Attached files
file | filename |
---|---|
EX-32.2 - EXHIBIT 32.2 - LEXMARK INTERNATIONAL INC /KY/ | exhibit322.htm |
EX-32.1 - EXHIBIT 32.1 - LEXMARK INTERNATIONAL INC /KY/ | exhibit321.htm |
EX-31.2 - EXHIBIT 31.2 - LEXMARK INTERNATIONAL INC /KY/ | exhibit312.htm |
EX-31.1 - EXHIBIT 31.1 - LEXMARK INTERNATIONAL INC /KY/ | exhibit311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2016
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to _______.
Commission File No. 1-14050
LEXMARK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
|
|
Delaware |
06-1308215 |
(State or other jurisdiction |
(I.R.S. Employer |
of incorporation or organization) |
Identification No.) |
|
|
One Lexmark Centre Drive |
|
740 West New Circle Road |
|
Lexington, Kentucky |
40550 |
(Address of principal executive offices) |
(Zip Code) |
|
|
(859) 232-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] |
Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The registrant had 62,775,723 shares outstanding (excluding shares held in treasury) of Class A Common Stock, par value $0.01 per share, as of the close of business on July 29, 2016.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
|
|
Page of Form 10-Q |
|
PART I – FINANCIAL INFORMATION
|
|
Item 1. |
FINANCIAL STATEMENTS (Unaudited) |
|
|
Consolidated Condensed Statements of Earnings |
|
|
Three and Six Months Ended June 30, 2016 and 2015 |
2 |
|
Consolidated Condensed Statements of Comprehensive Earnings |
|
|
Three and Six Months Ended June 30, 2016 and 2015 |
3 |
|
Consolidated Condensed Statements of Financial Position |
|
|
As of June 30, 2016 and December 31, 2015 |
4 |
|
Consolidated Condensed Statements of Cash Flows |
|
|
Six Months Ended June 30, 2016 and 2015 |
5 |
|
Notes to Consolidated Condensed Financial Statements |
6 |
Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
31 |
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
51 |
Item 4. |
CONTROLS AND PROCEDURES |
52 |
|
|
|
|
PART II – OTHER INFORMATION |
|
|
|
|
Item 1. |
LEGAL PROCEEDINGS |
54 |
Item 1A. |
RISK FACTORS |
54 |
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
55 |
Item 6. |
EXHIBITS |
55 |
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon the Company, speak only as of the date hereof, and are subject to certain risks and uncertainties. We assume no obligation to update or revise any forward-looking statements contained or incorporated by reference herein to reflect any change in events, conditions or circumstances, or expectations with regard thereto, on which any such forward-looking statement is based, in whole or in part. There can be no assurance that future developments affecting the Company will be those anticipated by management, and there are a number of factors that could adversely affect the Company’s future operating results or cause the Company’s actual results to differ materially from the estimates or expectations reflected in such forward-looking statements, including, without limitation, the factors set forth under the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of 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 factors set forth in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report. 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.
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended |
|
|
Six Months Ended |
|||||||||
|
June 30 |
|
|
June 30 |
||||||||
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
||||
Revenue: |
|
|
|
|
|
|
|
|
||||
Product |
$ |
|
$ |
|
|
$ |
|
$ |
||||
Service |
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
|
|
|
|
|
|
|
||||
Cost of revenue: |
|
|
|
|
|
|
|
|
||||
Product |
|
|
|
|
|
|
|
|
||||
Service |
|
|
|
|
|
|
|
|
||||
Restructuring-related costs |
|
|
|
|
|
|
|
|
||||
Total Cost of revenue |
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
||||
Restructuring and related (reversals) charges |
|
|
|
|
|
|
|
|
||||
Operating expense |
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
Interest expense (income), net |
|
|
|
|
|
|
|
|
||||
Other expense (income), net |
|
|
|
|
|
|
|
|
||||
Earnings (loss) before income taxes |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
|
|
|
|
|
|
|
|
||||
Net loss |
$ |
|
$ |
|
|
$ |
|
$ |
||||
|
|
|
|
|
|
|
|
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
$ |
|
|
$ |
|
$ |
||||
Diluted |
$ |
|
$ |
|
|
$ |
|
$ |
||||
Shares used in per share calculation: |
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
||||
Cash dividends declared per common share |
$ |
|
$ |
|
|
$ |
|
$ |
||||
See Notes to Consolidated Condensed Financial Statements.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE EARNINGS
(In Millions)
(Unaudited)
Three Months Ended |
|
|
Six Months Ended |
|||||||||
|
June 30 |
|
|
June 30 |
||||||||
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
||||
Net loss |
$ |
|
$ |
|
|
$ |
|
$ |
||||
Other comprehensive (loss) earnings, net of tax: |
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
||||
Recognition of pension and other postretirement benefit plans prior service credit, net of (amortization) |
|
|
|
|
|
|
|
|
||||
Net unrealized loss on marketable securities |
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on cash flow hedges |
|
|
|
|
|
|
|
|
||||
Total other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
||||
Comprehensive loss |
$ |
|
$ |
|
|
$ |
|
$ |
||||
See Notes to Consolidated Condensed Financial Statements.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions, Except Par Value)
(Unaudited)
June 30, |
|
December 31, |
|||
|
2016 |
|
2015 |
||
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
|
$ |
||
Trade receivables, net of allowances of $23.7 in 2016 and $24.4 in 2015 |
|
|
|
||
Inventories |
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
||
Total current assets |
|
|
|
||
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
||
Goodwill |
|
|
|
||
Intangibles, net |
|
|
|
||
Other assets |
|
|
|
||
Total assets |
$ |
|
$ |
||
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
||
Current liabilities: |
|
|
|
||
Accounts payable |
$ |
|
$ |
||
Accrued liabilities |
|
|
|
||
Total current liabilities |
|
|
|
||
|
|
|
|
||
Long-term debt, net of unamortized discounts and issuance costs |
|
|
|
||
Other liabilities |
|
|
|
||
Total liabilities |
|
|
|
||
|
|
|
|
||
Commitments and contingencies |
|
|
|
||
|
|
|
|
||
Stockholders' equity: |
|
|
|
||
Preferred stock, $.01 par value, 1.6 shares authorized; no shares issued and outstanding |
|
|
|
||
Common stock, $.01 par value: |
|
|
|
||
Class A, 900.0 shares authorized; 62.8 and 61.9 outstanding in 2016 and 2015, respectively |
|
|
|
||
Class B, 10.0 shares authorized; no shares issued and outstanding |
|
|
|
||
Capital in excess of par |
|
|
|
||
Retained earnings |
|
|
|
||
Treasury stock, net; at cost; 36.5 and 36.4 shares in 2016 and 2015, respectively |
|
|
|
||
Accumulated other comprehensive loss |
|
|
|
||
Total stockholders' equity |
|
|
|
||
Total liabilities and stockholders' equity |
$ |
|
$ |
||
See Notes to Consolidated Condensed Financial Statements.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Six Months Ended |
|||||
|
June 30 |
||||
|
2016 |
|
2015 |
||
Cash flows from operating activities: |
|
|
|
|
|
Net loss |
$ |
|
$ |
||
Adjustments to reconcile net loss to net cash flows provided by (used for) operating activities: |
|
|
|
||
Depreciation and amortization |
|
|
|
||
Deferred taxes |
|
|
|
||
Stock-based compensation expense |
|
|
|
||
Pension and other postretirement expense (income) |
|
|
|
||
Other |
|
|
|
||
Change in assets and liabilities, net of acquisitions: |
|
|
|
||
Trade receivables |
|
|
|
||
Inventories |
|
|
|
||
Accounts payable |
|
|
|
||
Accrued liabilities |
|
|
|
||
Other assets and liabilities |
|
|
|
||
Pension and other postretirement contributions |
|
|
|
||
Net cash flows provided by (used for) operating activities |
|
|
|
||
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
|
||
Purchases of marketable securities |
|
|
|
||
Proceeds from sales of marketable securities |
|
|
|
||
Proceeds from maturities of marketable securities |
|
|
|
||
Purchase of business, net of cash acquired |
|
|
|
||
Other |
|
|
|
||
Net cash flows used for investing activities |
|
|
|
||
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
Repayment of assumed debt |
|
|
|
||
Proceeds from long-term debt |
|
|
|
||
Payments on long-term debt |
|
|
|
||
Purchase of shares from noncontrolling interest |
|
|
|
||
Payment of cash dividend |
|
|
|
||
Purchase of treasury stock |
|
|
|
||
Proceeds from employee stock plans |
|
|
|
||
Other |
|
|
|
||
Net cash flows (used for) provided by financing activities |
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
||
Net change in cash and cash equivalents |
|
|
|
||
Cash and cash equivalents - beginning of period |
|
|
|
||
Cash and cash equivalents - end of period |
$ |
|
$ |
||
See Notes to Consolidated Condensed Financial Statements.
LEXMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In Millions, Except Per Share Amounts)
(Unaudited)
The accompanying interim Consolidated Condensed Financial Statements are unaudited; however, in the opinion of management of Lexmark International, Inc. (together with its subsidiaries, the “Company” or “Lexmark”), all adjustments necessary for a fair statement of the interim financial results have been included. All adjustments included were of a normal recurring nature. The results for the interim periods are not necessarily indicative of results to be expected for the entire year. The Consolidated Condensed Statements of Financial Position data as of December 31, 2015 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”). The Company filed with the Securities and Exchange Commission (“SEC”) audited consolidated financial statements for the year ended December 31, 2015, on Form 10-K, which included all information and notes necessary for such presentation. Accordingly, these financial statements and notes should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2015.
The Company determined that these errors were not material to any of the Company’s prior annual and interim period consolidated financial statements and therefore, amendments of previously filed reports were not required. However, the Company determined that the impact of the corrections would be too significant to record during 2015. As such, the revision for the corrections is reflected in the financial information of the applicable prior periods in this Form 10-Q filing. There was no impact to cash flows from operations on the Consolidated Condensed Statements of Cash Flows for the period ending June 30, 2015.
|
Three Months Ended |
||||||||
|
|
June 30, 2015 |
|||||||
|
|
As Previously |
|
|
|
|
|||
|
|
Reported |
|
Adjustment |
|
As Revised |
|||
Selling, general and administrative |
|
$ |
|
$ |
|
$ |
|||
Operating expense |
|
$ |
|
$ |
|
$ |
|||
Operating income (loss) |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
$ |
|
$ |
|
$ |
|||
Net (loss) earnings |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|||
Net (loss) earnings per share: |
|
|
|
|
|
|
|||
Basic |
|
$ |
|
$ |
|
$ |
|||
Diluted |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|||
Other comprehensive (loss) earnings, net of tax: |
|
|
|
|
|
|
|||
Foreign currency translation adjustment |
|
$ |
|
$ |
|
$ |
|||
Total other comprehensive loss, net of tax |
|
$ |
|
$ |
|
$ |
|||
Comprehensive (loss) earnings |
|
$ |
|
$ |
|
$ |
|||
|
Six Months Ended |
||||||||
|
|
June 30, 2015 |
|||||||
|
|
As Previously |
|
|
|
|
|||
|
|
Reported |
|
Adjustment |
|
As Revised |
|||
Selling, general and administrative |
|
$ |
|
$ |
|
$ |
|||
Operating expense |
|
$ |
|
$ |
|
$ |
|||
Operating income (loss) |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
$ |
|
$ |
|
$ |
|||
Net (loss) earnings |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|||
Net (loss) earnings per share: |
|
|
|
|
|
|
|||
Basic |
|
$ |
|
$ |
|
$ |
|||
Diluted |
|
$ |
|
$ |
|
$ |
|||
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) earnings, net of tax: |
|
|
|
|
|
|
|||
Foreign currency translation adjustment |
|
$ |
|
$ |
|
$ |
|||
Total other comprehensive (loss) earnings, net of tax |
|
$ |
|
$ |
|
$ |
|||
Comprehensive (loss) earnings |
|
$ |
|
$ |
|
$ |
|||
2. BUSINESS COMBINATIONS
Pending Acquisition of Lexmark International, Inc.
In 2015, the Company announced that its Board of Directors authorized the exploration of strategic alternatives to enhance shareholder value. On April 19, 2016, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) that provides for the acquisition of the Company by a consortium composed of Apex Technology Co., Ltd., PAG Asia Capital and Legend Capital Management Co., Ltd. in a cash transaction for $40.50 per share, with closing of the acquisition expected in the second half of 2016. The Company’s shareholders approved the Merger Agreement on July 22, 2016. The consummation of the acquisition remains subject to applicable foreign and domestic regulatory clearances and other customary closing conditions. While the Company's shareholders have approved the Merger Agreement, there can be no certainty that the acquisition will be successfully consummated.
Kofax Limited
The Company completed its acquisition of Kofax Limited (“Kofax”) on May 21, 2015. The purchase of Kofax is included in Purchase of businesses, net of cash acquired in the Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2015 in the amount of $971 million.
In the six months ended June 30, 2016 the Company recorded measurement period adjustments that increased Accrued expenses and other current liabilities by $2.1 million, decreased Deferred tax liability, net by $3.0 million, increased Other long-term liabilities by $0.1 million, and decreased Goodwill by $0.8 million. The measurement period adjustments to the previously recorded amounts reflect facts and circumstances that existed as of the acquisition date primarily arising from additional analysis of tax attributes and tax returns during the six months ended June 30, 2016, and were reflected during the six months ended June 30, 2016. The portion of the adjustment recorded in earnings during the six months ended June 30, 2016 that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date was not significant. The Company’s accounting for the acquisition of Kofax is now complete.
During the third quarter of 2015, the Company identified a transfer tax related to the Kofax transaction of $3.0 million that was not recorded in the second quarter of 2015 and revised the financial statements to correct this immaterial error.
The unaudited pro forma results presented below include the effects of the acquisition of Kofax as if it had been completed as of January 1, 2014, the beginning of the comparable annual reporting period prior to the year of acquisition. Such unaudited pro forma financial results do not give pro forma effect to any other transaction or event. In addition, the unaudited pro forma results do not include any anticipated synergies or other expected benefits of the acquisition or costs necessary to obtain the anticipated synergies and benefits. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed as of January 1, 2014.
The unaudited pro forma results include the amortization associated with an estimate for the acquired intangible assets and interest expense associated with debt used to fund the acquisition, as well as fair value adjustments for deferred revenue. The unaudited pro forma provision for income taxes has also been adjusted for all periods, based upon the foregoing and following adjustments to historical results and using a 37.8% blended tax rate representing the combined U.S. federal and state statutory rates. There is no material effect to the unaudited pro forma results presented below related to retrospectively adjusting Kofax’s historical results for the change in accounting methodology for pension and other postretirement benefit plans adopted by Lexmark in the fourth quarter of 2013.
|
Three Months Ended |
|
Six Months Ended |
|||
|
|
June 30, 2015 |
|
June 30, 2015 |
||
Unaudited pro forma revenue |
|
$ |
|
$ |
||
Unaudited pro forma earnings |
|
$ |
|
$ |
||
Unaudited pro forma earnings for the three and six months ended June 30, 2015 do not reflect acquisition-related costs of $33.8 million and $36.4 million that were historically recognized by Lexmark and Kofax in these respective periods. Unaudited pro forma earnings for the three and six months ended June 30, 2015 do not reflect $8.7 million of acquisition-related compensation expenses. The acquisition-related costs and acquisition-related compensation expenses will not have an ongoing effect on the results of the combined entity.
Claron Technology, Inc.
The Company’s acquisition of Claron Technology, Inc. (“Claron”) in 2015 is included in Purchase of businesses, net of cash acquired in the Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2015 in the amount of $30.3 million.
2016 Restructuring Actions
General
On February 23, 2016, the Company announced restructuring actions (the “2016 Restructuring Actions”) designed to increase profitability and operational efficiency primarily in its ISS segment. These restructuring actions are focused on optimizing the Company’s ISS structure, primarily in reaction to the continued strength of the U.S. dollar, and are also aligned with the previously announced strategic alternatives process.
The 2016 Restructuring Actions are expected to impact about 550 positions worldwide through December 2016, with a portion of the positions being shifted to low-cost countries. The 2016 Restructuring Actions will result in total pre-tax charges of approximately $32 million, with approximately $31 million incurred to date and the remainder to be incurred in 2016. The total cash costs of the 2016 Restructuring Actions will be approximately $32 million, of which $31 million has been incurred to date and the remainder to be incurred in 2016.
The Company expects to incur total charges upon completion of the 2016 Restructuring Actions of approximately $30 million in ISS and approximately $2 million in All Other.
Impact to 2016 Financial Results
Restructuring |
|
Impact on |
|||
|
and related |
|
Operating |
||
|
reversals |
|
income |
||
Employee termination benefit (reversals) charges |
$ |
|
$ |
||
For the six months ended June 30, 2016, charges (reversals) for the Company’s 2016 Restructuring Actions were recorded in the Consolidated Condensed Statements of Earnings as follows:
Restructuring |
|
Impact on |
|||
|
and related |
|
Operating |
||
|
reversals |
|
income |
||
Employee termination benefit (reversals) charges |
$ |
|
$ |
||
Three Months Ended |
|
Six Months Ended |
|||
|
June 30, 2016 |
|
June 30, 2016 |
||
ISS |
$ |
|
$ |
||
All other |
|
|
|
||
Total (reversals) charges |
$ |
|
$ |
||
For the three and six months ended June 30, 2016, the Company incurred employee termination benefit charges (reversals), which include severance, medical and other benefits. The Company experienced higher levels of attrition than expected during the first half of 2016 as a result of the strategic alternatives process as well as announced restructuring programs. These higher levels of attrition reduced the expected termination benefits resulting in the reversals. The Company’s cost savings and headcount reduction targets have not changed related to these restructuring actions. Charges (reversals) for the 2016 Restructuring Actions and all of the other restructuring actions were recorded in accordance with FASB guidance on employers’ accounting for postemployment benefits and guidance on accounting for costs associated with exit or disposal activities, as appropriate.
Pension and postretirement plan curtailment and termination benefit losses (gains) related to the 2016 Restructuring Actions were not included in the tables above. Refer to Note 10 of the Notes to Consolidated Condensed Financial Statements for more information.
Liability Rollforward
Employee |
||
|
Termination |
|
|
Benefits |
|
Balance at January 1, 2016 |
$ |
|
Costs incurred |
|
|
Reversals (1) |
|
|
Total restructuring (reversals) charges, net |
|
|
Payments and other (2) |
|
|
Balance at June 30, 2016 |
$ |
|
(1) Reversals due to changes in estimates for employee termination benefits and attrition.
(2) Other consists of changes in the liability balance due to foreign currency translations.
2015 Restructuring Actions
General
On July 21, 2015, the Company announced restructuring actions (the “2015 Restructuring Actions”) designed to increase profitability and operational efficiency. These Company-wide restructuring actions are broad-based but primarily capture the anticipated cost and expense synergies from the Kofax and ReadSoft AB (“ReadSoft”) acquisitions. Primary Company-wide impact will be general and administrative, marketing and development positions as well as the consolidation of regional facilities.
The 2015 Restructuring Actions are expected to impact about 500 positions worldwide through December 2016, with a portion of the positions being shifted to low-cost countries. The 2015 Restructuring Actions will result in total pre-tax charges of approximately $32
million, all of which has been incurred to date. The total cash costs of the 2015 Restructuring Actions will be approximately $30 million, all of which has been incurred to date.
The Company expects to incur total charges upon completion of the 2015 Restructuring Actions of approximately $7 million in ISS, approximately $4 million in All Other and approximately $21 million in Enterprise Software.
Impact to 2016 and 2015 Financial Results
Selling, |
|
Restructuring |
|
Impact on |
||||
|
general and |
|
and related |
|
Operating |
|||
|
administrative |
|
reversals |
|
income |
|||
Accelerated depreciation charges |
$ |
|
$ |
|
$ |
|||
Employee termination benefit (reversals) charges |
|
|
|
|
|
|||
Total restructuring charges (reversals) |
$ |
|
$ |
|
$ |
|||
For the six months ended June 30, 2016, charges (reversals) for the Company’s 2015 Restructuring Actions were recorded in the Consolidated Condensed Statements of Earnings as follows:
Selling, |
|
Restructuring |
|
Impact on |
||||
|
general and |
|
and related |
|
Operating |
|||
|
administrative |
|
reversals |
|
income |
|||
Accelerated depreciation charges |
$ |
|
$ |
|
$ |
|||
Employee termination benefit (reversals) charges |
|
|
|
|
|
|||
Total restructuring charges (reversals) |
$ |
|
$ |
|
$ |
|||
For the three and six months ended June 30, 2015, charges for the Company’s 2015 Restructuring Actions were recorded in the Consolidated Condensed Statements of Earnings as follows:
Restructuring |
|
Impact on |
|||
|
and related |
|
Operating |
||
|
charges |
|
income |
||
Employee termination benefit charges |
$ |
|
$ |
||
Contract termination and lease charges |
|
|
|
||
Total restructuring charges |
$ |
|
$ |
||
For the periods indicated above, the Company incurred employee termination benefit charges (reversals), which include severance, medical and other benefits. The Company experienced higher levels of attrition than expected during the first half of 2016 as a result of the strategic alternatives process as well as announced restructuring programs. These higher levels of attrition reduced the expected termination benefits resulting in the reversals. The Company’s cost savings and headcount reduction targets have not changed related to these restructuring actions. Charges (reversals) for the 2015 Restructuring Actions and all of the other restructuring actions were recorded in accordance with FASB guidance on employers’ accounting for postemployment benefits and guidance on accounting for costs associated with exit or disposal activities, as appropriate.
Three Months Ended |
|
Six Months Ended |
|||||||||
|
June 30 |
|
June 30 |
||||||||
|
2016 |
|
2015 |
|
2016 |
|
2015 |
||||
ISS |
$ |
|
$ |
|
$ |
|
$ |
||||
Enterprise Software |
|
|
|
|
|
|
|
||||
All other |
|
|
|
|
|
|
|
||||
Total (reversals) charges |
$ |
|
$ |
|
$ |
|
$ |
||||
Employee |
||
|
Termination |
|
|
Benefits |
|
Balance at January 1, 2016 |
$ |
|
Costs incurred |
|
|
Reversals (1) |
|
|
Total restructuring (reversals) charges, net |
|
|
Payments and other (2) |
|
|
Balance at June 30, 2016 |
$ |
|
(1) Reversals due to changes in estimates for employee termination benefits and attrition.
(2) Other consists of changes in the liability balance due to foreign currency translations.
Summary of Other Restructuring Actions
General
As part of Lexmark’s ongoing strategy to increase the focus of its talent and resources on higher usage business platforms, the Company announced various restructuring actions (“Other Restructuring Actions”) over the past several years. The Other Restructuring Actions primarily include exiting the development and manufacturing of the Company’s remaining inkjet hardware, with reductions primarily in the areas of inkjet-related manufacturing, research and development, supply chain, marketing and sales as well as other support functions. The Other Restructuring Actions are considered substantially completed and any remaining charges to be incurred from these actions are expected to be immaterial.
Impact to 2016 and 2015 Financial Results
Three Months Ended |
|||||||||||||||
|
June 30, 2016 |
|
June 30, 2015 |
||||||||||||
|
|
|
|
|
|
|
Selling, |
Restructuring |
|
||||||
|
Restructuring |
Impact on |
|
|
|
|
|
general |
and related |
Impact on |
|||||
|
and related |
Operating |
|
Restructuring- |
Impact on |
and |
charges |
Operating |
|||||||
|
reversals |
income |
|
related costs |
Gross profit |
administrative |
(reversals) |
income |
|||||||
Accelerated depreciation charges |
$ |
$ |
|
$ |
$ |
$ |
$ |
$ |
|||||||
Excess components and other inventory-related charges |
|
|
|
|
|
|
|
|
|||||||
Employee termination benefit (reversals) charges |
|
|
|
|
|
|
|
|
|||||||
Contract termination and lease (reversals) charges |
|
|
|
|
|
|
|
|
|||||||
Total restructuring (reversals) charges |
$ |
$ |
|
$ |
$ |
$ |
$ |
$ |
|||||||
For the six months ended June 30, 2016 and 2015 charges (reversals) for the Company’s Other Restructuring Actions were recorded in the Consolidated Condensed Statements of Earnings as follows:
Six Months Ended |
|||||||||||||||
|
June 30, 2016 |
|
June 30, 2015 |
||||||||||||
|
|
|
|
|
|
|
Selling, |
Restructuring |
|
|
|||||
|
Restructuring |
Impact on |
|
|
|
|
|
general |
and related |
Impact on |
|||||
|
and related |
Operating |
|
Restructuring- |
Impact on |
and |
charges |
Operating |
|||||||
|
reversals |
income |
|
related costs |
Gross profit |
administrative |
(reversals) |
income |
|||||||
Accelerated depreciation charges |
$ |
$ |
|
$ |
$ |
$ |
$ |
$ |
|||||||
Excess components and other inventory-related charges |
|
|
|
|
|
|
|
|
|||||||
Employee termination benefit (reversals) charges |
|
|
|
|
|
|
|
|
|||||||
Contract termination and lease (reversals) charges |
|
|
|
|
|
|
|
|
|||||||
Total restructuring (reversals) charges |
$ |
$ |
|
$ |
$ |
$ |
$ |
$ |
|||||||
Three Months Ended |
|
Six Months Ended |
|||||||||
|
June 30 |
|
June 30 |
||||||||
|
2016 |
|
2015 |
|
2016 |
|
2015 |
||||
ISS |
$ |
|
$ |
|
$ |
|
$ |
||||
All other |
|
|
|
|
|
|
|
||||
Enterprise Software |
|
|
|
|
|
|
|
||||
Total (reversals) charges |
$ |
|
$ |
|
$ |
|
$ |
||||
Liability Rollforward
Employee |
|
Contract |
|
|
|
|||
|
Termination |
|
Termination & |
|
|
|
||
|
Benefits |
|
Lease Charges |
|
Total |
|||
Balance at January 1, 2016 |
$ |
|
$ |
|
$ |
|||
Costs incurred |
|
|
|
|
|
|||
Reversals (1) |
|
|
|
|
|
|||
Total restructuring (reversals) charges , net |
|
|
|
|
|
|||
Payments and other (2) |
|
|
|
|
|
|||
Balance at June 30, 2016 |
$ |
|
$ |
|
$ |
|||
(1) Reversals due to changes in estimates for employee termination benefits.
(2) Other consists of changes in the liability balance due to foreign currency translations.