<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1999
Commission file number 0-13742
OCE N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
(Jurisdiction of Incorporation or Organization)
Urbanusweg 43, 5914 CC VENLO, The Netherlands
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Ordinary Shares,
nominal or par value 0.50 Euro per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No _____.
---
Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 X Item 18 _______
---
Copies of notices and communications from the Securities and Exchange
Commission should be sent to:
James H. Hardie J.M.M. van der Velden
Reed Smith Shaw & McClay LLP Secretary of the Company
P.O. Box 2009 Oce N.V.
Pittsburgh, PA 15230 P.O. Box 101
5900 MA VENLO
The Netherlands
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Description Page
- ---- ----------- ----
<S> <C> <C>
1 Description of business 2
2 Description of property 14
3 Legal proceedings 16
4 Control of registrant 16
5 Nature of trading market 18
6 Exchange controls and other limitations affecting security holders 19
7 Taxation 20
8 Selected financial data 21
9 Management's discussion and analysis of financial
condition and results of operations 24
9A Quantitative and qualitative disclosures about market risk 28
10 Directors and officers of registrant 30
11 Compensation of directors and officers 31
12 Options to purchase securities from registrant or subsidiaries 32
13 Interest of management in certain transactions 33
14 Description of securities to be registered 33
15 Defaults upon senior securities 33
16 Changes in securities and changes in security for registered securities 33
17 Financial statements 33
18 Financial statements 33
19 Financial statements and exhibits 33
Table of Contents to Consolidated Financial Statements and
Consolidated Financial Statements F-1
</TABLE>
Signatures
Exhibit Index
<PAGE>
Item 1 DESCRIPTION OF BUSINESS
The Company
Oce N.V. designs, manufactures, markets and services copying equipment, printers
and plotter systems and related supplies for the engineering systems, office
systems and printing systems markets. Oce is a global leader in the copying and
printing business, marketing its products on a world-wide basis to customers in
approximately 80 countries.
The Company was organized as a stock corporation under the laws of the
Netherlands ("The Netherlands") in 1953, incorporating a business originally
founded in 1877. The Company's executive offices are located at St. Urbanusweg
43, 5914 CC Venlo, The Netherlands, and the Company's telephone and fax numbers
are 31-77-3592222 and 31-77-3544700, respectively. Information about Oce,
including the Annual Report 1999, is also available though the internet at
http://www.oce.com.
- ------------------
Oce markets its products in approximately 80 countries, and Oce markets more
than 90% of its copiers, printers, and related supplies through its own sales
force. With respect to the remaining products, Oce markets plotter systems
primarily through value added resellers and dealers, and Oce markets some of its
high volume and very high volume copiers and printers through distributors,
primarily in the United States. The Company employs approximately 4,900
employees in marketing and sales.
The Company has offices in more than 30 countries and employs more than 21,000
people. The Company makes most of its products internally. The Company
assembles its copying machines and printers near the Company's headquarters in
Venlo, The Netherlands, in Guerande, France and in Poing, Germany, and plotter
systems in Guerande, France. Oce produces its copying supplies in Venlo, in
Chateauroux, France and in the United States of America in Guilford,
Connecticut, Fiskeville, Rhode Island and Charleston, Illinois.
Except where otherwise indicated, as used herein, the terms "the Company" and
"Oce" refer to Oce N.V. and its consolidated subsidiaries, and references to a
particular year (e.g. 1999) are to the fiscal year ending November 30 (e.g.
November 30, 1999).
Annual Report 1999
Excerpts of Oce's Annual Report 1999 have been translated into English and are
attached as Exhibit 1.02 and incorporated into this report by reference, which
describe the Company and its business in further detail. In the event that any
information contained in Exhibit 1.02 conflicts with this report, the
information contained in this report shall prevail.
Forward Looking Statements under the Private Securities Litigation Reform Act of
1995
This document contains certain forward-looking statements with respect to the
financial condition, results of the Company's operations and business and
certain of its plans and objectives. By their nature, forward-looking
statements involve risk and uncertainty because they relate to events and depend
on circumstances that will occur in the future. There are a number of factors
that could cause actual results and developments to differ materially from those
expressed or implied by these forward-looking statements. These factors
include, but are not limited to:
2
<PAGE>
. Level of business spending and economic activity in major economies;
. Availability and cost of raw materials;
. Ability to attract and retain energized employees at reasonable costs;
. Ability to develop new technology to continue to meet customers'
changing needs and to compete with emerging technological demands;
. Changes in future exchange and interest rates;
. Changes in tax rates;
. Future business combinations, acquisitions and dispositions;
. Competition in the Company's markets;
. Adequate pricing for the Company's products and services; and
. Ability to sustain efficient, cost effective operations.
All forward looking statements made by the Company in this Form 20-F or in its
Annual Report 1999 are made pursuant to the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
Primary Currencies
On January 1, 1999 the Euro became the single currency of eleven of the fifteen
member states of the European Union, replacing the Dutch guilder as the currency
in The Netherlands for wire transfers. The financial information included in
this report is presented in Euros. On January 4, 1999 the Amsterdam Exchange
N.V. began listing and trading stocks, including the Company's stock, in Euros.
Although the Company was not required to redenominate its shares from Dutch
guilders to the Euro until December 31, 2001, on April 8, 1999, the shareholders
approved an amendment to the Company's Articles of Association to redenominate
the par values of Company's capital stock. From 1999 through 2001, local
currencies can be used for all business transactions as well as the Euro. The
majority of transactions are still executed in local currencies.
Amounts set forth in this report are expressed either in Euros ("Euro") or in
United States dollars ("dollars" or "$"). Amounts for periods or part of
periods prior to January 1, 1999 have been restated from the Dutch guilder into
Euros, based on the official fixed rate of 2.20371 guilders to 1 Euro. Unless
otherwise indicated, the dollar figures included in this report for 1999 were
converted into dollars from Euros at an exchange rate of $ 1.0077 to 1 Euro,
which was the Noon Buying Rate on November 30, 1999 (the last business day of
the Company's 1999 fiscal year). The "Noon Buying Rate" for a given date is the
noon buying rate for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York on the applicable date.
As an international company, several foreign currencies are important to the
business of the Company. The following is list of (1) the average exchange
rates (expressed in Euros for each currency) during the applicable year and (2)
the exchange rates (expressed in Euros for each currency) as of November 30 of
1999, 1998, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Applicable Currency Average Rate During the Fiscal Year Rate as of November 30,
------------------- ----------------------------------- -----------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pound sterling 0.66 0.67 0.69 0.84 0.86 0.63 0.70 0.66 0.76 0.89
United States dollar 1.08 1.11 1.14 1.31 1.36 1.00 1.15 1.11 1.28 1.37
Australian dollar 1.67 1.75 1.51 1.68 1.84 1.59 1.82 1.62 1.59 1.84
Japanese Yen (10,000) 123.53 145.33 137.14 141.64 127.40 102.40 141.26 141.40 145.70 138.95
</TABLE>
See Part 9A, "Quantitative and Quantitative Disclosure about Market Risk", for a
further discussion of the impact of foreign currency fluctuations and hedging on
foreign exchange rates.
3
<PAGE>
Geographic Markets
Although the Company's business activities are world-wide, its primary business
is based in the European Union (the "EU"), the other European countries, the
United States of America, Asia and Australia. The following table sets forth
the geographic distribution of the Company's revenues.
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(In millions)
Euro Euro Euro Euro Euro $
<S> <C> <C> <C> <C> <C> <C>
European Union 899 1,164 1,377 1,405 1,440 1,451
Other Europe 37 55 175 192 189 191
United States of America 325 581 781 1,035 1,062 1,070
Other World 69 94 135 121 147 148
----- ----- ----- ----- ----- ------
1,330 1,894 2,468 2,753 2,838 2,860
===== ===== ===== ===== ===== ======
</TABLE>
The relative contribution to net income by the geographical areas designated
"Other Europe" and "Other World" are lower than that of the "EU" and "United
States of America".
Market Overview
Oce offers a broad range of products and services for the reproduction,
presentation and distribution of documents to assist people and organizations to
manage its document flows. Over the past few years, Oce's business has been
rapidly changing from products based on analog technology (producing a copy with
the aid of a photo lens in a stand alone machine) to products based on digital
technology (producing a copy or print by means of a laser or LED exposure in a
machine which can be connected to a network) and from stand alone machines to
networking systems.
In 1999, revenues from sales of digital machines and related software and
services were 60% of the total machines and services revenues, an increase from
57% in 1998, and the portion of total revenues attributable to digital sales was
51% in 1999, an increase from 48% in 1998.
Strategic Business Units
The Company reorganized its internal structure in 1999 to better reflect its
rapidly changing business. The new structure divides its business into three
primary strategic business units. Each strategic business unit is further
divided into two business groups that give marketing support to the strategic
business unit to provide additional sales leads.
> Wide Format Printing Systems
. Technical Documentation Systems
. Display Graphics
> Document Printing Systems
. Document Printing
. Network Solutions Printing
> Production Printing Services
. Electronic Production Printing
. Printing and Publishing
4
<PAGE>
In addition, the Company has two business segments that support each of the
strategic business units, imaging supplies and facility services.
The following table shows the distribution of revenues for the past five fiscal
years by strategic business unit:
Years ended November 30,
------------------------
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(In millions)
Euro Euro Euro Euro Euro $
<S> <C> <C> <C> <C> <C> <C>
Wide Format Printing Systems 539 620 730 772 782 788
Document Printing Systems 791 942 1,154 1,367 1,399 1,410
Production Printing Systems - 332 584 614 657 662
----- ----- ----- ----- ----- ------
Total revenues 1,330 1,894 2,468 2,753 2,838 2,860
===== ===== ===== ===== ===== ======
</TABLE>
Both imaging supplies and facilities management generate revenue that is
included in each of the Company's three strategic business units.
Wide Format Printing Systems
The wide format printing systems unit serves technical offices, which process
information in the design, development, construction and manufacturing of
products, buildings, manufacturing plants and industrial goods. Oce's customers
in this market include architects, industrial and manufacturing firms, engineers
and engineering consultants, construction companies, utilities, job printers and
similar entities. The Company has been manufacturing and distributing copying
products for these markets for over sixty years, and Oce believes that it is
currently one of the global leaders in technical documentation systems.
Oce believes that the wide format printing systems market is growing at a rate
of 2% to 4% a year. The Company's revenue for this unit in 1999 was Euro 782
million, an increase of 1% from Euro 772 million in 1998.
Although this market was based initially on diazo technology and later on analog
technology, the technology is rapidly changing to digital technology. The
Company produces a full range of printing and copying machines for wide format
printing systems using a variety of technology. The Company's wide format
printers and copiers utilize diazo, analog and digital technology, print color
as well as black and white, contain scanners and have a wide range of
applications. Oce first introduced digital black and white printers and copiers
in 1993 with the introduction of the Oce 9500. Since then, the Company has
introduced the Oce 9800 for high volume applications, the Oce 9700 for high to
mid volume applications, the Oce 9600 for mid volume applications and the Oce
9400 for low to mid volume applications. In addition, the Company introduced the
Oce 9300 entry level LED printer in 1999. The digital technology employed in
these machines was developed principally by Oce, and the Company believes that
this range of digital machines gives it a complete and highly competitive range
of digital black and white copiers, printers and scanners serving all volume
segments. Each of these machines is fast and efficient with low running costs,
and each of these machines has a versatile range of applications. Fitted with
finishing equipment and software applications, each machine serves as a multi-
functional production unit which scans, prints and copies and in many cases also
plays a central role in document archiving. Because these machines are
multifunctional, a customer can make the transition from hard copy drawing
practice to today's digital needs with minimum effort and expense. In 1999, 90%
of the Company's placement value of copiers and printers in these markets was
based on digital technology.
5
<PAGE>
In the wide format market more than 71% of Oce's revenues in 1999 (excluding
imaging supplies) originated from sales of digital machines, an increase from
70% in 1998. If imaging supplies are included in these calculations,
approximately 46% of the revenues from 1999 and 1998 originated from sales of
digital machines.
The Company also offers several wide format color printers that are designed for
computer-aided design ("CAD"), geographic information systems and display
graphics applications. In this area, the Oce 5050/70 can be used to make
occasional wide format color prints and the Oce 5120 can be used for full color
productivity. In addition, in 1999 the Company introduced the Oce Color Copier
Solutions software for wide format printing, copying and scanning in color.
Although the development of color products has progressed at a slower rate than
the Company expected, it intends to continue to develop color products for this
market.
Although a range of quality hardware has traditionally been important to the
Company's success, Oce believes that its success in the future will depend in
part on its ability to provide a total solution for its customer's complex
problems. To provide a total solution Oce believes that the role of software is
equally as important as the role of hardware. The Company's software packages
include Oce Repro Desk, Oce Repro Station, Oce Scan Station, Oce Drivers, Oce
Plot Director, Oce View Station and Oce EngineeringExec. The Company offers
application packages tailored to customers that use extensive production and
business information systems together with job printers, and it provides
consulting services through which it customizes its printing solutions and
systems to meet the Company's customers' needs.
To further develop the Company's wide format products, and in particular, its
software products and capabilities, in May 1999, Oce acquired 85% ownership
interest in Nippon Steel Calcomp Corporation, a Japanese corporation, which now
operates under the name "Oce Japan Corporation". Oce Japan Corporation engages
well-trained sales staff and has significant experience in converting software
for use in Japan. Oce's entire digital (black and white) product line is being
equipped with Japanese operating software for this market.
The Company designs and develops most of its hardware and software products
internally, and it is continuing to devote substantial resources to the
development of new technology and products. In particular, the Company is
concentrating on developing products relating to display graphics applications
for large format color prints, such as banners, posters and billboards. To
achieve this goal, Oce has designated a group within the wide format printing
systems unit to develop display graphics applications and has devoted
considerable resources to this development. Although developments in this area
are progressing gradually, in 1999, the Company introduced two new printers, the
Oce CS 5050 and the Oce CS 5070, and a scanner, the Oce CS 4050. In addition,
the Company is in the process of developing its own inkjet technology, and it
hopes to introduce CAD systems in the next few years. Although the display
graphics market is highly competitive, the Company believes that by offering
complete solutions, it will be able to develop a prominent position in this
market.
6
<PAGE>
Document Printing Systems
The document printing systems unit serves general office environments, central
reproduction departments, electronic data processing environments and print for
pay customers. This market has been further divided into two areas: document
printing and network printing solutions.
The Company believes that this market is growing at an overall rate of 3%, in
volume, a year and that the network printing solutions portion of this market
is growing at a rate of 20% a year. Oce's total revenues in the document
printing systems market, including service, supplies and facility services, were
Euro 1,399 million in 1999, which was a 2% increase from Euro 1,367 million in
1998. The Company believes that in 1999 its market share in this market
increased generally, although at slightly higher levels in the United States
than in Europe. This growth is attributable in part to the high productivity
and great versatility of the Company's digital printers and copiers.
The Company markets and sells a full range of copiers, printers and scanners to
service the demanding requirements of offices and central reproduction
departments ("CRDs"). The Company's hardware products for these markets range
from low volume to very high volume products depending on its customers' needs,
and the Company has developed a number of software products to manage the flow
and output from its copiers and printers. To meet the high volume and demanding
needs of CRDs, Oce has developed a range of copiers, the Oce 6165, the Oce 3100
and the Oce 2600, which produce quality copies in rapid turnaround times. The
Company has also developed the BB 2800 to provide professional finishing for
documents. To meet the needs of the general office environment, the Company has
developed a range of fast, efficient, easy to use, high quality copiers,
including:
. Oce 3023, Oce 3018, Oce 3045 and Oce 3055 for general office
copying needs;
. Oce 3122, 3133 and 3140 to print, copy, scan or fax in a general
office environment;
. Oce 3100 for high volume copying needs in a general office
environment; and
. Oce 3165 digital copier/printer to print directly from a network
or to use as a stand alone machine.
In addition, the Company recently introduced the Oce 3145 and 3155, digital
machines that gives the customer the choice of printing directly from a personal
computer or for walk up applications, each at the speed of 45 and 52 pages per
minute.
Although currently the Company's products in these markets are based on both
analog and digital technology, consistent with the overall trend in the
Company's business, the document printing systems market is quickly moving
towards digital technology. In 1997, Oce was the first supplier to offer a
digital copier at a speed of 60 pages per minute. Since then, the Company has
developed several multifunctional printers and copiers for the office or the CRD
that offer versatile services including printing, copying, faxing and scanning
and a selection of desktop laser printers for workgroup printing in either black
and white or color. The digital printer and copier market is quickly expanding,
and a number of the Company's competitors are now offering digital printers and
copiers with output of 60 pages per minute, resulting in lower prices and
margins. The Company has responded to this expansion by adopting measures to
achieve a substantial cost reductions in manufacturing, service and logistics.
Oce believes these actions have enabled, and will continue to enable, it to
compensate for the decrease in profit margins in this area. In addition, the
Company is continuing to develop digital hardware, especially medium and high
volume products. The Company expects to launch machines in the next few years
with speeds ranging from 85 to 101 pages per minute. In addition, the Company is
continuing to develop software technology, especially in the area of network
solutions.
7
<PAGE>
Despite the growth in the market for digital machines there is still a specific
need for analog copiers in many areas. The number of analog machines placed by
Oce, less machines returned from the market, decreased in 1999 but this decrease
was significantly smaller than the decrease in the overall market. The analog
copier for reprographic applications, the Oce 3100, which was still being
installed on a wide scale during the year under review, was the winner of two
major performance awards in 1999, repeating its performance from 1998. The Oce
3045 and Oce 3055 also received accolades form British and American trade
journals. The Company expects that analog machines will continue to be installed
in the market for the next several years.
The Company continues to develop and market color printers and copiers for the
document printing systems market. The Company sells mainly its own products and
products that it purchased from other original equipment manufacturers. In 1999,
the Company began selling third party color machines in the United States.
Although the development of color products in this unit have been slower than
anticipated, the Company is continuing development of color products, and it
expects to expand in the color market as its own product development comes to
market.
In network printing solutions the Company offers complete network printing
solutions for a wide variety of information flows in complex office
environments. The Company's goal is to provide and enhance a connection between
a network system and a customer's printers and copiers. The Company's product
concepts are concentrated on office processes, central reprographic facilities
and the interface between users and the CRD which have been faster growth means,
especially in the high volume print segment. As the market evolves from the
stand-alone copier to an office environment that is predominantly served by
networks and a wide variety of printing and copying equipment, a new customer
concept is developing, in which the focus is no longer the equipment but
providing a complete solution to specific customer problems. In 1999, Oce
introduced several new software products to the market, including packages for
print job management, workflow management and system administration such as Oce
Print Logic and the Oce mailbox concept. In addition, Oce also released a series
of upgrades and enhancements for existing software.
With respect to network printing solutions, the Company believes that partnering
relationships with experienced organizations is beneficial to its customers and
will enable it to produce complete solutions for its customers. The Company has
developed relationships with both paper pre-processing and post-processing
businesses as well as with numerous software organizations. By creating such
relationships, Oce believes that it is able to offer a complete hardware and
software package to network users.
Production Printing Systems
The Company's production printing systems strategic business unit sells products
and services that are based on high volume printers and printing systems. The
market for high volume printers and printing systems is dominated by a very
limited number of suppliers, and is gradually becoming more and more
concentrated as businesses are employing both centralized and decentralized
printing environments. The Company believes it is a leader in this market being
one of the few companies that provides a full range of centralized and
decentralized printing solutions. This strategic business unit is further
divided into two business groups: electronic production printing and printing
and publishing.
Electronic production printing serves electronic data processing customers, such
as banks, insurance companies, and public utility companies, that process and
print large quantities of data from computer systems. Printing and publishing
serves printing and publishing customers. With respect to the electronic
production printing group, the Company believes it is a market leader in Europe
and has a significant market position in the United States. With respect to the
printing and publishing group, Oce's market share is currently small but
increasing through development and sales of its own products as well as through
developing relationships with other companies in this market.
8
<PAGE>
Oce believes the electronic data processing portion of this market is growing at
a rate of 3% a year, and that the printing and publishing portion of this market
is growing at a rate of 15% a year. The Company's revenues in these markets,
including service and supplies, were Euro 657 million in 1999, which was a 7%
increase from Euro 614 million in 1998.
In electronic production printing market, Oce is the leading supplier of high
volume continuous-feed paper systems. The Company also offers a range of
cutsheet products with speeds ranging from 30 to 155 pages per minute. Oce's
Pagestream Series represent its newest generation of high performance continuous
feed and cutsheet printers, combining proven LED Plus technology with its unique
Scalable Raster Architecture controllers. The Oce PS 1060 TWIN was introduced in
early 1999. This machine is the fastest system in its range with a speed of
1,060 pages per minute. The Company also offers high speed digital imaging
archiving through its Imagestream 100 product which enables high speed
conversion of print data into pixel-equivalent TIF files.
With the Prisma server Oce customers are able to print all line data stream and
standard page description language in all user environments for production
printing, print on demand and distributed printing. The last years placements
growth of Prisma servers exceeded the 50% mark compared with the prior year
placements.
In 1999, Oce introduced Prisma+, a new printer server package that enables high
volume customers to obtain increased flexibility regarding speed, the number of
printer languages that can be processed and the range of print resolutions.
Prisma+ integrates the customer's systems and technical platforms with Oce
printers, enabling a high volume customer to use its printing products in
combination with virtually any system network.
The Prisma+-audit software developed by Oce has quickly proved its value as a
powerful tool in the management of print production hardware and print
production processes.
All of its printers are installed in combination with computer systems, servers
and finishing equipment to process the output. To ensure that it provides a
complete solution to its customers, Oce has entered into a series of
relationships. In particular, since 1998, Oce has held an ownership interest in
Siemens Software in Namur, Belgium, which is in the software development
business. In October 1999, Oce increased its ownership interest from 40% to
70%. The business, now called Oce Software Laboratories Namur, develops special
software applications for the Company's customers and has over 80 employees. In
April 2000 the Company also acquired Computergesellschaft Konstanz in Konstanz,
Germany, which company has an expertise in developing and marketing black and
white and full color scanners with optical character and image recognition
features.
The printing and publishing market (complete publications in relatively small
print-runs), which evolved to meet the needs of the printing and publishing
industry, is dominated by players that have a strong customer base in pre-press
and traditional printing technology. This market is growing rapidly, and Oce
doubled its revenues in this market in 1999 compared with 1998.
Similar to the electronic production printing market, the production and
printing market is served by a small number of suppliers. Oce developed a number
of relationships with important third parties such as Agfa, Xeikon, Canon, EFI
for the resale of the Chromapress system and other color systems.
The market development costs related to the production and printing market are
high. By concentrating on several highly promising market segments (such as the
printing of books and manuals), the Company believes that it will achieve
significant growth. In 1999, Oce introduced its Demandstream 8080 printer,
specifically developed for printing & publishing applications, which was well
received by the market. In addition, the
9
<PAGE>
Prisma+ servers and software have also proved to offer excellent solutions for
this market, where customers place a strong emphasis on high productivity.
Oce has also partnered with several suppliers of finishing equipment to develop
a "Book on Demand" systems (a complete system for the printing of books in
limited print-runs). At the Buchmesse in Frankfurt, Germany, the leading trade
fair for the publishing industry, Oce created much excitement with this "Book on
Demand" system as the first digital printing system whose print quality and
finishing can compete with traditional book printing methods. The "Book on
Demand" system was first used by a printing firm in the United Kingdom.
The application of color is also attracting more and more interest in the world
of high volume printing. Since 1997 Oce has been offering an optional second
print color in a number of models. There is rapid movement towards custom
applications as well as color applications. The company is offering full line
color solutions through its cooperation with Agfa, Xeikon, Canon and through Oce
based technologies for highlight, custom toner and full color applications. In
1999, Oce also began to explore the development of producing toner to match a
customer's exact original color.
Facility Services
Over the past several years, there has been a trend towards the outsourcing of
document management services and other facility services in both the United
States and in Europe. Oce has been providing copying, printing and mailroom
services for a number of years, and in 1997, it purchased Archer Management
Services, Inc., which provides facility services principally in the United
States.
The Company believes this market is growing world-wide at an aggregate rate of
30% per year, and in Europe at a rate of 40% per year. Revenues in 1999 were
Euro 197 million which was a 34% increase over Euro 146 million in 1998. A
portion of these revenues is included in the revenues of each of the three
strategic business units.
When the Company offers facility services to a customer, its sales staff serve
as consultants, identifying the set of document management services required by
the customer and developing solutions for the customer relating to the
creation, production, reproduction, distribution and archiving of documents.
The Company also offers mailroom services. Although Oce views this business as
a separate earnings opportunity, Oce also uses its own products and supplies in
connection with offering this service when possible.
Imaging Supplies
Oce sells materials used in copying and printing such as paper, films and
labels. The Company believes it is among the leading suppliers in the United
States and Europe.
Imaging supply revenues in 1999 were Euro 414 million, which was a 1% decrease
over Euro 421 million in 1998. These revenues are included in the revenues of
the three strategic business units.
Notwithstanding the 1% decrease of revenues from 1998 to 1999, Oce's success
with imaging supplies is attributable to two factors:
. the sale of new materials for business graphics (paper for color
prints and copies), display graphics (wide format) and multi-purpose
CAD supplies; and
. the steady growth of sales in the in the area of wide format plain
paper media.
10
<PAGE>
Traditionally, sales of supplies for diazo copiers have contributed
significantly to total imaging supplies sales. As the use of diazo copiers
decreases, sales of diazo supplies have also decreased, which in turn caused the
total imaging supplies sales in 1999 to decrease.
Although overall revenues in this area decreased, profit margins increased due,
in part, to the growing share of supplies with high margins, continued
rationalization of the product portfolio and outsourcing of the logistics
operations.
The Company is working to increase its sales of imaging supplies through e-
commerce. In 1999, 10% of the supplies were ordered through the internet, and
this proportion is expected to increase rapidly.
Oce is also using its technology to enhance imaging supplies products, notably
in the area of coating. For example, for display graphics market designed a
paper coated with an impermeable layer to accept the water-based ink customarily
used in inkjet printing, which innovation has its roots in diazo technology.
Financing Activities
In each of its strategic business units, the Company offers financing to its
customers through lease programs tailored to meet the needs of its customers,
and, on average, the Company finances 48% of its equipment sales through leasing
arrangements. Direct financing offers the benefit of both a continuous stream
of revenue together with interest earnings and permits the Company to remarket
it equipment on the expiration of the lease agreement.
Although direct financing creates some risk to the Company, it has adopted
policies to minimize this risk. The lease agreements to its customers typically
provide for a fixed rate of interest. To minimize the risk of changing interest
rates, the Company finances its lease portfolio predominately with interest
bearing loans with the same maturity and interest factor as the leases. Further,
Oce believes that the risk of an adverse effect to the Company due to customer
default is slight because of the volume and diversity of its customers for whom
it provided financing and Oce has the opportunity to remarket its machines in
the event that a customer defaults.
Marketing, Consulting and Services
Oce has a strong direct sales and service organization. The Company markets 92%
all of its copiers, printers and copier supplies through its direct sales force
of approximately 4,900 employees. The Company sells plotter systems primarily
through independent value added resellers and dealers. Similarly, Oce sells
fanfold laser printers primarily through original equipment manufacturers
("OEMs"). Approximately 8% and 9% of its total revenues in 1999 and in 1998,
respectively, were accomplished using independent distributors and OEMs.
Since 1997, IKON Office Solution Inc. has distributed Oce products - analog as
well digital copiers, supplies and parts - in the United States through the
distribution channels of IKON. This agreement has a five year term and is the
continuation of a business relation with ALCO Standard Corporation (the
predecessor of IKON) which began in 1994.
As the market continues to change, the nature of Oce's sales services have
changed. Oce's sales force customizes products for its customers including
software and network service capabilities, and tailors other products to a
customers' specific needs. Oce believes that by offering a complete range of
machines and software packages, together with consulting services and supplies
and equipment service, it will continue to be a leader in its business.
Although Oce sells its products on a world-wide basis, sales in the United
States and in the EU contributed 37% and 51%, respectively, of the Company's
total revenues in 1999. Other than sales in the EU and the United
11
<PAGE>
States, sales in no single country accounted for as much as 10% of total
revenues in 1999 or in 1998. Oce believes that no single customer accounted for
a material portion of its total revenues in 1999 or in 1998.
Oce provides direct customer support, after-sales service and maintenance to the
end users of its products in about 30 countries through approximately 5,300
employees.
Research and Development
Oce's research and development efforts are oriented towards the development of
new products and technologies and the improvement of existing products and
technologies, exploring new applications in existing technologies and
identifying fundamental technological breakthroughs. Currently, approximately
10% of the time spent by research and development personnel is devoted to
specifically defined development or engineering projects with the balance
devoted to general, non-project related activities. The Company's research and
development staff is located in the following offices world-wide:
. 1,170 employees conduct research and development relating to copying
and laser printers in Venlo, The Netherlands;
. 125 employees conduct software research and development in Creteil,
France;
. 365 employees conduct laser printer and software research and
development in Poing, Germany;
. 70 employees conduct software research and development in Namur,
Belgium; and
. 50 employees conduct supplies research and development in Fiskeville
RI, United States.
The Company uses a project-based team approach to develop new or improved
products. The team approach involves the joint participation of marketing,
production, sales, service and financial personnel, as well as research and
development personnel, in the research and development process. The Company
believes that its joint participation approach facilitates communication within
its organizational structure and enables research and development personnel to
access up-to-date information from its internal resources among other things.
Research efforts are specifically targeted at developments and solutions which
customers demand. Oce believes that this approach to research and development
has resulted in greater reliability, improved print quality, lower "cost-of-
ownership" and convenience in use.
Approximately 1,780 employees were engaged in research and development
activities at the end of 1999 (compared to 1,610 and 1,530 employees at the end
of 1998 and 1997, respectively).
Over the past five years, Oce has spent from 5.6% to 6.3% of its total revenues
on research and development. The following table sets forth the aggregate
amounts spent by Oce in research and development over the past five years:
Years ended R&D expenditure Percent of
November 30, (in million Euro's) Revenues
------------ ------------------- ----------
1995 84.4 6.3
1996 111.0 5.9
1997 138.9 5.6
1998 155.2 5.6
1999 166.6 5.9
Research and development expenditures do not include substantial additional
costs relating to the participation of non-research and development personnel in
research and development projects. Generally, the above research and development
expenditures also do not include (a) development credits advanced under a
program of The Netherlands government which are not repaid or charged to income
until and unless the project for which the
12
<PAGE>
advance is made is commercially successful and (b) direct grants provided by the
government of The Netherlands which are not required to be repaid. Such
development credits and grants (net of provisions for repayment of prior
development credits) were, in balance, a receipt of Euro 8.0 million in 1995 and
an additional expenditure of Euro 4.2 million in 1996, Euro 12.9 million in
1997, Euro 14.9 million in 1998 and Euro 7.7 million in 1999. See "Development
credits and subsidies" in Note 1 of Notes to Consolidated Financial Statements.
Employees and Labor Relations
At November 30, 1999 the Company employed 21,757 employees (in full time
equivalents) world-wide. The Company believes that its employee relations are
excellent. Since 1991, the Company has not experienced any significant strike,
work stoppage or labor dispute. Most of the Company's employees are subject to
labor agreements of one or two years duration. The labor agreement covering the
Company's employees in The Netherlands, the location of most of the Company's
production operations, must be renewed before July 1, 2000.
In October 1999, Oce announced a cost reduction program which will result in the
loss of 1,000 jobs on a world-wide basis. In addition, in the future, Oce
expects a shift in the type of positions held from manufacturing, logistics,
service and indirect services positions to sales, software development, support
and facility services.
Patents and Similar Rights
At November 30, 1999 Oce held approximately 3,350 patents and patent
applications pending throughout the world. Oce considers its patent position to
be important to its business and intends to continue vigorously to protect its
technology. It is Oce's view, however, that its technical expertise and "know
how" are more important than its patent portfolio and that the loss of any
particular patent would not have a material adverse effect upon its business.
The Company believes its trademark "Oce", which is registered in most areas of
the world, to be a valuable asset.
Competition
There are a number of companies with significant world-wide operations that
compete with all or part of the Company's business with significant financial
resources, some of which compete on a global basis. The Company's primary
competitors, generally original equipment manufacturers in the business of the
reproduction, presentation and distribution of documents, are Xerox Corporation,
Canon, Hewlett Packard, Ricoh and Minolta. The Company's success in the future
will depend on its ability to compete successfully in its current geographic and
product markets and to expand into additional geographic and product markets.
13
<PAGE>
Item 2 DESCRIPTION OF PROPERTY
As of November 30, 1999, the following properties were material to the Company's
operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Country Principal Use Year of Construction Owned/Leased
------- ------------- -------------------- ------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Netherlands
Venlo Headquarters 1964, 1975 and 1988 Owned
- --------------------------------------------------------------------------------------------------------------------
Research Various Owned
- --------------------------------------------------------------------------------------------------------------------
Manufacturing of 1974, 1982, 1983, 1986 Owned
Copying Equipment and 1996
- --------------------------------------------------------------------------------------------------------------------
Manufacturing of 1965 Owned
Copying Supplies
- --------------------------------------------------------------------------------------------------------------------
Den Bosch Sales Offices 1987 Owned
- --------------------------------------------------------------------------------------------------------------------
Germany
Mulheim/Ruhr Sales Offices 1971 and 1979 Owned
- --------------------------------------------------------------------------------------------------------------------
Poing Offices, Research and 1986 50% Owned
Manufacturing of
Printing Equipment
- --------------------------------------------------------------------------------------------------------------------
France
Noisy le Grand Sales Offices 1989 Capitalized lease
- --------------------------------------------------------------------------------------------------------------------
Creteil Offices and Research 1999 Owned
- --------------------------------------------------------------------------------------------------------------------
Chateauroux Manufacturing of 1965 Owned
Copying Supplies
- --------------------------------------------------------------------------------------------------------------------
Guerande Manufacturing of Copying 1980 Owned
Equipment and Plotters
- --------------------------------------------------------------------------------------------------------------------
Brazil
Sao Paulo Offices, Warehouse 1981 Owned
- --------------------------------------------------------------------------------------------------------------------
United States of America
Wilmington, DE
Offices, Warehouse Various Owned
- --------------------------------------------------------------------------------------------------------------------
Guilford, CT Manufacturing of Copying Various Owned
Supplies
- --------------------------------------------------------------------------------------------------------------------
Fiskeville, RI Manufacturing of Copying Various Owned
Supplies
- --------------------------------------------------------------------------------------------------------------------
Charleston, IL Manufacturing of Copying Various Owned
Supplies
- --------------------------------------------------------------------------------------------------------------------
Boca Raton, FL Offices 1980 Owned
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
In addition to the principal properties listed above, Oce also owns and leases
office and warehouse space throughout the world where necessary to its business.
Oce believes that its production and other facilities are in good operating
condition and that its production capacity will be adequate for the immediate
foreseeable future.
Each of the owned properties above is owned free of material encumbrances.
Certain facilities were subject to capitalized leases, amounting to Euro 12.9
million and Euro 13.1 million as of November 30, 1999 and November 30, 1998,
respectively.
The leased land and buildings in Poing, Germany are owned by a joint venture in
which the Company holds a fifty percent interest and has management control (the
remaining 50% of the joint venture is owned by Mobaco BV). The lease has a ten
year term and is for a fixed amount of rent at an annual rate of Euro 6.3
million.
15
<PAGE>
Item 3 LEGAL PROCEEDINGS
Two of Oce's subsidiaries, Oce Printing Systems U.S.A., Inc., Delaware
corporation ("OPS") and Oce Printing Systems G.m.b.H., a German corporation
("G.m.b.H."), together with others (Siemans-Nixdorf Informationssysteme AG ("S-
N") and various of its affiliates and NCR Corporation), have been named as
defendants in an action filed in November 1996 in Florida state court alleging
monopolisation and conspiracy by the defendants to violate the Florida Antitrust
Act of 1980 and related Florida statutes. The Company, a party to the original
complaint, has been dropped from the suit. The action purports to be a class
action on behalf of independent service organizations, brokers and end users of
Siemens ultra high speed printers, a product line and related business acquired
world-wide by the Company as of April 1, 1996 and in the United States by OPS
from affiliates of S-N. Alleged damages originally stated by plaintiffs to be
U.S. $ 900,000,000, have not yet been quantified in discovery. Damages awarded,
if any, under the applicable Florida statutes could be trebled. Substantial
discovery on the merits occurred during 1998. The court held a hearing on class
certification in January, 1999, and issued an order in August, 1999 certifying
all classes. That order is currently the subject of appeal.
Fact discovery on merit issues is substantially completed, but discovery from
experts and on damage issues has not begun. The Company believes that the
defendants have substantial defenses to all claims and intends to continue to
defend this action vigorously. In the event that there should be any liability
on the part of Oce-U.S.A Holding, Inc. ("Holding"), the Company, OPS or
G.m.b.H., Holding has informed various Siemens entities that, under the
applicable purchase agreement for the U.S. business, they, as sellers of all the
stock of OPS to Holding, are responsible to Holding, the Company, G.m.b.H. and
OPS for the ultimate liability, if any.
The Company through its subsidiaries is involved in several other legal
proceedings relating to the normal conduct of its business. The Company does not
expect any liability arising from these proceedings to have a material effect on
its results of operations, liquidity, capital resources or financial position.
The Company believes that it has provided for all probable liabilities.
Item 4 CONTROL OF REGISTRANT
Oce N.V. has four classes of authorized capital stock: (i) 145,000,000 Ordinary
Shares, nominal or par value Euro 0.50, of which 83,318,499 shares were
outstanding as of March 31, 2000, (ii) 30 Priority Shares, nominal or par value
Euro 50, of which all 30 shares were outstanding as of March 31, 2000, (iii)
30,000,000 Cumulative Financing Preference Shares, nominal or par value Euro
0.50 (which have been further divided into thirty classes of one million shares
each), of which 20,000,000 shares were outstanding as of March 31, 2000, and
(iv) 175,000 Cumulative Protective Preference Shares, nominal or par value Euro
500, of which no shares are outstanding. As of March 31, 2000, the total
authorized capital of the Company was Euro 175,001,500.
Oce has outstanding American Depository Shares ("ADSs") representing Oce's
Ordinary Shares and evidenced by American Depository Receipts ("ADRs") which
have been deposited with Morgan Guaranty Trust Company of New York as
Depository. The ADRs are publicly traded on The Nasdaq National Market.
Oce has entered into arrangements with Foundation Fort Ginkel and the Lodewijk
Foundation that permit these foundations together to exercise control of the
management of the Company and to prevent acquisition of control of the Company
by any person in a transaction not approved by management.
16
<PAGE>
The Foundation Fort Ginkel holds all of the Priority Shares. The Company granted
the Lodewijk Foundation an option to buy at any time on the Lodewijk
Foundation's request a number of Cumulative Protective Preference Shares that
when added to the Priority Shares owned by the Foundation Fort Ginkel, would
give the Lodewijk Foundation a majority of the voting power of the outstanding
capital stock of Oce.
Each of the Foundation Fort Ginkel and the Lodewijk Foundation are non-profit
legal entities, but neither are philanthropic organizations. Neither of the
Foundations have shareholders.
The by-laws of the Foundation Fort Ginkel provide that its three directors shall
be the Chairman of the Company's Supervisory Board, the Chairman of the
Company's Executive Board and another member of the Company's Supervisory Board.
Currently, H. B. van Liemt, R.L. van Iperen and M. Ververs are the directors of
the Foundation Fort Ginkel.
The by-laws of the Foundation Lodewijk provide for two class A directors and
four class B directors. One of the class A directors shall be the Chairman of
the Company's Supervisory Board and the other shall be the Chairman of the
Company's Executive Board (or other persons designated by the Foundation Fort
Ginkel). The by-laws provide that none of the remaining four class B directors
may be a member of the Company's Supervisory or Executive Boards, an advisor or
employee of the Company, a director of the Foundation Fort Ginkel, or a
shareholder who has granted the Foundation Fort Ginkel the right to vote his or
her Ordinary Shares. The by-laws further provide that in the absence of one or
more class B directors the remaining class B directors are entitled to vote on
behalf of the absent member or members. The purpose of this provision is to
ensure that the class B directors will always be entitled to exercise the
majority of voting rights on the Foundation Lodewijk's board of directors.
Currently, the directors are O. Hattink, J.J.C. Alberdingk Thijm, J.M.M.
Maeijer, Th. Quene, H.B. van Liemt and R.L. van Iperen.
In addition to normal voting rights, the holders of the Priority Shares have the
exclusive right to
. determine the number of members of the Company's Supervisory and
Executive Boards,
. make binding nominations for the Company's Supervisory and
Executive Directors,
. approve the issuance of authorized but unissued shares, and
. propose to a general meeting of shareholders changes in the
Articles of Association of the Company.
Neither the Foundation Fort Ginkel nor the Lodewijk Foundation have any
significant economic interests in the Company.
The Foundation Stichting Administratiekantoor Preferente Aandelen Oce
("Stichting Foundation") holds all of the Cumulative Financing Preference
Shares. The Stichting Foundation has issued registered depository receipts,
nominal or par value Euro 0.50, to a number of institutional investors. The
Stichting Foundation has five members, three of which are appointed by the
shareholders, one of which is appointed by the holders of the depository
receipts and one member of the Executive Board of the Company.
17
<PAGE>
Although the Company's shares are issued and held in bearer form, the Company
believes that the following entities own the following shares of its capital
stock as of November 30, 1999:
<TABLE>
<CAPTION>
Identity of
Title of Class Person or Group Amount Owned Percent of Class
-------------- --------------- ------------ ----------------
<S> <C> <C> <C>
Ordinary Shares Internationale
Nederlanden Groep 6,084,485 7.3%
Supervisory Directors 2,876 -
Priority Shares Stichting Fort Ginkel 30 shares 100.0%
Cummulative Financing Preference Foundation Stichting 20,000,000 100.0%
Shares Administratiekantoor Preferente
Aandelen Oce
Depositary Receipts representing Rabobank Nederland 6,000,000 30.0%
Cumulative Financing Preference Participatie maatschappij B.V.
Shares
Fortis N.V. 6,000,000 30.0%
ABP-PGGM Capital Holdings N.V. 6,000,000 30.0%
Internationale
Nederlanden Groep 2,000,000 10.0%
</TABLE>
Item 5 NATURE OF TRADING MARKET
Since 1958, the year in which the Company's stock became publicly traded, the
principal market for the Company's Ordinary Shares has been the Amsterdam Stock
Exchange. The Company's Ordinary Shares are also listed on the stock exchanges
in Dusseldorf, Frankfurt am Main and Switzerland on the Electronic Stock
Exchange (EBS).
In the United States, ADSs, representing Oce's Ordinary Shares and evidenced by
ADRs, have been quoted and traded on The Nasdaq National Market under the symbol
"OCENY" since November 8, 1984. Morgan Guaranty Trust Company of New York is the
depositary for the ADRs (the "Depositary"). One Oce ADS represents one Oce
Ordinary Share. Less than 1% of the outstanding Ordinary Shares are represented
by ADSs.
Because Ordinary Shares are in bearer form the number of beneficial owners of
Ordinary Shares is not known to the Company.
18
<PAGE>
The table below sets forth for the Company's fiscal quarters indicated (a) the
high and low sales prices of Oce's Ordinary Shares (expressed in Euros) on the
Amsterdam Stock Exchange as reported by the "Officiele Prijscourant", the
official daily newspaper of the Amsterdam Stock Exchange, and (b) the low bid
and high asked prices of Oce ADSs (expressed in dollars) on The Nasdaq National
Market.
<TABLE>
<CAPTION>
Amsterdam Stock Exchange Nasdaq
Euro per Ordinary Share $ per ADS
------------------------ ----------------------
High Low High Asked Low Bid
----- ----- ---------- -------
<S> <C> <C> <C> <C>
1998 First quarter 31.36 23.60 33.75 26.60
Second quarter 40.93 31.20 45.13 34.31
Third quarter 40.61 31.58 45.00 35.00
Fourth quarter 34.40 18.47 38.63 22.25
1999 First quarter 35.00 23.25 40.25 26.12
Second quarter 28.65 22.75 29.75 24.50
Third quarter 26.70 18.90 30.00 20.50
Fourth quarter 20.35 14.00 21.75 15.25
2000 First quarter 17.80 11.70 17.75 12.00
</TABLE>
Item 6 EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no legislative or other legal provisions currently in force in The
Netherlands or arising under the Company's Articles of Association restricting
remittances of dividends, interest or other payments to non-resident holders of
securities of the Company. Cash dividends payable in Euros on Ordinary Shares of
the Company may be officially transferred from The Netherlands and converted
into any other currency. There are no limitations, under the laws of The
Netherlands or the Company's Articles of Association, on the right of foreigners
to hold or vote the Company's Ordinary Shares.
As soon as practicable after receipt of notice of any meeting of shareholders or
of holders of Ordinary Shares, the Depositary for the ADRs is required to mail
to each record holder of ADRs a notice containing the information set forth in
such notice of meeting and advising such ADR holder that the holder will be
entitled, subject to any applicable provision of law of The Netherlands and the
Company's Articles of Association, to instruct the Depositary how to vote the
Ordinary Shares represented by such holder's ADRs.
The Depositary will, to the extent practicable, vote Ordinary Shares it holds as
depositary in accordance with instructions received from ADR holders and will
not vote any Ordinary Shares it holds as depositary unless it receives specified
voting instructions. Any holder of one or more ADS will be entitled to attend
(but not vote at) any general meeting of shareholders or of the holders of
Ordinary Shares in accordance with the procedures to be set forth in the notice
from the Depositary and subject to the applicable provisions of the law of The
Netherlands and the Company's Articles of Association.
19
<PAGE>
Item 7 TAXATION
The statements below are only a summary of current tax laws of The Netherlands
and the Tax Convention of December 18, 1992 between the United States of America
and The Netherlands (the "US Tax Treaty") and are not to be read as extending by
implication to matters not specifically referred to herein. As to individual
tax consequences, investors in Oce Ordinary Shares or Oce ADRs should consult
their own tax advisors.
Withholding tax
In general, a cash dividend distributed by a company resident in The Netherlands
(such as the Company) is subject to a withholding tax imposed by The Netherlands
at a rate of 25%. Stock dividends are generally not subject to the above
mentioned withholding tax.
Pursuant to the provisions of the US Tax Treaty, dividends paid by the Company
to a shareholder who is a resident of the United States, are generally eligible
for a reduction in the Dutch withholding tax rate to 15%, unless (i) the
beneficial owner of the dividends carries on business in The Netherlands through
a permanent establishment, or performs independent personal services in The
Netherlands from a fixed base, and the Ordinary Shares form part of the business
property of such permanent establishment or pertain to such fixed base (in which
case, the dividends are included with the owner's other business income for the
Netherlands tax purposes and are not subject to the Netherlands withholding
tax), or (ii) the beneficial owner of the dividends is not entitled to the
benefits of the US Tax Treaty under the "treaty-shopping" provisions thereof.
Dividends paid to qualifying exempt US pension trusts and qualifying exempt US
organizations are exempt from Dutch withholding tax under the US Tax Treaty.
However, qualifying exempt US organizations must accept payment of the dividend
net of the 25% withholding tax and then apply for a refund.
For US tax purposes, the gross amount (including the withheld amount) of
dividend distributed on Ordinary Shares will be dividend income to the US
shareholder, not eligible for the dividends received deduction generally allowed
to corporations. However, subject to certain conditions and limitations, the
Dutch withholding tax will be treated as a foreign income tax that is eligible
for credit against the shareholder's US income taxes.
Capital gains
Capital gains upon the sale or exchange of Ordinary Shares or ADS by a non-
resident individual or corporation are exempt from Dutch income tax, corporation
tax or withholding tax, unless (i) such gains are effectively connected with a
permanent establishment of the shareholder's trade or business in The
Netherlands or (ii) are derived from a direct, indirect or deemed substantial
participation in the share capital of a company (such substantial participation
not being a business asset). In general, an individual has a substantial
participation if he holds either directly or indirectly and either independently
or jointly with his spouse or steady partner, at least 5% of the total issued
share capital or particular class of shares of a company. For determining a
substantial participation, other shares held by close relatives are taken into
account. The same applies to options to buy shares. Generally, a deemed
substantial participation exists if (in part) a substantial participation has
been disposed of, or is deemed to have been disposed of, on a non-recognition
basis. Under the US Tax Treaty however, The Netherlands may only tax a capital
gain derived from a substantial participation if the selling holder has been a
resident of The Netherlands at any time during the five-year period preceding
the sale, and owned at the time of sale either alone or together with relatives,
at least 25% of any class of shares.
20
<PAGE>
Net wealth tax
No net wealth tax is imposed by The Netherlands in respect of Ordinary Shares
owned by non-resident corporations. A non-resident individual shareholder is
not subject to The Netherlands net wealth tax unless he has a permanent
establishment in The Netherlands and the Ordinary Shares are effectively
connected with that permanent establishment.
Estate and gift taxes
Except where Ordinary Shares are attributable to a permanent establishment or
permanent representative of the shareholder in The Netherlands, no estate,
inheritance or gift taxes are imposed by The Netherlands on the transfer of
Ordinary Shares if, at the time of death or the transferor the shareholder or
transferor is not a resident of The Netherlands.
Under Dutch law, inheritance or gift taxes (as the case may be) are due,
however, if such shareholder or transferor:
. is a Dutch national and has been a resident of The Netherlands at any
time during the ten years preceding death or transfer; or
. is not a Dutch national but has been a resident of The Netherlands at
any time during the twelve months immediately preceding the transfer
(for The Netherlands gift taxes only).
Item 8 SELECTED FINANCIAL DATA
The following table sets forth for the fiscal years indicated the high, low,
average and period-ending exchange rates for one Euro expressed in dollars based
on the Noon Buying Rate on the dates and for the periods indicated.
<TABLE>
<CAPTION>
Years ended High Low Average* Period-End
November 30,
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 1.25 1.44 1.36 1.36
1996 1.27 1.38 1.31 1.27
1997 1.04 1.27 1.14 1.11
1998 1.05 1.22 1.11 1.15
1999 1.01 1.19 1.08 1.01
</TABLE>
* The average of the exchange rates on the last day of each calendar month.
21
<PAGE>
The following table sets forth certain selected consolidated financial
information of the Company and has been derived from Oce's audited financial
statements. This financial information should be read in conjunction with, and
is qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Form 20-F.
<TABLE>
<CAPTION>
(in millions, except per share amounts)
Years ended November 30,
-------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT 1995 1996 1997 1998 1999 1999
OF OPERATING DATA: (c) (c) (c) (c)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amounts in accordance with Euro Euro Euro Euro Euro $
Dutch GAAP (a)
Revenues 1,330 1,894 2,468 2,753 2,838 2,860
Operating income 101 145 200 245 248* 250*
Income before income taxes,
equity in income of
unconsolidated
companies and minority interest 60 98 147 184 189 191
Extraordinary item (net of tax) - - - - -55 -56
Net income 49 77 107 129 77 77
Basic earnings per Ordinary
Share (b) 0.75 1.03 1.30 1.53 1.54* 1.55*
Dividends per Ordinary
Share (b) (e) 0.29 0.34 0.42 0.50 0.50 0.50
Amounts in accordance with
U.S. GAAP (a)
Net income (d) 48 64 91 102 76 76
Earnings per Ordinary Share
Basic (b) 0.73 0.85 1.09 1.20 0.87 0.87
Diluted 0.69 0.79 1.06 1.17 0.86 0.87
CONSOLIDATED BALANCE SHEET
DATA:
Amounts in accordance with
Dutch GAAP (a)
Total assets 1,520 2,096 2,480 2,620 2,916 2,939
Long term debt 471 546 749 859 884 891
Shareholders' equity 479 606 699 726 818 824
Amounts in accordance with
U.S. GAAP (a)
Total assets 1,570 2,435 2,832 2,960 3,145 3,169
Long term debt 471 546 749 859 884 891
Shareholders' equity 535 879 997 1,005 1,155 1,164
</TABLE>
* Before extraordinary items.
After the Extraordinary item, the basic earnings per Ordinary Share
amounts for 1999 to Euro 0.88 and $ 0.88
22
<PAGE>
(a) The Selected Financial Data of the Company included in this report were
accordance prepared in with Dutch GAAP, which differs in certain respects
from U.S. GAAP. Reconciliations to U.S. GAAP are set forth in Note 22 of
Notes to Consolidated Financial Statements.
(b) Based on the weighted average number of Ordinary Shares outstanding during
each period (one ADS represents one Ordinary Share).
(c) The comparability of the Selected Financial Data is affected by the
acquisitions of Siemens-Nixdorf Printing Systems, effective April 1, 1996,
Abso Blue (now called Oce-Canada) at the beginning of December 1996,
Messerli (presently Oce Schweiz) effective January 1, 1997, Archer
Management Services in December 1997 and Oce Japan in May 1999. See Item 9
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(d) See Note 22 of Notes to Consolidated Financial Statements.
(e) Based on amount of cash dividend.
Dividends
The table below sets forth the interim, final and total dividends paid in Euros
on the Ordinary Shares in respect of the fiscal years indicated and translated
into dollars per ADS based on the Noon Buying Rate on each of the respective
dates on which the Company paid its interim and final cash dividends. The actual
exchange rate applied by the Depositary for payment of the dividend may vary
from such Noon Buying Rate.
<TABLE>
<CAPTION>
Years ended
November 30, Euro per Ordinary Share Translated into $ per ADS
- ------------ ----------------------- -------------------------
Interim Final Total Interim Final Total
------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1995 0.10 0.18 0.28 0.14 0.24 0.38
1996 0.10 0.24 0.34 0.14 0.26 0.40
1997 0.15 0.27 0.42 0.17 0.30 0.47
1998 0.15 0.35 0.50 0.17 0.41 0.58
1999 0.15 0.35 0.50 0.15 0.35 0.50
</TABLE>
23
<PAGE>
Item 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Exhibit 1.02 contains Management's Discussion and Analysis of Financial
Condition and Results of Operations, and is incorporated into this Item 9 by
reference. The following discussion supplements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations in Exhibit 1.02. In the event that any portion of Exhibit
1.02 conflicts with any portion of the discussion contained in this Item 9, the
provisions in this Item 9 will prevail.
Financial Accounting
Financial information provided in this report is presented in accordance with
Dutch GAAP. The differences between Dutch GAAP and US GAAP are explained in Note
22 of Notes to Consolidated Financial Statements, which also includes
reconciliations of net income and shareholders' equity.
Results of Operations
Revenues. Total revenues in 1997, 1998 and 1999 were Euro 2,468 million, Euro
2,753 million and Euro 2,838 million, respectively. Total revenues increased by
3% from 1998 to 1999 and by 12% from 1997 to 1998 because of autonomous growth,
favorable exchange rates and acquisitions.
The table under "Strategic Business Units" in Item 1 shows the distribution by
strategic business unit of revenues during the past three fiscal years.
In the wide format printing systems market, total revenues have increased during
each year from 1997 to 1999 from Euro 730 million in 1997, Euro 772 million in
1998 and Euro 782 million in 1999. Although total revenues in this market
increased from 1998 to 1999 by 1%, after deducting acquisition and exchange rate
effects, net revenue in this market decreased by 2.5% from 1998 to 1999. From
1997 to 1998, revenues in this market increased by 6%.
As noted in Item 1, in 1999 the Company reclassified its strategic business
units to move revenues of network printing solutions from the production
printing systems market to the document printing systems market. After taking
the reclassification into account, total revenues of the document printing
market have increased each year from 1997 to 1999 from Euro 1,154 million in
1997, Euro 1,367 million in 1998 and Euro 1,399 million in 1999. Increases were
largely attributable to increases in the sales of digital products and services.
Production printing systems revenues increased 7% from 1998 to 1999 and 5% from
1997 to 1998. This increase was attributable primarily to increased sales of
digital products and services, especially in the printing and publishing area,
and to favorable exchange rates.
Facility services and imaging services both contributed revenues to each of the
strategic business units discussed above.
Income. Operating income increased 22% from 1997 to 1998 and 1% from 1998 to
1999, to a total of Euro 248 million. Operating income represented 8.7% of
total revenues in 1999, down from 8.9% in 1998 and 8.1% in 1997. This resulted
in part from the increasing profitability of sales of digital products and
services in each market.
24
<PAGE>
Net income before exceptional items increased nearly 20% from 1997 to 1998,
principally as a result of increased sales of digital printers and copiers,
strict cost control measures and favourable exchange rates. In 1999, the
Company incurred an expense of Euro 55.3 million in connection with the
reorganization of its business and the write-off of certain assets. As a
result, net income in 1999 declined 41% to Euro 77 million from Euro 129 million
in 1998. Prior to the deduction of the extraordinary item from net income in
1999, net income was Euro 132 million, which was a 2% increase from Euro 129
million in 1998. Net income in 1998 increased 20% from Euro 107 million in
1997.
Capital Resources and Liquidity
Capital Expenditures. The Company's capital expenditures in 1999 were Euro 90.3
million, compared with Euro 151.0 million in 1998 and Euro 206.9 million in
1997. Of the 1999 total amount of capital expenditures, Euro 80 million was for
property, plant and equipment a decrease of 11% from the 1998 amount of Euro 89
million, which was itself an increase of 2% from 1997.
Liquidity. Liquidity is provided primarily from cash flow from operating
activities and cash flow from financing activities. Cash flow from operating
activities was Euro 53.4 million in 1999, Euro 76.7 million in 1998 and Euro
69.5 million in 1997. Cash flow from financing activities (including an
increase in long term debt) was Euro 63.5 million in 1999, Euro 64.0 million in
1998 and Euro 158.2 million in 1997. The consolidated statements of cash flows
included in Exhibit 1.02 provide further details of the Company's cash flow
activities.
Management believes, based upon current levels of operations and forecasted
earnings, that cash flow from operations and cash flows from financing
activities will be adequate to permit anticipated capital expenditures, and to
fund working capital requirements and other cash needs for the foreseeable
future, including 2000. As of November 30, 1999 Oce had Euro 702.2 million
available in permitted borrowings under its credit facilities, most of which
credit facilities are multi-year stand-by credit contracts.
Pension Plans
In The Netherlands and in most other countries, the Company is required by local
legal regulations, customs and circumstances to provide a pension to the
majority of its employees. In addition to the pensions required under local
laws, the Company provides a pension to its other employees ("additional
plans"). Pension costs, including past service costs, for the additional plans
are actuarially determined and, in general, funded. Total pension expense for
the years ended November 30, 1997, 1998 and 1999 was Euro 30.5 million, Euro
37.9 million and Euro 42.4 million, respectively.
Accumulated benefit obligations and plan assets as of the dates of the most
recent actuarial valuations are as follows (in millions):
Euro
Actuarial present value of accumulated
benefit obligations (essentially all vested) 586
======
Net assets currently available for benefits 644
======
25
<PAGE>
The actuarial present value of accumulated plan benefits was computed using an
interest rate of 6% for employees in The Netherlands, whose benefits and net
assets comprise more than 60% of the above amounts, and 2.5% to 7.5% for
employees outside The Netherlands. The actuarial present value of projected
benefit obligations are approximately Euro 20 million higher than the net assets
available.
Business Combinations
For disclosure of material effects of business combinations accounted for as a
purchase refer to Note 22 to the Consolidated Financial Statements.
Political Policies
The Company has no knowledge of any economic, fiscal, monetary or political
policy of the government of The Netherlands that has materially adversely
affected, directly of indirectly, the Company or investments in the Company by
US nationals.
Stock-based Compensation
In 1995 the U.S. Financial Accounting Standards Board issued Statement of
Accounting Financial Standards No. 123 "Accounting for Stock-based
Compensation", which provides for two alternative methods for accounting for
employee stock options. Companies may either adopt a fair value method of
accounting or continue the previous accounting method prescribed by the APB
Opinion No. 25 "Accounting for Stock Issued to Employees" subject to additional
disclosure of the impact on net income as if fair value method had been
utilized. The Company applies the Dutch GAAP method, which is consistent with
APB Opinion No. 25; accordingly, no compensation expense has been recognized
under these plans.
If compensation expense for the option plan had been determined based on the
fair value at the grant dates for awards under SFAS No. 123, the additional
compensation costs for 1997, 1998 and 1999 would have been Euro 0.8 million,
Euro 4.2 million and Euro 2.5 million, respectively and Oce's net income and
earnings per share would be as set forth in the following table.
Euro's in thousands, Year ended November 30
Except per share 1997 1998 1999
-------------------------------------------------------------------
Net income
As reported 107,410 129,049 76,675
Pro forma 106,610 124,830 74,206
Diluted earnings per share
As reported 1.30 1.53 0.88
Pro forma 1.29 1.48 0.85
-------------------------------------------------------------------
For purposes of pro forma disclosures, the estimated fair value is amortized
over the options' vesting period. Because compensation expense associated with
option grants is amortized over the vesting period, the initial impact of
applying SFAS No. 123 on pro forma net income is not representative of the
potential impact on pro forma net income in future years. In each subsequent
year, pro forma compensation expense would include the effect of recognizing a
portion of compensation expense from multiple awards.
26
<PAGE>
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
Year ended November 30
1997 1998 1999
- ----------------------------------------------------------------------------
Dividend yield 1.84% 1.64% 2.94%
Risk-free interest rate 4.32% 3.58% 5.05%
Stock price volatility 26.00% 32.50% 35.00%
Expected life (years) 1.84 1.64 2.94
- ----------------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which are significantly different than employee
stock options. Although this valuation model is an acceptable method for use in
presenting pro forma information, because of the differences between traded
options and employee stock options, the Black-Scholes model does not necessarily
provide a single measure of the fair value of employee stock options.
The assumptions were used for this calculation only and do not provide an
indication of management's expectations of future developments.
Year 2000
The millennium problem has been the subject of the Company's attention for quite
some time. Both on the corporate level and in the local operations all software
incorporated in the hardware and software products marketed by the Company, and
all the computer applications used within the business of the Company, have been
tested for Year 2000 compliance and, where necessary, replaced or modified.
The Company initiated four programs to achieve Year 2000 compliance. The four
programs evaluated:
. the Company's products, both hardware and software,
. corporate business applications (including invoicing, contract handling,
logistics, service and financial accounting systems) and local business
applications (including personnel systems), and
. hardware and software for information supply, and embedded software, not
involved in the information supply function.
All actions taken in response to the evaluation program appear to have been
adequate as no disruptions in business operations were encountered as a result
of the year end date change. The Company intends to continue to monitor future
critical dates, such as quarter-end dates.
The ultimate impact of the Year 2000 issues on the Company will depend, in part,
on the success of the Year 2000 compliance programs of third parties that
provide services to the Company. To date, the Company has not been adversely
impacted to any significant extent by the failure of third parties to address
the Year 2000 issue.
The Company has developed contingency plans to address risks associated with
Year 2000 issues that may yet arise. There can be no assurance that these plans
will fully mitigate problems, if any, that arise.
Year 2000 compliance costs were Euro 5 million.
The foregoing Year 2000 discussion constitutes a Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Readiness and Disclosure Act of 1998.
27
<PAGE>
FASB Standards
FASB Statement of Accounting Financial Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" is effective for all fiscal
quarters beginning after June 15, 2000. This Statement requires all derivatives
to be recorded at fair value. The change in fair value is periodically recorded
in current earnings or under comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction. The Company is currently
evaluating the impact this Statement will have on its financial statements, if
any.
Item 9A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a global business, Oce faces market risks with respect to foreign exchange
rates and interest rate risks. Financial instruments are used to hedge against
the financial risks that are inherent to the Company's underlying commercial
activities. The following analysis presents the hypothetical loss in earnings,
cash flows, or fair value of the financial instruments and derivative
instruments which were held by the Company at November 30, 1999 and 1998 and are
sensitive to changes in interest rates, foreign exchange rates and commodity
prices. The Company uses interest rate swaps and foreign-exchange hedge
contracts to manage the primary market exposures associated with the underlying
assets, liabilities, and anticipated transactions to reduce risk by offsetting
market exposures. In the normal course of business, the Company also faces risks
that are either non financial or non quantifiable, which principally include
country risk and credit risk and are not represented in the following analyses.
Foreign Exchange Risks
Oce achieves revenue world-wide, with a majority of its revenue from Europe and
the United States. In addition, a considerable portion of the Company's costs
are also incurred in the currencies where the sales occur (such as the dollar,
Euro and Pound Sterling). Oce also has costs denominated in Japanese yen for
the purchase of product sub-assemblies and complete machines which supplement
its product range.
Oce attempts to offset the effects of exchange rate fluctuations over the long
term by buying, where possible, in the same currency in which the revenues are
achieved ("matching principle") and by raising the local added value content.
With respect to the revenues from service, Oce's foreign exchange risk is
limited because most of the costs, consisting of the payroll expenses of the
service technicians, are in local currency.
The Company also attempts to offset the short-term consequences of foreign
exchange fluctuations through an active currencies management policy. The
Company has a central foreign exchange management policy and a selective foreign
currency policy aimed at controlling operating income and investments held in
foreign currencies. For this purpose, the Company uses a number of financial
instruments, particularly forward foreign exchange contracts. The contract
value and the result of forward foreign exchange contracts as of November 30,
1999 and 1998, respectively, were:
. For cash flows, in 1999, Euro 230.4 million and Euro -13.3 million,
and in 1998, Euro 308.6 million and Euro 5.9 million; and
. For investments, in 1999, Euro 317.3 million and Euro -8.4 million,
and in 1998, Euro 344.9 million and Euro 5.0 million.
The following analysis presents the hypothetical loss on operating profit if the
foreign currencies change compared with the Euro. Based on the Company's
estimate of future foreign exchange rate development, it closes hedge contracts
for 70 and 90 percent of anticipated intercompany sales for dollars and related
currencies and Pound Sterling, respectively. With respect to all currencies
other than the Euro in which intercompany sales are denominated, a 10% overall
change (decrease) compared with the Euro will have a negative impact of
28
<PAGE>
Euro 12 million on operating profit assuming that no other measures will be
taken for as protective measures against such a decrease.
Interest Rate Risk
Most of the Company's interest revenues originate from market placements of
machines under financial lease contracts as described in Item 1. Oce financial
lease contracts usually contain a fixed interest which corresponds to the rates
charged by external leasing businesses. These contracts are generally financed
by interest-bearing capital with an interest rate fixed for the duration of the
contracts.
Oce uses interest rate instruments to manage its risk related fixed and variable
interest exposures. Oce's primary objective is to prevent a disparity between
the portfolio of rentals and leases and the financing obtained by the Company to
support the portfolio of the Company. Oce's goal is to achieve a ratio of 80%
between the fixed-interest assets and liabilities. As of November 30, 1999 and
1998, the contract value/notional principal amount and the market value of
interest rate instruments were as follows (in millions):
. interest rate swap contracts: Euro 1,493.5 and Euro 15.5 (1998: Euro
1,156.2 and Euro 57.2);
. interest rate cap contract: Euro nil and Euro nil (1998: Euro 26.1 and
Euro 0.1);
. interest/foreign exchange swap: Euro nil and Euro nil (1998: Euro 2.1
and Euro -0.1);
. interest swap option: Euro 4.5 and Euro -0.2 (1998: nil).
The following analysis presents the hypothetical loss in earnings of those
financial instruments and derivative instruments held by the Company at November
30, 1999 which are sensitive to changes in interest rates. The aggregate
hypothetical loss in earnings on an annual basis on all financial instruments
and derivative instruments that would have resulted from a hypothetical increase
of 10 percent, sustained for one year, is estimated to be Euro 1.9 million.
Other risk
The Company is also exposed to risk due to fluctuations of the purchase price of
paper. This risk typically has a limited effect on the Company's gross margin
because the cost increases are passed on to customers via sales price increases.
Since January 1, 1999, Oce has been in a position to conclude contracts in
Euros. Some of the Company's operating subsidiaries continue to account for
revenue in local currencies. The Company has prepared a conversion program if
they decide to switch to Euros. In general Oce is ready to use the Euro as a
currency in any form whatever.
Credit risks are reduced by doing business solely with financial institutions
which have a high credit rating, with fixed limits being applicable to each
institution.
29
<PAGE>
Item 10 DIRECTORS AND OFFICERS OF REGISTRANT
The Company is managed by a Board of Executive Directors, all of whom are
employees of the Company, whose activities are generally supervised by a Board
of Supervisory Directors, none of whom are employees of the Company.
Set forth below is information as of April 15, 2000 concerning the Supervisory
and Executive Directors and certain other persons performing principal business
functions for the Company (some of such persons being employed by subsidiaries
of the Company).
Served in such
Supervisory Board Principal Occupation capacity since
- ----------------- -------------------- ---------------
H.B. van Liemt; Director of Companies, Formerly Executive
Chairman Chairman of the Board,
D.S.M. N.V. (Chemical products) 1994
M. Ververs; Director of Companies, Formerly
Vice-Chairman Executive Chairman of Wolters Kluwer N.V.
(Publishing) 1995
L.J.M. Berndsen; Executive Chairman of
Member Royal Nedlloyd N.V. (Shipping) 1996
P. Bouw; Formerly Executive Chairman of
Member Royal KLM N.V. (Airline) 1998
J.V.H. Pennings; Formerly Executive Chairman of Oce N.V.
Member 1998
F.J. de Wit; Formerly Executive Chairman of
Member Royal KNP BT N.V. (Paper) 1997
Served in such
Executive Board
or similar
Executive Board Position with Company capacity since
- --------------- --------------------- ---------------
R.L. van Iperen Chairman, Chief Executive Director 1999
H.J.A.F. Meertens Executive Director 1988
J.F. Dix Executive Director 1998
G.B. Pelizzari Executive Director 1998
Mr. Meertens has announced his resignation effective October 1, 2000 because of
reaching the retirement age. The Company accepted his resignation at General
Meeting of Shareholders, held on March 9, 2000.
30
<PAGE>
Served in such
Others Position with Company capacity since
- ------ --------------------- --------------
P.H.G.M. Creemers Staff Director Corporate Personnel 1998
C.F. Lindenhovius Staff Director, Group Controller 1995
J.M.M. van der Velden Staff Director, Secretary of
the Company and Legal Affairs 1994
A. Ribbink Assistant Director, Internal Auditing 1998
P.M. Vincent Assistant Director, Tax Department 1996
W.J.J. Dissel Assistant Director, Group
Information Management 1989
P. Hollaar Assistant Director, Corporate
Communication Manager 1995
E.J. Huiberts Assistant Director, Legal Department 1998
W. Roos Assistant Director, Corporate Treasurer 1995
P. Nabuurs Business Unit Director 2000
J.C.A. Vercoulen Research and Development Director 1990
G. Kraaijeveld Business Unit Director 1996
W. Gemmel Business Unit Director 1999
Supervisory Directors serve until their resignation, death or removal by
shareholders and with a maximum period in office of twelve years. At each Annual
Meeting of Shareholders the term of at least one Supervisory Director expires. A
Supervisory Director who has not reached the age of 70 may be immediately
reappointed. Vacancies which exist in either the Supervisory or Executive Board
are filled by shareholders, generally at the first General Meeting after such
vacancy occurs or is created. Executive Directors serve until their resignation
(normally at age 62), death or removal by shareholders. Except on the proposal
of the holder of Priority Shares, no Executive or Supervisory Director can be
removed without a vote of two-thirds of the votes cast which vote must consist
of not less than a majority of all votes shareholders are entitled to cast.
Subject to being overruled by the same shareholders vote, the holders of
Priority Shares may make binding nominations for all vacancies in the
Supervisory and Executive Boards.
Item 11 COMPENSATION OF DIRECTORS AND OFFICERS
For the fiscal year ended November 30, 1999 the aggregate compensation of all
Supervisory and Executive Directors and the "Others" referred to under Item 10,
was Euro 7,552,517. This includes an aggregate contribution by the Company to
Oce's pension plans in respect of such fiscal year for all Supervisory and
Executive Directors and the "Others" named above, in an amount of Euro 908,753.
31
<PAGE>
The compensation received by the Executive Directors and the "Others" referred
to under Item 10 includes a bonus paid in 1999 based on performance in 1998.
The bonus was a percentage of the recipient's salary, generally based on a
formula, the principal element of which was the profitability of the Company for
the year in respect of which the bonus was paid.
Item 12 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Lodewijk Foundation currently has the right for an unlimited period to
purchase from the Company, upon request, a number of Cumulative Protective
Preference Shares entitled to a number of votes not more than the total number
of votes of the Ordinary Shares and Cumulative Financing Preference Shares of
the Company outstanding at the time of such request.
The Stock Option Plan for key employees was adopted in 1990 and grants of
options and stock appreciation rights ("SARs") may be made under the plan
through 1999. In 1999, options covering 588,000 shares and 178,000 SAR's were
granted to 167 directors and key employees (most of such persons being employed
by subsidiaries of the Company) on November 26, 1999. 216,000 of the options and
SARs issued in 1999 were granted to the Executive Directors and the "Others"
named above. The Supervisory Directors were not granted any options or SARs.
A SAR is the right to receive payment of the share price gain of an Ordinary
Share, where the share price gain is the difference between the stock market
price of the share on the day of exercise and the exercise price fixed on the
day of grant. Instead of receiving payment of the share price gain, a
participant may request delivery of a number of shares with the value on the
date of exercise of the share price gain. For participants in The Netherlands,
Belgium and France the options or SARs have a duration of six years, while the
duration for participants in other countries is five years.
According to the Company's Code of Conduct participants in the Stock Option Plan
will not exercise options or SARs within two years after grant, where the
duration of the options or SARs is five years, or within three years after grant
where the duration of the options or SARs is six years.
The following table sets forth the number of options issued from 1994 through
1999 and includes summary information about the options.
<TABLE>
<CAPTION>
Issued Issued Exercise Exercised Exercised Options Outstanding Expiration date
number price number of number of Forfeited per April 15,
of options in Euro * options per options per 2000
Nov. 30, Nov. 30,
1998 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 624,000 8.30 606,800 615,000 9,000 - November 29, 1999
1995 676,000 10.45 655,000 659,000 - 17,000 November 27, 2000
1996 806,400 21.05 680,600 680,600 4,000 121,800 November 24, 2001
1997 807,000 24.85 26,000 26,000 11,000 770,000 November 28, 2002
1998 872,500 30.40-41.15 - - 11,000 861,500 November 22, 2003/04
1999 766,000 17.02-22.98 - - - 766,000 November 26, 2004/05
--------- --------- --------- ------ ---------
4,551,900 1,968,400 1,980,600 35,000 2,536,300
========= ========= ========= ====== =========
</TABLE>
* Average exercise price for the 1999 issue is Euro 17.37 while for all
outstanding options as of April 15, 2000 the average exercise price is Euro
24.68.
32
<PAGE>
For participants outside of The Netherlands, the exercise price of the options
is equal to the opening price quoted for the Oce Ordinary Share on the Amsterdam
Stock Exchange (AEX) on the day of grant.
Participants domiciled in The Netherlands may choose, at the moment of grant,
between an exercise price equal to the opening price on the AEX on such date of
grant or a mark-up of 10%, 20% and 35%. This mark-up determines the income taxes
to be paid by the participants. The higher the mark-up, the lower the taxes to
be paid. To cover the income tax payable by Dutch participants upon grants of
the options, loans have been provided which are repaid upon exercise.
Participation in the Stock Option Plan is subject to regulations aimed at
preventing the misuse of inside information. Participants are prohibited from
trading in Oce options on the AEX Option Exchange and from disposing or pledging
the options that have been granted.
Item 13 INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
None required to be reported.
Item 14 DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
Item 15 DEFAULTS UPON SENIOR SECURITIES
None.
Item 16 CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None.
Item 17 FINANCIAL STATEMENTS
See Item 19.
Item 18 FINANCIAL STATEMENTS
Not applicable.
Item 19 FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements are being filed as part of this annual
report:
Page
----
Report of independent auditors F-2
Consolidated statements of operations F-3
Consolidated balance sheets F-4
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-8
33
<PAGE>
Schedule:
I Valuation and qualifying accounts
See also "Table of Contents to Consolidated Financial Statements" on
page F-1.
(b) The following exhibits are being filed as part of this annual report:
1.01 Subsidiaries of Oce N.V.
1.02 Pages 13 through 46, 83 through 85 and 90 through 91 from the
Annual Report 1999, which have been modified and translated into
English from Dutch, are incorporated herein by reference.
34
<PAGE>
OCE N.V. AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors F-2
Consolidated Statements of Operations for the years ended November 30,
1997, 1998 and 1999 F-3
Consolidated Balance Sheets as of November 30, 1998 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-8
Schedule:
II Valuation and qualifying accounts as of November 30, 1997, 1998 and 1999 F-33
</TABLE>
F-1
<PAGE>
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors of
Oce N.V.:
Introduction
We have audited the accompanying consolidated balance sheets of Oce N.V. and
subsidiaries at November 30, 1999 and 1998 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended November 30, 1999 (pages F-3 to F-33, as stated in
Euros).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The financial statements have been prepared in accordance with
accounting principles generally accepted in the Netherlands.
Scope
We conducted our audits in accordance with generally accepted auditing standards
in the Netherlands which are substantially similar to those followed in the
United States. These standards require that we plan and perform the audit 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at November 30,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended November 30, 1999 in accordance with
generally accepted accounting principles in the Netherlands (which differ in
certain material respects from generally accepted accounting principles in the
United States - see Note 22).
PricewaterhouseCoopers N.V.
Eindhoven, the Netherlands
January 31, 2000.
F-2
<PAGE>
OCE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
1997 1998 1999 1999
---- ---- ---- ----
(in thousands except per share amounts)
Euro Euro Euro $
<S> <C> <C> <C> <C>
Net sales 1,432,326 1,646,185 1,647,233 1,659,917
Rentals and service 962,196 1,016,506 1,091,050 1,099,451
Interest from financial leases 73,840 89,853 100,142 100,913
--------- --------- --------- ----------
Total revenues 2,468,362 2,752,544 2,838,425 2,860,281
Cost of sales 798,597 914,440 907,113 914,098
Cost of rentals and service 635,896 668,007 716,299 721,814
--------- --------- --------- ----------
Gross margin 1,033,869 1,170,097 1,215,013 1,224,369
Selling expenses 557,056 621,038 656,823 661,880
Research and development expenses 151,854 170,112 174,380 175,723
General and administrative expenses 124,715 133,747 135,685 136,730
--------- --------- --------- ----------
833,625 924,897 966,888 974,333
--------- --------- --------- ----------
Operating income 200,244 245,200 248,125 250,036
Financial expense (net) (Note 17) 53,272 61,018 58,989 59,443
--------- --------- --------- ----------
Income before income taxes, equity in
income of unconsolidated companies
and minority interest 146,972 184,182 189,136 190,593
Income taxes (Note 16) 37,125 53,446 54,912 55,335
--------- --------- --------- ----------
Income before equity in income of
unconsolidated companies and minority interest 109,847 130,736 134,224 135,258
Equity in income of unconsolidated companies 112 820 376 378
--------- --------- --------- ----------
Income before minority interest 109,959 131,556 134,600 135,636
Minority interest in net income of subsidiaries 2,549 2,507 2,675 2,696
--------- --------- --------- ----------
Net income before exceptional items 107,410 129,049 131,925 132,940
Exceptional items (net of tax) - - -55,250 -55,675
--------- --------- --------- ----------
Net income 107,410 129,049 76,675 77,265
Dividend preference shares 3,551 3,551 3,551 3,578
--------- --------- --------- ----------
Net income attributable to holders of
ordinary shares 103,859 125,498 73,124 73,687
Basic earnings per ordinary share 1.30 1.53 0.88 0.89
========= ========= ========= ==========
Net income in accordance
with US GAAP (Note 22) 90,875 101,787 75,673 76,256
========= ========= ========= ==========
Earning per ordinary
share in accordance with US GAAP (Note 22)
Basic 1.09 1.20 0.87 0.87
========= ========= ========= ==========
Diluted 1.06 1.17 0.86 0.87
========= ========= ========= ==========
</TABLE>
All figures of 1997 and 1998 are restated in Euros.
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
OCE N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
------------
1998 1999 1999
---- ---- ----
(in thousands)
Euro Euro $
<S> <C> <C> <C>
A S S E T S
CURRENT ASSETS:
Cash and cash equivalents (Note 2) 18,294 36,854 37,138
Prepaid expenses 26,018 20,224 20,380
Accounts receivable (Note 3) 942,891 1,106,347 1,114,866
Inventories (Note 4) 365,945 395,342 398,386
--------- --------- ---------
Total current assets 1,353,148 1,558,767 1,570,770
FIXED ASSETS:
Property, plant and equipment
(Notes 5 and 14) 445,771 449,808 453,272
Rental copying equipment (Note 6) 240,690 257,198 259,178
--------- --------- ---------
Tangible fixed assets - net 686,461 707,006 712,450
Unconsolidated companies 3,660 4,367 4,401
Financial lease receivables (Note 7) 555,141 624,151 628,957
Other long term assets 21,499 21,837 22,005
--------- --------- ---------
Total fixed assets 1,266,761 1,357,361 1,367,813
--------- --------- ---------
TOTAL ASSETS 2,619,909 2,916,128 2,938,583
========= ========= =========
</TABLE>
Figures of 1998 are restated in Euros.
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
OCE N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
------------
1998 1999 1999
---- ---- ----
(in thousands except share amounts)
Euro Euro $
<S> <C> <C> <C>
CURRENT LIABILITIES:
Borrowings under bank lines of credit 44,018 51,167 51,561
(Note 8)
Short term borrowings (Note 8) 153,662 178,444 179,818
Current portion of long term debt (Note 11) 21,796 73,189 73,753
Accounts and notes payable
Trade 156,020 159,791 161,021
Value added taxes, social security
and other taxes payable 45,767 58,304 58,753
Pension liabilities 1,354 1,227 1,236
Dividend 18,025 15,195 15,312
Other 59,236 55,385 55,811
Income taxes (Note 16) 20,779 -425 -428
Accrued liabilities
Salaries and payroll taxes 121,157 133,084 134,109
Other 95,967 124,958 125,921
Deferred income (Note 9) 43,592 41,067 41,383
--------- --------- ----------
Total current liabilities 781,373 891,386 898,250
--------- --------- ----------
LONG TERM DEBT:
Subordinated debenture bonds (Note 10) 11,931 10,011 10,088
Other (Note 11) 847,304 874,245 880,977
--------- --------- ----------
Total long term debt 859,235 884,256 891,065
--------- --------- ----------
LONG TERM LIABILITIES (PROVISIONS):
Deferred income taxes (Note 16) 10,019 31,728 31,972
Self insurance franchise 3,630 1,815 1,829
Retirement benefits and severance payments 141,507 160,441 161,676
Development credits 5,785 2,799 2,821
Reorganization provision 31,861 60,628 61,095
Other 20,305 22,957 23,134
--------- --------- ----------
Total long term liabilities (provisions) 213,107 280,368 282,527
--------- --------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
(Note 13)
MINORITY INTEREST 40,305 42,213 42,538
SHAREHOLDERS' EQUITY (Note 12):
Priority shares 1 2 2
(30 with a nominal or par value . 50)
Ordinary shares (83,173,250 37,742 42,224 42,548
with a nominal or par value . 0.50)
Financing Preference shares
(20,000,000 with a nominal or par value . 0.50) 9,076 10,000 10,077
Paid-in capital 506,009 502,695 506,566
Revaluation account 29,183 27,597 27,810
Legal reserve 1,479 1,734 1,747
Retained earnings 223,626 266,052 268,101
Accumulated translation adjustment -81,227 -32,400 -32,649
--------- --------- ----------
Total shareholders' equity 725,889 817,905 824,203
--------- --------- ----------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY 2,619,909 2,916,128 2,938,583
========= ========= ==========
</TABLE>
Figures of 1998 are restated in Euros.
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
OCE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended November 30,
1997 1998 1999 1999
---- ---- ---- ----
(in thousands)
Euro Euro Euro $
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 26,362 28,095 18,294 18,435
CASH FLOW FROM OPERATING ACTIVITIES:
Net income 107,410 129,049 76,675 77,265
Adjustments to reconcile net income to
cash flow generated by operating activities:
Depreciation 156,994 171,305 187,379 188,821
Additions to rental copying equipment -157,773 -168,129 -167,830 -169,122
Proceeds from sale of rental copying equipment 78,249 55,444 61,299 61,771
Financial lease receivables -76,614 -50,334 -17,591 -17,727
Equity in income of unconsolidated companies 159 -522 -190 -192
Increase in long term liabilities (provisions) 32,370 -20,229 66,953 67,469
Net change in other working capital accounts * -71,299 -39,890 -153,325 -154,505
-------- -------- -------- ---------
Total cash flow from operating activities 69,496 76,694 53,370 53,780
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -112,573 -113,042 -115,227 -116,114
Other investments -1,195 -2,120 1,408 1,419
Proceeds from sale of property, plant and equipment 25,948 25,959 34,205 34,468
Investment grants received 6 - - -
Investment grants released related to property, plant
and equipment -100 -53 - -
Acquisition of unconsolidated companies - -1,021 -117 -118
Movement from unconsolidated companies to consolidated
companies 12,926 - -729 -735
Proceeds from disposition of unconsolidated companies - 1,404 - -
Acquisition net asset value (net of cash) -100,156 7,277 -4,797 -4,834
Goodwill (Note 1 and Note 21) -31,751 -69,442 -5,088 -5,127
-------- -------- -------- ---------
Total cash flow from investing activities -206,895 -151,038 -90,345 -91,041
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long term debt 233,900 170,381 141,541 142,631
Repayment of long term debt -39,315 -42,304 -130,256 -131,259
Borrowings and current portion of long term debts -19,888 -44,740 82,145 82,778
Issue of new shares - 16,368 - -
Purchase of shares -2,204 -13,619 -11,739 -11,829
Dividends paid -29,782 -45,209 -48,032 -48,402
Optional dividend 12,373 23,985 28,035 28,251
Increase (decrease) in minority interest 1,552 -560 1,907 1,922
Other 1,593 -242 -102 -103
-------- -------- -------- ---------
Total cash flow from financing activities 158,229 64,060 63,499 63,989
Effect of exchange rate changes -19,097 483 -7,964 -8,025
CASH AND CASH EQUIVALENTS, END OF YEAR 28,095 18,294 36,854 37,138
</TABLE>
All figures of 1997 and 1998 are restated in Euros.
See Notes to Consolidated Financial Statements.
*See details on next page
F-6
<PAGE>
OCE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended November 30,
1997 1998 1999 1999
---- ---- ---- ----
(in thousands)
Euro Euro Euro $
<S> <C> <C> <C> <C>
SPECIFICATION OF NET CHANGE IN OTHER
WORKING CAPITAL ACCOUNTS:
Inventories 11,200 1,857 -21,863 -22,031
Accounts receivable
(excluding Financial leases) -58,140 -18,147 -102,684 -103,475
Financial leases -66,738 -68,243 -49,823 -50,207
Prepaid expenses -1,893 -9,386 6,509 6,559
Trade accounts payable 18,508 12,768 -2,151 -2,168
Income taxes 11,522 16,405 -21,204 -21,367
Value added taxes, social security
and other taxes payable -8,186 6,300 12,537 12,634
Pension liabilities 1,154 -1,074 -127 -128
Other liabilities -10,169 5,528 -7,672 -7,731
Accrued liabilities 17,476 16,622 35,678 35,953
Deferred income 13,967 -2,520 -2,525 -2,544
------- ------- -------- --------
-71,299 -39,890 -153,325 -154,505
Supplemental cash flow information:
Income taxes paid 9,773 26,947 21,224 21,387
Interest received 23,606 30,452 43,818 44,155
Non cash transactions:
Non cash stock dividend 12,373 23,984 28,035 28,251
Conversion of convertible bonds into
share capital -9,169 -14,481 -2,093 -2,109
Converted into share capital 9,169 14,481 2,093 2,109
</TABLE>
All figures of 1997 and 1998 are restated in Euros.
See Notes to Consolidated Financial Statements
F-7
<PAGE>
OCE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting principles
The accompanying Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the
Netherlands. These accounting principles differ in certain material
respects from accounting principles generally accepted in the United States
of America ("US GAAP"). For a description of the significant differences
and the related approximate effect on the Consolidated Financial
Statements, see Note 22 to Consolidated Financial Statements. Amounts in
the accompanying Consolidated Financial Statements have been stated in
Euro, the currency of the Netherlands, the country in which Oce N.V. is
incorporated.
The dollar amounts at November 30, 1999 and for the period then ended have
been presented solely for the convenience of readers of these financial
statements in the United States and have been translated from Euros at the
rate of $ 1.0077 per Euro 1, the Noon Buying Rate on November 30, 1999.
Such translation should not be construed as a representation that the Euro
amounts could be converted into dollars at this or any other rate.
Previously presented financial statements, which were denominated in Dutch
guilders, have been translated for comparison reasons into Euros using the
irrevocably fixed conversion rate applicable since January 1, 1999 (Euro 1
= NLG 2,20371).
Principles of consolidation
The Consolidated Financial Statements include the accounts of the parent
company, Oce N.V., and its subsidiaries (the "Company").
An entity is regarded as a subsidiary if Oce directly or indirectly holds a
majority controlling interest in it. Investments in unconsolidated
companies, in which the Company has an investment of between 20% - 50% and
has no controlling interest, are accounted for by the equity method.
For names of unconsolidated companies see pages 83 and 84 of Oce Annual
Report 1999 which are incorporated herein by reference. Intercompany
profits and account balances have been eliminated in consolidation.
If the cost of an acquisition exceeds the net asset value of an acquired
company based on the Company's principles of valuation, the difference is
charged to retained earnings.
Foreign exchange
Balance sheet items expressed in foreign currencies are translated into
Euro at the closing exchange rate at the end of the reporting period.
Translation differences relating to foreign subsidiaries' balance sheet
items are added to, or charged against, shareholders' equity. Foreign
currency profit and loss items are translated into Euro at the average
exchange rate during the period.
Research and development expenses
Expenditures on research and development are expensed as incurred.
F-8
<PAGE>
Development credits and subsidies
Development credits granted by the government are recognized as a reduction
of research and development costs. These credits are subject to a
contingent repayment liability. Upon determination of commercial success of
a project, a provision is created to cover the repayment liability in
respect of that project and is charged to research and development costs.
Actual repayments to the government are made as sales of the relevant
product occur and are charged to the relevant development credit provision.
See Note 13 to Consolidated Financial Statements.
Subsidies received from the government are included in the statement of
operations as an income item in the year of entitlement thereto.
Sales and revenue recognition
Sales revenues are recognized when systems have been accepted by the
customer or, for supplies, at the time of delivery. Sales revenues include
financial lease contracts concluded during the fiscal year. Interest income
arising from these contracts is included under total revenues. Revenues
from rental contracts for copying equipment are accounted for by the
operating lease method. Where rental or maintenance contracts provide for
advanced billings, such amounts are included in deferred income and taken
into income as they are earned.
Operating costs
Raw materials used in the manufacturing process and other operating costs,
except depreciation of buildings and production facilities (see explanation
under "Replacement value"), are charged to expense at historic cost.
Straight-line depreciation is charged at a fixed percentage of the value of
the asset and is based on the estimated economic lives of the assets, as
follows:
Property and plant 20 to 50 years
Production machines 8 or 10 years
Factory and office equipment 3 to 10 years
Vehicles 4 or 5 years
Straight-line depreciation of rental copying equipment is charged to
operations over the estimated economic life of 3 to 5 years. Rental copying
equipment is valued at historical manufacturing cost plus appropriate
indirect costs.
Basic earnings per ordinary share
Basic earnings per ordinary share are calculated by dividing the net income
attributable to holders of ordinary shares by the weighted average number
of ordinary shares.
F-9
<PAGE>
Replacement value
Valuations of property, plant and equipment are based on replacement value
or on the value to the business (current value), whichever is lower.
Replacement value takes into account the nature and location of the asset,
technological considerations, and price index figures. The revaluations are
verified periodically by knowledgable independent appraisers. Property,
plant and equipment included in the categories "Other fixed assets" and
"Fixed assets not in production process" are not revalued.
Adjustments for replacement value are credited or charged to shareholders'
equity (revaluation account) after providing for deferred taxes, except
that adjustments for replacement value of land do not take deferred taxes
into account.
Rental copying equipment
These are valued at historical manufacturing costs plus appropriate
indirect costs.
Inventories
Inventories are shown in the Consolidated Balance Sheets at the lower of
cost, in accordance with the first-in first-out method, or market. Adequate
allowances have been made for obsolescence.
Investments in unconsolidated companies
Investments in unconsolidated companies are included at acquisition cost
plus equity in undistributed earnings as determined by the principles of
valuation applied in these Consolidated Financial Statements. Permanent
impairment valuations are taken into consideration.
Financial lease receivables
These comprise the long-term part of financial lease receivables. The
valuation is stated against the present value of the contracted terms.
Other long term assets
Other long term assets include mortgages, loans and guarantee deposits,
which are valued at face value or at net realizable value, whichever is
lower.
Deferred income taxes
The provision for deferred taxation is calculated on the differences
between valuation of assets and liabilities for financial reporting and tax
purposes, based on the effective rate of corporate tax in the various
countries. Deferred tax assets are recognized for net operating loss carry
forwards when it is more likely than not that such carry forwards will be
realized.
F-10
<PAGE>
Long term liabilities (provisions)
Self insurance franchise covers potential future losses which are not
insured by an outside insurance company and that have not yet occurred.
Retirement benefits and severance payments are calculated on the basis of
the legal requirements in the countries in which the Company operates.
The restructuring provision relates to costs connected with the
reorganization of business activities.
Other relates to (legal) proceedings and warranty commitments.
Financial instruments
The Company enters into a variety of interest rate swaps and forward
currency contracts in its management of interest rate and foreign currency
exposures. The Company accounts for such transactions as hedges when these
contracts off set the risk inherent in the exposures. In addition the
transaction must have a satisfactory level of correlation between the
financial instrument and the designated item or transactions hedged.
Realized and unrealized gains and losses on interest rate swaps are
deferred and recognized as interest expense over the term of the contracts.
Realized and unrealized gains and losses on foreign currency contracts
which hedge the future cash flows are recognized under cost of goods sold
in the related period.
Realized and unrealized gains and losses on foreign currency contracts
which hedge the net investment in foreign operations are brought to equity.
F-11
<PAGE>
2. Cash and cash equivalents
Cash and cash equivalents include time deposits of Euro 1.8 million and
Euro 5.1 million at November 30, 1998 and 1999. For the purpose of the
Consolidated Statements of Cash Flows, prepared in accordance with FASB 95,
the Company considers all highly liquid instruments with an original
maturity date of three months or less as cash equivalents.
3. Accounts receivable
Accounts receivable consist of the following:
November 30,
------------
1998 1999
---- ----
(in thousands)
Euro Euro
Trade accounts receivable 527,356 634,529
Discounted trade bills -691 -714
Lease receivables 352,342 402,165
Other 63,884 70,367
-------- ---------
Total 942,891 1,106,347
======== =========
Allowances for doubtful accounts totaling Euro 38.5 million and Euro 45.8
million at November 30, 1998 and 1999, respectively, have been deducted
from the respective accounts receivable.
4. Inventories
Inventories consist of the following:
November 30,
------------
1998 1999
---- ----
(in thousands)
Euro Euro
Raw materials and other materials 31,770 34,633
Semi-finished products and spare parts 132,821 124,447
Finished products and trade stock 201,354 236,262
------- -------
Total 365,945 395,342
======= =======
F-12
<PAGE>
5. Property, plant and equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Fixed
Under assets
construction not in
Property Production Other fixed and pre- production
and plant machines assets payments process Total
--------- -------- ------ -------- ------- -----
(in thousands)
Euro Euro Euro Euro Euro Euro
<S> <C> <C> <C> <C> <C> <C>
1998
Replacement value 352,138 351,230 303,500 21,714 4,578 1,033,160
Accumulated depreciation 136,793 250,710 197,642 - 2,244 587,38
-------- ------- ------- ------- ----- ---------
Book value at
November 30, 1998 215,345 100,520 105,858 21,714 2,334 445,771
======== ======= ======= ======= ===== =========
1999
Replacement value 340,144 375,539 346,832 36,142 4,608 1,103,265
Accumulated depreciation 136,952 282,124 231,997 7 2,377 653,457
------- ------- ------- ------- ----- ---------
Book value at
November 30, 1999 203,192 93,415 114,835 36,135 2,231 449,808
======== ======= ======= ======= ===== =========
</TABLE>
6. Rental copying equipment
Rental copying equipment consists of the following:
November 30,
1998 1999
---- ----
(in thousands)
Euro Euro
Cost 533,867 588,924
Accumulated depreciation 293,177 331,726
-------- --------
Book value 240,690 257,198
======== ========
F-13
<PAGE>
7. Financial lease receivables
Financial lease receivables can be specified as follows:
November 30,
1998 1999
---- ----
(in thousands)
Euro Euro
Financial lease receivables 1,056,354 1,201,193
Less: Current lease receivables -352,342 -402,165
Less: Unearned income -190,440 -213,851
Plus: Residual value 41,569 38,974
--------- ---------
Total 555,141 624,151
========= =========
8. Borrowings under bank lines of credit and short term borrowings
Borrowing facilities at November 30, 1999 amounted to Euro 570.8 million
for the parent company and its Dutch subsidiaries. At November 30, 1999 an
amount of Euro 118.7 million was utilized, bearing interest at 3.0%; such
rate at November 30, 1998 was 4.1%. The weighted average interest rate,
based on balances outstanding at the end of each quarter, amounted to 2.6%
per annum in 1999.
The borrowing facilities for the subsidiaries outside of the Netherlands,
which totaled Euro 361.1 million, at November 30, 1999 consist of credit
lines and call and time deposits. These facilities are denominated in
various currencies, mainly local, and are guaranteed in most cases by the
parent company. At November 30, 1999 the used portion of these credits
amounted to Euro 110.9 million. The borrowing facilities bear interest at
floating rates which ranged from 1.9% to 16.5% at November 30, 1999; such
rates at November 30, 1998 ranged from 2.1% to 9.0%. The weighted average
interest rate, computed as above, amounted to 6.0% in 1999. A portion of
the floating rate borrowings have been swapped into fixed interest rate
borrowings (see Note 20).
A summary of borrowings based upon quarterly balances under the above
facilities follows:
Years ended November 30,
------------------------
1997 1998 1999
---- ---- ----
(in millions)
Euro Euro Euro
Average amount outstanding 305.8 197.6 230.1
Maximum amount outstanding 388.8 312.7 273.3
Weighted average interest rate
Year ending November 30 4.7% 5.4% 4.2%
At November 30 5.0% 4.4% 5.5%
Commitment fees of approximately Euro 0.3 million were paid for unused
credit facilities in 1999 (1998 Euro 0.4 million and 1997 Euro 0.3
million).
F-14
<PAGE>
9. Deferred income
These amounts represent advance billings related to rental and maintenance
contracts for copying equipment.
10. Subordinated debenture bonds
Subordinated loans consist of the following:
November 30,
------------
(in thousands)
1998 1999
---- ----
Euro Euro
Convertible guilder debenture bonds, 4.75% 11,931 10,011
====== ======
The Euro 68 million 4.75% convertible guilder debenture bonds were issued
on June 15, 1994. Complete redemption of these bonds will take place on or
before June 15, 2001. Interest is payable annually on June 15 of each year.
The bonds are convertible from and after December 1, 1994 at a price of
Euro 10.71 per Ordinary Share of Euro 0.50. After June 15, 1998, the bonds
may be redeemed, in whole or in part, at 100% of the principal amount
outstanding, if certain trading conditions have been met.
During the financial year for an amount of Euro 1,920,000 of these bonds
were converted into 178,529 shares of common stock.
The conversion price will be adjusted (inter alia) in case of a rights
issue below market price with pre-emptive rights for existing shareholders
and if a share distribution is made out of reserves or in the form of a
dividend. The maximum aggregate principal repayment applicable to these
bonds and loans for the coming years are as follows (in thousands):
Years ending November 30, Euro
-------------------------
2000 -
2001 10,011
------
Total 10,011
======
F-15
<PAGE>
11. Other long term debt
Other long term debt consists of the following:
<TABLE>
<CAPTION>
November 30,
------------
1998 1999
---- ----
(in thousands)
LOANS Euro Euro
<S> <C> <C>
In U.S. Dollars, average interest of 6.0% and 6.0% maturing through 2001 67,685 ** 55,791 **
In Guilders, average interest of 6.6% and 6.5%, maturing through 2013 540,452 * 539,091 *
In French Francs, average interest of 4.09% and 3.6%, maturing through 2004 58,754 *** 46,497 **
In German Marks, average interest of 3.7% and 0.0%, maturing through 2001 34,737 19
In Belgian Francs, average interest 0.0% and 0.0%, maturing through 2001 59 10
In Norwegian Crowns, average interest of 5.4% and 6.2%, maturing through 2004 19,841 25,498
In Spanish Pesetas, average interest 5.0% and 5.0% maturing through 2004 5,223 3,258 **
In Swedish Crowns, average interest 4.7% and 3.5% maturing through 2005 11,880 14,871 **
In Portuguese Escudos, average interest 4.3%, maturing through 1999 3,993 -
In Swiss Francs, average interest 1.6% and 2.2%, maturing through 2004 73,775 89,575
In Australian Dollars, average interest 5.1% and 5.5%, maturing through 2001 1,485 3,287
In Hong Kong Dollars, average interest 5.4% and 7.0%, maturing through 2005 1,339 2,038
In Euro, average interest 3.7%, maturing through 2005 - 85,600
In Pound Sterling, average interest 7.5% and 5.9%, maturing through 2004 32,949 61,807
In Danish Crowns, average interest 4.8% and 3.8%, maturing through 2004 2,691 1,479
In Finnish Marks, average interest 3.7% and 3.4%, maturing through 2004 488 2,304
In Singapore Dollars, average interest 4.15%, maturing through 2005 - 948
In South African Rand, average interest 12.05% maturing through 2005 - 1,013
Convertible guilder debenture bond to Company Personnel, average interest of 5.2% and
4.6%, maturing through 2007 5,393 6,955
Capitalized lease obligations, average interest of 5.3% and 5.4%, maturing through 2004 8,356 7,393
---------- ---------
Total other long term debt 869,100 947,434
Current portion 21,796 73,189
---------- ---------
Total long term portion 847,304 874,245
========== =========
</TABLE>
* The fixed interest rates of the Euro loans have been fully swapped
into variable interest rates (see Note 20).
** The variable interest rates of this loan has been swapped into fixed
interest rates for 100%.
*** The variable interest rates of this loan has been swapped into fixed
interest rates for 50%.
F-16
<PAGE>
Aggregate principal repayments applicable to these borrowings for the next years
are as follows (in thousands):
Years ending November 30, Euro
- ------------------------- -------
2000 73,189
2001 146,311
2002 101,745
2003 72,977
2004 169,884
Thereafter 383,328
-------
Total 947,434
=======
F-17
<PAGE>
12. Shareholders' equity
The changes in shareholders' equity are summarized below:
Financing Preference and Ordinary Shares
----------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Total
Financing Revalu- Accumulated Share-
Preference Ordinary Paid in action Legal Retained Translation holders
shares shares capital Account reserve earnings adjustment equity
---------- -------- ------- ------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Euro Euro Euro Euro Euro Euro Euro Euro
Balance November 30, 1996 9,076 36,015 (a) 467,719 36,853 3,174 148,451 -95,285 606,003
Net income - - - - - 107,410 - 107,410
Transfer - - - - -2,160 2,160 - -
Dividends (b) - - - - - -37,568 - -37,568
Revaluation of property, plant, equipment - - - -825 - - - -825
Conversions of convertible loans - 380 8,789 - - - - 9,169
Optional stock dividend (a) - 220 -220 - - 12,373 - 12,373
Cost of purchase of shares - - - - - -2,204 - -2,204
Foreign currency translations - - - 2,132 - - 34,448 36,580
Goodwill - - - - - -31,751 - -31,751
------ ---------- ------- ------ ------- ------- -------- -------
Balance November 30, 1997 9,076 36,615 (a) 476,288 38,160 1,014 198,871 -60,837 699,187
Net income - - - - - 129,049 - 129,049
Transfer - - - - 466 -466 - -
Dividends (b) - - - - - -44,753 - -44,753
Revaluation of property, plant, equipment - - - -7,470 - - - -7,470
Conversions of convertible loans - 883 29,967 - - - - 30,850
Optional stock dividend (a) - 246 -246 - - 23,985 - 23,985
Purchase of shares - - - - - -10,916 - -10,916
Cost of purchase of shares - - - - - -2,703 - -2,703
Foreign currency translations - - - -1,266 - - -20,390 -21,656
Goodwill - - - - - -69,442 - -69,442
Other - - - -242 - - - -242
------ ---------- ------- ------ ------- ------- -------- -------
Balance November 30, 1998 9,076 37,744 (a) 506,009 29,182 1,480 223,625 -81,227 725,889
Net income - - - - - 76,675 - 76,675
Transfer - - - - 254 -254 - -
Dividends (b) - - - - - -45,202 - -45,202
Conversions of convertible loans - 89 2,004 - - - - 2,093
Optional stock dividend (a) - 518 -518 - - 28,035 - 28,035
Redenomination in Euros 924 3,876 -4,800 - - - - -
Purchase of shares - - - - - -11,633 - -11,633
Costs of purchase of shares - - - - - -106 - -106
Foreign currency translations - - - -1,482 - - 48,827 47,345
Goodwill - - - - - -5,088 - -5,088
Other - - - -103 - - - -103
------ ---------- ------- ------ ------- ------- -------- -------
Balance November 30, 1999 10,000 42,227 (a) 502,695 27,597 1,734 266,052 -32,400 817,905
</TABLE>
The revaluation account and the legal reserve are established according to
Dutch Company Law and are generally unavailable for distribution.
(a) Amounts relate to stock dividend which are estimated. (Estimation in
1997: Euro 8,849, 1998: Euro 14,430 and in 1999: Euro 17,511)
(b) Dividends per ordinary shares have been Euro 0.42, Euro 0.50 and Euro
0,50 (round off) for respectively 1997, 1998 and 1999. The dividend of
cumulative financing preference shares is included in 1997, 1998 and
1999.
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
Financing Financing Financing
Preference Ordinary Preference Ordinary Preference Ordinary
Number of shares shares shares shares shares shares shares
- ---------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 20,000,000 79,363,780 20,000,000 80,686,176 20,000,000 83,173,250
Conversion of convertible loans - 837,276 - 1,322,959 - 195,288
Share issue - - 621,916 - -
Stock dividend - 485,120 - 542,199 - 1,081,616
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 20,000,000 80,686,176 20,000,000 83,173,250 20,000,000 84,450,154
========== ========== ========== ========== ========== ==========
</TABLE>
Convertible loans consist of convertible guilder debenture bonds (see note
10) and a convertible guilder debenture bond to Company personnel (see note
11).
Repurchased number of ordinary shares 1998 1999
------------------------------------- ------ ------
Balance beginning of the year - 449,840
Repurchased 449,840 700,000
------- ---------
Balance end of the year 449,840 1,149,840
======= =========
The repurchased ordinary shares are relating to the Stock Option Plan.
Certain information regarding the various classes of shares at November 30,
1999 is as follows:
<TABLE>
<CAPTION>
Nominal value Voting rights per
Authorized shares per share in Euro share
----------------- ----------------- -----------------
<S> <C> <C> <C>
Priority shares 30 50 100
Ordinary shares 145,000,000 0,50 1
Financing preference shares 30,000,000 0,50 1
Protective preference shares 175,000 500 1,000
</TABLE>
Priority shares
All priority shares are issued and outstanding. They are held by Foundation
Fort Ginkel, Venlo, the Netherlands, the directors of which are: H.B. van
Liemt (Chairman), R.L. van Iperen and M. Ververs.
F-19
<PAGE>
The Articles of Association grant certain rights to the holders of priority
shares, including the following:
- the determination of the number of members of the Supervisory and
Executive Boards;
- the preparation of a binding nomination list for shareholders for the
appointment of Supervisory and Executive Directors;
- the alteration of the Articles of Association is possible only if
proposed by such shareholders; and
- approval is required for the issue of shares not yet issued.
In any one year not more than Euro 60 in dividends may be distributed on
all the priority shares together.
Financing Preference Shares
All Financing Preference Shares are held by the Foundation "Stichting
Administratiekantoor Preferente Aandelen Oce" in return for the issue to a
number of institutional investors of registered depositary receipts with
limited cancellability. The directors of this Foundation are H. de Ruiter
(Chairman), S. Bergsma, J.M. Boll, L. Traas and D.M.N. van Wensveen.
Protective Preference Shares
Since 1979 the Company has been subject to an irrevocable obligation to
issue to the Lodewijk Foundation, headquartered in Venlo, protective
preference shares upon the request of said Foundation. This obligation
currently relates to a number of protective preference shares having a
number of votes almost equal to the total number of votes of the ordinary
shares and financing preference shares of the Company outstanding at the
time of such request. The Directors of the Lodewijk Foundation are:
O. Hattink (Chairman), J.J.C. Alberdingk Thijm, J.M.M. Maeijer, Th. Quene,
H.B. van Liemt, and R.L. van Iperen.
F-20
<PAGE>
13. Commitments and contingent liabilities
The Company is contingently liable for the following items:
November 30,
------------
1998 1999
---- ----
(in millions)
Euro Euro
Government development credits and related
surcharges depending on the commercial success
of related development projects for which
these credits have been granted 57.9 48.2
Guarantee commitments 3.8 2.6
Recourse liabilities in respect of bills discounted 0.7 0.7
Collateral security for liabilities 0.5 0.4
In the ordinary course of business, the Company has incurred commitments
pursuant to terms of leases and other contracts such as those for capital
expenditures.
Repurchase commitments of Euro 8.8 million (1998: Euro 8.3 million) exist
on the lease contracts with third parties. As a result of these commitments
the machines have to be sold again upon their return. The estimated market
value is higher than the repurchase commitment.
14. Capital leases
The Company has included the following assets in property, plant and
equipment financed by capitalized leases:
November 30,
------------
1998 1999
---- ----
(in thousands)
Euro Euro
Buildings and improvements 15,469 15,454
Equipment and vehicles 6,350 7,390
------ ------
21,819 22,844
Less accumulated depreciation 8,697 9,961
------ ------
Total 13,122 12,883
====== ======
F-21
<PAGE>
At November 30, 1999 minimum rental payments are as follows (in thousands):
Years ending November 30, Euro
-------------------------
2000 2,473
2001 2,130
2002 1,771
2003 1,449
2004 927
Thereafter 102
-----
Total minimum rental payments 8,851
Interest and executory costs 1,458
-----
Present value of future minimum rental payments 7,393
=====
15. Operating leases
The Company has future minimum rental commitments under operating leases of
approximately Euro 181 million at November 30, 1999. Sublease rental income
is insignificant. Future rental payments are as follows (in millions):
Years ending November 30, Euro
-------------------------
2000 59
2001 43
2002 30
2003 19
2004 14
Thereafter 16
---
Total 181
===
Total rental expense was Euro 50 million, Euro 64 million and Euro 71
million for the years ended November 30, 1997, 1998 and 1999, respectively.
Approximately 90% of the total in each year related to minimum rentals.
F-22
<PAGE>
16. Income taxes
Income tax expense consists of the following:
Years ended November 30,
------------------------
1997 1998 1999
---- ---- ----
(in millions)
Euro Euro Euro
Current 12.4 48.3 24.4
Deferred 24.7 5.2 30.5
---- ---- ----
Total 37.1 53.5 54.9
The income tax provisions as shown in the accompanying Consolidated
Statements of Operations differ from the amounts computed by applying the
Dutch federal statutory income tax rates to income before income taxes and
minority interests.
A reconciliation of the Dutch statutory income tax rate to the effective
income tax rate is set forth below:
Years ended November 30,
------------------------
1997 1998 1999
---- ---- ----
% % %
Dutch statutory tax rate 35.0 35.0 35.0
Non-deductible expenses 1.1 1.6 1.5
Tax credits -0.1 -1.2 -1.0
Foreign taxes deviating from
the Dutch tax rate 3.2 -2.3 -1.4
Utilization of carry forward losses -3.9 - -
Other -10.0 -4.1 -5.1
------- ------- -------
Effective income tax rate 25.3 29.0 29.0
======= ======= =======
F-23
<PAGE>
Deferred taxes were provided for the following:
Years ended November 30,
------------------------
1997 1998 1999
---- ---- ----
(in thousands)
Euro Euro Euro
Accelerated depreciation -502 6,408 4,538
Inventory obsolescence -6,388 2,394 -2,473
Net R&D expenses -1,154 -4,592 -15
Tax benefit of tax loss carry-forward 17,255 -4,630 -94
Leasing 7,219 11,974 857
Other 8.270 -6,367 27,669
------- ------- -------
24,700 5,187 30,482
======= ======= =======
The composition of deferred income taxes, as shown in the Consolidated
Balance Sheet, is as follows:
1998 1999
---- ----
(in millions)
Euro Euro
Leasing 122.8 135.1
R&D expenses -41.4 -13.6
Other fixed assets -15.8 -3.4
Current assets -45.8 -54.6
Other long term liabilities 0.2 -12.5
Current liabilities -10.0 -19.3
----- -----
10.0 31.7
===== =====
At November 30, 1999 no provision was made for withholding taxes on
dividends of approximately Euro 0.7 million relating to undistributed
earnings of certain subsidiaries which management intends to reinvest
indefinitely.
F-24
<PAGE>
17. Financial expense (net)
Financial expense consists of:
Years ended November 30,
------------------------
1997 1998 1999
---- ---- ----
(in thousands)
Euro Euro Euro
Interest and similar income items -4,011 -4,570 -5,016
Interest charges and similar expenses 56,162 64,229 63,007
Other financial expenses 1,121 1,359 998
------- ------- --------
Financial expense (net) 53,272 61,018 58,989
======= ======= ========
Amounts of interest capitalized in each year were immaterial.
18. Foreign exchange results
Foreign currency results are included in cost of goods sold for an amount
of Euro 25.7 million (loss) and Euro 10.6 million (loss) for 1998 and 1999
respectively.
19. Minimum future rental copying income
Copiers are rented generally for periods of one to three years. The rental
contracts vary as to terms, but in general contain a provision for fixed
monthly rentals with additional rentals contingent, approximately 40%, on
the number of copies made.
At November 30, 1999, minimum future rentals totaled approximately Euro 508
million to be received as follows (in millions):
Years ending November 30, Euro
-------------------------
2000 159
2001 128
2002 84
2003 74
2004 40
Thereafter 23
---
Total 508
===
The amount above the contractual minimum receivables included in the
Consolidated Statements of Operations were approximately Euro 107 million,
Euro 90 million and Euro 100 million for 1997, 1998 and 1999, respectively.
F-25
<PAGE>
20. Financial instruments
It is the Company's policy that interest rate swaps and caps are counted as
hedges when the transaction reduces interest rate risk. The terms of the
remaining weighted average maturity are correlated to the remaining terms
of the lease portfolio and the related borrowings.
The Company enters into interest rate swap contracts to manage interest
costs, interest income (of the lease portfolio) and the risk associated
with changing interest rates. At November 30, 1999 the following contract
which effectively converted its fixed Dutch rate guilder debt (see Note 11)
into variable rate debt was in effect:
Remaining
Variable rate weighted average
Fixed rate receipts payment maturity in years Notional amount
------------------- ------------- ----------------- -------------------
6.4% 4.0% 5.6 Euro 514 million
Also contracts which convert floating rate debt (see also Note 8 and 11)
into fixed rate debt were in effect:
<TABLE>
<CAPTION>
Weighted average Remaining
fixed rate payments average maturity in years Notional amount
------------------- ------------------------- -------------------------------------
<S> <C> <C>
6.01% 2.9 Australian Dollars 45.0 million
7.02% 0.3 German Marks 100 million
6.97% 0.6 French Francs 150 million
6.76% 1.0 Pound Sterling 91.2 million
6.81% 0.7 Belgian Francs 750 million
6.39% 1.5 U.S. Dollars 345 million
6.76% 0.7 Danish Crowns 41.9 million
5.79% 0.9 Italian Lires 18.800 million
5.76% 1.6 Guilders 250 million
10.50% 1.3 Hong Kong Dollars 24 million
6.03% 0.0 Spanish Pesetas 900 million
5.59% 0.6 Swedish Crowns 118.5 million
2.49% 1.4 Swiss Francs 36.3 million
3.93% 1.8 Euro 199.5 million
</TABLE>
At November 30, 1999 an interest swaption contract has been entered for
Euro 4.5 million.
F-26
<PAGE>
The aggregated estimated fair value of above swap contracts was
approximately Euro 15.5 million based on the interest rates at November 30,
1999.
The differential to be paid or received is accrued as interest rates change
and is recognized over the life of the agreements as an adjustment to
interest expense.
The Company enters into foreign currency exchange contracts to manage the
currency risks associated with transactions denominated in certain foreign
currencies. At November 30, 1999 the Company has entered forward exchange
contracts mainly in currencies which are volatile to the Euro including the
U.S. Dollar, Pound Sterling etc.
Per november 30, 1999 the countervalue in Euro of these contracts in
foreign currencies amounted to Euro 548 million. The aggregated market
value of the above foreign currency positions would give an outcome of Euro
22 million higher than the contracted value at November 30, 1999.
The interest rate swap agreements and the foreign exchange contracts have
been entered into with major financial institutions which are expected to
fully perform under the terms of the agreements.
The Company's accounts receivable result from its trade and lease
operations and reflect a broad customer base nationally as well as
internationally. The Company routinely assesses the financial strength of
its customers. As a consequence, concentrations of credit risk are limited.
The Company's cash equivalents are in high quality securities placed with
major international banks and financial institutions. This policy limits
the exposure to credit risk.
The only balance sheet item of which the fair value deviates from the
carrying value is the 'Long term debt'. The fair value of the long term
debt is approximately Euro 96,6 million lower than the carrying value based
on similar terms and remaining maturities.
21. Acquisitions
In May 1999 Oce acquired a majority shareholding (85%) in the Japanese
business Nippon Steel Calcomp Corporation, which now operates under the
name Oce Japan Corporation.
Since 1998 Oce has held a participation in the software development
business Siemens Software Namur, Belgium. In October 1999 Oce increased its
stake to 70%. In the purchase agreement is stated that we will increase our
shareholding to 100% in 2000.
The business, now called Oce Software Laboratories Namur, also develops
special application software for Oce customers.
F-27
<PAGE>
22. Generally accepted accounting principles in the United States of America
A reconciliation of amounts shown in the accompanying Consolidated
Statements of Operations to approximate amounts determined in accordance
with US GAAP follows:
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
1997 1998 1999 1999
---- ---- ---- ----
(in thousands, except shares and per share amount)
Euro Euro Euro US$
<S> <C> <C> <C> <C>
Net income as shown in the accompanying
Consolidated Statements of Operations 107,410 129,049 76,675 77,265
Items having the effect of increasing
(decreasing) reported net income:
Depreciation 1,338 836 668 673
Business combinations -18,974 -20,202 -13,486 -13,590
Reorganization -5,445 -7,261 28,686 28,907
Self insurance - - -908 -915
Deferred income taxes 6,546 7,215 -11,876 -11,968
Use of tax-deductible goodwill - -7,850 -4,084 -4,116
---------- ---------- ---------- ----------
Approximate net income according to US GAAP 90,875 101,787 75,673 76,256
========== ========== ========== ==========
Earnings per ordinary share:
Basic Euro 1.09 Euro 1.20 Euro 0.87 US$ 0.87
Diluted Euro 1.06 Euro 1.17 Euro 0.86 US$ 0.87
Weighted average number of ordinary
shares outstanding:
Basic 79,913,360 81,954,636 83,190,993 83,190,993
Diluted 82,910,312 84,083,241 84,473,467 84,473,467
</TABLE>
<TABLE>
<CAPTION>
Statement of Comprehensive income
---------------------------------
1997 1998 1999 1999
---- ---- ---- ----
(in thousands)
Euro Euro Euro US$
<S> <C> <C> <C> <C>
Net income 90,875 101,787 75,673 76,256
Foreign currency translation adjustment 34,448 -20,390 48,827 49,203
------- ------- ------- -------
Comprehensive income 125,323 81,397 124,500 125,459
======= ======= ======= =======
</TABLE>
F-28
<PAGE>
A reconciliation of the shareholders' equity as shown in the accompanying
Consolidated Balance Sheets to approximate amounts determined in accordance
with US GAAP follows:
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
1998 1999
---- ----
(in thousands)
Euro Euro
<S> <C> <C>
Shareholders' equity as shown in the
accompanying Consolidated Balance Sheets 725,889 817,905
Items having the effect of increasing
(decreasing) reported shareholders' equity:
Business combinations 347,931 237,483
Reorganization provisions 30,684 55,318
Self-insurance franchise 3,630 1,815
Revaluation of property, plant and equipment -8,222 -8,390
(net of depreciation)
Final dividend 18,025 15,195
Accrued liabilities 4,084 4,992
Deferred income taxes on above adjustments -116,576 30,610
--------- ---------
Shareholders' equity according to US GAAP 1,005,445 1,154,928
========= =========
</TABLE>
If the above adjustments were reflected in the Consolidated Balance Sheets,
the amounts of the following accounts would be:
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
1998 1999
---- ----
(in thousands)
Euro Euro
<S> <C> <C>
Intangible assets - Gross 410,302 313,373
Amortization -62,371 -75,890
Property, plant and equipment
(net of depreciation) 437,549 441,417
Long term liabilities: Deferred income taxes 126,595 1,119
Self insurance franchise - -
Reorganization provision 9,890 5,310
Other 13,335 186,196
Current liabilities
Dividend - -
Accrued liabilities Other 90,097 119,967
</TABLE>
F-29
<PAGE>
Business combinations - Under Dutch GAAP goodwill has been charged, net of
tax, directly to shareholders' equity, whereas US GAAP requires that it be
capitalized and amortized over its useful life but not in excess of forty
years.
Reorganization provision - Under Dutch GAAP costs to be incurred in
restructuring the business are accrued and included under exceptional items
(for 1999). There are no specific requirements as to the nature of items.
Under US GAAP these costs would have been recorded in income from
operations. Furtheron the criteria set for the creation of such a provision
are more strict under US GAAP.
Self insurance franchise - As described in Note 1 to Consolidated Financial
Statements the Company provides for uninsured potential future losses that
have not yet occurred. Under US GAAP such losses are not accrued until they
are incurred.
Revaluation of property, plant and equipment - As described in Note 1 to
Consolidated Financial Statements, the Company values its fixed assets on
the lower of replacement value or the value to the business. US GAAP
mandates valuation at cost and accordingly the carrying value of such
assets and related depreciation has been eliminated. Consequently, on
disposal of a subsidiary an additional gain arises. Furthermore, under US
GAAP as part of gain or loss on a complete or substantially complete
liquidation of an investment the cumulative translation adjustment on such
investment is released to the Statement of Operations.
Earnings per ordinary share - The calculation of basic and diluted earnings
per ordinary share is based on FASB Statement No. 128.
Interest from capital leases - As explained in Note 1 to Consolidated
Financial Statements interest from capital leases has been recognized as a
component of total revenues. Under US GAAP such revenue should be reported
as a component of financial income and expense below operating income.
Dividends not declared - Under Dutch GAAP final dividend is reported under
"Current liabilities" exclusive the estimated optional stock dividend.
Under US GAAP this dividend is included under "Shareholder's equity" until
formal declaration.
Use of tax-deductible goodwill - In a previous acquisition a provision was
made for the capitalized claims in respect of deferred taxation. Under US
GAAP these claims have to be netted against the goodwill upon realization.
Risk and uncertainties - The preparation of financial statements requires
management to make estimates and assumptions that affect amounts reported
in the consolidated financial statements in order to conform with generally
accepted accounting principles. Changes in such estimates and assumptions
may affect amounts reported in future periods.
F-30
<PAGE>
23. Earnings per share calculations
<TABLE>
<CAPTION>
Years ended November 30,
------------------------
Basic earnings per share computation 1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Weighted average number of shares outstanding (a.) 79,913,360 81,954,636 83,190,993
Net income (US GAAP) available to shareholders 90,875 101,787 75,673
Less: Dividend financing preference shares -3,551 -3,551 -3,551
---------- ---------- ----------
Net income (US GAAP) available to holders of
ordinary shares in thousands of Euro (b.) 87,324 98,236 72,122
</TABLE>
The basic earnings per share are calculated as the net income (US GAAP)
available to holders of ordinary shares (b.) times thousand dividend by the
weighted average number of shares outstanding (a.).
<TABLE>
<CAPTION>
Diluted earnings per share computation
<S> <C> <C> <C>
Weighted average number of shares outstanding 79,913,360 81,954,636 83,190,993
Plus: - shares applicable to convertible debt 2,878,520 1,878,536 1,282,474
- options 118,432 250,069 -
---------- ---------- ----------
Adjusted weighted average number of shares (c.) 82,910,312 84,083,241 84,473,467
---------- ---------- ----------
Net income (US GAAP) available to holders of
ordinary shares in thousands of Euro 87,324 98,236 72,122
Plus: Interest on assumed conversion of
convertible debt (net of tax) 893 513 521
---------- ---------- ----------
Net income available to holders of ordinary
shares inclusive effect of assumed conversion
in thousands of Euro (d.) 88,217 98,749 72,643
========== ========== ==========
</TABLE>
The diluted earnings per share are calculated as the net income available
to holders of ordinary shares inclusive effect of assumed conversion times
thousand dividend by the adjusted weighted average number of shares (c.).
F-31
<PAGE>
24. Subsequent events
- Per April 1, 2000 Oce acquired the German company Computer Gesellschaft
Konstanz (CGK). With annual sales of DEM 75 million and 300 employees
this company is active worldwide in the area of digital character and
document recognition and high speed image scanners and is largely
important for the further expansion of document management systems.
F-32
<PAGE>
SCHEDULE II
OCE AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AS OF
NOVEMBER 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
Balance at Additions Balance at
beginning charged to end of
of period income Acquisition Deductions period
---------- ---------- ----------- ---------- ----------
(In thousands)
Euro Euro Euro Euro Euro
<S> <C> <C> <C> <C> <C>
1997
- ----
Allowance for doubtful accounts:
Accounts receivable 33,345 11,935 1,013 11,784 34,509
1998
- ----
Allowance for doubtful accounts:
Accounts receivable 34,509 14,550 - 10,546 38,513
1999
- ----
Allowance for doubtful accounts:
Accounts receivable 38,513 20,380 171 13,256 45,808
</TABLE>
F-33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be filed on its behalf by
the undersigned, thereunto duly authorized.
OCE N.V.
DATE: May 18, 2000 BY: /s/ R.L. van Iperen
Chairman of the Board
of Executive Directors
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description Prior Filing or Sequential
page number
- ---------------------------------------------------------------------------------
<S> <C> <C>
1.01. Changes in Subsidiaries of Filed as part of this annual
Oce N.V. report.
1.02. Excerpts from Oce Annual Report Filed as part of this annual
1999 with certain modifications report, pages 13-46, 83-85 and
(English translation) 90-91, which are incorporated
herein by reference.
</TABLE>
<PAGE>
Exhibit no. 1.01, only page
Changes in subsidiaries of Oce N.V. since the listing thereof in Oce's Form
20-F for its fiscal year ended November 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name of subsidiaries* Jurisdiction of Notes
Incorporation of
Organisation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Systeme de Diffusion Documentaire S.A. France Acquired 34% participation by Milan
S.A.S. October 1998
Increased participation to 64% by Milan
S.A.S. November 1999
- ------------------------------------------------------------------------------------------------------------
Copytema A.S. Norway Sold August 1998
- ------------------------------------------------------------------------------------------------------------
ICW S.A. France Acquired 55% participation by Milan
S.A.S. February 1999
- ------------------------------------------------------------------------------------------------------------
Oce-Japan Corporation Japan Acquired 85% participation by Oce N.V.
May 1999
- ------------------------------------------------------------------------------------------------------------
Crea Print Digitales Medienzentrum Germany Acquired 50% by Oce-Deutschland Facility
G.m.b.H. Services G.m.b.H. June 1999
- ------------------------------------------------------------------------------------------------------------
Trumark Pty. Ltd. Australia Liquidated June 1999
- ------------------------------------------------------------------------------------------------------------
Studentenkopierdienst Sud G.m.b.H. Germany Acquired by Oce-Deutschland Facility
Services G.m.b.H. August 1999
- ------------------------------------------------------------------------------------------------------------
Zadkine Document Activititeiten B.V. Netherlands Acquired 50% participation by
Oce-Nederland B.V. August 1999
- ------------------------------------------------------------------------------------------------------------
Fendler DIGITALMEDIA G.m.b.H. Germany Acquired 50% participation by
Oce-Deutschland Facility Services
G.m.b.H. September 1999
- ------------------------------------------------------------------------------------------------------------
Oce Software Laboratories Namur S.A. Belgium Increased participation by Oce-Belgium
N.V./S.A. October 1999 from ..% to 70%
- ------------------------------------------------------------------------------------------------------------
Oce-Asia Ltd. Hong Kong Liquidated November 1999
- ------------------------------------------------------------------------------------------------------------
Oce Software Services S.A.S. France Founded November 1999
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ------
Report of the Board of Executive Directors Exhibit no. 1.02
- ------
Main outlines
Oce achieved a net income from ordinary activities - i.e. before deduction of
exceptional items - of (Euro) 132 million in 1999. This was slightly ahead of
the record income of the previous year. However, it does mean a weakening of
the income growth in 1999 following a prolonged period of strong growth. The
main cause is the rapid switch - in the office market - from analogue to
digital technologies, which is being accompanied by increased pressure on
prices, not only in the analogue but also in the digital segment. This
development has left its mark on the entire industry. It gave Oce a vigorous
impulse to tighten up the strategic policy thrusts that had been initiated in
the preceding financial year and to substantially speed up the pace of the
changes that had been set in motion. To promote the further growth of the
business, sales efforts are being intensified and the company will continue to
invest as strongly as ever in Research & Development and in building up the
system and software know-how needed for the successful penetration of growth
markets. Digital machines and the related revenues from software and service
meanwhile represent 60% of total machines and service revenues (1998: 57%). The
share of digital in total revenues, i.e. including Imaging Supplies, increased
from 48% in 1998 to 51% in 1999. A cost-reduction programme was drawn up, which
will result in the loss of some 1,000 jobs world-wide, chiefly in service,
manufacturing and logistics and in support departments. This number corresponds
to approximately 5% of the total number of employees. To cover the costs of
this programme a provision of (Euro) 55 million net was taken in the fourth
quarter, so that the net annual income after exceptional items worked out at
(Euro) 77 million (1998: (Euro) 129 million).
- ------
Results
Net revenues increased by 3% to (Euro) 2,838 million. Autonomous growth
accounted for 1% of this increase; exchange rates and acquisitions each
contributed 1% to the growth in total revenues. In the previous year net
revenues increased by 12% to (Euro) 2,753 million. Excluding exchange rate
effects (1%) and acquisitions (4%) the increase amounted to 7%.
Operating income went up by 1% to (Euro) 248 million. Last year operating
profit climbed by 22% to (Euro) 245 million. On a per share basis, basic
earnings from ordinary activities increased by 1% to (Euro) 1.54 (1998:
(Euro) 1.53). After exceptional items, basic earnings per ordinary share
amounted to (Euro) 0.88, a decrease of 43%.
Expenditure on Research & Development increased by (Euro) 12 million to
(Euro) 167 million. This is equivalent to 5.9% of total revenues (1998:
(Euro) 155 million, or 5.6%).
Gross capital expenditure on `Property, plant and equipment' amounted to
(Euro) 115 million (1998: (Euro) 113 million). Depreciation and disposals
amounted to (Euro) 124 million (1998: (Euro) 110 million).
In the market for Wide Format Printing Systems Oce booked total revenues of
(Euro) 782 million, an increase of 1%. After deduction of acquisitions and
exchange rate effects, revenues decreased by 2.5%. In the previous year revenues
went up by 6% to (Euro) 772 million. Autonomous growth amounted to 5%, the
share of exchange rate effects was 1%. Oce maintained its leading position. In
the growing, but competitive market for Display Graphics Oce is carving out a
position for itself with inkjet printers and the related supplies. In the market
for Document Printing Systems Oce's revenues increased by 2% to (Euro) 1,399
million.* Excluding exchange rate effects, the increase in
*Because of a reclassification of activities with effect from December 1, 1999,
these revenues now include the revenues of Network Printing Solutions for both
1998 and 1999. The revenues of Network Printing Solutions have therefore been
eliminated from those of Production Printing Systems for both years.
- ------
13
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
revenues amounted to 1%. In the previous year revenues went up by 18% to
(Euro) 1,367 million and exclusive exchange rate effects (1%) and acquisitions
(8%), revenues grew by 9%. In the highly competitive digital segment of this
market Oce achieved a large number of placements, though these revealed a faster
than expected decline in the analogue segment. In terms of printing/copying
volume Oce's market share grew further in all areas. Network Printing Solutions
grew in line with the ongoing process of digitisation, thanks to newly
introduced printers, servers and software. In the market for Production
Printing Systems total revenues increased by 7% to (Euro) 657 million, of which
1% was the result of exchange rate effects. In 1998 revenues increased by 5% to
(Euro) 614. Autonomous growth amounted to 4%. Oce improved its strong global
position in this market. In the fast-growing Printing & Publishing segment Oce
doubled its revenues. In Facility Services Oce booked a strong increase in
revenues, both in the United States and in Europe. The continuing expansive
growth, which will also involve greater emphasis on consultancy, will cause
revenues to increase further. Though total revenues were slightly lower,
profitability of Imaging Supplies increased further, thanks in part to
successful new products and the rationalisation of manufacturing and logistics.
- ------
Dividend
For the 1999 financial year we propose to distribute a dividend of (Euro) 0.50
(1998: (Euro) 0.50) per ordinary share of (Euro) 0.50 nominal. This dividend
involves an amount of (Euro) 41.7 million (1998: (Euro) 41.2 million). If the
General Meeting of Shareholders adopts this proposal the final dividend will
amount to (Euro) 0.35; the interim dividend amounted to (Euro) 0.15. It is
proposed to make the final dividend available, at the option of shareholders,
either fully in cash or fully in shares to be charged to the (tax-free) paid-in
capital or, if desired, to the net income for 1999. The dividend in shares will
be determined on March 29, 2000 (after close of trading on the Amsterdam Stock
Exchange) and will be subject to a discount of at most 5% as compared to the
cash dividend. The newly issued shares will be entitled to those dividends that
are made available for payment over the new financial year and subsequent
financial years.
The pay-out ratio of approximately 32.4% of the net income before exceptional
items (1998: 32.8%) is at a level that we consider necessary for a healthy and
balanced financing of our expansion.
- ------
Prospects
Oce is on track in handling the market shift from analogue to digital. We aim
to become one of the leading companies in supplying integrated document
solutions in professional environments. The present range is competitive and
new products and services are being added to it, also thanks to ongoing
innovation and new partnerships. In addition, we will continue to build up
digital know-how and specific organisations for the growth markets.
The programme that has been initiated to strengthen and expand the company as
a supplier of digital products and services, together with the current extensive
cost-reduction programmes, which are aimed at countering the pressure on prices
and margins, is expected to result in an increase in total revenues and income.
In view of the market situation, provisional expectations for the new financial
year are that the growth in revenues and income will be limited.
In 2000 the number of employees in manufacturing, logistics, service and
indirect services will decrease. At the same time the number of employees in
sales, software development, support and Facility Services will increase.
- ------
14
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Investments in property, plant and equipment and in rental copying equipment
will increase in 2000.
Further expansion of the new markets by the Network Printing Solutions,
Display Graphics and Printing & Publishing business groups will result in an
increase in revenues. In due course this is expected to be followed by a
growing contribution to income.
- ------
Strategic outlook
The measures that Oce has taken to adapt itself to changing circumstances
strengthen each other. They relate to the realignment of the organisation to
meet the changing needs of the market as well as to specific measures to
improve efficiencies and control costs.
The changing technology in Oce's markets, notably the switch from analogue to
digital, is leading to a number of radical changes. Stand-alone machines are
being replaced by digital machines linked together in networks. The information
flows that these generate both within companies and between companies have to
be translated into efficient document flows. Oce is involved in that process in
various ways, the main emphasis being on `products and services for the
reproduction, presentation, distribution and management of documents'. Oce has
repeatedly displayed its prowess in this field by launching innovative digital
machines and software. Slowly but surely, however, the new role means that the
organisation must acquire different competencies and skills. Not only as
regards the technical aspects, where technicians trained to work on analogue
machines have to make way for their digitally skilled successors, but also in
the area of sales and service, where the relationship with the customer is
changing. Today, it is no longer a matter of selling a machine, but of
supplying a tailor-made system that is subsequently given new and modified
functionalities at regular intervals. Specialists with a thorough knowledge of
a machine are making way for professionals who are highly familiar with the
customer's specific field of work. Oce is well positioned to translate these
changes into practical results. Thanks to its strong knowledge base, its close
relationship with customers and the resultant in-depth knowledge of their way
of working, the Oce organisation succeeds in moving forward in tune with the
changes in the market. Education, training and a policy specifically aimed at
ensuring mobility make a great contribution to this. Now that the change
processes are accelerating, these efforts will be further intensified.
Organisation
The structural changes in the organisation that were initiated during the year
under review will ensure a better link-up with the application areas for Oce's
products and services. The new structure comprises three strategic business
units, each divided into two business groups: one for the existing activities
and one for an operational area which will be further developed and which is
seen as a highly promising market. In addition there are two supporting
business groups, one for Imaging Supplies and the other for Facility Services
(see page 34).
The distinct acceleration of the switch to digital systems, especially in the
office market, and the strong growth in competition in this area have further
strengthened the need for drastic adaptations. Price competition brings the
need for tighter cost control and a strong improvement in efficiency. One of
the causes, digitisation, is even providing a helping hand in this
restructuring operation because it greatly reduces the servicing requirements
of the equipment, whilst also enabling improved logistics and manufacturing
possibilities and new working methods. Though total employee numbers at Oce
will show a net decrease of around 1,000, this restructuring operation will in
fact involve many more employees. Technicians in particular will
- ------
15
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
be retrained where possible, but in addition there will be an inflow of new,
highly qualified employees. As an employer, Oce will of course act with the
greatest social responsibility in implementing this operation.
Markets
In the market for Wide Format Printing Systems, which is growing by an average
of 2 to 4% a year, demand is as a rule structurally related to the level of
economic activity and the investment climate. The technology of the equipment
destined for this market has in recent years changed almost entirely from
analogue to digital. Oce was the first to respond to this development with a
series of digital machines and the related software, whose functionality is
constantly adapted to meet changing market requirements. At the moment some 90%
of the placements are digital. Oce holds a leading position in this market
world-wide and the company intends to expand this further. The range will be
strengthened in 2000 with new machines in the high and low volume segments and,
at least as importantly, with new application software for document management.
The innovation efforts are largely focused on developing wide format colour
printers which are based entirely on in-house technology and which will be
brought to market several years from now.
The size and growth of the market for Display Graphics (wide format, short run
colour prints) are difficult to assess due to the heterogeneous nature of that
market. However, the multitude of applications and the related demand for speed
and quality indicate that this is a highly promising growth market. Oce
continues to build a prominent position in this market with bought-in printers
and controllers and a quality range of supplies developed in-house.
Document Printing Systems is hardly dependent on the level of economic
activity and is growing annually by some 3%. In this market digital black-and-
white and colour printing is rapidly displacing analogue techniques. Competition
in the digital area has increased strongly over the past year due to a number of
new market entrants. In terms of printing/copying volume Oce is outpacing the
market growth. The company is concentrating in this market mainly on the medium
and high volume segments. In the European market for document printing systems
Oce plays a leading role with its copiers (analogue and digital) and printers.
In the American market the company's share is still relatively small.
The market for Network Printing Solutions (mainly in office environments) is
growing by around 25% a year. This relates to printers (30-65 ppm) and servers
which operate in networks (Internet and Intranet) and which are equipped with
various functionalities for the management of document flows. In this market
Oce's direct sales, consultancy and service organisation concentrates on the
higher volume segments, in which reliability and productivity are important;
features which are to a considerable extent also supported by application
software. A central role will be played here by the range of digital
copiers/printers which will be further completed.
The market for Production Printing Systems ((greater than)100 ppm) is growing
annually by 3% in the E D P segment and by some 15% in the Printing & Publishing
segment. For these markets Oce offers a complete and highly competitive range of
continuous-feed and cutsheet printers. These also offer excellent growth
prospects in the Printing & Publishing segment. In Europe Oce is market leader
for very high volume printers in the E D P segment. In the United States, too,
the company is a major force in this market. Oce will strengthen its leading
position in this market by continuously innovating its offerings in this area.
The range is being further expanded with application software to support the
document production process.
- ------
16
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
In the market for Printing & Publishing the currently still relatively modest
position is being expanded at a faster rate, also via new partnerships.
The market for Facility Services is showing an annual average growth rate of
around 30% because of the ever stronger trend towards outsourcing: in Europe
the market is even growing by 40%. Oce supplies a broad range of services,
ranging from the (re)production of documents to the management of complete data
and document flows, mainly within big companies and institutions.
Oce aims to at least equal the growth in this market and is well equipped to
do so because of its strong presence in the market, its extensive range and its
knowledge of document flows.
The market for Imaging Supplies (carrier materials and auxiliaries) is growing
annually by around 5% because of the growth in the printing and copying volume
and the increase in the number of applications. Oce, a leading supplier in
Europe, offers a broad and innovative range focusing primarily on Oce customers
with Oce machines, even if they also use third-party equipment. In this market
Oce seeks to further improve its profitability on the basis of the measures that
have already been taken in the area of manufacturing and logistics and also by
utilising the growing possibility of doing business via e-commerce.
In realising the growth objectives in its markets Oce will primarily expand
its position via autonomous growth. In addition acquisitions will be sought
which help make the business bigger and stronger, both commercially and
technologically. The company is constantly alert to the possibility of
strengthening its position via partnerships in whatever form and/or via
acquisitions. In view of the size of the markets in which we operate, we mainly
seek acquisitions of a substantial size.
Yield objective
Oce continues to devote high priority to enhancing the overall profitability of
the business, both through autonomous growth and, where opportune, through
acquisitions, as well as via improved efficiencies and by reducing the capital
intensity. Oce seeks to improve the return on total assets from 9.0% in 1999
(9.6% in 1998) to 12%, to be achieved within a few years.
- ------
Risk management
Oce is faced with the commercial and technological risks of a company which
specialises in the development, manufacture and distribution of technologically
advanced products on a world-wide scale. Oce concentrates on the high-value
professional markets in which its unique technology allows the company to
profile itself clearly.
Market risks
Because of the fast-moving developments in technology and in the markets in
which Oce operates, the company has always placed great emphasis on managing the
residual value risks of our machines. To the extent that residual value risks
exist, they are mainly restricted to the lease/rental portfolio in the market
for document printing systems. By reducing the depreciation period it applies to
the analogue machines in this market, Oce has lowered the risk. Besides, the
risk is low because the machines - after a complete overhaul - are given a
second useful lifetime.
Oce's broad technology base, the variety of markets on which the company
operates and its links, mostly on a long-term basis, with highly diverse
customer categories ensure a spread of the risks. The revenues from rentals,
leases, service and supplies, the highly diversified customer base and the
wide geographical spread of operations help to create stability in the total
revenue flow.
- ------
17
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Technological risks
Oce has deliberately invested heavily in R & D in recent years. That has
resulted in a range of self-developed core technologies and products and highly
market-focused innovations in the area of applications, operating concepts and
improved environmental and safety features. Those core technologies also
encompass a number of unique components and processes for new generations of
printers and copiers for both black-and-white and colour applications. However,
it has taken more time than expected to get the company's own colour technology
ripe for production. Oce also holds a leading position in printer technology for
continuous-feed applications. In addition to its strengths in hardware
technology Oce has expanded, partly through acquisitions, to become a software
business that develops programs and systems both for its own products and for
customers.
To guarantee the closest possible contact with the market, service and sales
employees are involved in the development of hardware and software products at
an early stage. Over the course of the years this has steadily reduced the
learning curve further. Furthermore, recent changes in the way that product
development is steered have strongly boosted the company's reaction speed and
the flexibility of its response to new circumstances and customer needs.
Foreign exchange risks
Oce achieves its revenues all over the world, with particular emphasis on
Europe and the United States. A considerable proportion of the costs are
incurred in the currencies of the sales areas (US dollar, euro and pound
sterling). Oce also has costs denominated in Japanese yen for the purchase of
product sub-assemblies and complete machines to supplement its range. As
regards the revenues from service, the foreign exchange risk is limited because
most of the costs, consisting of the payroll expenses of the service
technicians, are in local currency. The effects of exchange rate fluctuations
over the long term are offset as much as possible by conducting buying
activities, where possible, in those currency areas in which the revenues are
also achieved (`matching principle') and by raising the local added value
content. In addition, endeavours are made to offset the short-term
consequences of foreign exchange fluctuations by pursuing an active currencies
management policy. Oce applies a central foreign exchange management policy and
a selective foreign currency policy aimed at controlling the company's
commercial and net asset exposures in various currencies. For this purpose Oce
uses a number of financial instruments, particularly forward foreign exchange
contracts. The policy and the plans based on it are implemented in close
consultation with the Board of Executive Directors.
Interest rate risks
Most of the interest revenues originate from market placements of machines under
financial lease contracts. Financial lease contracts usually comprise a fixed
interest which corresponds to the rates charged by external leasing businesses.
These contracts are mainly financed by interest-bearing capital whose interest
rate is generally fixed in line with the duration of the contracts. The interest
rate policy is largely executed centrally at corporate level through the use of
financial instruments. Implementation of this policy, which is subject to strict
rules, likewise takes place in close consultation with the Board of Executive
Directors.
Euro
Since January 1, 1999 Oce has been in a position to conclude contracts in euro.
For the benefit of the operating companies a conversion program has been
prepared which they can use to adapt their accounting system rapidly if they
decide to switch over to the new currency. In general Oce is ready to use the
euro as a currency in any form whatever.
- ------
20
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Financial review
Total revenues
In 1999 total revenues rose by 3% to (Euro) 2,838 million. Autonomous revenue
growth amounted to 1%. Acquisitions and exchange rates each had a positive
effect of 1% on revenues. In 1998 revenues increased by 12% to (Euro) 2,753
million. Disregarding acquisitions (4%) and exchange rate effects (1%), the
increase in revenues amounted to 7%.
At (Euro) 1,647 million, revenues from sales remained practically the same as
in the previous year (1998: 15% to (Euro) 1,646 million). Earnings from rentals
and service went up by 7% to (Euro) 1,091 million (1998: 6% to (Euro) 1,017
million). Interest income from financial leases rose by 11% to (Euro) 100
million (1998: 22% to (Euro) 90 million).
The growth in revenues was largely attributable to the following factors:
- - the strongly increased sales of and service income from printers and digital
copiers, which were slightly higher than the decline in revenues from analogue
machines;
- - the contribution made to revenues by Oce-Japan after its acquisition;
- - net positive exchange rate effects.
As a proportion of total revenues, revenues from rentals and service plus
interest income from financial leases amounted to 42% (1998: 40%).
The share of digital in total earnings rose from 48% in 1998 to 51% in 1999. A
more relevant indication is: if calculated as a percentage of the total revenues
from machines and the related software and service - i.e. excluding Imaging
Supplies - the share of digital increased to 60% (1998: 57%).
Development of revenues by market
In the market for Wide Format Printing Systems revenues increased by 1% to
(Euro) 782 million (1998: 6% to (Euro) 772 million.) Revenues in the Document
Printing
<TABLE>
<CAPTION>
- ----------------------- ---------------------------------------- -----------------------------------------
Development of 1999 1998
total revenues by ------------------------------- ------- ------------------------------- ------
Strategic total revenues x (Euro) million as% total revenues x (Euro) million as%
Business Unit
- ----------------------- ------------------------------- ------- ------------------------------- ------
<S> <C> <C> <C> <C>
Wide Format
Printing Systems 782 28 772 28
Document
Printing Systems 1,399 49 1,367 50
Production
Printing Systems 657 23 614 22
- ----------------------- ------------------------------- ------- ------------------------------- ------
Total 2,838 100 2,753 100
</TABLE>
[Graph of Total revenues x (Euro) million]
- ------
21
<PAGE>
- ------
Report of the Board of Executive Directors
<TABLE>
<CAPTION>
- ----------------------- ---------------------------------------- -----------------------------------------
Total revenues 1999 1998
by geographical ------------------------------- ------- ------------------------------- ------
areas total revenues x (Euro) million as% total revenues x (Euro) million as%
- ----------------------- ------------------------------- ------- ------------------------------- ------
<S> <C> <C> <C> <C>
Germany 383 13 383 14
France 213 8 214 8
United Kingdom 210 7 207 7
Netherlands 219 8 200 7
Rest of Europe 582 21 567 21
United States 1,049 37 1,018 37
Rest of the world 182 6 164 6
------------------------------- ------- ------------------------------- ------
Total 2,838 100 2,753 100
</TABLE>
Systems market went up by 2% to (Euro) 1,399 million. In 1998 revenues went up
18% to (Euro) 1,367 million. In Production Printing Systems revenues increased
by 7% to (Euro) 657 million. In 1998 autonomous growth amounted to 4%.
Gross margin
The total gross margin increased slightly more than total revenues. As a
percentage of total revenues the gross margin increased to 42.8% (1998: 42.5%
and 1997: 41.9%). The principal reasons for this development are:
- - higher margins in Production Printing Systems and Wide Format Printing
Systems because of more favourable margins on revenues from service,
including software and consultancy;
- - lower margins in Document Printing Systems due to continuing pressure on the
margins for both analogue copiers and digital printers/copiers.
The average interest realised on the lease portfolio amounted to 10.4% (1998:
10.5% and 1997: 10.8%). In the financial lease contracts the interest percentage
is fixed for the entire duration of the contracts.
Operating income
Operating income increased by 1% to (Euro) 248 million (1998: (Euro) 245 million
and 1997: (Euro) 200 million). This is equivalent to 8.7% of total revenues
(1998: 8.9% and 1997: 8.1%) and corresponds to 9.0% of the average balance sheet
total (1998: 9.6% and 1997: 8.8%). The relative increase in selling expenses
meant that the increase in operating income lagged behind the growth in the
gross margin.
Research & Development (R&D)
Spending on R&D increased to (Euro) 167 million, or 5.9% of total revenues
(1998: (Euro) 155 million and 5.6% and 1997: (Euro) 139 million and 5.6%). In
1999 an amount of (Euro) 8
[Graph of Operating income x (Euro) million]
[Graph of Operating income as % of total revenues]
- ------
22
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
million (1998 and 1997 (Euro) 15 million and (Euro) 13 million respectively) was
added to R&D expenditure to cover repayment liabilities in respect of
development credits. This, combined with the expansion of the R&D organisation,
meant that the R&D expenses in the Consolidated Statement of Operations slightly
increased to (Euro) 174 million, which is equivalent to 6.1% of total revenues
(1998: (Euro) 170 million and 6.2% of total revenues and 1997: (Euro) 152
million and 6.2%). At the end of the year under review full provision had been
made for the remaining repayment liabilities in respect of development credits
received in the past, with the exception of those for the colour printer/copier.
General administrative and
selling expenses
The general administrative and selling expenses increased by 5% from (Euro) 755
million in 1998 to (Euro) 793 million. In 1998 these costs increased by 10.7%
compared with 1997. Expressed as a percentage of total revenues these expenses
increased to 27.9% (1998: 27.4% and 1997: 27.6%).
Financial expense (net)
Financial expense (net) - the balance of interest paid and other interest
received - went down from (Euro) 61 million in 1998 to (Euro) 59 million in
1999. In the previous year financial expense (net) went up 14.5%. On the basis
of a lower average interest rate of 5.1% (1998: 5.6% and 1997: 5.6%) the
average interest-bearing capital increased by (Euro) 87 million. This is mainly
due to the financing of and the increase in the rental population and financial
lease receivables.
Interest income from financial leases amounted to (Euro) 100 million in 1999
(1998: (Euro) 90 million and 1997: (Euro) 74 million).
Income taxes
The average taxation charge amounted to 29.0% (1998: 29.0% and 1997: 25.3%).
Net income
Net income before exceptional items increased by 2% to (Euro) 132 million
(1998: 20.1% to (Euro) 129 million). This corresponds to 17.1% of the average
shareholders' equity (1998: (Euro) 129 million and 18.1%). As a percentage of
total revenues, net income before exceptional items amounted to 4.6% (1998:
4.7%). Before exceptional items, basic earnings per share, calculated on the
basis of the weighted average number of ordinary shares outstanding, increased
by 1% to (Euro) 1.54 (1998: (Euro) 1.53 and 1997: (Euro) 1.30).
After deduction of exceptional items amounting to (Euro) 55 million, net
income decreased by 41% to (Euro) 77 million.
The net income attributable to ordinary shareholders, i.e. after deduction of
the dividend on the financing preference shares, decreased by 42% to (Euro) 73
million.
[Graph of Research & Development]
- ------
23
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Basic earnings per share, calculated on the basis of the weighted average
number of ordinary shares outstanding, decreased by 42% to (Euro) 0.88 (1998:
(Euro) 1.53 and 1997: (Euro) 1.30).
- ------
Commercial and financial activities
Oce's activities are characterised by a combination of commercial and financial
services, each with their own income profile and balance sheet characteristics.
In assessing the financial position of the Company as a whole, a distinction
must be made between these two types of activities. As indicated below, the
assessment criteria for both activities differ widely.
The revenue from financial activities is formed by the interest from financial
leases. The costs comprise the costs of financing the lease portfolio and the
selling and administrative expenses. Where the financial activities are financed
from interest-bearing capital, it has been assumed that this has been done fully
on a fixed-interest basis.
The costs of financing are then allocated on the basis of the average amount
of fixed interest-bearing capital. The selling and administrative expenses,
including provisions for doubtful debtors, are allocated as far as possible on
the basis of origin. The cost level that is applied corresponds to that of
other `captive' lease companies with similar activities. After expiry of the
lease contracts the machines, provided they have not been written off in full,
are transferred to the commercial activities at their residual book value.
For the financing of the financial activities a ratio of 0.15 between the
equity and the balance sheet total is used. This ratio is derived from `captive'
companies in the financial services industry which publish their own annual
accounts. It is seen as an extremely solid ratio. Under this method the
remaining part of the equity is allocated to the commercial activities.
The table on the next page gives a breakdown of the salient financial figures
for the two company activities.
As can be seen from that breakdown, both the commercial and the financial
activities have good profitability and solid balance sheet ratios. The net
income from the commercial activities remained practically at the same level as
last year. In the case of the financial activities the interest from financial
leases was maintained at the high level of 1998. Due to a decline in the average
interest costs, the yield of the financial activities (net income as a
percentage of the average equity) showed a clear increase.
- ------
24
<PAGE>
- ------
Report of the Board of Executive Directors
<TABLE>
<CAPTION>
- ------ -------------------- -------------------- --------------------
1999 1998 x (Euro) million
- ------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Commercial
Revenues 2,738 2,663
Gross margin 1,115 1,080
Operating income 177 181
Financial expense (net) 15 17
Result before taxation 162 164
Income taxes 47 48
Result after taxation 115 116
Net income 112 114
Shareholders' equity 659 584
Minority interest 42 40
-------------------- --------------------
Group equity 701 624
Interest-bearing liabilities 288 273
Provisions and other liabilities 870 775
-------------------- --------------------
Balance sheet total 1,859 1,672
Ratios
Operating income as % of
average balance sheet total 10.0 11.0
Net income as % of
average shareholders' equity 18.1 19.8
Shareholders' equity as % of
balance sheet total 35.5 34.9
Financial
Interest from financial leases 100 90
Selling and general administrative expenses 29 26
Financial expense (net) 44 44
Result before taxation 27 20
Income taxes 8 6
Result after taxation 19 14
Shareholders' equity 159 142
Interest-bearing liabilities 898 806
-------------------- --------------------
Balance sheet total 1,057 948
Ratios
Interest from financial leases
as % of average balance sheet total 10.0 10.0
Net income as % of average
shareholders' equity 12.6 10.9
Shareholders' equity as %
of balance sheet total 15.0 15.0
</TABLE>
- ------
25
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Use of funds and finance
Gross capital expenditure
In 1999 Oce's gross capital expenditure on `Property, plant and equipment'
amounted to (Euro) 115 million (1998: (Euro) 113 million). This mainly relates
to investments in machines, plant and equipment for the production of machines
and the related supplies.
An amount of (Euro) 124 million (1998: (Euro) 110 million) was released from
depreciation and disposals.
<TABLE>
<CAPTION>
- ------ ------------------------------------------- -------------------------------------------
Geographical 1999 1998
spread of assets -------------------- -------------------- -------------------- --------------------
x (Euro) million as % x (Euro) million as %
- ------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Germany 478 17 474 18
Netherlands 505 17 457 17
United Kingdom 254 9 234 9
France 204 7 204 8
Rest of Europe 449 15 427 16
United States 884 30 721 28
Rest of the world 142 5 103 4
-------------------- -------------------- -------------------- --------------------
Total 2,916 100 2,620 100
</TABLE>
Rental copying equipment and
financial lease receivables
After several years in which there was a move away from rentals and towards
financial leases, both rentals and financial leases have been on the increase
since 1995. The book value of rental copying equipment increased by (Euro) 16.5
million to (Euro) 257 million (an increase of 6.9%). In 1998 the book value of
rental copying equipment increased by (Euro) 21 million to (Euro) 241 million
(an increase of 10%). The capitalised value of financial lease receivables
(including short term accounts receivable) went up from (Euro) 907 million in
1998 to (Euro) 1,026 million (an increase of 13.1%). In 1998 compared with 1997
the capitalised value of financial leases increased by 13% to (Euro) 907
million. The aggregate value of rental copying equipment and financial lease
receivables increased by 11.8% and represented 44.0% of the balance sheet total
(1998: 43.8%).
The balance sheet value of rental copying equipment is calculated on the basis
of the all-in costs, less depreciation. Financial lease receivables are valued
at the net present value of the contracted lease instalments plus the residual
value. Both these valuations give only a partial reflection of the economic
significance of the population of machines installed on rental and on lease. A
better assessment can be
[Graph of Rentals and leases]
- ------
28
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
obtained by comparing the balance sheet value of rental copying equipment and
financial lease receivables with their economic value, which consists of the
cash inflows expected to be generated on a contract basis.
<TABLE>
<CAPTION>
- ------ -------------------- -------------------- --------------------
1999 1998 x (Euro) million
- ------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Contractual cash inflows from:
Rental contracts 508 452
Financial leases and the related
service contracts 2,063 1,744
-------------------- --------------------
Total 2,571 2,196
Balance sheet value of:
Rental copying equipment 257 241
Financial lease receivables 1,026 907
-------------------- --------------------
Total 1,283 1,148
</TABLE>
As the above table shows, the population of rented and leased machines and the
related service contracts generate a gross cash flow which is about 2.0 times
(1998: 1.9 times and 1997: 2.0 times) higher than their balance sheet valuation.
The average remaining duration of the lease contracts is about three years and
that of the rental contracts is about one-and-a-half year. The contractual
revenue from rentals, service and financial leases forms a stable basis for the
future. The rental copying equipment and financial lease receivables also have a
high liquidity value.
The cash flows generated by rentals, financial leases and service also
contribute to the company's financial strength. To illustrate this, the table on
page 30 shows the relationship between the cash flows expected to arise from
the rental, financial lease and service contracts existing at balance sheet date
and the total interest-bearing capital. The contractual cash flows have been
reduced for this purpose by subtracting the relevant cash outflows. The latter
consist of the estimated service costs and financial expenses that have to be
incurred during the subsistence of the rental and financial lease contracts.
Calculated on this basis, the net resultant cash flow from rentals, financial
leases and service exceeds the total interest-bearing capital by 36% (1998 year
end: 28% and 1997 year end: 28%).
[Graph of Contracted cash inflows]
- ------
29
<PAGE>
- ------
Report of the Board of Executive Directors
<TABLE>
<CAPTION>
- ------ -------------------- -------------------- --------------------
1999 1998 x (Euro) million
- ------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Contractual cash inflows from:
Rental contracts 508 452
Financial leases and the related
service contracts 2,063 1,744
-------------------- --------------------
Total 2,571 2,196
Expected cash outflows from:
Operational cash flows 845 714
Financial expense (net) 108 96
-------------------- --------------------
Total 953 810
Expected net cash flows 1,618 1,386
Interest-bearing capital 1,187 1,079
Excess as a % 36 28
</TABLE>
Interest-bearing capital
At the 1999 year end the interest-bearing capital amounted to (Euro) 1,187
million (1998 year end: (Euro) 1,079 million). Of this amount, (Euro) 884
million (75%) had been taken out over the long term (1998: (Euro) 859 million).
Group equity
Group equity increased to (Euro) 860 million (1998: (Euro) 766 million and 1997:
(Euro) 740 million). This increase was the result of earnings retained
(+ (Euro) 31 million), foreign currency translations (+ (Euro) 47 million),
optional stock dividend (+ (Euro) 28 million), conversion of debentures
(+ (Euro) 2 million), goodwill paid upon acquisitions (- (Euro) 5 million) and
other movements (- (Euro) 9 million).
Group equity as a percentage of the balance sheet total amounted to 29.5%
(1998: 29.2% and 1997: 29.8%). Including the convertible subordinated guilder
debenture loan, whose conversion price is lower than the share price, this ratio
amounted to 29.8% (1998: 29.7% and 1997: 30.9%). The ratio between interest-
bearing borrowings and Group equity was 138:100 (1998: 141:100 and 137:100 in
1997).
The shareholders' equity per ordinary share, calculated on the basis of the
number of shares outstanding at the end of the financial year, amounted to
(Euro) 9.14 (1998 and 1997: (Euro) 8.09 and (Euro) 7.96 respectively).
[Graph of Basic earnings per share]
- ------
30
<PAGE>
- ------
Report of the Board of Executive Directors
<TABLE>
<CAPTION>
- ------ -------------------- -------------------- --------------------
1999 1998 x (Euro) million
- ------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Investments in:
Property, plant and equipment (net) 81 87
Rental copying equipment (net) 107 113
New financial lease receivables 446 432
-------------------- --------------------
Total 634 632
</TABLE>
Cash flow
Cash flow from operating activities amounted to a positive (Euro) 53 million in
1999, compared with a positive (Euro) 77 million in 1998 and a positive
(Euro) 69 million in 1997.
The lower outcome of 1999 is mainly attributable to the decrease in net
income, the increase of long term liabilities and the major increase of working
capital especially the accounts receivable component.
The improvements in 1998 are attributable to the increase in net income,
higher depreciation and the better usage of working capital.
Investing activities required a net cash outflow of (Euro) 90 million which
is (Euro) 61 million less compared with 1998. This development is caused by
lower needs for acquisitions.
By comparison in 1998 the net cash outflow of (Euro) 151 million was
approximately (Euro) 55 less than in 1997. This reflects the lower consideration
for acquisitions.
The needs of the financing activities in 1999 were on the same level compared
with 1998 of approximately (Euro) 63 million. In 1998 the cash flow from
financing activities were (Euro) 94 million lower compared with 1997.
Credit facilities
At the end of the financial year a total of (Euro) 702.2 million of unused
credit facilities were available to the Oce Group, most of which are available
under multi-year stand-by credit contracts.
[Graph of Dividend per share]
[Graph of Investments]
- ------
31
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Lease
In the markets in which Oce operates, financing is an essential component of the
product offering. By actively offering this possibility, therefore, the company
takes on the role of a `one-stop supplier'. Oce offers financing via lease
programmes tailored to meet the specific wishes of each customer.
This `one-stop shopping' concept has advantages for both the customer and Oce.
For Oce it means that the constant flow of revenues from maintenance and
supplies is accompanied by a steady profitable inflow of interest earnings.
Oce's strength lies in the combination of leasing and the possibilities for
remarketing after expiry of the contract. The company operates remanufacturing
and remodelling programmes which extend the technical and economic lifetimes of
its machines. As a result Oce can keep its machines on the market for longer
periods, both via contract extension and via placement with other customers.
The debtors risk is slight, not only thanks to the spread of customers across
many customer categories in many countries and the close relationship that
exists with customers via the provision of technical service, but also because
Oce can realise the value of the machines when they are remarketed.
Funding
Since almost all lease contracts are based on an interest rate that is fixed for
their entire duration, it is Oce's policy to finance its lease portfolio
predominantly with interest-bearing capital, with the interest rate generally
being fixed in line with the duration of the contracts (`matching principle') so
as to safeguard the interest `spread' during the full contractual period.
Accounting
The lease programmes that Oce offers can be split into `financial' and
`operational' leases. The latter type are also referred to as `rentals'. In the
case of `financial' leases the economic risk passes to the customer. The
duration of these lease contracts is three to six years and is usually equal to
and sometimes longer than the depreciation period applicable to the relevant
machines. In consequence, the residual value risk is very limited.
At the moment when the financial lease contract is signed, the selling price
of the machine is recorded as revenue in the form of the discounted value of the
- ------
32
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
financial lease instalments. During the subsistence of the contract the interest
received is booked to revenue. Revenues from maintenance and service are
accounted for separately.
Machines for which an operational lease contract has been concluded are rented
to customers for durations of, normally, one to three years. In these contracts
the rental instalments are included in revenue for the reporting period in which
they fall due. The rental instalments represent a fee to cover the cost of use,
servicing and interest.
In 1999 48% (1998: 47% and 1997: 45%) of all direct sales of machines were
installed on the basis of financial leases. In Document Printing Systems this
percentage was considerably higher than in Wide Format Printing Systems and
Production Printing Systems.
Interest income from financial leases went up by 11.5% to (Euro) 100 million
(1998: (Euro) 90 million and 1997: (Euro) 74 million). The balance sheet value
of the financial lease receivables increased by 13.1% to (Euro) 1,026 million
and represented 35% of the total invested capital at the 1999 year end (1998
year end: 35% and 1997 year end: 32%). The aggregate balance sheet value of
financial and operational leases rose by 11.8% to (Euro) 1,284 million and
amounted to 44.0% (1998: 43.8% and 1997: 41.3%) of the total invested capital at
the 1999 year end.
In view of the average interest rate of 10.4% (1998: 10.5% and 1997: 10.8%)
achieved on the lease portfolio, financial leases make a good contribution to
the result. The return on financial leases represents 12.6% (1998: 10.9% and
1997: 10.3%) of average shareholders' equity.
<PAGE>
<TABLE>
<CAPTION>
------
Report of the Board of Executive Directors
----------------------- ----------------- ------------------------- -----------------------
Business Units Strategic Business Unit Business Group markets products/services
(markets,
products/services)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WFPS-Wide Format TDS-Technical Technical environments, Series LV, MV, HV
Printing Systems Documentation such as design large format printers/
Systems engineering offices, copiers, scanners,
industrial companies, folders. Scanning,
construction companies, printing and archiving
job printers, architectural software.
design offices.
---------------------------------------------------------------------------
DG-Display Printing sector. Large format colour
Graphics Full colour posters and printers and
other wide format colour -scanners. Raster
printed matter. Wide Image Processor (RIP),
format print shops and copying and scanning
copy shops. software. Imaging
Supplies.
------------------------------------------------------------------------------------------------------
DPS-Document Printing DP-Document Printing Office environments. Series LV, MV, HV and
Systems Central Repro departments. VHV copiers/printers/
Electronic Data Processing scanners. Server
environments. Print- software. Application
for-pay market. software.
---------------------------------------------------------------------------
NPS-Network Printing Office environments. Series MV, HV and VHV
Solutions Central Repro departments. printers. Copiers/
Electronic Data Processing printers/scanners.
environments. Print-for- Server software.
pay market. Application software.
Consultancy.
------------------------------------------------------------------------------------------------------
PPS-Production EPP-Electronic Banks. Insurance companies. Series HV and VHV
Printing Systems Production Printing Public utilities. fanfold printers
Electronic Data Processing (Pagestream) and
environments. cutsheet printers.
Application software.
Consultancy.
---------------------------------------------------------------------------
P&P-Printing & Printers. Series HV and VHV
Publishing Publishers. fanfold printers
(Demandstream) and
cutsheet printers.
Application software.
Consultancy.
---------------------------------------------------------------------------
IS-Imaging Supplies All relevant Oce-markets, Broad range of
for both Oce and third- supplies. Wide format
party equipment. rolls. A4 white bulk.
Specialties. Colour
copier supplies.
Toners
---------------------------------------------------------------------------
FS-Facility Services Companies. Document Management
Governments. Services: consultancy
(Local) authorities. and systems, document
Non-profit organisations. creation, production,
distribution,
archiving.
</TABLE>
- ------
34
<PAGE>
- -----
Report of the Board of Executive Directors
- ------
Wide Format Printing Systems
In the market for Wide Format Printing Systems Oce maintained its strong
position. The revenues of this Strategic Business Unit, including service,
supplies and Facility Services, increased by 1% from (Euro) 772 million to
(Euro) 782 million. After deduction of acquisitions and the effect of exchange
rate changes, revenues decreased by 2.5%. In 1998 the revenue increased by
about 6%. Of this increase in revenue, autonomous growth represented 5%, whilst
favourable exchange rate effects contributed 1%. Despite some pressure on
margins as a result of growing competition, profitability in this market was
maintained at a high level.
In May 1999 Oce acquired a majority shareholding (85%) in the Japanese
business Nippon Steel Calcomp Corporation, which now operates under the name Oce
Japan Corporation. The business possesses a well-trained sales staff and has
much experience in transforming software for use in Japan. The acquisition has
given Oce a good bridgehead in a country which, when the economy picks up again,
is estimated to have 40% of the potential of the European market. The entire
digital (black-and-white) product line is being equipped with Japanese operating
software for this market. The markets in Europe and the United States grew
slightly, whilst the Far East market picked up somewhat. The strong growth
experienced by the successful Oce 9800 in recent years was followed by a slight
decline in the number of placements last year.
The complete version of the Oce 9600, destined for the medium volume, became
available later than had been anticipated. During the year under review,
therefore, Oce was still unable to derive full benefit from the demand that
exists for this machine. However, a substantial portfolio of orders was built
up. Market shipments of the new machine started in the final months of 1999,
which means that the effects will only show through in full in the next
financial year. In the autumn a more powerful version of the Oce 9400 was
introduced. This is quickly expected find a place for itself in its segment:
smaller-size design engineering environments.
In the wide format market more than 71% (1998: 70% and 1997: 65%) of the
revenues (excluding Imaging Supplies) meanwhile originate from digital machines.
If supplies are included, almost 46% of the revenues are related to digital
technology (1998 and 1997: also 46%).
However important the availability of good hardware may be, it is increasingly
clearer that market success hinges on the extent to which a supplier is able to
provide a total solution for the customer's complex problems. In those solutions
the role of software is already equally as important as that of hardware. Oce
software packages, such as EngineeringExec and ReproDesk, are in many cases just
as important as the machines that they serve. The specific application packages
that Oce offers link up
<PAGE>
- -----
Report of the Board of Executive Directors
- ------
closely with the requirements of big companies which use extensive production
and business information systems and with the needs of job printers. In
connection with this, consultancy work relating to complex systems is also being
given an independent role, also as a separate source of revenues. The
combination of machines, consultancy and a more extensive arsenal of specialised
software is increasingly determining the image of Oce's offerings.
During the year under review various partnership contracts were established
with systems suppliers, such as SAP and Dassault.
In the wide format environment diazo technology has meanwhile declined
strongly. Only occasionally does demand still exist for new machines based on
this technology. That does not alter the fact that several tens of thousands of
such machines - mostly made by Oce - are still in use throughout the world,
whilst Oce is able, thanks to its relative size, to deliver the required
supplies and thus ensure an attractive contribution to operating income.
Display Graphics
The activities in display graphics have received new impulses now that they have
been given a place of their own within the organisation. Developments in this
area are progressing gradually, and Oce can build a good position for itself
thanks to a series of colour inkjet printers based on a bought-in engine and
equipped with controllers and application software. In the year under review two
new printers, the Oce CS 5050 and the Oce CS 5070, and a scanner, the Oce CS
4050, were added to the range.
In this relatively new, heterogeneous market with its various, highly
differentiated segments there is a high level of competition. This is mainly
due to the large number of new entrants. By supplying complete solutions Oce is
largely able to escape the price-depressing impact of this. For the development
of this market the investments in sales, system consultancy and R&D are
initially still considerable. For some time now Oce has been working on its own
inkjet technology. Products based on this will be introduced in a few years'
time, in the first instance in the market for CAD systems.
- ------
Document Printing Systems
In the market for Document Printing Systems Oce's revenues, including service,
supplies and Facility Services, increased from (Euro) 1,367 million in 1998
(Euro) 1,399 million. Autonomous growth amounted to 1% and the effect of
exchange rates was also 1%. In the previous year revenues increased by 18% to
(Euro) 1,367 million. Of this increase in revenues, the automous growth is 9%.
The revenues for 1999 and those for 1998 comprise the revenues from Network
Printing which were previously included in the business unit Production Printing
Systems. The most striking
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
development in the Document Printing Systems market is the rapid shift from
analogue to digital copiers in the number of placements. In the fast-expanding
digital printer/copier market a number of rival suppliers are meanwhile actively
offering printers/copiers in the segment of around 60 ppm. Both these
developments have brought pressure to bear on prices and margins and hence on
profitability. In the meantime a number of specific measures have been taken to
achieve a substantial cost reduction in manufacturing, service and logistics and
this should largely compensate for the pressure on margins. A further strong
point of Oce in this market is formed by the regular introduction of new, unique
software releases.
Oce's strength is founded on the direct relationship that its own sales and
service organisation has with customers and on its ability to ensure that the
machines will operate in complex environments with the aid of tailor-made
software solutions.
In the United States, where Oce booked substantial growth in 1998 thanks in
part to its partner IKON, an excessive build-up of stocks at IKON caused that
company to limit its offtake from Oce in 1999. However, the year under review
saw continued good performances by Oce's own direct sales organisation in
America, which helped to offset the slower progress of IKON. In the autumn sales
by Oce to IKON picked up again. The business remains an important partner for
Oce.
Although Oce's unique position as the first supplier for the segment of around
60 ppm came under pressure because of the strong competition, the company
sustained its success, especially with the versatile Oce 3165. That was
reflected in a strong growth in copying volume and revenues. Similarly, the Oce
3155 met with a good reception, whilst the Oce 3145, whose launch was announced
last year, will give Oce its own strong series of digital machines in the medium
and high volume segment. That range will be further completed in the near future
by digital machines with speeds of 100 and 85 ppm. In the market for small
format printing and copying some 30% of Oce's revenues, including service but
excluding supplies, are meanwhile related to digital products (1998: 27% and
1997: 16%).
Due to growing competition the pressure on prices in the digital market
segment increased strongly.
In terms of printing and copying volume Oce's market share grew right across
the board, in the United States slightly more than in Europe. That is
attributable in part to the high productivity and great versatility of the
digital printers/copiers.
Despite the spectacular growth of the digital machines there is still a
specific need for analogue copiers in a great many areas. The number of analogue
machines placed by Oce, less machines returned from the market, was negative but
this decrease was significantly smaller than the overall market decrease.
Expectations are that the analogue machines installed in the market will
continue to make a positive contribution to cash flow and income for many years
yet.
The analogue copier for repro applications, the Oce 3100, which was still
being installed on a wide scale during the year under review, was the winner of
two major performance awards, as had also been the case in 1998. The Oce 3045
and 3055 also received accolades from British and American trade journals.
In the colour segment Oce grew faster than the market. On the basis of the
bought-in machines a substantial customer base as well as a wealth of experience
has meanwhile been built up. When it puts its own colour printer/copier on the
market Oce will therefore not only have excellent machines but also
specialised sales and service staff. During the year under review Oce also
successfully started sales of colour copiers in the United States.
- ------
37
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Network Printing Solutions
The activities in the area of medium and high volume printers for office
environments were amalgamated with the Document Printing Systems activities
during the year under review. Via its Network Printing Solutions Business Group
Oce offers complete network printing solutions for a wide variety of information
flows in complex office environments. Particular care is devoted here to
ensuring maximum connectivity within the systems of the leading systems
suppliers. Oce's product concepts are concentrated on office processes, on
central repro facilities and, more recently, on the interface between users and
the central repro department.
The growth in the number of machines operating in networks is remarkable,
especially in the high volume segment. It is characteristic of the change-over
to a situation in which the stand-alone copier is disappearing within an office
environment that is predominantly served by networks and a wide variety of
printing and copying equipment. That change is also leading to the creation of a
new customer concept, in which the primary role is no longer played by the
equipment but by the complete solution to a specific customer problem. Against
this background Oce put various new software products on the market during the
year under review, including packages for print job management, workflow
management and system administration. This came in addition to a series of new
releases for existing software. In the applications area the partner programme
was also strongly extended.
A growing proportion of earnings will in the near future be generated by the
consultancy services that Oce supplies to customers and potential customers.
Thanks to its extensive expertise Oce is effectively equipped for this.
The mutual cooperation between Oce's German and the Dutch research centres has
resulted in innovations in the range of printers and servers thanks to an
exchange of functionalities between the machines.
- ------
Production Printing Systems
The Strategic Business Unit Production Printing Systems (high volume printers
and printing systems) increased its revenues in 1999. Revenues, including
service, supplies and Facility Services, went up by 7% to (Euro) 657 million
(1998: (Euro) 614 million). Of this increase, autonomous growth provided 6%,
whilst the remaining 1% was attributable to exchange rate effects. In 1998
autonomous growth amounted to 4% whilst 1% resulted from exchange rate changes.
Profitability was maintained at a high level.
The market for high volume printing is dominated by a very limited number of
suppliers. An ongoing process of business concentration is also taking place in
this market. As a supplier of systems based on continuous-feed paper Oce
maintained its leading position world-wide and achieved a growth of more than
5%, well in
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
excess of the market growth. In cutsheet systems for high volume applications
Oce was likewise able to strengthen its position further, for instance by
offering such features as magnetically readable typeface and support colours. In
this market, too, a major strength is that Oce can supply the machines in
combination with an extensive series of applications for document production and
processing.
The product range on offer for the high volume market was further strengthened
during the year under review. Oce therefore underlined its technological
leadership yet again. The product range - also including the servers and
software - offers the user great flexibility as regards speed, the number of
printer languages that can be processed and the range of print resolutions. As a
result the products can be used in combination with virtually any system that
the customer has installed, even if that is of less recent date or has been
designed with other print systems in mind.
The Domain software developed by Oce has quickly proved its value as a
powerful tool in the production of documents.
In the high volume market more than anywhere else, partnerships - in both the
hardware and the software field - are a critical success factor. All of Oce's
printers are installed in combination with computer systems whose output they
process, but also with finishing equipment with which they form an integral
whole. To ensure that it can actually supply the complete solution that the
customer demands, Oce operates a series of partnerships - some of them on an
exclusive basis - with the most important suppliers of systems and hardware.
Since 1998 Oce has held a participation in the software development business
Siemens Software in Namur, Belgium. In October 1999 Oce increased its stake to
70%. The business, now called Oce Software Laboratories Namur, also develops
special application software for Oce customers. This currently involves 80
employees. The number of employees working for Oce will be expanded further in
future.
Printing & Publishing
The market for Printing & Publishing (complete publications in relatively small
print-runs) likewise consists of a small number of suppliers who work in close
cooperation with partners. This market, which has mainly evolved to meet the
needs of the printing and publishing industry, is dominated by players that have
a strong customer base in pre-press and printing technology. None the less Oce
was able to double its revenues in this market. That growth rate is much higher
than that of this already fast-growing market. Partnerships, such as a
substantial reseller contract with Agfa for the Chromapress system, further
reinforced the market position. The costs of developing this relatively new
market for Oce are high. By concentrating on several highly promising market
segments, especially the printing of books and manuals, the operation can be
done on a cost-effective basis. Since Oce, in cooperation with a number of
partners, focuses on the supply of complete systems and functional software
packages, a good margin is attainable in this market. During the year under
review this activity was given a separate place of its own in the form of a
special business group for Printing & Publishing.
The Demandstream 8080 printer, specifically developed for Printing &
Publishing applications, was very well received by the market. The new Prisma
servers and software have also proved to offer excellent solutions for this
market. Their high productivity is a feature that is particularly appreciated in
the printing world. The machine's performances are directly reflected in the
commercial value of the output.
In the market for Printing & Publishing Oce has, in cooperation with several
suppliers of finishing equipment, developed a complete system for the printing
of books in limited print-runs. At the Buchmesse in Frankfurt, Germany, the
leading
- ------
39
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
trade fair for the publishing world, Oce created much excitement with this
`Book-on-Demand' system. It is the first digital printing system whose print
quality and finishing can compete with traditional book-printing methods. At the
end of 1999 it saw its first deployment in practice at a printing firm in the
United Kingdom.
The application of colour is also attracting more and more interest in the
world of high volume printing. For quite some time Oce has been supplying an
optional second print colour in a number of its models. The developments towards
more - and more varied - colours are in full swing and in a somewhat more
distant future four-colour printing will also become possible. During the year
under review Oce opened up the unique possibility of producing toner to match
the customer's exact house style colour.
- ------
Facility Services
The trend towards the outsourcing of printing and copying activities and, as an
extension of that, the contracting out of a series of other facility services is
now gaining more momentum in Europe as well. Oce, which has already been active
in this field for several years, therefore experienced a strong increase in
earnings from these activities during the year under review. Revenues increased
world-wide by 34% to (Euro) 197 million (1998: (Euro) 146 million). These
revenues are included in the revenues of the three Strategic Business Units:
Wide Format Printing Systems, Document Printing Systems and Production Printing
Systems.
To focus on developing further in this attractive growth market (30% growth on
an annual basis) a separate Business Group, Oce Facility Services, was formed.
By offering Facility Services, Oce is responding to a clear need amongst
customers. For each customer the company develops a tailor-made package of
services which, although based on Oce's own core competencies, encompasses an
ever wider spectrum. Following the addition of services such as postroom
activities, a strong demand is now arising mainly for activities involving the
management of document flows. This relates to the creation, production,
reproduction, distribution and archiving of (digital) documents. Specifically in
big companies with complex document flows Oce is able to make effective use of
its expertise.
The demand for consultancy in this area is also growing. Here, just like in
the other business groups, Oce intends to acquire a clear - and profitable -
place for itself.
Oce sees this activity primarily as the provision of a service that has its
own earnings-generating function, but the company will also make as much use as
possible of its own products (machines and supplies).
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
In the United States the activities of Archer Management Services, which was
acquired in 1998, have developed further at a rapid pace. This operation
represented a substantial proportion of the increased revenues in this region.
- ------
Imaging Supplies
Oce's revenues in Imaging Supplies (paper, other imaging materials and toner)
decreased in 1999 by 1% to (Euro) 414 million. In the previous year the revenue
went up by 3% to (Euro) 421 million. These revenues, which also comprise those
of Arkwright, are included in the revenues of the three Strategic Business Units
Wide Format Printing Systems, Document Printing Systems and Production Printing
Systems.
The activities, which are housed within a separate Business Group, are mainly
successful in new materials for business graphics (paper for colour prints and
copies), display graphics (wide format) and multi-purpose CAD supplies. This
success is being achieved alongside the steady growth in the `core activities'
in the area of wide format plain paper media. Sales of diazo supplies continued
to fall steadily. To make the most effective possible use of the available
selling capacity, Oce concentrates in the first instance on the equipment
installed with Oce customers, both that of Oce and that of third parties.
Against a background of static revenues, the margin developed favorably, in
particular because of the growing share of supplies with high margins and
continued rationalisation of the product portfolio. Profitability increased
further, also thanks to savings in logistics operations, which have meanwhile
largely been contracted out.
In the sales of imaging supplies a growing role is played by e-commerce. In a
number of countries some 10% of the supplies are ordered via Internet and this
proportion is expected to increase quickly.
When developing new carrier materials Oce makes ample use of the expertise
that the business has built up over the years, notably in the area of coating.
For instance, one of the new materials for display graphics was a paper coated
with an impermeable layer to accept the water-based ink that is customary in
inkjet printing. This innovation has its roots in diazo technology. A large
number of other carrier materials are based on the expertise of Oce's American
business Arkwright. The European and American activities are increasingly
working more closely together. Generally speaking, Oce is excellently qualified
to supply a broad range of materials that are precisely attuned to the machines
they are used on. Oce is a leading supplier of imaging supplies both in Europe
and in the United States.
- ------
41
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Research & Development (R&D)
The major changes that are currently taking place in the market and amongst
Oce's customers because of the switch to digital technology had already led to a
refocusing of the R&D programme many years ago. As a result Oce had been able
to anticipate these changes in full in its products. No substantial changes
therefore took place in technological developments during the year under review.
Practical development work was, however, brought into line with the rapidly
changing demand for new software products whose functionality also needs to be
continually expanded. To prevent possible tension between the need for
completely new developments and the expansion and updating of existing
functionalities, these development categories have been separated. Oce
applies a system of basic developments (known as root, branch and leaf
development), from which families of machines and systems are developed, each
with their own regular updates and new releases. In this way a faster time-to-
market is achieved for product variants that are needed by the market over the
short term, whilst still continuing to work on the innovation of basic
technologies. Many requests for adaptations and expansions are received from the
operating companies and also from, say, Oce Facility Services, which also serve
as sources of knowledge about specific customer processes. R&D's task is to
develop these further in terms of either customer-specific or generic
applications. Thanks to its direct sales organisation and the resultant close
involvement with the customer's processes, Oce is uniquely positioned to base
its work on those processes instead of on the approach of the individual user.
Thinking up solutions for market demands and needs brings much work for the
internal and external (software) developers who develop and expand the products
for Oce.
In the United States the cooperation with Groupware and PageMasters was
intensified. The R&D facilities in the Netherlands (Venlo), Germany (Poing),
France (Creteil) and Belgium (Namur) are working together to an increasingly
closer extent.
Machines and systems
During the year under review good progress was achieved with a number of
machines and systems whose launch is planned for the near future. In the
successful digital line of the Oce 3165 `family', for example, two machines for
100 and 85 ppm respectively have now reached the engineering phase. The Oce 3125
colour copier was given the required stability thanks to a newly designed drum
and a new toner that was totally redeveloped. Major steps forward were also
achieved in inkjet technology, with both water-based and solid inks. The
technology is destined for the production of Oce's wide format colour printers.
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Important work was done at the Oce laboratory in Creteil, where the Next
Generation Controllers are being developed for the wide format printers/copiers.
The new controller has meanwhile been incorporated in the new Oce 9400 and 9600
and is being prepared for the Oce 9800. The cooperation between the R&D
activities in Germany and the Netherlands has been further intensified and is
beginning to yield tangible results. This was particularly the case in the area
of toners, organic photoconductors and techniques for duplex printing on cut
sheets.
For the development of new imaging supplies the main emphasis has been shifted
to the R&D department at Arkwright, where a wealth of experience has been
built up mainly in the area of carrier materials and coatings.
The cooperation with a large number of suppliers in the development phase of
new machines proved to be a success. This policy has meanwhile been refocused to
concentrate on a limited number of partners and co-developers of a higher
standard so as to enhance the ability to respond alertly to market needs.
The Oce Software Academy has been a great success. In this academy some 50
graduates from higher vocational education are trained as IT specialists who can
play an active and high-calibre role within the organisation. Almost half of
those participants have meanwhile completed their studies with very good
results. A third intake class started in 1999.
- ------
Safety, Health and the Environment
Oce has a tradition of caring for the health and safety of its employees and the
users of its products. The company does this by attempting to minimise the
environmental impact of its activities as much as possible. Oce's commitment to
safety, health and the environment is laid down in a policy that plays a
prominent role in all the company's operations. In combination with this policy,
the endeavours to achieve continual innovation have led to a great many improved
characteristics, both in the products themselves and also in working methods and
processes, which are likewise being improved all the time. As a rule the
specifications are well in excess of the statutory requirements relating to
safety and the environment.
Sustainable development and the environment
Sustainable development has become an important element in present-day business
practice. Oce has clearly booked outstanding achievements in this field over
the past years and has taken a series of measures aimed at achieving
sustainability in all aspects of its operations. This is reflected in special
attention for the use and re-use of materials and a focus on the reduction of
energy consumption. Together with the KEMA research and inspection institute
Oce developed a system for safe and environmentally friendly design, a system
that plays a central role in every phase of the design process. Thanks to
rationalisation measures and the introduction of new processes in manufacturing
and storage operations Oce's environmental impact is gradually being further
reduced world-wide. The re-use and recycling processes and a self-contained
system of waste materials management are also reducing the impact even further.
The energy consumption of Oce machines decreases with each new model; the new
Oce 9600, for example, has an especially low energy usage. Almost all Oce
systems carry the American Energy Star seal of approval.
During the year under review Oce introduced an environmental care system based
on ISO 14001 for all its manufacturing facilities in Venlo. Certification of
this system will take place at the beginning of 2000. The operating companies,
too, have shown an interest in obtaining such certification.
- ------
43
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Manufacturing & Logistics
Machines
The start of the year under review brought a decline in demand for various
analogue product lines at the manufacturing locations. As a response to that,
the manufacturing capacity was adjusted by cutting back on flexible manpower
resources. The digital production lines continued to be fully utilised. Managing
the varying demand for products requires a great deal of attention, but the
flexi-system has again demonstrated its value. In the meantime the management
of stocks has been changed from a plan-driven to a consumption-driven system. In
addition, a Manufacturing Excellence programme has been initiated with the aim
of raising the efficiency, whilst at the same time enhancing the quality. This
is being supported by a number of factors, such as the simpler construction of
the machines thanks to digital technologies, the increased use of complete pre-
assembled modules sourced from premanufacturing and the transfer of part of the
work to the manufacturing facilities in the Czech Republic. The outcome will be
that the increase in assembly personnel will lag behind the anticipated growth
in production.
The outsourcing of factory supply logistics which had been implemented in the
previous year proved successful, despite the rapid fluctuations in demand.
Logistics
In the logistics for service components, one of the most vital processes within
the Oce organisation, the centralisation that was started in 1998 was further
continued. In the new set-up the service technicians can now be supplied with
components before 07.00 hrs. provided that the orders were placed before 17.00
hrs. on the previous day. This applies not only in the Benelux but also in
Germany, France and the United Kingdom. The other countries in Europe will soon
follow.
As regards the second major logistics outsourcing project, the logistics of
supplies, the first phase has been implemented. A new logistics centre in Venlo
and a number of local storage facilities in various countries will handle the
distribution under the leadership of an international provider of logistics
services. The project will yield immediate savings, thanks in part to the use of
a variable costing system.
During the past year a start was made on direct deliveries of machines to
customers on the basis of customer specifications. Final assembly and pre-
installation take place centrally. Distribution, installation and instruction
will be handled in cooperation with partners. Partnerships have meanwhile become
essential in logistics, as they lead to improved performances and greater
flexibility.
Recycling
The re-use of reconditioned components from machines that have been returned
from the market has been developed by Oce into a permanent system over a series
of years. In designing new machines the re-use of components and modules is now
standard practice. Partly because of the switch from analogue to digital,
relatively large numbers of machines are currently being returned to the special
recycling plant that Oce built at the beginning of the 1990s. That plant,
located in the Czech Republic (Prague), also plays an increasingly important
role in the remanufacturing of machines.
- ------
44
<PAGE>
- ------
Report of the Board of Executive Directors
- ------
Personnel & Organisation
Human resources management (HRM) was closely involved in the internal changes
in the Oce organisation at all levels. Based on the recognition that adequate
manpower is the main driver of Oce's success, HRM has also focused its policy on
the new requirements and has acquired new methods and techniques to help
accelerate the internal restructuring process that has already been set in
motion.
This is governed by two key aspects: the switch from analogue to digital
technology, combined with a transition to a role as `supplier of complete
solutions', and the increasingly higher average education that is needed to
fulfil the functions effectively.
The effect of the switch is particularly noticeable in product development,
manufacturing, service and sales, although its timing is phased differently in
all four areas. In R&D some 60% of the employees are trained in IT. The need
for IT specialists has grown strongly. The company's own IT training programme
filled part of that need by supplying motivated people of very high quality. In
the service area the number of digital machines and especially systems is now
increasing fast, particularly in the office market. That has intensified the
demand for digitally trained technicians, though the greatly reduced need for
service is keeping the number of service staff limited in absolute terms. In
sales, too, the switch from selling (often stand-alone) machines to selling
complex digital systems calls for a different type of salesman/consultant.
The ever higher average level of education marks the transition from a
production-based to a knowledge-based organisation. Via a continuous education
and training programme Oce provides its own employees with additional training.
At the same time, however, the recruitment of highly trained new employees has
been intensified.
To analyse the requirements for IT specialists as well as for personnel who
are familiar with it, an IT Master Plan has been drawn up in cooperation with
the Strategic Business Units.
As part of the Management Development programme, a start was also made during
the year under review on monitoring and identifying young talent via the Young
Executive Programmes.
Under the restructuring programme Oce has already had to take its leave of a
number of employees during the year under review, including many dozens who had
what was often a lengthy period of service. The company owes them a great debt
of gratitude for their contribution to the successful growth of Oce over the
years.
<PAGE>
- ------
Report of the Board of Executive Directors
<TABLE>
<CAPTION>
- ------ ------------ ------------
Distribution of 1999 1998
employees by ------ ---- ------ ----
geographical areas number as % number as %
- ------ ------ ---- ------ ----
<S> <C> <C> <C> <C>
Netherlands 4,155 19 4,155 20
Germany 3,144 14 3,110 15
France 1,606 7 1,578 8
United Kingdom 1,104 5 1,239 6
Rest of Europe 3,454 16 3,449 16
United States 7,103 33 6,369 30
Rest of the world 1,191 6 1,078 5
------ ---- ------ ----
Total 21,757 100 20,978 100
- ------ ------------ ------------
Distribution of 1999 1998
employees by ------ ---- ------ ----
types of work number as % number as %
- ------ ------ ---- ------ ----
Research &
Development 1,780 8 1,614 8
Manufacturing &
Logistics 3,507 16 3,878 19
Facility Services 4,198 19 3,237 15
Sales 4,926 23 4,885 23
Service 5,322 25 5,415 26
Accounting and
other staff 2,024 9 1,949 9
------ ---- ------ ----
Total 21,757 100 20,978 100
</TABLE>
Oce also undeniably grew again in many ways during the year under review. In a
number of new areas, too, Oce has gained ground and has taken steps that will
prove important for the future. To grow responsibly in this way calls for
dedication and effort but also for imagination and daring. Oce people have shown
that they possess these qualities in ample measure. That gives us the confidence
that - however much the world around us may change - Oce can continue to grow in
the future as well. We would like to convey our sincere thanks to everyone,
employees, customers, partners, for the contributions they made over the past
year.
Venlo, January 31, 2000
The Board of Executive Directors:
R.L. van Iperen, chairman
J.F. Dix
H.J.A.F. Meertens
G.B. Pelizzari
- ------
46
<PAGE>
- ------ ------
February 2000 Directors Central Services
------
Strategic Business Units
Wide Format Printing Systems G. Kraaijeveld
Document Printing Systems P.J.J.G. Nabuurs
Production Printing Systems W. Gemmel
------
Business Groups
Imaging Supplies J. Dix
Facility Services J. Dix
------
Corporate Staff
Secretariat of the Company, J.M.M. van der Velden
Legal Affairs
Corporate Personnel and P.H.G.M. Creemers
Organisation
Finance and Administration C.F. Lindenhovius
------
Central Operating Company Venlo
Venlo Executive Committee J.C.A. Vercoulen, chairman
N.J. Koole
Manufacturing and Logistics N.J. Koole
Research and Development J.C.A. Vercoulen
See also page 7.
- ------
83
<PAGE>
<TABLE>
- ------ ------
February 2000 Principal companies and their chief executives*
<S> <C> <C> <C> <C>
------
Europe
Belgium Oce-Belgium N.V./S.A. J. van Boerdonk Brussels (2)729.4811
Oce-Interservices N.V./S.A. J. van Boerdonk Brussels (2)729.4992
Oce Software Laboratories B. Hucq Namur (81)554.211
Namur S.A. (70%)
Denmark Oce-Danmark A.S. H. Risor Copenhagen (43)29.7000
Germany Oce-Holding Deutschland A.A.J. van Driel and Mulheim/Ruhr (208)48.450
G.m.b.H. P. Feldweg
Oce-Deutschland G.m.b.H. A.A.J. van Driel and Mulheim/Ruhr (208)48.450
S. Landesberger
Oce Printing Systems G.m.b.H. P. Feldweg and Poing (8121)72.4031
W. Gemmel
France Oce-France S.A. A. Gimenez Noisy-le-Grand (1)4592.5000
Oce-Industries S.A. J.L. Desriac Creteil (1)4980.8000
Hungary Oce-Hungaria Kft. G. Nemeth Budapest (1)236.1040
Ireland Oce-Ireland Limited R. Thompson Dublin (1)459.5411
Italy Oce-Italia S.p.A. F. Calosso Milan (02)927.261
Netherlands Oce-Technologies B.V. J.C.A. Vercoulen Venlo (77)359.2222
Oce-Nederland B.V. J.J. Kwaak 's-Hertogenbosch (73)6815.815
Arkwright Europe B.V. J.R. Marciano Venlo (77)382.5315
Norway Oce-Norge A.S. O. Fondevik Oslo (2)202.7000
Austria Oce-Osterreich Ges.m.b.H. G. Schennet Vienna (1)865.336
Poland Oce-Poland Limited, Sp. zz.o. M. Kozlowski Warsaw (2)2846.7429
Portugal Oce-Lima Mayer S.A. Th. de Lima Mayer Lisbon (21)412.5700
Spain Oce-Espana S.A. A. Aznar de Argumosa Barcelona (3)484.4800
Czech Republic Oce-Czech republic s.r.o. I. Konecny Prague (2)440.10111
United Kingdom Oce (UK) Limited M.J. Cornish Loughton (181)508.5544
Sweden Oce Svenska AB F.O. Nilsen Stockholm (8)703.4000
Switzerland Oce (Schweiz) A.G. H. Wurges Glattbrugg (1)829.1111
------
North America
United States Oce-USA Holding Inc. G.B. Pelizzari Chicago, ILL (773)714.8500
Oce-USA Inc. G.B. Pelizzari Chicago, ILL (773)714.8500
Oce Printing Systems USA, Inc. H.W. Krause Boca Raton, FL (561)997.3100
Arkwright Inc. J.R. Marciano Fiskeville, RI (401)821.1000
Archer Management M.D. Weiner New York, NY (212)502.2100
Services, Inc.
Oce Groupware D. Bower Cleveland, OH (216)687.9970
Technology, Inc.
Canada Oce-Canada Inc. S. Goodall Toronto (416)224.5600
</TABLE>
* Where holdings are less than 95% of the equity, capital percentages are
stated. A list of affiliated companies is available for public inspection at
the Commercial Registry, Venlo, in conformity with the provisions of Article
379, Book 2, of the Dutch Civil Code.
- ------
84
<PAGE>
<TABLE>
------
Principal companies and their chief executives
<S> <C> <C> <C> <C>
------
Far East
Hong Kong Oce (Hong Kong China) Ltd. N.W. Kooij Hong Kong 2577.6064
China Oce Office Equipment N.W. Kooij Beijing (10)6528.1200
(Beijing) Co., Ltd.
Japan Oce Japan Corporation (85%) K. Mukozaka Tokyo (3)5402.6112
Singapore Oce (Far East) Pte. Ltd. N. Klitsie Singapore (8)46.2381
Malaysia | Oce Systems M. Sak Petaling Jaya (3)758.4088
| (Malaysia) Sdn. Bhd.
Singapore | Oce (Singapore) Pte. Ltd. N. Klitsie Singapore (8)46.2381
Taiwan | Oce (Taiwan) Ltd. N. Klitsie Taipei (2)2651.6516
Thailand | Oce (Thailand) Ltd. S. Santhidej Bangkok (2)260.7133
------
Other countries
Australia Oce-Australia Limited P.W.M. Thomassen Scoresby (3)9730.3333
Brazil Oce-Brasil Comercio e S. Notermans Sao Paulo (11)3621.8444
Industria Ltda.
South Africa Oce Printing Systems T. Venediger Johannesburg (11)258.6000
(South Africa) (Pty.) Ltd.
------
Direct Export
Netherlands Oce Direct Export W.J. Verheijen Venlo (77)359.2222
------
Lease companies
Australia Oce-Australia Finance Pty. Ltd. P.W.M. Thomassen Cheltenham (3)9263.3333
Germany Oce-Deutschland A. Hutter Mulheim/Ruhr (208)48.450
Leasing G.m.b.H.
France Oce-France Financement S.A. M. Gianfermi Saint-Cloud (1)4592.5055
Spain Oce-Renting S.A. E. de Sus Barcelona (3)484.4800
United Kingdom Oce (UK) Finance Limited N. Anderson Loughton (181)508.5544
United States Oce-Credit Corporation S. Schulein Purchase, NY (914)694.1116
------
Minority holdings
Cyprus Heliozid Oce-Reprographics 25%
(Cyprus) Ltd.
Germany InterFace Connection G.m.b.H. 11%
Hungary Szenzor Szamitokozpont Kft. 34%
Singapore Datapost Pte. Ltd. 30%
</TABLE>
- ------
85
<PAGE>
<TABLE>
------
List of terms and abbreviations
------
<S> <C>
Analogue In relation to copiers: producing a copy with the aid
of a photo-lens in a stand-alone machine; the opposite of
digital (see below).
Book-on-Demand System Digital printing system used for the
(short run) printing of books.
Business Graphics Materials (supplies) for making high quality
colour prints, especially on transparent film for
presentations (see also Display Graphics).
CAD Computer Aided Design.
`Captive' lease companies Lease companies which form part of
the Oce Group.
Coating Applying a special (usually chemical) layer to paper or
polyester.
Continuous-feed paper Technology in which fanfold paper is fed
from a roll into the machine.
Controller In relation to printer systems: an electronic device
which converts input data into a format which can be
understood by the printer.
Cut sheet Loose sheets of paper for feeding into a printer (as
opposed to fanfold or roll feeding).
Diazo Abbreviation of the word diazonium; a chemical compound
which is coated onto paper so that images can then be
developed on the paper after exposure to light; a process
formerly known as dyeline printing.
Digital In relation to copiers and printers: producing a copy
or print by means of laser or LED exposure, in a machine which
can be linked up to a network; used here as the opposite to
analogue (see above).
Digitisation The conversion of information into digital codes.
Display Graphics Large format colour prints, e.g. on posters,
banners and billboards.
Document management All activities involved in the preparation,
copying/printing and finishing of documents.
Document Printing (Previously known as Office Systems). Used
Systems by Oce to mean the market for copying and printing in
office environments.
E-commerce Buying and selling and paying for articles/products
via the Internet/Intranet
EDP segment Electronic Data Processing. Market segment in which
the processing of information by computers is the main
activity.
Electronic Production (Production) printing and processing of
Printing documents in high volumes.
Engine Complete driver and controller unit for a printer.
Facility Services Where the supplier of certain products
handles the work involved in the use of those products;
specifically in those cases where Oce performs copying and
printing activities on a customer's premises at that
customer's request.
Fanfold printer High volume printer for processing fanfold
(continuous-feed) forms.
Full colour Image reproduced entirely in colour.
Human resources The recruitment and development of personnel
management to fulfil posts within a business.
Imaging Supplies Materials which are used (mainly as
information carriers) in copying and printing, such as paper,
films, labels, etc.
Inkjet technology Specific printing technology in which fine
droplets of ink are used to build up the printed image.
Interface Communication system between users and systems and
between separate systems.
IT Master Plan Plan developed to recruit and develop
specialists who are trained in information technology.
Job management Managing and controlling the execution of preset
(print) jobs.
Job printer A business specialising in making copies and prints
for third parties.
Multi-purpose CAD Materials that can be used for several
supplies different purposes in design work using CAD
(Computer Aided Design) technology.
Network Printing Using printers and servers to provide
Solutions solutions for the reproduction of documents in
networks (chiefly in office environments).
One-stop shopping Buying in as many products and services as
possible from one single supplier, such as copiers, printers,
system software, service support as well as their financing.
One-stop supplier A supplier who can provide as many services
as possible, including copiers, printers, system software,
service support as well as their financing.
Outsourcing Contracting out the total package of copying,
printing and finishing activities to the supplier (in this
case Oce).
Pay-out/pay-out ratio The proportion of the net income that is
distributed in the form of dividend.
Plain paper Ordinary (untreated) paper.
ppc Plain paper copying: making copies on ordinary (untreated)
paper.
ppm Prints per minute: used to denote the speed of a machine's
output.
Pre-press Preparatory activities prior to printing.
Printing The (repeated) production by a printer of an original
document using data stored in a digital memory.
Printing & Publishing Printing and finishing complete publications in relatively
small print-runs for a client.
Print resolution Indicates the quality of a print. Resolution
is expressed in dots per inch (dpi).
Production Printing Used by Oce to refer to the market for high
Systems and very high volume printing systems.
</TABLE>
- ------
90
<PAGE>
<TABLE>
------
List of terms and abbreviations
<S> <C>
------
Remanufacturing Replacing certain machine components and making
the required adjustments to settings so that the machine will
operate as new when placed in the market again.
Remodelling Adding a different functionality to an existing
machine.
Reseller contract Contract for the resale of third-party
products.
SBU Strategic Business Unit: the Oce business structure for
each application area.
Scanner Machine that reads an image digitally and then stores
it in digital form in a memory.
Server System that organises and controls the `traffic' between
computers and the printer(s) connected to them.
Stand-alone A copier or printer which is not coupled up to a
network.
Swap Interest rate hedging instrument used to change the type
of interest rate (fixed or variable) attached to a loan. Also
used as a verb: to swap.
Technical Documentation The copying and printing of wide format
Systems drawings in technical environments, such as design engineering
offices, factories and architectural design offices.
Time-to-market The time that is required to get a product ready
for market launch.
US GAAP American accounting principles (United States Generally
Accepted Accounting Principles).
Volume segment Internationally accepted industrial standard for
classifying the copying and printing markets into segments
based on the number of copies or prints produced per machine
per month.
Wide Format Printing (Previously known as Engineering Systems).
Systems Used by Oce to refer to the market for machines and supplies
for the printing and copying of wide format documents.
Workflow management The organisation and management of projects.
</TABLE>
- ------
91
