LEXINGTON, Ky., July 26 -- Lexmark International, Inc. today announced financial results for its second quarter ended June 30, 2005. Second quarter revenue was $1.283 billion compared to $1.248 billion last year, an increase of 3 percent driven by 9 percent growth of laser and inkjet supplies revenue. EPS were $0.64 and would have been $1.06, up 4 percent without the tax cost of $53 million, or $0.42 per share, resulting from the approval to repatriate $684 million during 2005 under the American Jobs Creation Act. "Despite difficult market conditions that impacted our revenue growth, we grew laser and inkjet units each at a double-digit rate in the second quarter," said Paul J. Curlander, Lexmark chairman and chief executive officer. "We also increased our cash generation in the quarter to $146 million which again demonstrates the strength of our business model." Gross profit margin of 34.6 percent for the quarter compares to 35.3 percent last year, down 70 basis points due to lower product margins, somewhat offset by a higher mix of supplies. Operating expenses were 20.9 percent of revenue, up from 20.4 percent in the prior year, driven by increased strategic investments in development and marketing. Second quarter operating income margin was 13.7 percent versus 14.9 percent in the same quarter last year. Lexmark repurchased a record $368 million of its common stock during the quarter. The company's remaining share repurchase authorization was approximately $307 million at quarter-end. Second quarter net cash provided by operating activities increased to $146 million. Capital expenditures for the quarter were $56 million. "The distributed printing market presents attractive growth opportunities for Lexmark. In the quarter, we continued our R&D and marketing investments focused on driving the long-term growth of the company. Our objective is to expand our product line to enter and increase our presence in the future growth segments. We are also focused on increasing the awareness of Lexmark, and developing our brand. We started this in 2004, and have continued these initiatives in 2005," said Curlander. As part of the company's ongoing optimization of its expense structure, Lexmark also announced today that it will reduce its workforce by approximately 275 employees through the first half of 2006 with a majority of the affected employees exiting in the third quarter of 2005. This program is expected to result in pre-tax charges of $26 million. On an annual basis this reduction is expected to make $23 million available to reinvest in the company's strategic initiatives. The pre-tax charges in the third quarter are expected to be approximately $13 million, with an impact on diluted net earnings per share of approximately 8 cents. Lexmark continues to "uncomplicate" distributed printing During the second quarter, Lexmark introduced new inkjet and laser products that reflect its continuing focus on uncomplicating distributed printing and making it easier for users to get things done. * The Lexmark X2350 and Z735 inkjet products feature the new one-cartridge inkjet platform. Consumer focus group testing showed that single printhead products were strongly favored over competitive products with multiple printheads or multiple tank systems due to the simplicity and ease of use of having to replace only one consumable part number. * The Lexmark C920 color laser, the Lexmark W840 wide format mono laser, and the Lexmark T640 family of mono laser products feature Lexmark's new, easy to use workgroup printer user interface. This interface features an expanded display and a numeric keypad that enables the user to execute easy to use industry specific customized workflow solutions that previously were only available on higher priced multifunction devices. The user interface also features a direct USB connection that allows direct printing of PDF files from flash memory devices. Users can quickly and easily print documents PC free by walking up to the printer and inserting their memory device. Lexmark expanding solutions and manufacturing capabilities In order to drive the long term growth of the company, Lexmark continued to expand its solutions and manufacturing capabilities around the world during the second quarter. * Lexmark opened three new Printing and Solutions Showcase centers - Mexico City, New York, and Sydney. Each center provides an environment for customers to experience first-hand how Lexmark can help large enterprise customers from a number of different industries improve their paper intensive workflow processes. * Lexmark opened its fifth manufacturing facility in the state of Chihuahua, Mexico. This new facility will produce laser toner cartridges and their components used in the company's laser products. First half financial results Revenue for the first six months of 2005 was $2.641 billion, an increase of 5 percent versus $2.504 billion in the same period of 2004. Gross profit margin was 33.8 percent compared to 34.0 percent in the first half of last year. Operating income margin was 12.8 percent versus 14.0 percent in the first half of 2004. EPS were $1.60 for the first half ($2.00 excluding a $0.02 tax benefit in the first quarter, and the $0.42 tax cost in the second quarter). EPS were $1.93 for the same period last year. In the first half of 2005 net cash provided by operating activities reached $224 million, and share repurchases were a record $595 million. Looking forward Looking forward, the company believes its newly announced products and its continued investments in its strategic initiatives position it well for future growth. However the company remains cautious due to uncertain market conditions and the potential for aggressive price competition. In the third quarter of 2005, the company expects a low-single digit year- over-year revenue growth rate. It expects earnings per share of $0.95 to $1.05 excluding the estimated third quarter impact from the workforce reduction. Third quarter 2004 earnings per share were $1.17 ($1.02 excluding a $0.15 benefit from the resolution of income tax matters).