Exhibit 99.1
LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
DECEMBER 31, 2003
PAGES
Report of Independent Auditors 1
Financial Statements:
Statements of Assets Available for Plan Benefits,
as of December 31, 2003 and 2002 2
Statements of Changes in Assets Available for Plan
Benefits for each of the three years in the period
ended December 31, 2003 3
Notes to Financial Statements 4 - 8
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of the
Lexmark International Group, Inc.
1999 Employee Stock Purchase Plan
In our opinion, the accompanying statements of assets available for plan
benefits and the related statements of changes in assets available for plan
benefits present fairly, in all material respects, the assets available for
benefits of the Lexmark International Group, Inc. 1999 Employee Stock Purchase
Plan (the Plan) at December 31, 2003 and 2002 and the changes in assets
available for benefits for each of the three years in the period ended December
31, 2003 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Plan'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 audits 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 27, 2004
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 2003 and 2002
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ASSETS 2003 2002
------ ---- ----
Lexmark Class A Common Stock, at fair value (cost of
$24,687,409 and $21,562,619 at December 31, 2003 and
2002, respectively) $33,786,764 $22,963,293
Employer contribution receivable 660,213 639,480
Employee contribution receivable 3,620,069 3,476,917
----------- -----------
ASSETS AVAILABLE FOR PLAN BENEFITS $38,067,046 $27,079,690
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN ASSETS AVAILABLE FOR PLAN BENEFITS
For the years ended December 31, 2003, 2002 and 2001
- -------------------------------------------------------------------------------
2003 2002 2001
---- ---- ----
Contributions:
Employer $ 1,456,905 $ 1,369,197 $ 1,528,896
Participants 7,909,509 7,630,246 8,707,566
------------ ------------ ------------
Total Contributions 9,366,414 8,999,443 10,236,462
------------ ------------ ------------
Withdrawals of Lexmark Class A
Common Stock by Participants,
at fair value (7,558,668) (4,487,244) (603,346)
Investment gain:
Net appreciation in
fair value of Lexmark Class A
Common Stock 9,179,610 724,148 3,983,886
------------ ------------ ------------
Total Withdrawals and Net
Appreciation 1,620,942 (3,763,096) 3,380,540
------------ ------------ ------------
Net Increase $ 10,987,356 $ 5,236,347 $ 13,617,002
ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 27,079,690 21,843,343 8,226,341
------------ ------------ ------------
End of year $ 38,067,046 $ 27,079,690 $ 21,843,343
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
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1. PLAN DESCRIPTION:
The following is a brief description of the Lexmark International Group,
Inc. 1999 Employee Stock Purchase Plan (the "Plan") and is provided for
general information only. For additional information regarding the Plan's
provisions, participants should refer to the Plan prospectus.
A. GENERAL: The Plan is designed to provide eligible employees of Lexmark
International, Inc. (the "Company") an opportunity to purchase Lexmark
Class A Common Stock ("Lexmark Stock") at a discounted price through
payroll deductions. Eligible employees may participate in the Plan
during two offering periods each calendar year, January 1 through June
30 and July 1 through December 31 (the "Offering Periods"). The Plan
is not subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended (ERISA).
The Plan was approved by the Company's stockholders on April 29, 1999
and commenced on January 1, 2000. A total of 3,000,000 shares of
Lexmark Stock may be acquired by participants under the terms of the
Plan.
B. ADMINISTRATION: A committee comprised of the Chief Financial Officer,
Vice President of Human Resources and Vice President, General Counsel
and Secretary of the Company has been designated as the Plan
Administrator by the Compensation and Pension Committee of the
Company's Board of the Directors. The recordkeeping and administration
of the Plan is provided by EquiServe Trust Company, N.A. ("EquiServe")
and Plan Gestion. EquiServe and Plan Gestion maintain custody of the
Plan's assets and use information regarding participants' payroll
deductions to credit an account in each participant's name with the
number of full and fractional shares of Lexmark Stock purchased by
that participant's contributions to the Plan. Shares acquired by
participants under the Plan may be shares issued by the Company from
its authorized but unissued stock, treasury stock or shares purchased
on the open market.
C. ELIGIBILITY: Eligible employees are those individuals who have been
employed as regular employees for three consecutive full months prior
to the first day of an Offering Period by the Company or one of its
designated subsidiaries whose employees have been approved by the Plan
Administrator for participation in the Plan. The Plan Administrator
also has the authority to prescribe additional rules affecting
eligibility of employees to participate in the Plan. There were
approximately 1,800 and 2,000 participants in the Plan at December 31,
2003 and 2002, respectively.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
1. PLAN DESCRIPTION, CONTINUED:
D. CONTRIBUTIONS: Eligible employees may elect to contribute from 1% to
10% of their compensation to the Plan via payroll deductions.
Participants may elect to increase or decrease their payroll
deductions to any whole percentage between 1% and 10%, or to suspend
their contributions, up to two times during an Offering Period subject
to a maximum of two changes per calendar year.
E. PURCHASES: Until June 30, 2002, participants' contributions were used
to purchase Lexmark Stock on or about the last business day of each
month, and for most participants in the Plan, the price for a whole or
fractional share of Lexmark Stock was 85% of its closing price on the
last business day of the respective month. Effective July 1, 2002, the
Plan was amended whereby participants' contributions are used to
purchase Lexmark stock on or about the last business day of each
Offering Period, and for most participants in the Plan, the price for
a whole or fractional share is the lesser of 85% of the closing market
price on (i) the last business day immediately preceding the first day
of the respective Offering Period and (ii) the last business day of
the respective Offering Period. However, the purchase price may vary
somewhat for certain participants in the Plan who are employed outside
of the United States, depending on the administration of the Plan in
their respective countries. Shares of Lexmark Stock acquired under the
Plan must be held for a period of twelve months from the date of
purchase except under certain limited circumstances. The value of
shares purchased by an eligible employee in any calendar year cannot
exceed $25,000 in fair value (based on the closing market price on the
first day of each Offering Period).
F. EXPENSES: The Company pays all administrative expenses related to the
purchase, custody, and recordkeeping of Lexmark Stock held as part of
the Plan. These expenses may include broker's commissions, transfer
fees, administrative costs and other similar expenses. Expenses
related to the disposition or transfer of shares from participants'
accounts are borne by the participants.
G. WITHDRAWALS AND TERMINATION OF EMPLOYMENT: The Plan provides that an
employee may withdraw from the Plan at any time by giving written
notice or such other form of notice as required by the Plan
Administrator. Separation of employment for any reason, including
death, disability, termination or retirement is considered a
withdrawal from the Plan. Upon withdrawal from the Plan, the shares of
Lexmark Stock held on the participant's behalf by the agent will
remain in the participant's account with the agent until the
participant requests that the shares be sold or transferred. Lexmark
Stock purchased under the Plan may not be sold for a period of 12
months from the date of purchase or transferred for a period of two
years from the first day of an Offering Period, except in the event of
death, disability, retirement or a change in control of the Company as
defined in the Plan document. Rights to participate in or to purchase
Lexmark Stock under the Plan are non-transferable.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
1. PLAN DESCRIPTION, CONTINUED:
H. PLAN TERMINATION: The Plan will terminate at the earliest of the
following:
o December 31, 2009;
o The date the Board of Directors of the Company acts to terminate
the Plan in accordance with the Plan provisions; or,
o The date when all of the shares available under the Plan have
been purchased (as of December 31, 2003, 626,726 shares of the
3,000,000 shares authorized have been purchased under the Plan)
Upon termination of the Plan, all unapplied cash credits not already
used to purchase Lexmark Stock remaining in participants' accounts
will be refunded in cash to the participants. The Company's Board of
Directors may suspend, discontinue, extend, revise or amend the Plan
as deemed necessary or appropriate.
I. INCOME TAX STATUS: The Plan is not qualified under Section 401 (a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the
restrictions and special tax treatment provided therein are not
available to participants. The Plan is intended to qualify as an
Employee Stock Purchase Plan under Section 423 of the Code. The Plan
does not provide for income taxes, as all taxable income is taxable to
the participants. Participants are not taxed on the 15% stock price
discount at the time of purchase. Upon the sale of Lexmark Stock
purchased under the Plan, participants are subject to tax. The amount
of tax depends on how long the shares are held.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. BASIS OF ACCOUNTING: The accompanying financial statements of the Plan
have been prepared on the accrual basis of accounting in accordance
with accounting principles generally accepted in the United States of
America. Withdrawals of common stock are recorded at fair value on the
date of withdrawal.
B. EMPLOYEE ACCOUNTS: EquiServe and Plan Gestion maintain a separate
account for each participant. The administrative agent allocates to
each participant account the number of full and fractional shares of
Lexmark Stock purchased with contributions and other proceeds credited
to such account.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
C. LEXMARK STOCK VALUATION: Lexmark Stock is stated at fair value as
quoted by the New York Stock Exchange. Unless otherwise requested by
the participant, participant shares are sold or withdrawn on a
First-In-First-Out (FIFO) basis.
D. NET APPRECIATION (DEPRECIATION): The Plan presents in the statements
of changes in assets available for Plan benefits the net appreciation
(depreciation) in the fair value of Lexmark Stock, which consists of
realized gains (losses) and the unrealized appreciation (depreciation)
on those investments.
E. USE OF ESTIMATES: The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the changes in assets available for Plan
benefits during the reporting period. Actual results could differ from
those estimates.
3. CONCENTRATION OF CREDIT RISK:
The Plan's assets available for Plan benefits consist entirely of Lexmark
Stock. Accordingly, the underlying value of the Plan assets is entirely
dependent upon the performance of the Company and the market's evaluation
of such performance. Changes in the fair value of Lexmark Stock could
materially affect a participant's account balance and the amounts
reported in the Statements of Changes in Assets Available for Plan
Benefits.
4. INVESTMENTS IN LEXMARK STOCK:
During the years ended December 31, 2003 and 2002 respectively,
participants purchased 158,421 and 98,000 shares of Lexmark Stock
(rounded to nearest share). During the years ended December 31, 2003 and
2002 respectively, participants withdrew 108,341 and 77,210 shares of
Lexmark Stock.
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LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
4. INVESTMENTS IN LEXMARK STOCK, CONTINUED:
The net unrealized gains and net realized gains (losses) on Lexmark stock
for the years ended December 31 were as follows:
2003 2002 2001
---- ---- ----
Net unrealized gains $ 7,698,681 $ 709,905 $ 4,220,832
Net realized gains (losses) 1,480,929 14,243 (236,946)
----------- ----------- -----------
Net appreciation $ 9,179,610 $ 724,148 $ 3,983,886
=========== =========== ===========
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SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan Administrator of the Plan has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
Date: March 12, 2004 By: /s/ Gary E. Morin
-------------------------------
Gary E. Morin
Executive Vice President and
Chief Financial Officer
Lexmark International, Inc.
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