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Media Contact: Tim Fitzpatrick

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• Lexmark reports third quarter revenue of $1.22 billion and EPS of $0.59
• Company generates cash of $131 million during the third quarter
• New products strengthening product line

Lexmark International, Inc. (NYSE: LXK) today announced financial results for its third quarter of 2005. 

Third quarter revenue was $1.22 billion compared to $1.27 billion last year, a decline of 4 percent. GAAP earnings per share were $0.59 compared to $1.17 last year. EPS in the third quarter of 2005 were $0.59 excluding third quarter costs of $0.05 per share from the previously announced workforce reduction which were offset by a $0.05 per share benefit from a decrease in the effective annual tax rate. EPS in the third quarter last year would have been $1.02 excluding a $0.15 per share benefit from the resolution of income tax matters in 2004.

“While these near-term results are significantly less than we expected at the start of the third quarter, we are focused on strengthening the company for the long term. This is why we reduced prices in the third quarter to improve our hardware competitiveness and drive future sales of hardware and supplies. Our announcement yesterday of new color and mono lasers continues to strengthen our competitiveness. In addition, we are continuing our investments in the Lexmark brand, and in new products and technology to provide a strong pipeline of future products,” said Paul J. Curlander, Lexmark chairman and chief executive officer.

Laser and inkjet printer revenue was down 10 percent year over year due to more aggressive pricing and promotional activities, and weak demand. Laser and inkjet supplies revenue was up 1 percent year over year. This slower-than-anticipated growth in supplies revenue was due to changes in channel inventories and soft end-user demand for both laser and inkjet supplies.

Gross profit margin was 29.4 percent compared to 35.2 percent in the same period last year mostly driven by lower hardware margins. Operating expenses were 22.6 percent versus 20.7 percent last year driven by a decline in revenue year to year, increased investments in research and development, and workforce reduction costs.

Third-quarter net cash provided by operating activities was $131 million. Capital expenditures for the quarter were $45 million, and Lexmark repurchased $275 million of its stock during the quarter. The company’s remaining share repurchase authorization was $531 million at quarter end.

New products deliver value, ease-of-use
Yesterday, Lexmark announced powerful, affordable new color and monochrome laser products, strengthening its position in the small and medium business and enterprise markets. The versatile Lexmark C520 family of color laser printers will allow customers to expand their color printing capabilities with fast color output, while managing print costs with Lexmark’s Color Care Technology tools for saving toner, authorizing the use of color printing, and estimating the cost of color per page. The C520n and the C522n models deliver the fastest rated color speed in the market for color lasers priced below $500. Also announced yesterday was the new Lexmark E-series line of low-end mono lasers, with its small, compact design and maximum print speeds of up to 30 pages per minute. Among the ease-of-use features on the Lexmark E-series printers are easy toner cartridge installation, a graphics-enhanced print driver, and on the E340 and E342n, an LCD operator panel with easy-to-understand messages.

During the quarter, at the higher end of the laser line, the Lexmark C920 color laser received a Five-Star Exceptional Rating from BERTL, and Highly Recommended/Highly Reliable recognition from Buyers Laboratory, Inc. These are the highest forms of recognition from each publication. The Lexmark T640n workgroup mono laser was recently named Editors’ Choice by PC magazine.

In September, Lexmark strengthened its position in the photo market with the announcement of the Lexmark P450. This 4x6-inch photo printer features the industry’s first built-in CD photo burner, which gives users a complete PC-free photo processing center and easy-to-use digital imaging archiving system.

Year-to-date financial results
Revenue for the first nine months ending September 30, 2005, was $3.86 billion, up 2 percent compared to the same period last year. Gross profit margin was 32.4 percent, compared to 34.4 percent a year ago. EPS were $2.20, down $0.90 year-over-year.

Looking forward
The company expects many of the same factors that impacted third quarter results to impact its fourth quarter results. The company expects revenue to decline in the high-single to low-double digit range year-over-year and EPS to be in the range of $0.40 to $0.50 compared to EPS of $1.18 in the fourth quarter of 2004.

Conference call
The company will be hosting a conference call with securities analysts today at 8:30 a.m. Eastern Time. A live broadcast and a complete replay of this call can be accessed from Lexmark’s investor relations Web site at http://investor.lexmark.com. If you are unable to connect to the Internet, you can access the call via telephone at 888-338-6461 or the replay shortly afterward by calling 877-519-4471 using access code 6542791. The telephone replay of the conference call will be available until noon on Tuesday, November 1, 2005.  

About Lexmark
Lexmark International, Inc. (NYSE: LXK) makes it easier for businesses and consumers to move information between the digital and paper worlds. Since its inception in 1991, Lexmark has become a leading developer, manufacturer and supplier of printing and imaging solutions for customers in more than 150 countries. Lexmark reported $5.3 billion in revenue in 2004, and can be found on the Internet at www.lexmark.com.

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