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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2002
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.1-14050
LEXMARK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1308215
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
(Address of principal executive (Zip Code)
(859) 232-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The registrant had 129,742,599 shares outstanding (excluding shares held in
treasury) of Class A common stock, par value $0.01 per share, as of the close of
business on April 25, 2002.
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LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page of
Form 10-Q
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001.........................2
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001.........................3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001........................4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited).... 5-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Unaudited)...................8-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........13
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................15
1
Part I - Financial Information
Item 1. Financial Statements
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31
--------------------------------
2002 2001
---- ----
Revenue $1,050.1 $988.0
Cost of revenue 740.5 665.5
-------- ------
Gross profit 309.6 322.5
-------- ------
Research and development 61.2 62.2
Selling, general and administrative 143.8 142.6
-------- ------
Operating expense 205.0 204.8
-------- ------
Operating income 104.6 117.7
Interest expense 3.1 2.8
Other 4.2 4.2
-------- ------
Earnings before income taxes 97.3 110.7
Provision for income taxes 25.8 31.0
-------- ------
Net earnings $ 71.5 $ 79.7
======== ======
Net earnings per share:
Basic $ 0.55 $ 0.62
======== ======
Diluted $ 0.53 $ 0.60
======== ======
Shares used in per share calculation:
Basic 130.6 128.0
======== ======
Diluted 134.0 132.7
======== ======
See notes to consolidated condensed financial statements.
2
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions, Except Par Value)
(Unaudited)
March 31 December 31
2002 2001
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 115.0 $ 90.7
Trade receivables, net of allowance of $41.9 in 2002 and $33.3 in 2001 680.4 702.8
Inventories 457.9 455.1
Prepaid expenses and other current assets 243.5 244.5
-------- --------
Total current assets 1,496.8 1,493.1
Property, plant and equipment, net 785.7 800.4
Other assets 155.6 156.4
-------- --------
Total assets $2,438.1 $2,449.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 11.8 $ 11.0
Accounts payable 374.7 384.7
Accrued liabilities 541.5 535.4
-------- --------
Total current liabilities 928.0 931.1
Long-term debt 149.1 149.1
Other liabilities 274.0 293.8
-------- --------
Total liabilities 1,351.1 1,374.0
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1.6 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value:
Class A, 900.0 shares authorized; 129.6 and
130.4 outstanding in 2002 and 2001, respectively 1.6 1.6
Class B, 10.0 shares authorized; no shares issued and
outstanding - -
Capital in excess of par 820.6 806.2
Retained earnings 1,360.6 1,289.1
Treasury stock, at cost; 29.9 and 28.5 shares in 2002
and 2001, respectively (956.4) (879.8)
Accumulated other comprehensive loss (139.4) (141.2)
-------- --------
Total stockholders' equity 1,087.0 1,075.9
-------- --------
Total liabilities and stockholders' equity $2,438.1 $2,449.9
======== ========
See notes to consolidated condensed financial statements.
3
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Three Months Ended
March 31
----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net earnings $ 71.5 $ 79.7
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 32.9 27.3
Deferred taxes 2.0 -
Other 7.5 (0.7)
------ ------
113.9 106.3
Change in assets and liabilities:
Trade receivables 37.4 42.3
Trade receivables program (15.0) (49.0)
Inventories (2.8) (75.8)
Accounts payable (10.0) (2.3)
Accrued liabilities 6.1 (69.5)
Tax benefits from employee stock plans 5.9 7.1
Other assets and liabilities (20.8) 17.8
------ ------
Net cash provided by (used for) operating activities 114.7 (23.1)
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (21.5) (60.2)
Other - 0.2
------ ------
Net cash used for investing activities (21.5) (60.0)
------ ------
Cash flows from financing activities:
Increase in short-term debt 0.8 75.0
Issuance of treasury stock 0.4 0.5
Purchase of treasury stock (77.0) -
Proceeds from employee stock plans 7.5 5.7
------ ------
Net cash (used for) provided by financing activities (68.3) 81.2
------ ------
Effect of exchange rate changes on cash (0.6) (2.1)
------ ------
Net increase (decrease) in cash and cash equivalents 24.3 (4.0)
Cash and cash equivalents - beginning of period 90.7 68.5
------ ------
Cash and cash equivalents - end of period $115.0 $ 64.5
====== ======
See notes to consolidated condensed financial statements.
4
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited; however, in
the opinion of management of Lexmark International, Inc. (together with
its subsidiaries, the "company"), all adjustments (which comprise only
normal and recurring accruals) necessary for a fair presentation of the
interim financial results have been included. The results for the interim
periods are not necessarily indicative of results to be expected for the
entire year. These financial statements and notes should be read in
conjunction with the company's audited annual consolidated financial
statements for the year ended December 31, 2001.
In 2001, the Emerging Issues Task Force ("EITF") reached a consensus that
consideration from a vendor to a purchaser of the vendor's products
should be characterized as a reduction in revenue as stated in EITF
00-25, Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products, and
clarified in EITF 01-9. This EITF consensus was effective for annual or
interim financial statements beginning after December 15, 2001, with
reclassification required for comparative prior periods. The company
adopted this EITF as required in 2002 and the adoption of this statement
had no impact on the company's net earnings, financial position or cash
flows, but did result in a reclassification of certain prior year
reported amounts to conform to the current year's presentation. Revenue
and selling, general and administrative expense for the first quarter of
2001 were both reduced by approximately $11 million as a result of this
reclassification.
2. RESTRUCTURING AND RELATED CHARGES
During the fourth quarter of 2001, Lexmark's management and board of
directors approved a restructuring plan that included an elimination of
up to 1,600 jobs. This plan provided for a reduction in infrastructure
and overhead expenses, the elimination of the company's business class
inkjet printer, and the closure of an electronic card manufacturing
facility in Reynosa, Mexico. Restructuring and related charges of $58.4
million were expensed during the fourth quarter of 2001. These charges
were comprised of $36.0 million of accrued restructuring costs related
to separation and other exit costs, $11.4 million associated with a
pension curtailment related to the employee separations and $11.0
million related to asset impairment charges.
The following table presents a rollforward of the liabilities (in
millions) incurred in connection with the restructuring activities. These
liabilities are reflected as accrued liabilities in the company's
consolidated statements of financial position.
- --------------------------------------------------------------------------
Restructuring Employee Other Exit
Liabilities Separations Costs Total
- --------------------------------------------------------------------------
December 31, 2001 $24.8 $9.5 $34.3
Additions - - -
Payments (5.1) (1.0) (6.1)
- --------------------------------------------------------------------------
March 31, 2002 $19.7 $8.5 $28.2
- --------------------------------------------------------------------------
The accrued restructuring costs for employee separations were associated
with approximately 1,600 employees worldwide from various business
functions and job classes. Employee separation benefits included
severance, medical and other benefits. As of March 31, 2002,
approximately 600
5
employees have exited the business under the restructuring plan. The
other exit costs were primarily related to vendor and lease cancellation
charges.
Restructuring activities are expected to be substantially completed
during the year 2002. There have been no material changes to the plan
since its announcement.
3. INVENTORIES
(Dollars in millions)
Inventories consist of the following:
March 31 December 31
2002 2001
------------------- -------------------
Work in process $149.0 $146.9
Finished goods 308.9 308.2
------ ------
$457.9 $455.1
====== ======
4. STOCKHOLDERS' EQUITY
As of March 31, 2002, the company's board of directors had authorized a
total repurchase of $1.2 billion of its Class A common stock. This
repurchase authority allows the company, at management's discretion, to
selectively repurchase its stock from time to time in the open market or
in privately negotiated transactions depending upon market price and
other factors. During the first quarter of 2002, the company repurchased
approximately 1.5 million shares in the open market at prices ranging
from $50.00 per share to $54.95 per share for a cost of approximately
$77 million. As of March 31, 2002, the company had repurchased
approximately 30.1 million shares at prices ranging from $10.63 per
share to $105.38 per share for an aggregate cost of approximately $959
million, leaving approximately $241 million of share repurchase
authority.
5. OTHER COMPREHENSIVE EARNINGS (LOSS)
(Dollars in millions)
Comprehensive earnings, net of taxes, consists of the following:
Three Months Ended
March 31
----------------------
2002 2001
---- ----
Net earnings $71.5 $79.7
Other comprehensive earnings (loss):
Foreign currency translation adjustment (1.2) (8.6)
Cash flow hedging, net of reclassifications 3.0 11.6
----- -----
Comprehensive earnings $73.3 $82.7
===== =====
6
Accumulated other comprehensive earnings (loss) consists of the following:
Accumulated
Minimum Other
Translation Cash Flow Pension Comprehensive
Adjustment Hedges Liability Earnings (Loss)
---------- ------ --------- --------------
Balance, December 31, 2001 $(64.3) $(14.9) $(62.0) $(141.2)
First quarter 2002 change (1.2) 3.0 - 1.8
------ ------ ------ -------
Balance, March 31, 2002 $(65.5) $(11.9) $(62.0) $(139.4)
====== ====== ====== =======
6. EARNINGS PER SHARE (EPS)
(In millions, except per share amounts)
The following is a reconciliation of the weighted average shares used
in the basic and diluted EPS calculations:
Three Months Ended
March 31
----------------------------
2002 2001
---- ----
Net earnings $ 71.5 $ 79.7
====== ======
Weighted average shares used
for basic EPS 130.6 128.0
Effect of dilutive securities
Stock options 3.4 4.7
------ ------
Weighted average shares used
for diluted EPS 134.0 132.7
====== ======
Basic net EPS $ 0.55 $ 0.62
Diluted net EPS $ 0.53 $ 0.60
Options to purchase an additional 2.3 million and 3.9 million shares of
Class A common stock for the three month periods ended March 31, 2002 and
2001, respectively, were outstanding but were not included in the
computation of diluted earnings per share because their effect would be
antidilutive.
7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
(Unaudited)
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
Basis of Presentation
In 2001, the Emerging Issues Task Force ("EITF") reached a consensus that
consideration from a vendor to a purchaser of the vendor's products should be
characterized as a reduction in revenue as stated in EITF 00-25, Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products, and clarified in EITF 01-9. This EITF
consensus was effective for annual or interim financial statements beginning
after December 15, 2001, with reclassification required for comparative prior
periods. The company adopted this EITF as required in 2002 and the adoption of
this statement had no impact on the company's net earnings, financial position
or cash flows, but did result in a reclassification of certain prior year
reported amounts to conform to the current year's presentation. Revenue and
selling, general and administrative expense for the first quarter of 2001 were
both reduced by approximately $11 million as a result of this reclassification.
Results of Operations
Consolidated revenue for the three months ended March 31, 2002 was $1,050
million, an increase of 6% over the same period of 2001. Revenue was adversely
affected by foreign currency exchange rates due to weakening of European
currencies against the U.S. dollar. Revenue growth was 8% for the quarter on a
constant currency basis. Total U.S. revenue increased $93 million or 22% and
international revenue, including exports from the U.S., decreased $31 million or
6%. Revenue from sales to all original equipment manufacturers ("OEM") customers
accounted for less than 10% of consolidated revenue in the first quarter of 2002
with no single OEM customer accounting for more than 5% of total revenue.
The revenue growth was driven by increased sales of laser and inkjet supplies
whose revenue increased 16% over 2001. Laser and inkjet supplies revenue was
$546 million for the first quarter of 2002, versus $471 million for the same
period in 2001, and represents 52% of total revenue versus 48% in 2001. Laser
and inkjet printer revenue was $401 million for the first quarter of 2002, a 5%
increase from 2001.
Consolidated gross profit was $310 million for the first three months of 2002, a
decrease of 4% from the same period of 2001. Gross profit as a percentage of
revenue for the quarter ended March 31, 2002 decreased to 29.5% from 32.6% in
the first quarter of 2001, principally due to lower laser and inkjet printer
margins, partially offset by an increase of supplies in the product mix.
Total operating expense was $205 million and remained flat for the quarter ended
March 31, 2002 compared to the same period of 2001. Operating expense as a
percentage of revenue decreased to 19.5% compared to 20.7% in 2001, primarily
due to the company's continuing focus on expense management.
Consolidated operating income was $105 million for the first quarter of 2002 and
decreased 11% from 2001, primarily due to the lower gross profit margin.
Net earnings for the first quarter of 2002 were $72 million, down 10% compared
to the first quarter of 2001. The decline in the gross profit margin in 2002 was
slightly offset by a reduction in the effective income tax rate. The effective
income tax rate was 26.5% in 2002 as compared to 28.0% in 2001. The decrease in
the effective income tax rate was primarily due to lower income tax rates on
manufacturing activities in certain countries.
Basic net earnings per share were $0.55 for the first quarter of 2002 compared
to $0.62 in the corresponding period of 2001. Diluted net earnings per share
were $0.53 in the first quarter of 2002, compared to $0.60 in
8
2001, a decrease of 11%. This decrease was primarily due to the decline in
net earnings.
Financial Condition
The company's financial position remains strong at March 31, 2002, with working
capital of $569 million compared to $562 million at December 31, 2001. At March
31, 2002, the company had outstanding $12 million of short-term debt and $149
million of long-term debt. The debt to total capital ratio was 13% at both March
31, 2002 and December 31, 2001.
Cash provided by operating activities for the three months ended March 31, 2002
was $115 million compared to $23 million cash used for operating activities in
the first quarter of 2001. The increase in cash flows from operating activities
was primarily due to favorable changes in working capital accounts, particularly
inventories and accrued liabilities.
Capital expenditures for the first three months of 2002 were $22 million
compared to $60 million for the same period of 2002. The 2002 capital
expenditures were principally in support of new product development,
infrastructure support and the completion of capacity expansion projects
initiated in prior years. It is anticipated that capital expenditures for 2002
will be approximately $150 million. The 2002 capital expenditures are expected
to be funded primarily through cash from operations.
As of March 31, 2002, the company's board of directors had authorized a
total repurchase of $1.2 billion of its Class A common stock. This repurchase
authority allows the company, at management's discretion, to selectively
repurchase its stock from time to time in the open market or in privately
negotiated transactions depending upon market price and other factors. During
the first quarter of 2002, the company repurchased approximately 1.5 million
shares in the open market at prices ranging from $50.00 per share to $54.95 per
share for a cost of approximately $77 million. As of March 31, 2002, the company
had repurchased approximately 30.1 million shares at prices ranging from $10.63
per share to $105.38 per share for an aggregate cost of approximately $959
million, leaving approximately $241 million of share repurchase authority.
Restructuring and related charges
During the fourth quarter of 2001, Lexmark's management and board of directors
approved a restructuring plan that included an elimination of up to 1,600 jobs.
This plan provided for a reduction in infrastructure and overhead expenses, the
elimination of the company's business class inkjet printer, and the closure of
an electronic card manufacturing facility in Reynosa, Mexico. Restructuring and
related charges of $58.4 million were expensed during the fourth quarter of
2001. These charges were comprised of $36.0 million of accrued restructuring
costs related to separation and other exit costs, $11.4 million associated with
a pension curtailment loss related to the employee separations and $11.0 million
related to asset impairment charges.
The following table presents a rollforward of the liabilities (in millions)
incurred in connection with the restructuring activities. These liabilities are
reflected as accrued liabilities in the company's consolidated statements of
financial position.
- ----------------------------------------------------------------------
Restructuring Employee Other Exit
- ----------------------------------------------------------------------
Liabilities Separations Costs Total
December 31, 2001 $24.8 $9.5 $34.3
Additions - - -
Payments (5.1) (1.0) (6.1)
- ----------------------------------------------------------------------
March 31, 2002 $19.7 $8.5 $28.2
- ----------------------------------------------------------------------
9
The accrued restructuring costs for employee separations were associated with
approximately 1,600 employees worldwide from various business functions and job
classes. Employee separation benefits included severance, medical and other
benefits. As of March 31, 2002, approximately 600 employees have exited the
business under the restructuring plan. The other exit costs were primarily
related to vendor and lease cancellation charges.
Restructuring activities are expected to be substantially completed during the
year 2002. Annual savings from the 2001 restructuring should approximate $55
million, with about $40 million being achieved in 2002. These savings will be
used to offset competitive pricing impacts and for new investments.
Factors That May Affect Future Results and Information Concerning Forward -
Looking Statements
Statements contained in this report which are not statements of historical fact
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
company. There can be no assurance that future developments affecting the
company will be those anticipated by management, and there are a number of
factors that could adversely affect the company's future operating results or
cause the company's actual results to differ materially from the estimates or
expectations reflected in such forward-looking statements, including without
limitation, the factors set forth below:
o Unfavorable global economic conditions may adversely impact the company's
future operating results. Since the second quarter of 2001, the company has
experienced weak markets for its products. Continued softness in these markets
and uncertainty about the timing and extent of the global economic downturn by
both corporate and consumer purchasers of the company's products could result in
lower demand for the company's products. Weakness in demand may result in
excessive inventory for the company and/or its reseller channel which may
adversely affect sales, pricing and/or other elements of the company's operating
results.
o The company's future operating results may be adversely affected if it is
unable to continue to develop, manufacture and market products that meet
customers' needs. The markets for laser and inkjet printers and associated
supplies are increasingly competitive, especially with respect to pricing and
the introduction of new technologies and products offering improved features and
functionality. The company's inability to effectively deal with these
competitive issues could have a material adverse affect on the company's
financial results.
o Competition from supplies remanufacturers and refillers, as well as various
legislative initiatives supported by such competitors, may have an adverse
impact on the company's supplies business which would likely have an adverse
impact on the company's profitability. Price reductions on inkjet and laser
supplies products are likely to result in lower profitability and could result
in a material adverse impact on the company's strategy and financial results.
o The company and its major competitors, many of which have significantly
greater financial, marketing and/or technological resources than the company,
have regularly lowered prices on their printers and are expected to continue to
do so. In particular, both the inkjet and laser printer markets have experienced
and are expected to continue to experience significant price pressure. Price
reductions on inkjet or laser printers or the inability to reduce costs, contain
expenses or increase sales as currently expected, as well as price protection
measures, could result in lower profitability and jeopardize the company's
ability to grow or maintain its market share.
o The company believes that one of its competitive advantages is its exclusive
focus on printing solutions. The entrance of a competitor that is also
exclusively focused on printing solutions could offset this advantage
10
and could have a material adverse impact on the company's strategy and financial
results.
o The company's performance depends in part upon its ability to successfully
forecast the timing and extent of customer demand and manage worldwide
distribution and inventory levels to support the demand of its customers, and to
address production and supply constraints, particularly delays in the supply of
key components necessary for production, which may result in the company
incurring additional costs to meet customer demand. The company's future
operating results and its ability to effectively grow or maintain its market
share may be adversely affected if it is unable to address these issues on a
timely basis. In addition, the complexity of the company's business requires
ongoing implementation of software and other systems improvements necessary to
support the business, and the failure of any such implementation could have a
material adverse affect on the company's financial results.
o Delays in 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, the reaction of competitors to any such new
products or programs, the life cycles of the company's products, as well as
delays in product development and manufacturing, and variations in the cost of
component parts, may cause a buildup in the company's inventories, make the
transition from current products to new products difficult and could adversely
affect the company's future operating results. The competitive pressure to
develop technology and products also could cause significant changes in the
level of the company's operating expenses.
o Revenue derived from international sales make up approximately half of the
company's revenue. Accordingly, the company's future results could be adversely
affected by a variety of factors, including changes in a specific country's or
region's political or economic conditions, foreign currency exchange rate
fluctuations, trade protection measures and unexpected changes in regulatory
requirements. Moreover, margins on international sales tend to be lower than
those on domestic sales, and the company believes that international operations
in new geographic markets will be less profitable than operations in the U.S.
and European markets, in part, because of the higher investment levels for
marketing, selling and distribution required to enter these markets.
o The company relies heavily on its international production facilities and
international manufacturing partners for the manufacture of its products and key
components of its products. Future operating results may be adversely affected
by several factors, including, without limitation, if the company's
international operations or manufacturing partners are unable to supply products
reliably, if there are disruptions in international trade, if there are
difficulties in transitioning such manufacturing activities from the company to
its international operations or manufacturing partners, or if there arise
production and supply constraints which result in additional costs to the
company. In addition, the financial failure or loss of a key supplier could
result in a material adverse impact on the company's financial results.
o The company markets and sells its products through several sales channels to
customers and resellers. The company's future results may be adversely affected
by any conflicts that might arise between or among its various sales channels.
The company has advanced a strategy of forming alliances and OEM arrangements
with many companies. One such OEM customer is Compaq Computer Corporation
("Compaq"), which represented less than three percent of the company's revenue
in 2001, and the consummation of the HP/Compaq merger is likely to result in the
loss of Compaq as a customer. In addition, the financial failure or loss of a
key customer or reseller could have an material adverse impact on the company's
financial results.
o Terrorist attacks, such as those that took place in the United States on
September 11, 2001, and the potential for future terrorist attacks have created
many political and economic uncertainties, some of which may affect the
company's future operating results. Future terrorist attacks, the national and
international responses to such attacks, and other acts of war or hostility may
affect the company's facilities, employees, suppliers, customers, transportation
networks and supply chains, or may affect the company in ways that are not
capable of being predicted presently.
11
o The company's success depends in part on its ability to obtain patents,
copyrights and trademarks, maintain trade secret protection and operate without
infringing the proprietary rights of others. Current or future claims of
intellectual property infringement could prevent the company from obtaining
technology of others and could otherwise adversely affect its operating results
or business, as could expenses incurred by the company in obtaining intellectual
property rights, enforcing its intellectual property rights against others or
defending against claims that the company's products infringe the intellectual
property rights of others.
o Factors unrelated to the company's operating performance, including the loss
of significant customers, manufacturing partners or suppliers; the outcome of
pending and future litigation or governmental proceedings; and the ability to
retain and attract key personnel, could also adversely affect the company's
operating results. In addition, the company's stock price, like that of other
technology companies, can be volatile. Trading activity in the company's common
stock, particularly the trading of large blocks and intraday trading in the
company's common stock, may affect the company's common stock price.
While the company reassesses material trends and uncertainties affecting the
company's financial condition and results of operations in connection with the
preparation of its quarterly and annual reports, the company does not intend to
review or revise, in light of future events, any particular forward-looking
statement contained in 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 acting on its behalf. The
important factors that could affect forward-looking statements are subject to
change, and the company does not intend to update the foregoing list of certain
important factors. By means of this cautionary note, the company intends to
avail itself of the safe harbor from liability with respect to forward-looking
statements that is provided by Section 27A and Section 21E referred to above.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in the company's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates and
foreign currency exchange rates.
Interest Rates
At March 31, 2002, the fair value of the company's senior notes is estimated at
$144 million using quoted market prices and yields obtained through independent
pricing sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt. The carrying value of the
senior notes as recorded in the statements of financial position exceeded the
fair value at March 31, 2002 by approximately $5 million. Market risk is
estimated as the potential change in fair value resulting from a hypothetical
10% adverse change in interest rates and amounts to approximately $5 million at
March 31, 2002.
Foreign Currency Exchange Rates
The company employs a foreign currency hedging strategy to limit potential
losses in earnings or cash flows from adverse foreign currency exchange rate
movements. Foreign currency exposures arise from transactions denominated in a
currency other than the company's functional currency and from foreign
denominated revenue and profit translated into U.S. dollars. The primary
currencies to which the company is exposed include the euro and other European
currencies, the Japanese yen and other Asian and South American currencies.
Exposures are hedged with foreign currency forward contracts, put options, and
call options with maturity dates of less than eighteen months. The potential
loss in fair value at March 31, 2002 for such contracts resulting from a
hypothetical 10% adverse change in all foreign currency exchange rates is
approximately $30 million. This loss would be mitigated by corresponding gains
on the underlying exposures.
13
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The company's Annual Meeting of Stockholders was held on
April 30, 2002.
(b) At said Annual Meeting, the stockholders voted on the following
proposal:
(i) The election of four Directors for terms expiring in
2005. The stockholders elected the Directors by the following
votes:
Director Votes For Votes Withheld
B.Charles Ames 111,002,235 757,802
Ralph E. Gomory 99,941,720 11,818,317
Marvin L. Mann 110,323,084 1,436,953
Teresa Beck 110,495,484 1,264,553
The terms of office of Paul J. Curlander, Frank T. Cary,
William R. Fields, Stephen R. Hardis, James F. Hardymon,
Robert Holland, Jr., Michael J. Maples and Martin D. Walker
continued after the meeting.
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on
page 17 of this report.
(b) Reports on Form 8-K
None
15
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, both on behalf of the registrant and in
his capacity as principal accounting officer of the registrant.
LEXMARK INTERNATIONAL, INC.
(Registrant)
Date: May 3, 2002 By: /s/ Gary D. Stromquist
---------------------------
Gary D. Stromquist
Vice President and Corporate Controller
(Chief Accounting Officer)
16
EXHIBIT INDEX
Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges.
17