Form 8-K LEXMARK INTERNATIONAL For: Jun 30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (date of earliest event reported)

July 21, 2015

LEXMARK INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

(859) 232-2000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

On July 21, 2015, Lexmark International, Inc. (the “Company” or “Lexmark”) issued a press release announcing its financial results for the second quarter ended June 30, 2015. The text of the press release announcing the financial results is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

As part of Lexmark’s ongoing plans to improve the efficiency and effectiveness of its operations, the Company announced restructuring actions (the “2015 Restructuring Actions”) designed to increase profitability and operational efficiency. These Company-wide restructuring actions are expected to be broad-based but are primarily expected to capture the anticipated cost and expense synergies from the Kofax and ReadSoft acquisitions. Additionally, as the strong U.S. dollar continues to negatively impact the Company’s earnings, restructuring actions will also be taken to reduce cost and expense structure in the Imaging Solutions and Services (“ISS”) segment and corporate organization. Primary Company-wide impact will be general and administrative, marketing and development positions as well as the consolidation of regional facilities.

The 2015 Restructuring Actions are expected to impact about 500 positions worldwide over the next 18-month period with approximately one-third of the positions being shifted to low-cost countries. The 2015 Restructuring Actions will result in total pre-tax charges, including project costs, of approximately $55 million, with approximately $37 million and approximately $18 million to be incurred in 2015 and 2016, respectively. The Company expects the total cash costs of the 2015 Restructuring Actions to be approximately $55 million. The anticipated timing of cash outlays for the 2015 Restructuring Actions is approximately $13 million for 2015 and approximately $42 million in 2016 and thereafter.

Lexmark expects the 2015 Restructuring Actions to generate cash savings of approximately $2 million in 2015, approximately $55 million in 2016 and ongoing annual savings of approximately $65 million beginning in 2017, all of which will be cash savings. These ongoing savings should be split approximately 90% to Operating expense and 10% to Cost of revenue. The Company expects these actions to be complete by the end of 2016.

The information contained in this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

The press release contains non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided reconciliations between the GAAP and non-GAAP financial measures contained in the press release in the financial statements attached thereto, which is attached hereto as Exhibit 99.1 and on the Company’s investor relations website at http://investor.lexmark.com.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT INDEX

Lexmark reports second quarter results

• Revenue and EPS results highlighted by strong Enterprise Software performance
• Combined Enterprise Software and MPS grew 37 percent, comprised 40 percent of total revenue
• Annualized subscription contract value increased 124 percent year to year
• Paid 15th consecutive quarterly dividend
• Kofax acquisition nearly doubles Enterprise Software annualized revenue
• 2015 restructuring program expected to generate annualized pretax savings of $65 million

Lexington, Ky. – July 21, 2015 – Lexmark International, Inc. today announced financial results for the second quarter of 2015.

“Lexmark delivered strong growth in Higher Value Solutions revenue, which is comprised of Enterprise Software and Managed Print Services,” said Paul Rooke, Lexmark chairman and chief executive officer. “Despite the ongoing headwinds from the strong U.S. dollar and near-term laser supplies channel optimization particularly in EMEA, overall Lexmark delivered a good quarter.

"With the addition of Kofax, Lexmark increased Higher Value Solutions annualized revenue to approximately $1.5 billion while nearly doubling the annualized revenue of our Enterprise Software segment.

“Lexmark’s transformation is fueled by our disciplined capital allocation framework, designed to invest in growing our Higher Value Solutions capabilities while rewarding shareholders through the ongoing return of capital,” Rooke said.

Second Quarter Results

• Second quarter results include Kofax subsequent to May 21, 2015.

Second Quarter GAAP Results Year-to-Year Comparisons

• Revenue of $879 million in 2015 compares to $892 million in 2014.
• Gross profit margin of 41.2 percent compares to 39.4 percent in the same period last year.
• Operating income margin was -2.2 and 7.0 percent in 2015 and 2014, respectively.
• The 2015 restructuring negatively impacted second quarter 2015 GAAP pre-tax earnings by $32 million. The anticipated resolution of German copyright levy and other litigation resulted in a net benefit to second quarter 2015 GAAP and non-GAAP pre-tax earnings of $21 million.
• EPS of -$0.59 in 2015 compares to $0.59 in the same period last year.

Second Quarter Non-GAAP Results Year-to-Year Comparisons

• Revenue of $891 million in 2015 compares to $894 million in 2014.
• Core revenue2 of $856 million grew 3 percent, up 11 percent at constant currency3.
• Gross profit margin of 43.8 percent compares to 40.8 percent in the same period last year.
• Operating income margin was 10.6 percent and 10.9 percent in 2015 and 2014, respectively.
• Adjusted EBITDA4 of $139 million in 2015 compares to $144 million in 2014.
• EPS of $0.97 in 2015 compares to $0.99 in the same period last year.

Second Quarter Non-GAAP Segment Revenue Year-to-Year Comparisons

• ISS5 revenue declined 11 percent, down 4 percent at constant currency.

• MPS6 revenue grew 4 percent, up 12 percent at constant currency.
• Non-MPS7 revenue declined 12 percent, down 5 percent at constant currency.
• Inkjet Exit8 revenue declined 48 percent, down 45 percent at constant currency.

• Enterprise Software revenue was $139 million. Excluding adjustments, Enterprise Software revenue of $150 million grew 136 percent, up 144 percent at constant currency.

• Deferred software revenue9 increased 136 percent year to year.
• Annualized subscription contract value10 increased 124 percent year to year.

Second Quarter Non-GAAP Higher Value Solutions Revenue Year-to-Year

• Lexmark’s Higher Value Solutions revenue11 excluding adjustments grew 37 percent, up 46 percent at constant currency.
• Higher Value Solutions revenue accounted for 40 percent of total revenue, up from 29 percent in the same period in 2014.

Second Quarter Annuity Revenue

• Lexmark is growing a more predictable Annuity revenue12 base of laser supplies, Software maintenance, Software subscriptions and ISS extended warranty.
• Lexmark’s Annuity revenue of $2.4 billion for the trailing four quarters grew 2 percent and comprised 69 percent of Core revenue.

Balance Sheet

• Cash13 was $144 million at quarter end, $124 million of which was non U.S.-based.
• Net Debt14 was $924 million. This includes cash minus credit facilities of $368 million and long-term bonds of $700 million. This compares to Net Cash14of $331 million in the same period last year.

Cash Flow

• Net cash flow provided by operating activities was -$9 million compared with $102 million in the second quarter of 2014. 
• Free cash flow15 was -$37 million compared with $76 million in the second quarter of 2014. Free cash flow was significantly impacted by Kofax acquisition-related expenses and near-term EMEA laser supplies channel optimization.
• Capital expenditures were $28 million compared to $26 million in the same quarter last year.

Transforming Lexmark, Driving Shareholder Value

• Lexmark’s capital allocation framework delivers shareholder value through investments to build and grow Lexmark’s higher value software and solutions business, and through the return of capital to shareholders.
• Lexmark’s target is to return, on average, more than 50 percent of free cash flow to shareholders through quarterly dividends and share repurchases, and the company has returned 91 percent since the first quarter of 2011.
• Lexmark paid a second quarter dividend of $22 million, its 15th consecutive quarterly dividend.
• Share repurchases will be paused for an estimated 18 to 24 months while credit facilities related to the Kofax acquisition are paid.

Lexmark Completes Acquisition of Kofax

• On May 21, Lexmark closed its acquisition of Kofax Limited in a cash transaction of approximately $1 billion in enterprise value.
• This acquisition nearly doubles the size of Lexmark’s Enterprise Software annualized revenue to approximately $700 million.
• In addition to the significant increase in scale, Kofax is expected to help accelerate the growth and significantly expand the operating margin of Lexmark’s Enterprise Software.

• This acquisition was funded with Lexmark’s non-U.S. cash and existing credit facilities, and has resulted in an enhanced, more efficient balance sheet benefiting from the deployment of available overseas cash and existing balance sheet capacity.
• In May, Reynolds C. Bish, formerly CEO of Kofax, was named president of Lexmark’s Enterprise Software reporting directly to Paul Rooke, Lexmark chairman and chief executive officer. Bish has been active in the enterprise software markets for more than 20 years, and successfully led Kofax since 2007.

2015 Restructuring Expected to Generate Ongoing Pretax Savings of $65 Million

• Lexmark is announcing restructuring actions today designed to increase profitability and operational efficiency.
• These global restructuring actions are expected to be broad-based but are primarily expected to capture the anticipated cost and expense synergies from the Kofax and ReadSoft acquisitions.
• Also, as the strong U.S. dollar continues to negatively impact the company’s earnings, restructuring actions will also be taken to reduce cost and expense structure in the ISS segment and corporate organization.
• Primary impact will be general and administrative, marketing and development positions as well as the consolidation of regional facilities.
• These actions are expected to result in the elimination of approximately 500 positions worldwide over the next 18 months, with approximately one third of the positions being shifted to low cost countries.
• These actions are expected to generate $2 million savings in 2015, and annualized savings of $65 million beginning in 2017. Lexmark expects the savings will be split approximately 90 percent operating expense, and 10 percent cost of goods sold.
• The total pretax cost for these actions is expected to be approximately $55 million, with $37 million incurred in 2015 and the remainder in 2016.
• The cash impact for these actions is expected to be $55 million, with $13 million incurred in 2015 and the remainder in 2016.

Looking Forward – Third Quarter of 2015

• Core revenue is expected to increase 3 to 5 percent year to year.
• Total revenue is expected to be in the range of -1 to +1 percent year to year.
• GAAP EPS are expected to be around -$0.48 to -$0.38.
• Non-GAAP EPS are expected to be around $0.51 to $0.61.

Looking Forward – Full Year of 2015

• Core revenue is expected to increase 3 to 5 percent year to year.
• Total revenue is expected to be in the range of -1 to +1 percent year to year.
• GAAP EPS are expected to be around -$0.49 to -$0.29.
• Non-GAAP EPS are expected to be around $3.55 to $3.75.

Conference Call Today

• The company will be hosting a conference call with securities analysts today at 8:30 a.m. EDT. A live broadcast and a complete replay of this call can be accessed from Lexmark’s investor relations website at http://investor.lexmark.com. If you are unable to connect to the Internet, you can access the call via telephone at 888-693-3477 (outside the U.S. by calling 973-582-2710) using access code 68800223.
• Lexmark’s earnings presentation slides, including reconciliations between GAAP and non-GAAP financial measures, will be available on Lexmark’s investor relations website prior to the live broadcast.

About Lexmark

Lexmark (NYSE: LXK) creates enterprise software, hardware and services that remove the inefficiencies of information silos and disconnected processes, connecting people to the information they need at the moment they need it. Open the possibilities at www.Lexmark.com.

Lexmark, the Lexmark logo and Open the possibilities are trademarks of Lexmark International, Inc., registered in the U.S. and/or other countries. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this release which are not historical facts are forward-looking and involve risks and uncertainties which may cause the company’s actual results or performance to be materially different from the results or performance expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include, but are not limited to, fluctuations in foreign currency exchange rates; failure to successfully integrate newly acquired businesses; inability to realize all of the anticipated benefits of the company’s acquisitions; possible changes in the size of expected restructuring costs, charges, and savings; market acceptance of new products; continued economic uncertainty related to volatility of the global economy; inability to execute the company’s strategy to become an end-to-end solutions provider; decreased supplies consumption; aggressive pricing from competitors and resellers; changes in the company’s tax provisions or tax liabilities; excessive inventory for the company’s reseller channel; failure to manage inventory levels or production capacity; periodic variations affecting revenue and profitability; the failure of information technology systems, including data breaches or cyberattacks; the inability to develop new products and enhance existing products to meet customer needs on a cost competitive basis; reliance on international production facilities, manufacturing partners and certain key suppliers; business disruptions; increased competition in the aftermarket supplies business; inability to obtain and protect the company’s intellectual property rights and defend against claims of infringement and/or anticompetitive conduct; ineffective internal controls; customer demands and new regulations related to conflict-free minerals; fees on the company’s products or litigation costs required to protect the company’s rights; inability to perform under managed print services contracts; the inability to attract, retain and motivate key employees; terrorist acts; acts of war or other political conflicts; increased investment to support product development and marketing; the financial failure or loss of business with a key customer or reseller; credit risk associated with the company’s customers, channel partners, and investment portfolio; the outcome of litigation or regulatory proceedings to which the company may be a party; unforeseen cost impacts as a result of new legislation; changes in a country’s political or economic conditions; disruptions at important points of exit and entry and distribution centers; and other risks described in the company’s Securities and Exchange Commission filings. The company undertakes no obligation to update any forward-looking statement.

(1)  In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP financial measures such as EBITDA, Adjusted EBITDA, earnings per share amounts and related income statement items which management believes provides useful information to investors. When used in this press release, “non-GAAP” Adjusted EBITDA, earnings per share amounts and related income statement items exclude restructuring charges and project costs, acquisition and divestiture-related adjustments and pension plan actuarial gains/losses.

The rationale for management's use of non-GAAP measures is included in Appendix A to the financial information attached hereto.

(2) Core revenue is defined as total Lexmark revenue minus Inkjet Exit revenue.

(3) Constant currency is calculated by translating prior period results at current period exchange rates and removing related hedge gains and losses.

(4) Adjusted EBITDA, a non-GAAP measure, is defined as net earnings plus net interest expense (income), provision for income taxes, depreciation and amortization, excluding restructuring charges and project costs, acquisition and divestiture related adjustments and pension plan actuarial gains or losses.

(5) ISS is the acronym for Lexmark’s Imaging Solutions and Services segment

(6) MPS revenue is defined as ISS laser hardware, supplies and fleet management solutions sold through a managed print services agreement.

(7) Non-MPS revenue is defined as ISS laser hardware, laser supplies, dot matrix hardware, and dot matrix supplies not sold as a part of an MPS agreement. Non-MPS also includes parts and service related to hardware maintenance.

(8) Inkjet Exit is defined as consumer and business inkjet hardware and supplies that the company is exiting.

(9) Deferred software revenue is defined as amounts billed to customers but not yet recognized as software revenue.

(10) Annualized subscription contract value indicates value for the upcoming four quarters.

(11) Higher Value Solutions revenue is defined as combined MPS and Enterprise Software revenue.

(12) Annuity revenue includes laser supplies, laser extended warranty, software subscriptions, and software maintenance for the trailing four quarters.

(13) Cash is defined as cash, cash equivalents and current marketable securities.

(14) Net debt or Net cash, a non-GAAP measure, is defined as Cash minus long-term and short-term debt.

(15) Free cash flow, a non-GAAP measure, is defined as net cash flows provided by operating activities minus purchases of property, plant and equipment plus proceeds from sale of fixed assets if applicable.

Investor Contact:

John Morgan

(859) 232-5568

[email protected]

Media Contact:

Jerry Grasso

(859) 232-3546

[email protected]

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(In Millions, Except Per Share Amounts)

(Unaudited)

LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

(In Millions)

(Unaudited)