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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-14050
LEXMARK INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1308215
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE LEXMARK CENTRE DRIVE
740 WEST NEW CIRCLE ROAD
LEXINGTON, KENTUCKY 40550
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(859) 232-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. ________
As of March 9, 2001, there were outstanding 127,576,849 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
no shares outstanding 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 9, 2001) was
approximately $6,018,183,644.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the company's definitive Proxy Statement for the 2001
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year, is incorporated by reference in Part III of this
Form 10-K.
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LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
PAGE OF
FORM 10-K
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PART I
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 11
Item 3. LEGAL PROCEEDINGS........................................... 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 12
Item 6. SELECTED FINANCIAL DATA..................................... 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 14
Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 47
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 47
Item 11. EXECUTIVE COMPENSATION...................................... 47
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 47
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 47
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K....................................................... 48
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PART I
ITEM 1. BUSINESS
GENERAL
Lexmark International, Inc., ("International") is a Delaware corporation which
is the surviving company of a merger between itself and its former parent
holding company, Lexmark International Group, Inc., ("Group") consummated on
July 1, 2000. Group was formed in July 1990 in connection with the acquisition
of IBM Information Products Corporation from International Business Machines
("IBM"). The acquisition was completed in March 1991. Group had as its only
significant asset all of the outstanding common stock of International. On
November 15, 1995, Group completed its initial public offering of Class A common
stock. International now trades on the New York Stock Exchange under the symbol
"LXK." Hereinafter, the "company" and "Lexmark" will refer to Group (including
its subsidiaries, as the context requires) for all events prior to July 1, 2000
and will refer to International (including its subsidiaries, as the context
requires) for all events subsequent to the merger.
Lexmark is a leading developer, manufacturer and supplier of printing solutions,
including laser and inkjet printers, associated supplies and services for
offices and homes. Lexmark develops and owns most of the technology for its
laser and color inkjet printers and associated supplies, and that differentiates
the company from a number of its major competitors, including Hewlett Packard
("HP"), which purchases its laser engines and cartridges from a third party.
Lexmark also sells dot matrix printers for printing single and multi-part forms
by business users. In addition, Lexmark develops, manufactures and markets a
broad line of other office imaging products, which include supplies for select
IBM branded printers, aftermarket supplies for original equipment manufacturer
("OEM") products, and typewriters and typewriter supplies that are sold under
the IBM trademark. The company operates in the office products industry segment.
Revenue derived from international sales, including exports from the United
States, make up more than half of the company's consolidated revenue with Europe
accounting for approximately two-thirds of international sales. Lexmark's
products are sold in over 150 countries in North and South America, Europe, the
Middle East, Africa, Asia, the Pacific Rim and the Caribbean. Currency
translation has significantly affected international revenue and cost of
revenue. Refer to Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Effect of Currency Exchange Rates and Exchange Rate
Risk Management for more information. As the company's international operations
continue to grow, additional management attention 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 and long-lived total assets by geographic area
is found on page 43 of this Annual Report on Form 10-K.
MARKET OVERVIEW
In 2000, estimated industry-wide revenue for printer hardware and associated
supplies in the 1-50 pages per minute ("ppm") speed category, including
monochrome (black) and color laser, inkjet and dot matrix printers, exceeded $40
billion. Management believes, based on industry analysts' estimates, that this
market will in the aggregate continue to experience modest growth through 2004*.
However, the company believes that certain product categories within this market
that it has targeted, such as color laser printers and color inkjet printers,
will experience double-digit growth in volume. Also, management believes that
the total printer output opportunity will expand as copiers and fax machines
shift from being stand alone analog devices to becoming optional upgrades on a
digital, more "print-centric" connected device. Management believes that this
shift should favor companies like Lexmark based on its experience in providing
industry leading network printing solutions.
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* Data available from industry analysts as to the size of the laser and inkjet
printer market varies widely. The company bases its analysis of historical
market trends on the data available from several different industry analysts.
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The laser printer market can be divided into two major categories -- shared
workgroup printers, which are almost exclusively attached directly to networks,
and lower priced desktop printers attached to PCs or small workgroup networks.
The shared workgroup printers include all color and monochrome laser printers
that may be easily upgraded to include additional input and output capacity and
may include high performance internal network adapters. Most shared workgroup
printers also have sophisticated network management software tools. Within the
shared workgroup laser printer category, Lexmark shipments have increased during
the past five years at a rate which has enabled the company to gain market
share. In the shared workgroup market, which is dominated by HP, Lexmark
management believes that Lexmark is second in worldwide market share with more
than twice the market share of the next nearest competitor. In the lower priced
desktop laser printer category, Lexmark was one of the top three vendors in
2000. Management believes the company has recently strengthened its position in
the lower priced desktop laser category.
Laser printer unit growth in recent years has generally exceeded the growth rate
of laser printer revenue due to unit price pressure and management believes this
trend will continue. This pricing pressure is partially offset by the tendency
for customers in the shared workgroup laser segment to add optional features
including network adapters, additional memory and paper drawers as well as new
scanner and fax options.
Management believes that some business users may choose inkjet printers as a
lower priced alternative to laser printers for personal desktop use. The
consumer printer market today consists almost entirely of color inkjet printers.
Lexmark's shipments of color inkjet printers increased at or near triple-digit
rates annually from 1993 through 1996 and at double-digit rates for 1997 through
2000, which has enabled the company to gain market share. Based on industry
data, management believes that Lexmark's unit volumes grew at more than twice
the market growth rate in 2000. Growth in color inkjet printer revenue has been
slower than unit growth due to pricing pressure, which management expects to
continue. The greater affordability of color inkjet printers has been an
important factor in the growth of this market.
The Internet is impacting Lexmark's business in several ways. Management
believes that as more information is available over the Internet, and new
products are being developed to access it, more of the information from the
Internet is being printed. This is especially beneficial for printer and
supplies manufacturers since so much of the Internet content is rich in color
and graphics. The Internet also allows Lexmark to communicate with and provide
support to customers in new and more valuable ways in addition to reducing costs
through achieving operational efficiencies.
The markets for dot matrix printers and most of the company's other office
imaging products are rapidly declining.
STRATEGY
Lexmark's strategy is based on a business model of building an installed base of
printer hardware that will then generate demand for Lexmark's associated printer
supplies. Lexmark is executing a three-pronged strategy in implementing its
business model. First, the company is pursuing an increased share of printing
solutions in the corporate and consumer markets. Second, Lexmark is using its
technological leadership to maintain a competitive difference in its printer
hardware, supplies, software and services. Third, the company uses a
differentiated marketing and sales approach.
Lexmark's corporate customer strategy is to target large corporations and the
public sector. The strategy is 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 providing printing solutions that meet specific customer needs.
For the corporate customer, Lexmark continues to offer an array of advanced
laser printer products with superior features and functions and higher speeds at
competitive prices. The company believes that it is well-positioned to take
advantage of the growth potential of network attached 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
shared workgroup laser printer markets and, as it has with the 1,200 dots per
inch ("dpi") Optra T
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family, intends to remain one of the few printer companies that create
industry-wide standards for laser printer performance. Lexmark focuses
continually on enhancing its laser printers to function efficiently in a
networked environment and provide significant flexibility and manageability to
the network administrator.
The company's consumer market strategy is to generate demand for Lexmark color
inkjet printers by offering high-quality, competitively-priced products to
retail, business and OEM customers. The company expects that product
improvements in this market will result in faster printing and better print
quality, and it continues to develop its own technology to meet these customer
needs. The company continues to support all the major PC operating systems such
as Microsoft Windows 95, Windows 98, Windows Me, Windows NT, Mac O/S and Linux.
The company continues to take advantage of the operating systems and increasing
computing power of the PC to drive printing functions and to produce a product
that is easier to use. Lexmark believes that its core product offerings in this
market, including the "Z" family of color inkjet printers, will also permit it
to build brand recognition in the retail channels. The company recognized early
on that as PC prices fell below $1,000 and then below $500, there was a need for
high-quality, low-priced printers that retailers could bundle with the PCs.
Lexmark has aggressively reduced costs while pushing the performance and
features of higher-end color inkjets into this sub-$100 segment.
Lexmark is also different from its competitors in that it sells its color inkjet
technology through several partnerships in the form of branded and co-branded
products. The company is an attractive partner for PC manufacturers such as
Compaq, Samsung and Fujitsu, since it does not compete with these companies. The
company also sells its color inkjet technology to manufacturers of
multifunction/fax machines and large format and specialty printers.
The company's strategy for dot matrix printers and other office imaging products
is to continue to offer high-quality products and pursue the aftermarket OEM
supplies opportunity, while managing cost to maximize cash flow and profit.
PRODUCTS
Business Products
In 2000, the company continued to market the Optra T family of monochrome laser
printers, with models ranging in speeds from 15 to 35 ppm. The Optra T family
shares identical user interfaces, drivers and common supplies, including a
higher yield toner cartridge that delivers reduced user operating costs. The
company also continued to market the wide format W810 laser printer at 35 ppm.
The company announced three new monochrome laser printers including the Optra
E312 and E312L at 10 ppm, and the Optra M412 at 17 ppm. The Optra C710, a new
color laser printer which prints at 16 ppm in monochrome and 3 ppm in color, was
also announced in 2000. In addition, the company introduced new multifunction
printers including the OptraImage T610sx, OptraImage T614dx and OptraImage
C710sx and enhanced existing OptraImage models and options that provide advanced
print/copy/fax/scan capability. Advanced document routing software, the Lexmark
Document Distributor, was also introduced for use with OptraImage products to
enable customers to increase productivity and streamline work processes.
To allow network managers to maximize staff productivity and enhance user
satisfaction, the company introduced MarkVision Professional, the next
generation of its print management software, providing remote configuration,
monitoring and problem resolution of network print devices. Other management
software was enhanced including MarkTrack, which tracks usage and print device
inventory to enable efficient load balancing and cost tracking, and NetPnP,
which automates the configuration of servers and workstations to use network
printers.
Other software products introduced or enhanced include Optra Forms and Optra
Forms Director which simplify the effort of reformatting print data and using
electronic forms to avoid pre-printed forms costs.
Lexmark also provides products to connect printers to a variety of systems and
networks. The MarkNet X2000 series of external print servers was introduced with
models for connecting multiple printers and for connecting a single printer to
provide greater control over connection costs. These devices and the existing
MarkNet N2000
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series of internal print servers provide the means to connect virtually any
printer to the network and support multiple networking environments
simultaneously.
Inkjet Printers
During 2000, the company introduced the second generation "Z" family of color
inkjet printers. The six models in this family offer up to 2,400 x 1,200 dpi at
speeds ranging from six to fifteen ppm in black and three to seven ppm in color
and all feature the Accu-Feed paper handling system. 2000 was the first year
Lexmark printers were compatible with Macintosh and Linux operating systems in
addition to being compatible with leading software applications. In the fourth
quarter of 2000, the company introduced the Z82 scanner/printer/copier, the
first $199 device offering users the capability to scan, print and copy
photographs and text documents. In a joint product introduction with Kodak, the
Kodak Personal Picture Maker PM 200 by Lexmark was introduced in the fourth
quarter of 2000. This product targets digital camera users and allows the user
to store or print directly from the camera without using a PC.
Dot Matrix Printers
The company continues to market five dot matrix printer models for customers who
print a large volume of multi-part forms.
Supplies
The company designs, manufactures, and distributes a variety of cartridges and
other supplies for use in its installed base of laser, inkjet, and dot matrix
printers. Lexmark is currently the exclusive source for new printer cartridges
for the printers it manufactures. The company also offers a broad range of other
office imaging products, including typewriter products with the IBM logo, and
other OEM printers, using both impact and non-impact technology.
Service and Support
For the company's printer products, a warranty period of at least one year is
included, and customers typically have the option to purchase an extended
warranty. The warranties generally include a toll-free technical support service
as well as on-line support via the Internet.
MARKETING AND DISTRIBUTION
The company markets and distributes its corporate customer printers primarily
through its well-established distributor network, which includes such
distributors as Ingram Micro, Tech Data, Arrow, Computer 2000 and Northamber.
The company's products are also sold through value-added resellers, who offer
custom solutions to specific markets. In addition to its distributors and
reseller networks, the company employs large account sales and marketing teams
whose mission is to generate demand for Lexmark printing solutions primarily
among large corporations as well as the public sector. Sales and marketing teams
have focused on industry segments such as banking, retail/pharmacy, automobile
distribution, government, education and health care. Those teams, in conjunction
with the company's development and manufacturing teams, are able to customize
printing solutions to meet customer specifications for printing electronic
forms, media handling, duplex printing and other document workflow solutions.
The company distributes its color inkjet printers primarily through more than
15,000 retail outlets worldwide including office superstores such as OfficeMax,
Staples and Office Depot, computer superstores such as CompUSA, and consumer
electronics stores such as Circuit City and Best Buy. The company also
distributes its color inkjet printers to other large multi-national chains such
as Wal-Mart, Kmart and Target and to overseas stores such as Dixon's, Carrefour,
Harvey Norman, T-Zone, Musimundo and Vobis.
Lexmark's Internet website enables customers to purchase the company's products
and services directly. It also provides important information regarding the
company's hardware and supplies products, services and technical
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support, as well as reseller locations in various countries. Lexmark is using
the power of the Internet as it expands its business-to-business and
business-to-consumer markets.
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, Dixon's in the United Kingdom and Carrefour in
France. Australian and 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 Asia Pacific markets, other than Australia, 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 2000 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.
No single customer has accounted for more than 10% of the company's consolidated
revenues since 1996.
COMPETITION
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 approximately 60% market
share. Several other large vendors such as Canon and Xerox also compete in the
laser printer market.
The company's strategy requires that the company continue to develop and market
new and innovative products at competitive prices. New product announcements by
the company's 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.
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 color inkjet printer market and, with Canon
and Epson, has been estimated to account for approximately 75% to 80% of
worldwide color inkjet printer sales. As with laser printers, if pricing
pressures are not mitigated by cost and expense reductions, 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 and
supplies.
Like certain of its competitors, the company is a supplier of aftermarket 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 aftermarket cartridge business for its competitors' base of laser printers.
Although Lexmark is
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currently the exclusive supplier of new printer 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. As the installed base of laser and
inkjet printers grows and ages, the company expects competitive refill and
remanufacturing activity to increase.
The market for other office imaging products is extremely competitive and the
impact segment of the supplies market is declining. Although the company has
rights to market certain IBM branded supplies until June 2002 and certain others
until December 2004, there are many independent ribbon and toner manufacturers
competing to provide compatible supplies for IBM branded printing products.
Independent manufacturers compete for the aftermarket 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 are offered below the company's prices, in some cases
significantly below the company's prices.
The company is increasingly less dependent on revenue and profitability from its
other office imaging products than it has been historically. However there is no
assurance that the company will be able to compete in the aftermarket laser
supplies business effectively. Management believes that the operating income
associated with its other office imaging products will decline at a greater rate
in 2001 than it declined in 2000 and may adversely affect the company's
operating results.
MANUFACTURING
The company operates manufacturing control centers in Lexington, Kentucky and
Geneva, Switzerland, and has manufacturing sites in Lexington, Boulder,
Colorado, Orleans, France, Sydney, Australia, Rosyth, Scotland, Juarez, Mexico,
Lapu-Lapu City, Philippines and Brno, Czech Republic. During 2000, the company
expanded existing facilities in Rosyth, Scotland and Juarez, Mexico and opened
new plants in Chihuahua, Mexico and Reynosa, Mexico. Most of the company's laser
and inkjet technologies are developed in Lexington and Boulder. 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. The company has provided some of
its technical expertise to several lower cost vendors who provide additional
printer production capability. Lexmark oversees these vendors to ensure that
products meet the company's quality standards.
In October 2000, the company announced its plans to relocate manufacturing,
primarily laser printers, to Mexico and China. Refer to Note 5 of the Notes to
Consolidated Financial Statements for more information related to the company's
restructuring plans.
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.
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. From time to time, the company may
be required to use air shipment to expedite product flow, which can adversely
impact the company's operating results.
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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
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 several years has
focused on laser and inkjet printers and associated supplies and on network
connectivity products. The company has been able to keep pace with product
development and improvement while spending less than its larger competitors by
selectively targeting its research and development efforts. It has also been
able to achieve significant productivity improvements 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 $217 million in 2000, $184 million in 1999 and $159 million in 1998. 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.
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 the
company does not consider material to its business.
EMPLOYEES
As of December 31, 2000, the company had approximately 13,000 employees
worldwide of which 5,700 are located in the U.S. and the remaining 7,300 in
Europe, Canada, Latin America, Asia, and the Pacific Rim. 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.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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
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Paul J. Curlander 48 Chairman and Chief Executive Officer 10
Gary E. Morin 52 Executive Vice President and Chief
Financial Officer 5
Kathleen J. Affeldt 52 Vice President of Human Resources 10
Daniel P. Bork 49 Director of Taxes 4
Kurt M. Braun 40 Treasurer 9
Vincent J. Cole, Esq. 44 Vice President, General Counsel and
Secretary 10
Timothy P. Craig 49 Vice President and President of Consumer
Printer Division 10
David L. Goodnight 48 Vice President and Corporate Controller 7
Thomas B. Lamb 43 Vice President and President of Customer
Solutions Division 5
Paul A. Rooke 42 Vice President and President of Business
Printer Division 10
Roger P. Rydell 46 Vice President of Corporate Communications 3
Alfred A. Traversi 48 Executive Vice President 4
Dr. Curlander has been a Director of the company since February 1997. Since
April 1999, Dr. Curlander has been Chairman and Chief Executive Officer of the
company. From May 1998 to April 1999, Dr. Curlander was President and Chief
Executive Officer of the company. From February 1997 to May 1998, Dr. Curlander
was President and Chief Operating Officer of the company, and from January 1995
to February 1997, he was Executive Vice President, Operations of the company. In
1993, Dr. Curlander became a Vice President of the company, and from 1991 to
1993 he was General Manager of the company's printer business.
Mr. Morin has been Executive Vice President and Chief Financial Officer of the
company since January 2000. From January 1996 to January 2000, Mr. Morin was
Vice President and Chief Financial Officer of the company. 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.
Ms. Affeldt has been Vice President of Human Resources of the company 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. Braun has been Treasurer of the company since August 1998. Mr. Braun served
as Director, Investor Relations from October 1995 until his appointment as
Treasurer, and as Manager of Currency Exposure from the time he joined the
company in 1992 up to his appointment as Director, Investor Relations. Prior to
joining the company, Mr. Braun held various financial positions with Cummins
Engine Co.
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.
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Mr. Craig has been Vice President and President of the Consumer Printer Division
since November 2000. From June 2000 to November 2000, Mr. Craig served as a Vice
President of the company, reporting to the Chairman and Chief Executive Officer.
From October 1997 to June 2000, Mr. Craig served as a Vice President in the
company's Business Printer Division, and prior to such time, he served as a
Director in the company's Business Printer Division.
Mr. Goodnight has been Vice President and Corporate Controller of the company
since May 1998 and served as Controller 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, a division of Lockheed
Martin Corporation.
Mr. Lamb has been Vice President and President of the Customer Solutions
Division since December 1999. From May 1998 to December 1999, Mr. Lamb was
Executive Vice President of the company. Prior to such time, Mr. Lamb was Vice
President and President of the company's Imaging Solutions Division since August
1997. He served as Vice President and General Manager of the company's Imaging
Solutions Division from January 1996 up to his appointment as division
president. 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. Rooke has been Vice President and President of the Business Printer Division
since December 1999. From June 1998 to December 1999, Mr. Rooke was Vice
President and President of the company's Imaging Solutions Division. He served
as Vice President, Worldwide Marketing for the company's Consumer Printer
Division from September 1996 up to his appointment as division president. Prior
to such time, he held various positions within the company's printer divisions
and became Vice President and General Manager of Dot Matrix/Entry Laser Printers
in 1994. Prior to joining the company, Mr. Rooke held various positions with
IBM.
Mr. Rydell has been Vice President of Corporate Communications since he joined
the company in January 1998. Prior to joining the company, Mr. Rydell was Vice
President of Corporate Communications for The Timberland Company from December
1994 to January 1998. Prior to that, Mr. Rydell served as Director of Worldwide
Communications for Dell Computer Corporation.
Mr. Traversi has been Executive Vice President of the company since May 1998.
Prior to such time and since October 1997, he was President of Customer
Services. Mr. Traversi served as the company's Vice President of Information
Technology and Operations from the time he joined the company in October 1996 up
to his appointment as President of Customer Services. Prior to joining the
company, Mr. Traversi was Vice President -- Operations Services with Taco Bell
Corporation, and prior to 1994, Mr. Traversi held various senior management
positions with Digital Equipment Corporation.
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
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 aftermarket
laser cartridges for certain OEM printers, terminate as to certain 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 1,400 patents worldwide and has approximately
925 pending patent applications worldwide covering a range of subject matter.
The company has filed over 2,400 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
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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.
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.
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.
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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 2,848,000 Headquarters, Manufacturing, Development,
Administrative, Warehouse, Marketing Owned
151,000 Warehouses, Development Leased(1)
Seymour, IN 763,000 Warehouse, Distribution Leased(2)
Boulder, CO 332,000 Manufacturing, Development, Warehouse Leased(3)
Dietzenbach, Germany 35,000 Administrative, Warehouse Leased(4)
Juarez, Mexico 234,000 Manufacturing, Administrative Owned
Chihuahua, Mexico 192,000 Manufacturing, Administrative Owned
Richmond Hill, Ontario 105,000 Administrative, Marketing, Warehouse Leased(5)
Orleans, France 452,000 Manufacturing, Administrative, Warehouse Owned
Ormes, France 179,000 Warehouse Leased(6)
Paris, France 48,000 Administrative, Marketing Leased(7)
25,000 EMEA Headquarters Leased(8)
Rosyth, Scotland 150,000 Manufacturing, Administrative Owned
Sydney, Australia 64,000 Manufacturing, Administrative, Warehouse,
Marketing Leased(9)
Brno, Czech Republic 18,000 Manufacturing, Administrative Leased(10)
Lapu-Lapu City, Philippines 115,000 Manufacturing, Administrative Owned
Geneva, Switzerland 7,800 Manufacturing Control Center Leased(11)
Reynosa, Mexico 153,500 Manufacturing, Administrative Leased(12)
- ---------------
(1) Leases covering 151,000 square feet expire September, 2001, and carry three
one-year renewal options.
(2) Lease covering this property expires June, 2010, and carries two five-year
renewal options.
(3) Lease covering 278,000 square feet expires May, 2006, and carries two
five-year renewal options. Lease covering 54,000 square feet expires
December, 2005, and there are no renewal options.
(4) Lease covering this property expires September, 2004, and there are no
renewal options.
(5) Lease covering this property expires August, 2013, and carries two
five-year renewal options.
(6) Lease covering this property expires February, 2001, and there are no
renewal options.
(7) Leases covering this property expire December, 2006, and there are no
renewal options.
(8) Lease covering this property expires October, 2008, and there are no
renewal options.
(9) Lease covering this property expires March, 2002, and carries one six-year
renewal option.
(10) Lease covering this property expires December, 2003, and carries one
three-year renewal option.
(11) Lease covering this property expires August, 2002.
(12) Lease covering this property expires July, 2010, and carries two five-year
renewal options.
The company believes its facilities are in good operating condition. The square
footage in Lexington, Kentucky has declined as a result of the restructuring
plans discussed in Note 5 of the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The company is party to various litigation and other legal matters that are
being handled in the ordinary course of 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 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
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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 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
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Lexmark's Class A common stock is traded on the New York Stock Exchange under
the symbol LXK. As of March 9, 2001, there were 1,769 holders of record of the
Class A common stock and there were no holders of record of the Class B common
stock. Information regarding the market prices of the company's Class A common
stock appears in Part II, Item 8, Note 19 of the Notes to Consolidated Financial
Statements.
The company has never declared or paid any cash dividends on the Class A common
stock and has no current plans to pay cash dividends on the Class A common
stock. The payment of any future cash 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 various other factors.
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ITEM 6. SELECTED FINANCIAL DATA
The table below summarizes recent financial information for the company. For
further information refer to the company's financial statements and notes
thereto presented under Part II, Item 8 of this Form 10-K.
(Dollars in Millions, Except Share Data)
- --------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
STATEMENT OF EARNINGS DATA:
- ----------------------------------------------------------------------------------------------------------------------
Revenue...................................... $ 3,807.0 $ 3,452.3 $ 3,020.6 $ 2,493.5 $ 2,377.6
Cost of revenue.............................. 2,550.9 2,222.8 1,934.4 1,623.5 1,630.2
- ----------------------------------------------------------------------------------------------------------------------
Gross profit................................. 1,256.1 1,229.5 1,086.2 870.0 747.4
Research and development..................... 216.5 183.6 158.5 128.9 123.9
Selling, general and administrative.......... 582.6 569.3 544.9 466.5 388.0
Restructuring and related charges (1)........ 41.3 -- -- -- --
Amortization of intangibles (2).............. -- -- -- -- 5.1
- ----------------------------------------------------------------------------------------------------------------------
Operating income............................. 415.7 476.6 382.8 274.6 230.4
Interest expense............................. 12.8 10.7 11.0 10.8 20.9
Other........................................ 6.5 7.0 6.4 9.1 7.9
- ----------------------------------------------------------------------------------------------------------------------
Earnings before income tax................... 396.4 458.9 365.4 254.7 201.6
Provision for income tax..................... 111.0 140.4 122.4 91.7 73.8
- ----------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item........... 285.4 318.5 243.0 163.0 127.8
Extraordinary loss (3)....................... -- -- -- (14.0) --
- ----------------------------------------------------------------------------------------------------------------------
Net earnings................................. $ 285.4 $ 318.5 $ 243.0 $ 149.0 $ 127.8
Diluted earnings per common share before
extraordinary item (4)..................... $ 2.13 $ 2.32 $ 1.70 $ 1.08 $ 0.84
Diluted net earnings per common share (4).... $ 2.13 $ 2.32 $ 1.70 $ 0.99 $ 0.84
Shares used in per share calculation (4)..... 134,311,830 137,546,661 142,801,780 150,337,552 151,331,468
STATEMENT OF FINANCIAL POSITION DATA:
- ----------------------------------------------------------------------------------------------------------------------
Working capital.............................. $ 264.7 $ 353.2 $ 414.3 $ 228.6 $ 343.8
Total assets................................. 2,073.2 1,702.6 1,483.4 1,208.2 1,221.5
Total debt................................... 148.9 164.9 160.4 75.0 165.3
Stockholders' equity......................... 777.0 659.1 578.1 500.7 540.3
OTHER KEY DATA:
- ----------------------------------------------------------------------------------------------------------------------
Operating income before amortization and
unusual item (5)........................... $ 457.0 $ 476.6 $ 382.8 $ 274.6 $ 235.5
Diluted earnings per share before unusual
items (4)(5)(6)............................ $ 2.35 $ 2.32 $ 1.70 $ 1.08 $ 0.84
Cash from operations (7)..................... $ 476.3 $ 448.2 $ 300.3 $ 281.3 $ 125.4
Capital expenditures......................... $ 296.8 $ 220.4 $ 101.7 $ 69.5 $ 145.0
Debt to total capital ratio.................. 16% 20% 22% 13% 23%
After tax return on net assets before unusual
items (5)(8)............................... 32% 37% 34% 24% 21%
Return on average equity before unusual
items (5)(8)............................... 42% 53% 47% 30% 27%
Number of employees (9)...................... 13,035 10,933 8,835 7,985 6,573
- ----------------------------------------------------------------------------------------------------------------------
(1) Represents restructuring and related charges associated with the relocation
of manufacturing and reductions in associated support infrastructure.
Restructuring and related charges were $41.3 million ($29.7 million, net of
tax) and resulted in a 22 cent reduction in diluted net earnings per share.
(2) Acquisition-related intangibles were fully amortized by March 31, 1996.
(3) Represents extraordinary after-tax loss caused by the early extinguishment
of the company's senior subordinated notes.
(4) All data prior to 1999 has been restated to reflect a two-for-one stock
split on June 10, 1999.
(5) Unusual item in 2000 represents the restructuring and related charges
discussed in (1) above.
(6) Unusual item in 1997 represents the extraordinary after-tax loss discussed
in (3) above.
(7) Cash flows from investing and financing activities, which are not presented,
are integral components of total cash flow activity.
(8) Unusual item in 1997 represents the extraordinary loss discussed in (3)
above.
(9) Represents the number of full-time equivalent employees at December 31 of
each year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto:
OVERVIEW
Lexmark International, Inc. ("International," and together with its
subsidiaries, the "company" or "Lexmark") is a leading developer, manufacturer
and supplier of printing solutions, including laser and inkjet printers,
associated supplies and services for offices and homes. The company also sells
dot matrix printers for printing single and multi-part forms for business users.
In addition Lexmark develops, manufactures and markets a broad line of other
office imaging products which include supplies for select International Business
Machines Corporation ("IBM") branded printers, aftermarket supplies for original
equipment manufacturer ("OEM") products, and typewriters and typewriter supplies
that are sold under the IBM trademark.
In the past several years, the worldwide printer industry has seen growth in
laser and inkjet printers as a result of the increasing penetration of personal
computers into home and office markets. During this period, the company's own
product mix has evolved, with its laser and inkjet printers and associated
supplies representing an increasing percentage of its sales volume and revenue,
particularly as the increasing base of installed Lexmark printers generates
additional revenue from recurring sales of supplies for those printers
(primarily laser and inkjet cartridges). Lexmark believes that its total revenue
will continue to grow due to overall market growth and increases in the
company's market share in both the laser and inkjet printer categories.
Management believes that this growth will more than offset reduced demand for
dot matrix impact printers and declines in sales of IBM branded supplies as well
as typewriters and typewriter supplies that are sold under the IBM trademark.
In recent years, the company's growth rate in sales of printer units has
generally exceeded the growth rate of its printer revenue due to selling price
reductions and the introduction of new lower priced products in both the laser
and inkjet printer markets. In the laser printer market, unit price reductions
are partially offset by the tendency of customers to add optional features
including network adapters, additional memory and paper drawers as well as new
scanner and fax options. In the inkjet printer market, advances in color inkjet
technology have resulted in printers with sharper resolution and improved
performance while increased competition has led to lower prices. The greater
affordability of color inkjet printers has been an important factor in the
growth of this market.
As the installed base of Lexmark laser and inkjet printers continues to grow,
management expects the market for their associated supplies will grow as well,
as such supplies are routinely required for use throughout the life of the
printers. The associated supplies are a relatively high margin, recurring
business which the company expects to contribute to the stability of its
earnings over time.
The company's dot matrix printers and other office imaging products include many
mature products such as supplies for IBM printers, typewriters and other impact
supplies that require little ongoing investment. The company expects that the
market for these products will rapidly decline, and has implemented a strategy
to continue to offer high-quality products and pursue the aftermarket OEM
supplies opportunity, while managing cost to maximize cash flow and profit.
The company expects that its overall operating margins will remain relatively
stable as the associated printer supplies become an increasing part of its
business. Although the company expects continuing declines in printer prices, it
expects to be able to reduce costs and expenses generally in line with price
decreases.
RESTRUCTURING AND RELATED CHARGES
In October 2000, Lexmark's management and board of directors approved a plan to
restructure its worldwide operations. The restructuring plan will involve
relocating manufacturing, primarily laser printers, to Mexico and China, and
reductions in associated support infrastructure. Restructuring and related
charges of $41.3 million ($29.7 million, net of tax) were expensed during the
fourth quarter. These charges were comprised of $24.3 million of accrued
restructuring costs related to separation and other exit costs, $10.0 million
related to
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asset impairment charges and $7.0 million associated with a pension curtailment
loss to recognize a change in the company's projected benefit obligation
associated with the employee separations.
Components of and amounts charged against the restructuring accrual as of
December 31, 2000 were as follows:
TOTAL CASH ACCRUAL BALANCE AT
ACCRUAL PAYMENTS DECEMBER 31, 2000
-----------------------------------------------------------------------------------------------
Severance and related costs......................... $19.3 $(1.1) $18.2
Other exit costs.................................... 5.0 (1.8) 3.2
-----------------------------------------------------------------------------------------------
Total............................................. $24.3 $(2.9) $21.4
-----------------------------------------------------------------------------------------------
The $19.3 million accrued restructuring costs for employee separation is
associated with approximately 900 employees worldwide primarily in the
manufacturing and related support areas. Employee separation benefits include
severance, medical and other benefits. The current period separation cash
payments are related to initial severance amounts provided to targeted employees
who accepted Lexmark's voluntary departure program. Employees are expected to
begin exiting the business in the first quarter of 2001.
The other exit costs of $5.0 million are related to vendor and lease
cancellation charges and demolition and cleanup costs associated with the
company's manufacturing relocation.
The $10.0 million charge for asset impairment was determined in accordance with
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of "
and resulted from the company's plans to abandon certain assets (primarily
buildings) associated with the relocation of manufacturing and related support
activities.
In total, the company expects the pre-tax charge of $41.3 million to result in
cash payments of $24.3 million and non-cash charges of $17.0 million. The cash
payments are primarily for employee separations and other exit costs. Lexmark
expects to substantially complete its restructuring initiatives during the year
2001. Annual savings from the restructuring should approximate $100 million by
2002, and will be utilized to strengthen the company's competitive position.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Consolidated revenue in 2000 was $3,807 million, an increase of 10% over 1999.
Revenue was adversely affected by foreign currency exchange rates due to
weakening of European currencies against the U.S. dollar. Revenue growth was 16%
year-to-year on a constant currency basis. Total U.S. revenue increased $143
million or 9% and international revenue, including exports from the U.S.,
increased $212 million or 11%. Revenue from sales to all OEM customers accounted
for less than 15% of consolidated revenue in 2000 with no single OEM customer
accounting for more than 5% of total revenue.
The revenue growth was primarily driven by unit volume increases in printers and
associated supplies whose revenue increased 15% over 1999. Printer volumes grew
at double-digit rates and associated printer supplies revenues increased during
2000 as compared to 1999 primarily due to the continued growth of the company's
installed printer base.
Consolidated gross profit was $1,256 million for 2000, an increase of 2% from
1999. Gross profit as a percentage of revenue for 2000 decreased to 33.0% from
35.6% in 1999 principally due to lower hardware margins, unfavorable foreign
currency impact, the cost of airfreight, and a mix shift among products.
Total operating expense was $840 million in 2000. Excluding the restructuring
and related charges of $41 million, total operating expense was $799 million and
increased 6% for 2000 compared to 1999. Operating expense, excluding
restructuring and related charges, as a percentage of revenue decreased to 21.0%
in 2000 compared to 21.8% in 1999 primarily due to lower selling, general and
administrative expense as a percentage of revenue.
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Consolidated operating income was $416 million in 2000. Excluding the
restructuring and related charges, consolidated operating income was $457
million and decreased 4% from 1999. Higher printer and associated supplies unit
volumes and lower selling, general, and administrative expense as a percentage
of revenue were offset by lower hardware margins, unfavorable foreign currency
impact, the cost of airfreight, and a mix shift among products.
In 2000, earnings before income tax were $397 million. Excluding the
restructuring and related charges, earnings before income tax were $438 million,
a decrease of 5% from 1999, reflecting lower operating margins.
Net earnings were $285 million in 2000. The restructuring and related charges
net of taxes were $30 million. Net earnings, excluding restructuring and related
charges, were $315 million, down 1% from 1999, primarily due to lower operating
margins partially offset by a reduction in the effective income tax rate. The
income tax provision was 28.0% of earnings before tax in 2000 as compared to
30.6% in 1999. The decrease in the effective income tax rate was primarily due
to lower income tax rates on manufacturing activities in certain countries.
Basic net earnings per share were $2.22 for 2000 compared to $2.46 in 1999. The
restructuring and related charges resulted in a $.24 negative impact on basic
net earnings per share. Basic net earnings per share, excluding restructuring
and related charges, were $2.46 for both 2000 and 1999. Diluted net earnings per
share were $2.13 in 2000 before adjusting for the $.22 per share impact related
to the restructuring actions. Diluted net earnings per share after removing the
restructuring impacts were $2.35 in 2000, compared to $2.32 in 1999 an increase
of 1%. This increase was due to fewer shares outstanding partially offset by the
decline in net earnings.
The following table sets forth the percentage of total revenue represented by
certain items reflected in the company's statements of earnings, excluding
restructuring and related charges:
2000 1999 1998
-------------------------------------------------------------------------------------
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of revenue............................................. 67.0% 64.4% 64.0%
-------------------------------------------------------------------------------------
Gross profit................................................ 33.0% 35.6% 36.0%
Research & development...................................... 5.7% 5.3% 5.2%
Selling, general & administrative........................... 15.3% 16.5% 18.1%
-------------------------------------------------------------------------------------
Operating income............................................ 12.0% 13.8% 12.7%
-------------------------------------------------------------------------------------
1999 COMPARED TO 1998
Consolidated revenue in 1999 was $3,452 million, an increase of 14% over 1998.
Revenue was adversely affected by foreign currency exchange rates due to the
strengthening of the U.S. dollar. Without the currency translation effect,
year-to-year revenue growth would have been 16%. Total U.S. revenue increased
$118 million or 8% and international revenue, including exports from the U.S.,
increased $314 million or 19%. Revenue from sales to all OEM customers accounted
for less than 15% of consolidated revenue in 1999 with no single OEM customer
accounting for more than 5% of total revenue.
The revenue growth was primarily driven by unit volume increases in printers and
associated supplies. The company introduced the Optra T family of monochrome
laser printers and the "Z" series color inkjet printers in 1999. The company
also introduced the OptraImage multifunction products providing customers with
print/copy/fax/scan capabilities. Printer volumes grew at double-digit rates and
associated printer supplies revenue increased during 1999 as compared to 1998
primarily due to the continued growth of the company's installed printer base.
Consolidated gross profit was $1,229 million for 1999, an increase of 13% from
1998, mainly driven by printer and associated supplies volume increases. Gross
profit as a percentage of revenue for 1999 decreased to 35.6% from 36.0% in 1998
principally due to a mix shift among products.
Total operating expense increased 7% for 1999 compared to 1998. Operating
expense as a percentage of revenue decreased to 21.8% in 1999 compared to 23.3%
in 1998 primarily due to increased revenue and lower selling, general and
administrative expense as a percentage of revenue.
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Consolidated operating income was $477 million for 1999, an increase of 24% over
1998. This increase was due principally to higher printer and associated
supplies sales volumes and lower selling, general and administrative expense as
a percentage of revenue.
Earnings before income tax were $459 million, an increase of 26% over 1998,
reflecting the improved operating performance.
Net earnings were $318 million, an increase of 31% over 1998, primarily due to
the operating performance and reduction in the effective income tax rate. The
income tax provision was 30.6% of earnings before tax in 1999 as compared to
33.5% in 1998. The decrease in the effective income tax rate was primarily due
to lower income tax rates on manufacturing activities in certain countries.
Basic net earnings per share were $2.46 for 1999 versus $1.82 in 1998 an
increase of 35%. Diluted net earnings per share were $2.32 in 1999, compared to
$1.70 in 1998 an increase of 36%. These increases were due to the improved net
earnings and fewer shares outstanding as a result of repurchases throughout
1999.
LIQUIDITY AND CAPITAL RESOURCES
Lexmark's primary source of liquidity has been cash generated by operations,
which totaled $476 million, $448 million and $300 million in 2000, 1999 and
1998, respectively. Cash from operations has been sufficient to allow the
company to fund its working capital needs and finance its capital expenditures
during these periods along with the repurchase of approximately $209 million,
$302 million and $189 million of its Class A common stock during 2000, 1999 and
1998, respectively.
Cash flows from operating activities in 2000 increased 6% over 1999. The
increase in 2000 was primarily due to favorable changes in working capital
accounts. In 1999, cash provided by operating activities increased 49% over 1998
due to higher net earnings and favorable changes in working capital accounts.
The company has a $300 million unsecured, revolving credit facility with a group
of banks. The interest rate on the credit facility ranges from 0.2% to 0.7%
above London Interbank Offered Rate (LIBOR), as adjusted under certain limited
circumstances, based upon the company's debt rating. In addition, the company
pays a facility fee on the $300 million of 0.1% to 0.3% based upon the company's
debt rating. The interest and facility fees are payable quarterly. The $300
million credit agreement, as amended, contains customary default provisions,
leverage and interest coverage restrictions and certain restrictions on the
incurrence of additional debt, liens, mergers or consolidations and investments.
Any amounts outstanding under the $300 million credit facility are due upon the
maturity of the facility on January 27, 2003. As of December 31, 2000 there were
no amounts outstanding under this credit facility.
The company has outstanding $150 million principal amount of 6.75% senior notes
due May 15, 2008, priced at 98.998%, to yield 6.89% to maturity. The senior
notes contain typical restrictions on liens, sale leaseback transactions,
mergers and sales of assets. There are no sinking fund requirements on the
senior notes and they may be redeemed at any time, at a redemption price as
described in the related indenture agreement, as supplemented and amended, in
whole or in part, at the option of the company. A balance of $149 million (net
of unamortized discount of $1 million) was outstanding at December 31, 2000.
The company has an agreement in place to sell its U.S. trade receivables on a
limited recourse basis. In October 2000, the company amended that agreement and,
the maximum amount of U.S. trade receivables to be sold was increased from $150
million to $170 million. As collections reduce previously sold receivables, the
company may replenish these with new receivables. At December 31, 2000, U.S.
trade receivables of $170 million had been sold and, due to the revolving nature
of the agreement, $170 million also remained outstanding. At December 31, 1999,
U.S. trade receivables of $140 million had been sold and also remained
outstanding. The agreement, which contains customary financial covenants, must
be renewed annually, and is expected to be renewed upon its expiration in
October 2001. The risk the company bears from bad debt losses on U.S. trade
receivables sold is retained by the company since the company holds a retained
interest in the sold receivables of approximately $37 million. The company
addresses this risk of loss in its allowance for doubtful accounts. Receivables
sold may not include amounts over 60 days past due or concentrations over
certain limits with any one customer. In 1997, the company entered into
three-year interest rate swaps with a total notional
17
20
amount of $60 million, whereby the company paid interest at a fixed rate of
approximately 6.5% and received interest at a floating rate equal to the
three-month LIBOR. Since May 1998, the swaps served as a hedge of the
receivables financings which are based on floating interest rates. These
interest rate swaps expired during 2000.
At the company's Annual Meeting of Stockholders on April 27, 2000, the
stockholders approved an increase in the number of authorized shares of its
Class A common stock from 450 million to 900 million shares.
As of December 31, 2000, the company's board of directors had authorized the
repurchase of up to $1.0 billion of its Class A common stock. This repurchase
authority allows the company, at management's discretion, to selectively
repurchase its stock from time to time in the open market or in privately
negotiated transactions depending upon market price and other factors. During
2000, the company repurchased 3,137,900 shares of its Class A common stock for
approximately $209 million. As of December 31, 2000, the company had repurchased
28,606,928 shares at prices ranging from $10.63 to $105.38 per share for an
aggregate cost of approximately $882 million, leaving approximately $118 million
of share repurchase authority.
In February 2001, the company filed a shelf registration statement with the
Securities and Exchange Commission to register $200 million of debt securities.
The company expects to use the net proceeds from the sale of the securities for
capital expenditures, reduction of short-term borrowings, working capital,
acquisitions and other general corporate purposes.
CAPITAL EXPENDITURES
Capital expenditures totaled $297 million, $220 million and $102 million in
2000, 1999 and 1998, respectively. The capital expenditures during the past
three years were primarily attributable to capacity expansion, the support of
new products and research and development facilities. Looking forward to 2001,
the company expects capital expenditures to be approximately $300 million and
will include further expansion of printer and associated supplies manufacturing
capacity and new products. The capital expenditures are expected to be funded
primarily through cash from operations.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Revenue derived from international operations, including exports from the United
States, made up more than half of the company's consolidated revenue, with
European revenue accounting for about two-thirds of international revenue.
Substantially all foreign subsidiaries maintain their accounting records in
their local currencies. Consequently, period-to-period comparability of results
of operations is affected by fluctuations in exchange rates. Currency
translation has significantly affected international revenue and cost of
revenue, and although it did not have a material impact on operating income for
the years 1998 and 1999, the 2000 operating income was materially adversely
impacted by exchange rate fluctuations. The company attempts to reduce its
exposure to exchange rate fluctuations through the use of operational hedges,
such as pricing actions and product sourcing decisions.
The company's exposure to exchange rate fluctuations generally cannot be
minimized solely through the use of operational hedges. Therefore, the company
utilizes financial instruments such as forward exchange contracts and currency
options to reduce the impact of exchange rate fluctuations on actual and
anticipated cash flow exposures and certain assets and liabilities which arise
from transactions denominated in currencies other than the functional currency.
The company does not purchase currency related financial instruments for
purposes other than exchange rate risk management.
The company believes that international operations in new geographic markets
will be less profitable than operations in U.S. and European markets as a
result, in part, of the higher investment levels for marketing, selling and
distribution required to enter these markets.
TAX MATTERS
The company's effective income tax rate was approximately 28%, 31% and 34% for
2000, 1999 and 1998, respectively. The decrease in the income tax rate was
primarily due to the effect of lower tax rates on manufacturing activities in
certain countries.
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21
The company and its subsidiaries are subject to tax examinations in various U.S.
and foreign jurisdictions. The company believes that adequate amounts of tax and
related interest have been provided for any adjustments that may result from
these examinations.
As of December 31, 2000, the company had non-U.S. tax loss carryforwards of $23
million, including $4 million which are not expected to provide a future benefit
because they are attributable to certain non-U.S. entities that are also taxable
in the U.S.
NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The company adopted SAB 101
as required by December 31, 2000 and the adoption did not have a material impact
on the company's financial position, results of operations or cash flows.
In July 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 00-15, Classification in the
Statement of Cash Flows of the Income Tax Benefit Realized by a Company upon
Employee Exercise of a Nonqualified Stock Option. This statement requires that
cash flows realized from an income tax benefit as a result of employee stock
option exercises be recorded in cash flows from operating activities in the
Statement of Cash Flows. This statement is effective for quarters ending after
July 20, 2000 with reclassification required for comparative cash flow
statements. The company adopted this statement in the third quarter of 2000 and
has reclassified prior year amounts to conform with the classification of such
items as cash flows from operating activities. The company had previously
recorded such items in cash flows from financing activities.
In September 2000, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This statement is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
March 31, 2001. SFAS No. 140 also includes provisions that require additional
disclosures in the financial statements for fiscal years ending after December
15, 2000. Additional disclosures have been included in Note 15 of the Notes to
Consolidated Financial Statements. This statement is not expected to have a
material impact on the company's financial position, results of operations or
cash flows.
INFLATION
The company is subject to the effects of changing prices and operates in an
industry where product prices are very competitive and subject to downward price
pressures. As a result, future increases in production costs or raw material
prices could have an adverse effect on the company's business. However, the
company actively manages its product costs and manufacturing processes in an
effort to minimize the impact on earnings of any such increases.
YEAR 2000
The company has not experienced any significant internal system difficulties
associated with the year 2000 issue.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND INFORMATION CONCERNING
FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not statements of historical fact
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
company. There can be no assurance that future developments affecting the
company will be those anticipated by management, and there are a number of
factors that could adversely affect the company's future operating results or
cause the company's actual results to
19
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differ materially from the 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 laser and inkjet printers and associated
supplies are increasingly competitive, especially with respect to pricing and
the introduction of new technologies and products offering improved features and
functionality. The company 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 are expected to
continue to do so. In particular, both the inkjet and laser printer markets have
experienced and are expected to continue to experience significant printer price
pressure from the company's major competitors. Price reductions on inkjet or
laser printer products or the inability to reduce costs, contain expenses or
increase sales as currently expected, as well as price protection measures,
could result in lower profitability and jeopardize the company's ability to grow
or maintain its market share, particularly at a time when the company is
increasing its investment to support product introductions, expand capacity and
enter new geographies.
- - Delays in customer purchases of existing products in anticipation of new
product introductions by the company or its competitors and market acceptance of
new products and pricing programs, the reaction of competitors to any such new
products or programs, the life cycles of the company's products, as well as
delays in product development and manufacturing, and variations in the cost of
component parts, may cause a buildup in the company's inventories, make the
transition from current products to new products difficult and could adversely
affect the company's future operating results. The competitive pressure to
develop technology and products also could cause significant changes in the
level of the company's operating expenses.
- - The company is beginning to rely more heavily on its international production
facilities and international manufacturing partners for the manufacture of its
products and key components of its products. Future operating results may be
adversely affected by several factors, including, without limitation, if the
company's international operations or manufacturing partners are unable to
supply products reliably, if there are difficulties in transitioning such
manufacturing activities from the company to its international operations or
manufacturing partners, or if there arise production and supply constraints
which result in additional costs to the company.
- - Revenue derived from international sales make up over half of the company's
revenue. 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, and the company believes that international operations in new geographic
markets will be less profitable than operations in the U.S. and European
markets, in part, because of the higher investment levels for marketing, selling
and distribution required to enter these markets.
- - The company's performance depends in part upon its ability to increase printer
and associated supplies manufacturing capacity on an international basis in line
with growing market demands, to successfully forecast the timing and extent of
customer demand and manage worldwide inventory levels to support the demand of
its customers, and to address production and supply constraints, particularly
delays in the supply of key components necessary for production, which may
result in the company incurring additional costs to meet customer demand. The
company's future operating results and its ability to effectively grow or
maintain its market share may be adversely affected if it is unable to address
these issues on a timely basis.
- - The company markets and sells its products through several sales channels. The
company's future results may be adversely affected by any conflicts that might
arise between or among its various sales channels.
- - 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,
cash flows, financial position or business, as could expenses incurred by the
company in enforcing its intellectual property rights against others or
defending against claims that the company's products infringe the intellectual
property rights of others.
20
23
- - Factors unrelated to the company's operating performance, including economic
and business conditions, both national and international; the loss of
significant customers, manufacturing partners or suppliers; the outcome of
pending and future litigation or governmental proceedings; and the ability to
retain and attract key personnel, could also adversely affect the company's
operating results. In addition, the company's stock price, like that of other
technology companies, can be volatile. Trading activity in the company's common
stock, particularly the trading of large blocks and interday trading in the
company's common stock, may affect the company's common stock price.
While the company reassesses material trends and uncertainties affecting the
company's financial condition and results of operations in connection with the
preparation of its quarterly and annual reports, the company does not intend to
review or revise, in light of future events, any particular forward-looking
statement contained in this report.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this report, in any of the
company's public filings or press releases or in any oral statements made by the
company or any of its officers or other persons acting on its behalf. The
important factors that could affect forward-looking statements are subject to
change, and the company does not intend to update the foregoing list of certain
important factors. By means of this cautionary note, the company intends to
avail itself of the safe harbor from liability with respect to forward-looking
statements that is provided by Section 27A and Section 21E referred to above.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVITY
The market risk inherent in the company's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates and
foreign currency exchange rates.
Interest Rates
- --------------
At December 31, 2000, the fair value of the company's senior notes is estimated
at $135 million using quoted market prices and yields obtained through
independent pricing sources for the same or similar types of borrowing
arrangements, taking into consideration the underlying terms of the debt. The
carrying value exceeded the fair value of debt at December 31, 2000 by
approximately $14 million. Market risk is estimated as the potential change in
fair value resulting from a hypothetical 10% adverse change in interest rates
and amounts to approximately $6 million at December 31, 2000.
Foreign Currency Exchange Rates
- -------------------------------
The company employs a foreign currency hedging strategy to limit potential
losses in earnings or cash flows from adverse foreign currency exchange rate
movements. Foreign currency exposures arise from transactions denominated in a
currency other than the company's functional currency and from foreign
denominated revenues and profits translated into U.S. dollars. The primary
currencies to which the company is exposed include the euro, other European
currencies, the Japanese yen and other Asian and South American currencies.
Exposures are hedged with foreign currency forward contracts, put options, and
call options all with maturity dates of less than eighteen months. The potential
loss in fair value at December 31, 2000 for such contracts resulting from a
hypothetical 10% adverse change in all foreign currency exchange rates is
approximately $27 million. This loss would be mitigated by corresponding gains
on the underlying exposures.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Millions, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenue............................................... $ 3,807.0 $ 3,452.3 $ 3,020.6
Cost of revenue....................................... 2,550.9 2,222.8 1,934.4
- -----------------------------------------------------------------------------------------------
GROSS PROFIT..................................... 1,256.1 1,229.5 1,086.2
- -----------------------------------------------------------------------------------------------
Research and development.............................. 216.5 183.6 158.5
Selling, general and administrative................... 582.6 569.3 544.9
Restructuring and related charges..................... 41.3 -- --
- -----------------------------------------------------------------------------------------------
OPERATING EXPENSE................................ 840.4 752.9 703.4
- -----------------------------------------------------------------------------------------------
OPERATING INCOME................................. 415.7 476.6 382.8
Interest expense...................................... 12.8 10.7 11.0
Other................................................. 6.5 7.0 6.4
- -----------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAX....................... 396.4 458.9 365.4
Provision for income tax.............................. 111.0 140.4 122.4
- -----------------------------------------------------------------------------------------------
NET EARNINGS..................................... $ 285.4 $ 318.5 $ 243.0
Net earnings per share:
Basic............................................ $ 2.22 $ 2.46 $ 1.82
Diluted.......................................... $ 2.13 $ 2.32 $ 1.70
Shares used in per share calculation:
Basic............................................ 128,355,774 129,360,700 133,242,738
Diluted.......................................... 134,311,830 137,546,661 142,801,780
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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26
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2000 AND 1999
(Dollars in Millions, Except Share Amounts)
- --------------------------------------------------------------------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 68.5 $ 93.9
Trade receivables, net of allowances of $22.2 in 2000 and
$24.1 in 1999.......................................... 594.0 507.3
Inventories............................................... 412.3 387.7
Prepaid expenses and other current assets................. 168.9 99.8
- ---------------------------------------------------------------------------------
TOTAL CURRENT ASSETS................................... 1,243.7 1,088.7
Property, plant and equipment, net.......................... 730.6 561.0
Other assets................................................ 98.9 52.9
- ---------------------------------------------------------------------------------
TOTAL ASSETS........................................... $2,073.2 $1,702.6
- ---------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ -- $ 16.2
Accounts payable.......................................... 426.1 300.9
Accrued liabilities....................................... 552.9 418.4
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES.............................. 979.0 735.5
Long-term debt.............................................. 148.9 148.7
Other liabilities........................................... 168.3 159.3
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES...................................... 1,296.2 1,043.5
- ---------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,600,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.01 par value:
Class A, 900,000,000 shares authorized; 127,086,660
and 128,120,358 outstanding in 2000 and 1999,
respectively........................................ 1.6 1.5
Class B, 10,000,000 shares authorized; no shares
issued and outstanding.............................. -- --
Capital in excess of par.................................. 715.7 630.4
Retained earnings......................................... 1,015.7 730.3
Treasury stock, at cost; 28,572,272 and 25,441,266 shares
in 2000 and 1999, respectively......................... (881.1) (672.3)
Accumulated other comprehensive loss...................... (74.9) (30.8)
- ---------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY............................. 777.0 659.1
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $2,073.2 $1,702.6
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars In Millions)
- --------------------------------------------------------------------------------
2000 1999 1998
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................ $285.4 $318.5 $243.0
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 91.2 80.1 75.6
Deferred taxes......................................... (3.2) (8.9) 3.0
Restructuring and related charges...................... 41.3 -- --
Other non-cash charges to operations................... 6.0 67.9 26.5
- --------------------------------------------------------------------------------------
420.7 457.6 348.1
Change in assets and liabilities:
Trade receivables.................................... (116.7) (77.9) (138.2)
Trade receivables program............................ 30.0 40.0 (12.3)
Inventories.......................................... (24.6) (54.7) 20.8
Accounts payable..................................... 125.2 33.8 (34.9)
Accrued liabilities.................................. 134.5 91.5 99.4
Tax benefits from employee stock options............. 61.2 47.8 11.3
Other assets and liabilities......................... (154.0) (89.9) 6.1
- --------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 476.3 448.2 300.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............. (296.8) (220.4) (101.7)
Other.................................................. (1.3) 0.2 2.0
- --------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES............ (298.1) (220.2) (99.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt................. (16.2) 8.2 (6.3)
Proceeds from issuance of long-term debt, net of
issuance costs of $1.3................................ -- -- 297.2
Principal payments on long-term debt................... -- -- (207.0)
Purchase of treasury stock............................. (208.8) (302.0) (188.5)
Proceeds from employee stock plans..................... 23.8 12.4 9.4
- --------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES............ (201.2) (281.4) (95.2)
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (2.4) (1.7) 0.6
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents........ (25.4) (55.1) 106.0
Cash and cash equivalents -- beginning of period............ 93.9 149.0 43.0
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 68.5 $ 93.9 $149.0
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Millions, Except Share Amounts)
- --------------------------------------------------------------------------------
CLASS A CLASS B CAPITAL IN
COMMON STOCK COMMON STOCK EXCESS OF PAR
-------------------- ----------------- -------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ -------- ------
BALANCE AT DECEMBER 31, 1997.............................. 135,079,870 $0.7 410,537 $-- $537.2
Comprehensive earnings....................................
Net earnings............................................
Other comprehensive earnings (loss):....................
Minimum pension liability adjustment (net of related
tax benefit of $3.7)................................
Translation adjustment................................
Other comprehensive earnings (loss).....................
- --------------------------------------------------------------------------------------------------------------------
Comprehensive earnings....................................
Conversion of Class B to Class A common stock............. 821,074 (410,537)
Long-term incentive plan compensation..................... 5.3
Deferred stock plan compensation.......................... 1.6
Shares issued upon exercise of options.................... 2,350,756 0.1 9.4
Tax benefit related to stock options...................... 11.3
Treasury shares purchased................................. (7,295,200)
Treasury shares issued.................................... 25,762
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998.............................. 130,982,262 0.8 -- -- 564.8
Comprehensive earnings....................................
Net earnings............................................
Other comprehensive earnings (loss):....................
Minimum pension liability adjustment (net of related
tax liability of $0.7)..............................
Cash flow hedges (net of related tax liability of
$1.0)...............................................
Translation adjustment................................
Other comprehensive earnings (loss).....................
- --------------------------------------------------------------------------------------------------------------------
Comprehensive earnings....................................
Long-term incentive plan compensation..................... 2.9
Deferred stock plan compensation.......................... 3.9
Shares issued upon exercise of options.................... 2,433,696 11.7
Tax benefit related to stock options...................... 47.8
Two-for-one stock split................................... 0.7 (0.7)
Treasury shares purchased................................. (5,297,600)
Treasury shares issued.................................... 2,000
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999.............................. 128,120,358 1.5 -- -- 630.4
Comprehensive earnings....................................
Net earnings............................................
Other comprehensive earnings (loss):....................
Minimum pension liability adjustment (net of related
tax liability of $0.9)..............................
Cash flow hedges (net of related tax benefit of
$2.3)...............................................
Translation adjustment................................
Other comprehensive earnings (loss).....................
- --------------------------------------------------------------------------------------------------------------------
Comprehensive earnings....................................
Long-term incentive plan compensation..................... (3.2)
Deferred stock plan compensation.......................... 28,542 3.6
Shares issued upon exercise of options.................... 1,914,034 0.1 15.0
Shares issued under employee stock purchase plan.......... 154,732 8.7
Tax benefit related to stock options...................... 61.2
Treasury shares purchased................................. (3,137,900)
Treasury shares issued.................................... 6,894
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000.............................. 127,086,660 $1.6 -- $-- $715.7
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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29
- --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS)
---------------------------------------------------- TOTAL
RETAINED TREASURY MINIMUM TRANSLATION CASH FLOW STOCKHOLDERS'
EARNINGS STOCK PENSION LIABILITY ADJUSTMENT HEDGES TOTAL EQUITY
- -------- -------- ----------------- ----------- --------- ------ -------------
$ 168.8 $(182.2) $ -- $(23.8) $ -- $(23.8) $500.7
243.0 243.0
(5.1) (5.1)
(0.1) (0.1)
------
(5.2) (5.2)
- ------------------------------------------------------------------------------------------
237.8
--
5.3
1.6
9.5
11.3
(188.5) (188.5)
0.4 0.4
- ------------------------------------------------------------------------------------------
411.8 (370.3) (5.1) (23.9) -- (29.0) 578.1
318.5 318.5
0.7 0.7
8.5 8.5
(11.0) (11.0)
------
(1.8) (1.8)
- ------------------------------------------------------------------------------------------
316.7
2.9
3.9
11.7
47.8
--
(302.0) (302.0)
-- --
- ------------------------------------------------------------------------------------------
730.3 (672.3) (4.4) (34.9) 8.5 (30.8) 659.1
285.4 285.4
0.8 0.8
(22.3) (22.3)
(22.6) (22.6)
------
(44.1) (44.1)
- ------------------------------------------------------------------------------------------
241.3
(3.2)
3.6
15.1
8.7
61.2
(208.9) (208.9)
0.1 0.1
- ------------------------------------------------------------------------------------------
$1,015.7 $(881.1) $(3.6) $(57.5) $(13.8) $(74.9) $777.0
- --------------------------------------------------------------------------------
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LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Share Amounts)
1. ORGANIZATION AND BUSINESS
Lexmark International Group, Inc. ("Group") merged with and into its
wholly-owned subsidiary, Lexmark International, Inc. ("International") effective
July 1, 2000, whereby International became the surviving corporation (the
"company"). Pursuant to the merger, Group's stockholders automatically received
one share of the company's Class A common stock for each share of Group Class A
common stock, along with the associated rights attaching pursuant to the
Stockholder Rights Plan, to which the company is a successor. The company's
Class A common stock and associated rights have the same rights and privileges
as Group's Class A common stock and associated rights. The company also assumed
all of Group's benefit plans for employees, retirees and directors and each
outstanding Group stock based award was converted into an identical stock based
award in the company. Hereafter, the "company" and "Lexmark" will refer to Group
for all events prior to July 1, 2000 and will refer to International for all
events subsequent to the merger.
Lexmark is a leading developer, manufacturer and supplier of printing
solutions -- including laser and inkjet printers, associated supplies and
services -- for offices and homes. The company also sells dot matrix printers
for printing single and multi-part forms by business users. In addition, Lexmark
develops, manufactures and markets a broad line of other office imaging products
which include supplies for International Business Machines Corporation ("IBM")
branded printers, aftermarket supplies for original equipment manufacturer
("OEM") products, and typewriters and typewriter supplies that are sold under
the IBM trademark. The principal customers for the company's products are
dealers, retailers and distributors worldwide. The company's products are sold
in over 150 countries in North and South America, Europe, the Middle East,
Africa, Asia, the Pacific Rim and the Caribbean.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the
company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Foreign Currency Translation:
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency
environment are translated into U.S. dollars at period-end exchange rates.
Income and expense accounts are translated at average exchange rates prevailing
during the period. Adjustments arising from the translation of assets and
liabilities are accumulated as a separate component of accumulated other
comprehensive earnings in stockholders' equity.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Estimates are used when accounting for such items as the allowance for doubtful
accounts, inventory reserves, product warranty, depreciation, employee benefit
plans and taxes.
Cash Equivalents:
All highly liquid investments with an original maturity of three months or less
at the company's date of purchase are considered to be cash equivalents.
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Fair Value of Financial Instruments:
The financial instruments of the company consist mainly of cash and cash
equivalents, trade receivables and long-term debt. The fair value of cash and
cash equivalents and trade receivables approximates their carrying values due to
the relatively short-term nature of the instruments. The fair value of long-term
debt is based on current rates available to the company for debt with similar
characteristics.
Inventories:
Inventories are stated at the lower of average cost or market. The company
considers all raw materials to be in production upon their receipt.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Property, plant and
equipment accounts are relieved of the cost and related accumulated depreciation
when assets are disposed of or otherwise retired.
Internal Use Software Costs:
Effective January 1, 1999 the company adopted Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This statement requires that costs for internal use software be capitalized
and depreciated over the useful life of the software. Prior to adoption of this
statement, such costs were expensed as incurred.
Long-Lived Assets:
The company performs reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of the asset and its eventual
disposition are less than its carrying amount.
Revenue Recognition:
The company generally recognizes revenue on sales of products at the time
products are shipped to its customers. Provision is made at the time the related
revenue is recognized for estimated product returns and price protection which
may occur under programs the company has with its customers. The company
provides for the estimated cost of post-sales support and product warranties
upon shipment. When other significant obligations remain after products are
delivered, revenue is recognized only after such obligations are fulfilled.
Revenue earned from services is recognized ratably over the contractual period
or as the services are performed.
Advertising Costs:
The company expenses advertising costs when incurred. Advertising expense was
approximately $128.3 million, $121.4 million and $115.6 million in 2000, 1999
and 1998, respectively.
Postretirement Benefits:
The company accrues the cost of providing postretirement benefits for medical
and life insurance coverage over the active service period of the employee.
These benefits are funded by the company when paid.
Stock-Based Compensation:
The company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and has provided in Note 10
of the Notes to Consolidated Financial Statements the pro forma disclosures of
the effect on net income and earnings per common share as if the fair
value-based method had been applied in measuring compensation expense.
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32
Income Taxes:
The provision for income tax is computed based on pre-tax income included in the
statements of earnings. The company utilizes the liability method of accounting
for income taxes. This method requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Derivatives:
Effective January 1, 1999, the company adopted Statement of Financial Accounting
Standard ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires that all derivatives, including foreign
currency exchange contracts, be recognized in the statement of financial
position at their fair value. Derivatives that are not hedges must be recorded
at fair value through earnings. If a derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative are either
offset against the change in fair value of underlying assets or liabilities
through earnings or recognized in other comprehensive earnings until the
underlying hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is to be immediately recognized in earnings.
In June 2000, SFAS No. 138 was issued as an amendment to SFAS No. 133. This
statement amended the treatment of certain transactions discussed in SFAS No.
133. This new amendment did not have a material impact on the company's results
of operations or financial position.
Net Earnings Per Share:
Basic net earnings per share is calculated by dividing net income by the
weighted average number of shares outstanding during the reported period. The
calculation of diluted net earnings per share is similar to basic, except that
the weighted average number of shares outstanding includes the additional
dilution from potential common stock such as stock options and stock under
long-term incentive plans.
Comprehensive Earnings (Loss):
Other comprehensive earnings (loss) refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive earnings (loss) but are excluded from net income as these amounts
are recorded directly as an adjustment to stockholders' equity, net of tax. The
company's other comprehensive earnings (loss) is composed of deferred gains and
losses on cash flow hedges, foreign currency translation adjustments and
adjustments made to recognize additional minimum liabilities associated with the
company's defined benefit pension plans.
Segment Data:
The company manufactures and sells a variety of printers and associated supplies
that have similar economic characteristics as well as similar customers,
production processes and distribution methods and, therefore, has aggregated
similar segments and continues to report one segment.
Recent Pronouncements:
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The company adopted SAB 101
as required by December 31, 2000 and the adoption did not have a material impact
on the company's financial position, results of operations or cash flows.
In July 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 00-15, Classification in the
Statement of Cash Flows of the Income Tax Benefit Realized by a Company upon
Employee Exercise of a Nonqualified Stock Option. This statement requires that
cash flows
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realized from an income tax benefit as a result of employee stock option
exercises be recorded in cash flows from operating activities in the Statement
of Cash Flows. This statement is effective for quarters ending after July 20,
2000 with reclassification required for comparative cash flow statements. The
company adopted this statement in the third quarter of 2000 and has reclassified
prior year amounts to conform with the classification of such items as cash
flows from operating activities. The company had previously recorded such items
in cash flows from financing activities.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This statement
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after March 31, 2001. SFAS No. 140 also includes
provisions that require additional disclosures in the financial statements for
fiscal years ending after December 15, 2000. Additional disclosures have been
included in Note 15 of the Notes to Consolidated Financial Statements. This
statement is not expected to have a material impact on the company's financial
position, results of operations or cash flows.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
3. INVENTORIES
Inventories consisted of the following at December 31:
2000 1999
- --------------------------------------------------------------------------------
Work in process............................................. $171.0 $169.5
Finished goods.............................................. 241.3 218.2
- --------------------------------------------------------------------------------
$412.3 $387.7
- --------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
USEFUL LIVES
(YEARS) 2000 1999
- -------------------------------------------------------------------------------------------------
Land and improvements...................................... 20 $ 20.9 $ 18.5
Buildings and improvements................................. 10-35 307.4 257.9
Machinery and equipment.................................... 5-10 683.4 557.4
Information systems and furniture.......................... 3-7 155.5 139.5
Internal use software...................................... 3 25.8 9.0
- -------------------------------------------------------------------------------------------------
1,193.0 982.3
Less accumulated depreciation.............................. 462.4 421.3
- -------------------------------------------------------------------------------------------------
$ 730.6 $561.0
- -------------------------------------------------------------------------------------------------
Depreciation expense was $91.1 million, $79.8 million and $75.1 million for
2000, 1999 and 1998, respectively.
5. RESTRUCTURING AND RELATED CHARGES
In October 2000, Lexmark's management and board of directors approved a plan to
restructure its worldwide operations. The restructuring plan will involve
relocating manufacturing, primarily laser printers, to Mexico and China, and
reductions in associated support infrastructure. Restructuring and related
charges of $41.3 million ($29.7 million, net of tax) were expensed during the
fourth quarter. These charges were comprised of $24.3 million of accrued
restructuring costs related to separation and other exit costs, $10.0 million
related to asset impairment charges and $7.0 million associated with a pension
curtailment loss to recognize a change in the company's projected benefit
obligation associated with the employee separations.
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34
Components of and amounts charged against the restructuring accrual as of
December 31, 2000 were as follows:
TOTAL CASH ACCRUAL BALANCE AT
ACCRUAL PAYMENTS DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------
Severance and related costs........................ $19.3 $(1.1) $18.2
Other exit costs................................... 5.0 (1.8) 3.2
- ------------------------------------------------------------------------------------------------
Total.................................... $24.3 $(2.9) $21.4
- ------------------------------------------------------------------------------------------------
The $19.3 million accrued restructuring costs for employee separation is
associated with approximately 900 employees worldwide primarily in the
manufacturing and related support areas. Employee separation benefits include
severance, medical and other benefits. The current period separation cash
payments are related to initial severance amounts provided to targeted employees
who accepted Lexmark's voluntary departure program. Employees are expected to
begin exiting the business in the first quarter of 2001.
The other exit costs of $5.0 million are related to vendor and lease
cancellation charges and demolition and cleanup costs associated with the
company's manufacturing relocation.
The $10.0 million charge for asset impairment was determined in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of " and resulted from the company's plans to
abandon certain assets (primarily buildings) associated with the relocation of
manufacturing and related support activities.
In total, the company expects the pre-tax charge of $41.3 million to result in
cash payments of $24.3 million and non-cash charges of $17.0 million. The cash
payments are primarily for employee separations and other exit costs. There have
been no material changes to the plan since its announcement in October 2000.
Charges against the accrual are expected to be substantially completed during
the year 2001.
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
2000 1999
- --------------------------------------------------------------------------------
Compensation................................................ $ 63.7 $ 93.1
Income tax payable.......................................... 33.9 36.2
Fixed assets................................................ 52.9 25.0
Warranty.................................................... 40.1 33.4
Value added tax............................................. 21.7 11.8
Deferred revenue............................................ 64.6 54.4
Marketing programs.......................................... 49.2 44.7
Derivative liabilities...................................... 56.9 7.5
Other....................................................... 169.9 112.3
- --------------------------------------------------------------------------------
$552.9 $418.4
- --------------------------------------------------------------------------------
7. DEBT
The company has outstanding $150.0 million principal amount of 6.75% senior
notes due May 15, 2008, priced at 98.998%, to yield 6.89% to maturity. A balance
of $148.9 million (net of unamortized discount of $1.1 million) was outstanding
at December 31, 2000. At December 31, 1999, the balance was $148.7 million (net
of unamortized discount of $1.3 million). The senior notes contain typical
restrictions on liens, sale leaseback transactions, mergers and sales of assets.
There are no sinking fund requirements on the senior notes and they may be
redeemed at any time, at a redemption price as described in the related
indenture agreement, as supplemented and amended, in whole or in part, at the
option of the company.
The company also has a $300.0 million unsecured, revolving credit facility with
a group of banks. The interest rate on the credit facility ranges from 0.2% to
0.7% above London Interbank Offered Rate (LIBOR), as adjusted under certain
limited circumstances, based upon the company's debt rating. In addition, the
company pays a
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facility fee on the $300.0 million of 0.1% to 0.3% based upon the company's debt
rating. The interest and facility fees are payable quarterly.
The $300.0 million credit agreement, as amended, contains customary default
provisions, leverage and interest coverage restrictions and certain restrictions
on the incurrence of additional debt, liens, mergers or consolidations and
investments. Any amounts outstanding under the $300.0 million credit facility
are due upon the maturity of the facility on January 27, 2003.
Total cash paid for interest amounted to $15.9 million, $14.3 million and $13.0
million in 2000, 1999 and 1998, respectively.
8. STOCK SPLIT
On April 29, 1999, the company announced a two-for-one stock split. The stock
split was effected in the form of a stock dividend on June 10, 1999 and entitled
each stockholder of record on May 20, 1999 to receive one share of Class A
common stock for each share of Class A common stock held on the record date. All
share and per share data included in the accompanying consolidated financial
statements and related notes have been restated to reflect this stock split.
9. STOCKHOLDERS' EQUITY
The Class A common stock is voting and exchangeable for Class B common stock in
very limited circumstances. The Class B common stock is non-voting and is
convertible, subject to certain limitations, into Class A common stock.
At the company's Annual Meeting of Stockholders on April 27, 2000, the
stockholders approved an increase in the number of authorized shares of its
Class A common stock from 450 million to 900 million shares.
At December 31, 2000, approximately 723,100,000 and 1,750,000 shares of Class A
and Class B common stock were unissued and unreserved. These shares are
available for a variety of general corporate purposes, including future public
offerings to raise additional capital and for facilitating acquisitions.
As of December 31, 2000, the company's board of directors had authorized a total
repurchase of $1.0 billion of its Class A common stock. This repurchase
authority allows the company, at management's discretion, to selectively
repurchase its stock from time to time in the open market or in privately
negotiated transactions depending upon market price and other factors. As of
December 31, 2000, the company had repurchased 28,606,928 shares at prices
ranging from $10.63 to $105.38 per share for an aggregate cost of approximately
$882 million. As of December 31, 2000, the company had reissued 34,656 shares of
previously repurchased shares in connection with employee benefit programs. As a
result of these issuances, the net treasury shares outstanding at December 31,
2000 were 28,572,272.
In 1998, the company's board of directors adopted a stockholder rights plan (the
"Rights Plan") which now provides existing stockholders with the right to
purchase one one-thousandth (0.001) of a share of Series A Junior Participating
preferred stock for each share of common stock held in the event of certain
changes in the company's ownership. The rights will expire on January 31, 2009,
unless earlier redeemed by the company.
10. STOCK INCENTIVE PLANS
The company has various stock incentive plans to encourage employees and
non-employee directors to remain with the company and to more closely align
their interests with those of the company's stockholders. In December 2000, the
board of directors approved a new broad-based employee stock incentive plan and
1,600,000 shares of Class A common stock have been reserved for future grants
under this plan. Under the employee plans, including the newly approved plan, as
of December 31, 2000 approximately 4,300,000 shares of Class A common stock are
reserved for future grants in the form of stock options, stock appreciation
rights, restricted stock, performance shares or deferred stock units. Under the
non-employee director plan, as of December 31, 2000 approximately 285,000 shares
of Class A common stock are reserved for future grants in the form of stock
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options and deferred stock units. As of December 31, 2000, awards under the
programs have been limited to stock options, restricted stock, performance
shares and deferred stock units.
As of December 31, 2000, the company has granted approximately 275,000
restricted stock units with various vesting periods. The company has also issued
approximately 252,000 deferred stock units to certain members of management who
have elected to defer all or a portion of their annual bonus into such units
which are 100% vested at all times. The cost of the awards, determined to be the
fair market value of the shares at the date of grant, is charged to compensation
expense ratably over the vesting periods. In addition, the company awarded
performance shares, the vesting of which was based on the attainment of certain
performance goals by the end of the four year period 1997 through 2000. Based on
the recent certification that such performance goals were in fact satisfied, the
shares have now become fully vested. The compensation expense in connection with
the performance shares was estimated over the four year period based on the fair
market value of the shares during that period. In order to mitigate the impact
of stock price changes on compensation expense, the company entered into a
forward equity contract on its common stock during 2000 which was settled in
cash in 2001.
The exercise price of options awarded under stock option plans is equal to the
fair market value of the underlying common stock on the date of grant. Generally
options expire ten years from the date of grant and generally become fully
vested at the end of five years based upon continued employment or the
completion of three years of service on the board of directors. In some cases,
option vesting and exercisability may be accelerated due to the achievement of
performance objectives.
The company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock-based compensation plans
other than for restricted stock, performance-based awards and deferred stock
units. Had compensation expense for the company's stock option plans been
determined based on the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, Accounting
for Stock-Based Compensation, net earnings and earnings per share would have
been reduced to the pro forma amounts indicated in the table below:
2000 1999 1998
- ------------------------------------------------------------------------------------------
Net earnings -- as reported................................. $285.4 $318.5 $243.0
Net earnings -- pro forma................................... 264.9 305.2 236.5
Basic EPS -- as reported.................................... $ 2.22 $ 2.46 $ 1.82
Basic EPS -- pro forma...................................... 2.06 2.36 1.77
Diluted EPS -- as reported.................................. $ 2.13 $ 2.32 $ 1.70
Diluted EPS -- pro forma.................................... 1.97 2.22 1.66
- ------------------------------------------------------------------------------------------
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
- ------------------------------------------------------------------------------------------
Expected dividend yield..................................... -- -- --
Expected stock price volatility............................. 46% 43% 38%
Weighted average risk-free interest rate.................... 6.6% 5.0% 5.5%
Weighted average expected life of options (years)........... 5.0 4.9 4.9
- ------------------------------------------------------------------------------------------
The weighted average fair value of options granted during 2000, 1999 and 1998
was $47.05, $24.41 and $9.46 per share, respectively.
The pro forma effects on net income for 2000, 1999 and 1998 are not
representative of the pro forma effect on net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1995.
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A summary of the status of the company's stock option plans as of December 31,
2000, 1999 and 1998 and changes during the years then ended is presented below:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
- ----------------------------------------------------------------------------------------------
Outstanding at December 31, 1997............................ 13,583,850 $ 7.79
Granted..................................................... 2,792,416 22.86
Exercised................................................... (2,531,610) 5.73
Forfeited or canceled....................................... (245,700) 12.87
- ----------------------------------------------------------------------------------------------
Outstanding at December 31, 1998............................ 13,598,956 11.15
Granted..................................................... 2,680,664 52.59
Exercised................................................... (2,588,116) 8.83
Forfeited or canceled....................................... (385,879) 16.73
- ----------------------------------------------------------------------------------------------
Outstanding at December 31, 1999............................ 13,305,625 19.79
Granted..................................................... 2,191,658 93.76
Exercised................................................... (2,021,823) 11.51
Forfeited or canceled....................................... (374,388) 39.30
- ----------------------------------------------------------------------------------------------
Outstanding at December 31, 2000............................ 13,101,072 $32.88
- ----------------------------------------------------------------------------------------------
As of December 31, 2000, 1999 and 1998 there were 6,484,044, 6,350,259 and
6,968,266 options exercisable, respectively.
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
- ---------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------
$ 3.34 to $ 9.88.......... 2,422,768 1.8years $ 4.73 2,360,768 $ 4.63
10.00 to 18.22.......... 4,185,627 5.5 11.22 3,226,380 10.78
18.78 to 52.22.......... 2,550,981 7.5 24.64 573,720 22.68
52.34 to 87.06.......... 2,324,040 8.7 56.58 268,320 59.78
88.25 to 130.06.......... 1,617,656 9.1 110.06 54,856 108.87
- ---------------------------------------------------------------------------------------------------------------
$ 3.34 to $130.06.......... 13,101,072 6.1 $ 32.88 6,484,044 $ 12.45
- ---------------------------------------------------------------------------------------------------------------
During 1999, stockholders approved an Employee Stock Purchase Plan ("ESPP")
which became effective January 1, 2000. The ESPP enables substantially all
regular employees to purchase full or fractional shares of Lexmark Class A
common stock through payroll deductions of up to 10% of eligible compensation.
The price an employee pays is 85% of the closing market price on the last
business day of each month. During 2000, employees purchased approximately
200,000 shares for which $8.7 million was paid to the company. As of December
31, 2000, there were approximately 2,800,000 shares of Class A common stock
reserved for future purchase under the ESPP.
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11. INCOME TAXES
The provision for income tax consisted of the following:
2000 1999 1998
- ------------------------------------------------------------------------------------------
Current:
Federal................................................... $ 83.4 $100.4 $ 92.9
Non-U.S. ................................................. 30.3 23.0 16.0
State and local........................................... 0.5 7.7 6.8
- ------------------------------------------------------------------------------------------
114.2 131.1 115.7
- ------------------------------------------------------------------------------------------
Deferred:
Federal................................................... (6.1) 4.6 1.9
Non-U.S. ................................................. 2.7 0.9 2.9
State and local........................................... 0.2 3.8 1.9
- ------------------------------------------------------------------------------------------
(3.2) 9.3 6.7
- ------------------------------------------------------------------------------------------
Provision for income tax.................................... $111.0 $140.4 $122.4
- ------------------------------------------------------------------------------------------
Earnings before income tax were as follows:
2000 1999 1998
- ------------------------------------------------------------------------------------------
U.S. ....................................................... $198.2 $261.6 $278.2
Non-U.S. ................................................... 198.2 197.3 87.2
- ------------------------------------------------------------------------------------------
Earnings before income tax.................................. $396.4 $458.9 $365.4
- ------------------------------------------------------------------------------------------
The company realized an income tax benefit from the exercise of certain stock
options in 2000, 1999 and 1998 of $61.2 million, $47.8 million and $11.3
million, respectively. This benefit resulted in a decrease in current income tax
payable and an increase in capital in excess of par.
The company and its subsidiaries are subject to tax examinations in various U.S.
and foreign jurisdictions. The company believes that adequate amounts of tax and
related interest have been provided for any adjustments that may result from
these examinations.
Significant components of deferred income tax at December 31 were as follows:
2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Tax loss carryforwards.................................... $ 4.1 $ 7.8
Credit carryforward....................................... 9.0 --
Inventories............................................... 9.3 9.9
Restructuring accrual..................................... 8.8 --
Valuation allowance....................................... -- (1.8)
Other..................................................... 8.1 1.1
- --------------------------------------------------------------------------------
Total deferred tax assets.............................. 39.3 17.0
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid expenses.......................................... (5.6) (3.7)
Property, plant and equipment............................. (46.7) (29.5)
- --------------------------------------------------------------------------------
Total deferred tax liabilities......................... (52.3) (33.2)
- --------------------------------------------------------------------------------
Net deferred tax liabilities................................ $(13.0) $(16.2)
- --------------------------------------------------------------------------------
The net decrease in the total valuation allowance for the years ended December
31, 2000 and 1999 was $1.8 million and $16.6 million, respectively. The company
has non-U.S. tax loss carryforwards of $22.7 million which have an indefinite
carryforward period. Of these non-U.S. tax loss carryforwards, $4.2 million are
not
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expected to provide a future benefit because they are attributable to certain
non-U.S. entities that are also taxable in the U.S.
At December 31, 2000, the research and development tax credit carryforward
available to reduce possible future U.S. income tax amounted to approximately
$9.0 million, all of which expire in the year 2020.
Deferred income taxes have not been provided on the undistributed earnings of
foreign subsidiaries. Undistributed earnings of non-U.S. subsidiaries included
in the consolidated retained earnings was approximately $280.9 million. These
earnings have been substantially reinvested, and the company does not plan to
initiate any action that would precipitate the payment of income tax. It is not
practicable to estimate the amount of additional tax that may be payable on the
foreign earnings.
A reconciliation of the provision for income tax using the U.S. statutory rate
and the company's effective tax rate was as follows:
2000 1999 1998
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
- -----------------------------------------------------------------------------------------------------------
Provision for income tax at statutory rate..... $138.8 35.0% $160.6 35.0% $127.9 35.0%
State and local income tax, net of federal tax
benefit...................................... 6.3 1.6 9.6 2.1 8.7 2.4
Losses providing no tax benefit................ 1.4 0.4 1.9 0.4 1.2 0.3
Foreign tax differential....................... (33.8) (8.5) (17.6) (3.8) (11.8) (3.2)
Change in the beginning-of-the-year balance of
the valuation allowance for deferred tax
assets affecting provision................... (1.8) (0.5) (16.6) (3.6) (2.4) (0.6)
Research and development credit................ (9.0) (2.3) (8.9) (1.9) (5.8) (1.6)
Foreign sales corporation...................... (4.1) (1.0) (6.1) (1.4) (6.8) (1.9)
Other.......................................... 13.2 3.3 17.5 3.8 11.4 3.1
- -----------------------------------------------------------------------------------------------------------
Provision for income tax....................... $111.0 28.0% $140.4 30.6% $122.4 33.5%
- -----------------------------------------------------------------------------------------------------------
Cash paid for income taxes was $35.1 million, $58.3 million and $70.6 million in
2000, 1999 and 1998, respectively.
12. COMMITMENTS
The company is committed under operating leases (containing various renewal
options) for rental of office and manufacturing space and equipment. Rent
expense (net of rental income of $2.9 million, $3.3 million and $4.2 million)
was $39.6 million, $36.6 million and $25.7 million in 2000, 1999 and 1998,
respectively. Future minimum rentals under terms of non-cancelable operating
leases at December 31 are: 2001-$29.2 million; 2002-$25.4 million; 2003-$19.0
million; 2004-$17.1 million; 2005-$16.2 million and thereafter-$19.5 million.
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13. EMPLOYEE PENSION AND POSTRETIREMENT PLANS
The company and its subsidiaries have retirement plans covering substantially
all regular employees. Medical, dental and life insurance plans for retirees are
provided by the company and certain of its non-U.S. subsidiaries. Plan assets
are invested in equity securities, government and agency securities, corporate
debt and annuity contracts. The changes in the benefit obligations and plan
assets for 2000 and 1999 were as follows:
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
- -------------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------- ---------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year..................... $455.0 $503.5 $ 35.5 $ 40.2
Service cost.............................................. 12.3 16.4 1.9 3.1
Interest cost............................................. 34.8 31.6 2.3 2.4
Contributions by plan participants........................ 0.3 0.3 0.6 0.2
Actuarial (gain) loss..................................... 16.6 (67.5) (2.1) (9.6)
Foreign currency exchange rate changes.................... (5.1) (7.8) -- --
Benefits paid............................................. (23.0) (21.6) (1.1) (0.8)
Plan amendments........................................... -- -- (5.6) --
Settlement or curtailment losses.......................... 15.7 0.1 0.4 --
- -------------------------------------------------------------------------------------------------
Benefit obligation at end of year........................... 506.6 455.0 31.9 35.5
- -------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.............. 554.7 499.2 -- --
Actual return on plan assets.............................. (17.6) 79.5 -- --
Foreign currency exchange rate changes.................... (4.4) (6.0) -- --
Contributions by the employer............................. 3.7 3.3 0.5 0.6
Contributions by plan participants........................ 0.3 0.3 0.6 0.2
Benefits paid............................................. (23.0) (21.6) (1.1) (0.8)
- -------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year.................... 513.7 554.7 -- --
- -------------------------------------------------------------------------------------------------
Funded status............................................... 7.1 99.7 (31.9) (35.5)
Unrecognized (gain) loss.................................. 14.4 (79.7) (5.5) (3.6)
Unrecognized prior service cost........................... (15.3) (19.4) (5.2) --
- -------------------------------------------------------------------------------------------------
Net amount recognized....................................... $ 6.2 $ 0.6 $(42.6) $(39.1)
- -------------------------------------------------------------------------------------------------
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
- ---------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
------------------------ ----------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount rate........................... 7.7% 7.7% 6.5% 8.2% 8.2% 7.0%
Expected return on plan assets.......... 9.7% 9.7% 9.6% -- -- --
Rate of compensation increase........... 5.2% 5.1% 4.1% -- -- --
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost............................ $ 12.3 $ 16.4 $ 16.6 $ 1.9 $3.1 $3.4
Interest cost........................... 34.8 31.5 30.7 2.3 2.4 2.4
Expected return on plan assets.......... (52.4) (47.0) (42.1) -- -- --
Amortization of prior service cost...... (1.4) (1.4) (1.4) (0.4) -- --
Amortization of net (gains) losses...... (1.5) 0.7 0.4 (0.2) -- --
Settlement or curtailment losses........ 0.1 0.1 0.4 -- -- --
- ---------------------------------------------------------------------------------------------
Net periodic (benefit) cost............... $ (8.1) $ 0.3 $ 4.6 $ 3.6 $5.5 $5.8
- ---------------------------------------------------------------------------------------------
38
41
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $41.0 million, $37.7 million and $11.1 million,
respectively, as of December 31, 2000, and $36.4 million, $34.4 million and $9.9
million, respectively, as of December 31, 1999.
In 1998, the U.S. converted to a new formula for determining pension benefits.
As of December 31, 1999, benefits under the previous plan were frozen with no
further benefits being accrued, resulting in a $5.5 million decrease in pension
cost for 2000.
Effective January 1, 2000, the U.S. postretirement plan was amended primarily to
limit benefits paid to post-medicare recipients to a specified dollar amount
beginning in 2003. This resulted in a $5.6 million reduction in the benefit
obligation in 2000.
For measurement purposes, an 8.2% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2001. The rate is assumed to
decrease gradually to 5.5% in 2009 and remain at that level thereafter. Since
the net employer costs for postretirement medical benefits reach the preset caps
within the next six to eight years, a 1% increase or decrease in trend has a de
minimis effect on costs.
Related to the company's acquisition of the Information Products Corporation
from IBM in 1991, IBM agreed to pay for its pro rata share (currently estimated
at $50.4 million) of future postretirement benefits for all the company's U.S.
employees based on relative years of service with IBM and the company.
The company also sponsors defined contribution plans for employees in certain
countries. Company contributions are based upon a percentage of employees'
contributions. The company's expense under these plans was $8.5 million, $6.4
million and $5.5 million in 2000, 1999 and 1998, respectively.
14. DERIVATIVES, FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In 1999, the company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. The company recorded a net-of-tax cumulative-effect-type
loss adjustment of $0.4 million in accumulated other comprehensive earnings to
recognize at fair value all derivatives that were designated as cash-flow
hedging instruments upon adoption of SFAS No. 133 on January 1, 1999. This loss
adjustment, which the company reclassified to earnings by March 31, 2000,
consisted of a $0.6 million loss related to interest rate swaps and a $0.2
million gain related to foreign currency options.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The company's activities expose it to a variety of market risks, including the
effects of changes in foreign currency exchange rates and interest rates. The
financial exposures are monitored and managed by the company as an integral part
of its overall risk management program. The company's risk management program
seeks to reduce the potentially adverse effects that the volatility of the
markets may have on its operating results.
The company maintains a foreign currency risk management strategy that uses
derivative instruments to protect its interests from unanticipated fluctuations
in earnings and cash flows caused by volatility in currency exchange rates.
The company maintains an interest rate risk management strategy that may, from
time to time use derivative instruments to minimize significant, unanticipated
earnings fluctuations caused by interest rate volatility. The company's goal is
to maintain a balance between fixed and floating interest rates on its financing
activities.
By using derivative financial instruments to hedge exposures to changes in
exchange rates and interest rates, the company exposes itself to credit risk and
market risk. The company manages exposure to counterparty credit risk by
entering into derivative financial instruments with highly rated institutions
that can be expected to fully perform under the terms of the agreement. Market
risk is the adverse effect on the value of a financial instrument that results
from a change in currency exchange rates or interest rates. The company manages
exposure to market risk associated with interest rate and foreign exchange
contracts by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
39
42
The company uses the following hedging strategies to reduce the potentially
adverse effects that market volatility may have on its operating results:
Fair Value Hedges: Fair value hedges are hedges of recognized assets or
liabilities. The company enters into forward exchange contracts to hedge actual
purchases and sales of inventories. The forward contracts used in this program
mature in three months or less, consistent with the related purchase and sale
commitments. Foreign exchange option contracts, as well as forward contracts,
may be used as fair value hedges should derivative instruments, for which hedge
accounting has been discontinued, expose earnings to further change in exchange
rates.
Cash Flow Hedges: Cash flow hedges are hedges of forecasted transactions or of
the variability of cash flows to be received or paid related to a recognized
asset or liability. The company enters into foreign exchange options and forward
exchange contracts expiring within eighteen months as hedges of anticipated
purchases and sales that are denominated in foreign currencies. These contracts
are entered into to protect against the risk that the eventual cash flows
resulting from such transactions will be adversely affected by changes in
exchange rates. The company also may use interest rate swaps to convert a
portion of its variable rate financing activities to fixed rates.
ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are recognized in the statement of financial position at their
fair value. Fair values for the company's derivative financial instruments are
based on quoted market prices of comparable instruments or, if none are
available, on pricing models or formulas using current assumptions. On the date
the derivative contract is entered into, the company designates the derivative
as either a fair value or cash flow hedge. Changes in the fair value of a
derivative that is highly effective as -- and that is designated and qualifies
as -- a fair value hedge, along with the loss or gain on the hedged asset or
liability are recorded in current period earnings in cost of revenues. Changes
in the fair value of a derivative that is highly effective as -- and that is
designated and qualifies as -- a cash flow hedge are recorded in other
comprehensive earnings, until the underlying transactions occur.
At December 31, 2000, the company had derivative assets of $43.1 million
classified as prepaid expenses and other current assets as well as derivative
liabilities of $56.9 million classified as accrued liabilities. At December 31,
1999, the company had derivative assets of $23.4 million classified as prepaid
expenses and other current assets as well as derivative liabilities of $7.5
million classified as accrued liabilities. As of December 31, 2000, a total of
$13.8 million of deferred net losses on derivative instruments were accumulated
in other comprehensive earnings (loss) ($11.8 million is expected to be
reclassified to earnings during the next twelve months). As of December 31, 1999
a total of $8.5 million of deferred net gains on derivative instruments were
accumulated in other comprehensive earnings (loss) and were reclassified to
earnings during 2000.
The company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge items. This process includes linking all derivatives
that are designated as fair value and cash flow to specific assets and
liabilities on the balance sheet or to forecasted transactions. The company also
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair value or cash flows of hedged items.
When it is determined that a derivative is not highly effective as a hedge or
that it has ceased to be a highly effective hedge, the company discontinues
hedge accounting prospectively, as discussed below.
The company discontinues hedge accounting prospectively when (1) it is
determined that a derivative is no longer effective in offsetting changes in the
fair value or cash flows of a hedged item; (2) the derivative expires or is
sold, terminated, or exercised or (3) the derivative is discontinued as a hedge
instrument, because it is unlikely that a forecasted transaction will occur. As
of December 31, 2000 no hedges were determined to be ineffective.
When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, the derivative
will continue to be carried in the statement of financial position at its fair
value. When hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative will continue to be
carried in the statement of financial position at its fair value, and gains and
losses that were accumulated in other comprehensive earnings are recognized
immediately in earnings. In all
40
43
other situations in which hedge accounting is discontinued, the derivative will
be carried at its fair value in the statement of financial position, with
changes in its fair value recognized in current period earnings. A fair value
hedge is entered into when the derivative instrument, for which hedge accounting
has been discontinued, exposes earnings to further change in exchange rates.
FINANCIAL INSTRUMENTS
At December 31, 2000, the carrying value of the company's long-term debt was
$148.9 million and the fair value was $135.0 million. At December 31, 1999, the
carrying value of the company's long-term debt was $148.7 million and the fair
value was $137.2 million. The fair value of the long-term debt was estimated
based on current rates available to the company for debt with similar
characteristics.
CONCENTRATIONS OF CREDIT RISK
The company's main concentrations of credit risk consist primarily of temporary
cash investments and trade receivables. Cash investments are made in a variety
of high quality securities with prudent diversification requirements. Credit
risk related to trade receivables is dispersed across a large number of
customers located in various geographic areas. The company has off-balance sheet
credit risk for the reimbursement from IBM of its pro rata share of
postretirement benefits to be paid by the company (see Note 13).
15. SALES OF RECEIVABLES
The company accounts for the transfers of receivables as sales transactions. In
the U.S., the company sells its receivables to a wholly-owned subsidiary,
Lexmark Receivables Corporation ("LRC"), which then sells the receivables to an
unrelated third party. LRC is a separate legal entity with its own separate
creditors who, in a liquidation of LRC, would be entitled to be satisfied out of
LRC's assets prior to any value in LRC becoming available for equity claims of
the company.
The Company has an agreement in place to sell its U.S. trade receivables on a
limited recourse basis. In October 2000, the Company amended that agreement and,
the maximum amount of U.S. trade receivables to be sold was increased from
$150.0 million to $170.0 million. As collections reduce previously sold
receivables, the company may replenish these with new receivables. At December
31, 2000, U.S. trade receivables of $170.0 million had been sold and, due to the
revolving nature of the agreement, $170.0 million also remained outstanding. At
December 31, 1999, U.S. trade receivables of $140.0 million had been sold and
also remained outstanding. The agreement, which contains customary financial
covenants, must be renewed annually, and the company expects the agreement to be
renewed upon its expiration in October 2001. The risk the company bears from bad
debt losses on U.S. trade receivables sold is retained by the company since the
company holds a retained interest in the sold receivables of approximately $37.3
million. The company addresses this risk of loss in its allowance for doubtful
accounts. Receivables sold may not include amounts over 60 days past due or
concentrations over certain limits with any one customer.
Expenses incurred under this program totaling $8.5 million, $5.4 million and
$6.6 million for 2000, 1999 and 1998, respectively, are included in other
expense in the statements of earnings.
In 1997, the company entered into three-year interest rate swaps with a total
notional amount of $60.0 million, whereby the company paid interest at a fixed
rate of approximately 6.5% and received interest at a floating rate equal to the
three-month LIBOR. Since May 1998, the swaps served as a hedge of the
receivables financings which were based on floating interest rates. These
interest rate swaps expired during 2000. Expense of $0.1 million, $0.7 million
and $0.5 million for 2000, 1999 and 1998, respectively, related to these swaps
is included in other expense in the statements of earnings.
41
44
16. EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 2000
---------------------------------------
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Net earnings.............................................. $285.4
BASIC EPS
Net earnings available to common stockholders........... 285.4 128,355,774 $2.22
EFFECT OF DILUTIVE SECURITIES
Long-term incentive plan................................ -- 81,142
Stock options........................................... -- 5,874,914
------ ------------
DILUTED EPS
Net earnings available to common stockholders plus
assumed conversions.................................. $285.4 134,311,830 $2.13
---------------------------------------
Options to purchase an additional 1,590,919 shares of Class A common stock at
prices between $108.00 and $130.06 per share were outstanding at December 31,
2000 but were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average market price
of the common shares.
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Net earnings.............................................. $318.5
BASIC EPS
Net earnings available to common stockholders........... 318.5 129,360,700 $2.46
EFFECT OF DILUTIVE SECURITIES
Long-term incentive plan................................ -- 137,362
Stock options........................................... -- 8,048,599
------ ------------
DILUTED EPS
Net earnings available to common stockholders plus
assumed conversions.................................. $318.5 137,546,661 $2.32
---------------------------------------
Options to purchase an additional 39,946 shares of Class A common stock at
prices between $82.81 and $87.06 per share were outstanding at December 31, 1999
but were not included in the computation of diluted earnings per share because
the options' exercise prices were greater than the average market price of the
common shares.
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Net earnings.............................................. $243.0
BASIC EPS
Net earnings available to common stockholders........... 243.0 133,242,738 $1.82
EFFECT OF DILUTIVE SECURITIES
Long-term incentive plan................................ -- 240,764
Stock options........................................... -- 9,318,278
------ ------------
DILUTED EPS
Net earnings available to common stockholders plus
assumed conversions.................................. $243.0 142,801,780 $1.70
---------------------------------------
Options to purchase an additional 9,000 shares of Class A common stock at prices
between $37.97 and $44.19 per share were outstanding at December 31, 1998 but
were not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares.
42
45
17. INTERNATIONAL OPERATIONS
The following are revenue and long-lived asset information by geographic area
for and as of December 31:
REVENUE
----------------------------------
2000 1999 1998
----------------------------------
United States............................................... $1,671.5 $1,528.6 $1,410.5
International............................................... 2,135.5 1,923.7 1,610.1
----------------------------------
Total.................................................. $3,807.0 $3,452.3 $3,020.6
----------------------------------
LONG-LIVED ASSETS
------------------
2000 1999
------------------
United States............................................... $404.4 $358.4
International............................................... 326.2 202.6
------------------
Total.................................................. $730.6 $561.0
------------------
Revenue reported above is based on the countries to which the products are
shipped.
18. SUBSEQUENT EVENT
In February 2001, the company filed a shelf registration statement with the
Securities and Exchange Commission to register $200 million of debt securities.
The company expects to use the net proceeds from the sale of the securities for
capital expenditures, reduction of short-term borrowings, working capital,
acquisitions and other general corporate purposes.
43
46
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------
2000:
Revenue......................................... $ 891.7 $ 893.0 $926.6 $1,095.7
Gross profit.................................... 315.1 308.2 295.3 337.5
Operating income (1)............................ 120.4 113.9 98.4 83.0
Net earnings (1)................................ 80.2 84.1 66.1 55.0
Basic EPS* (1).................................. $ 0.62 $ 0.65 $ 0.52 $ 0.43
Diluted EPS* (1)................................ 0.59 0.62 0.50 0.42
Stock prices:
High.......................................... $135.88 $120.63 $79.81 $ 49.00
Low........................................... 76.63 56.00 33.56 28.75
1999:
Revenue......................................... $ 787.0 $ 817.3 $845.0 $1,003.0
Gross profit.................................... 285.2 295.6 303.6 345.1
Operating income................................ 103.7 112.1 115.8 145.0
Net earnings.................................... 67.8 74.5 76.5 99.7
Basic EPS*...................................... $ 0.52 $ 0.58 $ 0.59 $ 0.78
Diluted EPS*.................................... 0.48 0.55 0.56 0.73
Stock prices:
High.......................................... $ 58.25 $ 74.38 $87.50 $ 104.00
Low........................................... 42.56 49.50 59.63 61.81
- ----------------------------------------------------------------------------------------
*The sum of the quarterly earnings per share amounts do not necessarily equal
the year-to-date earnings per share due to changes in average share
calculations. This is in accordance with prescribed reporting requirements.
(1) Amounts include the impact of the $41.3 million ($29.7 million, net of tax)
restructuring and related charges recorded during the fourth quarter of 2000.
Diluted EPS was reduced by 22 cents during the fourth quarter of 2000 as a
result of the restructuring and related charges.
44
47
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements and related information included in this
Financial Report are the responsibility of management and have been reported in
conformity with accounting principles generally accepted in the United States of
America. All other financial data in this Annual Report have been presented on a
basis consistent with the information included in the consolidated financial
statements. Lexmark International, Inc. maintains a system of financial controls
and procedures, which includes the work of corporate auditors, which we believe
provides reasonable assurance that the financial records are reliable in all
material respects for preparing the consolidated financial statements and
maintaining accountability for assets. The concept of reasonable assurance is
based on the recognition that the cost of a system of financial controls must be
related to the benefits derived and that the balancing of those factors requires
estimates and judgment. This system of financial controls is reviewed, modified
and improved as changes occur in business conditions and operations, and as a
result of suggestions from the corporate auditors and PricewaterhouseCoopers
LLP.
The Finance and Audit Committee, composed of outside members of the Board of
Directors, meets periodically with management, the independent accountants and
the corporate auditors, for the purpose of monitoring their activities to ensure
that each is properly discharging its responsibilities. The Finance and Audit
Committee, independent accountants, and corporate auditors have free access to
one another to discuss their findings.
/s/ Paul J. Curlander
Paul J. Curlander
Chairman and chief executive officer
/s/ Gary E. Morin
Gary E. Morin
Executive vice president and chief financial officer
45
48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lexmark International, Inc.
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of earnings, cash flows, and
stockholders' equity and comprehensive earnings appearing on pages 23 through 43
of this annual report on Form 10-K present fairly, in all material respects, the
consolidated financial position of Lexmark International, Inc. and subsidiaries
at December 31, 2000 and 1999, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. These consolidated financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Lexington, Kentucky
February 9, 2001
46
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except with respect to information regarding the executive officers of the
Registrant, the information required by Part III, Item 10 of this Form 10-K is
incorporated by reference herein, and made part of this Form 10-K, from the
company's definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission,
pursuant to Regulation 14A, not later that 120 days after the end of the fiscal
year. The information with respect to the executive officers of the Registrant
is included under the heading "Executive Officers of the Registrant" in Item 1
above.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Part III, Item 11 of this Form 10-K is incorporated by
reference from the company's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission, pursuant to Regulation 14A, not later that 120 days after the end of
the fiscal year, and of which information is hereby incorporated by reference
in, and made part of, this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Part III, Item 12 of this Form 10-K is incorporated by
reference from the company's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission, pursuant to Regulation 14A, not later that 120 days after the end of
the fiscal year, and of which information is hereby incorporated by reference
in, and made part of, this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Part III, Item 13 of this Form 10-K is incorporated by
reference from the company's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders, which will filed with the Securities and Exchange
Commission, pursuant to Regulation 14A, not later that 120 days after the end of
the fiscal year, and of which information is hereby incorporated by reference
in, and made part of, this Form 10-K.
47
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1 FINANCIAL STATEMENTS:
Financial statements filed as part of this Form 10-K are included under
Part II, Item 8.
(a)2 FINANCIAL STATEMENT SCHEDULE:
PAGES IN FORM 10-K
------------------
Report of Independent Accountants 49
For the years ended December 31, 2000, 1999, and 1998:
Schedule II -- Valuation and Qualifying Accounts 50
All other schedules are omitted as the required information is inapplicable or
the information is presented in the Consolidated Financial Statements or related
notes.
48
51
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Lexmark International, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 9, 2001 appearing on page 46 of this annual report on Form 10-K
also included an audit of the financial statement schedule listed in item
14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule on
page 50 of this Form 10-K presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Lexington, Kentucky
February 9, 2001
49
52
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(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
----------- ---------- ---------- ---------- ---------- ----------
1998:
Allowance for doubtful accounts... $19.4 $11.0 $-- $ (6.2) $24.2
Inventory reserves................ 39.6 35.1 -- (36.5) 38.2
Deferred tax assets valuation
allowance...................... 20.8 0.2 -- (2.6) 18.4
1999:
Allowance for doubtful accounts... $24.2 $ 6.5 $-- $ (6.6) $24.1
Inventory reserves................ 38.2 28.4 -- (32.0) 34.6
Deferred tax assets valuation
allowance...................... 18.4 1.6 -- (18.2) 1.8
2000:
Allowance for doubtful accounts... $24.1 $ 6.3 $-- $ (8.2) $22.2
Inventory reserves................ 34.6 36.8 -- (40.5) 30.9
Deferred tax assets valuation
allowance...................... 1.8 7.8 -- (9.6) --
50
53
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
A Current Report on Form 8-K dated October 24, 2000 was filed by the company
with the Securities and Exchange Commission to announce the company's
restructuring plans.
51
54
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,
Commonwealth of Kentucky, on March 20, 2001.
LEXMARK INTERNATIONAL, INC.
By /s/ Paul J. Curlander
------------------------------------
Name: Paul J. Curlander
Title: Chairman and 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/ Paul J. Curlander Chairman and Chief Executive March 20, 2001
- ------------------------------------------------ Officer (Principal Executive
Paul J. Curlander Officer)
/s/ Gary E. Morin Executive Vice President/Chief March 20, 2001
- ------------------------------------------------ Financial Officer (Principal
Gary E. Morin Financial Officer)
/s/ David L. Goodnight Vice President and Corporate March 20, 2001
- ------------------------------------------------ Controller (Principal Accounting
David L. Goodnight Officer)
* Director March 20, 2001
- ------------------------------------------------
B. Charles Ames
* Director March 20, 2001
- ------------------------------------------------
Teresa Beck
* Director March 20, 2001
- ------------------------------------------------
Frank T. Cary
* Director March 20, 2001
- ------------------------------------------------
William R. Fields
* Director March 20, 2001
- ------------------------------------------------
Ralph E. Gomory
* Director March 20, 2001
- ------------------------------------------------
Stephen R. Hardis
* Director March 20, 2001
- ------------------------------------------------
James F. Hardymon
* Director March 20, 2001
- ------------------------------------------------
Robert Holland, Jr.
* Director March 20, 2001
- ------------------------------------------------
Marvin L. Mann
* Director March 20, 2001
- ------------------------------------------------
Michael J. Maples
* Director March 20, 2001
- ------------------------------------------------
Martin D. Walker
* Vincent J. Cole, Attorney-in-Fact
52
55
INDEX TO EXHIBITS
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
2 Agreement and Plan of Merger, dated as of February 29, 2000,
by and between Lexmark International, Inc. (the "company")
and Lexmark International Group, Inc. ("Group"). (1)
3.1 Restated Certificate of Incorporation of the company. (2)
3.2 Company By-Laws, as Amended and Restated June 22, 2000. (2)
4.1 Form of the company's 6.75% Senior Notes due 2008. (3)
4.2 Indenture, dated as of May 11, 1998, by and among the
company, as Issuer, and Group, as Guarantor, to The Bank of
New York, as Trustee. (3)
4.3 First Supplemental Indenture, dated as of June 22, 2000, by
and among the company, as Issuer, and Group, as Guarantor,
to The Bank of New York, as Trustee. (2)
4.4 Amended and Restated Rights Agreement, dated as of February
11, 1999, between the company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent. (4)
4.5 Specimen of Class A common stock certificate. (2)
10.1 Agreement, dated as of May 31, 1990, between the company and
Canon Inc., and Amendment thereto. (5)*
10.2 Agreement, dated as of March 26, 1991, between the company
and Hewlett-Packard Company. (5)*
10.3 Patent Cross-License Agreement, effective October 1, 1996,
between Hewlett-Packard Company and the company. (6)*
10.4 Amended and Restated Lease Agreement, dated as of January 1,
1991, between IBM and the company, and First Amendment
thereto. (7)
10.5 Amended and Restated Receivables Purchase Agreement, dated
as of March 31, 1998, by and among the company, as Servicer,
Lexmark Receivables Corporation ("LRC"), as Seller, Delaware
Funding Corporation, as Buyer, and Morgan Guaranty Trust
Company of New York, as Administrative Agent (8)
10.6 Amendment to Amended and Restated Receivables Purchase
Agreement, dated as of November 30, 1998, by and among the
company, as Servicer, LRC, as Seller, Delaware Funding
Corporation, as Buyer, and Morgan Guaranty Trust Company of
New York, as Administrative Agent. (9)
10.7 Second Amendment to Amended and Restated Receivables
Purchase Agreement, dated as of October 25, 1999, by and
among the company, as Servicer, LRC, as Seller, Delaware
Funding Corporation, as Buyer, and Morgan Guaranty Trust
Company of New York, as Administrative Agent. (10)
10.8 Third Amendment to Amended and Restated Receivables Purchase
Agreement, dated as of October 20, 2000, by and among the
company, as Servicer, LRC, as Seller, Delaware Funding
Corporation, as Buyer, and Morgan Guaranty Trust Company of
New York, as Administrative Agent.
10.9 Amended and Restated Purchase Agreement, dated as of March
31, 1998, between the company, as Originator, and LRC, as
Buyer. (8)
10.10 Amendment to Amended and Restated Purchase Agreement, dated
as of November 30, 1998, between the company, as Originator,
and LRC, as Buyer (9)
10.11 Lexmark Holding, Inc. Stock Option Plan for Executives and
Senior Officers. (7)+
10.12 First Amendment to the Stock Option Plan for Executives and
Senior Officers, dated as of October 31, 1994. (11)+
10.13 Second Amendment to the Stock Option Plan for Executives and
Senior Officers, dated as of September 13, 1995. (11)+
E-1
56
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
10.14 Third Amendment to the Stock Option Plan for Executives and
Senior Officers, dated as of April 29, 1999. (12)+
10.15 Fourth Amendment to the Stock Option Plan for Executives and
Senior Officers, dated as of July 29, 1999. (12)+
10.16 Form of Management Stock Option Agreement, by and among
Group, the company and the Named Executive Officers
(including a schedule of Named Executive Officers, grant
dates and number of shares granted pursuant to options).
(11)+
10.17 Lexmark International Group, Inc. Stock Incentive Plan,
Amended and Restated Effective April 30, 1998. (8)+
10.18 Amendment No. 1 to the Lexmark International Group, Inc.
Stock Incentive Plan, as Amended and Restated, dated as of
April 29, 1999. (12)+
10.19 Form of Non-Qualified Stock Option Agreement, pursuant to
the company's Stock Incentive Plan. (3)+
10.20 Lexmark International Group, Inc. Nonemployee Director Stock
Plan, Amended and Restated, Effective April 30, 1998. (3)+
10.21 Amendment No. 1 to the Lexmark International Group, Inc.
Nonemployee Director Stock Plan, dated as of February 11,
1999. (13)+
10.22 Amendment No. 2 to the Lexmark International Group, Inc.
Nonemployee Director Stock Plan, dated as of April 29, 1999.
(12)+
10.23 Form of Non-Qualified Stock Option Agreement, pursuant to
the company's Nonemployee Director Stock Plan, Amended and
Restated effective April 30, 1998. (14)+
10.24 Employment Agreement, dated as of March 18, 1997, by and
among Paul J Curlander, the company and Group. (15)+
10.25 Form of Change in Control Agreement entered into as of April
30, 1998, by and among the company, Group and certain
officers thereof. (14)+
10.26 Form of Indemnification Agreement entered into as of April
30, 1998, by and among the company, Group and certain
officers thereof. (14)+
10.27 Employment Agreement, dated as of April 30, 1998, by and
among Bernard V. Masson, the company and Group. (9)+
10.28 Amended and Restated Employment Agreement, dated as of
January 1, 2000, by and among Thomas B. Lamb, the company
and Group. (1)+
10.29 Employment Agreement, dated as of April 30, 1998, by and
among Alfred A Traversi, the company and Group. (9)+
10.30 Employment Agreement, dated as of April 30, 1998, by and
among Gary E Morin, the company and Group. (14)+
10.31 Credit Agreement, dated as of January 27, 1998, by and among
Group, as Parent Guarantor, the company, as Borrower, the
Lenders party thereto, Fleet National Bank, as Documentation
Agent, Morgan Guaranty Trust Company of New York, as
Syndication Agent, and The Chase Manhattan Bank, as
Administrative Agent. (15)
10.32 First Amendment to Credit Agreement, dated as of March 20,
2000, by and among Group, as Parent Guarantor, the company,
as Borrower, the Lenders party thereto, Fleet National Bank,
as Documentation Agent, Morgan Guaranty Trust Company of New
York, as Syndication Agent, and The Chase Manhattan Bank, as
Administrative Agent. (2)
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the company as of December 31, 2001.
23 Consent of PricewaterhouseCoopers LLP.
E-2
57
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
24 Power of Attorney.
- ---------------
* Confidential treatment previously granted by the Securities
and Exchange Commission.
+ Indicates management contract or compensatory plan, contract
or arrangement.
(1) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000
(Commission File No. 1-14050).
(2) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 (Commission
File No. 1-14050).
(3) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 (Commission
File No. 1-14050).
(4) Incorporated by reference to the company's Amended
Registration Statement on Form 8-A filed with the Commission
on March 12, 1999 (Commission File No. 1-14050).
(5) Incorporated by reference to the company's Form S-1
Registration Statement, Amendment No. 2 (Registration No.
33-97218) filed with the Commission on November 13, 1995.
(6) Incorporated by reference to the company's Quarterly Report
on Form 10-Q/A for the quarter ended September 30, 1996
(Commission File No 1-14050).
(7) Incorporated by reference to the company's Form S-1
Registration Statement (Registration No. 33-97218) filed
with the Commission on September 22, 1995.
(8) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 1-14050).
(9) Incorporated by reference to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998
(Commission File No. 1-14050).
(10) Incorporated by reference to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999
(Commission File No. 1-14050).
(11) Incorporated by reference to the company's Form S-1
Registration Statement, Amendment No. 1 (Registration No.
33-97218), filed with the Commission on October 27, 1995.
(12) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 (Commission
File No. 1-14050).
(13) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999
(Commission File No. 1-14050).
(14) Incorporated by reference to the company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998
(Commission File No. 1-14050).
(15) Incorporated by reference to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(Commission File No. 1-14050).
E-3