LEXINGTON, Ky., Oct. 28, 2016 /PRNewswire/ -- Lexmark
International, Inc. today announced financial results for the third
quarter of 2016.
|
Results1
|
|
|
|
|
GAAP
Summary
|
3Q16
|
3Q15
|
Year-to-Year
Change
|
|
|
Revenue
(millions)
|
$844
|
$851
|
-1%
|
|
|
ISS2
|
$688
|
$703
|
-2%
|
|
|
ES3
|
$156
|
$148
|
+5%
|
|
|
Core4
|
$830
|
$820
|
+1%
|
|
|
Higher Value
Solutions5
|
$366
|
$355
|
+3%
|
|
|
Gross Profit
Margin
|
39.0%
|
37.6%
|
|
|
|
Operating Income
Margin
|
4.3%
|
-2.5%
|
|
|
|
EPS
|
$0.28
|
-$0.25
|
|
|
|
Non-GAAP
Summary
|
3Q16
|
3Q15
|
Year-to-Year
Change
|
Year-to-Year
Change at
Constant
Currency6
|
|
|
Revenue
(millions)
|
$846
|
$868
|
-3%
|
0%
|
|
|
ISS
|
$688
|
$703
|
-2%
|
+1%
|
|
|
ES
|
$157
|
$165
|
-5%
|
-4%
|
|
|
Core
|
$832
|
$837
|
-1%
|
+2%
|
|
|
Higher Value
Solutions
|
$367
|
$372
|
-1%
|
0%
|
|
|
Gross Profit
Margin
|
41.3%
|
40.9%
|
|
|
|
Operating Income
Margin
|
9.9%
|
7.4%
|
|
|
|
Adjusted
EBITDA7
|
$122
|
$104
|
|
|
|
EPS
|
$0.77
|
$0.57
|
|
|
|
|
|
|
|
|
|
Balance Sheet / Cash
Flow (millions)
|
3Q16
|
|
|
Cash8
|
$118
|
|
|
U.S.
|
$13
|
|
|
Non-U.S.
|
$105
|
|
|
Net
debt9
|
$900
|
|
|
Operating cash
flow
|
$25
|
|
|
Free cash
flow10
|
$9
|
|
|
Quarterly dividend
($0.36/share)
|
$23
|
|
|
|
|
|
|
|
CFIUS Clearance to Proceed with Acquisition of
Lexmark
- On Sept. 30, 2016, clearance was
received from the Committee on Foreign Investment in the United States (CFIUS) to proceed with the
proposed acquisition of the company. CFIUS found that there are no
unresolved national security issues associated with the proposed
transaction.
- As a precondition to CFIUS clearance of the transaction, CFIUS
required that the company and the Consortium enter into a National
Security Agreement with the Departments of Defense and Homeland
Security.
- The transaction remains subject to approval from China's State Administration of Foreign
Exchange (SAFE) and other customary closing conditions.
- The parties continue to expect the transaction to close in
2016.
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, strategic alternatives,
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 sale of the Company to the Consortium pursuant to the
terms of the merger agreement by and among the parties 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, or (ii) a failure to satisfy the other closing
conditions; the proposed transaction also includes risks related to
the disruption of management's attention from Lexmark's ongoing
business operations due to the pending transaction and 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)
|
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
|
|
Nine Months
Ended
|
|
September
30
|
|
September
30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
647.8
|
|
$
|
669.0
|
|
$
|
1,940.0
|
|
$
|
2,103.6
|
|
Service
|
|
196.1
|
|
|
182.1
|
|
|
572.7
|
|
|
478.8
|
|
Total
Revenue
|
|
843.9
|
|
|
851.1
|
|
|
2,512.7
|
|
|
2,582.4
|
|
Cost of
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
415.8
|
|
|
423.8
|
|
|
1,236.9
|
|
|
1,267.9
|
|
Service
|
|
98.7
|
|
|
107.7
|
|
|
303.0
|
|
|
302.1
|
|
Restructuring-related
costs
|
|
–
|
|
|
–
|
|
|
–
|
|
|
0.8
|
|
Total Cost of
revenue
|
|
514.5
|
|
|
531.5
|
|
|
1,539.9
|
|
|
1,570.8
|
|
Gross
profit
|
|
329.4
|
|
|
319.6
|
|
|
972.8
|
|
|
1,011.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
68.5
|
|
|
81.6
|
|
|
228.0
|
|
|
244.9
|
|
Selling, general and
administrative
|
|
228.5
|
|
|
261.0
|
|
|
743.1
|
|
|
736.0
|
|
Restructuring and
related (reversals) charges
|
|
(3.5)
|
|
|
(1.4)
|
|
|
(18.6)
|
|
|
32.2
|
|
Operating
expense
|
|
293.5
|
|
|
341.2
|
|
|
952.5
|
|
|
1,013.1
|
|
Operating income
(loss)
|
|
35.9
|
|
|
(21.6)
|
|
|
20.3
|
|
|
(1.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
(income), net
|
|
11.5
|
|
|
10.4
|
|
|
33.8
|
|
|
28.1
|
|
Other expense
(income), net
|
|
1.3
|
|
|
3.4
|
|
|
2.5
|
|
|
3.6
|
|
Earnings (loss)
before income taxes
|
|
23.1
|
|
|
(35.4)
|
|
|
(16.0)
|
|
|
(33.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit)
for income taxes
|
|
4.8
|
|
|
(20.2)
|
|
|
40.5
|
|
|
(3.5)
|
|
Net earnings
(loss)
|
$
|
18.3
|
|
$
|
(15.2)
|
|
$
|
(56.5)
|
|
$
|
(29.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.29
|
|
$
|
(0.25)
|
|
$
|
(0.90)
|
|
$
|
(0.48)
|
|
Diluted
|
$
|
0.28
|
|
$
|
(0.25)
|
|
$
|
(0.90)
|
|
$
|
(0.48)
|
|
Shares used in per
share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
63.0
|
|
|
61.7
|
|
|
62.8
|
|
|
61.5
|
|
Diluted
|
|
64.2
|
|
|
61.7
|
|
|
62.8
|
|
|
61.5
|
|
Cash dividends
declared per common share
|
$
|
0.36
|
|
$
|
0.36
|
|
$
|
1.08
|
|
$
|
1.08
|
|
LEXMARK
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF FINANCIAL POSITION
(In
Millions)
(Unaudited)
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2016
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
117.7
|
|
$
|
158.3
|
|
Trade receivables,
net
|
|
|
397.5
|
|
|
434.2
|
|
Inventories
|
|
|
238.9
|
|
|
231.9
|
|
Prepaid expenses and
other current assets
|
|
|
169.2
|
|
|
204.9
|
|
Total current
assets
|
|
|
923.3
|
|
|
1,029.3
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
683.2
|
|
|
740.2
|
|
Goodwill
|
|
|
1,323.0
|
|
|
1,325.1
|
|
Intangibles,
net
|
|
|
432.6
|
|
|
532.5
|
|
Other
assets
|
|
|
275.2
|
|
|
285.3
|
|
Total
assets
|
|
$
|
3,637.3
|
|
$
|
3,912.4
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
398.9
|
|
$
|
501.7
|
|
Accrued
liabilities
|
|
|
645.4
|
|
|
669.8
|
|
Total current
liabilities
|
|
|
1,044.3
|
|
|
1,171.5
|
|
|
|
|
|
|
|
|
Long-term debt, net
of unamortized discounts and issuance costs
|
|
|
1,017.9
|
|
|
1,061.3
|
|
Other
liabilities
|
|
|
571.6
|
|
|
561.6
|
|
Total
liabilities
|
|
|
2,633.8
|
|
|
2,794.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common stock and
capital in excess of par
|
|
|
1,069.4
|
|
|
1,026.9
|
|
Retained
earnings
|
|
|
1,165.7
|
|
|
1,292.8
|
|
Treasury stock,
net
|
|
|
(1,040.4)
|
|
|
(1,036.7)
|
|
Accumulated other
comprehensive loss
|
|
|
(191.2)
|
|
|
(165.0)
|
|
Total stockholders'
equity
|
|
|
1,003.5
|
|
|
1,118.0
|
|
Total liabilities
and stockholders' equity
|
|
$
|
3,637.3
|
|
$
|
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
|
|
|
Nine Months
Ended
|
|
|
|
September
30
|
|
|
September
30
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
Net Earnings
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
$
|
18
|
|
$
|
(15)
|
|
|
$
|
(57)
|
|
$
|
(30)
|
|
Pre-tax
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(reversals) and project costs
|
|
|
|
1
|
|
|
1
|
|
|
|
(11)
|
|
|
40
|
|
Acquisition, strategic
alternatives, and divestiture-related adjustments
|
|
|
|
46
|
|
|
82
|
|
|
|
150
|
|
|
198
|
|
Actuarial loss on
pension plan
|
|
|
|
–
|
|
|
–
|
|
|
|
26
|
|
|
–
|
|
Remediation-related
charges
|
|
|
|
2
|
|
|
3
|
|
|
|
10
|
|
|
3
|
|
Total pre-tax
adjustments
|
|
|
|
48
|
|
|
86
|
|
|
|
176
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effects of
non-GAAP adjustments and constant non-GAAP tax rate
|
|
|
|
(16)
|
|
|
(35)
|
|
|
|
(7)
|
|
|
(66)
|
|
Non-GAAP
|
|
|
$
|
49
|
|
$
|
35
|
|
|
$
|
112
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA and
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Earnings
(Loss)
|
|
|
$
|
18
|
|
$
|
(15)
|
|
|
$
|
(57)
|
|
$
|
(30)
|
|
Interest expense
(income), net
|
|
|
|
12
|
|
|
10
|
|
|
|
34
|
|
|
28
|
|
Provision (benefit)
for income taxes
|
|
|
|
5
|
|
|
(20)
|
|
|
|
41
|
|
|
(4)
|
|
Depreciation and
amortization
|
|
|
|
69
|
|
|
80
|
|
|
|
213
|
|
|
223
|
|
EBITDA
|
|
|
$
|
104
|
|
$
|
55
|
|
|
$
|
230
|
|
$
|
218
|
|
Restructuring charges
(reversals) and project costs
|
|
|
|
1
|
|
|
1
|
|
|
|
(12)
|
|
|
39
|
|
Acquisition, strategic
alternatives, and divestiture-related adjustments
|
|
|
|
16
|
|
|
44
|
|
|
|
61
|
|
|
105
|
|
Actuarial loss on
pension plan
|
|
|
|
–
|
|
|
–
|
|
|
|
26
|
|
|
–
|
|
Remediation-related
charges
|
|
|
|
2
|
|
|
3
|
|
|
|
10
|
|
|
3
|
|
Adjusted
EBITDA
|
|
|
$
|
122
|
|
$
|
104
|
|
|
$
|
316
|
|
$
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
$
|
0.28
|
|
$
|
(0.25)
|
|
|
$
|
(0.90)
|
|
$
|
(0.48)
|
|
Pre-tax
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(reversals) and project costs
|
|
|
|
0.01
|
|
|
0.01
|
|
|
|
(0.17)
|
|
|
0.65
|
|
Acquisition, strategic
alternatives, and divestiture-related adjustments
|
|
|
|
0.71
|
|
|
1.32
|
|
|
|
2.39
|
|
|
3.22
|
|
Actuarial loss on
pension plan
|
|
|
|
–
|
|
|
–
|
|
|
|
0.42
|
|
|
0.00
|
|
Remediation-related
charges
|
|
|
|
0.02
|
|
|
0.05
|
|
|
|
0.17
|
|
|
0.05
|
|
Total pre-tax
adjustments
|
|
|
|
0.74
|
|
|
1.39
|
|
|
|
2.81
|
|
|
3.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effects of
non-GAAP adjustments and constant non-GAAP tax rate
|
|
|
|
(0.26)
|
|
|
(0.57)
|
|
|
|
(0.12)
|
|
|
(1.08)
|
|
Non-GAAP
|
|
|
$
|
0.77
|
|
$
|
0.57
|
|
|
$
|
1.79
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30
|
|
|
September
30
|
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
Revenue
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
844
|
|
$
|
851
|
|
|
$
|
2,513
|
|
$
|
2,582
|
|
Acquisition-related
adjustments
|
|
|
[A][B]
|
|
2
|
|
|
17
|
|
|
|
10
|
|
|
32
|
|
Non-GAAP
|
|
|
|
$
|
846
|
|
$
|
868
|
|
|
$
|
2,523
|
|
$
|
2,614
|
|
Constant currency
adjustments
|
|
|
|
|
(1)
|
|
|
(21)
|
|
|
|
(1)
|
|
|
(90)
|
|
Non-GAAP, at
constant currency
|
|
|
|
$
|
844
|
|
$
|
847
|
|
|
$
|
2,522
|
|
$
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Higher Value
Solutions Revenue
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
844
|
|
$
|
851
|
|
|
$
|
2,513
|
|
$
|
2,582
|
|
Inkjet Exit
Revenue
|
|
|
|
|
(14)
|
|
|
(31)
|
|
|
|
(49)
|
|
|
(114)
|
|
Non-MPS
Revenue
|
|
|
|
|
(465)
|
|
|
(465)
|
|
|
|
(1,401)
|
|
|
(1,500)
|
|
Higher Value
Solutions Revenue
|
|
|
|
$
|
366
|
|
$
|
355
|
|
|
$
|
1,063
|
|
$
|
969
|
|
Acquisition-related
adjustments
|
|
|
[A][B]
|
|
2
|
|
|
17
|
|
|
|
10
|
|
|
32
|
|
Higher Value
Solutions Revenue,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding
acquisition-related adjustments
|
|
|
|
$
|
367
|
|
$
|
372
|
|
|
$
|
1,073
|
|
$
|
1,000
|
|
Constant currency
adjustments
|
|
|
|
|
–
|
|
|
(6)
|
|
|
|
–
|
|
|
(26)
|
|
Non-GAAP, at
constant currency
|
|
|
|
$
|
367
|
|
$
|
366
|
|
|
$
|
1,073
|
|
$
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Revenue
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
844
|
|
$
|
851
|
|
|
$
|
2,513
|
|
$
|
2,582
|
|
Inkjet Exit
Revenue
|
|
|
|
|
(14)
|
|
|
(31)
|
|
|
|
(49)
|
|
|
(114)
|
|
Core
Revenue
|
|
|
|
$
|
830
|
|
$
|
820
|
|
|
$
|
2,464
|
|
$
|
2,469
|
|
Acquisition-related
adjustments
|
|
|
[A][B]
|
|
2
|
|
|
17
|
|
|
|
10
|
|
|
32
|
|
Core Revenue,
excluding acquisition-related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
|
$
|
832
|
|
$
|
837
|
|
|
$
|
2,474
|
|
$
|
2,500
|
|
Constant currency
adjustments
|
|
|
|
|
(1)
|
|
|
(21)
|
|
|
|
(1)
|
|
|
(89)
|
|
Non-GAAP, at
constant currency
|
|
|
|
$
|
831
|
|
$
|
816
|
|
|
$
|
2,473
|
|
$
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Software Revenue
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
156
|
|
$
|
148
|
|
|
$
|
458
|
|
$
|
373
|
|
Acquisition-related
adjustments
|
|
|
[A][B]
|
|
2
|
|
|
17
|
|
|
|
10
|
|
|
32
|
|
Non-GAAP
|
|
|
|
$
|
157
|
|
$
|
165
|
|
|
$
|
468
|
|
$
|
405
|
|
Constant currency
adjustments
|
|
|
|
|
–
|
|
|
(1)
|
|
|
|
–
|
|
|
(4)
|
|
Non-GAAP, at
constant currency
|
|
|
|
$
|
157
|
|
$
|
164
|
|
|
$
|
468
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imaging Solutions
and Services ("ISS") Revenue
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
688
|
|
$
|
703
|
|
|
$
|
2,055
|
|
$
|
2,209
|
|
Constant currency
adjustments
|
|
|
|
|
(1)
|
|
|
(19)
|
|
|
|
(1)
|
|
|
(86)
|
|
Non-GAAP, at
constant currency
|
|
|
|
$
|
687
|
|
$
|
684
|
|
|
$
|
2,054
|
|
$
|
2,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30
|
|
|
September
30
|
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
Free Cash
Flow
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Cash Flows
Provided by (Used for) Operating Activities
|
|
|
|
$
|
25
|
|
$
|
22
|
|
|
$
|
128
|
|
$
|
5
|
|
Purchases of property,
plant and equipment
|
|
|
|
|
(17)
|
|
|
(19)
|
|
|
|
(57)
|
|
|
(84)
|
|
Proceeds from sale of
fixed assets
|
|
|
|
|
1
|
|
|
–
|
|
|
|
3
|
|
|
–
|
|
Non-GAAP Free Cash
Flow
|
|
|
|
$
|
9
|
|
$
|
3
|
|
|
$
|
74
|
|
$
|
(79)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
December
31
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Net (Debt)
Cash
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Cash and Cash
Equivalents
|
|
|
|
|
|
|
|
|
|
|
$
|
118
|
|
$
|
158
|
|
Long-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
(1,018)
|
|
|
(1,061)
|
|
Non-GAAP Net
Debt
|
|
|
|
|
|
|
|
|
|
|
$
|
(900)
|
|
$
|
(903)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30
|
|
|
September
30
|
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
329
|
|
$
|
320
|
|
|
$
|
973
|
|
$
|
1,012
|
|
Restructuring charges
and project costs
|
|
|
[C][D]
|
|
–
|
|
|
–
|
|
|
|
–
|
|
|
1
|
|
Acquisition-related
adjustments
|
|
|
[A][B]
|
|
20
|
|
|
35
|
|
|
|
64
|
|
|
79
|
|
Actuarial loss on
pension plan
|
|
|
[E][F]
|
|
–
|
|
|
–
|
|
|
|
6
|
|
|
–
|
|
Non-GAAP
|
|
|
|
$
|
349
|
|
$
|
355
|
|
|
$
|
1,043
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
Margin (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
|
39.0%
|
|
|
37.6%
|
|
|
|
38.7%
|
|
|
39.2%
|
|
Restructuring charges
and project costs
|
|
|
|
|
–
|
|
|
–
|
|
|
|
–
|
|
|
0.0%
|
|
Acquisition-related
adjustments
|
|
|
|
|
2.3%
|
|
|
4.0%
|
|
|
|
2.6%
|
|
|
3.0%
|
|
Actuarial loss on
pension plan
|
|
|
|
|
–
|
|
|
–
|
|
|
|
0.2%
|
|
|
0.0%
|
|
Non-GAAP
|
|
|
|
|
41.3%
|
|
|
40.9%
|
|
|
|
41.3%
|
|
|
41.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss)
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
$
|
36
|
|
$
|
(22)
|
|
|
$
|
20
|
|
$
|
(2)
|
|
Restructuring charges
(reversals) and project costs
|
|
|
[C][D]
|
|
1
|
|
|
1
|
|
|
|
(11)
|
|
|
40
|
|
Acquisition, strategic
alternatives, and divestiture-related adjustments
|
|
|
[A][B]
|
|
46
|
|
|
82
|
|
|
|
150
|
|
|
198
|
|
Actuarial loss on
pension plan
|
|
|
[E][F]
|
|
–
|
|
|
–
|
|
|
|
26
|
|
|
–
|
|
Remediation-related
charges
|
|
|
[G][H]
|
|
2
|
|
|
3
|
|
|
|
10
|
|
|
3
|
|
Non-GAAP
|
|
|
|
$
|
83
|
|
$
|
64
|
|
|
$
|
197
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
Margin (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
|
|
|
|
|
4.3%
|
|
|
(2.5)%
|
|
|
|
0.8%
|
|
|
(0.1)%
|
|
Restructuring charges
(reversals) and project costs
|
|
|
|
|
0.1%
|
|
|
0.1%
|
|
|
|
(0.4)%
|
|
|
1.5%
|
|
Acquisition, strategic
alternatives, and divestiture-related adjustments
|
|
|
|
|
5.4%
|
|
|
9.4%
|
|
|
|
6.0%
|
|
|
7.6%
|
|
Actuarial loss on
pension plan
|
|
|
|
|
–
|
|
|
–
|
|
|
|
1.0%
|
|
|
0.0%
|
|
Remediation-related
charges
|
|
|
|
|
0.2%
|
|
|
0.4%
|
|
|
|
0.4%
|
|
|
0.1%
|
|
Non-GAAP
|
|
|
|
|
9.9%
|
|
|
7.4%
|
|
|
|
7.8%
|
|
|
9.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016 was
approximately -1% on a GAAP basis, -3% on a non-GAAP basis,
excluding acquisition-related adjustments, and 0% on a non-GAAP
basis at constant currency.
|
|
|
|
Year-to-year Revenue
growth for the nine months ended September 30, 2016 was
approximately -3% on a GAAP basis, -3% on a non-GAAP basis,
excluding acquisition-related adjustments, and 0% on a non-GAAP
basis at constant currency. Financial results of 2015 include those
of Kofax acquired in the second quarter of 2015.
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(2)
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Year-to-year Higher
Value Solutions Revenue growth for the three months ended September
30, 2016 was approximately 3% on a GAAP basis, -1% on a non-GAAP
basis, excluding acquisition-related adjustments, and 0% on a
non-GAAP basis at constant currency.
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Year-to-year Higher
Value Solutions Revenue growth for the nine months ended September
30, 2016 was approximately 10% on a GAAP basis, 7% on a non-GAAP
basis, excluding acquisition-related adjustments, and 10% on a
non-GAAP basis at constant currency. Financial results of 2015
include those of Kofax acquired in the second quarter of
2015.
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(3)
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Year-to-year Core
Revenue growth for the three months ended September 30, 2016 was
approximately 1% on a GAAP basis, -1% on a non-GAAP basis,
excluding Inkjet Exit and acquisition-related adjustments, and 2%
on a non-GAAP basis at constant currency.
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Year-to-year Core
Revenue growth for the nine months ended September 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 of 2015
include those of Kofax acquired in the second quarter of
2015.
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(4)
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Year-to-year
Enterprise Software Revenue growth for the three months ended
September 30, 2016 was approximately 5% on a GAAP basis, -5% on a
non-GAAP basis, excluding acquisition-related adjustments, and -4%
on a non-GAAP basis at constant currency.
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Year-to-year
Enterprise Software Revenue growth for the nine months ended
September 30, 2016 was approximately 23% on a GAAP basis, 16% on a
non-GAAP basis, excluding acquisition-related adjustments, and 17%
on a non-GAAP basis at constant currency. Financial results of 2015
include those of Kofax acquired in the second quarter of
2015.
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(5)
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Year-to-year ISS
Revenue growth for the three months ended September 30, 2016 was
approximately -2% on a GAAP basis and 1% on a non-GAAP basis at
constant currency.
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Year-to-year ISS
Revenue growth for the nine months ended September 30, 2016 was
approximately -7% on a GAAP basis and -3% on a non-GAAP basis at
constant currency.
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(6)
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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.
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(7)
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Net Debt or Net Cash,
a non-GAAP measure, is defined as cash and cash equivalents minus
long-term and short-term debt.
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[A]
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Amounts for the three
months ended September 30, 2016, include total acquisition and
strategic alternatives-related adjustments of $45.6 million with
$1.8 million, $17.8 million, $0.3 million and $25.7 million
included in Revenue, Cost of revenue, Research and
development and Selling, general and administrative,
respectively. Selling, general and administrative includes
$20.6 million of acquisition-related expenses and $5.1 million of
strategic alternatives-related expenses.
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Amounts for the nine
months ended September 30, 2016, include total acquisition and
strategic alternatives-related adjustments of $150.2 million with
$10.3 million, $54.1 million, $0.9 million and $84.9 million
included in Revenue, Cost of revenue, Research and
development and Selling, general and administrative,
respectively. Selling, general and administrative includes
$67.1 million of acquisition-related expenses and $17.8 million of
strategic alternatives-related expenses.
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[B]
|
Amounts for the three
months ended September 30, 2015, include total acquisition-related
adjustments of $81.5 million with $16.9 million, $18.2 million,
$0.4 million and $46.0 million included in Revenue, Cost of
revenue, Research and development and Selling, general and
administrative, respectively. Selling, general and
administrative includes $45.8 million of acquisition-related
expenses and $0.2 million of divestiture-related
expenses.
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|
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|
Amounts for the nine
months ended September 30, 2015, include total acquisition-related
adjustments of $197.9 million with $31.6 million, $47.6 million,
$0.9 million and $117.8 million included in Revenue, Cost of
revenue, Research and development and Selling, general and
administrative, respectively. Selling, general and
administrative includes $117.2 million of acquisition-related
expenses and $0.6 million of divestiture-related
expenses.
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[C]
|
Amounts for the three
months ended September 30, 2016, include total restructuring
charges (reversals) and project costs of $0.5 million with $4.0
million included in Selling, general and administrative and
$(3.5) million included in Restructuring and related (reversals)
charges.
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|
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|
Amounts for the nine
months ended September 30, 2016, include total restructuring
(reversals) charges and project costs of $(10.8) million with $7.8
million included in Selling, general and administrative and
$(18.6) million included in Restructuring and related
(reversals) charges.
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[D]
|
Amounts for the three
months ended September 30, 2015, include total restructuring
charges and project costs of $0.9 million with $2.3 million
included in Selling, general and administrative and $(1.4)
million included in Restructuring and related (reversals)
charges.
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|
Amounts for the nine
months ended September 30, 2015, include total restructuring
charges and project costs of $40.0 million with $0.8 million and
$7.0 million included in Restructuring-related costs and
Selling, general and administrative, respectively, in
addition to $32.2 million in Restructuring and related
(reversals) charges.
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[E]
|
Amounts for the nine
months ended September 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.
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[F]
|
Amounts for the nine
months ended September 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.
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[G]
|
Amounts for the three
months ended September 30, 2016, include remediation-related
charges of $1.5 million included in Selling, general and
administrative.
|
|
|
|
Amounts for the nine
months ended September 30, 2016, include remediation-related costs
of $10.4 million included in Selling, general and
administrative.
|
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[H]
|
Amounts for the three
and nine months ended September 30, 2015, include
remediation-related charges of $3.2 million included in Selling,
general and administrative.
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Appendix
1
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Note:
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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SOURCE Lexmark International, Inc.
