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2007 ANNUAL REPORT

Table of contents

  • Page 1
    at ho me a t work 2007 ANNUAL REPORT

  • Page 2
    ... and Selling, general and administrative, respectively. Amounts in 2005 include one-time termination benefit charges of $10.4 million in connection with a workforce reduction. (2) Amounts in 2007 and 2006 include $41.3 million and $43.2 million, respectively, of stock-based compensation expense...

  • Page 3
    ...related workï¬,ow solutions and services. For the year we had strong growth in our Lexmark branded workgroup laser units. We had on-going good growth in our laser supplies sales. We strengthened the product line in 2007 with the introduction of a new family of color laser printers and multi-function...

  • Page 4
    ... our products and the recognition Lexmark received versus the competition. We ran our advertising through the year in our top countries (U.S., U.K., France and Germany). In the fourth quarter, we focused our advertising on our new line of wireless inkjet products, targeting small office and home of...

  • Page 5
    ... 740 West New Circle Road Lexington, Kentucky (Address of principal executive offices) 40550 (Zip Code) (859) 232-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered...

  • Page 6
    ...III DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ...EXECUTIVE COMPENSATION...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ...PRINCIPAL ACCOUNTANT FEES AND SERVICES...

  • Page 7
    ... printers, inkjet printers, multifunction devices, and associated supplies, services and solutions. Lexmark develops and owns most of the technology for its laser and inkjet products and related solutions. Lexmark also sells dot matrix printers for printing single and multi-part forms by business...

  • Page 8
    ... Lexmark management believes that the total distributed office and home printing output opportunity was approximately $95 billion in 2007, including hardware, supplies and related services. This opportunity includes printers and multifunction devices as well as a declining base of copiers and fax...

  • Page 9
    ... Strategy Lexmark's strategy is based on a business model of investing in technology to develop and sell printing solutions, including printers and multifunction products ("MFPs"), with the objective of growing its installed base, which drives recurring supplies sales. Supplies are the profit engine...

  • Page 10
    ... models designed to support small, medium and large workgroups. All three models have optional paper input and output features, including a stapler and offset stacker. The Company's monochrome laser printer line extends into the wide format sector of the market with the Lexmark W840, which supports...

  • Page 11
    ...inkjet products include various desktop single function and AIO printers that offer print, copy, scan and fax functionality targeted at home users and SOHO users. As broadband and wireless network penetration continues to increase substantially, Lexmark is meeting the growing demand for new printing...

  • Page 12
    ... customers with managed print services. The Company's printer products generally include a warranty period of at least one year, and customers typically have the option to purchase an extended warranty. Marketing and Distribution Lexmark employs large-account sales and marketing teams whose mission...

  • Page 13
    ...of Lexmark's business supplies products sold commercially in 2007 were sold through the Company's network of Lexmark-authorized supplies distributors and resellers, who sell directly to end-users or to independent office supply dealers. For the consumer market, Lexmark distributes its branded inkjet...

  • Page 14
    ...for some of Lexmark's cartridges are available and compete with the Company's supplies business. However, these alternatives generally offer inconsistent quality and reliability. As the installed base of laser and inkjet products matures, the Company expects competitive supplies activity to increase...

  • Page 15
    ... products. Its engineering efforts focus on technologies associated with laser, inkjet, connectivity, document management and other customer facing solutions, as well as design features that will increase performance, improve ease of use and lower production costs. Lexmark also develops related...

  • Page 16
    ... and Chief Financial Officer Executive Vice President and President of Consumer Printer Division Vice President and President of Printing Solutions and Services Division Vice President, General Counsel and Secretary Vice President of Human Resources Vice President and Corporate Controller 17 3 17...

  • Page 17
    ...for various product names. The Company holds worldwide copyrights in computer code and publications of various types. Other proprietary information is protected through formal procedures, which include confidentiality agreements with employees and other entities. Lexmark's success depends in part on...

  • Page 18
    ...customer purchases of existing products in anticipation of new product introductions by the Company or its competitors and market acceptance of new products and pricing programs, any disruption in the supply of new or existing products as well as the costs of any product recall or increased warranty...

  • Page 19
    ... products that are reliable, competitive, and meet customers' needs. The markets for laser and inkjet products and associated supplies are aggressively competitive, especially with respect to pricing and the introduction of new technologies and products offering improved features and functionality...

  • Page 20
    ... legal challenges and governmental activities may intensify competition for the Company's aftermarket supplies business. Any failure by the Company to successfully outsource the infrastructure support of its information technology system and application maintenance functions and centralize certain...

  • Page 21
    ... of electrical and electronic goods, including printing devices, to be financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. The deadline for enacting and implementing the Directive by individual European Union governments was...

  • Page 22
    ... production facilities, international manufacturing partners and certain key suppliers could negatively impact the Company's operating results. • The Company relies in large part on its international production facilities and international manufacturing partners, many of which are located in China...

  • Page 23
    ...results. • The Company depends on its information technology systems for the development, manufacture, distribution, marketing, sales and support of its products and services. Any failure in such systems, or the systems of a partner or supplier, may adversely affect the Company's operating results...

  • Page 24
    ... facilities are located on a 374 acre campus in Lexington, Kentucky. At December 31, 2007, the Company owned or leased 8.0 million square feet of administrative, sales, service, research and development, warehouse and manufacturing facilities worldwide. The properties are used by both the Business...

  • Page 25
    ...in the ordinary course of business. In addition, various governmental authorities have from time to time initiated inquiries and investigations, some of which are ongoing, concerning the activities of participants in the markets for printers and supplies. The Company intends to continue to cooperate...

  • Page 26
    ...'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Lexmark's Class A Common Stock is traded on the New York Stock Exchange under the symbol LXK. As of February 21, 2008, there were 1,240 holders of record of the Class A Common Stock and there...

  • Page 27
    ... compares cumulative total stockholder return on the Company's Class A Common Stock with a broad performance indicator, the S&P Composite 500 Stock Index, and an industry index, the S&P 500 Information Technology Index, for the period from December 31, 2002, to December 31, 2007. The graph assumes...

  • Page 28
    ...price for options and stock appreciation rights or materially modify the requirements for eligibility to participate in the Broad-Based Plan, requires the approval of the Company's stockholders. In January 2001, all employees other than the Company's directors, executive officers and senior managers...

  • Page 29
    ...general and administrative, respectively. Amounts in 2005 include one-time termination benefit charges of $10.4 million in connection with a workforce reduction. (2) Amounts in 2007 and 2006 include $41.3 million and $43.2 million, respectively, of stock-based compensation expense due to the Company...

  • Page 30
    ... developer, manufacturer and supplier of printing and imaging solutions for offices and homes. Lexmark's products include laser printers, inkjet printers, multifunction devices, and associated supplies, services and solutions. Lexmark also sells dot matrix printers for printing single and multi-part...

  • Page 31
    ... Lexmark management believes that the total distributed office and home printing output opportunity was approximately $95 billion in 2007, including hardware, supplies and related services. This opportunity includes printers and multifunction devices as well as a declining base of copiers and fax...

  • Page 32
    ... scanners, copiers and fax machines into single, integrated AIO devices; and • Advancements in digital photography driving the opportunity to print digital images on distributed output devices. As a result of these market trends, Lexmark has growth opportunities in monochrome laser printers, color...

  • Page 33
    ... strategy is based on a business model of investing in technology to develop and sell printing solutions, including printers and MFPs, with the objective of growing its installed base, which drives recurring supplies sales. Management believes that Lexmark has the following strengths related to this...

  • Page 34
    ... those related to customer programs and incentives, product returns, doubtful accounts, inventories, stock-based compensation, income taxes, warranty obligations, copyright fees, restructurings, pension and other postretirement benefits, and contingencies and litigation. Lexmark bases its estimates...

  • Page 35
    ... the activity. Warranty Lexmark provides for the estimated cost of product warranties at the time revenue is recognized. The amounts accrued for product warranties is based on the quantity of units sold under warranty, estimated product failure rates, and material usage and service delivery costs...

  • Page 36
    ... to the U.S. pension plan. Significant assumptions the Company must review and set annually related to its pension and other postretirement benefit obligations are: • Expected long-term return on plan assets - based on long-term historical actual asset return information, the mix of investments...

  • Page 37
    ... - based on the Company's long-term plans for such increases. Effective April 2006, this assumption is no longer applicable to the U.S. pension plan due to the benefit accrual freeze in connection with the Company's 2006 restructuring actions. Differences between actual and expected asset returns on...

  • Page 38
    ...the distributed printing market. • The Business market segment strategy is focused on growth in higher page-generating workgroup class lasers including monochrome and color laser printers and MFPs. During 2007, the Company experienced double-digit unit growth in its branded workgroup and laser MFP...

  • Page 39
    ...of moderate use cartridges and the weakness the Company is experiencing in its OEM business. Additionally, Lexmark expects to see continued declines in OEM unit sales and aggressive pricing and promotion activities in the inkjet and laser markets. Beginning in the second quarter of 2007, the Company...

  • Page 40
    ... as marketing and sales support functions and to make certain changes to its U.S. retirement plans. Except for approximately 100 positions that were eliminated in 2007, the restructuring-related activities related to the 2006 actions were substantially completed at the end of 2006. In 2006, Lexmark...

  • Page 41
    ...foreign dividends during 2005 and $10.4 million of one-time pre-tax termination benefit charges related to a 2005 workforce reduction plan. Additionally, for the years ended December 31, 2007 and 2006, the Company incurred pre-tax stock-based compensation expense under SFAS 123R of $41.3 million and...

  • Page 42
    ... favorable product mix shift to AIOs was partially offset by price declines. Revenue by geography: The following table provides a breakdown of the Company's revenue by geography: (Dollars in Millions) 2007 2006 % Change 2006 2005 % Change United States ...EMEA (Europe, the Middle East & Africa...

  • Page 43
    ...in 2002 to execute supplier managed inventory ("SMI") agreements with its primary suppliers to improve the efficiency of the supply chain. In instances where a non-cancelable commitment is made to purchase product at a cost greater than the expected sales price, the Company's accounting policy is to...

  • Page 44
    ... to new products and solutions aimed at targeted growth segments. Selling, general and administrative ("SG&A") expenses in 2007 increased YTYas the Company continued to increase spending on marketing and sales activities. During 2007, demand generation activities, which include the brand development...

  • Page 45
    incurred one-time termination benefit charges of $10.4 million related to a workforce reduction plan. For the $10.4 million of one-time termination benefit charges, the Company recorded $6.5 million in its Business segment, $2.6 million in its Consumer segment and $1.3 million in All other. See "...

  • Page 46
    ...foreign dividends during 2005 and $10.4 million of one-time pre-tax termination benefit charges related to a 2005 workforce reduction plan. Additionally, for the years ended December 31, 2007 and 2006, the Company incurred pre-tax stock-based compensation expense under SFAS 123R of $41.3 million and...

  • Page 47
    ...inkjet facilities in Mexico and the Philippines. • Reduction of the Company's business support cost and expense structure by further consolidating activity globally and expanding the use of shared service centers in lower-cost regions. The areas impacted are supply chain, service delivery, general...

  • Page 48
    .... The 2007 Restructuring Plan (including related projects) is expected to save approximately $40 million in 2008 with approximately 50% benefiting cost of revenue and 50% benefiting operating expense. Annual savings beginning in 2009 are expected to approximate $60 million. The Company expects to...

  • Page 49
    ... inkjet cartridge manufacturing facility and Orleans, France laser toner facilities, and reduced its operating expenses, particularly in the areas of supply chain, general and administrative and marketing and sales support. Lexmark also froze pension benefits in its defined benefit pension plan...

  • Page 50
    ... by approximately 275 employees worldwide from various business functions and job classes. The separation of the affected employees was completed by December 31, 2005. As of December 31, 2005, the Company incurred one-time termination benefit charges of $10.4 million related to the plan that is...

  • Page 51
    ... the funding requirements for single-employer defined benefit pension plans. The funding requirements will now largely be based on a plan's calculated funded status, with faster amortization of any shortfalls or surpluses. The Act directs the U.S. Treasury Department to develop a new yield curve to...

  • Page 52
    ... share repurchase program activity. In 2007, the Company increased its investment in marketable securities by $113 million. Refer to the section, Stock Repurchase, which follows for further discussion of the Company's stock repurchase program during 2007. The fluctuations in the net cash flows (used...

  • Page 53
    ... in 2007 were related to new product development, infrastructure support and manufacturing capacity expansion. During the first quarter of 2007, the Company sold its Rosyth, Scotland facility for $8.1 million and recognized a $3.5 million pre-tax gain on the sale. Financing activities The...

  • Page 54
    ... they may be redeemed at any time at the option of the Company, at a redemption price as described in the related indenture agreement, as supplemented and amended, in whole or in part. During October 2003, the Company entered into interest rate swap contracts to convert its $150.0 million principal...

  • Page 55
    ... 31, 2007, were 13.6 million. In December 2005 and October 2006, the Company received authorization from the board of directors to retire 44.0 million and 16.0 million shares, respectively, of the Company's Class A Common Stock currently held in the Company's treasury as treasury stock. The retired...

  • Page 56
    ... to new product development, infrastructure support and manufacturing capacity expansion. The capital expenditures are expected to be funded through cash from operations. EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT Revenue derived from international sales, including...

  • Page 57
    ... adverse changes in interest rates and foreign currency exchange rates. Interest Rates At December 31, 2007, the fair value of the Company's senior notes was estimated at $150 million using quoted market prices and yields obtained through independent pricing sources for the same or similar types of...

  • Page 58
    ... Lexmark International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 2007, 2006 and 2005 (In Millions, Except Per Share Amounts) 2007 2006 2005 Revenue ...Cost of revenue ...Gross profit ...Research and development ...Selling, general and administrative...

  • Page 59
    ...' equity: Preferred stock, $.01 par value, 1.6 shares authorized; no shares issued and outstanding ...Common stock, $.01 par value: Class A, 900.0 shares authorized; 94.7 and 97.0 outstanding in 2007 and 2006, respectively ...Class B, 10.0 shares authorized; no shares issued and outstanding...

  • Page 60
    ... ...Proceeds from sale of Scotland facility...Other...Net cash flows (used for) provided by investing activities ...Cash flows from financing activities: (Decrease) increase in short-term debt ...Issuance of treasury stock ...Purchase of treasury stock ...Proceeds from employee stock plans ...Tax...

  • Page 61
    ...Shares issued under deferred stock plan compensation ...Shares issued upon exercise of options ...Shares issued under employee stock purchase plan ...Tax benefit related to stock plans ...Stock-based compensation ...Treasury shares purchased ...Treasury shares issued ...Balance at December 31, 2007...

  • Page 62
    ..., manufacturer and supplier of printing and imaging solutions for offices and homes. The Company's products include laser printers, inkjet printers, multifunction devices, and associated supplies, services and solutions. Lexmark also sells dot matrix printers for printing single and multi-part forms...

  • Page 63
    ... lives using the straight-line method. Property, plant and equipment accounts are relieved of the cost and related accumulated depreciation when assets are disposed of or otherwise retired. Internal Use Software Costs: Lexmark capitalizes direct costs incurred during the application development and...

  • Page 64
    ... service delivery costs. The estimates for product failure rates and material usage and service delivery costs are periodically adjusted based on actual results. For extended warranty programs, the Company defers revenue in short-term and long-term liability accounts (based on the extended warranty...

  • Page 65
    ... or services) is used to determine relative fair value. Research and Development Costs: Lexmark engages in the design and development of new products and enhancements to its existing products. The Company's research and development activity is focused on laser and inkjet printers, multifunction...

  • Page 66
    ... plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Under APB 25, compensation cost was not recognized for substantially all options granted because the exercise price was at least equal to the market...

  • Page 67
    ... to benefits provided in prior restructuring activities. Specifically for termination benefits under a one-time benefit arrangement, the timing of recognition and related measurement of a liability depends on whether employees are required to render service until they are terminated in order to...

  • Page 68
    ... unrealized gains and losses on marketable securities. Segment Data: Lexmark manufactures and sells a variety of printing and multifunction products and related supplies and services and is primarily managed along Business and Consumer market segments. Recent Accounting Pronouncements: In July 2006...

  • Page 69
    .... The Company is currently evaluating the impact of SFAS 159. In June 2007, the FASB reached consensus on Emerging Issues Task Force ("EITF") Issue No. 07-03, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities ("EITF...

  • Page 70
    ...inkjet facilities in Mexico and the Philippines. • Reduction of the Company's business support cost and expense structure by further consolidating activity globally and expanding the use of shared service centers in lower-cost regions. The areas impacted are supply chain, service delivery, general...

  • Page 71
    ... inkjet cartridge manufacturing facility and Orleans, France laser toner facilities, and reduced its operating expenses, particularly in the areas of supply chain, general and administrative and marketing and sales support. Lexmark also froze pension benefits in its defined benefit pension plan...

  • Page 72
    ... by approximately 275 employees worldwide from various business functions and job classes. The separation of the affected employees was completed by December 31, 2005. As of December 31, 2005, the Company incurred one-time termination benefit charges of $10.4 million related to the plan that is...

  • Page 73
    ...expense recognized for the years ended December 31: 2007 2006 Cost of revenue ...Research and development ...Selling, general and administrative ...Stock-based compensation expense before income taxes ...Income tax benefit ...Stock-based compensation expense after income taxes ... $ 3.4 6.2 31.7 41...

  • Page 74
    ... defer all or a portion of an annual bonus into DSUs. These supplemental DSUs vest at the end of five years based upon continued employment with the Company. The cost of the RSUs and supplemental DSUs, generally determined to be the fair market value of the shares at the date of grant, is charged to...

  • Page 75
    ... ESPP purchase executed according the plan provisions described above. Pro Forma Information for Periods Prior to Adopting SFAS 123R Prior to the adoption of SFAS 123R on January 1, 2006, the Company accounted for its stock-based employee compensation plans under APB 25 and related interpretations...

  • Page 76
    ... as available-for-sale and reported at fair value, with unrealized gains and losses recorded in Accumulated other comprehensive earnings (loss). The fair values of the Company's available-for-sale marketable securities are based on quoted market prices or other observable market data, or in...

  • Page 77
    ... gains and losses from these sales in 2007, 2006 and 2005. The Company uses the specific identification method when accounting for the costs of its available-for-sale marketable securities sold. 6. TRADE RECEIVABLES The Company's trade receivables are reported in the Consolidated Statements of...

  • Page 78
    ... 3, 2008. This facility contains customary affirmative and negative covenants as well as specific provisions related to the quality of the accounts receivables transferred. As collections reduce previously transferred receivables, the Company may replenish these with new receivables. Lexmark bears...

  • Page 79
    ... they may be redeemed at any time at the option of the Company, at a redemption price as described in the related indenture agreement, as supplemented and amended, in whole or in part. During October 2003, the Company entered into interest rate swap contracts to convert its $150.0 million principal...

  • Page 80
    ... of FIN 48, the Company reduced its liability for unrecognized tax benefits and related interest and penalties by $7.3 million, which resulted in a corresponding increase in the Company's January 1, 2007, retained earnings balance. The Company also recorded an increase in its deferred tax assets...

  • Page 81
    ... were included in the Company's results of operations. FIN 48 Additional Disclosures It is reasonably possible that the total amount of unrecognized tax benefits will increase or decrease in the next 12 months. Such changes could occur based on the expiration of various statutes of limitations...

  • Page 82
    ...339.0 214.7 $553.7 The Company realized an income tax benefit from the exercise of certain stock options in 2007, 2006 and 2005 of $3.4 million, $11.8 million and $15.8 million, respectively. This benefit resulted in a decrease in current income taxes payable and an increase in capital in excess of...

  • Page 83
    ...FSP No. FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards ("FSP 123R-3"). The Company elected to adopt the alternative transition method provided in FSP 123R-3 for calculating the tax effects of stock-based compensation pursuant to SFAS 123R. The...

  • Page 84
    ... 31, 2007, were 13.6 million. In December 2005 and October 2006, the Company received authorization from the board of directors to retire 44.0 million and 16.0 million shares, respectively, of the Company's Class A Common Stock currently held in the Company's treasury as treasury stock. The retired...

  • Page 85
    ... or Other Postretirement Benefits Net Unrealized (Loss) Gain on Marketable Securities Accumulated Other ...2007 2006 2005 Numerator: Net earnings...Denominator: Weighted average shares used to compute basic EPS ...Effect of dilutive securities - employee stock plans ...Weighted average shares used...

  • Page 86
    ... the funding requirements for single-employer defined benefit pension plans. The funding requirements will now largely be based on a plan's calculated funded status, with faster amortization of any shortfalls or surpluses. The Act directs the U.S. Treasury Department to develop a new yield curve to...

  • Page 87
    ... December 31: Pension Benefits 2007 2006 Other Postretirement Benefits 2007 2006 Change in Benefit Obligation: Benefit obligation at beginning of year ...Service cost ...Interest cost ...Contributions by plan participants ...Actuarial gain ...Benefits paid ...Foreign currency exchange rate changes...

  • Page 88
    ... $606.2 601.7 Components of net periodic benefit cost: Pension Benefits 2007 2006 2005 Other Postretirement Benefits 2007 2006 2005 Net Periodic Benefit Cost: Service cost ...Interest cost ...Expected return on plan assets ...Amortization of prior service cost (credit) ...Amortization of net loss...

  • Page 89
    ... goal of the U.S. defined benefit plan is to achieve an adequate net investment return in order to provide for future benefit payments to its participants. The target asset allocation percentages approved by the compensation and pension committee of the Company's board of directors are 75% equity...

  • Page 90
    ... benefits. Related to Lexmark's acquisition of the Information Products Corporation from IBM in 1991, IBM agreed to pay for its pro rata share (currently estimated at $30.5 million) of future postretirement benefits for all the Company's U.S. employees based on pro rated years of service with IBM...

  • Page 91
    ...their fair value. Fair values for Lexmark's derivative financial instruments are based on pricing models or formulas using current market data, or where applicable, quoted market prices. On the date the derivative contract is entered into, the Company designates the derivative as either a fair value...

  • Page 92
    ... number of customers located in various geographic areas. Collateral such as letters of credit and bank guarantees is required in certain circumstances. Lexmark sells a large portion of its products through third-party distributors and resellers and original equipment manufacturer ("OEM") customers...

  • Page 93
    ... used in the manufacturing process. Although many of these components are available from multiple sources, the Company often utilizes preferred supplier relationships to better ensure more consistent quality, cost and delivery. The Company also sources some printer engines and finished products...

  • Page 94
    ...in the ordinary course of business. In addition, various governmental authorities have from time to time initiated inquiries and investigations, some of which are ongoing, concerning the activities of participants in the markets for printers and supplies. The Company intends to continue to cooperate...

  • Page 95
    ...-Packard Company ("HP"), finding that single function printer devices sold in Germany prior to December 31, 2007 were not subject to the law authorizing the German copyright fee levy (German Federal Supreme Court, file reference I ZR 94/05). The Company and VG Wort entered into an agreement pursuant...

  • Page 96
    17. SEGMENT DATA Lexmark manufactures and sells a variety of printing and multifunction products and related supplies and services and is primarily managed along Business and Consumer market segments. The Company evaluates the performance of its segments based on revenue and operating income, and ...

  • Page 97
    ... areas based on the location of customers. Other International revenue includes exports from the U.S. and Europe. The following is long-lived asset information by geographic area as of December 31: 2007 2006 2005 Long-lived assets: United States ...EMEA (Europe, the Middle East & Africa) ...Other...

  • Page 98
    ...share calculations. This is in accordance with prescribed reporting requirements. (1) Net earnings for the first quarter of 2007 included $5.7 million of pre-tax project costs in connection with the Company's 2006 actions and a $3.5 million pre-tax gain on the sale of the Company's Scotland facility...

  • Page 99
    ... discussion of recent developments regarding copyright fees. In January 2008, a fire occurred in one of the Company's sub-contracted distribution centers. While the Company is still assessing what can be recovered, the Company believes it suffered a loss of inventory on inkjet products in the range...

  • Page 100
    ... schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain...

  • Page 101
    ... future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Lexington, Kentucky February 22, 2008 95

  • Page 102
    ... ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management including its principal executive and principal financial officers, or persons performing similar functions, as...

  • Page 103
    ... board of directors or the Code of Business Conduct from: Lexmark International, Inc. Attention: Investor Relations One Lexmark Centre Drive 740 West New Circle Road Lexington, Kentucky 40550 (859) 232-5568 The New York Stock Exchange ("NYSE") requires that the Chief Executive Officer of each listed...

  • Page 104
    ... of Board and Committees," "Executive Compensation" and "Director Compensation." Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by Part III, Item 14 of this Form 10-K is incorporated by reference from the Company's definitive Proxy Statement for its 2008 Annual Meeting of...

  • Page 105
    LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2005, 2006 and 2007 (In Millions) (A) (B) Balance at Beginning of Period (C) Additions Charged to Charged to Other Costs and Accounts Expenses (D) (E) Balance at End of ...

  • Page 106
    ... duly authorized in the City of Lexington, Commonwealth of Kentucky, on February 27, 2008. LEXMARK INTERNATIONAL, INC. By /s/ Paul J. Curlander Name: Paul J. Curlander Title: Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has...

  • Page 107
    ... Receivables Purchase Agreement, dated as of October 8, 2004, by and among Lexmark Receivables Corporation, as Seller, CIESCO, LLC and Gotham Funding Corporation, as the Investors, Citibank, N.A. and The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as the Banks, Citicorp North America, Inc...

  • Page 108
    ..., dated as of October 5, 2007, by and between the Company, as Seller, and Lexmark Receivables Corporation, as Purchaser.(17) Lexmark International, Inc. Stock Incentive Plan, as Amended and Restated, effective April 30, 2003. (20)+ Form of Stock Option Agreement pursuant to the Lexmark International...

  • Page 109
    ...(30)+ Lexmark International, Inc. Senior Executive Incentive Compensation Plan. (31)+ Lexmark Supplemental Savings and Deferred Compensation Plan. (16)+ Amendment No. 1 to the Lexmark Supplemental Savings and Deferred Compensation Plan, dated as of February 27, 2007.(6)+ Form of Employment Agreement...

  • Page 110
    ... 22, 1995. (11) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31...Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (Commission File No. 1-14050). (18) Incorporated by reference to the Company's Quarterly Report...

  • Page 111
    ... (Commission File No. 1-14050). (30) Incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on February 27, 2007 (Commission File No. 1-14050). (31) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004...

  • Page 112
    ... on printing solutions, the financial failure or loss of business with a key customer, reseller or supplier, increased investment to support product development and marketing, inability to perform under managed print services contracts, decreased supplies consumption, increased competition in...

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    75% OF THE TOP BANKS, RETAILERS AND PHARMACIES USE LEXMARK Put Lexmark to work for you www.lexmark.com One Lexmark Centre Drive, Lexington, KY 40550 USA 859.232.2000 71K -6600-11