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 September 30, 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 offices) (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 125,927,849 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 November 7, 2002.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001...........2
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)
AS OF SEPTEMBER 30, 2002, AND DECEMBER 31, 2001..........................3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001............................4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)................5-9
..
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Unaudited)................................10-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................18
ITEM 4. CONTROLS AND PROCEDURES..........................................................18
Part II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................19
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 Nine Months Ended
September 30 September 30
------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue $1,041.0 $995.7 $3,149.1 $2,964.4
Cost of revenue 702.7 693.7 2,162.3 2,004.1
-------- ------ -------- --------
Gross profit 338.3 302.0 986.8 960.3
-------- ------ -------- --------
Research and development 57.9 58.0 182.6 184.4
Selling, general and administrative 156.7 143.1 453.2 435.2
-------- ------ -------- --------
Operating expense 214.6 201.1 635.8 619.6
-------- ------ -------- --------
Operating income 123.7 100.9 351.0 340.7
Interest expense 2.5 3.6 7.9 10.1
Other (income) expense (0.2) 2.0 4.7 8.4
-------- ------ -------- --------
Earnings before income taxes 121.4 95.3 338.4 322.2
Provision for income taxes 31.6 25.3 88.0 85.4
-------- ------ -------- --------
Net earnings $ 89.8 $ 70.0 $ 250.4 $ 236.8
======== ====== ======== ========
Net earnings per share:
Basic $ 0.71 $ 0.54 $ 1.94 $ 1.83
======== ====== ======== ========
Diluted $ 0.70 $ 0.52 $ 1.89 $ 1.77
======== ====== ======== ========
Shares used in per share calculation:
Basic 126.8 130.2 129.1 129.1
======== ====== ======== ========
Diluted 129.2 133.9 132.2 133.6
======== ====== ======== ========
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)
September 30 December 31
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 248.4 $ 90.7
Trade receivables, net of allowances of $37.1 in 2002 and $33.3 in 2001 605.3 702.8
Inventories 511.1 455.1
Prepaid expenses and other current assets 263.4 244.5
--------- --------
Total current assets 1,628.2 1,493.1
Property, plant and equipment, net 737.9 800.4
Other assets 197.8 156.4
--------- --------
Total assets $ 2,563.9 $2,449.9
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 14.0 $ 11.0
Accounts payable 424.3 384.7
Accrued liabilities 662.3 535.4
--------- --------
Total current liabilities 1,100.6 931.1
Long-term debt 149.2 149.1
Other liabilities 273.7 293.8
--------- --------
Total liabilities 1,523.5 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; 125.7 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 844.3 806.2
Retained earnings 1,539.5 1,289.1
Treasury stock, at cost; 34.5 and 28.5 shares in 2002
and 2001, respectively (1,209.8) (879.8)
Accumulated other comprehensive loss (135.2) (141.2)
--------- --------
Total stockholders' equity 1,040.4 1,075.9
--------- --------
Total liabilities and stockholders' equity $ 2,563.9 $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)
Nine Months Ended
September 30
-----------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net earnings $ 250.4 $ 236.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 103.5 84.9
Deferred taxes 1.3 (3.9)
Other 37.9 7.3
------- -------
393.1 325.1
Change in assets and liabilities:
Trade receivables 152.5 (37.2)
Trade receivables program (55.0) (50.0)
Inventories (56.0) (165.6)
Accounts payable 39.6 (53.8)
Accrued liabilities 126.9 (61.1)
Tax benefits from employee stock plans 17.9 42.1
Other assets and liabilities (86.9) (2.2)
------- -------
Net cash provided by (used for) operating activities 532.1 (2.7)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (71.2) (169.6)
Other (2.1) (0.3)
------- -------
Net cash used for investing activities (73.3) (169.9)
------- -------
Cash flows from financing activities:
Increase in short-term debt 8.3 139.3
Issuance of treasury stock 0.6 1.2
Purchase of treasury stock (330.7) -
Proceeds from employee stock plans 17.4 24.1
------- -------
Net cash (used for) provided by financing activities (304.4) 164.6
------- -------
Effect of exchange rate changes on cash 3.3 (0.4)
------- -------
Net increase (decrease) in cash and cash equivalents 157.7 (8.4)
Cash and cash equivalents - beginning of period 90.7 68.5
------- -------
Cash and cash equivalents - end of period $ 248.4 $ 60.1
======= =======
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. Both revenue and selling, general and
administrative expense for the three months and the nine months ended
September 30, 2001 were reduced by approximately $8 million and $26
million, respectively, 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 employee separations were worldwide from various business functions and
job classes and separation benefits included severance, medical and other
benefits. As of September 30, 2002, approximately 1,200 employees have
exited the business under the restructuring plan. This total includes the
employees discussed below who were transferred to another company. The
other exit costs were primarily related to vendor and lease cancellation
charges.
The following table presents a rollforward of the liabilities (in millions)
incurred in connection with the restructuring activities in 2000 and 2001.
These liabilities are reflected as accrued liabilities in the company's
consolidated statements of financial position.
5
- -------------------------------------------------------------------------------
Restructuring Employee Other Exit
Liabilities Separations Costs Total
- -------------------------------------------------------------------------------
December 31, 2001 $ 24.8 $ 9.5 $ 34.3
Payments (10.5) (2.8) (13.3)
Other (1.2) (4.2) (5.4)
- -------------------------------------------------------------------------------
September 30, 2002 $ 13.1 $ 2.5 $ 15.6
- -------------------------------------------------------------------------------
In connection with the company's plans to exit the electronic card manufacturing
facility in Reynosa, Mexico, Lexmark sold the Reynosa operation to
Manufacturers' Services Limited ("MSL") in early July 2002. Approximately 250
Reynosa employees were transferred to MSL as part of the sale transaction and
those employees are expected to be retained by MSL. In accordance with the sales
agreement, the company prepaid eighteen months of the building lease and agreed
to provide support payments to MSL for approximately eighteen months, subject to
the terms of the agreement. MSL agreed to assume the building lease payments for
the remainder of the lease term. During the third quarter of 2002, the company
reversed excess reserves of approximately $5.4 million for lease cancellation
charges and employee separation costs, which will not be incurred as a result of
the sale to MSL. The company recorded a charge for approximately the same amount
related to the support agreement with MSL.
Restructuring activities are expected to be substantially completed during 2002
although some payments are projected to be made in 2003.
3. INVENTORIES
(In millions)
Inventories consist of the following:
September 30 December 31
2002 2001
--------------- --------------
Work in process $163.2 $146.9
Finished goods 347.9 308.2
------ ------
$511.1 $455.1
====== ======
4. PROPERTY, PLANT AND EQUIPMENT
During the third quarter of 2002, the company recorded an asset impairment
write-off of approximately $15.8 million related to the abandonment of a
customer relationship management software project. Year-to-date September
30, 2002 total write-offs of internal use software projects were
approximately $21.6 million. The remaining balance of internal use software
projects recorded in property, plant and equipment in the consolidated
statements of financial position were approximately $31.0 million at
September 30, 2002, compared to $40.8 million at December 31, 2001.
The third quarter 2002 asset impairment write-off was determined in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, and is
included on the cost of revenue line in the consolidated statements of
earnings.
6
5. DEBT
Effective May 29, 2002, the company entered into a new $500 million
unsecured, revolving credit facility with a group of banks, including a
$200 million 364-day portion and a $300 million 3-year portion. Upon
entering into the new credit agreement, the company terminated the old $300
million unsecured, revolving credit facility that was due to expire on
January 27, 2003. There were no amounts outstanding under the old facility
upon its termination.
Under the new credit facility, the company may borrow in dollars, euros,
and other optional currencies. The interest rate ranges from 0.35% to 1.25%
above the London Interbank Offered Rate (LIBOR) for borrowings denominated
in U.S. dollars, the Eurocurrency Interbank Offered Rate (EURIBOR) for
borrowings denominated in euros, or other relevant international interest
rate for borrowings denominated in another currency. The interest rate
spread is based upon the company's debt ratings. In addition, the company
is required to pay a facility fee on the $500 million line of credit of
0.075% to 0.25% based upon the company's debt ratings. The interest and
facility fees are payable quarterly.
The new credit agreement contains customary default provisions, leverage
and interest coverage restrictions and certain restrictions on secured and
subsidiary debt, disposition of assets, liens and mergers and acquisitions.
The 364-day portion of the new $500 million credit facility has a maturity
date of May 28, 2003, with an option to extend an additional 364 days. The
3-year portion of the new credit facility has a maturity date of May 29,
2005. Any amounts outstanding under the new credit facility are due
according to the applicable maturity dates noted above. As of September 30,
2002, there were no amounts outstanding under the new credit facility.
6. STOCKHOLDERS' EQUITY
In July 2002, the company received authorization from the board of
directors to repurchase an additional $200 million of its Class A common
stock for a total repurchase authority of $1.4 billion. 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 third quarter of 2002, the company repurchased approximately 1.1
million shares in the open market at prices ranging from $41.97 per share
to $47.90 per share for a cost of approximately $52 million. During the
first nine months of 2002, the company repurchased approximately 6.1
million shares at prices ranging from $41.97 per share to $60.96 per share
for an aggregate cost of approximately $331 million. On an
inception-to-date basis through September 30, 2002, the company had
repurchased approximately 34.7 million shares at prices ranging from $10.63
per share to $105.38 per share for an aggregate cost of approximately $1.2
billion, leaving $188 million of share repurchase authority remaining.
7
7. OTHER COMPREHENSIVE EARNINGS (LOSS)
(In millions)
Comprehensive earnings, net of taxes, consists of the following:
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Net earnings $89.8 $70.0 $250.4 $236.8
Other comprehensive earnings (loss):
Foreign currency translation adjustment (3.1) 5.7 10.9 (5.0)
Cash flow hedging, net of reclassifications 5.9 (17.9) (4.7) (2.3)
Minimum pension liability adjustment - (0.1) (0.2) 0.1
----- ----- ------ ------
Comprehensive earnings $92.6 $57.7 $256.4 $229.6
===== ===== ====== ======
Accumulated other comprehensive earnings (loss) consists of the following:
Accumulated
Cash Minimum Other
Translation 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)
Second quarter 2002 change 15.2 (13.6) (0.2) 1.4
------ ------ ------ -------
Balance, June 30, 2002 (50.3) (25.5) (62.2) (138.0)
Third quarter 2002 change (3.1) 5.9 - 2.8
------ ------ ------ -------
Balance, September 30, 2002 $(53.4) $(19.6) $(62.2) $(135.2)
====== ====== ====== =======
8
8. 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 Nine Months Ended
September 30 September 30
---------------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net earnings $ 89.8 $ 70.0 $250.4 $236.8
======= ======= ====== ======
Weighted average shares used
for basic EPS 126.8 130.2 129.1 129.1
Effect of dilutive securities:
Stock options 2.4 3.7 3.1 4.5
------- ------- ------ ------
Weighted average shares used
for diluted EPS 129.2 133.9 132.2 133.6
======= ======= ====== ======
Basic net EPS $ 0.71 $ 0.54 $ 1.94 $ 1.83
Diluted net EPS $ 0.70 $ 0.52 $ 1.89 $ 1.77
Options to purchase an additional 7.8 million and 3.9 million shares of
Class A common stock for the three month periods and 2.2 million and 1.9
million shares for the nine month periods ended at September 30, 2002 and
2001, respectively, were outstanding but were not included in the
computation of diluted earnings per share because their effect would be
antidilutive.
9. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS 142 no longer permits
the amortization of goodwill and indefinite-lived intangible assets.
Instead, these assets must be reviewed at least annually for impairment.
The company adopted SFAS 142 as required on January 1, 2002. During the
second quarter of 2002, the company completed the initial transitional
goodwill impairment test, which did not indicate any goodwill impairment.
Since previously reported goodwill amortization was immaterial for the
company in the prior periods presented, the discontinuation of goodwill
amortization will not have a material impact on the company's financial
position, results of operations or cash flows. Pro forma net earnings and
earnings per share are not presented because such amounts are not
materially different than amounts previously reported for the three and
nine months ended September 30, 2001.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies the previous guidance of Emerging
Issues Task Force ("EITF") No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring), which recognized a
liability for an exit cost at the date of an entity's commitment to an exit
plan. SFAS 146 requires that the initial measurement of a liability be at
fair value. SFAS 146 will be effective for exit or disposal activities that
are initiated after December 31, 2002. The impact of this statement on the
company, should it have any future restructuring activities, would be
primarily related to the timing of when charges are recorded.
9
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. Both revenue and
selling, general and administrative expense for the three months and nine months
ended September 30, 2001 were reduced by approximately $8 million and $26
million, respectively, as a result of this reclassification.
Results of Operations
- ---------------------
Consolidated revenue for the three months ended September 30, 2002 was
$1,041 million, an increase of 5% over the same period of 2001. Total U.S.
revenue increased $35 million or 7% and international revenue, including exports
from the U.S., increased $11 million or 2%. Revenue was positively affected by
foreign currency exchange rates primarily due to strengthening of European
currencies against the U.S. dollar. Revenue growth was 2% for the quarter on a
constant currency basis.
The quarterly revenue growth was driven by increased sales of laser and inkjet
supplies whose revenue increased 19% over 2001. Laser and inkjet supplies
revenue was $568 million for the third quarter of 2002, versus $476 million for
the same period in 2001, and represents 55% of total revenue versus 48% in 2001.
Laser and inkjet printer revenue was $381 million for the third quarter of 2002,
a 3% decrease from 2001.
For the nine months ended September 30, 2002, consolidated revenue was $3,149
million, an increase of 6% over the same period of 2001. Total U.S. revenue
increased $181 million or 13%, and international revenue, including exports from
the U.S., increased $4 million or less than 1%. Revenue growth was 5% for the
nine months on a constant currency basis.
The revenue growth for the first nine months of 2002 was driven by increased
sales of laser and inkjet supplies whose revenue increased 18% over 2001. Laser
and inkjet supplies revenue was $1,681 million for the nine months ended
September 30, 2002, versus $1,428 million for the same period in 2001, and
represents 53% of total revenue versus 48% in 2001. Laser and inkjet printer
revenue was $1,176 million for the first nine months of 2002, a 3% increase over
2001.
Revenue from sales to all original equipment manufacturers ("OEM") customers for
the three and nine months ended September 30, 2002, accounted for less than 10%
of consolidated revenue with no single OEM customer accounting for more than 5%
of total revenue.
During the third quarter of 2002, the company recorded an asset impairment
write-off of $15.8 million ($11.7 million, net of taxes) related to the
abandonment of a customer relationship management software project. This charge
is included on the cost of revenue line in the consolidated statements of
earnings.
10
Consolidated gross profit was $338 million for the three months ended September
30, 2002, an increase of 12% from the same period of 2001. Gross profit as a
percentage of revenue for the quarter ended September 30, 2002 increased to
32.5% from 30.3% in the third quarter of 2001, an increase of 2.2 percentage
points. The increase was primarily due to an increase of supplies in the product
mix (2.1 percentage points) and higher supplies margins (1.7 percentage points),
partially offset by the previously discussed asset impairment write-off (1.5
percentage points). For the nine months ended September 30, 2002, consolidated
gross profit was $987 million, an increase of 3% from the same period of 2001.
Gross profit as a percentage of revenue for the nine months ended September 30,
2002 decreased to 31.3% from 32.4% for the same period in 2001, a decline of 1.1
percentage points. The decrease was principally due to lower printer margins
(2.8 percentage points), partially offset by an increase of supplies in the
product mix (1.6 percentage points).
Total operating expense increased 7% for the quarter ended September 30, 2002
and increased 3% for the first nine months of 2002 compared to the same periods
in 2001. Operating expense as a percentage of revenue for the quarter was 20.6%
compared to 20.2% for the corresponding period of 2001. The increase in 2002 was
principally due to the write-off of design costs related to a proposed
manufacturing facility. Operating expense as a percentage of revenue for the
first nine months of 2002 was 20.2% compared to 20.9% for the same period of
2001. This decrease primarily reflects the benefits of the restructuring
announced in the fourth quarter of 2001.
Consolidated operating income was $124 million for the third quarter of 2002, a
23% increase over the same period in 2001, principally due to the increase in
gross profit margin, offset somewhat by higher operating expenses. For the nine
months ended September 30, 2002, consolidated operating income was $351 million,
an increase of $10 million compared to the same period of 2001. The increase was
principally due to increased sales of laser and inkjet supplies and lower
operating expense as a percentage of revenue, offset somewhat by lower gross
profit margins.
Non-operating expenses declined $3 million and $6 million, respectively, for the
three and nine month periods of 2002 as compared to the corresponding periods in
2001. The decrease for the quarter was primarily due to lower sales of
receivables under the company's trade receivables program and lower borrowings
under the revolving credit facility as well as lower interest rates. The
decrease for the first nine months of the year was also due to lower sales of
receivables, lower borrowings and lower interest rates, partially offset by the
$3.6 million write-down of an investment during the first quarter of 2002.
Net earnings for the third quarter of 2002 were $90 million, up 28% compared to
the third quarter of 2001, primarily due to improved operating income. The
income tax provision was 26.0% of earnings before tax for the three months ended
September 30, 2002 as compared to 26.5% in the same period of 2001. The decrease
in the effective income tax rate was primarily due to lower income tax rates on
manufacturing activities in certain countries.
Net earnings for the first nine months of 2002 were $250 million, an increase of
6% compared to the same period of 2001. The increase was primarily due to
improved operating income and decreases in non-operating expenses. The effective
income tax rate was 26.0% for the nine months ended September 30, 2002 compared
to 26.5% for the same period 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 $0.71 for the third quarter of 2002 compared
to $0.54 in the corresponding period of 2001. Diluted net earnings per share
were $0.70 in the third quarter of 2002, compared to $0.52 in 2001, an increase
of 33%. These increases were primarily due to the increase in net earnings and
fewer shares outstanding.
11
Basic net earnings per share were $1.94 for the first nine months of 2002
compared to $1.83 in the corresponding period of 2001. Diluted net earnings per
share were $1.89 for the first nine months of 2002 compared to $1.77 in the same
period of 2001, an increase of 7%. These increases were primarily due to the
increase in net earnings.
Financial Condition
- -------------------
The company's financial position remains strong at September 30, 2002, with
working capital of $528 million compared to $562 million at December 31, 2001.
At September 30, 2002, the company had outstanding $14 million of short-term
debt and $149 million of long-term debt. The company had also sold $30 million
of its U.S. trade receivables at September 30, 2002 compared to $85 million at
December 31, 2001. The debt to total capital ratio was 14% at September 30, 2002
compared to 13% at December 31, 2001.
Cash provided by operating activities for the nine months ended September 30,
2002 was $532 million compared to $3 million cash used for operating activities
for the same period of 2001. The increase in cash flows from operating
activities in 2002 compared to 2001 was primarily due to favorable cash flow
changes in working capital accounts, particularly accrued liabilities, trade
receivables, inventories and accounts payable, partially offset by unfavorable
changes in other assets and liabilities. The favorable cash flow changes in
working capital accounts were principally due to the company's continued focus
on cash cycle management. As part of this focus, the company's days of sales
outstanding has declined to 46 days at September 30, 2002, from 51 days at
December 31, 2001. The days of sales outstanding is calculated on a 90 day
moving average based on gross accounts receivable and is adjusted for certain
accounts receivable items which have no corresponding revenue, such as
value-added taxes. Management believes that cash provided by operations will
continue to be sufficient to meet operating and capital requirements.
The increase in other assets reflects a $50 million funding of the U.S. pension
plan in the current year. As a result of current market trends and other
long-term economic outlooks, the company expects to reduce its U.S. long-term
pension asset return assumption for 2003. The reduction in the pension asset
return assumption is not expected to have a material impact on results of
operations.
Cash used for investing activities for the nine months ended September 30, 2002
was $97 million less than the comparable 2001 period, principally due to lower
capital spending for manufacturing expansion projects.
Cash used for financing activities for the nine months ended September 30, 2002
was $304 million compared to $165 million cash provided by financing activities
for the same period of 2001. In 2002, the company purchased $331 million of
treasury stock compared to no purchases during 2001. In 2001, the company used
its revolving credit facility to finance capital and operating requirements,
which resulted in an increase to short-term debt.
Effective May 29, 2002, the company entered into a new $500 million unsecured,
revolving credit facility with a group of banks, including a $200 million
364-day portion and a $300 million 3-year portion. Upon entering into the new
credit agreement, the company terminated the old $300 million unsecured,
revolving credit facility that was due to expire on January 27, 2003. There were
no amounts outstanding under the old facility upon its termination.
Under the new credit facility, the company may borrow in dollars, euros and
other optional currencies. The interest rate ranges from 0.35% to 1.25% above
the London Interbank Offered Rate (LIBOR) for borrowings denominated in U.S.
dollars, the Eurocurrency Interbank Offered Rate (EURIBOR) for borrowings
denominated in euros, or other relevant international interest rate for
borrowings denominated in another currency. The interest rate spread is based
upon the company's debt ratings. In addition, the
12
company is required to pay a facility fee on the $500 million line of credit of
0.075% to 0.25% based upon the company's debt ratings. The interest and facility
fees are payable quarterly.
The new credit agreement contains customary default provisions, leverage and
interest coverage restrictions and certain restrictions on secured and
subsidiary debt, disposition of assets, liens and mergers and acquisitions. The
364-day portion of the new $500 million credit facility has a maturity date of
May 28, 2003, with an option to extend an additional 364 days. The 3-year
portion of the new credit facility has a maturity date of May 29, 2005. Any
amounts outstanding under the new credit facility are due according to the
applicable maturity dates noted above. As of September 30, 2002, there were no
amounts outstanding under the new credit facility.
Capital expenditures for the first nine months of 2002 were $71 million compared
to $170 million for the same period of 2001. The 2002 capital expenditures were
principally for infrastructure support and new product development. It is
anticipated that capital expenditures for 2002 will be less than $120 million
and are expected to be funded primarily through cash from operations.
In July 2002, the company received authorization from the board of directors to
repurchase an additional $200 million of its Class A common stock for a total
repurchase authority of $1.4 billion. 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 third quarter of 2002,
the company repurchased approximately 1.1 million shares in the open market at
prices ranging from $41.97 per share to $47.90 per share for a cost of
approximately $52 million. During the first nine months of 2002, the company
repurchased approximately 6.1 million shares at prices ranging from $41.97 per
share to $60.96 per share for an aggregate cost of approximately $331 million.
On an inception-to-date basis through September 30, 2002, the company had
repurchased approximately 34.7 million shares at prices ranging from $10.63 per
share to $105.38 per share for an aggregate cost of approximately $1.2 billion,
leaving approximately $188 million of share repurchase authority remaining.
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 employee separations were worldwide from various business functions and job
classes and separation benefits included severance, medical and other benefits.
As of September 30, 2002, approximately 1,200 employees have exited the business
under the restructuring plan. This total includes the employees discussed below
who were transferred to another company. The other exit costs were primarily
related to vendor and lease cancellation charges.
13
The following table presents a rollforward of the liabilities (in millions)
incurred in connection with the restructuring activities in 2000 and 2001. 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
Payments (10.5) (2.8) (13.3)
Other (1.2) (4.2) (5.4)
- -------------------------------------------------------------------------------
September 30, 2002 $ 13.1 $ 2.5 $ 15.6
- -------------------------------------------------------------------------------
In connection with the company's plans to exit the electronic card manufacturing
facility in Reynosa, Mexico, Lexmark sold the Reynosa operation to
Manufacturers' Services Limited ("MSL") in early July 2002. Approximately 250
Reynosa employees were transferred to MSL as part of the sale transaction and
those employees are expected to be retained by MSL. In accordance with the sales
agreement, the company prepaid eighteen months of the building lease and agreed
to provide support payments to MSL for approximately eighteen months, subject to
the terms of the agreement. MSL agreed to assume the building lease payments for
the remainder of the lease term. During the third quarter of 2002, the company
reversed excess reserves of approximately $5.4 million for lease cancellation
charges and employee separation costs, which will not be incurred as a result of
the sale to MSL. The company recorded a charge for approximately the same amount
related to the support agreement with MSL.
Restructuring activities are expected to be substantially completed during 2002
although some payments are projected to be made in 2003. Annual savings from the
2001 restructuring should approximate $55 million, with about $40 million being
achieved in 2002. These savings are being used to offset competitive pricing
impacts and for new product investments.
New Accounting Standards
- ------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. SFAS 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed at
least annually for impairment. The company adopted SFAS 142 as required on
January 1, 2002. During the second quarter of 2002, the company completed the
initial transitional goodwill impairment test, which did not indicate any
goodwill impairment. Since previously reported goodwill amortization was
immaterial for the company in the prior periods presented, the discontinuation
of goodwill amortization will not have a material impact on the company's
financial position, results of operations or cash flows. Pro forma net earnings
and earnings per share are not presented because such amounts are not materially
different than amounts previously reported for the three and nine months ended
September 30, 2001.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred and nullifies the previous guidance of Emerging Issues Task Force
("EITF") No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in Restructuring), which recognized a liability for an exit cost at the date of
an entity's commitment to an exit plan. SFAS 146 requires that the initial
measurement of a
14
liability be at fair value. SFAS 146 will be effective for exit or disposal
activities that are initiated after December 31, 2002. The impact of this
statement on the company, should it have any future restructuring activities,
would be primarily related to the timing of when charges are recorded.
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, risk of obsolescence and/or other elements of
the company's operating 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 The company's future operating results may be adversely affected if it is
unable to continue to develop, manufacture and market products that are
reliable, competitive and meet customers' needs. The markets for laser and
inkjet products and associated supplies are 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.
15
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 products 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 products or the inability to reduce costs
including warranty 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 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 has
resulted in the loss of Compaq as a customer. Aggressive pricing on laser and
inkjet printers and/or associated supplies from customers and resellers,
including, without limitation, OEM customers, could result in a material adverse
impact on the company's strategy and financial results. In addition, the
financial failure or loss of a key customer or reseller could have a material
adverse impact 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, regardless of their cause, 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 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 including disruptions
at important points of exit and entry, 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's inability to perform satisfactorily under service contracts
for managed print services and other customer services may result in the loss of
customers, loss of reputation and/or financial consequences that may have a
material adverse impact on the company's financial results and strategy.
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 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.
16
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.
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 and could
have a material adverse impact on the company's strategy and financial results.
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.
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.
17
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 September 30, 2002, the fair value of the company's senior notes is estimated
at $158 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
fair value of the senior notes exceeded the carrying value as recorded in the
statements of financial position at September 30, 2002 by approximately $9
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 $4 million at September 30, 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, the British pound,
the Canadian dollar, 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 September 30, 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.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures: The
------------------------------------------------------
company's principal executive officer and principal financial officer
have evaluated the effectiveness of the company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and
15d-14(c)) as of a date within ninety days prior to the filing date of
this report, and have concluded that, as of such date the company's
disclosure controls and procedures were adequate and effective.
(b) Changes in internal controls: There were no significant
------------------------------
changes in the company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of
their evaluation. There were no significant deficiencies or material
weaknesses in the company's internal controls identified as part of
the evaluation, and, as a result, no corrective actions were required
or undertaken.
18
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(c) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on
page 23 of this report.
(d) Reports on Form 8-K:
A Current Report on Form 8-K dated August 7, 2002 was filed
by the company with the Securities and Exchange Commission
to provide Regulation FD information concerning the submission
of sworn statements by the Principal Executive Officer and
Principal Financial Officer pursuant to SEC Order No. 4-460.
19
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: November 14, 2002 By: /s/ Gary D. Stromquist
----------------------
Gary D. Stromquist
Vice President and Corporate Controller
(Chief Accounting Officer)
20
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CERTIFICATION
I, Paul J. Curlander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lexmark
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Paul J. Curlander
---------------------
Paul J. Curlander
Chairman and Chief Executive Officer
21
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CERTIFICATION
I, Gary E. Morin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lexmark
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Gary E. Morin
-----------------
Gary E. Morin
Executive Vice President and
Chief Financial Officer
22
EXHIBIT INDEX
Exhibits:
10.1 Amendment to Receivables Purchase Agreement, dated as of October 17, 2002,
by and among Lexmark Receivables Corporation ("LRC"), as Seller, CIESCO
L.P., as Investor, Citibank, N.A., Citicorp North America, Inc., as Agent,
and the company, as Collection Agent and Originator.
10.2 Amendment to Purchase and Contribution Agreement, dated as of October 17,
2002, by and between the company, as Seller, and LRC, as Purchaser.
12 Computation of Ratio of Earnings to Fixed Charges.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
23