Lexmark 2007 Annual Report Download - page 49

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2006 Restructuring
During the first quarter of 2006, the Company approved a plan to restructure its workforce, consolidate
some manufacturing capacity and make certain changes to its U.S. retirement plans (collectively referred
to as the “2006 actions”). The workforce restructuring eliminated or transferred over 1,400 positions from
various business functions and job classes, with over 850 positions being eliminated, and over
550 positions being transferred from various locations primarily to low-cost countries. Lexmark
consolidated its manufacturing capacity to reduce manufacturing costs, including the closure of its
Rosyth, Scotland 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 for
U.S. employees, effective April 3, 2006, and at the same time changed from a maximum Company
matching contribution of three percent of eligible compensation to an automatic Company contribution of
one percent and a maximum Company matching contribution of five percent to Lexmark’s existing 401(k)
plan. Except for approximately 100 positions that were eliminated in 2007, activities related to the 2006
actions were substantially completed at the end of 2006.
For the year ended December 31, 2006, the Company incurred pre-tax charges of $121.1 million related to
the 2006 actions which were partially offset by a $9.9 million pension curtailment gain. Of the $111.2 million
of net pre-tax charges incurred, $40.0 million is included in Cost of revenue and $71.2 million in
Restructuring and other, net on the Company’s Consolidated Statements of Earnings. For the year
ended December 31, 2006, the Company incurred total pre-tax restructuring-related charges of
$35.2 million in its Business segment, $54.7 million in its Consumer segment and $31.2 million in All
other. All other operating income also included the $9.9 million pension curtailment gain.
The following table presents a rollforward of the liability incurred for employee termination benefit and
contract termination and lease charges in connection with the 2006 actions. The liability is included in
Accrued liabilities on the Company’s Consolidated Statements of Financial Position.
Employee
Termination
Benefit
Charges
Contract
Termination &
Lease Charges Total
Balance at January 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ —
Costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.9 5.2 81.1
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46.2) (0.4) (46.6)
Other
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.4) — (4.4)
Balance at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . 25.3 4.8 30.1
Payments & other
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14.0) (1.7) (15.7)
Reversals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) (1.7) (2.6)
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . $ 10.4 $ 1.4 $ 11.8
(1) Other consists primarily of special termination benefits that are paid out of the U.S. pension plan.
(2) Other consists of additions due to positions being eliminated in 2007 and changes in the liability balance due to foreign currency
translations.
During 2006 and 2007, the Company also incurred additional charges related to the execution of the
Company’s 2006 actions (referred to as “2006 project costs”). These 2006 project costs were incremental
to the Company’s normal operating charges and were expensed as incurred. The 2006 project costs
included such items as compensation costs for overlap staffing, travel expenses, consulting costs and
training costs.
For the year ended December 31, 2006, the Company incurred net pre-tax charges and 2006 project costs
of $125.2 million related to the 2006 actions. Of the $125.2 million of pre-tax charges and 2006 project
costs incurred, $42.1 million is included in Cost of revenue, $11.9 million in Selling, general and
administrative and $71.2 million in Restructuring and other, net on the Company’s Consolidated
Statements of Earnings. For the year ended December 31, 2006, the Company incurred total pre-tax
43