Lexmark 2007 Annual Report Download - page 40

2006 Business Factors
To improve profitability and the Company’s cost and expense structure, Lexmark announced a number of
actions in January 2006 that were implemented during that year:
• The Company implemented a more rigorous process to improve lifetime profitability and payback on
inkjet sales which resulted in a reduction of approximately 20% of its worldwide inkjet business.
• The Company announced a plan (collectively referred to as the “2006 actions”) to restructure its
workforce, to consolidate some supplies manufacturing capacity, to reduce costs and expenses in
the areas of supply chain, general and administrative expense, as well 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 continued to make progress on its core strategic initiatives in both product segment
expansion and brand development resulting in new product introductions with new families of low-end
monochrome lasers, color lasers, laser MFPs and inkjet AIOs. These new products received significant
industry recognition and awards.
In 2006, the Company also experienced branded unit growth in its key focus segments with strong growth
in low-end monochrome lasers, color lasers, laser MFPs and inkjet AIOs.
Additionally, in late 2006, Lexmark launched the next step in its brand development initiative with the start
of a new television advertising campaign along with radio, print and outdoor advertising in targeted
geographic and market segments. This integrated campaign highlights Lexmark’s deep and proven
experience serving 75% of the top banks, retailers and pharmacies while highlighting the opportunity
for small and medium businesses and consumers to benefit from our business class expertise. The
Company continued this campaign in 2007 as Lexmark’s focus is to drive branded unit growth in its key
growth segments.
Operating Results Summary
The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. The following table summarizes the results of the Company’s operations for
the years ended December 31, 2007, 2006 and 2005:
(Dollars in Millions) Dollars % of Rev Dollars % of Rev Dollars % of Rev
2007 2006 2005
Revenue. . . . . . . . . . . . . . . . . . $4,973.9 100% $5,108.1 100% $5,221.5 100%
Gross profit . . . . . . . . . . . . . . . 1,563.6 31% 1,646.0 32% 1,635.6 31%
Operating expense . . . . . . . . . . 1,242.3 25% 1,203.5 24% 1,101.9 21%
Operating income . . . . . . . . . . . 321.3 6% 442.5 9% 533.7 10%
Net earnings. . . . . . . . . . . . . . . 300.8 6% 338.4 7% 356.3 7%
During 2007, total revenue was $5.0 billion or down 3% from 2006. Laser and inkjet supplies revenue
increased 1% year-to-year (“YTY”) while laser and inkjet hardware revenue decreased 10% YTY. In the
Business segment, revenue increased 5% YTY while revenue in the Consumer segment decreased 12%
YTY.
During 2006, total revenue was $5.1 billion or down 2% from 2005. Laser and inkjet supplies revenue
increased 3% YTY while laser and inkjet hardware revenue decreased 8%YTY. In the Business segment,
revenue increased 3% YTY while revenue in the Consumer segment decreased 8% YTY.
Net earnings for the year ended December 31, 2007, decreased 11% from the prior year primarily due to
lower operating income partially offset by a lower effective tax rate. Net earnings in 2007 included
$30.8 million of pre-tax restructuring-related charges in connection with the 2007 Restructuring Plan.
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