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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.1-14050
LEXMARK INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3074422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Lexmark Centre Drive
740 New Circle Road NW
Lexington, Kentucky 40550
(Address of principal executive offices) (Zip Code)
(606) 232-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Class A common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 14, 1997, there were outstanding 70,853,802 shares (excluding shares
held in treasury) of the registrant's Class A common stock, par value $.01,
which is the only class of voting common stock of the registrant, and there were
outstanding 2,313,423 shares of the registrant's Class B common stock, par value
$.01. As of that date, the aggregate market value of the shares of voting common
stock held by non-affiliates of the registrant (based on the closing price for
the Class A common stock on the New York Stock Exchange on March 14, 1997) was
approximately $1,499,447,209.
Documents Incorporated by Reference
Pages 25 through 54 of the Company's 1996 Annual Report to Stockholders have
been incorporated by reference in response to certain requirements of Part II of
this filing.
Pages 1 through 3 and pages 6 through 12 of the Proxy Statement for the Annual
Meeting of Stockholders of the Company to be held May 2, 1997, have been
incorporated by reference in response to certain requirements of Part III of
this filing.
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LEXMARK INTERNATIONAL GROUP, INC.
FORM 10-K
For the Year Ended December 31, 1996
Page of
Form 10-K
---------
PART I
ITEM 1. BUSINESS............................................................3
ITEM 2. PROPERTIES.........................................................17
ITEM 3. LEGAL PROCEEDINGS..................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..............................................19
ITEM 6. SELECTED FINANCIAL DATA............................................19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................22
ITEM 11. EXECUTIVE COMPENSATION.............................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....24
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....25
Part I
Item 1. Business
Lexmark International Group, Inc. ("LIG") is a Delaware corporation that has as
its only significant asset all the outstanding common stock of Lexmark
International, Inc., a Delaware corporation ("Lexmark International").
Hereinafter, "the Company" and "Lexmark" will refer to LIG, or to LIG and
Lexmark International, including its subsidiaries, as the context requires. LIG
was formed in 1990 by Clayton, Dubilier & Rice, Inc., a private investment firm
("CD&R"), in connection with the acquisition (the "Acquisition") of IBM
Information Products Corporation (renamed Lexmark International) from IBM. The
Acquisition was completed in March 1991.
General
Lexmark is a global developer, manufacturer and supplier of laser and inkjet
printers and associated consumable supplies for the office and home markets.
Lexmark also sells dot matrix printers for printing single and multi-part forms
by business users. The Company's core printer business targets the office and
home markets through its Business Printer and Consumer Printer Divisions. In
1996, revenues from the sale of printers and associated printer supplies
increased 24 percent from 1995 and accounted for 77 percent of total Company
revenues of approximately $2.4 billion.
The Company's installed base of printers supports a large and profitable printer
supplies business. Because consumable supplies must be replaced on average one
to three times a year, depending on type of printer and usage, demand for laser
and inkjet print cartridges is increasing at a higher rate than printer
shipments. This is a relatively high margin, recurring business that management
expects to contribute to the stability of Lexmark's earnings over time.
In addition to its core printer business, Lexmark develops, manufactures and
markets a broad line of other office imaging products, through its Imaging
Solutions Division, which include supplies for IBM branded printers,
after-market supplies for original equipment manufacturer ("OEM") products, and
typewriters and typewriter supplies that are sold under the IBM trademark. In
1996, revenues from the sale of other office imaging products increased 2
percent from 1995 and accounted for 22 percent of total Company revenues.
The Company operates in the office products industry segment. Revenues by major
product line are found on page 45 of the Company's 1996 Annual Report to
Stockholders.
Approximately half of the Company's 1996 revenues have been derived from sales
outside the United States. Revenues derived from international sales, including
exports from the United States, have grown from 45 percent of total revenues in
1994 to 54 percent of total revenues in 1996. Lexmark's products are sold in
nearly 150 countries in North and South America, Europe, the Middle East,
Africa, Asia, the Pacific Rim and the Caribbean. While currency translation has
significantly affected international revenues and cost of revenues, it did not
have a material impact on operating income through 1996. Although the Company
manages its net exposure to exchange rate fluctuations through operational
hedges, such as pricing actions and product sourcing changes, and financial
instruments, such as forward exchange contracts and currency options, there can
be no assurances that currency fluctuations will not have a material impact on
operating income in the future. As the Company's international operations
continue to grow, more management effort will be required to focus on the
operation and expansion of the Company's global business and to manage the
cultural, language and legal differences inherent in international operations. A
summary of the Company's revenues, operating income and total assets by
geographic area is found on page 41 of the Company's 1996 Annual Report to
Stockholders.
3
Printers and Associated Supplies
Lexmark competes primarily in the markets for office desktop laser and color
inkjet printers--two of the fastest growing printer categories. Sales of office
desktop laser and color inkjet printers and their associated supplies together
represented approximately 86 percent and 82 percent of Lexmark's total printer
and associated supplies revenues in 1996 and 1995, respectively.
Laser Printers. Network laser printer growth is being driven by the office
migration from large mainframe computers to local area networks that link
various types of computers using a variety of protocols and operating systems.
This shift has created strong demand for office desktop laser printers with
network connectivity attributes. Laser printers that print at speeds of 7-30
pages per minute ("ppm") are referred to herein as "office desktop" or "network"
printers, while lower-speed (1-6 ppm) laser printers and inkjet printers are
referred to herein as "personal" printers. The Company's laser printers
primarily compete in the office desktop segment, which the Company believes is
one of the fastest growing segments of the laser printer market. For further
discussion of the evolving nature of laser printer classifications, see "Market
Overview and Strategy-Printers and Associated Supplies".
Lexmark develops and owns most of the technology for its laser printers and
consumable supplies, which differentiates the Company from a number of its major
competitors, including Hewlett-Packard Company ("HP"), which purchases its laser
engines from a third party. Lexmark's integration of research and development,
manufacturing and marketing has enabled the Company to design laser printers
with features desired by specific customer groups and has resulted in
substantial market presence for Lexmark within certain industry segments such as
banking, retail/pharmacy and health care. The Company's critical technology and
manufacturing capabilities have allowed Lexmark to effectively manage quality
and to reduce its typical new product introduction cycle times, for example, in
the case of laser printers from 24 months to approximately 12 to 16 months.
Management believes its cycle times are among the fastest in the industry and
that these capabilities have contributed to the Company's success over the last
several years.
Inkjet Printers. The color inkjet printer market, the fastest growing segment of
the personal printer market, is expanding rapidly due to growth in personal
computers and home offices, and the development of easy-to-use color inkjet
technology with good quality color print capability at low prices. Based on data
from industry analysts, management believes that the inkjet market grew from 4
million units in 1992 to 27 million units in 1996 and will continue to grow
substantially as a result of the increase in the number of personal computers
and as the inkjet market continues to shift from monochrome to color and as
inkjet printers continue to replace low-speed laser printers. Lexmark introduced
its first color inkjet printer using its own technology in 1994 and has
experienced strong sales growth through retail outlets. The Company has
increased its product distribution through retail outlets, with the number of
such outlets worldwide rising from approximately 5,000 retail outlets in 1995 to
approximately 15,000 in 1996. The Company has made substantial capital
investments in its inkjet production capacity in 1995 and 1996 to address the
growing demand for its color inkjet printers.
Supplies. The Company is currently the exclusive source for new print cartridges
for the laser and inkjet printers it manufactures. Management expects that an
increasing percentage of future Company earnings will come from its consumable
supplies business, due to the consumer's continual usage and replacement of
cartridges. In 1996, the Company has substantially expanded its inkjet cartridge
manufacturing capacity in both North America and Europe.
4
Other Office Imaging Products
The Company's other office imaging products category includes many mature
products such as supplies for IBM printers, typewriters and typewriter supplies
and other impact supplies that require little investment but provide a
significant source of cash flow. The Company introduced its first after-market
laser cartridges for the large installed base of laser printers sold by other
manufacturers in May 1995. Management believes that the potential for an
after-market laser cartridge business is significant. The Company's strategy for
other office imaging products is to focus on the after-market OEM laser supplies
opportunity while managing its mature businesses for cash flow.
Keyboards and Other
In the first quarter of 1996, the Company completed the phase-out of its
keyboard business. Keyboard sales accounted for 8 percent and 3 percent,
respectively, of the Company's revenue and gross profit for 1995.
Market Overview and Strategy
Printers and Associated Supplies
Market Overview
In 1996, estimated industry-wide revenue for printer hardware in the 1-30 ppm
speed category, including network, personal and dot matrix, was approximately
$24 billion. Management believes, based on industry analysts' estimates, that
this market will in the aggregate continue to experience modest growth through
1999. However, the Company believes that certain product categories within this
market that it has targeted, such as office desktop laser printers and color
inkjet printers, will experience double-digit growth in volume. An overview of
the printer markets in which the Company competes is summarized below:
U.S. Primary Paper
Speed Price Range Print Quality Market Media
----- ----------- ------------- -------- -----
Color Laser 2-5 ppm $5,000-10,000 Better/Best (300-600 dpi) Office Plain
Mono Laser: $ 400- 5,000 Best (1200 x 1200 dpi) Office Plain
Personal 1-6 ppm
Office Desktop/
Network 7-30 ppm
Inkjet:
Mono 2-7 ppm $ 100- 400 Better (600 x 600 dpi) Home Plain/Coated
Color 0.3-2 ppm $ 150- 3,000 Better (600 x 600 dpi) Home Plain/Coated
Dot Matrix 2-4 ppm $ 100- 500 Good (less than 240 dpi) Office Plain/Multi Parts
5
Laser Printers. The laser printer market is categorized by print speeds. Office
desktop or network monochrome laser printers are those that print 7-30 ppm while
low-speed lasers typically print 1-6 ppm*. Management believes that the overall
printer market is bifurcating into two principal segments: office desktop
printers suitable for an office environment and low-speed, lower cost printers
suitable for recreational and home office use by individuals.
In recent years, businesses have shifted from relying on large mainframe
computers to using local area networks ("LAN") that connect various types of
computers using a variety of protocols and operating systems. With this shift
has come the need for network printers that can communicate with, and adapt to,
the various configurations of the computers they serve. The ability to process
jobs quickly is also important. Most printers employed in the network
environment are office desktop printers with sophisticated software management
tools. Management expects network printers to continue to increase in speed and
that special features will proliferate to enhance network connectivity.
Low-speed laser printers are generally used as personal printers and are not
connected to networks. This segment is characterized by intense price pressure
and is vulnerable to replacement by low cost, color inkjet printers.
Based on the available market data, management believes that between 1991 and
1995 there was steady growth in overall shipments of network and personal laser
printers (1-30 ppm), although different segments of the market experienced
different growth rates. The Company's shipments of network and personal laser
printers taken as a whole during 1991 to 1996 increased at a compound annual
rate, which management believes reflected the overall rate of growth of the
market as a whole. Within the office desktop network laser printer category,
Lexmark shipments increased at a rate which enabled the Company to gain market
share. Lexmark shipments of low-speed laser printers remained essentially flat
during the same period despite strong market growth within that category.
Management expects the market unit volume for low-speed laser printers to grow
moderately but that the market for office desktop laser printers--which includes
the Company's Optra+ line of laser printers--will experience double-digit growth
through 1999.
Laser printer unit growth in recent years has generally exceeded the growth rate
of laser printer revenues due to unit price pressure. This is partially offset
by the tendency for customers in the network segment of the market to trade up
to models with faster speeds, greater network connectivity, and other new
features. New models with such enhanced features generally sell at higher price
points and carry higher gross profit margins than the models they replace.
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* Data available from industry analysts as to the size of the laser and inkjet
printer market varies widely. The variance in laser printer market data is
caused in part by the rapid pace of change in laser printer speeds which makes
comparative analyses based on comparable product categories difficult over a
recent historical period. The Company bases its analysis of historical market
trends on the data available from several different industry analysts. The
ranges of printing speed used to define and distinguish between laser printer
categories described herein are based on the Company's own internal analysis of
the laser printer categories currently used by certain industry analysts to
measure the laser printer market.
6
Inkjet Printers. Growth in the market for inkjet printers, which are mainly used
as personal printers, reflects increased penetration of personal computers for
recreational and home office use. Strong market demand also reflects the
availability of low-cost technology capable of providing customers with good
quality printing at affordable prices. The recent availability of color inkjet
printers at affordable prices has caused explosive industry growth since 1992.
Starting from a relatively small base, Lexmark's shipments of inkjet printers
increased by 100 percent from 1993 to 1994, 345 percent from 1994 to 1995, and
in 1996, Lexmark shipments increased at a rate which the Company believes
enabled it to gain market share. Lexmark entered the color inkjet printer market
with its own technology in 1994.
Growth in inkjet printer revenue has been slower than unit growth due to rapidly
declining prices. The greater affordability of color inkjet printers has been an
important factor in the explosive growth of this market.
Dot Matrix Printers. The market for dot matrix printers has been declining for
several years and volumes are expected to continue to decline in the future due
in large part to replacement by inkjet printers with higher print quality.
Within the dot matrix printer market, however, the demand for dot matrix
printers that print single and multi-part forms--which constitute the Company's
principal product offering in this category--has declined at a slower rate.
Associated Printer Supplies. Printer supplies products are defined by the
printing technology. Impact supplies are used in printers and typewriters that
put marks on paper through the use of some form of physical force, usually a
wire or hammer which applies force to a ribbon. The majority of impact supplies
are either fabric or film ribbons. Non-impact supplies are used in printers that
do not use force to put marks on paper. For example, the laser printer uses
electrophotography to place toner on paper. Non-impact supplies include toner
and photoconductor as well as ink cartridges used in inkjet printers.
The principal supply product for laser printers is a laser cartridge, which
includes toner and photoconductor. The principal supply product for inkjet
printers is an inkjet print cartridge, which includes ink and a circuit
assembly. The principal supply product for Lexmark's dot matrix printers is an
inked fabric ribbon. As the installed base of Lexmark laser and inkjet printers
continues to grow, the market for their associated supplies will grow as such
supplies are continually purchased throughout the life of the printers.
Strategy
Lexmark's laser printer strategy is to target fast growing industry segments of
the network printer market and to increase market share by providing high
quality, technologically advanced products at competitive prices. To promote
Lexmark brand awareness and market penetration, Lexmark will continue to
identify and focus on customer segments where Lexmark can differentiate itself
by supplying laser printers with features that meet specific customer needs and
represent the best total cost of printing solution. Management intends to
continue to develop and market products with more function and capabilities than
comparably priced HP printers. The Company's inkjet printer strategy is to
generate demand for the Lexmark color inkjet printer by offering high-quality
products at competitive prices to retail and OEM customers. Management expects
that the Company's associated printer supplies business will continue to grow as
its installed base of laser and inkjet printers increases.
For the business customer, Lexmark expects to continue to offer an array of
advanced laser printer products with superior features and functions, higher
speeds and better print resolution at competitive prices. The Company believes
that it is well-positioned to take advantage of the growth potential of LAN
printers due to its development and ownership of both the software and hardware
features that provide network connectivity and management tools. Lexmark has
targeted the office desktop laser printer markets and, as it has with the 1,200
dpi
7
Optra+ family, intends to remain one of the few printer companies that
create industry-wide standards for laser printer performance. Lexmark focuses
continually on enhancing the network capability of its laser printers by
introducing new products, like its MarkVision printer management utility, that
enhance the ability of its printers to function efficiently in a LAN environment
and provide significant flexibility to the LAN user.
Lexmark's large account marketing team focuses on demand generation in Fortune
1000 companies, other large corporations globally and specific industries where
Lexmark can differentiate itself by supplying high function products with
customized features to meet specific needs. These marketing teams work with
Lexmark's development teams to design features requested by large account
customers for specific functions. Lexmark has had recent success in its large
account marketing team's target markets, such as in the finance sector (whose
customers are served by Lexmark's duplex (double-sided printing) and "flash
memory" feature which permits instantaneous printing and updating of forms in
all locations). Another of the Company's strategies is to offer its advanced
network management software in products to enable these financial institutions
to more efficiently manage and control their network printing activities.
Lexmark expects that its marketing strategy focusing on significant industry
segments will promote Lexmark brand awareness and provide a platform for greater
penetration of the laser printer market through sales by dealers and
distributors.
For the office and home user, Lexmark focuses on manufacturing well-priced,
reliable, easy-to-use color inkjet printers. The Company expects that hardware
improvements in this market will result in faster printing and better print
quality. On the software side, the Company expects that enhanced compatibility
with standard PC operating systems, such as Microsoft Windows 95, and software
features that take advantage of the computing power of the PC for printing
functions will permit the Company to reduce manufacturing costs for the printers
and to produce a product that is easier to use. Lexmark believes that its core
product offerings in this market will also permit it to build brand recognition
in the retail channels.
On the manufacturing side, the Company is continually focusing on ways to reduce
costs and expand capacity while maintaining high quality. The Company will also
consider strategic acquisitions in the future to leverage its technological
expertise.
Other Office Imaging Products
Market Overview
Other office imaging products include typewriters for office use and associated
supplies sold under the IBM name, impact supplies for Lexmark printers that are
no longer in production, supplies for IBM branded printers and after-market
printer supplies for other OEM printers. The markets for most of the Company's
other office imaging products are generally declining, other than the market for
after-market laser cartridges for other OEM printers, which the Company believes
is a market with significant growth potential.
In 1996, non-impact supplies were estimated to be an approximately $28 billion
opportunity worldwide, compared to the impact supplies opportunity of
approximately $2 billion. Based on available industry data, the Company
estimates that worldwide impact supplies revenue will decline steadily in future
years, while non-impact supplies revenue will continue to grow.
Management expects that office typewriter market revenue will continue to
decline.
8
Strategy
In view of declining revenues and profit margins from sales of typewriters and
typewriter supplies and sales of other office imaging products for IBM printers,
the Company's strategy for other office imaging products is to focus on the
after-market OEM supplies opportunity while managing its mature businesses for
cash flow. The Company will continue to compete with other OEMs to provide
supplies for their installed bases of laser printers. The Company may pursue
selected acquisitions of other office imaging products companies.
Lexmark will make minimal further investment in impact supplies and management
expects profit margins on such products to decline as a result of new agreements
with IBM that generally became effective on March 27, 1996. As a result of its
high quality products, the Company benefits from customer loyalty, which has
historically permitted it to continue its premium pricing strategy.
Keyboards and Other
The Company historically manufactured keyboards primarily for IBM. Following the
expiration in March 1996 of the Company's keyboard agreement with IBM and
management's expectation that the keyboard industry will continue to experience
price declines resulting in low margins and a low return on assets, the Company
completed its transition out of the keyboard business by the end of the first
quarter of 1996. Keyboard sales accounted for 8 percent and 3 percent,
respectively, of the Company's revenue and gross profit for 1995.
Products
The Company's current product offerings consist primarily of the Lexmark Optra+
laser printer product line and Optra C color laser printer, the Optra E personal
laser printer, a wide range of inkjet printers, a family of network print
servers, typewriters and dot matrix printers. The Company also designs,
manufactures and distributes a variety of print cartridges for use in its laser
and inkjet printers as well as approximately 1,200 other office imaging
products, including typewriter supplies and supplies for other printers,
including IBM printers.
Lexmark's main printer products are listed below:
Category Products U.S. Price Range
-------- -------- ----------------
Office Desktop/Network
Mono Laser 4039-10plus $1,150-1,250
Optra+ $1,300-3,000
Optra N $2,400-2,600
Color Laser Optra C $7,000-7,500
Personal Laser Optra E $ 500-750
Color Inkjet Color Jetprinter 1020 & 2030 $ 150-200
Color Jetprinter 2050 & 2070 $ 250-400
Color Jetprinter 4079+ $2,650-3,000
Dot Matrix 23XX $ 300-500
4227 $1,300-1,500
The Company has upgraded and improved its laser printer product offerings
significantly since the Acquisition with the introduction of several models
adding functionality and performance at lower prices. The Company's
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current network laser family, the Optra+ line, was enhanced in the second
quarter of 1996 and offers four products at various price ranges. All four
Optra+ models are 16 ppm and include 1,200 dpi printing and high performance
RISC processors. Another standard feature of the Optra+ product line is
MarkVision, Lexmark's printer management program, which permits bi-directional
communication for status management between the user or LAN administrator and
the printer.
In addition to offering connectivity solutions and management tools as features
on its laser printers, Lexmark also designs and manufactures network print
servers. These products provide a means to connect a printer lacking its own
network adapter to a local area network. The Company's current product offering
is the MarkNet XLe, a multiprotocol server capable of supporting 18 different
networking environments. MarkNet XLe offers enhancements to Lexmark's previous
product offerings at a lower price.
The Company currently markets a number of personal color inkjet printers for
individual home and office use. These printers generally retail in a range of
$150-$400 and offer sharp color printing, fast performance, compatibility with
leading software applications, and ease of installation and use.
The Company also markets five dot matrix printers in the $300-$1,500 price range
for customers who print large volumes of multi-part forms.
The Company designs, manufactures and distributes a variety of cartridges for
use in its installed base of laser and inkjet printers. Lexmark is currently the
exclusive source for new print cartridges for the printers it manufactures.
The Company's other office imaging products include over 1,200 products,
including typewriter products and products for IBM and other OEM printers using
both impact and non-impact technology. The Company continues to offer a broad
line of typewriters with the IBM logo, which remain the industry leaders. The
Company also provides a wide range of supplies for the large installed base of
IBM printers including toners, ribbons, photoconductors and other printer
accessories. Lexmark has also developed and recently introduced after-market
laser cartridges for laser printers sold by other manufacturers.
Marketing and Distribution
Printers and Associated Supplies
The Company markets and distributes its laser printers primarily through its
well-established dealer network, which includes such dealers as Microage
Computers, Ameridata, Vanstar, Intelligent Electronics, Merisel, Ingram Micro
and Inacom. The Company's products are also sold through value-added resellers,
who offer custom solutions to specific markets.
The Company employs large account marketing teams whose mission is to generate
demand for Lexmark printers primarily among Fortune 1000 companies and other
large corporations globally. In recent years, marketing teams have begun to
focus on industry segments such as banking, retail/pharmacy and health care.
Those teams, in conjunction with the Company's development and manufacturing
teams, are able to design products to meet customer specifications for printing
electronic forms, media handling, duplex printing and other custom solutions.
The majority of customer orders solicited by these marketing teams are filled
through dealers or resellers.
The Company distributes its personal inkjet printers primarily through
approximately 15,000 retail outlets worldwide including office superstores such
as Office Depot and Staples, computer superstores such as Computer
10
City, consumer electronics stores such as Circuit City, Best Buy and Radio
Shack, mass merchandisers such as Wal-Mart, other large regional chains and
overseas stores such as Dixons, Carrefour and Vobis.
The Company's international sales are an important component of its operations.
The Company's sales and marketing activities in its global markets are organized
to meet the needs of the local jurisdictions and the size of their markets. The
Company's European marketing operation is structured similarly to its domestic
marketing activity. The Company's products are available from major information
technology resellers such as Northamber and in large markets from key retailers
such as Media Markt in Germany, Dixons in the United Kingdom and Carrefour in
France. Canadian marketing activities, like those in the United States, focus on
large account demand generation and vertical markets, with orders filled through
distributors and retailers. The Company's Latin American and Asian Pacific
markets are served through a combination of Lexmark sales offices, strategic
partnerships and distributors. The Company also has sales and marketing efforts
for OEM opportunities.
The Company's printer supplies and other office imaging products are generally
available at the customer's preferred point of purchase through multiple
channels of distribution. Although channel mix varies somewhat depending on the
geography, substantially all of the Company's supplies products sold
commercially in 1996 were sold through the Company's network of
Lexmark-authorized supplies distributors and resellers who sell directly to end
users or to independent office supply dealers. Lexmark's supplies are also
available at office and computer superstores.
Supplies for the European market are distributed from the Company's facility
near Orleans, France. The Lexington, Kentucky facility is the central
distribution point for all U.S. and other global supplies markets.
Supplies and other office imaging products are also sold selectively to a few
large end users, with the largest customer being IBM, and to OEMs for resale
under the OEM's brand name. See "IBM Relationship".
Competition
Printers and Associated Supplies
The markets for printers and associated supplies are highly competitive,
especially with respect to pricing and the introduction of new products and
features. The laser printer market is dominated by HP, which has a widely
recognized brand name and has been estimated to have an approximate 70 percent
market share. Several other large manufacturers such as Canon and Apple also
compete in the laser printer market. Since June 1996, IBM has been expanding its
product offerings in the printer market with products that compete with the
Company's products. The Company believes that IBM has the resources to be an
aggressive competitor. See "IBM Relationship".
The Company's strategy is to target fast growing segments of the network printer
market and to increase market share by providing high quality, technologically
advanced products at competitive prices. This strategy requires that the Company
continue to develop and market new and innovative products at competitive
prices. New product announcements by HP and the Company's other principal
competitors, however, can have and in the past have had a material adverse
effect on the Company's financial results. Such new product announcements can
quickly undermine any technological competitive edge that one manufacturer may
enjoy over another and set new market standards for quality, speed and function.
Furthermore, knowledge in the marketplace about pending new product
announcements by the Company's competitors may also have a material adverse
effect on the Company inasmuch as purchasers of printers may defer purchasing
decisions until the announcement and subsequent testing of such new products.
11
In recent years, the Company and its principal competitors, all of which have
significantly greater financial, marketing and technological resources than the
Company, have regularly lowered prices on printers and are expected to continue
to do so. The Company is vulnerable to these pricing pressures which, if not
mitigated by cost and expense reductions, may result in lower profitability and
could jeopardize the Company's ability to grow or maintain market share and
build an installed base of Lexmark printers. The Company expects that, as it
competes more successfully with its larger competitors, the Company's increased
market presence may attract more frequent challenges, both legal and commercial,
from its competitors, including claims of possible intellectual property
infringement.
HP is also the market leader in the personal color inkjet printer market and,
with Canon and Epson, has been estimated to account for approximately 80 to 90
percent of worldwide personal color inkjet printer sales. As with laser
printers, if pricing pressures are not mitigated by cost and expense reduction,
the Company's ability to maintain or build market share and its profitability
could be adversely affected. In addition, as a relatively new entrant to the
retail marketplace with a less widely recognized brand name, the Company must
compete with HP, Canon and Epson for retail shelf space for its inkjet printers.
There can be no assurance that the Company will be able to continue to penetrate
the retail marketplace.
The Company has recently entered the market as a supplier of after-market laser
cartridges for laser printers using certain models of Canon engines. There is no
assurance that the Company will be able to compete effectively for a share of
the after-market cartridge business for its competitors' base of laser printers.
The Company's decision to enter this market may have an adverse effect on the
Company's relations with certain of its suppliers. Although Lexmark is currently
the exclusive supplier of new print cartridges for its laser printers, there can
be no assurance that other companies will not develop new compatible cartridges
for Lexmark laser printers. In addition, refill and remanufactured alternatives
for the Company's cartridges are available from independent suppliers and,
although generally offering lower print quality, compete with the Company's
supplies business.
Other Office Imaging Products
The market for other office imaging products is extremely competitive and the
impact segment of the supplies market is declining. Although the Company has
exclusive rights to market certain IBM branded supplies until April 1999, there
are more than 100 independent ribbon manufacturers and more than 25 independent
toner manufacturers competing to provide compatible supplies for IBM branded
printing products. Independent manufacturers compete for the after-market ribbon
business under either their own brand, private label, or both, using price,
aggressive marketing programs, and flexible terms and conditions to attract
customers. Depending on the product, prices for compatible products produced by
independent manufacturers generally range from 15 percent to 70 percent below
the Company's prices.
The Company is less dependent on revenue and profitability from its other office
imaging products business than it has been historically and intends to focus on
the growing portions of that market such as the after-market laser cartridge
supplies category. There is no assurance that the Company will be able to
compete in the after-market laser supplies business effectively or that the
declining market areas in its other office imaging products business will not
adversely affect the Company's operating results.
The Company does not expect any major new entrants into the ribbon market.
However, in response to the declining impact supplies opportunity, many
established competitors are investing in non-impact capacity and joining forces
through acquisitions on a worldwide basis. The Company's primary U.S.
competitors in the overall supplies market include Nu-kote, Turbon, GRC and NER.
Internationally, the Company's primary competitors are Turbon, Armor, TBS, and
Pelikan (acquired by Nu-kote) in Europe and Fullmark in the Far East.
12
The Company is increasing its efforts to provide laser supplies for other OEM
printers. As an after-market supplier in the all-in-one laser cartridge
business, the Company faces competition from both the OEMs and cartridge
remanufacturers. In order to become an effective worldwide supplier of
after-market cartridges, the Company will need to compete with HP and Canon.
The Company believes the current number of competitors in the declining
worldwide office typewriter market is fewer than 17, down significantly from
over 40 in the mid-1980's. The four primary competitors in the U.S. market are
Canon, Brother, Panasonic and Swintec. The Company believes that it is dominant
in the U.S. office typewriter market. Remaining office typewriter competitors
with multiple product lines continue to shift focus to other products in their
portfolios (copier, fax, PC, multifunction, etc.). No significant new office
typewriter product announcements have been made by any key competitor since
1993.
Manufacturing
The Company's manufacturing facilities are located in Lexington, Kentucky,
Boulder, Colorado, Orleans, France and Sydney, Australia, all of which are ISO
9000 certified. The Company opened new facilities during 1996 in Rosyth,
Scotland and Juarez, Mexico. Most of the Company's laser and inkjet technologies
are developed in Lexington. The Company's manufacturing strategy is to keep
processes that are technologically complex, proprietary in nature and higher
value added, such as the manufacture of inkjet cartridges, at the Company's own
facilities. Stable technology, labor intensive and non-strategic operations,
such as the manufacture of dot matrix printers, are typically performed by
lower-cost vendors.
Management believes that the Lexington manufacturing facility employs some of
the most modern techniques in the industry. In order to make its facility
capable of implementing new products with a shorter cycle time, the Company
revamped the Lexington facility from a fully automated plant to a more flexible
facility. Accordingly, the Company has the ability to adapt the plant to the
requirements of a new product and to adopt more efficient manufacturing
techniques as they are developed. The plant's electronic card assembly and test
facility with surface mount technologies also enhances the Company's
manufacturing capability.
The Company's development and manufacturing operations for laser printer
supplies which include toners, photoconductor drums, developers, charge rolls
and fuser rolls, are located in Boulder. The Company has made significant
capital investments in the Boulder facility to expand toner and photoconductor
drum processes.
Raw Materials
The Company procures a wide variety of components used in the manufacturing
process, including semiconductors, electro-mechanical components and assemblies,
as well as raw materials, such as plastic resins. Although many of these
components are standard off-the-shelf parts that are available from multiple
sources, the Company often utilizes preferred supplier relationships to better
ensure more consistent quality, cost, and delivery. Typically, these preferred
suppliers maintain alternate processes and/or facilities to ensure continuity of
supply. The Company generally must place commitments for its projected component
needs approximately three to six months in advance. The Company occasionally
faces capacity constraints when there has been more demand for its printers and
associated supplies than initially projected.
Some components of the Company's products are only available from one supplier,
including certain custom chemicals, microprocessors, application specific
integrated circuits and other semiconductors. In addition, the Company sources
some printer engines and finished products from OEMs. Although the Company
purchases in anticipation of its future requirements, should these components
not be available from any one of these suppliers, there can be no assurance that
production of certain of the Company's products would not be disrupted. Such a
13
disruption could interfere with the Company's ability to manufacture and sell
products and materially adversely affect the Company's business.
Research and Development
The Company's research and development activity for the past four years has
focused on laser and inkjet printers and associated supplies and on network
connectivity products. The Company is selective in targeting its research and
development efforts. For example, anticipating the industry trend, the Company
minimized investing in dot matrix technology in 1991 and has instead devoted its
research and development resources to the faster growing markets for laser and
inkjet printers. The Company has been able to keep pace with product development
and improvement while spending less than its larger competitors on research and
development and has even been able to achieve significant productivity and
minimize research and development costs. In the case of certain products, the
Company may elect to purchase products and key components from third party
suppliers.
The Company is committed to being a technology leader in its targeted areas and
is actively engaged in the design and development of additional products and
enhancements to its existing products. Its engineering effort focuses on laser,
inkjet, and connectivity technologies as well as design features that will
increase efficiency and lower production costs. The process of developing new
technology products is complex and requires innovative designs that anticipate
customer needs and technological trends. Research and development expenditures
were $124 million in 1996, $116 million in 1995 and $101 million in 1994. In
addition, the Company must make strategic decisions from time to time as to
which new technologies will produce products in market segments that will
experience the greatest future growth. There can be no assurance that the
Company can continue to develop the more technologically advanced products
required to remain competitive.
IBM Relationship
In connection with the Acquisition, IBM entered into numerous agreements to
support the Company's operations for a five-year term. These agreements, which
expired on March 27, 1996, included a keyboard supply agreement (which obligated
IBM to acquire essentially all of its desktop keyboard requirements from the
Company), an internal use agreement (which obligated IBM to acquire
substantially all of its requirements for desktop printers, typewriters and
associated supplies from the Company), an IBM trademark license agreement (which
permitted the Company to use the IBM trademark on certain of its products) and a
non-competition agreement (pursuant to which IBM was prohibited from competing
with the Company's products).
The Company completed its transition out of the keyboard business by the end of
the first quarter of 1996 and entered into an agreement with IBM providing for
the orderly transition of the Company's keyboard business to IBM or other
vendors. Under this agreement with IBM, IBM paid the Company $36.5 million of
which $24 million related to amounts recorded by the Company through September
30, 1995, $6 million of profit recorded through March 1996, and $6.5 million for
the purchase of certain keyboard assets. The Company's keyboard business, of
which IBM represented approximately 95 percent, accounted for revenues of $32,
$177 and $201 million for the years 1996, 1995 and 1994, respectively. Under the
original agreement with IBM, the Company's keyboard business was guaranteed a
minimum gross profit, and in the years ended 1996, 1995 and 1994 the keyboard
business contributed $6, $18 and $28 million, respectively, toward the Company's
consolidated gross profit.
Sales to IBM (excluding sales of keyboards) were $163, $258 and $215 million for
the years 1996, 1995 and 1994, respectively. The Company believes IBM will
continue to be a significant customer but that future revenue and profitability
from IBM sales will continue to decline as the Company's core printer and
associated supplies business represents a larger percentage of the Company's
total business.
14
In the third quarter of 1995, the Company entered into a profit sharing supplies
agreement with IBM and a related agreement for an extension of the IBM trademark
agreement that allows the Company to continue to use the IBM logo on certain
existing printer supplies in its other office imaging products line through
March 31, 1999. Under these agreements, Lexmark has been required since April
1996 to share the profits from the Company's sale of certain products bearing
the IBM logo. The Company also entered into a royalty agreement for an extension
of the right to use the IBM logo on typewriters, typewriter supplies and certain
other IBM branded printer supplies through March 27, 2001. Since these new
arrangements became effective, the Company estimates that operating income has
been reduced approximately $8 million to $9 million a quarter during 1996.
Since March 27, 1996, IBM is no longer required to purchase its desktop printers
and typewriters from the Company. However, IBM subsequently entered into an
agreement to use its best efforts to buy its printer and typewriter supplies
from the Company through March 31, 1999. In addition, since March 27, 1996, IBM
is no longer prohibited from competing with the Company's printer business, and
in June 1996, IBM introduced laser printer products that compete with the
Company's products.
Although the Company and IBM have entered into agreements providing for an
ongoing relationship, the Company expects that future revenue and profit
received from IBM will decline significantly and that such decline could have a
material adverse effect on the Company. However, the Company anticipated the
expiration of these agreements and has redeployed the resources previously
utilized on the declining keyboard and other businesses associated with the
majority of the IBM agreements to the Company's strategically important
businesses.
Large Customers
No customer other than IBM has accounted for more than 10 percent of the
Company's consolidated revenues since 1994.
Backlog
The Company generally ships its products within 30 days of receiving orders and
therefore has a backlog of generally less than 30 days at any time, which
backlog the Company does not consider material to its business.
Employees
As of December 31, 1996, the Company had approximately 6,600 employees worldwide
of which 4,900 are located in the U.S. and the remaining 1,700 in Europe,
Canada, Latin America and Asia Pacific. None of the U.S. employees are
represented by any union. Employees in France, Germany and the Netherlands are
represented by Statutory Works Councils. Substantially all regular employees
have stock options. The Company's employees have been organized in employee
teams that are able to make rapid decisions and to implement those decisions to
achieve faster development and manufacturing cycle times.
Intellectual Property
The Company's intellectual property is one of its major assets and the ownership
of the technology used in its products is important to its competitive position.
The Company has about 120 patent cross-license agreements of various types with
various third parties. These license agreements include agreements with, for
example, Canon and HP. Most of these license agreements provide cross-licenses
to patents arising from patent applications first filed by the parties to the
agreements before certain dates in the early 1990s, with the date varying from
15
agreement to agreement. Each of the IBM, Canon and HP cross-licenses grants
worldwide, royalty-free, non-exclusive rights to the Company to use the covered
patents to manufacture certain of its products. Certain of the Company's
material license agreements, including those that permit the Company to
manufacture its current design of laser and inkjet printers and after-market
laser cartridges for certain OEM printers, terminate as to future products upon
certain "changes of control" of the Company. The Company also holds a number of
specific patent licenses obtained from third parties to permit the production of
particular features in products.
The Company holds approximately 1,300 patents worldwide and has approximately
450 pending patent applications worldwide covering a range of subject matter.
The Company has filed over 500 worldwide patent applications since its inception
in 1991. The Company's patent strategy includes obtaining patents on key
features of new products which it develops and patenting a range of inventions
contained in new supply products such as toner and ink cartridges for printers.
Where appropriate, the Company seeks patents on inventions flowing from its
general research and development activities. While no single patent or series of
patents is material to the Company, the Company's patent portfolio in the
aggregate serves to protect its product lines and offers the possibility of
entering into license agreements with others.
The Company designs its products to avoid infringing the intellectual property
rights of others. The Company's major competitors, such as HP and Canon, have
extensive, ongoing worldwide patenting programs. As is typical in technology
industries, disputes arise from time to time about whether the Company's
products infringe the patents or other intellectual property rights of major
competitors and others. As the Company competes more successfully with its
larger competitors, more frequent claims of infringement may be asserted.
In October 1996, Lexmark International entered into an agreement with HP to
cross-license each other's patents filed prior to a specified date (the "HP
Agreement"). The HP Agreement generally gives both parties a worldwide
non-exclusive license under the licensed patents for the manufacture and sale of
printers, as well as accessories and consumable supplies designed for use with
each party's own printers. In addition, the HP Agreement resolves issues of
patent infringement that had been raised by both companies and does not involve
any royalty or other payment by either party. The Agreement generally permits
licenses granted thereunder to be terminated in the event of a "change of
control," which includes, in very limited circumstances, an acquisition of
substantially less than 50 percent of the Company's or Lexmark's voting shares.
The Company has trademark registrations or pending trademark applications for
the name LEXMARK in approximately 70 countries for various categories of goods.
The Company also owns a number of trademark applications and registrations for
product names, such as the OPTRA laser printer name. Although the Company
believes the LEXMARK trademark is material to its business, it does not believe
any other trademarks are material.
The Company holds worldwide copyrights in computer code, software and
publications of various types.
Environmental and Regulatory Matters
The Company's operations, both domestically and internationally, are subject to
numerous laws and regulations, particularly relating to environmental matters
that impose limitations on the discharge of pollutants into the air, water and
soil and establish standards for the treatment, storage and disposal of solid
and hazardous wastes. The Company is also required to have permits from a number
of governmental agencies in order to conduct various aspects of its business.
Compliance with these laws and regulations has not had and is not expected to
have a material effect on the capital expenditures, earnings or competitive
position of the Company. There can be no assurance, however, that future changes
in environmental laws or regulations, or in the criteria required to obtain or
maintain necessary permits, will not have an adverse effect on the Company's
operations.
16
Item 2. Properties
The Company's manufacturing and other material operations are conducted at the
facilities set forth below:
Location Square Feet Activities Status
-------- ----------- ---------- ------
Lexington, KY 2,966,000 Headquarters, Manufacturing,
Development, Administrative,
Distribution, Warehouse,
Marketing Owned
266,000 Warehouses, Development Leased(1)
Boulder, CO 332,000 Manufacturing, Development,
Warehouse Leased(2)
Dietzenbach, Germany 49,000 Administrative, Warehouse Leased(3)
Juarez, Mexico 95,000 Manufacturing, Administrative Owned
Markham, Ontario 47,000 Administrative, Marketing,
Warehouse Leased(4)
Orleans, France 452,000 Manufacturing, Administrative,
Warehouse Owned
Ormes, France 192,000 Warehouse Leased(5)
Paris, France 30,000 Administrative, Marketing Leased(6)
Rosyth, Scotland 92,000 Manufacturing, Administrative Leased(7)
Sydney, Australia 64,000 Manufacturing, Administrative,
Warehouse, Marketing Leased(8)
- --------------------------------------------------
(1) Leases covering 151,000 square feet expire September 1997 and carry two
one-year renewal options. Lease covering 115,000 square feet expires August
1998 and carries five three-year renewal options.
(2) Lease covering 278,000 square feet expires May 2001 and carries three
five-year renewal options. Lease covering 54,000 square feet expires January
1998 and carries three one-year renewal options.
(3) Leases covering this property expire September 2004 and there are no renewal
options.
(4) Lease covering this property expires September 2001 and carries two
five-year renewal options.
(5) Lease covering this property expires February 1999 and carries one
three-year renewal option.
(6) Leases covering this property expire December 2003 and there are no
renewal options.
(7) Lease covering this property expires in 2021 and includes an option to
purchase exercisable through March 2001.
(8) Lease covering this property expires March 2002 and carries one six-year
renewal option.
The Company believes its facilities are in good operating condition. Except for
the Juarez, Mexico facility, properties owned by the Company serve as collateral
for the Company's term loan and revolving credit facility.
Item 3. Legal Proceedings
The Company is party to routine litigation incidental to the Company's business.
The Company does not believe that any legal proceedings to which it is a party
or to which any of its property is subject, including any such routine
litigation, will have a material adverse effect on the Company's financial
position or results of operations. As the Company competes more successfully
with its larger competitors, the Company's increased market presence may attract
more frequent legal challenges from its competitors, including claims of
possible intellectual property infringement. Although the Company does not
believe that the outcome of any current claims of intellectual property
infringement is likely to have a material adverse effect on the Company's future
operating results and financial condition, there can be no assurance that such
claims will not result in litigation. In
17
addition, there can be no assurance that any litigation that may result from the
current claims or any future claims by these parties or others would not have a
material adverse effect on the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
None
18
Part II *
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
Information regarding the market prices of the Company's Class A common stock,
the market for that stock and the number of holders of each class of the
Company's common stock as set forth on page 54 of the Company's 1996 Annual
Report to Stockholders is incorporated herein by reference.
The Company has never declared or paid any dividends on the Class A common stock
and has no current plans to pay dividends on the Class A common stock. The
payment of any future dividends will be determined by the Company's Board of
Directors in light of conditions then existing, including the Company's
earnings, financial condition and capital requirements, restrictions in
financing agreements, business conditions, certain corporate law requirements
and other factors.
The Company is a holding company and thus its ability to pay dividends on the
Class A common stock depends on the Company's subsidiaries' ability to pay
dividends to the Company. In addition, the Company's financing agreements
generally restrict the payment of dividends by the Company.
Item 6. Selected Financial Data
Selected Financial Data for the Company as set forth on page 52 of the Company's
1996 Annual Report to Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations as set forth on pages 44 through 51 of the Company's 1996 Annual
Report to Stockholders is incorporated herein by reference.
Factors That May Affect Future Results and Information Concerning
Forward-Looking Statements
Certain of the statements contained in this Report and in documents incorporated
herein by reference may be considered 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, including, without limitation, (i) statements
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" concerning (a) the Company's belief that its total revenues will
continue to grow due to overall market growth and increases in the Company's
market share in both the network and color inkjet segments and that this growth
will more than offset reduced demand for certain of its products, (b) the
Company's belief that the office desktop segment is one of the fastest growing
segments of the laser printer market and (c) the Company's expectation that its
overall margins will remain relatively stable as its associated printer supplies
business becomes an increasingly larger part of its business, offsetting the
decline in the Company's other office imaging products supplies business and the
phase-out of its lower margin keyboard business, (ii) the statements in "Item 1.
Business -- Market Overview and Strategy -- Printers and Associated Supplies --
Market Overview" concerning the Company's belief about growth in the printer
hardware market, including double-digit growth in volume of certain product
categories such as office desktop laser printers and color inkjet printers,
(iii) the statements in "Item 3. Legal Proceedings" concerning the Company's
belief with respect to the possible effect of certain legal proceedings, and
current or future claims of intellectual property infringement on its financial
position or results of operations, (iv) other statements as to management's
expectations and belief presented in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations", (v) other statements as to
management's expectations and belief presented elsewhere in this Report or in
any documents incorporated herein by reference and (vi) variations
19
in the foregoing statements whenever they appear in this Report and the
documents incorporated herein by reference. Forward-looking statements are made
based upon management's current expectations and belief 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. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements, including, without limitation, the factors set
forth below:
~ 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 printers and associated supplies are highly
competitive, especially with respect to pricing and the introduction of new
products and features. The Company and its major competitors, all of which have
significantly greater financial, marketing and technological resources than the
Company, have regularly lowered prices on their printers and may continue to do
so. The inkjet printer market has experienced and could continue to experience
significant printer price pressure from the Company's major competitors. Price
reductions beyond expectations or the inability to reduce costs, certain
expenses or increase sales as currently expected could result in lower
profitability and jeopardize the Company's ability to grow or maintain its
market share.
~ The life cycles of the Company's products, as well as delays in product
development and manufacturing, variations in the cost of component parts and
delays in customer purchases of existing products in anticipation of new product
introductions by the Company or its competitors, could cause a build up 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.
Further, some of the Company's newly developed products replace or compete with
some of the Company's existing products.
~ Revenues derived from international sales, including exports from the United
States, represent an increasing portion of the Company's consolidated revenues
and have grown from 45 percent of total revenues in 1994 to 54 percent of total
revenues in 1996. Accordingly, the Company's future results could be adversely
affected by a variety of factors, including foreign currency exchange rate
fluctuations, trade protection measures, changes in a specific country's or
region's political or economic conditions and unexpected changes in regulatory
requirements. Moreover, margins on international sales tend to be lower than
those on domestic sales.
~ 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,
financial position or business.
~ Part of the Company's business strategy is to expand its business through the
acquisition of related businesses. There can be no assurance that suitable
acquisitions can be accomplished on terms favorable to the Company. Further,
there can be no assurance that the Company will be able to operate profitably
any businesses or other assets it may acquire, effectively integrate the
operations of such acqusitions or otherwise achieve the intended benefits of
such acquisitions.
~ Factors unrelated to the Company's operating performance, including economic
and business conditions, both national and international; the loss of
significant customers or suppliers; changes in business strategy; and the
ability to retain and attract key personnel, could also adversly affect the
Company's operating results. In addition, trading activity in the Company's
common stock, particularly in light of the substantial number of shares owned by
the original investor group that are available for resale, may affect the
Company's common stock price.
20
While the Company reassesses material trends and uncertainties affecting the
Company's financial condition and results of operations, in connection with its
preparation of Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in its quarterly and annual reports, the Company
does not intend to review or revise, in light of future events, any particular
forward-looking statement referenced in this Report or the documents
incorporated herein by reference.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this Report, in any
documents incorporated herein by reference, 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. 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.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the Company together with the report
thereon by Coopers & Lybrand L.L.P., independent accountants, as set forth in
pages 25 through 43 of the Company's 1996 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
*Except as specifically incorporated by reference herein, the Company's 1996
Annual Report to Stockholders is not deemed to be filed as part of this Form
10-K.
21
Part III
Item 10. Directors and Executive Officers of the Registrant
The section entitled "Election of Directors" appearing on pages 1 through 3 of
the Proxy Statement for the Annual Meeting of Stockholders of the Company to be
held May 2, 1997, sets forth certain information with respect to the directors
of the Company and is incorporated herein by reference.
The executive officers of the Company and their respective ages, positions and
years of service with the Company are set forth below.
Years With
Name of Individual Age Position The Company
- ------------------ --- -------- -----------
Marvin L. Mann 63 Chairman of the Board and Chief
Executive Officer 5
Paul J. Curlander 44 Director, President and Chief
Operating Officer 5
Kathleen J. Affeldt 48 Vice President, Human Resources 5
Daniel P. Bork 45 Director of Taxes *
Terence P. Chin 41 Treasurer *
Vincent J. Cole, Esq. 40 Vice President, General Counsel
and Secretary 5
David L. Goodnight 44 Corporate Controller 3
Clifford D. Gookin 39 Vice President, Corporate Development 1
Thomas B. Lamb 38 Vice President and General Manager *
Bernard V. Masson 49 Vice President and General Manager 1
John C. Mitchell 49 Vice President and General Manager *
Gary E. Morin 47 Vice President and Chief Financial
Officer 1
Donald C. Shropshire, Jr. 57 Vice President and General Manager 5
John A. Stanley 59 Vice President and President of
Lexmark Europe 5
Alfred A. Traversi 44 Vice President, Information
Technology and Operations *
*Tenure with the Company is less than one year.
Mr. Mann has been Chairman of the Board and Chief Executive Officer of the
Company since March 1991 and President of the Company from March 1991 to
February 1997. Prior to such time, Mr. Mann held numerous positions with IBM,
which he joined in 1958. During his IBM career, Mr. Mann held executive
positions in marketing, research and development, manufacturing and general
management, including President of the Information Products Division and
President and Chief Executive Officer of Satellite Business Systems. He was
elected an IBM Vice President in 1985. Mr. Mann also serves on the board of
directors of M.A. Hanna Company and Imation Corp. and is a member of the board
of trustees of Fidelity Investments.
Dr. Curlander has been a Director, President and Chief Operating Officer of the
Company since February 1997 and Executive Vice President, Operations of Lexmark
International, Inc. ("Lexmark International") from January 1995 to February
1997. In 1993, Dr. Curlander became a Vice President of Lexmark International.
Prior to such time, commencing in March 1991, Dr. Curlander served as General
Manager of Lexmark International's Printing Systems Business. Prior to joining
the Company, Dr. Curlander was employed with IBM, which he joined in
22
1974. He received a Ph.D. in Electrical Engineering from MIT in 1979 while on
leave of absence from IBM. After returning to IBM, Dr. Curlander held management
and executive positions in development, manufacturing and general management,
including leading the development of IBM's first LED printer and the Company's
first desktop laser printer.
Ms. Affeldt has been Vice President of Human Resources since July 1996. Prior to
such time and since 1991, Ms. Affeldt served as Director of Human Resources.
Prior to 1991, Ms. Affeldt held various human resource management positions with
IBM.
Mr. Bork has been Director of Taxes of the Company since he joined the Company
in October 1996. Prior to joining the Company, Mr. Bork was Director of Taxes
with Cray Research, Inc. Prior to his tenure at Cray Research, Inc., Mr. Bork
was with the accounting firm of Coopers & Lybrand, most recently serving as
Director of International Tax in Coopers & Lybrand's Minneapolis office.
Mr. Chin has been Treasurer of the Company since he joined the Company in June
1996. Prior to joining the Company, Mr. Chin was Assistant Treasurer -
International with Joseph E. Seagram & Sons. Prior to 1993, Mr. Chin was
Assistant Treasurer - Risk Management and Benefits Financing with Merck &
Company.
Mr. Cole has been Vice President and General Counsel of the Company since July
1996 and Corporate Secretary since February 1996. Prior to such time, commencing
in March 1991, Mr. Cole served as Corporate Counsel and then Assistant General
Counsel. Prior to joining the Company, Mr. Cole was associated with the law firm
of Cahill Gordon & Reindel.
Mr. Goodnight has been Controller of the Company since February 1997. Prior to
such time and since January 1994, when he joined the Company, Mr. Goodnight
served as CFO for the Company's Business Printer Division. Prior to joining the
Company, Mr. Goodnight held various Controller positions with Calcomp, Inc.
Mr. Gookin has been Vice President of Corporate Development of Lexmark
International since November 1995. Prior to joining the Company, Mr. Gookin
served as managing director of the Mergers and Acquisition Group at Rauscher
Pierce Refsnes, Inc. Prior to 1991, Mr. Gookin held positions in the Investment
Banking Department of CS First Boston Corporation.
Mr. Lamb has been Vice President and General Manager of the Imaging Solutions
Division of Lexmark International since January 1996. Prior to joining the
Company, Mr. Lamb held various senior management positions with General Chemical
Corporation, including most recently, the position of Vice President and General
Manager of the Industrial Chemicals Division.
Mr. Masson has been Vice President and General Manager of the Consumer Printer
Division of Lexmark International since December 1995. Prior to joining the
Company, Mr. Masson was Vice President and General Manager of DH Technology's
DHPRINT unit, a publicly-held manufacturer of specialty printers, primarily for
the financial, retail and gaming markets worldwide. Prior to 1992, Mr. Masson
served as Senior Vice President and General Manager - Plotter Division of
Calcomp, Inc.
Mr. Mitchell has been Vice President and General Manager of the Business Printer
Division of Lexmark International since he joined the Company in January 1997.
Prior to joining the Company, Mr. Mitchell held various executive and senior
management positions with Nabisco, including most recently, the position of
President - Planters and Lifesavers Companies.
23
Mr. Morin has been Vice President and Chief Financial Officer of the Company
since January 1996. Prior to joining the Company, Mr. Morin held various
executive and senior management positions with Huffy Corporation, including most
recently, the position of Executive Vice President and Chief Operating Officer.
Mr. Shropshire has been Vice President and General Manager of Lexmark
International since October 1994. When he joined the Company in 1991, Mr.
Shropshire served as Vice President, Marketing and Sales, U.S. and Americas Far
East. In his prior 27 years with IBM, he held various executive positions in
marketing, development and general management.
Mr. Stanley has been Vice President of Lexmark International and President of
Lexmark Europe since March 1991. Prior to such time, Mr. Stanley worked for IBM,
which he originally joined in the United Kingdom in 1968. He held several
executive positions with IBM in Europe and the U.S. in marketing, human
resources and operations. Immediately before joining the Company, he was the
director of marketing and services for IBM Europe.
Mr. Traversi has been Vice President of Information Technology and Operations of
Lexmark International since he joined the Company in October 1996. Prior to
joining the Company, Mr. Traversi was Vice President - Operations Services with
Taco Bell Corporation. Prior to 1994, Mr. Traversi held various senior
management positions with Digital Equipment Corporation.
Item 11. Executive Compensation
The section entitled "Executive Compensation" appearing on pages 8 through 11 of
the Proxy Statement for the Annual Meeting of Stockholders of the Company to be
held May 2, 1997, sets forth certain information with respect to executive
compensation and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" appearing on pages 6 and 7 of the Proxy Statement for the Annual
Meeting of Stockholders of the Company to be held May 2, 1997, sets forth
certain information with respect to security ownership of certain beneficial
owners and management and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The section entitled "Certain Relationships and Related Transactions" appearing
on pages 11 and 12 of the Proxy Statement for the Annual Meeting of Stockholders
of the Company to be held May 2, 1997, sets forth information with respect to
certain relationships and related transactions and is incorporated herein by
reference.
24
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 Financial Statements: Pages In Annual Report
To Stockholders*
----------------------
Consolidated Statements of Operations 25
Consolidated Statements of Financial Position 26
Consolidated Statements of Cash Flow 27
Consolidated Statements of Stockholders' Equity 28-29
Notes to Consolidated Financial Statements 30-42
Report of Independent Accountants 43
* These pages of the Company's 1996 Annual Report to Stockholders are
incorporated herein by reference.
(a) 2 Financial Statement Schedules: Pages In Form 10-K
------------------
Report of Independent Accountants 26
For the years ended December 31, 1996, 1995, and 1994:
Schedule II - Valuation and Qualifying Accounts 27
All other schedules are omitted as the required information is inapplicable or
the information is presented in the Consolidated Financial Statements or related
notes.
25
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Lexmark International
Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and for each of
the years in the three year period ended December 31, 1996 has been incorporated
by reference in this Form 10-K from page 43 of the 1996 Annual Report to
Stockholders of Lexmark International Group, Inc. and subsidiaries. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 27 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Lexington, Kentucky
February 13, 1997
26
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1994, 1995, and 1996
(Dollars in Millions)
(A) (B) (C) (D) (E)
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and other End of
Description of Period Expenses Accounts Deductions Period
- ---------------------------------- ----------- ---------- ---------- ---------- ----------
1994:
Allowance for doubtful accounts $ 13.4 $ 7.8 $ - $ (1.8) $ 19.4
Inventory reserves 19.0 49.5 - (32.5) 36.0
Deferred tax assets valuation
allowance 101.0 13.7 - (3.9) 110.8
Restructuring reserve 1.4 - - (1.4) -
1995:
Allowance for doubtful accounts $ 19.4 $ 13.2 $ - $ (5.5) $ 27.1
Inventory reserves 36.0 36.9 - (27.9) 45.0
Deferred tax assets valuation
allowance 110.8 4.5 - (38.1) 77.2
1996:
Allowance for doubtful accounts $27.1 $ 3.0 $ - $(12.1) $18.0
Inventory reserves 45.0 30.0 - (41.4) 33.6
Deferred tax assets valuation
allowance 77.2 0.8 - (45.7) 32.3
27
Item 14(a)(3). Exhibits
Exhibits for the Company are listed in the Index to Exhibits beginning on page
E-1.
(b) Reports on Form 8-K
None
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Lexington,
State of Kentucky, on March 24, 1997.
LEXMARK INTERNATIONAL GROUP, INC.
By /s/ Marvin L. Mann
-----------------------------
Name: Marvin L. Mann
Title: Chairman of the Board &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the following capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Marvin L. Mann Chairman of the March 24, 1997
- -------------------------------- Board/Chief Executive
Marvin L. Mann Officer (Principal
Executive Officer)
/s/ Gary E. Morin Vice President/Chief March 24, 1997
- -------------------------------- Financial Officer
Gary E. Morin (Principal Financial
Officer)
/s/ David L. Goodnight Corporate Controller March 24, 1997
- --------------------------------- (Principal Accounting
David L. Goodnight Officer)
/s/ B. Charles Ames Director March 24, 1997
- ---------------------------------
B. Charles Ames
/s/ Roderick H. Carnegie Director March 24, 1997
- ---------------------------------
Roderick H. Carnegie
/s/ Frank T. Cary Director March 24, 1997
- ---------------------------------
Frank T. Cary
Signature Title Date
--------- ----- ----
/s/ Paul J. Curlander Director March 24, 1997
- ----------------------------------
Paul J. Curlander
/s/ William R. Fields Director March 24, 1997
- ----------------------------------
William R. Fields
/s/ Donald J. Gogel Director March 24, 1997
- ----------------------------------
Donald J. Gogel
/s/ Ralph E. Gomory Director March 24, 1997
- ----------------------------------
Ralph E. Gomory
/s/ Stephen R. Hardis Director March 24, 1997
- ----------------------------------
Stephen R. Hardis
/s/ Michael J. Maples Director March 24, 1997
- ----------------------------------
Michael J. Maples
/s/ Martin D. Walker Director March 24, 1997
- ----------------------------------
Martin D. Walker
Index to Exhibits
Number Description of Exhibits
- ------ -----------------------
3.1 Third Restated Certificate of Incorporation of Lexmark
International Group, Inc. (the "Company"). (1)
3.2 Company By-Laws, as Amended and Restated as of October 26, 1995,
and Amended by Amendment No. 1 dated as of February 13, 1997.
4.1 Amended and Restated Secured U.S. Credit Agreement, dated as of
April 21, 1995 (the "U.S. Credit Agreement"), among Lexmark
International, Inc. ("International"), the Company, the
Lenders listed therein ("Lenders") and Morgan Guaranty Trust,
as agent (the "Agent"). (2)
4.2 Amendment No. 1 to the U.S. Credit Agreement, dated as of
September 26, 1995, among International, the Company, the Lenders
and the Agent. (3)
4.3 Amendment No. 2 to the U.S. Credit Agreement, dated as of April 3,
1996, among International, the Company, the Lenders and the
Agent. (4)
4.4 Note and Stock Purchase Agreement, dated as of March 27, 1991 (the
"Note and Stock Purchase Agreement"), among the Company,
International and The Equitable Life Assurance Society of the
United States and certain of its affiliates (the "Equitable
Investors"). (2)
4.5 Amendment No. 1 to the Note and Stock Purchase Agreement, dated as
of December 31, 1991, among the Company, International and the
Equitable Investors. (2)
4.6 Amendment No. 2 to the Note and Stock Purchase Agreement, dated
as of December 21, 1992, among the Company, International and the
Equitable Investors. (2)
4.7 Amendment No. 3 to the Note and Stock Purchase Agreement, dated as
of December 31, 1993, among the Company, International and the
Equitable Investors. (2)
4.8 Amendment No. 4 to the Note and Stock Purchase Agreement, dated as
of April 21, 1995, among the Company, International and the
Equitable Investors. (2)
4.9 Amendment No. 5 to the Note and Stock Purchase Agreement, dated as
of October 17, 1995, among the Company, International and the
Equitable Investors. (3)
4.10 Amendment No. 6 to the Note and Stock Purchase Agreement, dated as
of April 3, 1996, among the Company, International and the
Equitable Investors. (4)
E-1
4.11 Registration and Participation Agreement, dated as of March 27,
1991, among the Company, The Clayton & Dubilier Private Equity
Fund IV Limited Partnership ("C&D Fund IV"), and the stockholders
of the Company named therein. (2)
4.12 Amendment, Waiver and Consent Under Registration and Participation
Agreement, dated as of December 21, 1994, executed by C&D Fund IV,
Leeway & Co., Mellon Bank N.A., as Trustee for First Plaza Group
Trust ("Mellon Bank", and with Leeway & Co., the "Institutional
Investors"), and the Equitable Investors. (2)
4.13 Registration Agreement, dated as of March 27, 1991, among the
Company, International, the Equitable Investors and the
Institutional Investors. (2)
4.14 Amendment No. 1 to the Registration Agreement, dated as of
December 31, 1991, among the Company, International, the Equitable
Investors and the Institutional Investors. (2)
4.15 Letter Agreement, dated as of March 27, 1991, among the Company,
C&D Fund IV and International Business Machines Corporation
("IBM"). (1)
4.16 Securities Purchase Agreement, dated as of March 27, 1991, among
the Company and the Institutional Investors. (2)
4.17 Amendment No. 1 to the Securities Purchase Agreement, dated as of
March 27, 1991, among the Company and the Institutional Investors.
(2)
4.18 Amendment No. 2 to the Securities Purchase Agreement, dated as of
December 21, 1992, among the Company and the Institutional
Investors. (2)
4.19 Specimen of Class A common stock certificate. (1)
4.20 Warrant Agreement, dated as of April 1, 1991, among International,
Spectrum Sciences B.V., a Netherlands corporation, and the
Company. (2)
4.21 Letter Agreement, dated December 31, 1992, from Keys Foundation to
the Company. (2)
4.22 Warrant No. 6, dated February 21, 1997, issued to Keys Foundation.
9.1 Voting Trust Agreement, dated as of August 28, 1991, among Clayton
& Dubilier Associates IV Limited Partnership ("C&D Associates
IV"), as voting trustee, the Company and Larry H. Holswade, Thomas
L. Millner, Tadd C. Seitz and Peter C. Valli. (2)
9.2 Voting Trust Agreement, dated as of March 27, 1991, among C&D
Associates IV, as voting trustee, the Company and M. Lee Pearce.
(2)
10.1 Supplies Agreement, dated August 14, 1995, between IBM and
International. (3)*
10.1A Category I Supplies Trademark Agreement, dated as of August 16,
1995 and effective as of March 27, 1996, between IBM and
International. (1)
E-2
10.2 Agreement, dated as of August 1, 1990, between IBM and
International, and Amendment thereto. (3)* ]
10.3 Agreement, dated as of May 31, 1990, between International and
Canon Inc., and Amendment thereto. (3)*
10.4 Agreement, dated as of March 26, 1991, between International and
Hewlett-Packard Company. (3)*
10.5 Patent Cross-License Agreement, effective October 1, 1996, between
Hewlett-Packard Company and International. (5)*
10.6 Amended and Restated Lease Agreement, dated as of January 1, 1991,
between IBM and Lexmark, and First Amendment thereto. (2)
10.7 Board Investor Promissory Note and Pledge Agreement, dated as of
December 19, 1994, between the Company and Sir Roderick H.
Carnegie. (2)
10.8 Receivables Purchase Agreement, dated as of January 31, 1994,
among International, Delaware Funding Corporation and J.P. Morgan
Delaware, as Administrative Agent. (2)
10.9 Indemnification Agreement, dated as of March 27, 1991, among the
Company, International, Clayton & Dubilier, Inc., and C&D Fund IV.
(2)
10.10 Form of Stock Subscription Agreement, between the Company and
Board investors (including a schedule of Board investors, purchase
dates and number of shares purchased). (1)
10.11 Form of Management Stock Subscription Agreement, among the
Company, International and Named Executive Officers (including a
schedule of Named Executive Officers, purchase dates and number of
shares purchased). (1) +
10.12 The Company Stock Option Plan for Executives and Senior Officers.
(2) +
10.13 First Amendment to the Stock Option Plan for Executives and Senior
Officers, dated as of October 31, 1994. (1) +
10.14 Second Amendment to the Stock Option Plan for Executive and Senior
Officers, as of September 13, 1995. (1) +
10.15 Form of Management Stock Option Agreement, among the Company,
International and Named Executive Officers (including a schedule
of Named Executive Officers, grant dates and number of shares
granted pursuant to options). (1) +
10.16 First Amendment to Management Stock Option Agreement, dated as of
October 31, 1994, between the Company and Marvin L. Mann. (1) +
E-3
10.17 Form of Non-Qualified Stock Option Agreement, pursuant to the
Company's Stock Incentive Plan. (1) +
10.18 Lexmark International Group, Inc. Stock Incentive Plan. (1) +
10.19 1995-1997 Long Term Incentive Plan. (2) +
10.20 Form of Management Stock Subscription Agreement, among the
Company, International and Named Executive Officers (including a
schedule of Named Executive Officers, grant dates and number of
shares granted pursuant to options). (1) +
10.21 Employment Agreement, dated as of September 13, 1995, between
Marvin L. Mann and International. (1) +
10.22 Employment Agreement, dated as of September 13, 1995, between Paul
J. Curlander and International. (1) +
10.23 Employment Agreement, dated as of September 13, 1995, between
Donald C. Shropshire and International. (1) +
10.24 Employment Agreement, dated as of September 13, 1995, between John
A. Stanley and International U.K. Ltd. (1) +
10.25 Patent Cross-License Agreement, effective October 1, 1996, between
Hewlett-Packard Company and International. (5)*
10.26 Lexmark International Group, Inc. Non-Employee Director Stock
Plan, Amended and Restated Effective December 12, 1996. (6) +
13 Sections of the Company's 1996 Annual Report to Stockholders
incorporated by reference in this report.
21 Subsidiaries of the Company as of December 13, 1996.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
- ----------
*Confidential treatment previously granted by the Securities and Exchange
Commission.
+ Indicates management contract or compensatory plan, contract or arrangement.
(1) Incorporated by reference to Company's Form S-1 Registration Statement,
Amendment No. 1 (Registration No. 33-97218) filed with the Commission on
October 27, 1995.
E-4
(2) Incorporated by reference to Company's Form S-1 Registration Statement,
(Registration No. 33-97218) filed with the Commission on September 22,
1995.
(3) Incorporated by reference to Company's Form S-1 Registration Statement,
Amendment No. 2 (Registration No. 33-97218) filed with the Commission on
November 13, 1995.
(4) Incorporated by reference to Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 (Commission File No.1-14050) filed
with the Commission on May 3, 1996.
(5) Incorporated by reference to Company's Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1996 (Commission File No. 1-14050) filed
with the Commission on January 24, 1997.
(6) Incorporated by reference to Company's Form S-3 Registration Statement
(Registration No.333-19377) filed with the Commission on January 8, 1997.
E-5