CHICAGO, Oct. 7 -- Commenting on the third quarter results, Rokus van Iperen, chairman of the Board of Executive Directors of Oce N.V., said: "Oce has shown a clear improvement during the third quarter, with growth in the sales of printing systems again reaching double-digit level. This continuing growth in new machine sales has led to a stabilization in revenues from service contracts, which account for 45% of Oce's turnover. The trend now appears to have turned, and gives us grounds for optimism about future prospects. The recently announced acquisition of Imagistics International Inc. will strengthen our distribution power in the US, enabling us to achieve one of our most important strategic goals. We expect the operating income from commercial activities in 2005 to be significantly higher than the 2004 result." Results third quarter 2005 Revenues corrected for the sale of leases increased by 3.0% on an organic basis. This growth was driven primarily by the increase of 12.2% in the sales of new printing systems. Almost all product lines showed significantly higher sales compared with the preceding year. Recurring revenues (excluding leases) declined on an organic basis by 0.4%. This is a significant improvement of the trend, in view of the fact that these revenues still showed a decline on an organic basis of 2.5% in the second quarter of 2005. The improvement was caused mainly by higher revenues from service contracts (0.2%) compared with the third quarter of 2004. A breakdown of the development of recurring revenues over the past five quarters is shown on page 9 of the full report. The book profit on the sale of the lease portfolio was euro 0.4 million (2004: euro 8.1 million). The gross margin was positively influenced by 1.6% thanks to higher revenues and the associated better utilization of manufacturing capacity. Total gross margin was the same as in the third quarter of 2004 because of the effect of the results on hedging transactions (-0.2%) and of the lower lease revenues (-1.4%). Operating expenses rose by 1.8%. To ensure that the positive trend in the development of revenues is maintained in the longer term, the investments (expenses) of the Strategic Business Units in their marketing and sales activities were increased. The operating expenses rose in accordance with the growth strategy of Oce. Cost control will remain an important focus for Oce; this means that operating expenses will increase less rapidly than revenues in the future. Operating income amounted to euro 13.6 million (2004: euro 16.6 million). Corrected for the sale of leases (euro 15.0 million) and exchange rate effects (euro 1.2 million), operating income increased by euro 13.2 million compared to the third quarter of 2004. Financial expense (net) declined by 20.5% to euro 3.9 million because of a reduction in the level of debt. Income taxes totalled 1.9%. Taxes will decline further in the fourth quarter because of a supplementary R&D credit claim worth euro 4.8 million. Net income was euro 8.9 million (2004: euro 14.1 million). Per ordinary share outstanding the net income was euro 0.10 (2004: euro 0.16). Results by Strategic Business Unit In Digital Document Systems (DDS) revenues in the third quarter were euro 442.6 million (2004: euro 441.3 million). Corrected for the sale of leases, the organic growth in revenues was 3.3%. Sales of printing systems increased by 15.7% on an organic basis. The operating income of DDS amounted to - euro 4.4 million (2004: euro 3.6 million). The DDS result was strongly influenced by the decline in lease revenues, because of the greater reliance of this market on leasing in the sales of machines. Demand for the Oce CPS800 and Oce CPS900 color printers remains high, and production capacity for these printers has recently been increased. Black-and- white printers are also subject to continuing strong demand. In addition, the specific marketing campaigns to increase the installed base of machines at customers, with the aim of generating higher print volumes, are proving successful. The increasing sales of printers and the intensified marketing campaigns in DDS, will lead to rising revenues from service contracts, and as a result to a positive operating income. Revenues in Wide Format Printing Systems (WFPS) were euro 207.0 million (2004: euro 204.4 million). Sales of printing systems increased by 6.0% on an organic basis. Recurring revenues increased as a result of higher service revenues and a strong growth in demand for color toners and inks. The operating income of WFPS increased to euro 18.0 million (2004: euro 13.0 million). The result of WFPS is a good one by any standards. Through the leadership position on the world market, WFPS is able to gain full benefit from the increasing demand for color printers. The fact that the installed base of color printers is now steadily increasing means that sales of color toners and inks are also rising. The good sales performance and the higher recurring revenues enabled WFPS to more than compensate for the lower lease revenues. Results nine months 2005 Revenues amounted to euro 1,912.8 million. Revenues corrected for the sale of leases increased by 1.7% on an organic basis, while exchange rate effects caused a reduction of 1.3%. Sales of machines rose by 12.3% on an organic basis. Because of the order book position at the beginning of the fourth quarter, we expect that the growth in printing system sales will continue. Book profit on the sale of the lease portfolio was euro 3.2 million (2004: euro 20.8 million). Interest income from leases declined by euro 28.6 million. Recurring revenues excluding lease declined by 1.9% on an organic basis. The gross margin was 40.3% (2004: 41.9%). Of the decline compared with 2004, 0.4% was caused by hedging transaction results and 1.4% by the sale of the lease portfolio. Volume-mix effects increased the gross margin by 0.2%. Operating income was euro 42.1 million (2004: euro 81.3 million). Net income was euro 28.6 million (2004: euro 52.7 million). Per ordinary share outstanding the net income was euro 0.32 (2004: euro 0.60). Acquisition of Imagistics International Inc. On September 16, 2005 Oce announced its intention to make a cash tender offer for the common stock of Imagistics International Inc. This offer will expire on October 17, 2005. Imagistics International Inc. is a supplier of document imaging solutions in the USA, Canada and the UK, with revenues of USD 609 million in 2004. The acquisition will mean a major increase in the distribution power of Oce, especially in the US. The product ranges of Imagistics International Inc. and Oce are complementary, which will allow significant synergy effects to be achieved. Through this acquisition, Oce will be in an even better position to offer its customers a complete range of products. Outsourcing of lease activities The value of the existing lease contracts sold to lease partners during the past nine months is euro 48.8 million. The book profit on the sale was euro 3.2 million (2004: euro 20.8 million). The total value of leases on the balance sheet at the end of the third quarter was euro 347.7 million. The sale of leases will be accelerated in connection with the planned acquisition of Imagistics International Inc. Balance sheet and cash flow The balance sheet total at the end of the third quarter was euro 2,039 million. This is a decline of euro 233 million compared with the third quarter of 2004 (euro 2,272 million). The decline was to a significant effect due to lower lease receivables and to the fact that a part of the cash on the balance sheet was used for the repayment of loans (euro 92 million). The free cash flow in the first nine months amounted to euro 12.6 million. Interim dividend An interim dividend of euro 0.15 per ordinary share will be paid for the financial year 2005. The ex-dividend date is October 10, 2005. The interim dividend will be paid entirely in cash, and will be payable from October 26, 2005. Prospects The third quarter shows a clear improvement in the trend of revenues from service contracts. Sales of printing systems were good. Both the revenues from service contracts and the sales of printing systems are expected to remain at a good level in the fourth quarter. In view of these developments, we expect the operating income from commercial activities for 2005, excluding book profit from the sale of the lease portfolio, to increase by approximately 20% compared with 2004 (to euro 38 million).