Lexmark 2008 Annual Report Download

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2008 ANNUAL REPORT

Table of contents

  • Page 1
    2008 ANNUAL REPORT

  • Page 2
    Financial Highlights (Dollars in millions, except per share data) Statement of Earnings Data: Revenue Cost of revenue (1) Gross profit Research and development Selling, general and administrative (1) Restructuring and related charges (1) Operating expense Operating income (1) (2) Interest (income...

  • Page 3
    ... Series products include business class features such as automatic document feeds, two sided printing capability, wireless connectivity, high capacity ink cartridges, extended warranty offerings, and lifetime phone support. During the year we continued our R&D investments in new inkjet technology...

  • Page 4
    .... Advancing the Laser Business Over the last several years we've been increasing our R&D investment in laser printer technology focused on advancing our color laser and laser MFP product lines. In October 2008, in one of our largest product introductions in history, we introduced 38 new laser models...

  • Page 5
    ...One Lexmark Centre Drive 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...

  • Page 6
    LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES FORM 10-K For the Year Ended December 31, 2008 Page of Form 10-K PART I Item 1. BUSINESS ...Item 1A. RISK FACTORS ...Item 1B. UNRESOLVED STAFF COMMENTS...Item 2. PROPERTIES...Item 3. LEGAL PROCEEDINGS ...Item 4. SUBMISSION OF MATTERS TO A VOTE OF ...

  • Page 7
    ... its laser and inkjet products and related solutions. Lexmark also sells dot matrix printers for printing single and multi-part forms by business users. The Company operates in the office products industry. The Company is primarily managed along divisional lines: the Printing Solutions and Services...

  • Page 8
    ... network management tools and are available as single function printers and multifunction products that print/ copy/fax/scan to network capabilities. Industry laser printer unit growth in recent years has generally exceeded the growth rate of laser printer revenue due to unit growth in lower-priced...

  • Page 9
    ...retail chains, distributors, direct-response catalogers and value-added resellers. Lexmark's path-to-market includes industry-focused consultative sales and services teams that deliver unique and differentiated solutions to both large accounts and channel partners that sell into the Company's target...

  • Page 10
    ... to offer high-quality products while managing cost to maximize cash flow and profit. Products Laser Products Lexmark offers a wide range of monochrome and color laser printers and MFPs in addition to customized solutions and services designed to help businesses move beyond printing to optimizing...

  • Page 11
    ... include AIO printers that offer print, copy, scan and fax functionality targeted at SOHO and business users. As the wireless market continues to increase substantially, Lexmark is meeting the growing demand for new printing products that afford the freedom of mobility. In 2008, Lexmark continued...

  • Page 12
    ... direct response resellers. Lexmark's international sales and marketing activities for business customers are organized to meet the needs of the local jurisdictions and the size of their markets. Operations in North America, Latin America, Asia Pacific and Western Europe focus on large-account...

  • Page 13
    ...of their markets. In North America, products are primarily distributed through large discount store chains, consumer electronics stores, office superstores, wholesale clubs, online, as well as through distributors. The Company's Western European, Latin American and Asia Pacific operations distribute...

  • Page 14
    ... in its Juarez, Mexico operation to expand cartridge assembly and selected key component manufacturing capabilities. Laser printer cartridges are assembled by a combination of in-house and third-party contract manufacturing. The manufacturing control center for laser printer supplies is located in...

  • Page 15
    ... to support new laser product initiatives and to advance certain technologies. Lexmark's primary research and development activities are conducted in Lexington, Kentucky; Boulder, Colorado; Cebu City, Philippines; and Kolkata, India. In the case of certain products, the Company may elect to purchase...

  • Page 16
    ...and President of Printing Solutions and Services Division Vice President of Asia Pacific and Latin America Vice President of Human Resources Vice President, General Counsel and Secretary Vice President and Corporate Controller 18 4 18 10 5 18 8 18 Dr. Curlander has been a Director of the Company...

  • Page 17
    ... various categories of goods and services. Lexmark also owns a number of trademark applications and registrations 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...

  • Page 18
    ... other elements of the Company's operating results. Ongoing weakness in demand for the Company's hardware products may also cause erosion of the installed base of products over time, thereby reducing the opportunities for supplies sales in the future. The competitive pricing pressure in the market...

  • Page 19
    ...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 20
    ... to develop, manufacture and market 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...

  • Page 21
    ...and other finance functions and order-to-cash functions from various countries to shared service centers. The Company is also in the process of reducing, consolidating and moving various parts of its general and administrative resource, supply chain resource and marketing and sales support structure...

  • Page 22
    ... limitation, if the Company's international operations or manufacturing partners are unable to perform or supply products reliably, if there are disruptions in international trade, trade restrictions, import duties, "Buy American" constraints, disruptions at important geographic points of exit and...

  • Page 23
    ... the Company's compensation and benefits programs could adversely affect our ability to attract and retain employees. • The Company has historically used stock options and other forms of share-based payment awards as key components of the total rewards program for employee compensation in order to...

  • Page 24
    ... and intraday trading in the Company's common stock, may affect the Company's common stock price. Item 1B. UNRESOLVED STAFF COMMENTS Not applicable. Item 2. PROPERTIES Lexmark's corporate headquarters and principal development facilities are located on a 374 acre campus in Lexington, Kentucky. At...

  • 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
    Part II Item 5. MARKET FOR REGISTRANT'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 20, 2009, there were 3,035 holders of record of...

  • Page 27
    ... Graph The following graph 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, 2003, to December...

  • Page 28
    ...the Company's directors and executive officers are not eligible to participate in the Plan. The Broad-Based Plan limits the number of shares subject to full-value awards (e.g., restricted stock units and performance awards) to 50,000 shares. The Company's board of directors may at any time terminate...

  • Page 29
    ... Notes thereto presented under Part II, Item 8 of this Form 10-K. (Dollars in Millions, Except per Share Data) 2008 2007 2006 2005 2004 Statement of Earnings Data: Revenue ...Cost of revenue (1) ...Gross profit ...Research and development ...Selling, general and administrative (1) ...Restructuring...

  • Page 30
    ... the office. 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 forms by business users. The Company is primarily managed along divisional lines...

  • Page 31
    ... digit annual revenue growth rates with highest growth likely to be in MFPs and related software solutions and services and emerging economies. Market trends driving long-term growth include: • Continuing improvement in price/performance points; • Increased adoption of color and graphics output...

  • Page 32
    ..., counterfeits and other compatible alternatives for some of the Company's cartridges are available and compete with the Company's supplies business. As the installed base of laser and inkjet products matures, the Company expects competitive supplies activity to increase. • Lexmark expects that as...

  • Page 33
    ...customers, markets and channels that drive higher page generation and supplies. Over the last several years, the Company increased investments in both the Company's sales force and product and solution development. The Company increased its research and development spending by 5% in 2008, 9% in 2007...

  • Page 34
    ... market conditions were to decline, Lexmark may take actions to increase customer incentive offerings or reduce prices, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. The Company also records estimated reductions to revenue at the time of sale related...

  • Page 35
    .... The U.S. defined benefit plan expects to employ professional investment managers during 2009 to invest in new asset classes, including international developed equity, emerging market equity, high yield bonds and emerging market debt. Prior to December 2008, the target asset allocation percentages...

  • Page 36
    ... No. 87, Employers' Accounting for Pensions, are accumulated and amortized over the estimated future service period of active plan participants. For 2008, a 25 basis point change in the assumptions for asset return and discount rate would not have had a significant impact on the Company's results of...

  • Page 37
    ...used when available. The three levels of the fair value hierarchy under FAS 157 are: • Level 1 - Quoted prices (unadjusted) in active markets for identical, unrestricted assets or liabilities that the Company has the ability to access at the measurement date; • Level 2 - Inputs other than quoted...

  • Page 38
    ... capture supplies in high page-growth segments of the distributed printing market. • The PSSD strategy is focused on growth in high page generating workgroup products, including monochrome lasers, color laser printers and laser MFPs. During 2008, the Company experienced double-digit percentage...

  • Page 39
    ... its customer value propositions with the introduction of over 40 new laser products in 2008 that significantly strengthened the Company's monochrome laser line, color laser line and laser MFPs. The Company continued its investment in the expansion of managed print services and Lexmark also...

  • Page 40
    ... Company announced a restructuring plan ("the 2007 Restructuring Plan") to reduce its cost and infrastructure, including the closure of one of its inkjet supplies manufacturing facilities in Mexico and additional optimization measures at the remaining inkjet facilities in Mexico and the Philippines...

  • Page 41
    ... provide a breakdown of the Company's revenue by product category, hardware unit shipments and market segment: Revenue by product: (Dollars in Millions) 2008 2007 % Change 2007 2006 % Change Laser and inkjet printers ...Laser and inkjet supplies ...Other ...Total revenue ... $1,196.8 3,117...

  • Page 42
    ... YTY as price declines were partially offset by a favorable mix shift to AIOs. Revenue by geography: The following table provides a breakdown of the Company's revenue by geography: (Dollars in Millions) United States ...EMEA (Europe, the Middle East & Africa) ...Other International ...Total revenue...

  • Page 43
    ... and development increased in 2008 and 2007 compared to the prior year primarily due to the Company's continued investment to support laser product and solution development. These continuing investments have led to new products and solutions aimed at targeted growth segments. Selling, general and...

  • Page 44
    ... operating expense, reflecting higher marketing and sales and product development investments. Operating income for ISD decreased YTY due to lower supplies revenue, lower product margins and increased operating expenses. During 2008, the Company incurred total pre-tax restructuring-related charges...

  • Page 45
    ... with the Company's restructuring activities. See "Restructuring and Related Charges (Reversals) and Project Costs" that follows for further discussion. Net earnings in 2008 also included $12 million of non-recurring tax benefits. Net earnings for the year ended December 31, 2007 decreased 11...

  • Page 46
    ... year ended December 31, 2008, the decreases in basic and diluted net earnings per share YTY were attributable to decreased earnings partially offset by the decreases in the average number of shares outstanding, primarily due to the Company's stock repurchases. For the year ended December 31, 2007...

  • Page 47
    ... through the end of 2009. The areas impacted include general and administrative functions, supply chain and sales support, research and development program consolidation, as well as marketing and sales management. The Company estimates the 2009 Restructuring Plan will result in total pre-tax charges...

  • Page 48
    ... inkjet facilities in Mexico and the Philippines; • Reducing 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 49
    ... its 2007 Restructuring Plan of $9.2 million in PSSD, $2.9 million in ISD, and $38.2 million in All other. During the third quarter of 2008, the Company sold one of its inkjet supplies manufacturing facilities in Juarez, Mexico for $4.6 million and recognized a $1.1 million pre-tax gain on the sale...

  • Page 50
    ... Selling, general and administrative on the Company's Consolidated Statements of Earnings. For the year ended December 31, 2007, the Company incurred total pre-tax 2006 project costs of $5.7 million in PSSD and $14.8 million in All other, while ISD realized a $2.7 million net benefit after the sale...

  • Page 51
    ... for employee termination benefits and contract termination and lease charges. PENSION AND OTHER POSTRETIREMENT PLANS The following table provides the total pre-tax cost related to Lexmark's retirement plans for the years 2008, 2007 and 2006. Cost amounts are included as an addition to the Company...

  • Page 52
    ...offset by the increase in the Company's marketable securities investments. Although declining from 2006 to 2008, the Company continues to generate solid cash flows from operating activities as discussed below. The Company issued $650 million of new long-term debt in 2008, but used a large portion of...

  • Page 53
    not sufficient, the Company has other potential sources of cash through utilization of its accounts receivable financing program, revolving credit facility or other financing sources. Operating activities The decrease in cash flows from operating activities from 2007 to 2008 was driven by the $116...

  • Page 54
    ... in that year. The YTY variations in cash flows (used for) provided by investing activities were driven by the Company's marketable securities investment activities. The Company's investments in marketable securities are classified and accounted for as available-forsale. At December 31, 2008 and...

  • Page 55
    ...required capital, the Company has available liquidity through its accounts receivable program and revolving credit facility. Recent events have led to an increased focus on fair value accounting, including the practices companies utilize to value financial instruments. The Company uses a third party...

  • Page 56
    ... held by the Company, current pricing data was no longer available at the measurement date, representing a decline in the volume and level of trading activity. These securities are also generally valued using non-binding quotes from brokers or other indicative pricing sources. Refer to Part II, Item...

  • Page 57
    ... price per share of $25.22. Retirement of Treasury Shares In December 2005, October 2006 and October 2008, the Company received authorization from the board of directors to retire 44.0 million, 16.0 million and 16.0 million shares, respectively, of the Company's Class A Common Stock currently...

  • Page 58
    ... 20, 2005, Lexmark entered into a $300 million 5-year senior, unsecured, multi-currency revolving credit facility with a group of banks. Under the credit facility, the Company may borrow in U.S. dollars, euros, British pounds sterling and Japanese yen. As of December 31, 2008 and 2007, there were no...

  • Page 59
    ... the facility at December 31, 2008 or December 31, 2007. Other Information The Company's credit rating could be influenced by a number of factors, including overall economic conditions, demand for the Company's printers and associated supplies and ability to generate sufficient cash flow to service...

  • Page 60
    ...-term and long-term amounts reported separately in the Less than 1 Year and 1-3 Years columns, respectively. These payments will relate mainly to employee termination benefits and contract termination and lease charges. The Company's funding policy for its pension plans is to fund minimum amounts...

  • Page 61
    ... as pricing actions and product sourcing decisions. The Company's exposure to exchange rate fluctuations generally cannot be minimized solely through the use of operational hedges. Therefore, the Company utilizes financial instruments, from time to time, such as forward exchange contracts to reduce...

  • Page 62
    ... loss arising from adverse changes in interest rates and foreign currency exchange rates. Interest Rates At December 31, 2008, the fair value of the Company's senior notes was estimated at $505 million using quoted market prices obtained from an independent broker. The carrying value as recorded in...

  • Page 63
    ... DATA Lexmark International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 2008, 2007 and 2006 (In Millions, Except Per Share Amounts) 2008 2007 2006 Revenue ...Cost of revenue ...Gross profit ...Research and development ...Selling, general and...

  • Page 64
    Lexmark International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2008 and 2007 (In Millions) 2008 2007 ASSETS Current assets: Cash and cash equivalents ...$ 279.2 Marketable securities ...694.1 Trade receivables, net of allowances of $36.1 and $36.5 in ...

  • Page 65
    ...of $4.1 in 2008 ...Increase in short-term debt ...Issuance of treasury stock ...Purchase of treasury stock ...Proceeds from employee stock plans ...Tax windfall from employee stock plans ...Other ...Net cash flows used for financing activities ...Effect of exchange rate changes on cash ...Net change...

  • Page 66
    ... exercise of options ...Shares issued under employee stock purchase plan ...Tax benefit (shortfall) related to stock plans ...Stock-based compensation ...Treasury shares purchased ...Treasury shares issued ...Treasury shares retired ...Balance at December 31, 2008 ...77.7 (0.2) $ 0.9 (121.1) $ 803...

  • Page 67
    ... supplies, services and solutions. Lexmark also sells dot matrix printers for printing single and multi-part forms by business users. The customers for Lexmark's products are large enterprises, small and medium businesses and small offices home offices ("SOHOs") worldwide. The Company's products...

  • Page 68
    ...term nature of the instruments. The fair value of Lexmark's marketable securities are based on quoted market prices or other observable market data or in some cases, internally developed inputs and assumptions (discounted cash flow model) when observable market data does not exist. The fair value of...

  • Page 69
    ... with extended warranty programs are expensed as incurred. Revenue Recognition: General Lexmark recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Revenue as reported in...

  • Page 70
    ...known factors at the time of sale. Lexmark also records estimated reductions to revenue for price protection, which it provides to substantially all of its distributors and reseller customers. Services Revenue from support or maintenance contracts, including extended warranty programs, is recognized...

  • Page 71
    .... The Company uses a yield-curve approach to determine the assumed discount rate in the U.S. based on the timing of the cash flows of the expected future benefit payments. This approach matches the plan's cash flows to that of a yield curve that provides the equivalent yields on zerocoupon corporate...

  • Page 72
    ... future cash dividends will be determined by the Company's board of directors in light of conditions then existing, including the Company's earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions, tax laws, certain corporate law requirements...

  • Page 73
    ... on cash flow hedges and net 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 divisional lines: the Printing Solutions and Services...

  • Page 74
    ... Is Not Active in response to the financial community's concerns about how to conduct fair value accounting in a time of significant market distress. The new FSP confirms that the objective of FAS 157 is still the price that would be received by the holder of the asset in an orderly transaction that...

  • Page 75
    ...framework for measuring fair value in generally accepted accounting principles ("GAAP") and expands disclosures about fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market...

  • Page 76
    ...at December 31, 2008 Quoted Prices in Active Markets (Level 1) Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Assets measured at fair value on a recurring basis: Available-for-sale marketable securities - ST ...Available-for-sale marketable securities - LT . . Total ...(Liabilities...

  • Page 77
    ...'s available-for-sale marketable securities are based on quoted market prices or other observable market data, or in some cases, internally developed inputs and assumptions such as discounted cash flow models or indicative pricing sources, when observable market data does not exist. The Company uses...

  • Page 78
    ... date, representing a decline in the volume and level of trading activity. These securities are also generally valued using non-binding quotes from brokers or other indicative pricing sources. Derivatives The Company employs a foreign currency risk management strategy that periodically utilizes...

  • Page 79
    ... through the end of 2009. The areas impacted include general and administrative functions, supply chain and sales support, research and development program consolidation, as well as marketing and sales management. The Company estimates the 2009 Restructuring Plan will result in total pre-tax charges...

  • Page 80
    ...the efficiency of the Company's inkjet cartridge manufacturing operations, the Company announced a plan (the "2008 Restructuring Plan") on July 22, 2008 that resulted in the closure of one of the Company's inkjet supplies manufacturing facilities in Mexico. The 2008 Restructuring Plan is expected to...

  • Page 81
    ... inkjet facilities in Mexico and the Philippines; • Reducing 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 82
    ... in All other. During the third quarter of 2008, the Company sold one of its inkjet supplies manufacturing facilities in Juarez, Mexico for $4.6 million and recognized a $1.1 million pre-tax gain on the sale that is included in Selling, general and administrative on the Consolidated Statements of...

  • Page 83
    ... due to changes in estimates for employee termination benefits and contract termination and lease charges. (2) (3) 5. STOCK-BASED COMPENSATION Lexmark has various stock incentive plans to encourage employees and nonemployee directors to remain with the Company and to more closely align their...

  • Page 84
    ... the prior year's 10-K filing. Stock Options Generally, options expire ten years from the date of grant. Options granted during 2008, 2007 and 2006, vest in approximately equal annual installments over a three-year period based upon continued employment or service on the board of directors. For the...

  • Page 85
    ... of the status of the Company's stock-based compensation plans as of December 31, 2008, 2007 and 2006, and changes during the years then ended is presented below: Weighted Average Exercise Price (Per Share) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In Millions...

  • Page 86
    ... ended December 31, 2007, qualified for the final ESPP purchase executed in the first quarter of 2008 according to the plan provisions described below. The Company's ESPP enabled substantially all regular employees to purchase full or fractional shares of Lexmark Class A Common Stock through payroll...

  • Page 87
    ..., U.S. government and agency debt securities, commercial paper, certificates of deposit and auction rate securities. The fair values of the Company's available-for-sale marketable securities are based on quoted market prices or other observable market data, internal discount cash flow models, or...

  • Page 88
    .... The realized gains and losses in 2007 and 2006 were immaterial. The Company uses the specific identification method when accounting for the costs of its available-for-sale marketable securities sold. Impairment The Company assesses its marketable securities for other-than-temporary declines in...

  • Page 89
    ...intent to hold these securities until liquidity in the market or optional issuer redemption occurs and could also hold the securities to maturity. Additionally, if Lexmark required capital, the Company has available liquidity through its accounts receivable program and revolving credit facility. 83

  • Page 90
    7. TRADE RECEIVABLES The Company's trade receivables are reported in the Consolidated Statements of Financial Position net of allowances for doubtful accounts and product returns. Trade receivables consisted of the following at December 31: 2008 2007 Gross trade receivables ...Allowances ...Trade ...

  • Page 91
    ... consisted of the following at December 31: Useful Lives (Years) 2008 2007 Land and improvements ...Buildings and improvements. Machinery and equipment . . Information systems ...Internal use software ...Furniture and other ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 20 10-35 2-10...

  • Page 92
    Deferred service revenue: 2008 2007 Balance at January 1...Revenue deferred for new extended warranty contracts ...Revenue recognized ...Balance at ... The ten-year notes with an aggregate principal amount of $300 million and 6.65% coupon were priced at 99.73% to have an effective yield to maturity of...

  • Page 93
    ... 20, 2005, Lexmark entered into a $300 million 5-year senior, unsecured, multi-currency revolving credit facility with a group of banks. Under the credit facility, the Company may borrow in U.S. dollars, euros, British pounds sterling and Japanese yen. As of December 31, 2008 and 2007, there were no...

  • Page 94
    ...$219.4 239.9 $459.3 The Company realized an income tax benefit from the exercise of certain stock options in 2008, 2007 and 2006 of $3.4 million, $3.4 million and $11.8 million, respectively. This benefit resulted in a decrease in current income taxes payable and an increase in capital in excess of...

  • Page 95
    ... follows: 2008 2007 Deferred tax assets: Tax loss carryforwards ...Credit carryforwards ...Inventories ...Restructuring ...Pension ...Warranty ...Postretirement benefits...Equity compensation ...Other compensation ...Other ...Deferred tax liabilities: Property, plant and equipment Foreign exchange...

  • Page 96
    .... For 2007, the Company recognized in its statement of earnings a net benefit of $4.2 million for interest and penalties. 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...

  • Page 97
    ... from the retirement of the 16.0 million shares of Class A Common Stock in 2006 and 16.0 million shares of Class A Common Stock in 2008. In 1998, the Company's board of directors adopted a stockholder rights plan (the "Rights Plan") which provides existing stockholders with the right to purchase one...

  • Page 98
    ...average of the daily volume weighted average price of the Company's common stock over the agreement's trading period, a discount, and the initial number of shares delivered. Under the terms of the ASR, the Company would either receive additional shares from the counterparty or be required to deliver...

  • Page 99
    ... and diluted net EPS calculations for the years ended December 31: 2008 2007 2006 Numerator: Net earnings...Denominator: Weighted average shares used to compute basic EPS ...Effect of dilutive securities - employee stock plans ...Weighted average shares used to compute diluted EPS ...Basic net EPS...

  • Page 100
    ... for singleemployer defined benefit pension plans. The funding requirements are now largely based on a plan's calculated funded status, with faster amortization of any shortfalls. The Act directs the U.S. Treasury Department to develop a new yield curve to discount pension obligations for...

  • Page 101
    ... December 31: Pension Benefits 2008 2007 Other Postretirement Benefits 2008 2007 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 102
    ...$597.7 597.5 Components of net periodic benefit cost: Pension Benefits 2008 2007 2006 Other Postretirement Benefits 2008 2007 2006 Net Periodic Benefit Cost: Service cost ...Interest cost ...Expected return on plan assets . . Amortization of prior service cost (credit) ...Amortization of net loss...

  • Page 103
    .... The U.S. defined benefit plan expects to employ professional investment managers during 2009 to invest in new asset classes, including international developed equity, emerging market equity, high yield bonds and emerging market debt. Prior to December 2008, the target asset allocation percentages...

  • Page 104
    ... Information Products Corporation from IBM in 1991, IBM agreed to pay for its pro rata share (currently estimated at $26.2 million) of future postretirement benefits for all the Company's U.S. employees based on pro rated years of service with IBM and the Company. Cash flows: In 2009, the Company...

  • Page 105
    ...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 or cash flow hedge. Changes in the fair value of a derivative that is highly effective...

  • Page 106
    ... to trade receivables is dispersed across a large 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...

  • Page 107
    ... Company also sources some printer engines and finished products from OEMs. Typically, these preferred suppliers maintain alternate processes and/or facilities to ensure continuity of supply. Although Lexmark plans in anticipation of its future requirements, should these components not be available...

  • Page 108
    ...VerwertungsGesellschaft Wort ("VG Wort"), a collection society representing certain copyright holders, against Hewlett-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...

  • Page 109
    ... sold in Germany by the Company after December 31, 2007, pursuant to the new German Copyright Act applicable as of January 1, 2008, the Company, other industry participants and the collecting societies have agreed upon an applicable levy rate for such sales of single function printer devices and AIO...

  • Page 110
    ... 15%, of the Company's total revenue, respectively. Sales to Dell are included in both PSSD and ISD. The following is revenue by geographic area for the year ended December 31: 2008 2007 2006 Revenue: United States ...EMEA (Europe, the Middle East & Africa) ...Other International ...Total revenue...

  • Page 111
    .... QUARTERLY FINANCIAL DATA (UNAUDITED) (In Millions, Except Per Share Amounts) 2008: Revenue ...Gross profit (1) ...Operating income (1) ...Net earnings (1) ...Basic EPS* (1) ...Diluted EPS* (1) ...Stock prices: High...Low ...2007: Revenue ...Gross profit (2) ...Operating income (2) . Net earnings...

  • Page 112
    ... of Lexmark International, Inc. and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America...

  • Page 113
    Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation...degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Lexington, Kentucky February 25, 2009 107

  • Page 114
    ... processes and internal controls and procedures for day-to-day accounting functions and financial reporting were made. In the second quarter of 2007, the Company migrated the majority of the transaction processing for after-sales service activities in the United States to a new software system. This...

  • Page 115
    ...may request a free copy of the Corporate Governance Principles, the charters of each of the committees of the 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...

  • Page 116
    ... 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 2009 Annual Meeting of...

  • Page 117
    LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2006, 2007 and 2008 (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 118
    ... duly authorized in the City of Lexington, Commonwealth of Kentucky, on February 27, 2009. 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 119
    ... North America, Inc. ("CNAI") and BTM, as the Investor Agents, CNAI, as Program Agent for the Investors and Banks, and the Company, as Collection Agent and Originator.(13) Amendment No. 1 to Receivables Purchase Agreement, dated as of October 7, 2005, by and among Lexmark Receivables Corporation, as...

  • Page 120
    ... UFJ, Ltd., New York Branch ("BTMUFJ"), CNAI, as Program Agent, CNAI and BTMUFJ, as Investor Agents, and the Company, as Collection Agent and Originator.(15) Amendment No. 3 to Receivables Purchase Agreement, dated as of March 30, 2007, by and among Lexmark Receivables Corporation, as Seller...

  • Page 121
    ... to the Lexmark International, Inc. 2005 Nonemployee Director Stock Plan. (15)+ Form of Amended and Restated Agreement pursuant to the Company's 2006-2008 Long-Term Incentive Plan. (17)+ Form of Amended and Restated Agreement pursuant to the Company's 2007-2009 Long-Term Incentive Plan. (17)+ Form...

  • Page 122
    ... (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Commission ...Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (Commission File No. 1-14050). (13) Incorporated by reference to the Company's Current Report...

  • Page 123
    ... the Printing Solutions and Services Division Jeri L. Isbell, vice president, human resources Robert J. Patton, Esq., vice president, general counsel and secretary Gary D. Stromquist, vice president and corporate controller Annual Meeting Lexmark International, Inc., will hold its annual meeting of...

  • Page 124
    www.lexmark.com One Lexmark Centre Drive, Lexington, KY 40550 USA 859.232.2000 71K -6600-12