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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MARCH 31, 1996 Commission file number: 0-20828
DANKA BUSINESS SYSTEMS PLC
(Exact name of registrant as specified in its charter)
ENGLAND 98-0052869
(State of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 576-6003
Securities registered pursuant to Section 12(g) of the Act:
ORDINARY SHARES
1.25 p each
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or an amendment to this
Form 10-K. [ ]
As of March 31, 1996, the Registrant had 219,112,247 Ordinary Shares
outstanding, including 169,774,453 represented by American Depositary Shares
("ADS"). Each ADS represents four Ordinary Shares. The ADSs are evidenced by
American Depositary Receipts. The aggregate market value of voting shares held
by non-affiliates of the Registrant as of March 31, 1996 was $2,220,828,292
based on the average bid and asked prices of ADSs as quoted on the NASDAQ
National Market.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
March 31, 1996, are incorporated by reference in Part I and Part II of this
Form 10-K.
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
July 19, 1996, which has been filed with the Securities and Exchange
Commission.
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DANKA BUSINESS SYSTEMS PLC
ANNUAL REPORT ON FORM 10-K
MARCH 31, 1996
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Danka Business Systems PLC and its Subsidiaries (the "Company") is one
of the largest independent suppliers of photocopiers, facsimiles and other
automated office equipment in North America and Europe. The Company primarily
markets these products and related service, parts and supplies on a direct
basis to retail customers. The Company also markets photocopiers, facsimile
equipment, and related parts and supplies on a wholesale basis to dealers. In
addition, the Company markets private label photocopier and facsimile equipment
and related supplies on a direct and wholesale basis under the Company's
Infotec trademark, and facsimile equipment under its dex and Omnifax
trademarks. Danka has offices in 40 states, nine Canadian provinces and seven
European countries.
The Company is one of the largest independent suppliers of Canon,
Konica, Minolta, Sharp and Toshiba photocopiers and facsimile equipment. As a
result of its recent acquisition of Infotec, a European retail and wholesale
supplier, the Company is also one of the largest independent suppliers of Ricoh
products in Europe. On September 6, 1995, the Company entered into a marketing
agreement with Eastman Kodak's Office Imaging division ("Kodak") granting the
Company the non-exclusive right to sell and service certain high-volume Kodak
copiers in the United States and Canada.
The Company provides a wide range of customer-related support
services, maintenance and supply contracts, training and technical support, and
third-party leasing arrangements. The Company's focus on customer service and
the contractual nature of its service business, combined with its service
contract renewals, provide a significant source of recurring revenue.
The Company's principal business strategy is to increase its presence
as a leading independent supplier of automated office equipment and related
service, parts and supplies in existing and strategic new geographic markets in
North America and Europe. The Company's internal expansion has resulted from
increased product offerings, aggressive marketing to new customers and emphasis
on providing service and supplies. The Company has expanded externally as a
result of the acquisition of selected suppliers of automated office equipment,
and over the last three years has completed over 100 acquisitions in the
industry. The Company seeks to improve the profitability of the businesses it
acquires by integrating them into the Company's sales and service network. The
Company's operating philosophy is to support its sales and service network
through training in technical, marketing, and administrative support
procedures; advertising campaigns; volume purchasing; and uniform operating
procedures.
The North American and European photocopier and facsimile markets are
highly fragmented, with numerous dealers engaged in the same or similar
businesses as the Company. Due to the complexity of new products and the high
costs of product support, new technology is driving consolidation within both
markets. As a result, the Company believes that significant acquisition
opportunities exist in these markets.
Danka Business Systems PLC is a corporation organized under the laws
of England and Wales. The Company's principal operating subsidiaries are
located in the United States, Canada and Europe. The registered and principal
executive office of the Company is located at Masters House, 107 Hammersmith
Road, London, W14 0QH, England, and its telephone number is 011-44171-603-1515.
The Company's principal operating headquarters is located at 11201 Danka Circle
North, St. Petersburg, Florida 33716, and its telephone number is 813-576-6003.
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ACQUISITION STRATEGY
The Company expands its business through internal growth by increasing
its penetration in existing markets, and by entering new geographic areas
primarily through the acquisition of existing businesses. The Company's
acquisition strategy is focused on acquiring businesses in current territories
to increase penetration in those markets and on acquiring businesses in new
territories. The Company seeks to acquire companies that generally have (i) an
established customer base, (ii) a product line comparable with the Company's
current and anticipated products; (iii) necessary manufacturer authorizations,
and (iv) the potential to benefit from the Company's uniform operating
procedures and centralized purchasing power.
Acquired companies are integrated into the Company through the
implementation of the Company's operating procedures, which (i) establishes
financial controls, common information systems and reporting requirements, (ii)
introduces the Company's service, marketing and sales programs and compensation
plans, (iii) evaluates, transfers and retrains personnel as necessary, and (iv)
in many cases, expands the acquiree's product mix to incorporate new products
which are sold by the Company. This integration generally results in a
replication of the Company's service, sales, marketing and other business
programs. In most business acquisitions, the acquired businesses' owners and
management are contractually bound by executive non-compete and trade secret
protection agreements.
Over the last three years, the Company has completed over 100
acquisitions in the industry which has resulted in a network of over 400
locations. The Company believes that significant additional acquisition
opportunities exist in the highly fragmented North American and European
automated office equipment industry. Technology has increased the complexity
of new products, and the higher costs of product support are driving the
consolidation within the North American and European markets. This trend has
caused smaller independent distributors to consider selling their dealerships
to larger marketing and service organizations such as the Company. Through
acquisitions, the Company entered the United Kingdom market in 1993, the
Canadian market in 1994, and Continental Europe in 1995.
The Company's continued success in future acquisitions will be
relative to many things, including the timing and size of an acquisition; the
success or failure to successfully integrate any significant acquisition and
minimize integration costs related thereto; the Company's ability to
successfully grow its infrastructure to sustain, manage, operate and continue
significant expansion; and its ability to maintain, manage and operate its core
business.
The Company is currently engaged in preliminary discussions and
consideration of various possible acquisitions, some of which could be
material. However, the Company currently has no agreement, arrangement or
understanding with respect to any acquisitions that are, individually or in the
aggregate, material to the Company.
INFOTEC ACQUISITION
Effective November 1, 1995, the Company acquired all of the issued and
outstanding shares of Infotec Europe B.V. and its operating subsidiaries
("Infotec"), for aggregate cash consideration of approximately $167.0 million
(the "Infotec Acquisition").
Infotec is one of Europe's largest independent suppliers of
photocopiers, facsimile equipment, and related service, parts and supplies.
Infotec markets a full line of Ricoh products under the Infotec brand name
through its locations in Germany, the United Kingdom, France, Italy, Denmark,
Belgium and the Netherlands, as well as through its wholesale distribution
network of independent dealers in these and other European countries. For
calendar 1994, Infotec had total revenue of approximately $256.0 million and
income from operations of approximately $16.6 million.
The Infotec Acquisition has significantly increased the Company's
business in Europe, and provides the Company with its initial operations in
Germany, France, Italy and Denmark. In fiscal 1996, the Company's total
revenue in Europe was $247 million, or approximately 20% of the Company's total
consolidated revenue. The
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Company is integrating its existing European operations with Infotec and
believes such integrated operations will provide a substantial core operation
from which to pursue its growth strategy in Europe. (Reference is made to Note
6 of the "Notes To The Consolidated Financial Statements" entitled "Foreign
Operations" contained in the Company's Annual Report to Shareholders for the
Year Ended March 31, 1996 which is incorporated by reference).
PRODUCTS
The Company's primary products are photocopiers, facsimile equipment,
other automated office equipment, and related parts and supplies. The
photocopier industry is informally divided into six segments. Segments one and
two contain the least sophisticated photocopiers; segments three and four
contain faster and more sophisticated midrange photocopiers; and segments five
and six contain the most sophisticated and fastest photocopiers in the
industry. The Company sells photocopiers primarily in segments one through
five through its retail operations, while it sells photocopiers primarily in
segment one through its wholesale operations. The principal manufacturers in
segments one through four are Canon, Konica, Sharp, Mita, Minolta, Ricoh and
Toshiba. The Company offers products from each of these manufacturers.
Segments five and six are currently dominated by Kodak and Xerox. It is
important that the Company offer all segments of photocopiers to its customers.
Through its Kodak agreement described below, the Company has increased its
revenues from the sale and service of segment five and six photocopiers. The
Company will continue to expand its product offerings to encompass new
equipment as it is made available by its vendors.
On September 6, 1995, the Company and Kodak entered into an agreement
(the "Kodak Agreement") granting the Company the non-exclusive right to sell
and service Kodak high-volume copiers throughout the United States and Canada.
Danka is selling and servicing all configurations of the Kodak ImageSource 85
copier, as well as the Kodak 3100 duplicator, and the Kodak 2085
copier-duplicator. These Kodak models supplement Danka's existing product
line, by offering a segment six copier (which copies at a rate of 100 copies
per minute) and further enhances the Company's segment five (70 to 90 copies
per minute) product line. The Kodak Agreement better positions Danka to market
a full product line and the related services to major market customers. The
Kodak Agreement is cancelable without cause by either party with 120 days
notice. On January 18, 1996, Kodak announced that it is developing
alternatives to strengthen and reposition its office imaging business. As a
consequence, Kodak is exploring a variety of strategic options and structural
alternatives, which range from expanded use of strategic alliances to the
formation of joint ventures or a potential divestiture. The Company is
currently assessing the possible effect of Kodak's potential actions and is
considering various strategies in connection with these potential actions.
Should the Kodak Agreement be terminated, the Company believes that it can
obtain an alternative source of competing segment five and six equipment.
However, there can be no assurance that the Company will be able to obtain such
products or that the same would be available on terms that would make the
Company competitive in such segments or that the same would be well accepted in
the marketplace.
In addition, the Company distributes a range of facsimile equipment,
with a concentration in the more sophisticated plain paper and multifunctional
models. The plain paper and multifunctional models use toner and other
supplies and require maintenance similar to photocopiers. A majority of these
facsimile machines are private label products of the Company.
TECHNOLOGY
The Company believes that the black and white photocopier and
facsimile equipment markets will continue to change with the increasing
acceptance of digital technology. Digital photocopiers have the ability to
communicate with other automated office equipment. This innovation is
resulting in a blurring of the distinction between traditional photocopiers,
facsimile equipment, and laser printers, with the emergence of a range of
multifunctional office equipment.
Many of the Company's existing vendors have expended considerable
resources in the research, development, and creation of digital products and
have been recently introducing digital black and white photocopiers. To
support this new technology, the Company has developed digital research and
support laboratories which enable it to test the manufacturers' equipment in
various networked environments in order to
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evaluate performance prior to releasing the equipment to the Company's sales
network. Additionally, the Company's digital labs provide training and support
to its sales professionals and service technicians, and also serve as a beta
test site for many of its manufacturers' equipment, as well as other vendors
offering digital office products. More recently, the Company has begun
offering digital support service contracts and providing customers with full
software support from the desktop computer through the network to the digital
copier/printer.
Currently, color photocopiers represent a small but growing portion of
the Company's retail copier sales, and represent a growing segment of the
photocopier market. Through the Company's expanded relationship with Ricoh in
the U.S., the Company nearly doubled the number of markets in which it sells
color products during fiscal 1996. Additionally, with a color server, color
photocopiers can be converted into networkable color printers that will accept
digital output from a computer as well as hard copy inputs which can be
reproduced or scanned into the computer, thus increasing the functionality of
the unit.
Due to the emergence of digital technology, the Company has
experienced and could continue to experience increased expenses for the
retraining of its service technicians and salespersons.
SERVICE
In fiscal 1996, retail service, supplies and rentals represented 48%
of the Company's total revenue. This revenue is primarily derived from its
equipment, maintenance and supply contracts ("EMS Contracts") and other
maintenance contracts. Generally, EMS Contracts are for a one-year term and
are automatically renewable. Although the Company has various payment
arrangements, most maintenance contracts are based upon a per copy charge.
These arrangements provide the customer with scheduled payments that can be
conveniently budgeted and provide the Company with a steady source of revenue.
The Company has a stated mission of repairing a machine on the first
service call, and has full time service trainers who teach classes to the
Company's technicians. The Company also maintains an emergency toll-free
number to assist its own service technicians and service technicians of
independent dealers who are customers of its wholesale operations. The Company
maintains a database of common service problems and related solutions to assist
technicians in the field.
MARKETING AND CUSTOMERS
The Company believes that, in addition to price and product
performance and capabilities, its retail customers primarily base their
purchasing decisions on the quality of post-sales service and support, speed of
service, and the availability of financing and rental programs. The Company
believes that its wholesale customers primarily base their purchasing decisions
on price, speed of delivery, dealer support, product performance and
capabilities, and availability of financing.
The Company's retail operations target a broad range of customer
groups which include small to large businesses, professional firms, and
governmental and educational institutions. Customers of the Company's
wholesale operations consist generally of independent dealers who are not
authorized dealers for major manufacturers. Additionally, the Company markets
Infotec private label copiers and facsimiles as well as its dex private label
facsimile equipment and related supplies on a wholesale basis to a network of
authorized independent dealers. No customer represents more than one percent
of the Company's total revenue, and the loss of any one customer would not
materially affect the Company.
As of March 31, 1996, there were 2,810 Company employees devoted to
sales which represents a substantial increase from March 31, 1995. Sales
personnel turnover is common in the industry and the Company makes a
considerable effort to retain qualified sales personnel. Danka's sales teams
are highly specialized, with each office dedicated to marketing the products of
one or two particular manufacturers. Individual team members will concentrate
on particular product groups, focusing on lower segment machines during their
first year and graduating to more complex equipment as their knowledge and
experience increases. With its sales force, Danka emphasizes product
knowledge, commitment and professionalism. Each sales person negotiates a
method of payment - lease, outright sale or rental - to suit the individual
customer. Sales personnel
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have pricing flexibility. Their compensation is comprised of a base salary and
a selling commission, based on achievement of unit placements and gross profit
dollars.
The Company has been aggressively hiring and training new field sales
representatives and support staff. Such expansion of the Company's salesforce
has resulted in substantial cost and expense and has not yet yielded expected
productivity. However, the Company believes that the expansion is in the
long-term best interest of the Company.
The Company utilizes a wide range of advertising and promotional
activities, including television, radio, and billboard advertising campaigns,
sponsorship of major sporting events and teams, distribution of descriptive
brochures and direct mail pieces, and informational seminars and presentations.
The Company's marketing efforts are enhanced by manufacturers' national
advertising campaigns and co-op arrangements where appropriate and applicable.
MARKET BASED APPROACH
To better support the Company's growth strategy in digital color and
high-volume products, major markets and its core commercial business, Danka is
moving away from its traditional branch management concept to a more
centralized, market oriented, support concept of administration ("Market Based
Approach"). Under a Market Based Approach, most of the administrative and
management functions which were performed at the branch level are centralized
on a regional basis. Such functions include managerial support, service
dispatch, billing and collections, supply sales and equipment setup and
delivery. Danka's implementation of the Market Based Approach has resulted in
unanticipated duplication of certain administrative and management functions,
which has increased selling, general and administrative costs. However, the
Company believes that this Market Based Approach is ultimately expected to
provide for a higher quality of customer support, increased productivity and
reduced administrative costs.
LEASING
Leasing plays a significant role in the Company's sales of equipment.
The Company believes that the ability of its sales force to offer customers the
option to lease equipment leads to additional sales. In substantially all of
its lease transactions, the Company has initiated the lease, one of a number of
available third-party leasing companies approved the customer's credit and the
Company immediately financed the lease on a nonrecourse basis in return for a
single payment. The Company has continued to hold title to the leased
equipment while eliminating the credit risks normally associated with leasing
arrangements and while improving its cash flow and profit margins. In December
1995, Danka finalized a strategic relationship with a third party leasing
company. This relationship operates in a similar manner as the Company's
previous third party leasing relationships, except that the Company
participates in the leasing company's profits from financing these leases. The
Company is currently negotiating similar agreements with other third party
leasing companies, and intends to route most of its leasing business to these
third party leasing companies.
The Company believes customers are less resistant to a small increase
in monthly lease payments as opposed to an increase in the outright cash sales
price of such equipment. As a result, in most of these leasing arrangements,
the Company is able to achieve a higher sale price, and a higher profit margin
than that which would have been obtained by a cash sale of such equipment.
Finally, these leasing arrangements permit the Company to utilize its capital
for other business activities. The Company has similar arrangements for leases
which are offered to customers outside the U.S.
Through various recent acquisitions, the Company has acquired certain
lease arrangements and installment receivables that have not been sold to
third-party leasing companies. Over time, the Company will seek to convert
these acquisition leasing programs to arrangements similar to those described
above.
TRAINING
A key element of the Company's operating philosophy is the training of
its sales, service and administrative employees in order to assist in uniform
application of the Company's established operating procedures throughout the
sales network. Upon employment, Company salespersons begin a sales program
developed and conducted by the Company. Training continues throughout their
careers in sales and sales management with certifications awarded upon
completion of various courses. The training sessions, coupled with weekly
sales meetings, assist the Company's staff in enhancing and maintaining their
marketing and sales management skills.
Service technicians new to the Company are immediately trained and
certified in accordance with the Company's methods, procedures, and standards.
The Company's technical personnel are continuously updated and retrained as new
technology is developed. The Company's service training centers are certified
as manufacturers' authorized service facilities. The Company monitors service
technicians' continued educational experience and fulfillment of requirements
in order to evaluate the competence of its service technicians. All the
Company's service technicians receive service bulletins, service technician
tips and continued training seminars throughout their careers with the Company.
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VENDORS
The Company's business is dependent upon close relationships with its
vendors and its ability to purchase products from these vendors on competitive
terms. During fiscal 1996, the Company's sales of Canon, Kodak, Konica,
Minolta, Ricoh, Sharp and Toshiba equipment represented approximately 68% of
its photocopier equipment revenue to retail customers. As a result of the
Infotec Acquisition, the Company has increased its retail and wholesale
revenues for Ricoh products. The facsimile equipment distributed by the
Company is primarily its dex and Omnifax private label equipment which is
imported from various Japanese and Korean manufacturers. Facsimile equipment
is also purchased from various vendors including Canon, Konica, Ricoh and
Sharp. The Company also relies on its photocopier and facsimile vendors for
parts and supplies.
The Company conducts its business in reliance upon its continuing
ability to purchase equipment, supplies, and parts from its current
manufacturers pursuant to authorized retail dealer and wholesale agreements
("Authorized Manufacturer Agreements"). The Company's retail operations'
primary Authorized Manufacturer Agreements are with Canon, Konica, Minolta,
Sharp and Toshiba and, recently with Ricoh and Kodak. Such agreements are
generally for one-year terms, cover only specific products, have specific
territorial boundaries, and may be terminated with cause, and in some
instances, without cause. Although Authorized Manufacturer Agreements are
non-exclusive, they are generally limited to one or two authorized dealers
within specific territorial boundaries. For additional information on the
Kodak Agreement see "Products" above. The Company's wholesale operations'
primary Authorized Manufacturer Agreements are with Copystar, Konica, Minolta
and Sharp, and contain terms which are substantially similar to those of the
Company's retail operations. Private label facsimile products are provided
under purchase agreements with various manufacturers, and the terms of these
agreements are similar to the agreements with the Company's photocopier
vendors.
COMPETITION
The Company's business is highly competitive with a number of
competitors in most geographic markets. The Company's retail operations are in
direct competition with local and regional equipment suppliers and dealers,
manufacturers, mass merchandisers, and wholesale clubs. Depending upon the
customer, principal areas of competition may include: quality and speed of
post-sales service support; availability of competitive products, parts and
supplies; speed of delivery; product capability and performance; financing
terms; and the availability of financing, leasing, or rental programs. The
Company's wholesale operations are in direct competition with local, regional,
and national distributors and manufacturers. Principal areas of competition
for wholesale operations are availability of competitive products, price, speed
of delivery, dealer support, centralized volume buying, product performance,
and the availability of financing programs. The continued ability of the
Company to offer competitive photocopiers in all segment areas is important in
both retail and wholesale operations. See "Products". The Company also
competes with other large competitors for acquisitions, particularly its
principal competitor Alco Standard Corporation, and in many instances such
competition can raise the price of an acquisition. Certain of the Company's
competitors have greater resources than the Company.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 10,500
persons, of which approximately 4,320 employees were devoted to service, and
approximately 2,810 persons in the Company were devoted to sales. Of the
remaining employees, 390 were devoted to training, management or other
administrative positions at the corporate and regional administrative offices,
and 2,980 were in various administrative and other support positions at other
Company locations. Support provided by these employees at such locations
includes receiving customer service calls and dispatching service technicians,
contacting customers to obtain meter readings from customer copiers, renewing
customer maintenance agreements, collecting accounts receivable, controlling
inventory, and performing certain billing functions.
Some of Infotec's employees are subject to labor agreements with
unions that establish rates of pay, hours of working, procedures for orderly
settlement of disputes and other terms and conditions of employment. The
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Company considers its employee relations to be good, and believes that it
provides working conditions and wages which compare favorably to those of its
competitors.
The Company relies heavily on its senior management, and the loss of
certain Executive Officers could have an adverse effect on the Company.
Additionally, the Company's ability to successfully grow and maintain its
management and employee base, as well as to successfully integrate acquired
company employees during periods of expansion, are extremely important to the
Company's continued success.
TRADEMARKS AND SERVICE MARKS
The Company believes that its trademarks and service marks have gained
significant recognition in the automated office equipment market and are
important to its marketing efforts. The Company has registered various
trademarks and service marks in certain markets. The trademarks "Danka",
"dex", "Omnifax" and "Infotec" are among those registered marks which are
viewed as important to the Company's ongoing business. The Company's policy is
to continue to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its proprietary rights. Depending on the
jurisdiction, trademarks and service marks are valid as long as they are in use
and/or their registrations are properly maintained, and they have not been
found to have become generic. Registrations of trademarks and service marks in
the United States can generally be renewed indefinitely as long as the
trademarks and service marks are in use.
BACKLOG
The backlog of orders at March 31, 1996 and March 31, 1995 were not
material.
ITEM 2. PROPERTIES
The Company's general policy is to lease, rather than own, its
business locations. The Company leases numerous properties for administration,
sales and service, and distribution functions. The terms vary under the
respective leases and some contain a right of first refusal or an option to
purchase the underlying real property and improvements. In general, the
Company's lease agreements require it to pay its proportionate share of taxes,
common area expenses, insurance, and related costs of such rental properties.
The Company leases its 35,000 square foot headquarters facility in St.
Petersburg, Florida. In addition, the Company leases in excess of 400
properties throughout North America and Europe for its retail and wholesale
operations.
The Company owns several smaller business locations, none of which are
necessary to the success of the particular location's business. Generally,
these properties were included among the assets obtained in certain
acquisitions. In the future, the Company may dispose of such properties and
enter into leases of properties which the Company believes may be more
desirable or more centrally located.
Management believes that the properties which it occupies are, in
general, suitable and adequate for the purposes for which they are utilized.
Additional space will be occupied as necessary upon future expansion of
operations.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party to
which the Company believes will have a material adverse effect on its results
of operations or its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated herein by
reference to the information under the heading "Market Prices of ADSs and
Ordinary Shares" in the Company's Annual Report to Shareholders for the Year
Ended March 31, 1996. See Exhibit 13 to this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to the information under the heading "Selected Consolidated Financial
Data" in the Company's Annual Report to Shareholders for the Year Ended March
31, 1996. See Exhibit 13 to this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report to Shareholders for the Year Ended March 31, 1996. See Exhibit
13 to this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to the information under the headings "Consolidated Statements of
Earnings", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Shareholders' Equity" and "Notes to the
Consolidated Financial Statements" in the Company's Annual Report to
Shareholders for the Year Ended March 31, 1996. See Exhibit 13 to this Report.
As is the case with any company, prior financial condition and results of
operations are not necessarily indicative of future results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Directors and
Executive Officers" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1996 Annual Meeting of Shareholders, which has
been filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Compensation of
Executive Officers and Directors" in the Company's definitive Proxy Statement
to be used in connection with the Company's 1996 Annual Meeting of
Shareholders, which has been filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information under the heading "MANAGEMENT - Security Ownership
of Management and Others" in the Company's definitive Proxy Statement to be
used in connection with the Company's 1996 Annual Meeting of Shareholders,
which has been filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1996 Annual Meeting of Shareholders, which has
been filed with the Commission.
11
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. The following Financial Statements of the Registrant
included in Part II, Item 8, of this Report are
incorporated herein by reference as described in Item
8:
Consolidated Statements of Earnings - Years ended
March 31, 1996, 1995 and 1994
Consolidated Balance Sheets - March 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
Years ended March 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements - Years
ended March 31, 1996, 1995 and 1994
Independent Auditors' Report
2. The following Financial Statement Schedules of the
Registrant are included in Item 14(d):
Independent Auditors' Report
II - Valuation and Qualifying Accounts
All other schedules are omitted because the required
information is not present in amounts sufficient to
require submission of the schedule, the information
required is included in the financial statements and
notes thereto or the schedule is not required or
inapplicable under the related instructions.
3. Exhibit index:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
3.1* Memorandum of Association of the Company. (Exhibit 3.1 of Company's Registration
Statement on Form 20-F, No. 0-20828, filed on November 10, 1992 [the "1992 Registration
Statement"].)
3.2* Articles of Association of the Company. (Exhibit 3.2 to the 1992 Registration
Statement.)
4.1* Memorandum of Association of the Company, including paragraphs 5 and 6. (Exhibit 2.1 to
the 1992 Registration Statement.)
4.2* Articles of Association of the Company, including sections relating to Shares, Variation
of Rights and Votes of Members. (Exhibit 2.2 to the 1992 Registration Statement.)
4.3* Form of Ordinary share certificate. (Exhibit 4.3 of Company's Registration Statement on
Form S-1, No. 33-68278, filed on October 8, 1993 [the "1993 Registration Statement"]).
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
4.4* Form of American Depositary Receipt. (Exhibit 4.4 to the 1993 Registration Statement.)
4.5* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993 (Exhibit 4.9 to the 1993 Registration Statement.)
and Amendment No. 3 dated August 16, 1994 between The Bank of New York, Company and
Owners and Holders of American Depositary Receipts.
4.6* Indenture dated March 13, 1995 between the Company and The Bank of New York, as Trustee.
(Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
4.7* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21, 1995).
4.8* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and among
the Company and Prudential Securities Incorporated and Smith Barney, Inc. and Robert W.
Baird & Co. and Raymond James & Associates, Inc. (Exhibit 4.12 to the Company's 1995
Form 10-K).
4.9* Resolution No. 7 adopted by shareholders at the 1995 general meeting waiving pre-emptive
rights of shareholders under certain circumstances. (Exhibit 4.10 to the Company's Form
10-Q dated August 8, 1995).
4.10* Credit Agreement dated March 19, 1996 among Danka Business Systems PLC, Danka Holding
Company, the several financial institutions from time to time a party to this Agreement,
Bank of America National Trust and Savings Association, Bank of America International
Limited, Nationsbank, N.A., and Southtrust National Bank of Alabama, N.A., in an amount
up to $400.0 million. (Exhibit 1 to the Company's Form 8-K dated March 19, 1996).
No other instruments defining the rights of holders of long-term debt of the Company and
its subsidiary have been included as exhibits because the total amount of obligation
authorized under any such agreement does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. The Company hereby agrees to
furnish supplementally a copy of any omitted long-term debt instrument to the Commission
upon request.
10.1* Office Building Lease dated February 4, 1986 between Daniel M. Doyle and Francis J.
McPeak, Jr., and Copies, Inc. (Exhibit 3.4 to the 1993 Form 20-F).
10.2* Office Building Lease dated May 1, 1992 between Daniel M. Doyle and Francis J. McPeak,
Jr., and Gulf Coast Business Machines. (Exhibit 3.5 to the 1993 Form 20-F).
10.3* Office Building Lease dated April 1, 1990 between Daniel M. Doyle and Francis J. McPeak,
Jr., and Danka. (Exhibit 3.6 to the 1993 Form 20-F).
10.4* Lease Agreement dated December 22, 1986, and Addendum Lease Agreement dated March 1,
1987, between Daniel M. Doyle and Francis J. McPeak and Danka. (Exhibit 3.7 to the 1993
Form 20-F).
10.5* U.K. Executive Share Option Scheme. (Exhibit 3.11 to the 1993 Form 20-F).
10.6* U.S. Executive Incentive Stock Option Plan. (Exhibit 3.12 to the 1993 Form 20-F).
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
10.7* Form of Stock Option Agreement. (Exhibit 3.13 to the 1993 Form 20-F).
10.8* Addendum to Lease Agreement dated September 1, 1992, between Mid-County Investments,
Inc. and Danka. (Exhibit 3.38 to the 1993 Form 20-F).
10.9* Lease Agreement dated November 12, 1992 and Lease Commencement Agreement dated April 7,
1993 between PARD, Inc. and Danka. (Exhibit 10.41 to the 1993 Form 20-F).
10.10* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993, between The Bank of New York, Company and Owners and
Holders of American Depositary Receipts, filed as Exhibit 4.5 and incorporated as
reference.
10.11* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
Daniel M. Doyle. (Exhibit 10.49 to the 1994 Form 10-K).
10.12* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
David C. Snell. (Exhibit 10.50 to the 1994 Form 10-K).
10.13* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
Mark A. Vaughan-Lee. (Exhibit 10.51 to the 1994 Form 10-K).
10.14* Danka Business Systems PLC 1994 Executive Performance Plan. (Exhibit 10.52 to the 1994
Form 10-K).
10.15* Indenture dated March 13, 1995 between the Company and The Bank of New York, as Trustee.
(Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
10.16* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21, 1995).
10.17* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and among
the Company and Prudential Securities Incorporated and Smith Barney, Inc. and Robert W.
Baird & Co. and Raymond James & Associates, Inc. (Exhibit 10.24 to the Company's 1995
Form 10-K).
10.18* Purchase Agreement dated October 25, 1995 between ABN AMRO Bank N.V. and Credit Lyonnais
Bank Nederland N.V. and Danka Europe B.V. (Exhibit 2 to the Company's Form 8-K dated
November 3, 1995).
10.19* Credit Agreement dated March 19, 1996 among Danka Business Systems PLC, Danka Holding
Company, the several financial institutions from time to time a party to this Agreement,
Bank of America National Trust and Savings Association, Bank of America International
Limited, Nationsbank, N.A., and Southtrust National Bank of Alabama, N.A., in an amount
up to $400.0 million. (Exhibit 1 to the Company's Form 8-K dated March 19, 1996).
13 Annual Report to Shareholders of the Company for the year ended March 31, 1996. Except
for those portions of such Annual Report to Shareholders that may be expressly
incorporated by reference into this Report, such Annual Report to shareholders is
furnished solely for the information of the Securities and Exchange Commission and shall
not be deemed a "filed" document.
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
21 List of Current Subsidiaries of the Company.
23 Independent Auditors Consent.
27 Financial Data Schedule
</TABLE>
* Document has heretofore been filed with the Commission and is
incorporated by reference and made a part hereof.
(b) Reports on Form 8-K
On April 1, 1996, the Company filed a report on Form 8-K announcing
that it had entered into a loan agreement providing a $400 million
multicurrency credit facility with a consortium of banks replacing its previous
principal credit facility.
On June 26, 1996, the Company filed a report on Form 8-K announcing
expected results of operations for the first quarter of fiscal 1997 and the
effects to the Company resulting from its change to a market based management
approach, expansion of its sales division, and its increased commitment to the
sale of color and higher segment products.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) to this Report are
filed with this Report.
(d) Financial Statement Schedules
Report of Independent Auditors
II - Valuation and Qualifying Accounts
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedules.
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Members of Danka Business Systems PLC:
Under date of June 3, 1996, we reported on the consolidated balance sheets of
Danka Business Systems PLC and subsidiaries as of March 31, 1996 and 1995, and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996, as
contained in the 1996 annual report to shareholders. These financial
statements are incorporated by reference in the annual report on Form 10-K for
the year 1996. In connection with our audits of the aforementioned financial
statements, we also have audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
Chartered Accountants
Registered Auditors
June 3, 1996 London England
16
<PAGE> 17
DANKA BUSINESS SYSTEMS PLC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts (1) Deductions (2) Period
----------- ------ -------- ------------ -------------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1994 $1,547 $1,354 $3,496 $(1,107) $5,290
====== ====== ====== ======= ======
Year ended March 31, 1995 $5,290 $2,016 $1,213 $(2,485) $6,034
====== ====== ====== ======= ======
Year ended March 31, 1996 $6,034 $3,717 $8,009 $(8,956) $8,804
====== ====== ====== ======= ======
</TABLE>
(1) Represents beginning balances of acquired companies.
(2) Represents accounts written off during the year, net of
recoveries.
Note: Certain prior year amounts have been reclassified to
conform to the current year presentation.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: June 24, 1996 DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
By: /s/ DANIEL M. DOYLE
---------------------------------
Daniel M. Doyle, Chief Executive
(Chief Executive Officer)
By: /s/ DAVID C. SNELL
---------------------------------
David C. Snell, Finance Director
(Chief Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities indicated on June 24, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ MARK A. VAUGHAN-LEE Chairman and Director
- -------------------------------
Mark A. Vaughan-Lee
/s/ DANIEL M. DOYLE Chief Executive and Director
- -------------------------------
Daniel M. Doyle
/s/ DAVID C. SNELL Finance Director, Chief Financial Officer and Principal
- ------------------------------- Accounting Officer
David C. Snell
/s/ DAVID S. HOOKER Director
- -------------------------------
David S. Hooker
/s/ DAVID W. KENDALL Director
- -------------------------------
David W. Kendall
/s/ JAMES F. WHITE, JR. Director
- -------------------------------
James F. White, Jr.
/s/ PIERSON M. GRIEVE Director
- -------------------------------
Pierson M. Grieve
</TABLE>
18
<PAGE> 1
EXHIBIT 4.5
===========================================================
DANKA BUSINESS SYSTEMS PLC
AND
THE BANK OF NEW YORK
As Depositary
AND
OWNERS AND HOLDERS OF AMERICAN DEPOSITARY RECEIPTS
Amendment No. 3 dated as of August 16, 1994
to
Deposit Agreement dated as of June 25, 1992
as previously amended by
Amendment No. 1 dated as of February 26, 1993 and
Amendment No. 2 dated as of July 2, 1993
===========================================================
<PAGE> 2
DEPOSIT AGREEMENT
AMENDMENT NO. 3
Amendment No. 3 dated as of August 16, 1994 to that certain Deposit
Agreement dated as of June 25, 1992 as previously amended by Amendment No. 1
dated as of February 26, 1993 and Amendment No. 2 dated as of July 2, 1993 (the
"Deposit Agreement") among DANKA BUSINESS SYSTEMS PLC, incorporated under the
laws of the United Kingdom (the "Company"), THE BANK OF NEW YORK, a New York
banking corporation (the "Depositary") and all Owners (as defined in Article I
of the Deposit Agreement) and holders from time to time of American Depositary
Receipts (the "Receipt" or "Receipts") issued thereunder.
W I T N E S S E T H:
WHEREAS the Company wishes to change the ratio of American Depositary
Shares to Shares; and
WHEREAS the Company and the Depositary wish to amend the Deposit Agreement
and the Receipts in order to reflect such change of American Depositary Share
to Share ratio; and
WHEREAS the Company and the Depositary may, pursuant to Section 6.1 of the
Deposit Agreement, amend the Deposit Agreement and the Form of Receipt
appearing as Exhibit A to the Deposit Agreement at any time and from time to
time by agreement between the Company and the Depositary in any respect which
they may deem necessary or desirable; and
WHEREAS under Section 6.1 of the Deposit Agreement every Owner of a
Receipt at the time the amendment becomes effective shall be deemed, by
continuing to hold each Receipt, to consent and agree to such amendment and to
be bound by the Deposit Agreement as amended thereby;
NOW, THEREFORE in consideration of the premises, it is agreed by and
between the parties hereto that:
1. The Deposit Agreement be and it is hereby amended as follows:
a. Section 1.1 of the Deposit Agreement shall read in its entirety as
follows:
The term "American Depositary Shares" shall mean the securities
representing the interests in the Deposited Securities and evidenced by the
Receipts issued hereunder. Each American Depositary Share shall, effective as
of August 16, 1994 represent four (4) Shares, until there shall occur a
distribution upon Deposited Securities covered by Section 4.3 or a change in
Deposited Securities covered by Section 4.8 with respect to which additional
Receipts are not executed and delivered, and thereafter American Depositary
Shares shall evidence the amount of Shares or Deposited Securities specified in
such Sections.
2. In furtherance of paragraph 1 above, all references in the Deposit
Agreement and Exhibit A thereto (including, without limitation, in the second
sentence of Exhibit A) to eight (8) Shares shall, effective as of August 16,
1994 at 9:00 a.m. (N.Y. time) be deemed to be references to four (4) Shares.
3. Except as expressly amended or modified by this Amendment No. 3, the
Deposit Agreement shall continue to be and shall remain in full force and
effect.
<PAGE> 3
4. Terms defined in the Deposit Agreement shall have the same respective
meanings when used herein.
5. This Amendment No. 3 may be executed in separate counterparts and both
of said counterparts taken together shall be deemed to constitute one of the
same instrument.
IN WITNESS WHEREOF, DANKA BUSINESS SYSTEMS PLC and THE BANK OF NEW YORK,
as Depositary, have duly executed this Amendment No. 3 as of August 16, 1994.
DANKA BUSINESS SYSTEMS PLC
By: /S/ David C. Snell
--------------------------------------
Name: David C. Snell
Title: Finance Director and Chief
Financial Officer
THE BANK OF NEW YORK
By: /S/ Thomas D. Sanford
--------------------------------------
Name: Thomas D. Sanford
Title: Vice President
<PAGE> 1
EXHIBIT 13
PORTIONS OF THE REGISTRANT'S
1996 ANNUAL REPORT THAT ARE
INCORPORATED BY REFERENCE.
<PAGE> 2
FINANCIAL AND CORPORATE INFORMATION
CONTENTS
Selected consolidated financial data .................................... 16
Management's discussion and analysis of financial
condition and results of operations ................................... 17
Consolidated statements of earnings ..................................... 23
Consolidated balance sheets ............................................. 24
Consolidated statements of cash flows ................................... 25
Consolidated statements of shareholders' equity ......................... 26
Notes to the consolidated financial statements .......................... 27
Independent auditors' report ............................................ 37
Market prices of ADSs and Ordinary Shares ............................... 38
Board of directors ...................................................... 39
Corporate information ................................................... 40
Note
The financial information in this section has been prepared under United States
Generally Accepted Accounting Principles in U.S. dollars. Financial information
prepared under United Kingdom Generally Accepted Accounting Principles in
pounds sterling may be obtained by contacting the Company's offices at the
addresses shown on page 40.
Danka Business Systems PLC 15
<PAGE> 3
SELECTED CONSOLIDATED FINANCIAL DATA
For the years ended March 31
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
$000 $000 $000 $000 $000
(Except Per ADS Data)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
REVENUE:
Retail ........................................ 1,069,593 702,740 453,218 292,538 194,481
Wholesale ..................................... 170,711 99,456 78,190 60,157 41,541
- ----------------------------------------------------------------------------------------------------------------------
1,240,304 802,196 531,408 352,695 236,022
- ----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT:
Retail ........................................ 466,533 306,202 199,080 129,683 87,023
Wholesale ..................................... 30,116 17,691 14,688 10,164 6,095
- ----------------------------------------------------------------------------------------------------------------------
496,649 323,893 213,768 139,847 93,118
- ----------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses ....... 378,407 245,525 162,119 107,668 73,383
Amortization of intangible assets .................. 13,587 6,818 3,765 1,821 10,111
Restructuring charges .............................. 8,500 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS ........................... 96,155 71,550 47,884 30,358 9,624
Interest expense and other, net .................... 21,566 7,742 3,667 2,751 3,338
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ....................... 74,589 63,808 44,217 27,607 6,286
Provision for income taxes ......................... 28,241 24,761 17,751 6,395 1,721
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEM ................. 46,348 39,047 26,466 21,212 4,565
Extraordinary item* ................................ 1,133 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
NET EARNINGS ....................................... 45,215 39,047 26,466 21,212 4,565
- ----------------------------------------------------------------------------------------------------------------------
PER ADS DATA:
Earnings before extraordinary item ............ $ 0.90 $ 0.80 $ 0.59 $ 0.51 $ 0.11
Extraordinary item* ........................... (0.02) -- -- -- --
Net earnings per ADS .......................... $ 0.88 $ 0.80 $ 0.59 $ 0.51 $ 0.11
Dividends per ADS ............................. $ 0.13 $ 0.11 $ 0.09 $ 0.07 $ 0.06
BALANCE SHEET DATA:
Total assets .................................. 1,091,556 635,314 356,804 164,504 125,070
Long-term debt, less current maturities ....... 318,262 233,681 67,520 19,954 20,595
Shareholders' equity .......................... 441,843 206,408 169,925 62,154 43,540
</TABLE>
*Extraordinary item in 1996 represents the loss on early extinguishment of
debt, net of the related income tax benefit.
16 Danka Business Systems PLC
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Danka Business Systems PLC and its subsidiaries (the "Company") is one of the
largest independent suppliers in North America and Europe of photocopiers,
facsimiles and related service, parts and supplies. The Company principally
distributes the products of Canon, Konica, Minolta, Mita, Ricoh, Sharp, and
Toshiba and recently signed a marketing agreement with Eastman Kodak's Office
Imaging division ("Kodak"), granting it the non-exclusive right to sell and
service Kodak high-volume copiers in the United States and Canada. The addition
of the Kodak high-volume products enhances the Company's product line.
Effective November 1, 1995, the Company acquired all of the issued and
outstanding shares of Infotec Europe B.V. and its operating subsidiaries
("Infotec"), one of Europe's largest independent suppliers of photocopiers,
facsimile equipment and related service, parts and supplies. Infotec markets a
full range of Ricoh products under the Infotec brand name, through its offices
in Germany, the United Kingdom, France, Italy, Denmark, Belgium and The
Netherlands, as well as through its wholesale distribution network of
independent dealers in these and other European countries. For calendar 1994,
Infotec had total revenue of approximately $256 million and income from
operations of approximately $17 million.
The Company recorded an $8.5 million pre-tax restructuring charge in the third
quarter of fiscal 1996, principally related to the restructuring of its
international operations. The restructuring charge included, among other
things, severance and other employee termination benefits, lease settlement
costs associated with the consolidation of duplicate facilities, and the
write-off of certain leasehold improvements and other fixed assets. In
connection with the acquisition of Infotec, the Company is making investments
in training, advertising, the establishment of a European headquarters and a
European management information system which were dilutive to earnings in the
third and fourth quarters of fiscal 1996. The Company believes these
investments are necessary to help assist in the long-term integration of
Infotec. These costs were not included in the restructuring charge and
accordingly are being charged to operations as incurred. The Company is in the
process of integrating existing European operations with Infotec and believes
that such integrated operations will provide a substantial core operation from
which to pursue its growth strategy in Europe.
Over the last three years, the Company has completed over 100 acquisitions and
believes that significant acquisition opportunities continue to exist in the
highly fragmented North American and European automated office equipment
industry. The Company seeks to improve the profitability of the businesses it
acquires by integrating them into its sales and service network.
Danka Business Systems PLC 17
<PAGE> 5
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue represented by certain items in the Company's Consolidated
Statements of Earnings:
<TABLE>
<CAPTION>
Year Ended March 31
- --------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Retail equipment sales ........................... 38.2% 40.5% 38.1%
Retail service, supplies and rentals ............. 48.0 47.1 47.2
Wholesale ........................................ 13.8 12.4 14.7
- --------------------------------------------------------------------------------------
TOTAL REVENUE ......................................... 100.0 100.0 100.0
Cost of revenue ....................................... 60.0 59.6 59.8
- --------------------------------------------------------------------------------------
GROSS PROFIT .......................................... 40.0 40.4 40.2
Selling, general and administrative expenses .......... 30.5 30.6 30.5
Amortization of intangible assets ..................... 1.1 0.9 0.7
Restructuring charges ................................. 0.7 -- --
- --------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS .............................. 7.7 8.9 9.0
Interest expense and other, net ....................... 1.7 0.9 0.7
- --------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES .......................... 6.0 8.0 8.3
Provision for income taxes ............................ 2.3 3.1 3.3
- --------------------------------------------------------------------------------------
NET EARNINGS BEFORE EXTRAORDINARY ITEM ................ 3.7 4.9 5.0
Extraordinary item .................................... 0.1 -- --
- --------------------------------------------------------------------------------------
NET EARNINGS .......................................... 3.6% 4.9% 5.0%
- --------------------------------------------------------------------------------------
</TABLE>
The following table sets forth for the periods indicated the gross profit
margin percentage for each of the Company's revenue classifications:
<TABLE>
<CAPTION>
Year Ended March 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail equipment sales ................................ 39.3% 39.4% 39.2%
Retail service, supplies and rentals .................. 47.1 47.2 47.7
Wholesale ............................................. 17.6 17.8 18.8
</TABLE>
REVENUE
In fiscal 1996, the Company achieved record revenue of $1.240 billion compared
with revenue of $802.2 million in fiscal 1995 and $531.4 million in fiscal
1994. Revenue increased by 55% in fiscal 1996 and 51% in fiscal 1995. The
increase resulted from growth in core operations as well as significant
contributions from acquisitions. Internal growth, excluding the impact of
acquisitions, was 11% in fiscal 1996, and 14% in fiscal 1995 and 1994. Internal
growth for fiscal 1996 was below fiscal 1995 and 1994 levels due to two events.
First, because of the rapid pace of acquisitions, the Company promoted and
transferred a significant number of its sales managers and representatives from
its core operations to fill various positions at newly acquired companies. In
the second quarter of fiscal 1996, the Company began hiring and training new
sales representatives to fill vacated positions at its core operations. The
second event impacting internal growth has been the Company's recent agreement
to market Kodak high-volume copiers. To effectively market these products, the
Company began semi-monthly
18 Danka Business Systems PLC
<PAGE> 6
two-week training sessions of its top sales producers, along with six-week
training programs for the technicians who will service the Kodak products.
These programs, which began in August 1995, will continue through the first
quarter of fiscal 1997. In fiscal 1996, wholesale revenue as a percentage of
total revenue increased from fiscal 1995, primarily due to the acquisition of
Infotec which has substantial wholesale operations throughout Europe. Wholesale
revenue as a percentage of total revenue decreased in fiscal 1995 from fiscal
1994, as substantially all fiscal 1995 acquisitions made by the Company were
retail dealers. Revenue increases related to vendor pricing were not material.
GROSS PROFIT
[GRAPH]
Gross profit increased 53% to $496.6 million in fiscal 1996 from $323.9 million
in fiscal 1995, and 52% in fiscal 1995 from $213.8 million in fiscal 1994.
Gross profit as a percentage of total revenue decreased to 40.0% in fiscal 1996
from 40.4% in fiscal 1995, due to a higher mix of the Company's revenue being
generated from wholesale revenue. This margin increased to 40.4% in fiscal 1995
from 40.2% in fiscal 1994, primarily due to a higher portion of fiscal 1995
revenue being generated by retail operations. Gross profit as a percentage of
retail equipment sales remained relatively constant in fiscal 1996, 1995 and
1994, at 39.3%, 39.4% and 39.2% respectively. As a percentage of total revenue,
gross profit on retail service, supplies and rentals remained relatively
constant in fiscal 1996 and 1995 at 47.1% and 47.2%, respectively. In fiscal
1995, this margin decreased to 47.2% from 47.7% in fiscal 1994 due to the
Company's acquisition of Omnifax in September 1993. Omnifax's gross profit on
service, supplies and rentals is lower than the Company's other retail
operations. Gross profit as a percentage of wholesale revenue was 17.6% in
fiscal 1996, 17.8% in fiscal 1995 and 18.8% in fiscal 1994. In fiscal 1994, the
Company benefited from forward purchases of inventory prior to vendor price
increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 54% to $378.4 million in
fiscal 1996 and 51% in fiscal 1995. The increases primarily related to
acquisitions. As a percentage of total revenue, selling, general and
administrative expenses remained relatively constant in all years.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased to $13.6 million in fiscal 1996
from $6.8 million in fiscal 1995 and $3.8 million in fiscal 1994. These
increases related to acquisitions for which additional intangible assets are
being amortized.
RESTRUCTURING CHARGES
The Company recorded an $8.5 million pre-tax restructuring charge during the
third quarter of fiscal 1996, principally related to the restructuring of its
international operations. The restructuring charge included, among other
things, severance and other employee termination benefits, lease settlement
costs associated with the consolidation of duplicate facilities, and the
write-off of certain leasehold improvements and other fixed assets.
EARNINGS FROM OPERATIONS
Earnings from operations rose to $96.2 million in fiscal 1996, a 34% increase
over fiscal 1995 earnings from operations of $71.6 million. Fiscal 1995
earnings from operations were 49% higher than fiscal 1994 earnings from
operations of $47.9 million. The increases primarily related to increased total
revenue. As a percentage of total revenue, earnings from operations were 7.7%
in fiscal 1996, 8.9% in fiscal 1995 and 9.0% in fiscal 1994. The decrease in
fiscal 1996 from fiscal 1995 was principally due to the restructuring charge
and higher levels of amortization of intangible assets.
INTEREST EXPENSE AND OTHER, NET
Interest expense increased to $21.6 million in fiscal 1996 from $7.7 million in
fiscal 1995 and $3.7 million in fiscal 1994. Interest expense increased because
of the Company's acquisition program which has been financed in part with the
net proceeds from the issuance in March 1995 of the Company's 6.75% Convertible
Subordinated Notes due 2002, and borrowings under its credit facilities.
Danka Business Systems PLC 19
<PAGE> 7
INCOME TAXES
Income taxes increased to $28.2 million in fiscal 1996 from $24.8 million in
fiscal 1995 and $17.8 million in fiscal 1994. The increases primarily related
to higher levels of earnings before tax. The effective tax rate was 37.9% for
fiscal 1996, 38.8% for fiscal 1995 and 40.1% for fiscal 1994. These rates have
decreased due to higher earnings outside of the U.S. for which the effective
tax rates are lower.
SHAREHOLDER
RETURNS (1993-1996)
DANKA VS S&P 500
[GRAPH]
EXTRAORDINARY ITEM
In the fourth quarter of fiscal 1996, the Company recorded an extraordinary
loss of $1.1 million related to the early extinguishment of debt, net of the
income tax benefit of $0.7 million. The extraordinary charge consisted
primarily of premiums paid in connection with the early redemption of $27.0
million of Senior Notes, and the write-off of unamortized deferred finance
costs.
NET EARNINGS
As a result of the above factors, net earnings increased 16% to $45.2 million
in fiscal 1996 and 48% to $39.0 million in fiscal 1995. As a percentage of
total revenue, net earnings decreased to 3.6% in fiscal 1996 primarily due to
the restructuring charge and higher levels of interest expense. In fiscal 1995
and 1994, net earnings as a percentage of total revenue remained relatively
constant at 4.9% and 5.0%, respectively.
TAXATION
As part of many of its acquisitions, the Company enters into non-compete and
protection of trade secret agreements with certain key management personnel of
the businesses acquired. The amounts paid pursuant to these agreements are
amortized for financial reporting purposes over the term of the agreement,
normally three to seven years. For U.S. federal and state income tax purposes,
agreements entered into prior to the enactment of the Omnibus Budget
Reconciliation Act of 1993 (the "Act"), are deductible over the term of the
agreement. Agreements entered into subsequent to the enactment of the Act are
generally deductible over fifteen years. Further, goodwill, trademarks and
other intangible assets purchased in asset acquisitions are deductible over
fifteen years for U.S. federal and state income tax purposes. Prior to the
enactment of the Act, goodwill on asset acquisitions was not deductible and
amounts paid for the other intangible assets were deductible only to the extent
that such assets had identifiable useful lives. Goodwill, trademarks, and other
intangible assets acquired in stock acquisitions are not deductible for income
tax purposes.
A significant portion of the Company's retail operation's photocopier and
facsimile machine sales are effected through the use of leases. These
transactions are recorded as sales for financial reporting purposes. However,
for income tax purposes, the leases are accounted for as operating leases and
the profit is recognized over the life of the lease.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the U.S.
dollar affect the dollar equivalent of the pound sterling price of the Ordinary
Shares on the London Stock Exchange and, as a result, may affect the market
price of the ADSs. Additionally, the Company declares its dividends in pounds
sterling. Fluctuations in exchange rates will affect dividend income measured
in U.S. dollars because the depositary is required to convert pounds sterling
into U.S. dollars at the prevailing exchange rates at the time of making any
dividend payments or other distributions. The Company has significant
operations in the United States, Western Europe and Canada. Fluctuations in the
exchange rates between the U.S. dollar and the currencies of such other
countries will affect the results of the Company's international operations
reported in U.S. dollars and the value of such operations' net assets reported
in U.S. dollars. Infotec substantially increases the Company's sales in foreign
countries. The results of operations, financial condition and competitive
position of Infotec may be affected by the relative strength of the currencies
in countries where its products are sold. The Company's operating results and
financial condition may be adversely affected by fluctuations in foreign
currencies and by translation of the financial statements of the Company's
foreign subsidiaries from local currencies into U.S. dollars.
20 Danka Business Systems PLC
<PAGE> 8
The Company purchases most of its automated office equipment, related parts and
supplies from Japanese manufacturers. The purchase price for most of these
products is denominated in local currencies and therefore, short term
fluctuations in the local currencies relative to the Japanese yen do not impact
the Company's purchase price. However, the yen significantly strengthened
against the dollar during the fourth quarter of the Company's fiscal 1995. This
impacted the yen amounts received by the Company's Japanese manufacturers as
they converted the U.S. dollars received from the Company and other dealers
into yen. As a result, during the first half of fiscal 1996, some of these
manufacturers raised prices. As prices were raised by these manufacturers the
Company was able to pass these increases on to its customers. The Company has
historically been successful in passing price increases on to its customers.
However, there can be no assurances that it can continue to do so in the
future. Also, most of the Company's service contracts are for one year periods
and accordingly, pricing for parts and supplies cannot be adjusted until the
contract is renewed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow provided by operating activities was $57.2 million,
$52.0 million and $33.7 million for fiscal 1996, 1995 and 1994, respectively.
The Company experiences increases in certain balance sheet accounts which
result primarily from acquisitions as well as from normal working capital
needs. In fiscal 1996, one of the larger uses of working capital was accounts
receivable. The increase in accounts receivable partially resulted from the
Company's internal growth and from strong sales in the month of March 1996. The
increase in inventory in fiscal 1996 was partially attributable to the
Company's decision to begin marketing Kodak high-volume equipment. The increase
was also due to the Company's introduction of Ricoh color photocopiers into a
large number of major markets where the Company was previously not authorized
to sell these products. The introduction of both Kodak high-volume copiers and
Ricoh color copiers required additional investments in inventory. The increase
in inventory in fiscal 1995 primarily resulted from the overstocking of certain
new products at the Company's dex operations. Cash flow used in investing
activities was $306.6 million, $126.6 million and $116.8 million for fiscal
1996, 1995 and 1994, respectively. The increase in fiscal 1996 was primarily
due to the Company's acquisition of Infotec. The increase in fiscal 1995 was
primarily due to increased capital expenditures, offset by a decrease in cash
paid for subsidiaries from fiscal 1994. Net cash provided by financing
activities was $198.1 million, $145.9 million, and $93.1 million in fiscal
1996, 1995 and 1994, respectively. The increase in fiscal 1996 resulted mostly
the Company's ADS offering which was principally used to finance the
acquisition of Infotec.
MARKET
CAPITALIZATION
($M)
[GRAPH]
In February 1996, the Company issued 4,944,500 ADSs (representing 19,778,000
Ordinary Shares) in a public offering ("the Offering"). The net proceeds of the
Offering of $196 million were used to repay borrowings oustanding under the
Company's credit facilities, including borrowings used to finance the
acquisition of Infotec.
In March 1995, the Company issued $200 million of 6.75% Convertible
Subordinated Notes due 2002 (the "Notes") at par, in an offering under Rule
144A and Regulation S of the Securities Act of 1933. The Notes are currently
convertible into the Company's ADSs at a conversion rate of $29.125 per ADS, or
into the Company's Ordinary Shares at a conversion rate of $7.281 per Ordinary
Share (equivalent to 34.335 ADSs or 137.339 Ordinary Shares for each $1,000
principal amount of the Notes). Interest is payable semi-annually on April 1
and October 1. The Notes are not subject to sinking fund requirements. The
Company has filed a shelf registration statement under the Securities Act of
1933 to register the Notes and the underlying ADSs or Ordinary Shares.
Danka Business Systems PLC 21
<PAGE> 9
In March 1996, the Company entered into a $400 million multicurrency revolving
line of credit ("Credit Facility Loan") with a consortium of banks. The Credit
Facility Loan, which replaced the Company's previous $200 million revolving
credit facility, is unsecured and guaranteed by certain of the Company's
subsidiaries. The Credit Facility Loan, which matures in March 2001, contains
negative and affirmative covenants and agreements restricting the Company's
disposition of assets, capital expenditures, acquisitions and operations, as
well as requiring the maintenance of certain financial ratios. The adjustable
rate of interest on the Credit Facility Loan is, at the option of the Company,
either (i) the Interbank Offered Rate plus an applicable margin of between
.375% to 1%, determined by certain financial ratios, for the periods of one,
two, three or six months, or (ii) the lead bank's base rate. As of March 31,
1996 the Credit Facility Loan had an outstanding balance of $109.9 and was
incurring interest at a weighted average rate of 4.9% per annum. Therefore,
subject to availability under the covenants, $290.1 million was available for
future borrowings.
Additionally, in March 1996, the Company entered into various cash management
lines of credit (the "Lines") in each of the countries in which it operates.
The Lines provide for daily liquidity for each country's local operations. The
Lines are unsecured and short-term in nature, and are provided to the local
operating company in each country.
In the fourth quarter of fiscal 1996, the Company recorded an extraordinary
charge of $1.1 million ($0.02 per ADS) relating to the early extinguishment of
debt, primarily in connection with the repayment of $27.0 million of Senior
Notes, and the refinancing of the previous $200 million revolving credit
facility. The extraordinary charge, which is net of the income tax benefit of
$0.7 million, consists primarily of premiums paid in connection with the early
redemption of the Senior Notes, and the write-off of unamortized deferred
finance costs.
The Company has a number of other loans and credit facility arrangements with
banks, financial institutions and certain other individuals which had an
aggregate balance of $38.8 million at March 31, 1996. These loans vary widely
in terms and conditions and were primarily assumed by the Company in connection
with certain acquisitions.
At March 31, 1996, the Company had no material commitments for capital
expenditures. The Company's cash flow from operations, together with the
borrowing capacity under the Credit Facility Loan should be adequate to finance
its operating cash requirements and capital expenditures for the immediate
future. It is anticipated that future acquisitions and expansion will be funded
primarily with cash flow from operations, borrowings under the Credit Facility
Loan, other credit sources, and where desirable, funding from the sale of
additional debt or equity securities.
SEASONALITY
The Company experiences some seasonality in its business. The Company's revenue
and net earnings during the fourth quarter are generally higher than other
quarters of its fiscal year. The Company believes that this is due to year-end
sales contests and a focus on the finalization of transactions before year end.
However, there can be no assurance that fourth quarter results will continue to
be higher in future years. The Company's European operations have historically
experienced lower revenues and net earnings for the three month period ended
September 30 due to increased vacation time by Europeans during July and
August. This has resulted in reduced sales activity and reduced usage of
photocopiers, facsimiles and other automated office equipment during such
period.
IMPACT OF INFLATION
The Company believes that inflation has not had a significant impact on its
operations.
22 Danka Business Systems PLC
<PAGE> 10
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the years ended March 31
1996 1995 1994
$000 $000 $000
Note (Except Per ADS Data)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Retail equipment sales ....................................... 474,116 324,758 202,246
Retail service, supplies and rentals ......................... 595,477 377,982 250,972
Wholesale .................................................... 170,711 99,456 78,190
- -------------------------------------------------------------------------------------------------------------------------
Total revenue ................................................ 1,240,304 802,196 531,408
- -------------------------------------------------------------------------------------------------------------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales ............................... 288,000 196,953 122,964
Retail service, supplies and rental costs .................... 315,060 199,585 131,174
Wholesale costs of revenue ................................... 140,595 81,765 63,502
Selling, general and administrative expenses ................. 378,407 245,525 162,119
Amortization of intangible assets ............................ 13,587 6,818 3,765
Restructuring charges ........................................ 5 8,500 -- --
- -------------------------------------------------------------------------------------------------------------------------
Total costs and operating expenses ........................... 1,144,149 730,646 483,524
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS .......................................... 96,155 71,550 47,884
Interest expense and other, net ................................... 4 21,566 7,742 3,667
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ...................................... 74,589 63,808 44,217
Provision for income taxes ........................................ 7 28,241 24,761 17,751
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEM ................................ 46,348 39,047 26,466
Extraordinary item - loss on early extinguishment of debt,
net of income tax benefit of $691 .............................. 4 1,133 -- --
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS ...................................................... 45,215 39,047 26,466
EARNINGS PER ADS:
Earnings before extraordinary item ........................... $ 0.90 $ 0.80 $ 0.59
Extraordinary item ........................................... (0.02) -- --
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER ADS ......................................... $ 0.88 $ 0.80 $ 0.59
- -------------------------------------------------------------------------------------------------------------------------
Weighted average ADSs outstanding ................................. 51,533 48,735 45,210
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Danka Business Systems PLC 23
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
AT MARCH 31
<TABLE>
<CAPTION>
1996 1995
Note $000 $000
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents .......................................... 38,217 86,848
Accounts receivable, net of allowance for doubtful
accounts of $8,804 (1995 - $6,034) ............................ 247,479 133,046
Inventories ........................................................ 214,519 132,246
Prepaid expenses and other current assets .......................... 9,534 4,267
Investments ........................................................ -- 10,285
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ............................................... 509,749 366,692
Equipment on operating leases, net ...................................... 2 73,303 43,813
Property and equipment, net ............................................. 3 42,795 36,533
Intangible assets:
Goodwill, net of accumulated amortization
of $22,391 (1995 - $11,034) ....................................... 11 427,354 162,215
Noncompete agreements, net of accumulated
amortization of $6,944 (1995 - $4,658) ............................ 11 8,490 6,248
Other assets ............................................................ 29,865 19,813
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................................ 1,091,556 635,314
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable ............. 4 30,414 23,494
Accounts payable ................................................... 88,817 60,001
Accrued expenses and other current liabilities ..................... 108,621 45,457
Deferred revenue ................................................... 64,223 44,812
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES .......................................... 292,075 173,764
Convertible subordinated notes .......................................... 4 200,000 200,000
Other long-term debt .................................................... 4 118,262 33,681
Deferred income taxes and other long-term liabilities ................... 7 39,376 21,461
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .................................................. 649,713 428,906
- ------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Ordinary shares 1.25 pence stated value; 400,000,000 authorized;
219,112,247 issued and outstanding (1995 - 191,351,765) ....... 9 4,585 4,050
Additional paid-in capital ......................................... 297,378 92,777
Retained earnings .................................................. 148,501 110,143
Currency translation adjustment .................................... (8,621) (562)
- ------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ......................................... 441,843 206,408
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ........................................... 10
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. 1,091,556 635,314
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24 Danka Business Systems PLC
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------
For the years ended March 31
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
$000 $000 $000
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings ...................................................... 45,215 39,047 26,466
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ................................. 52,136 32,400 19,619
Loss (gain) on sale of property and equipment ................. 3,081 (2,730) 101
Proceeds from sale of rental equipment ........................ 9,018 9,459 3,299
Extraordinary item ............................................ 494 -- --
Changes in assets and liabilities, net of effects
from the purchase of subsidiaries:
Accounts receivable ...................................... (32,806) (17,561) (13,029)
Inventories .............................................. (16,721) (26,699) (237)
Prepaid expenses and other current assets ................ (3,751) 1,789 (2,583)
Income tax refund receivable ............................. -- 4,492 (4,856)
Other noncurrent assets .................................. (4,039) (4,444) 1,252
Accounts payable ......................................... 3,687 5,841 (7,324)
Accrued expenses ......................................... 843 4,181 (935)
Deferred revenue ......................................... (9,463) (1,889) (784)
Deferred income taxes and other long-term liabilities .... 9,511 8,075 12,728
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............................. 57,205 51,961 33,717
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures .............................................. (45,212) (51,256) (25,403)
Proceeds from sale of property and equipment ...................... 1,961 9,127 2,153
Payment for purchase of subsidiaries, net of cash acquired ........ (269,860) (70,752) (90,842)
Payment for purchase of noncompete agreements ..................... (4,312) (2,315) (2,033)
Purchase of investments ........................................... -- (11,451) --
Net proceeds from sale of investments ............................. 10,854 -- --
Payment for dissenter's shares .................................... -- -- (750)
Net earnings of pooled company January 1, 1993 to March 31, 1993 .. -- -- 118
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES .................................. (306,569) (126,647) (116,757)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit agreements ......... 74,773 (35,431) (6,541)
Principal payments on debt ........................................ (69,047) (13,659) (13,183)
Net proceeds from issuance of Convertible Subordinated Notes ...... -- 195,000 --
Net proceeds from issuance of other long-term debt ................ 1,599 4,132 30,000
Net proceeds from ADS offering .................................... 195,985 -- 86,239
Proceeds from stock options exercised ............................. 935 833 445
Dividends ......................................................... (6,164) (4,970) (3,877)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............................. 198,081 145,905 93,083
- -----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ............................................... 2,652 9 (178)
- -----------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................... (48,631) 71,228 9,865
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 86,848 15,620 5,755
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... 38,217 86,848 15,620
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Cash flow information:
Interest paid ................................................. 21,958 7,871 4,124
Income taxes paid ............................................. 15,008 11,634 8,328
Non-cash flow information:
Notes payable issued for noncompete agreements ................ 3,030 1,745 591
Notes payable issued for purchase of subsidiaries ............. 21,932 29,205 --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Danka Business Systems PLC 25
<PAGE> 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Currency
Ordinary paid-in Retained translation
shares capital earnings adjustment Total
$000 $000 $000 $000 $000
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1993 ........................ 3,523 4,893 54,051 (313) 62,154
Net earnings ...................................... -- -- 26,466 -- 26,466
Dividends ......................................... -- -- (3,877) -- (3,877)
Distributions to former shareholders of
pooled companies .............................. -- -- (692) -- (692)
Currency translation adjustment ................... -- -- -- (178) (178)
Shares issued under employee option plans ......... 27 418 -- -- 445
Net earnings of pooled company
January 1, 1993 to March 31, 1993 ............. -- -- 118 -- 118
Payment for dissenter's shares .................... (4) (746) -- -- (750)
Shares issued in public offering .................. 428 85,811 -- -- 86,239
- --------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1994 ........................ 3,974 90,376 76,066 (491) 169,925
Net earnings ...................................... -- -- 39,047 -- 39,047
Dividends ......................................... -- -- (4,970) -- (4,970)
Currency translation adjustment ................... -- -- -- (71) (71)
Shares issued under employee option plans ......... 35 798 -- -- 833
Shares issued for acquisitions .................... 41 1,603 -- -- 1,644
- --------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1995 ........................ 4,050 92,777 110,143 (562) 206,408
Net earnings ...................................... -- -- 45,215 -- 45,215
Dividends ......................................... -- -- (6,164) -- (6,164)
Distributions to former shareholders of
pooled companies .............................. -- -- (693) -- (693)
Currency translation adjustment ................... -- -- -- (8,059) (8,059)
Shares issued under employee option plans ......... 35 900 -- -- 935
Shares issued in public offering .................. 380 195,605 -- -- 195,985
Shares issued for acquisitions .................... 120 8,096 -- -- 8,216
- --------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1996 ........................ 4,585 297,378 148,501 (8,621) 441,843
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26 Danka Business Systems PLC
<PAGE> 14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements have been prepared in accordance with United States
Generally Accepted Accounting Principles. The principal accounting policies are
set forth below.
(b) Basis of consolidation
The consolidated financial statements include the accounts of Danka Business
Systems PLC and its subsidiaries (the "Company"). The Company's principal
operating subsidiaries are located in the United States, Canada and Europe and
are principally engaged in the retail and wholesale distribution and service of
photocopiers and facsimile equipment. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at year end and the reported amounts of
revenues and expenses during the reporting period. Certain significant
estimates are disclosed throughout this report. Actual results could differ
from these estimates.
(d) Revenue recognition
Equipment sales are recognized at the time of customer acceptance, or in the
case of equipment sales financed by third party leasing companies, at the time
of acceptance by the leasing company and the customer. Supply sales to
customers are recognized at the time of shipment, or in the case of service
contracts which include supplies, upon usage by the customer.
Operating lease income is recognized as earned and maintenance contract service
revenues are recognized ratably over the term of the underlying maintenance
contract. Other service revenues are recognized as earned. Deferred revenue
consists of unearned maintenance contract revenue that is recognized using the
straight-line method over the life of the related contract, generally twelve
months.
(e) Property and equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is provided using the straight-line
method over the assets' estimated economic lives. Expenditures for additions,
major renewals or betterments are capitalized and expenditures for repairs and
maintenance are charged to earnings as incurred. When property and equipment
are retired or otherwise disposed of, the cost thereof and the applicable
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is reflected in earnings.
(f) Inventories
Inventories consist of photocopiers, facsimile equipment, other automated
office equipment, and related parts and supplies, and are valued at the lower
of cost (specific cost for equipment and first-in, first-out method for
supplies and parts) or market value.
(g) Intangibles
Goodwill recognized in business combinations accounted for as purchases is
amortized over thirty years on a straight-line basis, and is evaluated for
realizability annually based on expectations of undiscounted cash flows and
earnings from operations for each subsidiary having a material goodwill
balance. Impairments would be recognized if future undiscounted cash flows and
earnings from operations were not sufficient to recover the goodwill and the
carrying amount of the goodwill would be reduced by the estimated shortfall of
the cash flows. Based upon its most recent analysis, the Company believes that
no material impairment of goodwill exists at March 31, 1996. Noncompete
agreements are amortized over the lives of the agreements, generally three to
seven years on a straight-line basis. Deferred financing costs incurred in
connection with the issuance of the Convertible Subordinated Notes and other
financings are charged as interest expense over the term of the related debt,
and are included in other noncurrent assets.
(h) Foreign currencies
Foreign currency transactions are converted at the rate of exchange on the date
of the transaction or translated at the year end rate in the case of
transactions not then finalized. Assets and liabilities in currencies other
than U.S. dollars are translated into U.S. dollars at the exchange rate in
effect at the balance sheet date. Revenues and expenses are translated using
the average rate of exchange for the period. Exchange differences arising in
consolidation are recorded in shareholders' equity.
Danka Business Systems PLC 27
<PAGE> 15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and commercial paper with
original maturities of three months or less.
(j) Income taxes
Income taxes are provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109. Principal temporary
differences which give rise to deferred tax assets and liabilities include
leases which are treated as sales for financial reporting purposes and as
operating leases for tax purposes, additional costs capitalized into inventory
for tax purposes, and the nondeductibility for income tax purposes of reserves
for bad debts and slow moving inventory.
(k) Earnings per share
Earnings per American Depositary Share ("ADS") are based on net earnings and
the weighted average number of ADSs outstanding during the year, as adjusted
for shares issuable upon exercise of share options. The computation assumes the
proceeds from the exercise of share options are used to repurchase the
Company's ADSs at the average market price of the ADSs during the year.
Earnings per ADS are based on the current ratio of four Ordinary Shares to one
ADS.
(l) Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and trade
receivables. The Company's cash and cash equivalents are placed with high
credit quality financial institutions, and are invested in short-term maturity,
highly rated corporate and government debt securities. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base, and their dispersion across
many different industries and geographical areas. As of March 31, 1996, the
Company had no significant concentrations of credit risk.
(m) Financial instruments
The Company enters into foreign exchange forward and option contracts to manage
its exposure to fluctuations in foreign currency exchange rates. Gains and
losses that hedge specific currency commitments are deferred and recognized in
net earnings in the period in which the transaction is consummated. Premiums
paid on option contracts that hedge specific currency commitments are amortized
over the term of the option. At March 31, 1996, the Company had no outstanding
forward exchange contracts or option contracts.
(n) Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(o) Advertising costs
The Company expenses advertising costs as incurred, except production costs
which are expensed the first time the advertising takes place.
(p) Pending accounting changes
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Statement No. 121 requires the recognition of
impairment losses on long-lived assets used in operations, when indicators of
impairment are present, and the estimated undiscounted cash flows to be
generated by those assets are less than the assets' carrying value. Statement
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company will adopt Statement No. 121 during the first
quarter of fiscal 1997, but does not believe it will have a material effect on
the Company's earnings or financial position when adopted.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123 "Accounting for Stock-Based Compensation", which requires adoption in
fiscal 1997. Statement No. 123 defines a new "fair value" method of accounting
for stock-based compensation, and requires certain additional disclosures for
these plans. Pursuant to the new standard, companies are encouraged, but not
required to adopt the "fair value" method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", but would be required to disclose
pro forma net earnings and earnings per share, as if the company had applied
the new method of accounting. The Company intends to continue applying the
provisions of Opinion No. 25, and therefore, the new standard will have no
effect on the Company's earnings or financial position. The impact will however
be disclosed in accordance with Statement No. 123.
28 Danka Business Systems PLC
<PAGE> 16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. EQUIPMENT ON OPERATING LEASES, NET
Substantially all of the Company's operating leases are cancelable. Equipment
on operating leases is depreciated over three years assuming a ten percent
salvage value and consists of the following at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
$000 $000
- ---------------------------------------------------------------------------
<S> <C> <C>
Equipment on operating leases ...................... 109,589 72,278
Less accumulated depreciation ...................... (36,286) (28,465)
- ---------------------------------------------------------------------------
Equipment on operating leases, net ................. 73,303 43,813
- ---------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended March 31, 1996, 1995 and 1994
approximated $28,691,000, $18,457,000, and $11,429,000, respectively.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, along with their useful lives, consist of the following
at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
Average
1996 1995 useful life
$000 $000 in years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings ................................................. 5,201 3,178 31
Office furniture, equipment and leasehold improvements .... 51,723 40,752 3-10
Transportation equipment .................................. 6,803 5,600 5-15
Land ...................................................... 2,309 3,379 --
- ---------------------------------------------------------------------------------------------
Total cost ................................................ 66,036 52,909
Less accumulated depreciation and amortization ............ (23,241) (16,376)
- --------------------------------------------------------------------------------
Property and equipment, net ............................... 42,795 36,533
- --------------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended March 31, 1996, 1995 and 1994
approximated $9,858,000, $7,125,000, and $4,425,000, respectively.
4. DEBT
Debt consists of the following at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
$000 $000
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
6.75% Convertible Subordinated Notes due April 2002 .......................... 200,000 200,000
Senior Notes, interest at 7.6% ............................................... -- 30,000
Revolving line of credit (limited to $400 million) interest at IBOR plus an
applicable margin or the agent bank's reference rate (currently averaging
4.9%), matures March 2001 ................................................ 109,887 --
Amounts payable to previous owners of acquired businesses .................... 8,292 16,659
Noncompete agreements, principal payable in varying amounts .................. 2,340 1,846
Various notes payable bearing interest from prime
to 15.2%, maturing principally over the next 5 years ...................... 28,157 8,670
- -----------------------------------------------------------------------------------------------------
Total long-term debt and notes payable ....................................... 348,676 257,175
Less current maturities of long-term debt and notes payable .................. (30,414) (23,494)
- -----------------------------------------------------------------------------------------------------
Long-term debt, less current maturities ...................................... 318,262 233,681
- -----------------------------------------------------------------------------------------------------
</TABLE>
Danka Business Systems PLC 29
<PAGE> 17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT (CONTINUED)
In March 1995, the Company issued $200 million of 6.75% Convertible
Subordinated Notes (the "Notes") at par, in a private placement offering, due
April 2002. The Notes are currently convertible into the Company's ADSs at a
conversion rate of $29.125 per ADS, or into the Company's Ordinary Shares at a
conversion rate of $7.281 per Ordinary Share (equivalent to approximately
34.335 ADSs or 137.339 Ordinary Shares for each $1,000 principal amount of
Notes). Interest is payable semi-annually on April 1 and October 1. The Notes
are not subject to sinking fund provisions.
In March 1996 the Company entered into a $400 million multicurrency revolving
line of credit ("Credit Facility Loan") with a group of banks. The Credit
Facility Loan, which is unsecured, requires scheduled payments of interest
throughout the term of the loan, and the maintenance of certain financial
ratios. The Company was in compliance with all terms of the Credit Facility
Loan at March 31, 1996.
In February 1996, the Company used a portion of the net proceeds from its ADS
offering to repay certain debt obligations. As a result, the Company recorded
an extraordinary loss of approximately $1,133,000 ($0.02 per ADS) relating to
the early extinguishment of debt, net of the income tax benefit of $691,000.
The extraordinary loss consists principally of premiums paid in connection with
the early redemption of $27 million of Senior Notes, and the write-off of
unamortized deferred finance costs.
Aggregate annual maturities of long-term debt and notes payable at March 31,
1996, are as follows:
<TABLE>
<CAPTION>
Year ending March 31 $000
- ----------------------------------------------------------------
<S> <C>
1997 30,414
1998 2,482
1999 1,112
2000 754
2001 112,888
Thereafter 201,026
- ----------------------------------------------------------------
348,676
- ----------------------------------------------------------------
</TABLE>
5. RESTRUCTURING CHARGES
In the third quarter of fiscal 1996, the Company finalized a plan to
restructure its international operations. The restructuring consisted of a
series of planned actions, including a reduction in the number of employees,
consolidation of offices and facilities, and the write-off of certain leasehold
improvements and other fixed assets. In connection with these actions, the
Company recorded a restructuring charge of $8,500,000 in the third quarter of
fiscal 1996. These charges reduced net earnings by approximately $5,278,000, or
$0.10 per ADS.
The restructuring charge reflects $2,647,000 for severance and other
termination benefits, $3,411,000 for lease settlement costs associated with the
consolidation of duplicate facilities, and $2,442,000 for the write-off of
leasehold improvements and other fixed assets.
Of the initial restructuring charges, at March 31, 1996, $2,770,000 remained in
accrued liabilities, comprised of $523,000 for the remaining reduction of the
workforce, $1,071,000 for the closing of duplicate facilities, and $1,176,000
for the write-off of leasehold improvements. Management anticipates that the
remaining restructuring actions will be completed by the third quarter of
fiscal 1997.
30 Danka Business Systems PLC
<PAGE> 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. FOREIGN OPERATIONS
The following table indicates the relative amounts of revenue, earnings from
operations and identifiable assets of the Company by geographic area, during
the three years ended March 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
$000 $000 $000
- --------------------------------------------------------- ------- -------
<S> <C> <C> <C>
REVENUE:
United States ............................. 938,622 702,565 500,771
United Kingdom ............................ 99,551 65,917 28,050
The Netherlands ........................... 67,306 -- --
Other international ....................... 134,825 33,714 2,587
- ------------------------------------------------------------ ------- -------
Consolidated revenue ...................... 1,240,304 802,196 531,408
- ------------------------------------------------------------ ------- -------
EARNINGS FROM OPERATIONS:
United States ............................. 73,821 67,629 44,993
United Kingdom ............................ 8,812 2,837 2,822
The Netherlands ........................... 7,352 -- --
Other international ....................... 6,170 1,084 69
- ------------------------------------------------------------ ------- -------
Consolidated earnings from operations ..... 96,155 71,550 47,884
- ------------------------------------------------------------ ------- -------
IDENTIFIABLE ASSETS:
United States ............................. 612,428 535,104 309,043
United Kingdom ............................ 129,142 61,682 34,646
The Netherlands ........................... 127,121 -- --
Other international ....................... 222,230 27,748 8,912
- ------------------------------------------------------------ ------- -------
1,090,921 624,534 352,601
Corporate assets .......................... 635 10,780 4,203
- ------------------------------------------------------------ ------- -------
Consolidated assets ....................... 1,091,556 635,314 356,804
- ------------------------------------------------------------ ------- -------
</TABLE>
Corporate assets are those assets maintained for general purposes, principally
cash and cash equivalents and short-term investments.
7. INCOME TAXES
Earnings before income taxes for U.S. based and non-U.S. based operations for
the three years ended March 31, 1996 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
$000 $000 $000
- ----------------------------------------------------------- ---- ----
<S> <C> <C> <C>
U.S. based ..................................... 43,501 50,386 36,435
Non U.S. based ................................. 31,088 13,422 7,782
- ------------------------------------------------------------ ------ ------
Total .......................................... 74,589 63,808 44,217
- ------------------------------------------------------------ ------ ------
</TABLE>
The provision for income taxes for the three years ended March 31, 1996 was
allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
$000 $000 $000
- ------------------------------------------------------------ ---- ----
<S> <C> <C> <C>
Provision for income taxes before
extraordinary item ........................... 28,241 24,761 17,751
Tax benefit from extraordinary loss on early
extinguishment of debt ....................... (691) -- --
- ------------------------------------------------------------ ------ ------
Total provision for income taxes ............... 27,550 24,761 17,751
- ------------------------------------------------------------ ------ ------
</TABLE>
31
<PAGE> 19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes (continued)
The provision for income taxes before the extraordinary item for the three
years ended March 31, 1996 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
$000 $000 $000
- --------------------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
U.S. INCOME TAX
Current .......................................................... 13,345 10,841 2,500
Deferred ......................................................... 7,142 9,260 13,000
- --------------------------------------------------------------------------------- ------ ------
Total U.S. tax provision ......................................... 20,487 20,101 15,500
- --------------------------------------------------------------------------------- ------ ------
U.K. INCOME TAX
Current .......................................................... 4,846 4,600 2,748
Deferred ......................................................... 485 (180) (248)
(Recoverable)/Irrecoverable advance corporation tax .............. -- -- (276)
- --------------------------------------------------------------------------------- ------ ------
Total U.K. tax provision ......................................... 5,331 4,420 2,224
- --------------------------------------------------------------------------------- ------ ------
NETHERLANDS INCOME TAX
Current .......................................................... 1,620 -- --
Deferred ......................................................... -- -- --
- --------------------------------------------------------------------------------- ------ ------
Total Netherlands tax provision .................................. 1,620 -- --
- --------------------------------------------------------------------------------- ------ ------
OTHER INTERNATIONAL INCOME TAX
Current .......................................................... 803 560 51
Deferred ......................................................... -- (320) (24)
- --------------------------------------------------------------------------------- ------ ------
Total other international tax provision .......................... 803 240 27
- --------------------------------------------------------------------------------- ------ ------
TOTAL PROVISION FOR INCOME TAXES BEFORE EXTRAORDINARY ITEM ....... 28,241 24,761 17,751
- --------------------------------------------------------------------------------- ------ ------
</TABLE>
A reconciliation of the U.K. statutory corporate rate to the effective rate is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
$000 $000 $000
- --------------------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
Tax charge at standard U.K. rate 33% .................................. 24,614 21,057 14,592
Profits taxed at other than standard U.K. rate ........................ 3,142 2,645 2,553
(Recoverable)/Irrecoverable advance corporation tax ................... -- -- (276)
Goodwill amortization and other permanent differences ................. 485 1,059 748
Adjustment to deferred taxes for change in tax rates .................. -- -- 134
- --------------------------------------------------------------------------------- ------ ------
Provision for income taxes before extraordinary item .................. 28,241 24,761 17,751
- --------------------------------------------------------------------------------- ------ ------
</TABLE>
32
<PAGE> 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that comprise the elements of
deferred tax at March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
$000 $000
- ----------------------------------------------------------------------------------------------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses not deducted for tax purposes ................................. 2,678 2,969
Reserves for inventory and accounts receivable not deducted for tax purposes ... 5,760 5,540
Additional inventory costs capitalized for tax purposes under the uniform
cost capitalization rules .................................................... 3,110 2,539
Net operating loss carryforwards ............................................... 11,965 --
- ----------------------------------------------------------------------------------------------- -------
Total gross deferred tax assets ................................................ 23,513 11,048
Valuation allowance ............................................................ (11,965) --
- ----------------------------------------------------------------------------------------------- -------
Net deferred tax assets ........................................................ 11,548 11,048
- ----------------------------------------------------------------------------------------------- -------
DEFERRED TAX LIABILITIES:
Leases treated as operating leases for tax purposes and sales-type
leases for financial reporting purposes ....................................... (37,487) (31,939)
Differences in depreciation methods and other .................................. (3,718) (570)
- ----------------------------------------------------------------------------------------------- -------
Total gross deferred tax liabilities ........................................... (41,205) (32,509)
- ----------------------------------------------------------------------------------------------- -------
NET DEFERRED TAX LIABILITY ..................................................... (29,657) (21,461)
- ----------------------------------------------------------------------------------------------- -------
</TABLE>
There was no valuation allowance for deferred tax assets at March 31, 1995, and
1994. The net change in the total valuation allowance for the year ended March
31, 1996 was approximately $11,965,000.
8. Employee Benefits
Substantially all of the U.S. employees of Danka Industries, Inc. ("Danka
Industries") are entitled to participate in the Profit Sharing Plan (the
"Plan") established under Section 401(k) of the U.S. Internal Revenue Code.
Employees are eligible to contribute voluntarily to the Plan after one year of
continued service and attaining age 21. At its discretion, Danka Industries may
contribute an additional 50% of the employee contribution up to specified
limits. Employees are always vested in their contributed balance and become
fully vested in Danka Industries' contributions after seven years of service.
The expenses related to Danka Industries' contributions to the Plan for the
years ended March 31, 1996, 1995 and 1994 were approximately $2,362,000,
$2,035,000, and $996,000, respectively.
Danka U.K. plc operates a defined contribution pension scheme (the "scheme")
for certain of its employees. Employees are eligible to contribute voluntarily
to the scheme after two years of continuous service and attaining age 21. Danka
U.K. plc contributes 5% of the employee's salary to the scheme. Employees are
always vested in their contributed balance and become fully vested in Danka
U.K. plc's contributions after two years of service. The expenses related to
Danka U.K. plc's contributions to the scheme for the years ended March 31,
1996, 1995 and 1994 were approximately $254,000, $171,000, and $123,000,
respectively.
Some of the other European companies are covered by various pension plans as
well as statutory pension requirements. Contributions made under these plans
were not material.
33
<PAGE> 21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. SHARE OPTION PLANS
The Company has a U.K. Share Option Scheme and a U.S. Stock Option Plan for
directors, officers and selected employees. Generally, the options may only be
exercised during an employee's employment, and may be exercised three to ten
years after the date granted. The options are issued with an exercise price
equal to the average market value on the three days prior to the grant date.
Options issued are nontransferable except for options issued under the U.K.
scheme which may be transferred to a trust, company, or pension fund whose sole
beneficiary or owner is the option holder or their spouse or child.
Transactions during the three years ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Number of Exercise price
Ordinary Shares in pence
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
Balance outstanding at March 31, 1993 ................. 8,844,000 12.50 - 74.25
Granted ............................................... 810,331 215.66 - 335.00
Exercised ............................................. (1,442,000) 12.50 - 41.25
Canceled .............................................. -- --
- -------------------------------------------------------------------- ---------------
Balance outstanding at March 31, 1994 ................. 8,212,331 12.50 - 335.00
Granted ............................................... 834,500 271.66 - 377.66
Exercised ............................................. (1,738,332) 12.50 - 46.17
Canceled .............................................. (249,000) 217.92 - 299.66
- -------------------------------------------------------------------- ---------------
Balance outstanding at March 31, 1995 ................. 7,059,499 12.50 - 377.66
Granted ............................................... 1,479,373 378.67 - 699.00
Exercised ............................................. (1,850,268) 12.50 - 74.25
Canceled .............................................. (90,500) 307.00 - 351.33
- -------------------------------------------------------------------- ---------------
Balance outstanding at March 31, 1996 ................. 6,598,104 12.50 - 699.00
- -------------------------------------------------------------------- ---------------
</TABLE>
Share options generally become vested after a period of three years subsequent
to the date of the grant. At March 31, 1996, a total of approximately 3,853,400
options were vested.
10. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
LEASES
The Company is obligated under various noncancelable operating leases for its
office facilities, office equipment and vehicles. Future noncancelable lease
commitments as of March 31, 1996, are as follows:
Year ending March 31 $000
- -------------------------------------------------------------------
1997 ...................................................... 29,716
1998 ...................................................... 22,964
1999 ...................................................... 16,508
2000 ...................................................... 11,565
2001 ...................................................... 8,041
Thereafter ................................................ 18,107
- -------------------------------------------------------------------
Rental expense for fiscal years ended March 31, 1996, 1995 and 1994 was
approximately $22,993,000, $14,237,000, and $10,052,000, respectively.
34
<PAGE> 22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
LEASE COMMITMENTS
In November 1995, Danka Holding Company ("DHC"), a U.S. subsidiary of the
Company, entered into a five-year operating lease agreement (the "Agreement"),
which provides for DHC to lease certain real property in the U.S. The Agreement
generally provides for DHC to pay property taxes, maintenance, insurance, and
certain other operating costs of the leased properties. The leases covered by
the Agreement provide for a residual guarantee by DHC at the end of the initial
lease term, which has not been included in the table of future noncancelable
lease commitments above. The Agreement also includes purchase and renewal
options at fair market values. DHC has the right to exercise a purchase option
on the properties at the end of the lease term, or the properties can be sold
to third parties. DHC expects the fair market value of the properties, subject
to the purchase option or sale to third parties, to substantially reduce or
eliminate DHC's payment under the residual value guarantee. DHC is obligated to
pay the difference between the maximum amount of the residual guarantee and the
fair market value at the termination of each lease under the Agreement. The
maximum residual guarantee relative to the properties covered by the Agreement
is equal to the total cost of the properties leased under the Agreement, which
was approximately $16.5 million at March 31, 1996.
RELATED PARTY TRANSACTIONS
The Company remains contingently liable for the repayment of $1,125,000 of
Industrial Revenue Bonds used to finance the construction of its corporate
office in St. Petersburg, Florida. The obligation was assumed by a company
controlled by the Chief Executive when it acquired the corporate office
building. The Company leases its corporate office and three other offices owned
by companies in which the Chief Executive has a significant interest. The above
arrangements were entered into prior to the acquisition agreement dated
December 1986 whereby Danka Business Systems PLC purchased Danka Industries,
Inc. For the years ended March 31, 1996, 1995 and 1994, Danka Industries, Inc.
was charged $689,000, $768,000 and $799,000, respectively, for rent due under
these leases. The leases expire at various dates, with the last lease expiring
in December 2003.
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes that the resolution of
such matters will not have a material effect upon the Company's financial
position or future results of operations.
11. ACQUISITIONS
In November 1995, the Company acquired all of the issued and outstanding shares
of Infotec Europe B.V. and its operating subsidiaries ("Infotec") for
consideration of 270 million Dutch florins ($167 million). In addition to the
purchase price, approximately $14.6 million of liabilities were accrued for
certain costs to integrate Infotec's operations. Of the costs accrued, at March
31, 1996, $7.4 million remained in accrued liabilities, comprised of $5.0
million for the remaining reduction of the workforce and $2.4 million for the
closing of duplicate facilities and fixed asset adjustments. It is not
anticipated that significant additional liabilities will be incurred that would
result in an adjustment of the allocation of the purchase price. After
consideration of these costs, all of the purchase price was allocated to
goodwill. Management anticipates that the integration will be complete by the
second quarter of fiscal 1997.
In addition to the purchase of Infotec, during the year ended March 31, 1996,
the Company acquired the outstanding stock or assets of 27 other unrelated
businesses. These acquisitions were accounted for as purchases with
consideration totaling approximately $87.0 million, of which approximately $6.9
million represented identifiable tangible assets, and the balance of
approximately $80.1 million represented goodwill. In addition, the Company paid
approximately $3.9 million for noncompete agreements with certain key owners
and key employees of these businesses. The results of the acquired companies
are included in the accompanying Consolidated Statement of Earnings since the
effective date of each acquisition. Under the terms of certain of the above
purchase agreements, the Company may be required to make additional payments of
up to $3.2 million, contingent upon these acquired businesses achieving certain
profit levels. Any future amounts paid under the terms of these agreements will
be recorded as goodwill. The Company also issued 5,700,835 Ordinary Shares
(1,425,209 ADS equivalents), for five separate acquisitions which were
accounted for as poolings of interest. The accompanying consolidated financial
statements have not been restated because the effect of these acquisitions was
not material. The issuance of the Ordinary Shares has been treated as an
addition in the Consolidated Statement of Shareholders' Equity, and the results
of the acquired companies are included in the Consolidated Statement of
Earnings since the effective date of each acquisition.
Danka Business Systems PLC 35
<PAGE> 23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. ACQUISITIONS (CONTINUED)
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisitions had occurred at the beginning of the years
ended March 31, 1996 and 1995, after giving effect to certain adjustments,
including amortization of goodwill, interest expense on the debt incurred to
fund the acquisition and the related income tax effects:
<TABLE>
<CAPTION>
1996 1995
$000 $000
(Except per ADS Data)
- -------------------------------------------------------------------------
<S> <C> <C>
Total revenue ................................... 1,442,294 1,414,390
- -------------------------------------------------------------------------
Net earnings .................................... 43,832 38,095
- -------------------------------------------------------------------------
Net earnings per ADS ............................ $ 0.85 $ 0.78
- -------------------------------------------------------------------------
</TABLE>
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
been made as of those dates or of results which may occur in the future.
12. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 31, 1996, the carrying values of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses, and other notes payable
approximated fair value due to the short-term maturities of these assets and
liabilities. The estimated fair value of the Company's $200 million 6.75%
Convertible Subordinated Notes at March 31, 1996 was approximately $320
million, based on the quoted market price of the Notes. The estimated fair
market value at March 31, 1996 of the Company's Credit Facility Loan
approximated the carrying amount of the debt, due to the short-term maturities
of the individual components of the debt. At March 31, 1995 investments
represented the cost of shares purchased in connection with a proposed
acquisition, and had a cost and market value of $10.3 million and $12.2
million, respectively. A higher competing offer was made for this proposed
acquisition, and in June 1995, the Company tendered its shares to the maker of
the higher competing offer.
FOREIGN CURRENCY INSTRUMENTS
From time to time, the Company enters into foreign exchange forward and option
contracts to manage its exposure to fluctuations in foreign currency exchange
rates on specific transactions. Foreign exchange forward contracts are legal
agreements between two parties to purchase and sell a foreign currency, for a
price specified at the contract date. The fair value of foreign exchange
forward contracts is estimated by obtaining quotes for futures contracts with
similar terms, adjusted where necessary for maturity differences. To hedge its
foreign currency exposure, the Company also purchases foreign exchange options
which permit, but do not require, the Company to exchange foreign currencies at
a future date with another party at a contracted exchange rate. The fair value
of foreign exchange options is estimated using active exchange quotations. At
March 31, 1996, there were no outstanding forward contracts or option contracts
to buy or sell foreign currency. For the year ended March 31, 1996, gains and
losses realized on forward contracts and option contracts were not material.
The Company's financial instruments involve, to varying degrees, elements of
exchange risk in excess of the amounts which would be recognized in the
Consolidated Balance Sheet. Exposure to foreign currency contracts results from
fluctuations in currency rates during the periods in which the contracts are
outstanding. Additionally, these contracts contain an element of credit risk to
the extent of nonperformance by the counterparties. The Company minimizes such
risk by limiting the counterparties to a group of major international banks,
and does not expect to record any losses as a result of nonperformance by these
counterparties.
36 Danka Business Systems PLC
<PAGE> 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial data for the periods
indicated:
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
$000 $000 $000 $000
(Except per ADS Data)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenue ............................... 249,014 273,813 333,841 383,636
Gross profit .......................... 99,818 112,198 132,829 151,804
Net earnings .......................... 10,857 12,447 7,949(a) 13,962(b)
Net earnings per ADS .................. $ 0.22 $ 0.25 $ 0.16(a) $ 0.26(b)
- --------------------------------------------------------------------------------------
Fiscal 1995
Revenue ............................... 174,388 185,947 203,543 238,318
Gross profit .......................... 70,262 75,348 82,985 95,298
Net earnings .......................... 8,570 9,224 10,036 11,217
Net earnings per ADS .................. $ 0.18 $ 0.19 $ 0.21 $ 0.23
- --------------------------------------------------------------------------------------
</TABLE>
(a) Includes the effect of a restructuring charge of $8.5 million or $0.10 per
ADS.
(b) Includes the effect of an extraordinary loss of $1.1 million or $0.02 per
ADS due to the early extinguishment of debt.
INDEPENDENT AUDITORS' REPORT
To the Members of Danka Business Systems PLC
We have audited the consolidated balance sheets of Danka Business
Systems PLC and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1996. These
consolidated financial statements are the responsibility of the group's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and the United States. Those 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.
In our opinion, the aforementioned consolidated financial statements
present fairly in all material respects the financial position of Danka
Business Systems PLC and subsidiaries as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996 in conformity with generally accepted
accounting principles in the United States.
KPMG
Chartered Accountants
Registered Auditors
London, England June 3, 1996
Danka Business Systems PLC 37
<PAGE> 25
MARKET PRICES OF ADSs AND ORDINARY SHARES
The Company's American Depositary Shares ("ADSs") are included in the Nasdaq
National Market under the Company's sponsored ADS facility with The Bank of New
York under the symbol "DANKY." Each ADS represents four Ordinary Shares. The
principal public trading market for the Ordinary Shares is the London Stock
Exchange Limited. The Ordinary Shares are listed under the symbol "DNK.L."
The following table sets forth the high and low sale price per ADS as reported
by the Nasdaq National Market and the high and low middle market quotations
(which represent an average of bid and offered prices in pence) for the
Ordinary Shares as reported on the London Stock Exchange Limited Daily Official
List:
<TABLE>
<CAPTION>
US Dollars per Pence per
ADS Ordinary Share
High Low High Low
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1995:
Quarter ended June 30, 1994 $23.38 $17.38 365p 319p
Quarter ended September 30, 1994 22.38 17.13 352 283
Quarter ended December 31, 1994 22.13 17.13 344 269
Quarter ended March 31, 1995 28.13 21.38 434 341
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year 1996:
Quarter ended June 30, 1995 $27.75 $22.50 420p 356p
Quarter ended September 30, 1995 37.38 24.13 590 384
Quarter ended December 31, 1995 38.50 29.75 595 489
Quarter ended March 31, 1996 44.50 34.63 714 560
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1996, 42,443,613 ADSs were held of record by 2,751 registered
holders and 49,337,795 Ordinary Shares were held of record by 1,354 registered
holders. Since some of the ADSs and Ordinary Shares are held by nominees, the
number of holders may not be representative of the number of beneficial owners.
The Company currently expects to continue its policy of paying semi-annual cash
dividends, although there can be no assurance as to future dividends because
they are dependent upon future operating results, capital requirements and the
Company's financial condition.
38 Danka Business Systems PLC
<PAGE> 26
BOARD OF DIRECTORS
[PHOTO] [PHOTO] [PHOTO]
MARK A. VAUGHAN-LEE DAN M. DOYLE DAVID C. SNELL
Chairman Chief Executive Finance Director
DANKA
World-class products. World-clas service.
NON-EXECUTIVE DIRECTORS
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
DAVID S. HOOKER(1)(2) PIERSON M. GRIEVE(2) JAMES F. WHITE, JR. (1) DAVID W. KENDALL(1)(2)
David Hooker was appointed Pierson Grieve was appointed James White was appointed a David Kendall was appointed a
a non-executive director in a non-executive director in non-executive director in non-executive director in 1993.
1985. He is the chairman of 1996. He previously served as 1994. He serves as counsel He is chairman of Whitecroft
Gammell Kershaw and Company chairman and chief executive in the law firm of Shumaker, PLC, Ruberoid PLC, Blagden
Ltd. and is also a non- officer of Ecolab Inc. until Loop & Kendrick, Toledo, Industries PLC, and Celtic
executive director of December 1995. He also serves Ohio. He was previously an Energy Ltd., and a non-executive
Oceaneering International, as a director of U S WEST, executive director of director of Gowrings PLC.
Inc. He was managing director Inc., Norwest Corporation, Checkers Drive-in Restaurants
of Aberdeen Petroleum PLC St. Paul Companies, Inc., Inc.
until June 1993, and chairman and Meredith Corporation.
of Bakyrchik Gold PLC until
December 1995.
</TABLE>
(1) Member of the audit committee
(2) Member of the remuneration committee
Danka Business Systems PLC 39
<PAGE> 27
CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
UNITED STATES HEADQUARTERS CANADIAN HEADQUARTERS EUROPEAN HEADQUARTERS
Danka Holding Company Danka Business Systems Ltd. Danka Europe Ltd.
11201 Danka Circle North 5580 Explorer Drive Danka House, London Road
St Petersburg, Florida 33716 Mississauga, Ontario L4W 4Y1 Reading RG6, United Kingdom
(813)-576-6003 Canada 0118-928-4909
(905)-629-4488
REGISTERED OFFICE REGISTRARS
Masters House ADS DEPOSITARY Royal Bank of Scotland plc
107 Hammersmith Road Bank of New York PO Box 82 Caxton House
London W14 0QH United Kingdom ADS Division Redcliffe Way
0171-603-1515 101 Barclay Street, 22nd Floor Bristol BS99 7YA United Kingdom
SECRETARY New York, New York 10286
Paul G. Dumond A.C.A. Ordinary shares are traded on the
COMPANY NO: 1101386 ADSs are traded on the Nasdaq London Stock Exchange
National Market under the symbol under the symbol "DNK.L".
"DANKY".
AUDITORS OTHER PUBLISHED INFORMATION
KPMG Quarterly reports on Form 10-Q and the Form 10-K Annual Report filed with the
8 Salisbury Square US Securities and Exchange Commission, are available upon written request to
London EC4Y 8BB United Kingdom Danka's Investor Relations departments in St. Petersburg, Florida and London,
United Kingdom.
INTERNET HOME PAGE
For more information about Danka and its products, please visit our World Wide Web site at: http://www.danka.com
</TABLE>
"Danka", "dex", "Omnifax" and "Infotec" are registered trademarks of Danka
Business Systems PLC
40 Danka Business Systems PLC
<PAGE> 28
DANKA
World-class products. World-class service.
[LOGO] Printed on Recycled Paper
<PAGE> 1
EXHIBIT 21
DANKA BUSINESS SYSTEMS PLC
LIST OF CURRENT SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
STATE/COUNTRY OF
SUBSIDIARY NAME INCORPORATION
--------------- -------------
<S> <C>
Newcourt Natural Resources Oil and Gas Company England
Dankalux SARL Luxembourg
Danka Business Finance Ltd. Canada
Danka Holding Company Nevada
Danka Business Systems, Inc. Florida
Danka Corporation Nevada
Omnidex, Inc. Nevada
Danka Wholesale Inc. Florida
Danka Europe B.V. Holland
Danka SPA Italy
Danka France Holdings SARL France
Danka Benelux NV/SA Belgium
Danka Deutschland Holding Gmbh Germany
Danka Denmark A/S Denmark
Danka Europe Ltd. England
Danka U.K. Holdings Ltd. England
</TABLE>
19
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Members of Danka Business Systems PLC:
We consent to incorporation by reference in the registration statements (Nos.
33-75468 and 33-75474 on Form S-8, and (Nos. 33-95898 and 33-94596) on Form S-3
of Danka Business Systems PLC of our report dated June 3, 1996, relating to the
consolidated balance sheets of Danka Business Systems PLC and subsidiaries as
of March 31, 1996 and 1995, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 1996, and related schedules, which report
appears in the March 31, 1996 annual report on Form 10-K of Danka Business
Systems PLC.
KPMG
Chartered Accountants
Registered Auditors
June 24, 1996 London England
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 38,217
<SECURITIES> 0
<RECEIVABLES> 247,479
<ALLOWANCES> 8,804
<INVENTORY> 214,519
<CURRENT-ASSETS> 509,749
<PP&E> 66,036
<DEPRECIATION> 23,241
<TOTAL-ASSETS> 1,091,556
<CURRENT-LIABILITIES> 292,075
<BONDS> 318,262
0
0
<COMMON> 4,585
<OTHER-SE> 437,258
<TOTAL-LIABILITY-AND-EQUITY> 1,091,556
<SALES> 1,240,304
<TOTAL-REVENUES> 1,240,304
<CGS> 743,655
<TOTAL-COSTS> 743,655
<OTHER-EXPENSES> 400,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,566
<INCOME-PRETAX> 74,589
<INCOME-TAX> 28,241
<INCOME-CONTINUING> 46,348
<DISCONTINUED> 0
<EXTRAORDINARY> 1,133
<CHANGES> 0
<NET-INCOME> 45,215
<EPS-PRIMARY> .88
<EPS-DILUTED> 0
</TABLE>
