciliations
between GAAP and non-GAAP financial measures, will be available on
Lexmark's investor relations website prior to the live broadcast.
About Lexmark
Lexmark is uniquely focused on connecting unstructured printed and digital information across enterprises with the processes, applications and people that need it most. For more information, please visit www.lexmark.com.
Lexmark and Lexmark with diamond design 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" Statement under the Private Securities Litigation Reform Act of 1995: 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, 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; uncertainty as a result of a slowdown in government spending; decreased supplies consumption; failure to successfully integrate newly acquired businesses; fluctuations in foreign currency exchange rates; inability to realize all of the anticipated benefits of the company's acquisitions; possible changes in the size of expected restructuring costs, charges, and savings; market acceptance of new products; aggressive pricing from competitors and resellers; changes in the company's tax provisions or tax liabilities; 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; increased investment to support product development and marketing; the financial failure or loss of business with a key customer or reseller; periodic variations affecting revenue and profitability; excessive inventory for the company's reseller channel; failure to manage inventory levels or production capacity; credit risk associated with the company's customers, channel partners, and investment portfolio; entrance into the market of additional competitors focused on office printing and imaging and software solutions, including enterprise content management, business process management, document output management, intelligent data capture and search; inability to perform under managed print services contracts; increased competition in the aftermarket supplies business; fees on the company's products or litigation costs required to protect the company's rights; inability to obtain and protect the company's intellectual property rights and defend against claims of infringement and/or anticompetitive conduct; the outcome of litigation or regulatory proceedings to which the company may be a party; unforeseen cost impacts as a result of new legislation; the inability to attract, retain and motivate key employees; changes in a country's political or economic conditions; the failure of information technology systems, including data breaches or cyber attacks; disruptions at important points of exit and entry and distribution centers; business disruptions; terrorist acts; acts of war or other political conflicts; or the outbreak of a communicable disease; and other risks described in the company's Securities and Exchange Commission filings. The company undertakes no obligation to update any forward-looking statement.
(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,
debt extinguishment-related and
pension mark-to-market 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 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) Quocirca Managed Print Services
Landscape, 2014.
(7) Gartner, Inc. Magic Quadrant for
Enterprise Search, Whit Andrews,
Hanns Koehler-Kruener, July 16 2014.
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
------- -------
2014 2013 2014 2013
---- ---- ---- ----
Revenue:
Product 773.2 785.1 1,536.8 1,572.5
Service 118.6 101.6 232.7 198.5
------- ----- ----- ----- -----
Total Revenue 891.8 886.7 1,769.5 1,771.0
Cost of revenue:
Product 453.8 462.3 899.5 926.3
Service 84.8 76.6 168.6 153.2
Restructuring-related
costs 2.0 5.9 8.6 13.3
--------------------- --- --- --- ----
Total Cost of revenue 540.6 544.8 1,076.7 1,092.8
--------------------- ----- ----- ------- -------
Gross profit 351.2 341.9 692.8 678.2
Research and
development 80.9 77.3 160.0 155.6
Selling, general and
administrative 201.6 201.3 408.6 401.1
Gain on sale of
inkjet-related
technology and assets - (73.5) - (73.5)
Restructuring and
related charges
(reversals) 6.3 1.2 7.9 (2.8)
----------------- --- --- --- ----
Operating expense 288.8 206.3 576.5 480.4
----------------- ----- ----- ----- -----
Operating income 62.4 135.6 116.3 197.8
Interest expense
(income), net 7.4 7.9 15.2 17.3
Other expense
(income), net 0.3 1.5 1.1 2.4
Loss on extinguishment
of debt - - - 3.3
---------------------- --- --- --- ---
Earnings before income
taxes 54.7 126.2 100.0 174.8
Provision for income
taxes 17.2 32.1 33.2 40.7
-------------------- ---- ---- ---- ----
Net earnings $37.5 $94.1 $66.8 $134.1
===== ===== ===== ======
Net earnings per share:
Basic $0.60 $1.49 $1.08 $2.11
===== ===== ===== =====
Diluted $0.59 $1.47 $1.05 $2.08
===== ===== ===== =====
Shares used in per share calculation:
Basic 62.2 63.2 62.1 63.4
==== ==== ==== ====
Diluted 63.4 64.1 63.4 64.4
==== ==== ==== ====
Cash dividends
declared per common
share $0.36 $0.30 $0.66 $0.60
===== ===== ===== =====
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions)
(Unaudited)
June 30 December 31
2014 2013
---- ----
ASSETS
Current assets:
Cash and cash equivalents $335.8 $273.2
Marketable securities 695.1 781.5
Trade receivables, net 403.1 452.3
Inventories 286.4 268.2
Prepaid expenses and other
current assets 203.7 195.3
-------------------------- ----- -----
Total current assets 1,924.1 1,970.5
Property, plant and equipment,
net 798.6 812.4
Marketable securities - 6.7
Goodwill 454.7 454.7
Intangibles, net 222.6 258.0
Other assets 125.8 114.6
------------
Total assets $3,525.8 $3,616.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $493.6 $474.7
Accrued liabilities 572.6 672.4
------------------- ----- -----
Total current liabilities 1,066.2 1,147.1
Long-term debt 699.7 699.6
Other liabilities 373.9 401.9
----------------- ----- -----
Total liabilities 2,139.8 2,248.6
----------------- ------- -------
Stockholders' equity:
Common stock and capital in
excess of par 944.9 916.8
Retained earnings 1,437.5 1,413.1
Treasury stock, net (966.4) (926.4)
Accumulated other
comprehensive loss (30.0) (35.2)
------------------- ----- -----
Total stockholders' equity 1,386.0 1,368.3
--------------------------
Total liabilities and
stockholders' equity $3,525.8 $3,616.9
======== ========
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited)
Net Earnings (In Millions) 2Q14 2Q13
---- ----
GAAP $37 $94
Restructuring charges and project costs 8 10
Acquisition and divestiture-related adjustments 19 (37)
Actuarial gain on pension plan (2) -
--- ---
Non-GAAP $62 $67
=== ===
Six Months Ended
June 30
-----------------
Net Earnings (In Millions) 2014 2013
---- ----
GAAP $67 $134
Restructuring charges and project costs 17 16
Acquisition and divestiture-
related adjustments 38 (24)
Loss on extinguishment of debt - 2
Actuarial gain on pension plan (2) -
--- ---
Non-GAAP $121 $129
==== ====
Earnings Per Share 2Q14 2Q13
---- ----
GAAP $0.59 $1.47
Restructuring charges and project costs 0.13 0.15
Acquisition and divestiture-related adjustments 0.30 (0.58)
Actuarial gain on pension plan (0.03) -
-----
Non-GAAP $0.99 $1.04
===== =====
Six Months Ended
June 30
-----------------
Earnings Per Share 2014 2013
---- ----
GAAP $1.05 $2.08
Restructuring charges and project costs 0.27 0.25
Acquisition and divestiture-related adjustments 0.61 (0.37)
Loss on extinguishment of debt - 0.04
Actuarial gain on pension plan (0.03) -
----- ---
Non-GAAP $1.90 $2.00
===== =====
Earnings Per Share Guidance 3Q14 3Q13
---- ----
GAAP $0.44 - $0.54 $0.53
Restructuring charges and project costs 0.12 0.20
Acquisition and divestiture-related adjustments 0.29 0.29
----
Non-GAAP $0.85 - $0.95 $1.02
============= =====
Earnings Per Share Guidance 2014 2013
---- ----
GAAP $2.27 - $2.47 $4.08
Restructuring charges and project costs 0.59 0.57
Acquisition and divestiture-related adjustments 1.12 0.14
Loss on extinguishment of debt - 0.04
Actuarial gain on pension plan (0.03) (0.63)
----- -----
Non-GAAP $3.95 - $4.15 $4.19
============= =====
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)* 2Q14 2Q13
---- ----
GAAP $892 $887
Acquisition-related adjustments (1)(2) 2 3
Non-GAAP $894 $890
==== ====
Higher Value Solutions Revenue (In Millions)** 2Q14 2Q13
---- ----
GAAP $256 $229
Acquisition-related adjustments (1)(2) 2 3
Non-GAAP $259 $232
==== ====
Software and Other Revenue (In Millions) *** 2Q14 2Q13
---- ----
GAAP $106 $108
Acquisition-related adjustments (1)(2) 2 3
Non-GAAP $109 $111
==== ====
Perceptive Software Revenue (In Millions) **** 2Q14 2Q13
---- ----
GAAP $61 $59
Acquisition-related adjustments (1)(2) 2 3
Non-GAAP $64 $62
=== ===
Revenue, excluding Inkjet Exit and
acquisition-related adjustments (In Millions)***** 2Q14 2Q13
---- ----
GAAP $892 $887
Acquisition-related adjustments (1)(2) 2 3
Inkjet Exit Revenue (67) (99)
Non-GAAP, excluding Inkjet Exit and
acquisition-related adjustments $827 $791
==== ====
ISS Revenue, excluding Inkjet Exit (In
Millions)****** 2Q14 2Q13
---- ----
GAAP ISS Revenue $830 $828
Inkjet Exit Revenue (67) (99)
Non-GAAP ISS Revenue, excluding Inkjet Exit $764 $729
==== ====
Gross Profit (In Millions) 2Q14 2Q13
---- ----
GAAP $351 $342
Restructuring charges and project costs (3)(4) 2 6
Acquisition-related adjustments (1)(2) 13 12
Actuarial gain on pension plan (5) (1) -
Non-GAAP $365 $360
==== ====
Gross Profit Margin (%) 2Q14 2Q13
---- ----
GAAP 39.4% 38.6%
Restructuring charges and project costs 0.2% 0.7%
Acquisition-related adjustments 1.4% 1.4%
Actuarial gain on pension plan -0.1% -
Non-GAAP 40.8% 40.4%
==== ====
Operating Expense (In Millions) 2Q14 2Q13
---- ----
GAAP $289 $206
Restructuring charges and project costs (3)(4) (10) (7)
Acquisition and divestiture-related adjustments
(1)(2) (14) 63
Actuarial gain on pension plan (5) 2 -
Non-GAAP $267 $262
==== ====
Operating Income (In Millions) 2Q14 2Q13
---- ----
GAAP $62 $136
Restructuring charges and project costs (3)(4) 12 13
Acquisition and divestiture-related adjustments
(1)(2) 26 (51)
Actuarial gain on pension plan (5) (3) -
Non-GAAP $98 $98
=== ===
Operating Income Margin (%) 2Q14 2Q13
---- ----
GAAP 7.0% 15.3%
Restructuring charges and project costs 1.3% 1.5%
Acquisition and divestiture-related
adjustments 2.9% -5.7%
Actuarial gain on pension plan -0.3% -
Non-GAAP 10.9% 11.0%
==== ====
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 1% on a
GAAP basis and 0% on
* a non-GAAP basis.
** Year-to-year Higher
Value Solutions
Revenue growth was
approximately 12% on
a GAAP basis and 11%
on a non-GAAP basis.
Higher Value
Solutions Revenue as
a percentage of total
revenue was 29% on a
GAAP basis and 29% on
a non-GAAP basis for
the second quarter
ending June 30, 2014.
Higher Value
Solutions Revenue as
a percentage of total
revenue was 26% on a
GAAP basis and 26% on
a non-GAAP basis for
the second quarter
ending June 30, 2013.
*** Year-to-year
Software and Other
Revenue growth was
approximately -1% on
a GAAP basis and -2%
on a non-GAAP basis.
**** Year-to-year
Perceptive Software
Revenue growth was
approximately 5% on a
GAAP basis and 3% on
a non-GAAP basis.
***** Year-to-year Revenue
growth was
approximately 1% on a
GAAP basis and 5%
excluding Inkjet Exit
and acquisition-
related adjustments.
****** Year-to-year ISS
Revenue growth,
excluding Inkjet
Exit, was
approximately 0% on a
GAAP basis and 5% on
a non-GAAP basis.
(1) Amounts for the three
months ended June 30,
2014, include total
acquisition and
divestiture-related
adjustments of $26.2
million with $2.4
million, $10.3
million, $0.2 million
and $13.3 million
included in Revenue,
Cost of revenue,
Research and
development and
Selling, general and
administrative,
respectively.
Selling, general and
administrative
includes $13.0
million of
acquisition-related
expenses and $0.3
million of
divestiture-related
expenses.
(2) Amounts for the three
months ended June 30,
2013, include total
acquisition and
divestiture-related
adjustments of
$(51.1) million with
$3.5 million, $8.8
million, $0.2
million, $9.9 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 $7.4 million
of acquisition-
related expenses and
$2.5 million of
divestiture-related
expenses.
(3) Amounts for the three
months ended June 30,
2014, include total
restructuring charges
and project costs of
$11.8 million with
$2.0 million and $3.5
million included in
Restructuring-
related costs and
Selling, general and
administrative,
respectively, in
addition to the $6.3
million in
Restructuring and
related charges
(reversals).
(4) Amounts for the three
months ended June 30,
2013, include total
restructuring charges
and project costs of
$13.3 million with
$5.9 million and $6.2
million included in
Restructuring-
related costs and
Selling, general and
administrative,
respectively, in
addition to the $1.2
million in
Restructuring and
related charges
(reversals).
(5) Amounts for the three
months ended June 30,
2014, include actuarial
gain on pension plan of
$2.9 million with $0.6
million, $1.2 million
and $1.1 million
included in Cost of
revenue, Research and
development and Selling,
general and
administrative.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited)
Six Months Ended June 30
------------------------
Revenue (In Millions)* 2014 2013
---- ----
GAAP $1,769 $1,771
Acquisition-related adjustments (1)(2) 5 6
Non-GAAP $1,775 $1,777
====== ======
Higher Value Solutions Revenue (In
Millions) ** 2014 2013
---- ----
GAAP $497 $433
Acquisition-related adjustments (1)(2) 5 6
Non-GAAP $502 $438
==== ====
Software and Other Revenue (In
Millions)*** 2014 2013
---- ----
GAAP $213 $202
Acquisition-related adjustments (1)(2) 5 6
Non-GAAP $218 $208
==== ====
Perceptive Software Revenue (In
Millions) **** 2014 2013
---- ----
GAAP $122 $103
Acquisition-related adjustments (1)(2) 5 6
Non-GAAP $128 $108
==== ====
Revenue, excluding Inkjet Exit and
acquisition-related adjustments (In
Millions)***** 2014 2013
---- ----
GAAP $1,769 $1,771
Acquisition-related adjustments (1)(2) 5 6
Inkjet Exit Revenue (139) (221)
Non-GAAP, excluding Inkjet Exit and
acquisition-related adjustments $1,636 $1,556
====== ======
ISS Revenue, excluding Inkjet Exit (In
Millions)****** 2014 2013
---- ----
GAAP ISS Revenue $1,647 $1,668
Inkjet Exit Revenue (139) (221)
Non-GAAP ISS Revenue, excluding
Inkjet Exit $1,508 $1,447
====== ======
Gross Profit (In Millions) 2014 2013
---- ----
GAAP $693 $678
Restructuring charges and project
costs (3)(4) 9 13
Acquisition-related adjustments (1)(2) 26 23
Actuarial gain on pension plan (5) (1) -
Non-GAAP $727 $714
==== ====
Gross Profit Margin (%) 2014 2013
---- ----
GAAP 39.2% 38.3%
Restructuring charges and project
costs 0.5% 0.7%
Acquisition-related adjustments 1.5% 1.3%
Actuarial gain on pension plan 0.0% -
Non-GAAP 40.9% 40.2%
==== ====
Operating Expense (In Millions) 2014 2013
---- ----
GAAP $577 $480
Restructuring charges and project
costs (3)(4) (15) (9)
Acquisition and divestiture-related
adjustments (1)(2) (27) 56
Actuarial gain on pension plan (5) 2 -
Non-GAAP $537 $528
==== ====
Operating Income (In Millions) 2014 2013
---- ----
GAAP $116 $198
Restructuring charges and project
costs (3)(4) 24 22
Acquisition and divestiture-related
adjustments (1)(2) 53 (33)
Actuarial gain on pension plan (5) (3) -
Non-GAAP $190 $187
==== ====
Operating Income Margin (%) 2014 2013
---- ----
GAAP 6.6% 11.2%
Restructuring charges and project
costs 1.3% 1.3%
Acquisition and divestiture-related
adjustments 3.0% -1.9%
Actuarial gain on pension plan -0.2% -
Non-GAAP 10.7% 10.5%
==== ====
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 0% on a
GAAP basis and 0% on
a non-GAAP basis.
Financial results of
2013 include those of
AccessVia and
Twistage subsequent
to the date of
acquisition.
** Year-to-year Higher
Value Solutions
Revenue growth was
approximately 15% on
a GAAP basis and 14%
on a non-GAAP basis.
Higher Value
Solutions Revenue as
a percentage of total
revenue was 28% on a
GAAP basis and 28% on
a non-GAAP basis for
the period ending
June 30, 2014. Higher
Value Solutions
Revenue as a
percentage of total
revenue was 24% on a
GAAP basis and 25% on
a non-GAAP basis for
the period ending
June 30, 2013.
Financial results of
2013 include those of
AccessVia and
Twistage subsequent
to the date of
acquisition.
*** Year-to-year
Software and Other
Revenue growth was
approximately 5% on a
GAAP basis and 5% on
a non-GAAP basis.
Financial results of
2013 include those of
AccessVia and
Twistage subsequent
to the date of
acquisition.
**** Year-to-year
Perceptive Software
Revenue growth was
approximately 19% on
a GAAP basis and 18%
on a non-GAAP basis.
Financial results of
2013 include those of
AccessVia and
Twistage subsequent
to the date of
acquisition.
***** Year-to-year Revenue
growth was
approximately 0% on a
GAAP basis and 5%
excluding Inkjet Exit
and acquisition-
related adjustments.
Financial results of
2013 include those of
AccessVia and
Twistage subsequent
to the date of
acquisition.
****** Year-to-year ISS
Revenue growth,
excluding Inkjet
Exit, was
approximately -1% on
a GAAP basis and 4%
on a non-GAAP basis.
(1) Amounts for the six
months ended June 30,
2014, include total
acquisition and
divestiture-related
adjustments of $52.5
million with $5.4
million, $20.5 million,
$0.4 million and $26.2
million included in
Revenue, Cost of
revenue, Research and
development and Selling,
general and
administrative,
respectively. Selling,
general and
administrative includes
$24.7 million of
acquisition-related
expenses and $1.5
million of divestiture-
related expenses.
(2) Amounts for the six
months ended June 30,
2013, include total
acquisition and
divestiture-related
adjustments of $(33.3)
million with $5.6
million, $17.3 million,
$0.3 million, $17.0
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
$14.3 million of
acquisition-related
expenses and $2.7
million of divestiture-
related expenses.
(3) Amounts for the six
months ended June 30,
2014, include total
restructuring charges
and project costs of
$23.7 million with $8.6
million and $7.2 million
included in
Restructuring-related
costs and Selling,
general and
administrative,
respectively, in
addition to the $7.9
million in Restructuring
and related charges
(reversals).
(4) Amounts for the six
months ended June 30,
2013, include total
restructuring charges
and project costs of
$22.4 million with $13.3
million and $11.9
million included in
Restructuring-related
costs and Selling,
general and
administrative,
respectively, in
addition to the $(2.8)
million in Restructuring
and related charges
(reversals).
(5) Amounts for the six
months ended June 30,
2014, include actuarial
gain on pension plan of
$2.9 million with $0.6
million, $1.2 million
and $1.1 million
included in Cost of
revenue, Research and
development and 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.
Adjustments to
GAAP results in
determining non-
GAAP results
fall into four
general
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
and divestiture-
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
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.
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
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.
4) 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.
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.
SOURCE Lexmark International, Inc.
