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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission file number: 0-20828
DANKA BUSINESS SYSTEMS PLC
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(Exact name of registrant as specified in its charter)
ENGLAND 98-0052869
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11201 Danka Circle North
St. Petersburg, Florida 33716
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 813-576-6003
NOT APPLICABLE
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(Former name or former address, if changed since last report)
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 [ ]
The registrant had 225,972,247 Ordinary Shares outstanding as of June 30, 1996.
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INDEX
<TABLE>
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Page
PART I - FINANCIAL INFORMATION ----
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Item 1 - Consolidated Financial Statements
Consolidated Statements of Earnings for the three months ended
June 30,1996 and 1995 (Unaudited) 3
Condensed Consolidated Balance Sheets as of June 30, 1996
(Unaudited) and March 31, 1996 (Audited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 1996 and 1995 (Unaudited) 5
Consolidated Statement of Shareholders' Equity for the three months
ended June 30, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
</TABLE>
<TABLE>
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PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Default upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 15
</TABLE>
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per American Depositary Share ("ADS") amounts)
For the three months ended
----------------------------------
June 30, June 30,
1996 1995
- ---------------------------------------------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Retail equipment sales $ 149,917 $ 98,470
Retail service, supplies and rentals 194,952 120,721
Wholesale 57,086 29,823
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Total revenue 401,955 249,014
- ---------------------------------------------------- ------------- -------------
Costs and operating expenses:
Cost of retail equipment sales 92,764 61,039
Retail service, supplies and rental costs 103,222 63,479
Wholesale costs of revenue 46,890 24,678
Selling, general and administrative expenses 126,496 76,627
Amortization of intangible assets 4,419 2,356
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Total costs and operating expenses 373,791 228,179
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Earnings from operations 28,164 20,835
Interest expense and other, net 5,033 3,278
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Earnings before income taxes 23,131 17,557
Provision for income taxes 8,800 6,700
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Net earnings $ 14,331 $ 10,857
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Net earnings per ADS $ 0.25 $ 0.22
==================================================== ============= =============
Weighted average ADSs 57,787 49,213
</TABLE>
See accompanying notes to the consolidated financial statements
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<TABLE>
<CAPTION>
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, March 31,
1996 1996
- --------------------------------------------------- ------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 44,764 $ 38,217
Accounts receivable, net 279,727 247,479
Inventories 243,443 214,519
Prepaid expenses and other current assets 11,196 9,534
- ---------------------------------------------------- ------------- -------------
TOTAL CURRENT ASSETS 579,130 509,749
Equipment on operating leases, net 84,253 73,303
Property and equipment, net 46,732 42,795
Intangible assets, net 439,671 435,844
Other assets 32,192 29,865
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TOTAL ASSETS $ 1,181,978 $ 1,091,556
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 29,143 $ 30,414
Accounts payable and accrued expenses 197,811 197,438
Deferred revenue 71,364 64,223
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TOTAL CURRENT LIABILITIES 298,318 292,075
Convertible subordinated notes 200,000 200,000
Other long-term debt 179,513 118,262
Deferred income taxes and other long-term liabilities 42,808 39,376
- ---------------------------------------------------- ------------- -------------
TOTAL LIABILITIES 720,639 649,713
==================================================== ============= =============
SHAREHOLDERS' EQUITY:
Ordinary Shares, 1.25 pence stated value; 400,000,000
authorized; 225,972,247 and 219,112,247 issued
and outstanding 4,718 4,585
Additional paid-in capital 298,694 297,378
Retained earnings 167,875 148,501
Currency translation adjustment (9,948) (8,621)
- ---------------------------------------------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 461,339 441,843
- ---------------------------------------------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,181,978 $ 1,091,556
==================================================== ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<TABLE>
<CAPTION>
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the three months ended
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June 30, June 30,
1996 1995
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(Unaudited) (Unaudited)
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OPERATING ACTIVITIES
Net earnings $ 14,331 $ 10,857
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 18,055 9,140
Gain on sale of property and equipment (208) (454)
Proceeds from sale of rental equipment 2,406 1,378
Changes in assets and liabilities, net of effects
from the purchase of subsidiaries:
Accounts receivable (15,867) (3,722)
Inventories (20,550) (12,685)
Prepaid expenses and other current assets (503) (380)
Other noncurrent assets (1,259) (203)
Accounts payable and accrued expenses (16,157) (27,942)
Deferred revenue (2,683) (1,133)
Deferred income taxes 4,943 2,546
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NET CASH USED IN OPERATING ACTIVITIES (17,492) (22,598)
==================================================== ============= =============
INVESTING ACTIVITIES
Capital expenditures (18,822) (7,562)
Proceeds from sale of property and equipment 578 218
Net proceeds from sale of investments --- 10,854
Payment for purchase of subsidiaries, net of cash acquired (8,559) (34,287)
Payment for purchase of noncompete agreements (381) (224)
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NET CASH USED IN INVESTING ACTIVITIES (27,184) (31,001)
==================================================== ============= =============
FINANCING ACTIVITIES
Net borrowings under line of credit agreements 67,503 8,384
Principal payments on debt (18,319) (2,961)
Proceeds from stock options exercised 141 306
- ---------------------------------------------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 49,325 5,729
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EFFECT OF EXCHANGE RATES 1,898 (1,550)
- ---------------------------------------------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,547 (49,420)
Cash and cash equivalents, beginning of period 38,217 86,848
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 44,764 $ 37,428
==================================================== ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<TABLE>
<Cation>
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
ADDITIONAL CURRENCY
ORDINARY PAID-IN RETAINED TRANSLATION
SHARES CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1996 $ 4,585 $ 297,378 $ 148,501 $ (8,621) $ 441,843
Net earnings 14,331 14,331
Shares issued under employee
option plans 1 140 141
Distributions to former shareholders
of pooled company (324) (324)
Shares issued for acquisitions 132 1,176 5,367 6,675
Currency translation adjustment (1,327) (1,327)
- ------------------------- ------------- ------------ ------------ ----------- -----------
Balances at June 30, 1996 $ 4,718 $ 298,694 $ 167,875 $ (9,948) $ 461,339
- ------------------------- ============= ============ ============ =========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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DANKA BUSINESS SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of June 30, 1996,
consolidated statements of earnings for the three months ended June 30, 1996
and 1995, consolidated statement of shareholders' equity for the three months
ended June 30, 1996, and the condensed consolidated statements of cash flows
for the three months ended June 30, 1996 and 1995 are unaudited. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for
the interim periods presented have been reflected herein. The results of
operations for the three months ended June 30, 1996 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in Danka
Business Systems PLC's Annual Report for the year ended March 31, 1996.
NOTE 2 - BUSINESS COMBINATIONS
During the three months ended June 30, 1996 the Company acquired the
outstanding stock or assets of various unrelated businesses. These
acquisitions were accounted for as purchases with consideration totaling
approximately $8.6 million. In addition, the Company entered into noncompete
agreements with certain key owners and key employees of these businesses. The
results of the acquired companies are included in the accompanying consolidated
statements of earnings since the effective date of each acquisition. In
addition, the Company issued 6,800,000 Ordinary Shares (1,700,000 ADS
equivalents) for one separate acquisition which was accounted for as a pooling
of interests. The financial statements have not been restated as the impact
would have been immaterial.
NOTE 3 - RESTRUCTURING CHARGE
During the third quarter of fiscal 1996, the Company recorded a restructuring
charge of $8.5 million, related to the restructuring of its international
operations. At June 30, 1996, approximately $0.7 million remained in accrued
liabilities, comprised of $0.1 million for the remaining reduction of the
workforce, $0.4 million for the closing of duplicate facilities, and $0.2
million for the write-off of leasehold improvements. Management anticipates
that the remaining restructuring actions will be completed by the third quarter
of fiscal 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Danka Business Systems PLC and its Subsidiaries (the "Company") is one of the
largest independent suppliers of photocopiers, facsimiles and other related
office equipment in North America, Europe and Australia. The Company primarily
markets these products and related service, parts and supplies on a direct
basis to retail customers. The Company also markets photocopiers, facsimiles,
and related parts and supplies on a wholesale basis to dealers. In addition,
the Company markets private label photocopiers and facsimiles and related
supplies on a direct and wholesale basis under the Company's Infotec trademark,
and facsimile equipment under its dex and Omnifax trademarks.
Earnings during the first quarter were affected by expenses associated with the
expansion of the Company's salesforce, support personnel and infrastructure in
North America which had not yet yielded the expected productivity, and by costs
incurred, which were higher than anticipated to regionally centralize certain
management and administrative functions. The Company has been aggressively
hiring and training new field sales representatives and support staff for its
core operations. The Company is also making significant investments in the
required infrastructure necessary to support this enlarged group of
professionals and the incremental expenses associated with such investments has
negatively impacted profitability in the first quarter.
During the last nine months, Danka expanded its efforts to market digital
color products and high-volume copiers across North America. The Company has
more than doubled the number of locations selling digital color products and,
since January 1996, has opened three new digital support centers to support
this growth. To direct and assist the Company's sales representatives and
service engineers, Danka has doubled the number of Certified Network Engineers
on its staff. The Company also recently completed its initial roll-out of the
Kodak high-volume copiers to 35 major markets throughout North America.
The Company has not achieved the level of digital color sales that it had
anticipated, and has decided to slow its expansion of the number of new
markets selling digital color products as well as the growth in the number of
digital color sales representatives, until the Company's existing
representatives reach a higher level of productivity. Over the last six months,
Danka has made significant investments in the required infrastructure necessary
to support the planned growth in digital color products, and the lack of
digital color equipment, service and supply sales is impacting earnings. The
Company will continue to support this expanded infrastructure as it believes
that digital color products are a key element of its future growth strategy,
and the investments in its infrastructure are necessary to support the
Company's long-term growth plans. The Company believes that these investments
will continue to impact earnings over the balance of the year.
The Company has refocused its sales management on growing the size of its
commercial salesforce to gain increased market penetration in existing markets.
To accomplish this goal, the Company has added a significant number of new
sales representatives and has promoted a number of selling sales managers to
market area managers. These new representatives will take time to reach the
desired productivity, and the cost of these new representatives, coupled with
the impact of promoting the selling sales managers to nonselling management
positions, has impacted both sales and earnings. The Company believes that the
commercial business is a critical element of its growth plans, and that its
focus on increasing the size of its commercial salesforce and the number of
managers supporting this enlarged salesforce is an important element of its
future growth plans.
To better support the Company's sales efforts in digital color and high-volume
products, major markets and its core 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. This Market Based
Approach is ultimately expected to provide for a higher quality of customer
support, increased productivity and reduced administrative costs. Danka's
implementation of the Market Based Approach is
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resulting in a short-term duplication of certain administrative and management
functions, which has increased selling, general and administrative costs.
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>
THREE MONTHS ENDED JUNE 30,
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1996 1995
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<S> <C> <C>
Revenue:
Retail equipment sales................... 37.3 % 39.5 %
Retail service, supplies and rentals..... 48.5 48.5
Wholesale................................ 14.2 12.0
----- -----
Total Revenue....................... 100.0 100.0
Cost of revenue............................ 60.4 59.9
----- -----
Gross profit............................... 39.6 40.1
Selling, general and administrative........ 31.5 30.8
Amortization of intangible assets.......... 1.1 0.9
----- -----
Earnings from operations............ 7.0 8.4
Interest expense and other, net............ 1.2 1.3
----- -----
Earnings before income taxes........ 5.8 7.1
Provision for income taxes................. 2.2 2.7
----- -----
Net earnings........................ 3.6 % 4.4 %
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</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>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Retail equipment sales ................... 38.1 % 38.0 %
Retail service, supplies and rentals...... 47.0 47.4
Wholesale................................. 17.9 17.3
</TABLE>
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995:
Revenue
Revenue increased 61% to $402.0 million in the three months ended June
30, 1996 ("first quarter of fiscal 1997") compared to $249.0 million in the
three months ended June 30, 1995 ("first quarter of fiscal 1996"). The increase
resulted from growth in core operations and significant contributions from
acquisitions. Excluding the impact of acquisitions, internal growth for the
Company's retail copier operations for the first quarter of fiscal 1997 was 7%.
Wholesale revenue as a percentage of total revenue increased primarily due to
the acquisition of Infotec in November 1995, which wholesales the Infotec brand
products to authorized independent dealers throughout Europe.
Gross Profit
Gross profit increased 59% to $159.1 million for the first quarter of
fiscal 1997 from $99.8 million for the first quarter of fiscal 1996. Gross
profit as a percentage of total revenue decreased to 39.6% for the first quarter
of fiscal 1997 from 40.1% for the first quarter of fiscal 1996. This decrease
was due to the change in the mix of the Company's revenue, and to lower margins
on service, supplies and rental revenue. As a result of the Company's
acquisition of Infotec in
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November 1995, an increased percentage of the Company's total revenue is being
derived from wholesale revenue which has substantially lower gross profit than
retail revenue. Gross profit as a percentage of retail equipment sales
remained relatively constant at 38.1% for the first quarter of fiscal 1997 and
38.0% for the first quarter of fiscal 1996. Gross profit as a percentage of
retail service, supplies and rentals decreased to 47.0% for the first quarter
of fiscal 1997 from 47.4% for the first quarter of fiscal 1996. This decrease
was due to two factors. First, Infotec has lower retail service, supplies and
rental gross profit margins than the Company's core operations. Second, in the
first quarter of fiscal 1996, the Company was able to pass through vendor price
increases to its customers. These increases were matched against parts and
supplies which were acquired prior to the vendor price increases, thus
resulting in higher margins in the first quarter of fiscal 1996. As a
percentage of revenue, gross profit on wholesale revenue increased to 17.9% for
the first quarter of fiscal 1997 from 17.3% for the first quarter of fiscal
1996. The increase was primarily due to the acquisition of Infotec, which has
higher gross profit on its wholesale business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 65% to $126.5
million for the first quarter of fiscal 1997 from $76.6 million for the first
quarter of fiscal 1996. As a percentage of revenue, selling, general and
administrative expenses increased to 31.5% for the first quarter of fiscal 1997
from 30.8% for the first quarter of fiscal 1996. These increases related to
acquisitions made after June 30, 1995, and to the Company's aggressive hiring
and training of new sales representatives and support personnel, along with the
additional investments in the required infrastructure necessary to support the
enlarged salesforce. Selling, general and administrative expenses were also
impacted by the Company's restructuring of its traditional branch systems
towards a Market Based Approach.
Amortization of Intangible Assets
Amortization of intangible assets increased to $4.4 million for the
first quarter of fiscal 1997 from $2.4 million for the first quarter of fiscal
1996. The increase related to acquisitions made after June 30, 1995, primarily
Infotec, for which additional intangible assets are being amortized.
Earnings from Operations
Earnings from operations increased 35% to $28.2 million for the first
quarter of fiscal 1997 from $20.8 million for the first quarter of fiscal 1996.
The increase primarily related to increased revenue. As a percentage of
revenue, earnings from operations decreased to 7.0% from 8.4% primarily due to
the lower combined gross margin percentage, and higher selling, general and
administrative expenses discussed above.
Interest Expense and Other, Net
Interest expense increased to $5.0 million in the first quarter of
fiscal 1997 from $3.3 million in the first quarter of fiscal 1996. Interest
expense has increased due to higher levels of borrowings during the first
quarter of fiscal 1997.
Income Taxes
Income taxes increased to $8.8 million for the first quarter of fiscal
1997 due to higher levels of earnings before tax. The combined effective income
tax rate was relatively constant at 38.0% for the first quarter of fiscal 1997
versus 38.2% for the first quarter of fiscal 1996.
Net Earnings
Net earnings increased 32% to $14.3 million for the first quarter of
fiscal 1997 from $10.9 million for the first quarter of fiscal 1996. As a
percentage of revenue, net earnings decreased to 3.6% for the first quarter of
fiscal 1997, primarily due to the lower combined gross margin percentage, and
increased selling, general and administrative expenses.
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TAXATION
As part of the Company's acquisitions of businesses, the Company enters
into noncompete and protection of trade secret agreements with certain key
management personnel of the businesses acquired. The amount paid pursuant to
these agreements is deductible for financial reporting purposes over the term of
the agreements, 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 1933 (the "Act"), are amortized over the term of
the agreement. Agreements entered into subsequent to the enactment of the Act
are generally amortized 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 other intangible assets were deductible only to the extent that
such assets had identifiable useful lives.
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 federal 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 of the Ordinary
Shares of the Company on the London Stock Exchange and, as a result, are likely
to 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 each of the United States, Canada, Australia and
various countries in Europe. Fluctuations in exchange rates between the U.S.
dollar and each of the pound sterling, Canadian dollar, Australian dollar, and
other European country currencies, 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. The Company has significantly
increased it international business over the last few years. The results of
operations, financial condition and competitive position of the Company's
business may be affected by the relative strength of its currencies in countries
where its products are sold. The Company's results of operations and financial
condition may be adversely affected by fluctuations in foreign currencies and by
translations of the financial statements of the Company's foreign subsidiaries
from local currencies into U.S. dollars.
The Company purchases most if 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, if the yen were to strengthen
significantly against the U.S. dollar, this would impact the yen amounts
received by the Company's Japanese manufacturers as they converted the U.S.
dollars received form the Company and other dealers into yen. As a result,
these Japanese manufacturers could raise prices. 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, since
most of the Company's service contracts are for one year periods, pricing for
parts and supplies could not be adjusted until the contract was renewed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow used in operating activities was $17.5
million and $22.6 million for the three months ended June 30, 1996 and 1995,
respectively. The Company experiences increases in certain balance sheet
accounts which result primarily from acquisitions as well as from normal working
capital needs. Additionally, high levels of accrued expenses at the end of
fiscal year 1996 were paid during the first quarter of fiscal 1997. Cash flow
used in investing activities was $27.2 million and $31.0 million for the three
months ended June 30, 1996 and 1995, respectively. The decrease was primarily
due to decreased acquisition activity in the first quarter of fiscal 1997. Net
cash provided by
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financing activities was $49.3 million and $5.7 million in the three months
ended June 30, 1996 and 1995, respectively. The increase was primarily due to
increased borrowings under the Company's Credit Facility Loan, described below.
In March 1995, the Company issued $200 million of 6.75% Convertible
Subordinated Notes due April 2002 (the "Notes") at par, in a private placement
offering. The Notes are 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 commencing October 1995. The Notes are not subject to
sinking fund requirements.
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 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. The Company is in
material compliance with all the terms of the Credit Facility Loan. As of June
30, 1996, the Credit Facility Loan had an outstanding balance of approximately
$168.8 million and was incurring interest at a weighted average rate of 3.6% per
annum. Therefore, subject to availability under the covenants, $231.2 million
was available for future borrowings.
The Company has a number of other loans and credit facility arrangements
with banks, financial institutions and certain individuals, which had an
aggregate balance of $39.9 million at June 30, 1996. This balance is primarily
comprised of various cash management lines of credit (the "Lines") in each of
the countries in which the Company operates. The Lines provide for daily
liquidity of local operations in each such country. These loans vary widely in
terms and conditions. The Company is in material compliance with all the terms
under these loans.
At the present time, the Company's cash flow from operations together
with funds from the Credit Facility Loan and its cash balances, should be
adequate to meet its operating cash requirements, as well as its capital
expenditures for the immediate future. While 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, the Company
expects to continue to pursue acquisitions, some of which could be material to
the Company. It is anticipated that future operations and such acquisitions
will be funded primarily through cash from operations, borrowings under the
Credit Facility Loan, other credit sources, and where desirable, the use of
other debt and 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 and Canadian
operations have historically experienced lower revenues and net earnings for the
three month period ended September 30 due to increased vacation time by
Europeans and Canadians 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.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
4.1* Memorandum of Association of the Company, including paragraphs 5 and
6. (Exhibit 2.1 of the Company's Registration Statement on Form 20-F,
No. 0-20828, filed on November 10, 1992 (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* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February
26, 1993 and Amendment No. 2 dated July 2, 1993 (Exhibit 4.9 of the
Company's Form S-1 Registration Statement No. 33-68278 (the "1993 Form
S-1")., and Amendment No. 3 dated August 16, 1994 between The Bank of
New York, the Company and Owners and Holders of American Depositary
Receipts.
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
4.4* Indenture dated March 13, 1995 between the Company and The Bank of New
York as Depositary and the Company. (Exhibit 2 to the Company's Form
8-K dated March 21, 1995).
4.5* 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).
4.6* Registration Rights Agreement dated as of March 13, 1995 relating to
$175 million 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 Form 10-K dated June 16, 1995).
4.7* 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 obligations 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.
27 Financial Data Schedule
* Document has heretofore been filed with the Commission and is
incorporated by reference and made a part hereof.
(b) Reports on Form 8-K:
</TABLE>
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 and administration approach, expansion and productivity of its sales
division, and its commitment to the sale of color and higher segment products.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements 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.
DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
Date: August 2, 1996 /S/ DAVID C. SNELL, Finance Director
------------------------- --------------------------------------
David C. Snell, Finance Director
(The Chief Financial Officer, the
Principal Accounting Officer and Duly
Authorized Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DANKA BUSINESS SYSTEMS PLC AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 44,764
<SECURITIES> 0
<RECEIVABLES> 279,727
<ALLOWANCES> 10,660
<INVENTORY> 243,443
<CURRENT-ASSETS> 579,130
<PP&E> 73,290
<DEPRECIATION> 26,558
<TOTAL-ASSETS> 1,181,978
<CURRENT-LIABILITIES> 298,318
<BONDS> 379,513
0
0
<COMMON> 4,718
<OTHER-SE> 456,621
<TOTAL-LIABILITY-AND-EQUITY> 1,181,978
<SALES> 401,955
<TOTAL-REVENUES> 401,955
<CGS> 242,876
<TOTAL-COSTS> 242,876
<OTHER-EXPENSES> 130,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,033
<INCOME-PRETAX> 23,131
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 14,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,331
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
