Earnings Presentation

First Quarter 2013

April 23, 2013

Forward Looking Statements and GAAP Reconciliations

The contents of this presentation that are not statements of historical fact
are forward-looking statements and involve risks and uncertainties that are

discussed in the Safe Harbor section of our earnings releases and SEC
filings. Actual results may differ materially from such statements. Lexmark
undertakes no obligation to update any forward-looking statements.

This presentation contains non-GAAP financial measures, unless otherwise

noted. Lexmark has provided in the supplemental materials section of
these slides reconciliations of GAAP to non-GAAP financial measures and

a discussion of managements use of non-GAAP financial measures.

CEO Presentation
Paul Rooke
Chairman and Chief Executive Officer

Business Dynamics
Delivered Results at High End of Guidance Range
Revenue and EPS At High End of Guidance Range
Record 1Q Gross Profit Margin Percentage
Solid Cost and Expense Management

Creating a Higher-Value Portfolio

Double-Digit Managed Print Services and Perceptive Software Revenue Growth
Advanced Lexmarks Strategic Software Capabilities with Two Acquisitions

Working to Increase Profitability

Remain Committed To Long Term Operating Margin of 11% - 13%
Previously Announced Inkjet Exit Actions Substantially Completed
Expecting to Deliver $85 Million in Savings From Previously Announced Restructuring in 2013

Maintaining Capital Allocation Discipline to Deliver Shareholder Value

Building and Growing Solutions Business Through Expansion and Acquisitions
Expanded Strategic Software Capabilities With Eight Acquisitions Since 2010
Returning >50% of Free Cash Flow to Shareholders Through Dividends and Share Repurchases on Average

Returned More Than $500 Million Since July 2011

Financial Summary*
1Q13
Revenue

$886

At High End of Guidance Range

-11% YTY

Continued Growth in Strategic Focus Areas

Perceptive Software Grew 54%

MPS Grew 10%
Headwinds Included Continued Weak Economic Environment and Planned Ongoing Decline from Inkjet Exit

Operating Income Margin

9.1%

Record 1Q Gross Profit Margin Percentage, Up 40 Basis Points Year-to-Year

Operating Expense In Line With Expectation, Declined $10 Million Year-to-Year
Previously Announced Actions to Improve Cost and Expense Structure in 2013 and Beyond
Substantially Completed

EPS

$0.88

At High End of Guidance Range

* Non-GAAP, revenue in millions

Total Revenue Composition1

Total Revenue YTY

Inkjet Exit
Lexmark Consumer & Business
Inkjet Hardware & Supplies

-4%

-12%

-27%

-11%

-28%

-9%

-29%

-11%

-26%

Inkjet Exit Revenue

Expected To Decline
Over 40% YTY

-34%

Non-MPS

Imaging Solutions2
+3%

Hardware, Supplies,
Software, Services

-8%

-5%

-5%

-6%

17% Growth in
Combined MPS +
Perceptive Software
Revenue

MPS

Perceptive Software
Solutions
1Q12
Imaging & Software Solutions
% of Total Revenue
YTY Currency Impact 3
(1)
(2)
(3)

Double-digit Growth
in MPS and
Perceptive More
Than Offset By NonMPS Decline

2Q12

3Q12

4Q12

1Q13

81%

83%

84%

85%

86%

-2%

-4%

-4%

-1%

-1%

Non-GAAP, Bars depict percentage of total revenue

Imaging Solutions Revenue = ISS revenue excluding inkjet exit revenue
Based on corporate average

Increasing Share in High-Usage Large Workgroup

Large Workgroup Laser (A4) Unit Share1,2

16%

17%

14%

4Q10

4Q11

4Q12

4 Quarters Ending

(1)
(2)

Rolling four quarters

Lexmark Custom Category using IDC WW HCP Tracker, Q4 2012 Branded A4 Laser Printer/MFP Shipments, Worldwide Excluding Japan

Recognized as a Leader*
Managed Print Services Leader

Smart MFP Leader

Healthcare Content
Software Leader

* See footnote slide

Lexmarks Evolution
Continuing Solutions & Services Investments
Smart MFP Solutions
Managed Print Solutions & Services

Software Acquisitions
Perceptive Software
Pallas Athena
Brainware
Isys

2007
2007

Nolij
Acuo
AccessVia
Twistage

2013
2013

2010
2010

Exited Consumer Inkjet

Goal

Exited Business Inkjet

End-to-End Solutions Provider

9

Lexmark Acquires Twistage and AccessVia

Expanding and Strengthening
Strategic Software Capabilities

Industry-leading cloud software

platform for managing video, audio,
and image content

Industry-leading paper and digital

signage solutions for retail
marketplace

Enables capture, manage and access

of rich media content in context of
business processes and enterprise
applications when combined with
Lexmarks Perceptive Software

Adds a key offering into Lexmarks

leading suite of innovative output,
managed print services and
workflow solutions for retailers

10

Creating Differentiated Solutions

Capture

Imaging

Manage

Access

Content & Process Management

Lexmark is Unique

11

Creating Synergies for Growth

Global Large Account Presence

Broad Industry Expertise
Global Infrastructure
Cash to Accelerate Growth

Imaging Solutions

Perceptive Software
Solutions

Advanced Software Solutions to Differentiate/Grow MPS

Healthcare, Education, Back Office Presence & Expertise

12

Capital Allocation Framework*

Invested > $500M
Since 2010

Free Cash Flow

Recent Track Record1

Acquisitions
Since 2010

Long Term Assumption:

<50%

>50%

$116

Dividends

per Share

Perceptive
Pallas Athena
Brainware
ISYS
Nolij
Acuo
Twistage
AccessVia

Returned > $500M Since

2011

$18

$18

$0.25

$0.25

$21

$21

$19

$19

$0.30

$0.30

$0.30

$0.30

4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Cash
for
Investment

Strengthen & Grow

Capabilities

Return
to
Shareholders

Stock Repurchases
2011 $250
2012 $190
1Q13 $21

$461

Return >50% on Average through

Dividends & Repurchases

* Totals may not foot due to rounding, in millions unless otherwise noted

13

Longer Term Revenue Growth Assumptions1,2

Revenue Drivers

Revenue Headwind

Inkjet Exit Revenue*

Rapidly Diminishing Influence On Overall
Revenue Performance Going Forward
$1.1B

Imaging

Solutions3

Grow Imaging Market

Driven by MPS Growth

Perceptive Software
Solutions

Hardware

$0.9B

Grow > Market

$0.6B
Supplies

<$0.1B

2010

2011

2012

2013

2014

2015

*2013 2015 Bars Are Illustrative

(1)
(2)
(3)

Non-GAAP
Based on foreign currency exchange rates as of 3/31/13
Imaging Solutions excludes Inkjet Exit revenue

14

2013 Revenue Assumption1

Year to Year

Overall Revenue

2012
$3.8B

Inkjet Exit
Lexmark Consumer + Business
Inkjet Hardware & Supplies

Imaging Solutions

Non-MPS

Hardware, Supplies,
Software, Services

MPS

Perceptive Software Solutions

Imaging & Software Solutions
% of Total Revenue
YTY Currency Impact2
(1)
(2)

2012
-9%

2013
-8 to -10%

Inkjet Exit

Inkjet Exit

-27%

Down
Over 40%

Imaging & Software

Solutions

Imaging & Software

Solutions

-4%

Down
Slightly

MPS & Perceptive

Software

MPS & Perceptive

Software

+15%

About 15%

83%
-3%

Non-GAAP, bar chart depicts percentage of total revenue

YTY impact in 2012 based on corporate average

15

Outlook*
2Q13
Revenue
EPS

Down 6% to 8% YTY
$0.80 - $0.90

FY13
Revenue
EPS

Down 8% to 10% YTY

$3.90 - $4.10

Long Term
Revenue Growth
Op. Inc. Margin

Grow at or above market

11% - 13%

* Non-GAAP

16

CFO Presentation
John Gamble
Executive Vice President and Chief Financial Officer

17

1Q13 EPS Overview*

Midpoint of EPS Guidance Range

1Q13

Comments

$0.85

EPS Range: $0.80 - $0.90

Segment Operational Performance

ISS

+$0.08

Perceptive Software

-$0.04

All Other

-$0.01

Reported EPS

$0.88

Driven By Supplies Revenue Upside

Channel Inventory Decline Less Than Expected
Perceptive Revenue Above Market Growth Rate

* Non-GAAP, Totals may not foot due to rounding.

18

Revenue1
1Q13
Total

$886

Guidance

YTY

SEQ

High End

-11%

-8%

ISS
Perceptive2

$840
$46

-13%
+54%

-9%
+9%

Imaging Solutions
+ Perceptive2
Inkjet Exit

$765
$122

-5%
-34%

-7%
-17%

Inkjet Exit Decline Unfavorably Impacted Total Revenue 6 Percentage Points

ISS Revenue Declined YTY Driven by Expected Lower Inkjet Exit Revenue
and Supplies Channel Inventory (1Q12 Channel Build Did Not Repeat in 1Q13)
Perceptive Software Grew 54% YTY2 in 1Q13

(1)
(2)

Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted
Excluding acquisitions completed over the past four quarters. Pallas Athena, acquired on October 18, 2011, is now included in calculation of organic revenue. Perceptive Software organic revenue growth was 15% in 1Q13

19

Product and Geographic Revenue1

Year to Year Changes

1Q13

YTY

Hardware(2)

$181

-9%

Supplies(3)

$609

-16%

$97

+37%

$886

-11%

Software & Other(4)

Total

Hardware Revenue

Rev
Laser Hardware
-5%
(5)
Large Workgroup
-2%
Small Workgroup(6) -19%
Exiting Inkjet
-78%
Laser

-11%

Exiting Inkjet

-31%

Perceptive Software +54%

Supplies Revenue

Exiting Inkjet 1%

16%

AUR

-11%
-4%
-18%
-77%

+6%
+2%
-1%
-7%

(Organic7 +15%)

Geographic Revenue
Other $174M
-14% YTY

Exiting Inkjet
Small Workgroup

Units

20%

20%
43%

83%

80%

38%

Laser
Large Workgroup
EMEA $335M
-9% YTY
(1)
(2)
(3)
(4)
(5)
(6)
(7)

Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted
Includes laser, inkjet, and dot matrix hardware and the associated features sold on a unit basis or through a managed service agreement.
Includes laser, inkjet, and dot matrix supplies and associated supplies services sold on a unit basis or through a managed service agreement.
Includes parts and service related to hardware maintenance and includes software licenses and the associated software maintenance services sold on a unit basis or as a subscription service.
Includes departmental, large workgroup, and medium workgroup lasers, dot matrix printers and options
Includes small workgroup lasers and personal lasers
Excluding acquisitions completed over the past four quarters. Pallas Athena, acquired on October 18, 2011, is now included in calculati on of organic revenue. Perceptive Software organic revenue growth was 15% in 1Q13.

U.S. $377M
-11% YTY

20

Gross Profit Margin*

1Q13

YTY

SEQ

Total

39.8%

+40 bps

+380 bps

ISS

39.5%

-30 bps

+390 bps

Perceptive

68.8%

+450 bps

+180 bps

Record 1Q Gross Profit Margin Percentage

Significant Sequential Improvements in Both ISS and Perceptive
Significant YTY Improvement in Perceptive Driven by Favorable
Product Mix Shift Towards More License Revenue (Up 97% YTY)
and More Subscriptions and Maintenance Revenue (Up 53% YTY)

* Non-GAAP, totals may not foot due to rounding

21

Operating Expense*
1Q13

YTY

SEQ

$272

-$10

-$3

$81

-$15

-$6

$190

$5

$4

$169

-$26

-$9

Perceptive

$39

$12

$4

All Other

$63

$4

$2

Total
R&D
SG&A
ISS

Total Operating Expense Declined Year on Year and Sequentially

Lower Operating Expense in ISS Partially Offset by Increased Investment
in Perceptive Software

* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted

22

Operating Income Margin*

1Q13

YTY

SEQ

9.1%

-190 bps

+150 bps

$81

-$28

+$7

ISS

$163

-$25

$11

-$8

$0

-$1

-$75

-$4

-$3

Perceptive
All Other

Sequential Increase Driven by Favorable Mix, and Improved Cost and Expense
Year to Year Decline Driven by Reduced Inkjet Exit and Laser Supplies
Revenue, Partially Offset by Restructuring Savings

* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted

23

Earnings*
1Q13

Net Earnings
EPS

Guidance

$57
$0.88

High End

YTY

SEQ

-$19

+$17

-$0.17

+$0.27

EPS Favorably Impacted By Lower Tax Rate

1Q13 Tax Rate of 19.0%, with $5 Million Discrete Tax Benefit
Ongoing Tax Rate of 26.5%
1Q12 Tax Rate of 25.7%
Average Diluted Shares Outstanding
64.7 in 1Q 2013 Compared to 72.3 in 1Q 2012
(Approx. 11% Reduction)
Outstanding Shares At March 31, 2013 Were 63.6

* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted

24

Sale of Inkjet-Related Technology and Assets

Announced Sale of Inkjet-Related Technology and Assets to Funai for ~$100 million
Subject to Customary Closing Conditions
Expected to Close in 2Q13

No Material Impact on the Ramp Down of Lexmarks Inkjet Exit Revenue is Expected
No Disruption of Service or Support For Lexmarks Customers and Distributors is Expected
Funai will Become a Manufacturer of Lexmarks Aftermarket Inkjet Supplies
Lexmark will Continue to Support its Installed Base of Customers in the Sale of Aftermarket Inkjet Supplies

Upon Closing, Funai will acquire:

>1,500 Inkjet Patents

Inkjet-Related Research and Development Assets and Tools
Manufacturing Facility of Lexmark International (Philippines)
Other Inkjet-Related Technology and Assets

25

Balance Sheet and Cash Flow1

Cash Cycle Improved 4 Days Year to Year
Strong Liquidity Position
$880M Cash2, $350M Revolver, $125M A/R Program
Maintaining an Investment Grade Debt Rating
1Q13
Cash2
U.S. Cash
Non-U.S. Cash

1Q12 2Q12 3Q12 4Q12 1Q13

Receivables

43

47

51

49

50

Cash from Operations3

$38

Inventory

48

49

44

39

45

Free Cash Flow4

($5)

Payables

70

69

73

72

77

Depreciation & Amortization5

$62

Cash
Conversion1

22

27

22

16

18

Capital Expenditures

$43

Cash Provided By or (Used For)

A/R
Inventory
A/P

(1)
(2)
(3)
(4)
(5)

$880
$35
$845

Cash Conversion Days

$31
$1
($43)

Long Term Debt

Long Term Debt
New Issuance, 5.125%, Due 2020
Redeemed, 5.90%, Due 2013
Other, 6.65%, Due 2018

$700
$400
($350)
$300

GAAP, totals may not foot due to rounding, in millions unless otherwise noted
Includes current short-term marketable securities
Net cash provided by operating activities
Free cash flow = cash from operations capital expenditures + proceeds from the sale of fixed assets
Includes $16 million for Non-GAAP adjustments, excluding these adjustments, depreciation and amortization would have been $46 million

26

Outlook / Assumptions
2Q13 Outlook
Revenue(1)(2)

Decline 6% to 8% YTY

Gross Profit Margin(1)(2)

Increase YTY Compared to 40.5% Last Year

Operating Expense(1)(2)

About Flat Sequentially Compared to $272 Million Last Quarter

Op. Inc. Margin(1)(2)

Increase Slightly YTY Compared to 10.1% Last Year

GAAP EPS(2)(3)

$0.42 - $0.52 (Excluding an Expected 2Q Gain From Closing of Inkjet Sale Transaction)
Compares to 2Q12 GAAP EPS of $0.55

Non-GAAP EPS(1)(2)(3)

$0.80 - $0.90 (Excluding $0.38/Share for Non-GAAP Adjustments)

Compares to 2Q12 Non-GAAP EPS of $0.89 (Excluding $0.34/Share for Non-GAAP Adjustments)

(1)
(2)
(3)

Non-GAAP, excludes restructuring-related, acquisition-related and loss on debt extinguishment adjustments

Based on foreign currency exchange rates as of 3/31/13
Effective tax rate for FY13 is 26.5%, the 25% shown above includes $6 million benefit from delay of 2012 R&E credit from 4Q12 to 1Q13

27

2Q13 EPS* Guidance YTY Change

2Q
2Q12 EPS*

$0.89

Segment Operational Performance

ISS / Other
Perceptive Software

Lower Outstanding Shares

Midpoint of 2Q13 EPS*
Guidance Range

Comments

-$0.10
Flat

+$0.06

$0.85

- Inkjet Exit
+ Laser Profit
+ Laser Supplies Growth
+ Lower Cost/Expense From 2012 Restructurings
Improved Performance versus 1Q13

Average diluted shares expected to decline

2Q12 average diluted shares @ 71.5 million,
64.7 million in 1Q13
Tax rate increase to 26.5% in 2Q13 vs. 25% in 2Q12
EPS Range: $0.80 - $0.90

* Non-GAAP, totals may not foot due to rounding

28

Outlook / Assumptions
FY13 Assumptions

Longer Term Assumptions

Revenue(1)(2)

Decline 8% to 10% YTY

Revenue

Grow At or Above Market

FY13 Tax Rate

25%(3)

Op. Inc. Margin(1)

11% - 13%

EPS(1)(2)

$3.90 - $4.10

Free Cash Flow

~80% - 90% of Net Income(1)

Cash Generation
Primarily Driven by Net Income + Modest Ongoing
Working Capital / Cash Cycle Improvements

Capital Spending

~$185 Million

Depreciation

~$250 Million(4)

Pension Funding

~$25 Million (Cash)

Free Cash Flow

~90% - 100% of Net Income(1)
Capital Expenditures ~ Depreciation

(1)
(2)
(3)
(4)

Non-GAAP, excludes restructuring-related and acquisition-related adjustments

Based on foreign currency exchange rates as of 3/31/13
Effective tax rate for FY13 is 26.5%, the 25% shown above includes $5 million discrete benefits including the benefit from the delay of 2012 R&E credit from 4Q12 to 1Q13
Includes approximately $32 million of restructuring and acquisition-related adjustments

29

Supplemental Materials
Lexmark Financial Summary
Segment Financial Summaries
2012 Restructuring Summary
Free Cash Flow Returned to Shareholders
Outstanding Shares / Dividends
Currency

30

Lexmark Financial Summary*

1Q13

YTY

$886

-11%

Gross Profit Margin

39.8%

+0.4 pts

Operating Expense

$272

-$10

$81
$190

-$15
$5

$81

-$28

$163

-$25

($8)

$0

($75)

-$4

9.1%

-1.9 pts

$57

-$19

19.0%

-6.7 pts

$0.88

-$0.17

Revenue

R&D
SG&A

Operating Income
ISS
Perceptive
Other

Operating Income Margin

Net Earnings
Tax Rate
EPS
* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted

31

Segment Financial Summaries*

1Q13

ISS
Revenue
MPS
Non-MPS
Inkjet Exit

Gross Profit Margin

Operating Expense
Operating Income
Operating Income Margin

Perceptive Software
Revenue
Licenses
Subscriptions / Maintenance
Professional Services / Other

YTY

$840

-13%

$160
$558
$122

+10%
-12%
-34%

39.5%
$169
$163
19.4%

-0.3 pts
-$26
-$25
-0.1 pts

1Q13

YTY

$46

+54%

$13
$22
$11

+97%
+53%
+25%

Gross Profit Margin

68.8%

+4.5 pts

Operating Expense

$39

+$12

Operating Income

-$8

$0

* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted

32

2012 Restructuring Summary1,2

Jan 2012
Pretax charges
FY11
FY12
1Q13
FY13 Expected
Total Program

Aug 2012

Charges Cash Flow3

$8
$23
$0
$1
$32

$3
$14
$0
$1
$18

Jan 2012
Savings
FY12
FY13 Expected
Ongoing

(1)
(2)
(3)
(4)

$17
$28
$28

Charges Cash Flow3

$96
$9
$39
$160

$24
$16
$42
$75

Aug 2012
$1
$85
$95 (Cash $85)4

Restructuring-related charges for 2012 actions and related project costs only, in millions unless otherwise noted
Restructuring savings include savings from 2012 actions only
Cash restructuring charges are estimates based on the timing of related activities.
Beginning in FY15, estimated allocation of 65% operating expense / 35% cost of goods sold

33

Outstanding Shares / Dividends

Outstanding Share Counts1

Anticipated Dividend Schedule2

Actual
Ending

Diluted
Average

1Q13

63.6

64.7

2/21/13

3/4/13

3/15/13

4Q12

63.9

65.4

4/25/13

5/31/13

6/14/13

3Q12

64.6

68.9

7/25/13

8/30/13

9/13/13

2Q12

70.3

71.5

10/24/13

1Q12

71.1

72.3

2/20/14

3/3/14

3/14/14

FY12

63.9

69.5

4/24/14

5/30/14

6/13/14

FY11

71.4

77.9

7/24/14

8/29/14

9/12/14

FY10

78.6

79.5

10/23/14

Period

(1) Millions

Declaration Record Payment

Date
Date
Date

11/29/13 12/13/13

11/28/14 12/12/14

(2) Future quarterly dividend payments subject to Board of Directors approval

34

Free Cash Flow Returned to Shareholders*

Returned 119% of Free Cash Flow
to Shareholders Since 2011

$577
$486
$269
Share
Repurchases

$190

Dividends

$79

$251

$461

Free
Cash Flow

FY 2012

Free
Cash Flow

$116

Inception to Date
1Q11 1Q13

* Millions

35

Currency
1Q13 YTY Impact*

2012 Exposure
Revenue by Geography

1Q13 vs. 4Q12

0%

1Q13 vs. 1Q12

-1%

Europe: Mostly Euro (65%-70%) and British

Pound (5%-10%)

35%

U.S.
45%

20%

Other International: Primarily Canadian Dollar,

Brazilian Real and Australian Dollar

1Q13 vs. Guidance -1%

Cost by Currency
USD

93%
7%

2013 YTY Impact*

Non-USD: Primarily Euro (20%-25%), Australian

Dollar (20%-25%), Brazilian Real (10%-15%),
Canadian Dollar (10%-15%), and a number of other
currencies representing less than 10% including
Mexican Peso, Philippine Peso, and Japanese Yen.

Operating Expense by Currency

2Q13 vs. 1Q13

-1%

2Q13 vs. 2Q12

0%

FY13 vs. FY12

0%

USD

64%
36%

Non-USD: Euro (30%- 35%), Swiss Franc (10%15%), and a number of other currencies each
representing less than 10% including the Brazilian
Real, Canadian Dollar, Australian Dollar,
Philippine Peso and British Pound

Other Factors
Company generally acts to harmonize supplies prices globally to the U.S. dollar
Price increases cannot immediately impact laser supplies that are sold under contract
(~60% or more at any given point in time)
* Based on foreign currency exchange rates as of 3/31/13

Lexmark does not hedge cash flow but does hedge transaction exposures

36

Footnotes For Leader Slide

Gartner, Inc., Magic Quadrant for Managed Print Services, Worldwide, Ken Weilerstein, Cecile Drew, Yulan Li, October 25, 2012.
Gartner, Inc., Magic Quadrant for MFPs and Printers, Worldwide, Sharon McNee, Federico De Silva, October 24, 2012.
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology
users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's
research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied,
with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
IDC MarketScape: Worldwide Managed Print Services 2011 Hardcopy Vendor Analysis
Forrester Wave: Managed Print Services, Q2 2012
Quocirca Vendor Landscape: Managed Print Services, March 2012

37

GAAP to Non-GAAP Reconciliations

GAAP Product and Services P&L

Geographic & Segment Comparison
P&L Compared To Last Year
Expected Non-GAAP Adjustments
GAAP to Non-GAAP

Non-GAAP Measures

38

GAAP Product and Services P&L*

1Q12

2Q12

3Q12

4Q12

1Q13

$992

$919

$919

$967

$884

$915
$78

$831
$87

$829
$90

$872
$95

$787
$97M

$611

$558

$591

$638

$550

Product
Services
Other

$537
$70
$4

$487
$68
$3

$492
$70
$29

$549
$78
$11

$465
$77
$7

Gross Profit:

$381

$361

$328

$330

$335

Revenue
Product
Services

Cost of Revenue:

* Totals may not foot due to rounding, in millions

Product - Includes all hardware, parts, supplies and license revenue and associated COGS. In addition, the amortization of developed technology is included as product COGS. Service - Includes ISS
extended warranty, ISS software and MPS service revenue and associated COGS. Also included in service is Perceptive subscriptions, maintenance and support and professional services and other
revenue and associated COGS.

39

1Q Segment Comparison1,2
(Dollars in millions)

Geographic
Revenue

2013

United States
EMEA
Other International

Total Revenue

GAAP Adjustments Non-GAAP

375 $
2 $
377
335
-335
174
-174
884 $

(Dollars in millions)

Segment
Revenue

Total Revenue

884 $

GAAP
325
21
(11)
$
335
$

992

Adjustments Non-GAAP
$
-- $
423
-368
-201
$

2 $

886

GAAP
963
30

Total Operating Expense

992

GAAP
379
14
(11)
$
381
$

Total Operating Income

2012

(9) $

272

GAAP
201
30
61
292

Adjustments Non-GAAP
$
(5) $
196
(2)
27
(2)
59
$

(10) $

282

2012

GAAP Adjustments Non-GAAP

157 $
6 $
163
(23)
15
(8)
(80)
5
(75)
54 $

993

Adjustments Non-GAAP
$
4 $
383
6
19
-(11)
$
10 $
391

2013

Imaging Solutions and Services

Perceptive Software
All other

-- $
2012

GAAP Adjustments Non-GAAP

168 $
1 $
169
44
(5)
39
68
(5)
63
281 $

993

Adjustments Non-GAAP
$
-- $
963
-30

2013

Imaging Solutions and Services

Perceptive Software
All other

-- $
2012

Adjustments Non-GAAP
$
8 $
332
11
32
$
-(11)
$
18 $
353

(Dollars in millions)

Operating
Income

GAAP
423
368
201

2013

(Dollars in millions)

Operating
Expense

886

GAAP Adjustments Non-GAAP

840 $
-- $
840
44
2
46

(Dollars in millions)

Gross Profit

2 $

2013

Imaging Solutions and Services

Perceptive Software

Imaging Solutions and Services

Perceptive Software
All other
Total Gross Profit Margin

2012

27 $

81

GAAP
178
(16)
(73)
89

Adjustments Non-GAAP
$
10 $
188
8
(8)
2
(71)
$

20 $

109

YTY Comparison
NonGAAP
GAAP
(11%)
(11%)
(9%)
(9%)
(14%)
(14%)
(11%)

(11%)

YTY Comparison
NonGAAP
GAAP
(13%)
(13%)
50%
54%
(11%)

(11%)

YTY Comparison
NonGAAP
GAAP
(14%)
(13%)
56%
65%
1%
1%
(12%)
(10%)
YTY Comparison
NonGAAP
GAAP
(16%)
(14%)
49%
45%
11%
6%
(4%)

(4%)

YTY Comparison
NonGAAP
GAAP
(12%)
(13%)
(44%)
4%
(10%)
(5%)
(40%)

(26%)

(1) Totals may not foot due to rounding

(2) Adjustments comprised of restructuring-related amounts from 2007, 2008, 2009 and 2012 actions and related project costs, acquisition and divestiture-related adjustments

40

1Q P&L Compared to Last Year

$ Million, Except EPS
1Q13
Revenue

GAAP

$884

Gross
Profit

Op Ex

Op Inc

$335

$281

$54

37.8%

31.7%

6.1%

1Q12
Non-Op

$14

EPS

$0.54

Gross
Revenue Profit

$992

$381
38.4%

Op Ex

Op Inc

$292

$89

29.4%

9.0%

Non-Op

EPS

$7

$0.84

Deferred revenue

$2

$2

--

$2

--

$0

$0

$0

--

--

Amortization of
purchased intangibles

--

$9

($4)

$13

--

--

$5

($2)

$8

--

Acquisition costs

--

--

($3)

$3

--

--

--

($2)

$2

--

$2

$11

($7)

$18

--

$0.20

$0

$6

($4)

$10

--

$0.10

RestructuringRelated(2)

--

$7

($2)

$9

--

$0.10

--

$4

($6)

$10

--

$0.11

Loss on Debt
Extinguishment(3)

--

--

--

--

($3)

$0.04

--

--

--

--

--

--

$886

$353
39.8%

$272
30.7%

$81
9.1%

$10

$0.88

$993

$391
39.4%

$109
11.0%

$7

$1.05

Acquisition
Related(1)

Non-GAAP(4)

(1)
(2)
(3)
(4)
(5)

$282
28.4%

Acquisition-related amounts include amortization of purchased intangibles, adjustments to deferred revenue and acquisition and integration costs
Restructuring-related amounts include 2007, 2008 , 2009 and 2012 actions and related project costs
Loss on debt extinguishment charges consist of premium, redemption fees, discount amortization and deferred financing costs
1Q13 GAAP effective tax rate of 13.4%, 1Q13 Non GAAP effective tax rate of 19.0%, 1Q12 GAAP effective tax rate of 25.9%, 1Q12 Non GAAP effective tax rate of 25.7%
Totals may not foot due to rounding

41

Expected Non-GAAP Adjustments

$ Million, Except EPS
2Q13
Gross
Revenue Profit

FY 2013

Op Ex

Op Inc

Non-Op

$3

--

$3

--

Amortization of
purchased intangibles

$9

($5)

$13

--

Acquisition costs

--

($3)

$3

--

Deferred revenue

$3

EPS

Revenue
$12

--

Gross
Profit

Op Ex Op Inc

Non-Op

$12

--

$12

--

$35

($18)

$53

--

$0

($9)

$9

--

EPS

Acquisition
Related(1)

$3

$12

($7)

$20

--

$0.24

$12

$47

($27)

$74

--

$0.87

RestructuringRelated(2)

--

$6

($7)

$13

--

$0.14

--

$20

($19)

$39

--

$0.45

Loss on Debt
Extinguishment(3)

--

--

--

--

--

--

--

--

--

--

($3)

$0.04

Total Non-GAAP(4)
Adjustments

$3

$18

($14)

$32

--

$0.38

$12

$67

($46)

$113

($3)

$1.37

(1)
(2)
(3)
(4)

Acquisition-related amounts include amortization of purchased intangibles, adjustments to deferred revenue, and acquisition and integration costs
Restructuring-related amounts include 2009 and 2012 actions and related project costs
Loss on debt extinguishment charges consist of premium, redemption fees, discount amortization and deferred financing costs
Totals may not foot due to rounding

42

GAAP to Non-GAAP

*Totals may not foot due to rounding

43

Non-GAAP Measures
Management believes that presenting non-GAAP measures is useful because they enhance investors understanding of how management assesses the performance of the
Companys businesses. Management uses non-GAAP measures for budgeting purposes, measuring actual results to budgeted projections, allocating resources, and in certain
circumstances for employee incentive compensation. Adjustments to GAAP results in determining non-GAAP results fall into two broad general categories that are described
below:
Restructuring- related charges
In recent years, the Company has initiated restructuring plans which have resulted in operating expenses which otherwise would not have been incurred. The size of these
items can vary significantly from period to period and the Company does not consider these items to be part of core operating expenses of the business. Restructuring and
related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of accelerated depreciation, asset impairments, employee termination benefits,
pension and postretirement plan curtailments, inventory-related charges and contract termination and lease charges. They also include project costs that relate to the
execution of the restructuring plans. These project costs are incremental to normal operating charges and are expensed as incurred, such as compensation costs for overlap
staffing, travel expenses, consulting costs and training costs.
Acquisition and Divestiture - related adjustments
In connection with acquisitions, management provides supplementary non-GAAP financial measures of revenue and expenses to normalize for the impact of business
combination accounting rules as well as to exclude certain expenses which would not have been incurred otherwise.
A. Adjustments to Revenue
Due to business combination accounting rules, deferred revenue balances for service contracts assumed as part of acquisitions are adjusted down to fair
value. Fair value approximates the cost of fulfilling the service obligation, plus a reasonable profit margin. Subsequent to acquisitions, management adds
back the amount of amortized revenue that would have been recognized had the acquired company remained independent and had the deferred
revenue balances not been adjusted to fair value. Management reviews non-GAAP revenue to allow for more complete comparisons to historical
performance as well as to forward-looking projections and also uses it as a metric for employee incentive compensation.
B. Amortization of intangible assets
Due to business combination accounting rules, intangible assets are recognized which were not previously presented on the balance sheet of the acquired
company. These intangible assets consist primarily of purchased technology, customer relationships, trade names, in-process R&D and non-compete
agreements. Subsequent to the acquisition date, some of these intangible assets begin amortizing and represent an expense that would not have been
recorded had the acquired company remained independent. The total amortization of the acquired intangible assets varies from period to period, due to the
mix in value and useful lives of the different assets. For the purpose of comparing financial results to historical performance as well as for defining targets
for employee incentive compensation, management excludes the amortization of the acquired intangible assets on a non-GAAP basis.
C. Acquisition and integration costs
In connection with its acquisitions, the Company incurs expenses that would not have been incurred otherwise. The acquisition costs include items such as
investment banking fees, legal and accounting fees, and costs of retention bonus programs for the senior management of the acquired company. Integration
costs may consist of information technology expenses including software and systems to be implement in acquired companies, consulting costs and travel
expenses as well as non-cash charges related to the abandonment of assets under construction by the Company that are determined to be duplicative of
assets of the acquired company. The costs are expensed as incurred and can vary substantially in size from one period to the next. For these reasons,
management excludes these expenses from non-GAAP earnings in order to evaluate the Companys performance on a continuing and comparable basis.

44

Non-GAAP Measures, Continued

Loss on Early Extinguishment of Debt
The Company has extinguished debt prior to its scheduled maturity which has resulted in non-operating expenses which otherwise would not have been incurred. The size of
these items can vary significantly depending on timing of the debt maturity versus execution of the redemption and the Company does not consider these items to be part of
typical non-operating expenses of the business. Debt extinguishment related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of
premium and redemption fees paid, as well as the write-off of unamortized debt issuance costs and original issue discount.
In addition to GAAP results, management presents these non-GAAP financial measures to provide investors with additional information that they can utilize in their own
methods of evaluating the Companys performance. Management compensates for the material limitations associated with the use of non-GAAP financial measures by having
specific initiatives associated with restructuring actions and acquisitions approved by management, along with their budgeted costs. Subsequently, actual costs incurred as a
part of these approved restructuring plans and acquisitions are monitored and compared to budgeted costs to assure that the Companys non-GAAP financial measures only
exclude pre-approved restructuring-related costs and acquisition-related adjustments. Any non-GAAP measures provided by the Company may not be comparable to similar
measures of other companies as not all companies calculate these measures in the same manner.

45