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Lexmark Reports 4Q Results

January 29, 2008

• Lexmark reports fourth-quarter revenue of $1.31 billion, GAAP EPS of $1.04, including $0.25 for restructuring-related activities
• Lexmark reports full-year revenue of $4.97 billion, GAAP EPS of $3.14, including $0.36 for restructuring-related activities
• Business market segment revenue was a record $800 million in the fourth quarter, a record $3.00 billion for full year 2007
• Company generates cash of $212 million during fourth quarter, $564 million in 2007

Lexmark International, Inc. (NYSE: LXK) today announced financial results for the fourth quarter of 2007. Fourth-quarter revenue was $1.31 billion, down 4 percent compared to revenue of $1.37 billion last year. Fourth-quarter GAAP earnings per share were $1.04. Earnings per share for the fourth quarter of 2007 would have been $1.29 excluding $0.25 per share for restructuring-related activities.  Fourth-quarter 2006 GAAP earnings per share were $0.91.  Earnings per share for the fourth quarter of 2006 would have been $1.05 excluding $0.14 per share for restructuring-related activities.

“Today we're announcing fourth-quarter financial results that reflect the strategic shift we began in the second half of 2007. Although EPS greatly exceeded expectations in the fourth quarter, we have more work to do as we continue to implement our strategy to drive our growth in higher usage segments,” said Paul J. Curlander, Lexmark chairman and chief executive officer. “Our investments in industry-leading products and technology are an integral part of our strategy and are demonstrated by the recent introduction of our new Professional Series inkjet line, our new high-performance color laser multifunction device, the X560n, and the significant product awards and industry recognition that we received in 2007.  Overall our financial position remains strong, and in 2007 we continued to generate strong cash flow from the on-going sales of our aftermarket supplies.”

Fourth-quarter 2007 business segment revenue was a record $800 million growing 4 percent year to year. Consumer segment revenue of $509 million declined 15 percent compared to a year ago. Fourth-quarter 2007 gross profit margin was 33.4 percent, the operating expense to revenue ratio was 24.7 percent, the operating income margin was 8.7 percent, and net earnings were $99 million. Fourth-quarter 2007 operating income includes $30 million pretax charges in connection with the company’s restructuring-related actions.

Fourth-quarter 2006 gross profit margin was 30.8 percent, the operating expense to revenue ratio was 23.3 percent, the operating income margin was 7.5 percent, and net earnings were $90 million. Fourth-quarter 2006 operating income included $19 million restructuring-related pretax charges.

On a non-GAAP basis, excluding fourth-quarter restructuring-related charges:

• Fourth-quarter 2007 gross profit margin would have been 34.0 percent, up 2.9 percentage points from 31.1 percent in the same period last year, principally due to a favorable product mix shift partially offset by lower product margins.
• Fourth-quarter 2007 operating expense as a percent of revenue would have been 23.0 percent, up 0.9 percentage points compared to 22.1 percent in the same quarter last year due to the decline in revenue offsetting a slight reduction in operating expense.
• Fourth-quarter 2007 operating income margin would have been 11.0 percent, up 2.1 percentage points from 8.9 percent last year.
• Fourth-quarter 2007 net earnings would have been $123 million compared to $104 million in the fourth quarter of 2006.

The company ended the quarter with $796 million in cash and marketable securities. Fourth-quarter net cash provided by operating activities was $212 million. Capital expenditures for the quarter were $52 million. Depreciation and amortization in the quarter was $58 million. Lexmark did not repurchase its stock during the fourth quarter. The company’s remaining share repurchase authorization was approximately $295 million at quarter end.