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Earnings Presentation
April 23, 2013
First Quarter 2013
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Forward Looking Statements and GAAP Reconciliations
The contents of this presentation that are not statements of historical fact
are forward-looking statements and involve risks and uncertainties that are
discussed in the Safe Harbor section of our earnings releases and SEC
filings. Actual results may differ materially from such statements. Lexmark
undertakes no obligation to update any forward-looking statements.
This presentation contains non-GAAP financial measures, unless otherwise
noted. Lexmark has provided in the supplemental materials section of
these slides reconciliations of GAAP to non-GAAP financial measures and
a discussion of managements use of non-GAAP financial measures.
2
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CEO Presentation
Chairman and Chief Executive Officer
Paul Rooke
3
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Business Dynamics
Delivered Results at High End of Guidance Range
Revenue and EPS At High End of Guidance Range
Record 1Q Gross Profit Margin Percentage Solid Cost and Expense Management
Maintaining Capital Allocation Discipline to Deliver Shareholder Value Building and Growing Solutions Business Through Expansion and Acquisitions
Expanded Strategic Software Capabilities With Eight Acquisitions Since 2010
Returning >50% of Free Cash Flow to Shareholders Through Dividends and Share Repurchases on Average
Returned More Than $500 Million Since July 2011
Creating a Higher-Value Portfolio
Double-Digit Managed Print Services and Perceptive Software Revenue Growth
Advanced Lexmarks Strategic Software Capabilities with Two Acquisitions
4
Working to Increase Profitability
Remain Committed To Long Term Operating Margin of 11% - 13%
Previously Announced Inkjet Exit Actions Substantially Completed
Expecting to Deliver $85 Million in Savings From Previously Announced Restructuring in 2013
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Financial Summary*
Revenue $886
At High End of Guidance Range Continued Growth in Strategic Focus Areas
Perceptive Software Grew 54%
MPS Grew 10%
Headwinds Included Continued Weak Economic Environment and Planned Ongoing Decline from Inkjet Exit
Operating Income Margin 9.1% Record 1Q Gross Profit Margin Percentage, Up 40 Basis Points Year-to-Year
Operating Expense In Line With Expectation, Declined $10 Million Year-to-Year
Previously Announced Actions to Improve Cost and Expense Structure in 2013 and Beyond
Substantially Completed
EPS $0.88 At High End of Guidance Range
5
-11% YTY
* Non-GAAP, revenue in milli ons
1Q13
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1Q12 2Q12 3Q12 4Q12 1Q13
Total Revenue Composition1
6
-4%
-27%
(1) Non-GAAP, Bars depict percentage of total revenue
(2) Imaging Solutions Revenue = ISS revenue excluding inkjet exit revenue
(3) Based on corporate average
Double-digit Growth
in MPS andPerceptive MoreThan Offset By Non-MPS Decline
-12%
Imaging & Software Solutions% of Total Revenue
81%
-2%
83%
-4%YTY Currency Impact 3
Total Revenue YTY
-28%
Inkjet Exit RevenueExpected To Decline
Over 40% YTY
Inkjet Exit
Lexmark Consumer & BusinessInkjet Hardware & Supplies
Imaging Solutions2Hardware, Supplies,Software, Services
17% Growth inCombined MPS +
Perceptive SoftwareRevenue
+3% -6%
MPS
Perceptive SoftwareSolutions
84%
-4%
-11%
-29%
Non-MPS
-8%
85%
-1%
-5%
-9%
-26%
-11%
-34%
-5%
86%
-1%
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Increasing Share in High-Usage Large Workgroup
(1) Roll ing four quarters(2) Lexmark Custom Category using IDC WW HCP Tracker, Q4 2012 Branded A4 Laser Printer/MFP Shipments, Worldwide Excluding Japan
7
Large Workgroup Laser (A4) Unit Share1,2
17%16%
4Q124Q11
14%
4Q10
4 Quarters Ending
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Recognized as a Leader*
Managed Print Services Leader
Smart MFP Leader Healthcare ContentSoftware Leader
8
* See footnote slide
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Continuing Solutions & Services Investments Smart MFP Solutions Managed Print Solutions & Services
End-to-End Solutions ProviderGoal
Lexmarks Evolution
2007 20132010
Exited Consumer Inkjet Exited Business Inkjet
2007 2010 2013
9
Software Acquisitions
Perceptive SoftwarePallas AthenaBrainwareIsys
NolijAcuoAccessViaTwistage
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Industry-leading cloud softwareplatform for managing video, audio,and image content
Enables capture, manage and access
of rich media content in context ofbusiness processes and enterpriseapplications when combined withLexmarks Perceptive Software
Lexmark Acquires Twistage and AccessVia
10
Industry-leading paper and digitalsignage solutions for retailmarketplace
Adds a key offering into Lexmarks
leading suite of innovative output,managed print services andworkflow solutions for retailers
Expanding and Strengthening
Strategic Software Capabilities
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Imaging Content & Process Management
Capture Manage Access
+Lexmark is Unique
Creating Differentiated Solutions
11
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Creating Synergies for Growth
Imaging SolutionsPerceptive Software
Solutions
12
Global Large Account Presence
Broad Industry Expertise
Global Infrastructure
Cash to Accelerate Growth
Advanced Software Solutions to Differentiate/Grow MPS
Healthcare, Education, Back Office Presence & Expertise
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Capital Allocation Framework*
Cashfor
Investment
Returnto
Shareholders
Dividends>50%50% on Average through
Dividends & RepurchasesStrengthen & Grow
Capabilities
Recent Track Record1AcquisitionsSince 2010
$461
Returned > $500M Since
2011
Invested > $500M
Since 2010
* Totals may not foot due to rounding, in millions unless otherwise noted
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
$0.25 $0.25
$18 $18
$0.30 $0.30
$21 $21
$0.30 $0.30
$19 $19
perShare
Stock Repurchases
2011 $2502012 $190
1Q13 $21
$116
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Longer Term Revenue Growth Assumptions1,2
Revenue Drivers Revenue Headwind
(1) Non -GAAP
(2) Based on foreign currency exchange rates as of 3/31/13
(3) Imaging Solutions excludes Inkjet Exit revenue
14
Inkjet Exit Revenue*
Grow Imaging Market Driven by MPS Growth
Imaging Solutions3
Grow > Market
Perceptive SoftwareSolutions
Rapidly Diminishing Influence On OverallRevenue Performance Going Forward
2010 2011 2012 2013 2014 2015
*20132015 Bars Are Illustrative
$1.1B
$0.9B
$0.6B
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Inkjet Exit
Imaging & SoftwareSolutions
MPS & Perceptive
Software
2013 Revenue Assumption1
(1) Non-GAAP, bar chart depicts percentage of total revenue
(2) YTY impact in 2012 based on corporate average
Overall Revenue
Inkjet ExitLexmark Consumer + Business
Inkjet Hardware & Supplies
Non-MPS
Perceptive Software Solutions
MPS
Imaging SolutionsHardware, Supplies,Software, Services
Imaging & Software Solutions% of Total Revenue
83%
-3%YTY Currency Impact2
2012
-9%
-27%
-4%
+15%
Year to Year
2012
$3.8B
15
Inkjet Exit
Imaging & Software
Solutions
MPS & Perceptive
Software
2013
-8 to -10%
DownOver 40%
DownSlightly
About 15%
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Outlook*
2Q13
Revenue Down 6% to 8% YTYEPS $0.80 - $0.90
FY13
Revenue Down 8% to 10% YTY
EPS $3.90 - $4.10
Long TermRevenue Growth Grow at or above market
Op. Inc. Margin 11% - 13%
* Non-GAAP
16
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CFO Presentation
Executive Vice President and Chief Financial OfficerJohn Gamble
17
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1Q13 EPS Overview*
1Q13
* Non-GAAP, Totals may not foot due to roundi ng.
EPS Range: $0.80 - $0.90
18
Midpoint of EPS Guidance Range $0.85
ISS+$0.08
Perceptive Software -$0.04
All Other -$0.01
Segment Operational Performance
$0.88Reported EPS
Perceptive Revenue Above Market Growth Rate
Driven By Supplies Revenue UpsideChannel Inventory Decline Less Than Expected
Comments
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Revenue1
19
1Q13 Guidance YTY SEQ
Total $886 High End -11% -8%ISS $840 -13% -9%
Perceptive2 $46 +54% +9%
Imaging Solutions
+ Perceptive2
$765 -5% -7%Inkjet Exit $122 -34% -17%
Inkjet Exit Decline Unfavorably Impacted Total Revenue 6 Percentage Points
ISS Revenue Declined YTY Driven by Expected Lower Inkjet Exit Revenue
and Supplies Channel Inventory (1Q12 Channel Build Did Not Repeat in 1Q13) Perceptive Software Grew 54% YTY2in 1Q13
(1) Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted(2) Excluding acquisitions completed over the past four quarters. Pallas Athena, acquired on October 18, 2011, is now included in calculation of organic revenue. Perceptive Software organic revenue growth was 15% in 1Q13
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Software & Other(4) $97 +37%
Supplies(3) $609 -16%
Hardware(2)
$181 -9%
Product and Geographic Revenue1
(1) Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted(2) Includes laser, inkjet, and dot matrix hardware and the associated features sold on a unit basis or through a managed service agreement.(3) Includes laser, inkjet, and dot matrix supplies and associated supplies services sold on a unit basis or through a managed service agreement.(4) Includes parts and service related to hardware maintenance and includes software licenses and the associated software maintenance services sold on a unit basis or as a subscription service.(5) Includes departmental, large workgroup, and medium workgroup lasers, dot matrix printers and options(6) Includes small workgroup lasers and personal lasers(7) Excluding acquisitions completed over the past four quarters. Pallas Athena, acquired on October 18, 2011, is now included in calculation of organic revenue. Perceptive Software organic revenue growth was 15% in 1Q13.
20
Laser Hardware -5% -11% +6%
Large Workgroup(5) -2% -4% +2%
Small Workgroup(6) -19% -18% -1%
Exiting Inkjet -78% -77% -7%
Laser -11%
Exiting Inkjet -31%
Perceptive Software +54% (Organic7+15%)
Total $886 -11%
80%Laser
20%
Exiting Inkjet
Supplies Revenue
83%
16%Small Workgroup
Large Workgroup
1%Exiting InkjetHardware Revenue
1Q13 YTY Rev Units AURYear to Year Changes
Other $174M-14% YTY
U.S. $377M-11% YTY
EMEA $335M-9% YTY
Geographic Revenue
43%
20%
38%
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Gross Profit Margin*
21
1Q13 YTY SEQ
Total 39.8% +40 bps +380 bps
ISS 39.5% -30 bps +390 bps
Perceptive 68.8% +450 bps +180 bps
Record 1Q Gross Profit Margin Percentage Significant Sequential Improvements in Both ISS and Perceptive Significant YTY Improvement in Perceptive Driven by Favorable
Product Mix Shift Towards More License Revenue (Up 97% YTY)and More Subscriptions and Maintenance Revenue (Up 53% YTY)
* Non-GAAP, totals may not foot due to rounding
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Operating Expense*
22
Total Operating Expense Declined Year on Year and Sequentially
Lower Operating Expense in ISS Partially Offset by Increased Investmentin Perceptive Software
1Q13 YTY SEQ
Total $272 -$10 -$3
R&D $81 -$15 -$6
SG&A $190 $5 $4
ISS $169 -$26 -$9
Perceptive $39 $12 $4
All Other $63 $4 $2
* Non-GAAP, totals may not foot due to rounding, i n millions unless otherwise noted
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Operating Income Margin*
23
Sequential Increase Driven by Favorable Mix, and Improved Cost and Expense
Year to Year Decline Driven by Reduced Inkjet Exit and Laser Supplies
Revenue, Partially Offset by Restructuring Savings
1Q13 YTY SEQ
% 9.1% -190 bps +150 bps
$ $81 -$28 +$7
ISS $163 -$25 $11
Perceptive -$8 $0 -$1
All Other -$75 -$4 -$3
* Non-GAAP, totals may not foot due to rounding, i n millions unless otherwise noted
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Earnings*
24
1Q13 Guidance YTY SEQ
Net Earnings $57 -$19 +$17
EPS $0.88 High End -$0.17 +$0.27
EPS Favorably Impacted By Lower Tax Rate
1Q13Tax Rate of 19.0%, with $5 Million Discrete Tax Benefit
Ongoing Tax Rate of 26.5%
1Q12Tax Rate of 25.7%
Average Diluted Shares Outstanding
64.7 in 1Q 2013 Compared to 72.3 in 1Q 2012(Approx. 11% Reduction)
Outstanding Shares At March 31, 2013 Were 63.6
* Non-GAAP, totals may not foot due to rounding, i n millions unless otherwise noted
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Sale of Inkjet-Related Technology and Assets
25
Announced Sale of Inkjet-Related Technology and Assets to Funai for ~$100 million
Subject to Customary Closing Conditions Expected to Close in 2Q13
Upon Closing, Funai will acquire: >1,500 Inkjet Patents Inkjet-Related Research and Development Assets and Tools Manufacturing Facility of Lexmark International (Philippines) Other Inkjet-Related Technology and Assets
No Disruption of Service or Support For Lexmarks Customers and Distributors is Expected
Funai will Become a Manufacturer of Lexmarks Aftermarket Inkjet Supplies Lexmark will Continue to Support its Installed Base of Customers in the Sale of Aftermarket Inkjet Supplies
No Material Impact on the Ramp Down of Lexmarks Inkjet Exit Revenue is Expected
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Balance Sheet and Cash Flow1
Cash Conversion Days1Q13
Cash2 $880U.S. Cash $35Non-U.S. Cash $845
Cash from Operations3 $38
Free Cash Flow4 ($5)
Depreciation & Amortization5 $62
Capital Expenditures $43
Cash Provided By or (Used For)A/R $31Inventory $1A/P ($43)
1Q12 2Q12 3Q12 4Q12 1Q13
Receivables 43 47 51 49 50
Inventory 48 49 44 39 45
Payables 70 69 73 72 77CashConversion1 22 27 22 16 18
(1) GAAP, totals may not foot due to rounding, in millions unless otherwise noted(2) Includes current short-term marketable securities(3) Net cash provided by operating activities(4) Free cash flow = cash from operationscapital expenditures + proceeds from the sale of fixed assets(5) Includes $16 million for Non-GAAP adjustments, excluding these adjustments, depreciation and amortization would have been $46 million
26
Cash Cycle Improved 4 Days Year to Year Strong Liquidity Position
$880M Cash2
, $350M Revolver, $125M A/R Program Maintaining an Investment Grade Debt Rating
Long Term Debt $700
New Issuance, 5.125%, Due 2020 $400
Redeemed, 5.90%, Due 2013 ($350)
Other, 6.65%, Due 2018 $300
Long Term Debt
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Outlook / Assumptions
(1) Non-GAAP, excludes restructuring-related, acquisition-related and loss on debt extinguishment adjustments
(2) Based on foreign currency exchange rates as of 3/31/13
(3) Effective tax rate for FY13 is 26.5%, the 25% shown above includes $6 million benefit from delay of 2012 R&E credit from 4Q12 to 1Q13
27
2Q13 Outlook
Revenue(1)(2) Decline 6% to 8% YTY
Gross Profit Margin(1)(2) Increase YTY Compared to 40.5% Last Year
Operating Expense(1)(2) About Flat Sequentially Compared to $272 Million Last Quarter
Op. Inc. Margin(1)(2) Increase Slightly YTY Compared to 10.1% Last Year
GAAP EPS(2)(3) $0.42 - $0.52 (Excluding an Expected 2Q Gain From Closing of Inkjet Sale Transaction)
Compares to 2Q12 GAAP EPS of $0.55
Non-GAAP EPS(1)(2)(3) $0.80 - $0.90 (Excluding $0.38/Share for Non-GAAP Adjustments)
Compares to 2Q12 Non-GAAP EPS of $0.89 (Excluding $0.34/Share for Non-GAAP Adjustments)
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2Q13 EPS* Guidance YTY Change
2Q
* Non-GAAP, totals may not foot due to rounding
EPS Range: $0.80 - $0.90
28
+$0.06
2Q12 EPS* $0.89
ISS / Other-$0.10
Perceptive Software Flat
Segment Operational Performance
$0.85
Lower Outstanding Shares
Midpoint of 2Q13 EPS*Guidance Range
Improved Performance versus 1Q13
- Inkjet Exit+ Laser Profit
+ Laser Supplies Growth+ Lower Cost/Expense From 2012 Restructurings
Average diluted shares expected to decline2Q12 average diluted shares @ 71.5 million,64.7 million in 1Q13Tax rate increase to 26.5% in 2Q13 vs. 25% in 2Q12
Comments
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Outlook / Assumptions
Longer Term Assumptions
Revenue Grow At or Above Market
Op. Inc. Margin(1) 11% - 13%
Cash Generation
Primarily Driven by Net Income + Modest Ongoing
Working Capital / Cash Cycle Improvements
Free Cash Flow
~90% - 100% of Net Income(1)
Capital Expenditures ~ Depreciation
FY13 Assumptions
Revenue(1)(2) Decline 8% to 10% YTY
FY13 Tax Rate 25%(3)
EPS(1)(2) $3.90 - $4.10
Free Cash Flow ~80% - 90% of Net Income(1)
Capital Spending ~$185 Million
Depreciation ~$250 Million(4)
Pension Funding ~$25 Million (Cash)
(1) Non-GAAP, excludes restructuring-related and acquisition-related adjustments
(2) Based on foreign currency exchange rates as of 3/31/13
(3) Effective tax rate for FY13 is 26.5%, the 25% shown above includes $5 million discrete benefits including the benefit from the delay of 2012 R&E credit from 4Q12 to 1Q13
(4) Includes approximately $32 million of restructuring and acquisition-related adjustments
29
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Supplemental Materials
30
Lexmark Financial Summary
Segment Financial Summaries
2012 Restructuring Summary
Free Cash Flow Returned to Shareholders
Outstanding Shares / Dividends
Currency
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Lexmark Financial Summary*
Revenue $886 -11%
Gross Profit Margin 39.8% +0.4 pts
Operating Expense $272 -$10R&D $81 -$15
SG&A $190 $5
Operating Income $81 -$28ISS $163 -$25
Perceptive ($8) $0
Other ($75) -$4
Operating Income Margin 9.1% -1.9 pts
Net Earnings $57 -$19
Tax Rate 19.0% -6.7 pts
EPS $0.88 -$0.17
1Q13
31
YTY
* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted
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Segment Financial Summaries*
Revenue $840 -13%MPS $160 +10%Non-MPS $558 -12%Inkjet Exit $122 -34%
Gross Profit Margin 39.5% -0.3 pts
Operating Expense $169 -$26
Operating Income $163 -$25
Operating Income Margin 19.4% -0.1 pts
32
ISS
Revenue $46 +54%Licenses $13 +97%Subscriptions / Maintenance $22 +53%Professional Services / Other $11 +25%
Gross Profit Margin 68.8% +4.5 pts
Operating Expense $39 +$12
Operating Income -$8 $0
Perceptive Software
1Q13 YTY
1Q13 YTY
* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted
2012 R i S 1 2
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Jan 2012 Aug 2012
Pretax charges Charges Cash Flow3 Charges Cash Flow3
FY11 $8 $3 - -
FY12 $23 $14 $96 $24
1Q13 $0 $0 $9 $16
FY13 Expected $1 $1 $39 $42
Total Program $32 $18 $160 $75
(1) Restructuring-related charges for 2012 actions and related project costs only, in millions unless otherwise noted
(2) Restructuring savings include savings from 2012 actions only
(3) Cash restructuring charges are estimates based on the timing of related activities.
(4) Beginning in FY15, estimated allocation of 65% operating expense / 35% cost of goods sold
2012 Restructuring Summary1,2
33
Jan 2012 Aug 2012
Savings
FY12 $17 $1
FY13 Expected $28 $85 Ongoing $28 $95 (Cash $85)4
O t t di Sh / Di id d
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Outstanding Shares / Dividends
34
(1) Millions
Actual DilutedPeriod Ending Average
1Q13 63.6 64.7
4Q12 63.9 65.4
3Q12 64.6 68.9
2Q12 70.3 71.5
1Q12 71.1 72.3
FY12 63.9 69.5
FY11 71.4 77.9
FY10 78.6 79.5
Outstanding Share Counts1
Declaration Record PaymentDate Date Date
2/21/13 3/4/13 3/15/13
4/25/13 5/31/13 6/14/13
7/25/13 8/30/13 9/13/13
10/24/13 11/29/13 12/13/13
2/20/14 3/3/14 3/14/14
4/24/14 5/30/14 6/13/14
7/24/14 8/29/14 9/12/14
10/23/14 11/28/14 12/12/14
Anticipated Dividend Schedule2
(2) Future quarterly dividend payments subject to Board of Directors approval
F C h Fl R t d t Sh h ld *
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Free Cash Flow Returned to Shareholders*
Returned 119% of Free Cash Flowto Shareholders Since 2011
FY 2012 Inception to Date1Q111Q13
$269
$577
$251
$486
FreeCash Flow
Dividends
ShareRepurchases $190
$79
$461
$116
FreeCash Flow
35
* Millions
C
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Revenue by Geography
64%
36%
Europe: Mostly Euro (65%-70%) and BritishPound (5%-10%)
Other International: Primarily Canadian Dollar,Brazilian Real and Australian Dollar
Cost by Currency
Non-USD: Primarily Euro (20%-25%), AustralianDollar (20%-25%), Brazilian Real (10%-15%),
Canadian Dollar (10%-15%), and a number of othercurrencies representing less than 10% includingMexican Peso, Philippine Peso, and Japanese Yen.
Operating Expense by Currency
Non-USD: Euro (30%- 35%), Swiss Franc (10%-15%), and a number of other currencies eachrepresenting less than 10% including the BrazilianReal, Canadian Dollar, Australian Dollar,
Philippine Peso and British Pound
Other Factors Company generally acts to harmonize supplies prices globally to the U.S. dollar
Price increases cannot immediately impact laser supplies that are sold under contract(~60% or more at any given point in time)
Lexmark does not hedge cash flow but does hedge transaction exposures
93%
7%
45%20%
35%
36
Currency
1Q13 vs. 4Q12 0%1Q13 vs. 1Q12 -1%
1Q13 vs. Guidance -1%
2Q13 vs. 1Q13 -1%
2Q13 vs. 2Q12 0%
FY13 vs. FY12 0%
1Q13 YTY Impact*
2013 YTY Impact*
* Based on foreign currency exchange rates as of 3/31/13
USD
U.S.
USD
2012 Exposure
F t t F L d Slid
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Footnotes For Leader Slide
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technologyusers to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner'sresearch organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied,with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
IDC MarketScape: Worldwide Managed Print Services 2011 Hardcopy Vendor Analysis
Forrester Wave: Managed Print Services, Q2 2012
Quocirca Vendor Landscape: Managed Print Services, March 2012
37
Gartner, Inc., Magic Quadrant for Managed Print Services, Worldwide, Ken Weilerstein, Cecile Drew, Yulan Li, October 25, 2012.
Gartner, Inc., Magic Quadrant for MFPs and Printers, Worldwide, Sharon McNee, Federico De Silva, October 24, 2012.
GAAP t N GAAP R ili ti
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GAAP to Non-GAAP Reconciliations
38
GAAP Product and Services P&L
Geographic & Segment Comparison
P&L Compared To Last Year
Expected Non-GAAP Adjustments
GAAP to Non-GAAP
Non-GAAP Measures
GAAP P d t d S i P&L*
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GAAP Product and Services P&L*
1Q12 2Q12 3Q12 4Q12 1Q13
Revenue $992 $919 $919 $967 $884Product $915 $831 $829 $872 $787
Services $78 $87 $90 $95 $97M
Cost of Revenue: $611 $558 $591 $638 $550
Product $537 $487 $492 $549 $465Services $70 $68 $70 $78 $77
Other $4 $3 $29 $11 $7
Gross Profit: $381 $361 $328 $330 $335
* Totals may not foot due to rounding, in millions
Product - Includes all hardware, parts, supplies and license revenue and associated COGS. In addition, the amortization of developed technology is included as product COGS. Service - Includes ISSextended warranty, ISS software and MPS service revenue and associated COGS. Also included in service is Perceptive subscriptions, maintenance and support and professional serv ices and otherrevenue and associated COGS.
39
1Q S t C i 1 2
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(Dol lars in mil l ions) 2013 2012 YTY Comparison
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP GAAPNon-
GAAPImaging Solutions and Services $ 157 $ 6 $ 163 $ 178 $ 10 $ 188 (12%) (13%)Perceptive Software (23) 15 (8) (16) 8 (8) (44%) 4%
All other (80) 5 (75) (73) 2 (71) (10%) (5%)
Total Operating Income $ 54 $ 27 $ 81 $ 89 $ 20 $ 109 (40%) (26%)
(Dol lars in mil l ions) 2013 2012 YTY Comparison
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP GAAPNon-
GAAP
Imaging Solutions and Services $ 840 $ -- $ 840 $ 963 $ -- $ 963 (13%) (13%)Perceptive Software 44 2 46 30 -- 30 50% 54%
Total Revenue $ 884 $ 2 $ 886 $ 992 $ -- $ 993 (11%) (11%)
1Q Segment Comparison1,2
(1) Totals may not foot due to rounding(2) Adjustments comprised of restructuring-related amounts from 2007, 2008, 2009 and 2012 actions and related project costs, acquisition and divestiture-related adjustments
40
(Dol lars in mil l ions) 2013 2012 YTY Comparison
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP GAAPNon-
GAAP
Imaging Solutions and Services $ 325 $ 8 $ 332 $ 379 $ 4 $ 383 (14%) (13%)Perceptive Software 21 11 32 14 6 19 56% 65%
All other (11) $ -- (11) (11) -- (11) 1% 1%
Total Gross Profit Margin $ 335 $ 18 $ 353 $ 381 $ 10 $ 391 (12%) (10%)
Gross Profit
SegmentRevenue
OperatingIncome
(Dol lars in mil l ions) 2013 2012 YTY Comparison
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP GAAPNon-GAAP
Imaging Solutions and Services $ 168 $ 1 $ 169 $ 201 $ (5) $ 196 (16%) (14%)Perceptive Software 44 (5) 39 30 (2) 27 49% 45%
All other 68 (5) 63 61 (2) 59 11% 6%
Total Operating Expense $ 281 $ (9) $ 272 $ 292 $ (10) $ 282 (4%) (4%)
OperatingExpense
(Dol lars in mil l ions) 2013 2012 YTY Comparison
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP GAAPNon-
GAAPUnited States $ 375 $ 2 $ 377 $ 423 $ -- $ 423 (11%) (11%)
EMEA 335 -- 335 368 -- 368 (9%) (9%)Other International 174 -- 174 201 -- 201 (14%) (14%)
Total Revenue
$ 884 $ 2 $ 886 $ 992 $ -- $ 993 (11%) (11%)
GeographicRevenue
1Q P&L Compared to Last Year
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1Q P&L Compared to Last Year
Gross Gross
Revenue Profit Op Ex Op Inc Non-Op EPS Revenue Profit Op Ex Op Inc Non-Op EPS
GAAP $884 $335 $281 $54 $14 $0.54 $992 $381 $292 $89 $7 $0.84
37.8% 31.7% 6.1% 38.4% 29.4% 9.0%
Deferred revenue $2 $2 -- $2 -- $0 $0 $0 -- --
Amortization ofpurchased intangibles -- $9 ($4) $13 -- -- $5 ($2) $8 --
Acquisition costs -- -- ($3) $3 -- -- -- ($2) $2 --
Acquisition $2 $11 ($7) $18 -- $0.20 $0 $6 ($4) $10 -- $0.10Related(1)
Restructuring-Related(2) -- $7 ($2) $9 -- $0.10 -- $4 ($6) $10 -- $0.11
Loss on DebtExtinguishment(3) -- -- -- -- ($3) $0.04 -- -- -- -- -- --
Non-GAAP(4) $886 $353 $272 $81 $10 $0.88 $993 $391 $282 $109 $7 $1.0539.8% 30.7% 9.1% 39.4% 28.4% 11.0%
1Q13
(1) Acquisition-related amounts include amortization of purchased intangibles, adjustments to deferred revenue and acquisition and integration costs
(2) Restructuring-related amounts include 2007, 2008 , 2009 and 2012 actions and related project costs
(3) Loss on debt extinguishment charges consist of premium, redemption fees, discount amortization and deferred financing costs
(4) 1Q13 GAAP effective tax rate of 13.4%, 1Q13 Non GAAP effective tax rate of 19.0%, 1Q12 GAAP effective tax rate of 25.9%, 1Q12 Non GAAP effective tax rate of 25.7%
(5) Totals may not foot due to rounding
1Q12
41
$ Million, Except EPS
Expected Non GAAP Adjustments
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Expected Non-GAAP Adjustments
Gross GrossRevenue Profit Op Ex Op Inc Non-Op EPS Revenue Profit Op Ex Op Inc Non-Op EPS
Deferred revenue $3 $3 -- $3 -- $12 $12 -- $12 --
Amortization ofpurchased intangibles $9 ($5) $13 -- $35 ($18) $53 --
Acquisition costs -- ($3) $3 -- -- $0 ($9) $9 --
AcquisitionRelated(1) $3 $12 ($7) $20 -- $0.24 $12 $47 ($27) $74 -- $0.87
Restructuring-Related(2) -- $6 ($7) $13 -- $0.14 -- $20 ($19) $39 -- $0.45
Loss on DebtExtinguishment(3) -- -- -- -- -- -- -- -- -- -- ($3) $0.04
Total Non-GAAP(4)Adjustments $3 $18 ($14) $32 -- $0.38 $12 $67 ($46) $113 ($3) $1.37
2Q13
(1) Acquisition-related amounts include amortization of purchased intangibles, adjustments to deferred revenue, and acquisition and integration costs
(2) Restructuring-related amounts include 2009 and 2012 actions and related project costs
(3) Loss on debt extinguishment charges consist of premium, redemption fees, discount amortization and deferred financing costs
(4) Totals may not foot due to rounding
FY 2013
42
$ Million, Except EPS
GAAP to Non GAAP
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GAAP to Non-GAAP
*Totals may not foot due to rounding
43
Non GAAP Measures
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Management believes that presenting non-GAAP measures is useful because they enhance investorsunderstanding of how management assesses the performance of theCompanysbusinesses. Management uses non-GAAP measures for budgeting purposes, measuring actual results to budgeted projections, allocating resources, and in certaincircumstances for employee incentive compensation. Adjustments to GAAP results in determining non-GAAP results fall into two broad general categories that are describedbelow:
Restructuring- related chargesIn recent years, the Company has initiated restructuring plans which have resulted in operating expenses which otherwise would not have been incurred. The size of theseitems can vary significantly from period to period and the Company does not consider these items to be part of core operating expenses of the business. Restructuring and
related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of accelerated depreciation, asset impairments, employee termination benefits,pension and postretirement plan curtailments, inventory-related charges and contract termination and lease charges. They also include project costs that relate to theexecution of the restructuring plans. These project costs are incremental to normal operating charges and are expensed as incurred, such as compensation costs for overlapstaffing, travel expenses, consulting costs and training costs.
Acquisition and Divestiture - related adjustmentsIn connection with acquisitions, management provides supplementary non-GAAP financial measures of revenue and expenses to normalize for the impact of businesscombination accounting rules as well as to exclude certain expenses which would not have been incurred otherwise.
A. Adjustments to RevenueDue to business combination accounting rules, deferred revenue balances for service contracts assumed as part of acquisitions are adjusted down to fairvalue. Fair value approximates the cost of fulfilling the service obligation, plus a reasonable profit margin. Subsequent to acquisitions, management addsback the amount of amortized revenue that would have been recognized had the acquired company remained independent and had the deferred
revenue balances not been adjusted to fair value. Management reviews non-GAAP revenue to allow for more complete comparisons to historicalperformance as well as to forward-looking projections and also uses it as a metric for employee incentive compensation.
B. Amortization of intangible assetsDue to business combination accounting rules, intangible assets are recognized which were not previously presented on the balance sheet of the acquiredcompany. These intangible assets consist primarily of purchased technology, customer relationships, trade names, in-process R&D and non-competeagreements. Subsequent to the acquisition date, some of these intangible assets begin amortizing and represent an expense that would not have beenrecorded had the acquired company remained independent. The total amortization of the acquired intangible assets varies from period to period, due to themix in value and useful lives of the different assets. For the purpose of comparing financial results to historical performance as well as for defining targetsfor employee incentive compensation, management excludes the amortization of the acquired intangible assets on a non-GAAP basis.
C. Acquisition and integration costsIn connection with its acquisitions, the Company incurs expenses that would not have been incurred otherwise. The acquisition costs include items such asinvestment 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 software and systems to be implement in acquired companies, consulting costs and travelexpenses as well as non-cash charges related to the abandonment of assets under construction by the Company that are determined to be duplicative ofassets of the acquired company. The costs are expensed as incurred and can vary substantially in size from one period to the next. For these reasons,management excludes these expenses from non-GAAP earnings in order to evaluate the Companysperformance on a continuing and comparable basis.
Non-GAAP Measures
44
Non GAAP Measures Continued
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Loss on Early Extinguishment of DebtThe Company has extinguished debt prior to its scheduled maturity which has resulted in non-operating expenses which otherwise would not have been incurred. The size ofthese items can vary significantly depending on timing of the debt maturity versus execution of the redemption and the Company does not consider these items to be part oftypical non-operating expenses of the business. Debt extinguishment related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist ofpremium and redemption fees paid, as well as the write-off of unamortized debt issuance costs and original issue discount.
In addition to GAAP results, management presents these non-GAAP financial measures to provide investors with additional information that they can utilize in their own
methods of evaluating the Companysperformance. Management compensates for the material limitations associated with the use of non-GAAP financial measures by havingspecific initiatives associated with restructuring actions and acquisitions approved by management, along with their budgeted costs. Subsequently, actual costs incurred as apart of these approved restructuring plans and acquisitions are monitored and compared to budgeted costs to assure that the Companysnon-GAAP financial measures onlyexclude pre-approved restructuring-related costs and acquisition-related adjustments. Any non-GAAP measures provided by the Company may not be comparable to similarmeasures of other companies as not all companies calculate these measures in the same manner.
Non-GAAP Measures, Continued
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