Lexmark 2014 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... Refer to Part II, Item 8, Note 20 of the Notes to Consolidated Financial Statements for more information on the Company's reportable segment Revenue and Operating income (loss) for 2014, 2013 and 2012. The Company acquired Pallas Athena on October 18, 2011. Perceptive Software Revenue and Operating...

  • Page 3
    ...of Lexmark as we bring solutions to market that enhance customers' productivity while concurrently delivering cost savings. Last year, we expanded our solutions portfolio with the acquisition of Sweden-based ReadSoft, a leading provider of financial process automation software. ReadSoft capabilities...

  • Page 4
    ... needs and develop unique solutions to support their evolving business. Customers for Life is at the heart of everything we do. It drives all of us, and is what makes Lexmark a better partner for our customers than any of our competitors. To our shareholders, our customers, our business partners and...

  • Page 5
    ... No.) 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...

  • Page 6
    ... AND FINANCIAL DISCLOSURE Item 9A. CONTROLS AND PROCEDURES Item 9B. OTHER INFORMATION PART III Item 10. Item 11. Item 12. Item 13. Item 14. DIRECTORS, EXECUTIVE GOVERNANCE EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN...

  • Page 7
    ... of this report. The information referred to above should be considered by investors when reviewing any forward-looking statements contained in this report, in any of the Company's public filings or press releases or in any oral statements made by the Company or any of its officers or other persons...

  • Page 8
    .... Lexmark's products include laser printers and multifunction devices, dot matrix printers and the associated supplies/solutions/services, as well as ECM, BPM, DOM, intelligent data capture, search and web-based document imaging and workflow software solutions and services. Lexmark develops and...

  • Page 9
    ... total relevant distributed laser printing and imaging market opportunity was approximately $70 billion in 2014, including printing hardware, supplies and related services. This opportunity includes printers and multifunction devices as well as a declining base of copiers and fax machines that are...

  • Page 10
    ... in order to improve productivity and cost. Strategy Lexmark's strategy is based on a business model of investing in technology to develop and sell printing and imaging, and content and process management solutions, including printers, multifunction devices and software solutions with the objective...

  • Page 11
    ... edge MPS and content and process management solutions. Lexmark, through Perceptive Software, also internally develops content and process management software that includes DOM, intelligent capture, search, rich content management, and healthcare specific medical imaging and VNA software products...

  • Page 12
    ...a variety of cartridges, service parts and other supplies for use in its installed base of laser, inkjet and dot matrix printers. Revenue and profit growth from the ISS supplies business is directly linked to the ability to increase the installed base of ISS laser products or the usage rate of those...

  • Page 13
    ... laser supplies products sold commercially in 2014 were sold through the ISS network of Lexmark-authorized supplies distributors and resellers, who sell directly to end-users, or to independent office supply dealers. Inkjet supplies are primarily sold through large office superstores, discount store...

  • Page 14
    ... quality and reliability. As the installed base of laser and inkjet products matures, the Company expects competitive supplies activity to increase. • Manufacturing and Materials - ISS ISS operates manufacturing control centers in Lexington, Kentucky; Shenzhen, China; and Geneva, Switzerland; and...

  • Page 15
    ... Search, Capture, VNA and BPM also had incremental product releases in 2014. o Solutions Perceptive Software offers industry specific solutions across target industries - healthcare, government, retail, manufacturing, higher education and financial services - as well as select back office functions...

  • Page 16
    ... by industry sector - specifically healthcare, public sector (which includes higher education and government), and commercial, which spans areas such as retail, banking, insurance and manufacturing. With its headquarters in Lenexa, Kansas, Perceptive Software also has primary business offices in...

  • Page 17
    ... ISS Vice President and President & Chief Executive Officer of Perceptive Software Vice President of Asia Pacific and Latin America Vice President of Human Resources Vice President, General Counsel and Secretary Vice President, ISS and Corporate Finance Mr. Rooke has been a Director of the Company...

  • Page 18
    ... and General Manager of Latin America. Ms. Isbell has been Vice President of Human Resources of the Company since February 2003. From January 2001 to February 2003, Ms. Isbell served as Vice President of Worldwide Compensation and Resource Programs in the Company's Human Resources department. Mr...

  • Page 19
    ...currency exchange rates may adversely impact economic activity and the Company's operating results. The Company's revenue is largely dependent on global economic conditions and the demand for its imaging products and associated supplies, solutions and services and capture, manage and access software...

  • Page 20
    ... number of ECM, BPM and DOM providers that have significantly greater financial, marketing and/or technological resources than the Company. Perceptive Software could lose market share if its competitors introduce new products and services, add functionality to existing products, or reduce prices...

  • Page 21
    ... agreements regarding possible investments, acquisitions, and other transactions. Such transactions, including the acquisitions of Perceptive Software in 2010; Pallas Athena in 2011; Brainware, Nolij, ISYS and Acuo Technologies in 2012; AccessVia, Twistage, Saperion and Pacsgear in 2013; ReadSoft...

  • Page 22
    ... data and host or manage parts of the Company's customers' businesses in cloud-based IT environments, especially in customer sectors involving particularly sensitive data such as medical information, financial services and the government. If a cyberattack or other security incident described above...

  • Page 23
    ...distribution partners to perform or supply products reliably, disruptions in international trade, trade restrictions, import duties, "Buy American" constraints, disruptions at important geographic points of exit and entry, difficulties in transitioning such manufacturing activities among the Company...

  • Page 24
    ... of any conflict minerals used in the Company's products. Lexmark's supply chain is complex and the Company may be unable to verify the origins for all metals used in the Company's products. The Company may also encounter challenges with customers and stockholders if the Company is unable to certify...

  • Page 25
    ... 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. Perceptive Software's headquarters is located in Lenexa...

  • Page 26
    ... sales, service, research and development, warehouse and manufacturing facilities worldwide. Approximately 3.0 million square feet is located in the U.S. and the remainder is located in various international locations. The Company's principal international manufacturing facility is located in Mexico...

  • Page 27
    ...,591 62,481 - 523,072 $ $ Average Price Paid per Share (2) 40.60 52.82 - 42.06 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) 460,591 62,481 - 523,072 (1) Information regarding the Company's share repurchases can be found in Part II, Item 8, Note 15 of the...

  • Page 28
    ... of the investment in the Class A Common Stock and each index were $100 at December 31, 2009, and that all dividends were reinvested. Comparison of cumulative total returns Lexmark International, Inc. S&P MidCap 400 Index S&P 400 Information Technology Index Source: Standard & Poor's Capital IQ...

  • Page 29
    ...) pursuant to awards made under the Lexmark International, Inc. Broad-Based Employee Stock Incentive Plan (the "Broad-Based Plan"), an equity compensation plan which had not been approved by the Company's stockholders. On February 24, 2011, the Company's Board of Directors terminated the BroadBased...

  • Page 30
    ... Refer to Part II, Item 8, Note 20 of the Notes to Consolidated Financial Statements for more information on the Company's reportable segment Revenue and Operating income (loss) for 2014, 2013 and 2012. The Company acquired Pallas Athena on October 18, 2011. Perceptive Software Revenue and Operating...

  • Page 31
    ... and content management solutions. The Company operates in the office printing and imaging, ECM, BPM, DOM, intelligent data capture and search software markets. Lexmark's products include laser printers and multifunction devices, dot matrix printers and the associated supplies/solutions/services, as...

  • Page 32
    ... of the manufacturing and support infrastructure and the increased use of shared service centers in low-cost countries, to the exit of inkjet technology. In 2012, the Company announced restructuring actions including exiting the development and manufacturing of its remaining inkjet hardware. In the...

  • Page 33
    ... and document scanning to distributed printing and multi-channel capture by end users when and where it is convenient to do so, including via smart MFPs, mobile devices and the web; Continued convergence between printers, scanners, copiers and fax machines into single, integrated multifunction and...

  • Page 34
    ... strategy is based on a business model of investing in technology to develop and sell printing and imaging, and content and process management solutions, including printers, multifunction devices and software solutions with the objective of growing its installed base of hardware devices and software...

  • Page 35
    ... monochrome and color laser printing technology Lexmark, through Perceptive Software, also internally develops content and process management software that includes DOM, intelligent capture, search, rich content management, and healthcare specific medical imaging and VNA software products as well...

  • Page 36
    ... order to determine a BESP, and is primarily based on consideration of internal factors such as margin objectives and pricing practices as well as competitor pricing strategies. For those services that are offered to customers on a stand-alone basis, the Company utilizes standalone quotes to develop...

  • Page 37
    ... an additional return for active management, when appropriate, and deducts various expenses. The Company uses fair value of plan assets to determine expense. Discount rate - reflects the rates at which benefits could effectively be settled and is based on current investment yields of high-quality...

  • Page 38
    ... projected benefit obligations for the Company's U.S. pension plans to changes in the long-term discount rate and asset return assumptions. Under the Company's accounting policy for pension plan asset gains and losses, changes in the actual return on plan assets are recognized as part of the annual...

  • Page 39
    ...scanners, printers and multifunction devices) alleging the copyright owners are entitled to compensation because these devices enable reproducing copyrighted content. Other countries are also considering imposing fees on certain devices. The amount of fees would depend on the number of products sold...

  • Page 40
    .... The Company's Level 3 recurring fair value measurements are related to certain corporate debt, asset-backed and mortgage-backed securities. The fair values are classified as Level 3 due to (1) a low number of observed trades or pricing sources or (2) variability in the pricing data is higher than...

  • Page 41
    .... Other key inputs include assumptions about technological obsolescence, customer attrition rates, brand recognition and discount rates. The Company also considers market participant assumptions in its valuations of deferred revenue acquired in a business combination, including estimated costs to...

  • Page 42
    ...December 31, 2014, consolidated revenue increased 1% YTY, reflecting higher laser revenue in the ISS segment and increased Perceptive Software revenue, offset by an unfavorable impact of approximately 4% due to the Company's exit of inkjet technology and an unfavorable YTY currency impact of 1%. 38

  • Page 43
    ...user demand, attributed to growth in the segment's MPS business and the large workgroup installed base. Inkjet exit supplies revenue declined 36% YTY due to ongoing and expected declines in the inkjet install base as the Company has exited inkjet technology. For the year ended December 31, 2013, ISS...

  • Page 44
    ...acquisitions of ReadSoft and Saperion, partially offset by unfavorable inkjet exit impact and unfavorable currency impacts, particularly in the fourth quarter. Revenues in other international regions were relatively unchanged YTY, reflecting increased laser supplies revenue in Asia and Latin America...

  • Page 45
    ... to the exit of inkjet technology and development in 2012. Selling, general and administrative expenses increased due to employee variable compensation expenses and the impact of acquisitions completed in Perceptive Software, partially offset by expense reductions from the restructuring announced in...

  • Page 46
    ... the decline in inkjet exit supplies revenue was partially offset by increased laser supplies and hardware revenue and a reduction in operating expenses due to the Company's previously announced restructuring and ongoing expense actions. The higher operating losses in Perceptive Software were driven...

  • Page 47
    ... President signed into law The American Taxpayer Relief Act of 2012, which contained provisions that retroactively extended the U.S. research and experimentation tax credit to January 1, 2012. Because the extension did not happen by December 31, 2012, the Company's effective income tax rate for 2012...

  • Page 48
    ... its support structure consistent with its focus on business customers. The 2012 Restructuring Actions include exiting the development and manufacturing of the Company's inkjet technology, with reductions primarily in the areas of inkjet-related manufacturing, research and development, supply chain...

  • Page 49
    ... project costs, for the Company's restructuring plans as follows: 2012 Actions Restructuring Charges (Dollars in millions) Accelerated depreciation charges Excess components and other inventory-related charges Employee termination benefit charges Contract termination and lease charges Project...

  • Page 50
    ... project costs, for the Company's restructuring plans as follows: 2012 Actions Restructuring Charges (Dollars in millions) Accelerated depreciation charges Excess components and other inventory-related charges Employee termination benefit charges Contract termination and lease charges Project...

  • Page 51
    ... the Company's restructuring plans as follows: 2012 2012 Actions Restructuring Charges (Dollars in millions) Accelerated depreciation charges Excess components and other inventory-related charges Impairments on long-lived assets held for sale Employee termination benefit charges Contract termination...

  • Page 52
    ... presented on the balance sheet of the acquired company. These intangible assets consist primarily of purchased technology, customer relationships, trade names, in-process research and development and non-compete agreements. Subsequent to the acquisition date, some of these intangible assets begin...

  • Page 53
    .... The acquisition costs include items such as investment banking fees, legal and accounting fees, and costs of retention bonus programs for the senior management of the acquired company. Integration costs may consist of information technology expenses including certain costs for software and systems...

  • Page 54
    ... through utilization of its trade receivables financing program and revolving credit facility or access to the private and public debt markets. The Company may choose to use these sources of liquidity from time to time, including during 2015, to fund strategic acquisitions, dividends, and/or share...

  • Page 55
    ... in 2012. The decrease in 2013 is driven by the exit of inkjet business and utilization of on-hand inventory. Inventories decreased $7.3 million in 2013 and $58.2 million in 2012. This reflects continued improvement in inventory management and reduced inventory levels due to exit of inkjet business...

  • Page 56
    ... Brainware, ISYS, Nolij, and Acuo, which were acquired in 2012 for $245.4 million. AccessVia provides industry-leading signage solutions to create and produce retail shelf-edge materials, all from a single platform, which can be directed to a variety of output devices and published to digital signs...

  • Page 57
    ..., the Company's marketable securities portfolio consisted of asset-backed and mortgage-backed securities, corporate debt securities, U.S. government and agency debt securities, international government securities, commercial paper and certificates of deposit. The Company's auction rate securities...

  • Page 58
    ...period. During 2012, the Company repurchased approximately 8.1 million shares of its Class A Common Stock at a cost of $190 million through four accelerated share repurchase agreements executed during the period. The Company's board declared dividends each quarter during 2014. Refer to Part II, Item...

  • Page 59
    ...ability to obtain access to new financings in the future. The Company does not have any rating downgrade triggers that accelerate the maturity dates of its Facility or public debt. The Company was in compliance with all covenants and other requirements set forth in its debt agreements at December 31...

  • Page 60
    ...162.2 million in 2014, 2013 and 2012, respectively. The capital expenditures for 2014 principally related to infrastructure support (including internal-use software expenditures), building and improvements and new product development. The Company expects capital expenditures to be approximately $110...

  • Page 61
    ... of operations is affected by fluctuations in currency exchange rates. Certain of the Company's Latin American and European entities use the U.S. dollar as their functional currency. Currency exchange rates had a 1% unfavorable impact on international revenue in 2014 when compared to 2013. Currency...

  • Page 62
    ... exchange rates. Interest Rates At December 31, 2014, the fair value of the Company's senior notes was estimated at $756.6 million based on the prices the bonds have recently traded in the market as well as the overall market conditions on the date of valuation, stated coupon rates, the number...

  • Page 63
    ..., and 2012 (In Millions, Except Per Share Amounts) 2014 Revenue: Product Service Total Revenue Cost of revenue: Product Service Restructuring-related costs Total Cost of revenue Gross profit Research and development Selling, general and administrative Gain on sale of inkjet-related technology and...

  • Page 64
    ...Recognition of pension and other postretirement benefit plans prior service credit, net of (amortization) (net of tax benefit (liability) of $(0.1) in 2014, $(0.8) in 2013, and $0.1 in 2012) Net unrealized (loss) gain on OTTI* marketable securities (net of tax benefit (liability) of $0.0 in 2014 and...

  • Page 65
    ... assets: Cash and cash equivalents Marketable securities Trade receivables, net of allowances of $22.2 in 2014 and $24.7 in 2013 Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Marketable securities Goodwill Intangibles, net Other assets...

  • Page 66
    ... activities: Depreciation and amortization Deferred taxes Stock-based compensation expense Pension and other postretirement expense (income) Gain on sale of inkjet-related technology and assets Other Change in assets and liabilities, net of acquisitions and divestiture: Trade receivables Inventories...

  • Page 67
    ...) Shares issued under deferred stock plan compensation Shares issued upon exercise of options Tax benefit (shortfall) related to stock plans Stock-based compensation Dividends declared on Class A common stock, $1.15 per share (1) Treasury shares purchased Balance at December 31, 2012 Comprehensive...

  • Page 68
    ... data capture, search and web-based document imaging and workflow software solutions and services. The major customers for Lexmark's products are large corporations, small and medium businesses ("SMBs"), and the public sector. The Company's products are principally sold through resellers, retailers...

  • Page 69
    ...data are lacking, the Company uses valuation techniques consistent with the income approach whereby future cash flows are converted to a single discounted amount. The Company uses multiple sources of pricing as well as trading and other market data in its process of reporting fair values and testing...

  • Page 70
    ... in the Consolidated Statements of Earnings. Internal-Use Software Costs: Lexmark capitalizes direct costs incurred during the application development and implementation stages for developing, purchasing, or otherwise acquiring software for internal use. These software costs are included in Property...

  • Page 71
    ... are developed by the Company's credit management function, taking into account the customer's net worth, payment history, long term debt ratings and/or other information available from recognized credit rating services. If such information is not available, the Company estimates a rating based on...

  • Page 72
    ... managed along two segments: Imaging Solutions and Services ("ISS") and Perceptive Software. ISS offers a broad portfolio of monochrome and color laser printers and laser multifunction products as well as a wide range of supplies and services covering its printing products and technology solutions...

  • Page 73
    ... 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. Printing Services Revenue from support or maintenance contracts, including extended warranty programs, is recognized...

  • Page 74
    ... 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 devices and associated supplies, features and related technologies as well as software. Refer to Software...

  • Page 75
    ... future service period of active plan participants. Stock-Based Compensation: Equity Classified Share-based payments to employees, including grants of stock options, are recognized in the financial statements based on their grant date fair value. The fair value of the Company's stock-based awards...

  • Page 76
    ...for more information regarding stock-based compensation. Restructuring: Lexmark records a liability for a cost associated with an exit or disposal activity at its fair value in the period in which the liability is incurred, except for liabilities for certain employee termination benefit charges that...

  • Page 77
    ... activities. Areas of potential change for the Company include, but are not limited to, units of accounting, the determination of the transaction price, the allocation of the transaction price to multiple goods and services, transfer of control, software licenses, and capitalization of contract...

  • Page 78
    ... the Company has the ability to access at the measurement date; Level 2 -- Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 -- Unobservable inputs used in valuations in which there is little market activity...

  • Page 79
    ... Based on Quoted prices in active markets Fair value Assets measured at fair value on a recurring basis: Cash equivalents (1) Money market funds Government and agency debt securities Total cash equivalents Available-for-sale marketable securities Government and agency debt securities Corporate debt...

  • Page 80
    ... than temporary impairment AB = Asset-backed MB = Mortgage-backed ARS = Auction rate security (1) Transfers out of Level 3 were on a gross basis and resulted from the Company being able to obtain information demonstrating that the prices were observable in the market during the period shown. Of the...

  • Page 81
    ... to a single discounted amount. Marketable Securities - Valuation Process The Company uses third-party pricing information to report the fair values of the securities in which it is invested, though the responsibility of valuation remains with the Company's management. The Company corroborates the...

  • Page 82
    ... have lower levels of trading activity than government and agency debt securities and corporate debt securities and, therefore, their fair values may be based on other inputs, such as spread data. The valuation process described above is used to corroborate the prices of these securities. Fair value...

  • Page 83
    ... ReadSoft, Perceptive Software will grow its software offering with additional document process automation capabilities and expand its footprint in Europe. Concurrent with the public tender offer, the Company also obtained shares in ReadSoft through multiple share purchase transactions with specific...

  • Page 84
    ... estimated useful lives as of the acquisition date: Cash and cash equivalents Trade receivables Inventories Prepaid expenses and other current assets Property, plant and equipment Identifiable intangible assets: Developed technology In-process technology (1) Customer relationships Trade names and...

  • Page 85
    ... software technology for exchanging medical content between medical facilities. 2013 On September 16, 2013 the Company acquired Saperion AG ("Saperion"). Saperion is a European-based leader in ECM solutions, focused on providing document archive and workflow solutions. The acquisition expands...

  • Page 86
    ...to create and produce retail shelf-edge materials, all from a single platform, which can be directed to a variety of output devices and published to digital signs or electronic shelf tags. AccessVia, when combined with Lexmark's MPS and expertise in delivering print and document process solutions to...

  • Page 87
    ... 2012, the Company completed the following acquisitions: Total purchase price, net of cash acquired $ 147.1 40.5 59.7 $ 247.3 BDBG Enterprise Software (Lux) S.C.A. ("Brainware") Acuo Technologies, LLC ("Acuo") Nolij Corporation ("Nolij") and ISYS Search Software Pty Ltd. ("ISYS") Total Acquisition...

  • Page 88
    ... August 2012, the Company announced restructuring actions including exiting the development and manufacturing of its remaining inkjet hardware. On April 1, 2013, the Company and Funai Electric Co., Ltd. ("Funai") entered into a Master Inkjet Sale Agreement of the Company's inkjet-related technology...

  • Page 89
    ..., research and development, supply chain, marketing and sales as well as other support functions. The Company will continue to provide service, support and aftermarket supplies for its inkjet installed base. The Company expects these actions to be complete by the end of 2015. The 2012 Restructuring...

  • Page 90
    ... to cease manufacturing of inkjet hardware. For the years ended December 31, 2014, 2013 and 2012, the Company incurred employee termination benefit charges, which include severance, medical and other benefits, and contract termination and lease charges. Charges for the 2012 Restructuring Actions and...

  • Page 91
    ... functions, supply chain and sales support, marketing and sales management and consolidating the Company's research and development programs. In 2014 and 2013, employee termination benefit charges were incurred for actions that were not a part of an announced plan. The Other Restructuring...

  • Page 92
    ... charges Impairment of long-lived assets held for sale Employee termination benefit charges (reversals) Contract termination and lease charges Total restructuring charges $ $ The impairment charges recorded in 2012 are related to the Company's site in Boigny, France held for sale for which the...

  • Page 93
    ... 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 Stock Options Generally, stock options expire ten years from the date of grant. No stock options were...

  • Page 94
    ... determined to be the fair market value of the shares at the date of grant, is charged to compensation expense ratably over the vesting period of the award. During 2014, a certain number of executive officers of the Company were also granted additional RSU awards having a performance condition...

  • Page 95
    .... The fair values of the Company's available-for-sale marketable securities may be based on quoted market prices or other observable market data, discounted cash flow analyses, or in some cases, the Company's amortized cost, which approximates fair value. Money market funds included in Cash and...

  • Page 96
    ... of ReadSoft, which were purchased in 2014 and marked to fair value on the acquisition date. Refer to Note 4 of the Notes to Consolidated Financial Statements for information. Other amounts recognized in all periods represent realized gains due to sales and maturities. The Company uses the specific...

  • Page 97
    ... speeds, default rates, and current loan status. These drivers are used to apply specific assumptions to each security and are further divided in order to separate the underlying collateral into distinct groups based on loan performance characteristics. For instance, more weight is placed on higher...

  • Page 98
    ... a limited risk of bad debt losses on the trade receivables transferred, since the Company and Perceptive Software, LLC over-collateralize the receivables transferred with additional eligible receivables. Lexmark and Perceptive Software, LLC address this risk of loss in the allowance for doubtful...

  • Page 99
    ....3 million and $229.6 million in 2014, 2013 and 2012, respectively. Leased products refers to hardware leased by Lexmark to certain customers as part of the Company's ISS operations. The cost of the hardware is amortized over the life of the contracts, which have been classified as operating leases...

  • Page 100
    ... upon the sale of the inkjet-related technology and assets. Refer to Note 4 of the Notes to Consolidated Financial Statements for additional details regarding business combinations occurring during 2014, 2013, and 2012, as well as information related to divestitures. The Company does not have any...

  • Page 101
    ...its acquired trade names and trademarks could change in future periods as the Company considers alternatives for going to market with its acquired software and solutions products. The Company accounts for its internal-use software, an intangible asset by nature, in Property, plant and equipment, net...

  • Page 102
    ...$ The table above includes separately priced extended warranty and product maintenance contracts. It does not include software and other elements of the Company's deferred revenue. The short-term portion of warranty and the short-term portion of extended warranty are included in Accrued liabilities...

  • Page 103
    ... February 5, 2014, Lexmark amended its current $350 million 5-year senior, unsecured, multicurrency revolving credit facility, entered into on January 18, 2012, by increasing its size to $500 million. In addition, the maturity date of the amended credit facility was extended to February 5, 2019...

  • Page 104
    ... using the U.S. statutory rate and the Company's effective tax rate was as follows: 2014 Amount Provision for income taxes at statutory rate $ 39.7 State and local income taxes, net of federal tax benefit 4.8 Foreign tax differential (11.4) Research and development credit (6.2) Valuation allowance...

  • Page 105
    ... loss carryforwards Credit carryforwards Inventories Restructuring Pension and postretirement benefits Warranty Equity compensation Other compensation Foreign exchange Other Deferred tax liabilities: Property, plant and equipment Intangible assets Other Valuation allowances Net deferred tax assets...

  • Page 106
    ...recognized. The amount of unrecognized tax benefits at December 31, 2012, was $24.2 million, all of which would affect the Company's effective tax rate if recognized. The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of its income tax provision. As...

  • Page 107
    ..., 2014. Under the terms of the ASR Agreements, the Company paid an agreed upon amount targeting a certain number of shares based on the closing price of the Company's Class A Common Stock on the date of each agreement. The Company took delivery of 85% of the shares in the initial transaction and the...

  • Page 108
    ... entity's own equity. Dividends The Company's dividend activity during the year ended December 31, 2014 was as follows: Lexmark International, Inc. Class A Common Stock Dividend Per Share Cash Outlay $ 0.30 $ 18.6 0.36 22.4 0.36 22.2 0.36 22.1 $ 1.38 $ 85.3 Declaration Date February 20, 2014 April...

  • Page 109
    ...56.4) (91.6) Changes in the Company's foreign currency translation adjustments were due to a number of factors as the Company operates in various currencies throughout the world. The primary drivers of the unfavorable change in 2014 were decreases in the exchange rate values of approximately 11% in...

  • Page 110
    ... Gain on sale of inkjet-related technology and assets $ 0.7 (0.4) (0.3) - Note 17. Employee Pension and Postretirement Plans Gain on sale of inkjet-related technology and assets Tax benefit (liability) Net of tax $ Unrealized gains and (losses) on marketable securities Non-OTTI OTTI $ $ Total...

  • Page 111
    ... to basic and diluted EPS in 2012. 17. EMPLOYEE PENSION AND POSTRETIREMENT PLANS Lexmark and its subsidiaries have defined benefit and defined contribution pension plans that cover certain of its regular employees, and a supplemental plan that covers certain executives. Medical, dental and life...

  • Page 112
    ... year Service cost Interest cost Contributions by plan participants Actuarial loss (gain) Benefits paid Foreign currency exchange rate changes Plan amendments and adjustments Benefit obligation at end of year Change in Plan Assets: Fair value of plan assets at beginning of year Actual return on plan...

  • Page 113
    ....0 645.0 2014 Net Periodic Benefit Cost: Service cost Interest cost Expected return on plan assets Amortization of prior service cost (credit) Immediate recognition of net loss (gain) Settlement, curtailment or termination benefit loss Net periodic benefit cost $ 2012 3.6 34.0 (42.1) - 23.4 6.7 25...

  • Page 114
    ... assets Rate of compensation increase Plan assets: Pension Benefits 2013 2012 Other Postretirement Benefits 2014 2013 2012 4.6 6.7 3.0 % % % 3.9 6.9 3.1 % % % 4.5 7.2 2.6 % % % 3.9 - - % 3.5 - 4.0 % % 4.0 - 4.0 % % Plan assets are invested in equity securities, government and agency...

  • Page 115
    ... and Fixed Income mortgage- Corporate backed debt securities securities $ 2.0 - - - (0.4) 1.6 $ $ - - (0.1) 2.6 - 2.5 Total Fair value at beginning of year Actual return on plan assets assets held at reporting date Actual return on plan assets assets sold during period Purchases, sales and...

  • Page 116
    ... 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 $11.9 million) of future postretirement benefits for all the Company's U.S. employees based on prorated years of service with IBM and the Company. Cash...

  • Page 117
    ... 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 a fair value hedge...

  • Page 118
    ... activity for the Company's forward exchange contracts is as follows. This activity...2012 $ 0.3 $ 1.7 $ (3.6) (0.5) (1.3) 1.5 $ (0.2) $ 0.4 $ (2.1) Fair Value Hedging Relationships Foreign Exchange Contracts Underlying Total $ $ * Gains and losses recorded in Cost of revenue are included in Product...

  • Page 119
    ... circumstances. In addition, the Company uses credit insurance for specific obligors to limit the impact of nonperformance. Lexmark sells a large portion of its products through third-party distributors and resellers and original equipment manufacturer ("OEM") customers. If the financial condition...

  • Page 120
    ... of the Company's products, software, services or solutions, including resellers, the Company enters into contractual arrangements under which the Company may agree to indemnify the customer from certain events as defined within the particular contract, which may include, for example, litigation...

  • Page 121
    ... countries (primarily in Europe) and/or collecting societies representing copyright owners' interests have taken action to impose fees on devices (such as scanners, printers and multifunction devices) alleging the copyright owners are entitled to compensation because these devices enable reproducing...

  • Page 122
    ... claims for single function printers. VG Wort has filed objections against these nonbinding decisions and, on April 25, 2012, filed legal action against the Company in the Munich (Civil) Court of Appeals seeking to collect copyright levies for single function printers sold by the Company in Germany...

  • Page 123
    ... broad portfolio of monochrome and color laser printers and laser multifunction products as well as a wide range of supplies and services covering its printing products and technology solutions. In August 2012, the Company announced it will exit the development and manufacturing of inkjet technology...

  • Page 124
    ... a unit basis or through a managed service agreement (2) Includes laser, inkjet, and dot matrix supplies and associated supplies services sold on a unit basis or through a managed service agreement (3) Includes parts and service related to hardware maintenance and includes software licenses and the...

  • Page 125
    ...1.51 1.48 0.30 Diluted EPS* (2) Dividend declared per share Stock prices: High Low $ 28.32 21.79 $ 32.19 25.45 $ 41.11 31.79 $ 38.02 33.31 The Company acquired AccessVia and Twistage in March of 2013, Saperion in September of 2013, PACSGEAR in October of 2013, ReadSoft in August of 2014 and...

  • Page 126
    ... associated with the Company's acquisitions. Net earnings for the second quarter of 2013 included a $73.5 million pretax Gain on sale of inkjet-related technology and assets, $13.3 million of pre-tax restructuring charges and project costs in connection with the Company's restructuring plans and $16...

  • Page 127
    ... in Management's Report on Internal Control over Financial Reporting, management has excluded ReadSoft AB and its subsidiaries ("ReadSoft") from its assessment of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a business acquisition during...

  • Page 128
    ... and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company's management, including our Chairman and Chief Executive Officer ("CEO") and Vice President and Chief Financial Officer ("CFO...

  • Page 129
    The Company's management has excluded ReadSoft AB and its subsidiaries ("ReadSoft") from our assessment of internal control over financial reporting as of December 31, 2014, because it was acquired by us in a business acquisition during 2014. ReadSoft is a 97.8% owned subsidiary whose total assets ...

  • Page 130
    ... 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 Company certify annually to...

  • Page 131
    ... 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 2015 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange...

  • Page 132
    ...31, 2012, 2013 and 2014: Schedule II - Valuation and Qualifying Accounts 123 129 All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related Notes. (3) Exhibits Exhibits for the Company are listed in...

  • Page 133
    LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2012, 2013 and 2014 (In Millions) (A) (B) Balance at Beginning of Period (C) Additions Charged to Costs and Charged to Expenses Other Accounts (D) (E) Description ...

  • Page 134
    ... duly authorized in the City of Lexington, Commonwealth of Kentucky, on March 2, 2015. LEXMARK INTERNATIONAL, INC. /s/ Paul A. Rooke Name: Paul A. Rooke Title: Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 135
    ... 2 5/10/00 Exhibit Number Exhibit Description 2 Agreement and Plan of Merger, dated as of February 29, 2000, by and between Lexmark International, Inc. (the "Company") and Lexmark International Group, Inc. 3.1 3.2 4.1 Restated Certificate of Incorporation of the Company. Company By-Laws, as Amended...

  • Page 136
    ... among the Company, Lexmark International Technology, S.A., and Funai Electric Company, Ltd., dated April 1, 2013. Company Stock Incentive Plan, as Amended and Restated, effective April 23, 2009.+ Form of Non-Qualified Stock Option Agreement pursuant to the Company's Stock Incentive Plan.+ Form of...

  • Page 137
    ...of Initial Restricted Stock Unit Award Agreement pursuant to the Company's 2005 Nonemployee Director Stock Plan.+ Form of Annual Restricted Stock Unit Award Agreement pursuant to the Company's 2005 Nonemployee Director Stock Plan.+ Company Senior Executive Incentive Compensation Plan, as Amended and...

  • Page 138
    10.41 Form of Change in Control Agreement entered into as of November 1, 2012, by and between the Company and each of Robert J. Patton and Gary D. Stromquist, and as of July 1, 2013, by and between the Company and Scott T.R. Coons.+ Form of Indemnification Agreement for Executive Officers.+ Form of...

  • Page 139
    ... Software Ronaldo M. Foresti, vice president of Asia Pacific and Latin America Jeri L. Isbell, vice president of human resources Robert J. Patton, Esq., vice president, general counsel and secretary Gary D. Stromquist, vice president, ISS and Corporate Finance Annual Meeting Lexmark International...

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