Exhibit 99.1
Lexmark International Group, Inc.
1999 Employee Stock Purchase Plan
Report on Audits of Financial Statements
for the years ended December 31, 2004, 2003 and 2002
.
.
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Lexmark International Group, Inc.
1999 Employee Stock Purchase Plan
December 31, 2004
PAGES
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Assets Available for Plan Benefits,
as of December 31, 2004 and 2003 2
Statements of Changes in Assets Available for Plan Benefits
for each of the three years in the period ended December 31, 2004 3
Notes to Financial Statements 4 - 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003 and the changes in assets
available for benefits for each of the three years in the period ended December
31, 2004 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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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
March 3, 2005
Lexmark International Group, Inc.
1999 Employee Stock Purchase Plan
Statements of Assets Available for Plan Benefits
December 31, 2004 and 2003
- -------------------------------------------------------------------------------
ASSETS 2004 2003
----------- -----------
Lexmark Class A Common Stock, at fair value (cost of $40,260,148 $33,786,764
$29,532,245 and $24,687,409 at December 31, 2004 and
2003, respectively)
Employer contribution receivable 682,097 660,213
Employee contribution receivable 3,880,728 3,620,069
----------- -----------
ASSETS AVAILABLE FOR PLAN BENEFITS $44,822,973 $38,067,046
=========== ===========
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, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
2004 2003 2002
------------ ------------ ------------
Contributions:
Employer $ 1,497,539 $ 1,456,905 $ 1,369,197
Participants 8,211,885 7,909,509 7,630,246
------------ ------------ ------------
Total contributions 9,709,424 9,366,414 8,999,443
------------ ------------ ------------
Withdrawals of Lexmark Class A
Common Stock by participants,
at fair value (6,664,105) (7,558,668) (4,487,244)
------------ ------------ ------------
Investment gain:
Net appreciation in
fair value of Lexmark Class A
Common Stock 3,710,608 9,179,610 724,148
------------ ------------ ------------
Net increase $ 6,755,927 $ 10,987,356 $ 5,236,347
------------ ------------ ------------
ASSETS AVAILABLE FOR PLAN
BENEFITS
Beginning of year 38,067,046 27,079,690 21,843,343
------------ ------------ ------------
End of year $ 44,822,973 $ 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
Notes to Financial Statements
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 operation 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,
and The Bank of New York is the transfer agent. EquiServe and
Plan Gestion 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
participants in the Plan at December 31, 2004 and 2003.
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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. Employer contributions are
generally the 15% discount. 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 a participant 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 nontransferable.
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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:
- December 31, 2009;
- The date the Board of Directors of the Company acts
to terminate the Plan in accordance with the Plan
provisions; or,
- The date when all of the shares available under the
Plan have been purchased (as of December 31, 2004,
751,571 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.
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 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. WITHDRAWALS: Withdrawals of Lexmark Stock are recorded at fair
value on the date of withdrawal. Withdrawals are recorded when
distributed.
F. 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 INVESTMENT - RISKS AND UNCERTAINTIES:
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.
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Lexmark International Group, Inc.
1999 Employee Stock Purchase Plan
Notes to Financial Statements, Continued
4. INVESTMENTS IN LEXMARK STOCK:
The following is a summary of the Lexmark Stock activity for the years
ended December 31, 2004, 2003 and 2002:
Shares Cost Fair Value
---------- ------------ ------------
Balances at December 31, 2001 358,768 $ 20,476,327 $ 21,167,096
Purchases 98,000 5,559,293 5,559,293
Withdrawals (77,210) (4,473,001) (4,487,244)
Changes in fair value:
Net unrealized gains -- -- 709,905
Net realized gains -- -- 14,243
---------- ------------ ------------
Balances at December 31, 2002 379,558 21,562,619 22,963,293
Purchases 158,421 9,202,529 9,202,529
Withdrawals (108,341) (6,077,739) (7,558,668)
Changes in fair value:
Net unrealized gains -- -- 7,698,681
Net realized gains -- -- 1,480,929
---------- ------------ ------------
Balances at December 31, 2003 429,638 24,687,409 33,786,764
Purchases 124,845 9,426,881 9,426,881
Withdrawals (80,835) (4,582,045) (6,664,105)
Changes in fair value:
Net unrealized gains -- -- 1,628,548
Net realized gains -- -- 2,082,060
---------- ------------ ------------
Balances at December 31, 2004 473,648 $ 29,532,245 $ 40,260,148
========== ============ ============
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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 9, 2005 By: /s/ Gary E. Morin
--------------------------------------
Gary E. Morin
on behalf of the Plan Administrator
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