DANKA BUSINESS SYSTEMS PLC, 10-Q, 1998-08-14

DANKA BUSINESS SYSTEMS PLC
10-Q, 1998-08-14
PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES

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<PAGE> 1

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, 1998 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
_______________

Commission file number: 0-20828

DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

ENGLAND 98-0052869
- -------------------------------- ---------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION NO.)
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

NOT APPLICABLE
- --------------------------------------------------------------------------------
(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 227,495,865 Ordinary shares outstanding as of June 30, 1998.

<PAGE> 2

INDEX

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

Consolidated Statements of Earnings for the three months ended
June 30, 1998 and 1997 (Unaudited) 3

Condensed Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and March 31, 1998 (Audited) 4

Consolidated Statements of Cash Flows for the three months
ended June 30, 1998 and 1997 (Unaudited) 5

Consolidated Statement of Shareholders' Equity for the three
months ended June 30, 1998 (Unaudited) 6

Notes to Consolidated Financial Statements (Unaudited) 7

Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 19

Signature 21

</TABLE>

2
<PAGE> 3
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,
1998 1997
\ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $194,668 $247,240
Retail service, supplies and rentals 502,547 523,425
Wholesale 68,184 63,423
-------- --------
Total revenue 765,399 834,088
-------- --------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 135,389 159,687
Retail service, supplies and rental costs 293,189 314,006
Wholesale costs of revenue 57,750 51,233
Selling, general and administrative expenses 237,796 245,873
Amortization of intangible assets 5,372 4,664
Research & development costs 12,500 12,500
-------- --------
Total costs and operating expenses 741,996 787,963
-------- --------
EARNINGS FROM OPERATIONS 23,403 46,125
Interest expense and other, net 15,424 16,759
-------- --------
EARNINGS BEFORE INCOME TAXES 7,979 29,366
Provision for income taxes 2,968 10,900
-------- --------
NET EARNINGS $ 5,011 $ 18,466
======== ========
BASIC EARNINGS PER ADS:
Net earnings per ADS $ 0.09 $ 0.33
Weighted average ADSs 56,874 56,712

DILUTED EARNINGS PER ADS:
Net earnings per ADS $ 0.09 $ 0.32
Weighted average ADSs 57,732 58,453

</TABLE>

See accompanying notes to the consolidated financial statements

3
<PAGE> 4
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>

JUNE 30, MARCH 31,
1998 1998
------------ ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,784 $ 34,653
Accounts receivable, net 632,314 628,052
Inventories 526,507 482,656
Prepaid expenses and other current assets 33,708 35,414
----------- -----------
TOTAL CURRENT ASSETS 1,195,313 1,180,775

Equipment on operating leases, net 304,399 294,348
Property and equipment, net 97,435 87,916
Intangible assets, net 481,731 485,032
Other assets 134,142 130,870
----------- -----------
TOTAL ASSETS $ 2,213,020 $ 2,178,941
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 96,897 $ 84,490
Accounts payable 353,532 297,464
Accrued expenses and other current liabilities 293,003 338,237
Deferred revenue 67,926 70,476
----------- -----------
TOTAL CURRENT LIABILITIES 811,358 790,667
Convertible subordinated notes 200,000 200,000
Other long-term debt 672,878 658,892
Deferred income taxes and other long-term liabilities 45,013 49,075
----------- -----------
TOTAL LIABILITIES 1,729,249 1,698,634
- - ----------- -----------
SHAREHOLDERS' EQUITY:
Ordinary shares, 1.25 pence stated value; 500,000,000
authorized; 227,495,865 issued and outstanding 4,746 4,746
Additional paid-in capital 304,197 304,197
Retained earnings 232,928 227,917
Accumulated other comprehensive income (58,100) (56,553)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 483,771 480,307
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,213,020 $ 2,178,941
=========== ===========

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE> 5
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
- ------------------------------------------------------------------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 5,011 $ 18,466
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 42,430 39,191
Loss/(gain) on sale of property and equipment 3,677 (326)
Proceeds from sale of rental equipment 7,941 4,515
Changes in assets and liabilities, net of effects from the purchase of
subsidiaries:
Accounts receivable 16 (6,463)
Inventories (38,395) (32,241)
Prepaid expenses and other current assets 910 (3,589)
Other noncurrent assets (2,618) 4,414
Accounts payable 53,976 (54,290)
Accrued expenses (58,236) 5,709
Deferred revenue (2,520) (1,769)
Deferred income taxes and other long-term liabilities (3,869) 3,018
- ------------------------------------------------------------------------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,323 (23,365)
- ------------------------------------------------------------------------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (65,846) (43,618)
Proceeds from sale of property and equipment 1,985 4,090
Payment for purchase of subsidiaries (231) (1,110)
- ------------------------------------------------------------------------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (64,092) (40,638)
- ------------------------------------------------------------------------- -------- --------
FINANCING ACTIVITIES
Net borrowings under line of credit agreements 22,376 48,783
Principal payments on debt (172) (1,168)
Proceeds from stock options exercised -- 242
- ------------------------------------------------------------------------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,204 47,857
- ------------------------------------------------------------------------- -------- --------
EFFECT OF EXCHANGE RATES 1,696 (4,240)
- ------------------------------------------------------------------------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,869) (20,386)
Cash and cash equivalents, beginning of period 34,653 73,875
- ------------------------------------------------------------------------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,784 $ 53,489
========================================================================= ======== ========
</TABLE>

See accompanying notes to the consolidated financial statements

5
<PAGE> 6
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(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, 1998 $ 4,746 $ 304,197 $ 227,917 $ (56,553) $480,307

Net earnings 5,011 5,011

Currency translation adjustment (1,547) (1,547)

--------- --------- --------- - ---------- --------
BALANCES AT JUNE 30, 1998 $ 4,746 $ 304,197 $ 232,928 $ (58,100) $483,771
========= ========= ========= = ========== ========

</TABLE>

See accompanying notes to the consolidated financial statements

6
<PAGE> 7

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,
1998, consolidated statements of earnings for the three months ended June
30, 1998 and 1997, the consolidated statement of shareholders' equity for
the three months ended June 30, 1998, and the consolidated statements of
cash flows for the three months ended June 30, 1998 and 1997 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 interim periods 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 (the "Company") Annual Report for the year
ended March 31, 1998. Certain prior year amounts have been reclassified to
conform with the current year presentation.

NOTE 2. RESTRUCTURING CHARGES

FISCAL 1998 RESTRUCTURING CHARGE:
In December 1997, the Company recorded an $11.0 million pre-tax
restructuring charge, related to the integration of the Office Imaging
division acquired from Eastman Kodak Company ("Kodak") with Danka's
existing sales and service network. The restructuring charge principally
consisted of severance and other employee termination benefits, and will
ultimately result in the separation of over 1,000 employees worldwide. As
of June 30, 1998, approximately $5.6 million remained in accrued
liabilities for these separations. The reductions, which are principally
coming from sales support, administration and management, are expected to
be substantially completed on a worldwide basis by December 1998.

FISCAL 1997 RESTRUCTURING CHARGE:
In December 1996, the Company recorded a $35.0 million pre-tax
restructuring charge, related to the integration of the Office Imaging
division acquired from Kodak and the related transition to the Company's
Market Based Approach in North America. As of December 31, 1997,
approximately $12.8 million remained in accrued liabilities, primarily for
the closing of duplicate facilities. The closure of these facilities is
expected to be substantially completed on a worldwide basis by the end of
fiscal 1999.

7
<PAGE> 8

NOTE 3. EARNINGS PER SHARE

The following table reconciles the numerator and denominator of the basic
and diluted earnings per ADS computations:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, 1998
----------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C>
Net earnings $ 5,011
BASIC EARNINGS PER ADS:
Income available to shareholders 5,011 56,874 $ 0.09
========
EFFECT OF DILUTIVE SECURITIES:
Stock options 858
---------
DILUTED EARNINGS PER ADS:
Income available to shareholders
plus assumed conversion $ 5,011 57,732 $ 0.09
========= ========= ========
</TABLE>

The effect of the Company's $200.0 million of Convertible Subordinated
Notes are not included in the computation of diluted EPS for the three
months ended June 30, 1998 since they are anti-dilutive.

NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS

REPORTING COMPREHENSIVE INCOME:
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" Statement
No. 130 establishes new rules for the reporting of comprehensive income and
its components. Comprehensive income for the Company includes net earnings
and foreign currency translation adjustments, which are charged or credited
to shareholders' equity. The adoption of this statement had no impact on
the Company's current or previously reported net earnings or shareholders'
equity.

Comprehensive income for the three months ended June 30, 1998 and 1997 was
as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Net earnings $ 5,011 $ 18,466
Foreign currency translation (1,547) (5,017)
------- --------
Total comprehensive income $ 3,464 $ 13,449
======= ========
</TABLE>

<PAGE> 9

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is effective for the
first quarter of the fiscal year beginning after June 15, 1999. Statement
No. 133 establishes accounting and reporting requirements for derivative
instruments and hedging activities, and modifies disclosures previously
required under other accounting standards. Implementation of Statement No.
133 may be complex. The Company has not yet analyzed the impact to the
financial statements of adopting Statement No. 133.

NOTE 5. PENDING LITIGATION

Following the Company's December 16, 1997 announcement regarding the
expected shortfall in revenue and earnings for the third fiscal quarter of
1998 and the 1998 fiscal year, purported class action lawsuits were filed
in federal court against the Company and certain of its directors and
officers, alleging violations of the federal securities laws. The lawsuits
were consolidated and a consolidated class action complaint was filed on or
about June 18, 1998. The case is in the early stage and while it is
impossible to predict the outcome or impact of such litigation, management
believes this litigation is without merit and intends to vigorously defend
the lawsuit.

NOTE 6. CONTINGENCIES

The Internal Revenue Service is conducting an examination of the
Company's federal income tax returns for the fiscal years ended March 31,
1995 and 1996. On July 27, 1998, the Company received notice of proposed
adjustments relating to the timing of certain deductions associated with
leased equipment financing. The Company intends to vigorously contest the
proposed adjustments and believes that the ultimate resolution will not
materially impact the Company's consolidated results of operations or
financial position.

9
<PAGE> 10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Danka Business Systems PLC and its Subsidiaries (the "Company") is
one of the world's largest independent suppliers of photocopiers,
facsimiles and other related office imaging equipment. The Company
primarily markets these products and related services, 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 independent dealers. The Company principally distributes the
products of Canon, Kodak, Konica, Minolta, Ricoh, Sharp and Toshiba. In
addition, the Company markets private label photocopiers and facsimiles
and related supplies on a direct basis under the Company's Infotec
trademark, and facsimile equipment under its dex and Omnifax trademarks.
The Company became the exclusive distributor of Kodak branded photocopiers
and printers in December 1996, after completing the acquisition of the
sales, marketing, and equipment service operations of Kodak's Office
Imaging division. The Company is currently in the process of integrating
the Office Imaging business with its core operations. The Company also
purchased Kodak's outsourcing business, now known as Danka Services
International ("DSI").

The Company's goal is to increase its net margins through certain cost
efficiencies and synergies it expects to achieve by integrating the Office
Imaging business with the Company's core operations. In September 1997,
the Company announced its global integration project (the "Uniting Danka
Project"), with a goal of accelerating the unification of the two
organizations.

The Company completed the integration of the sales forces in April
1998, and at the same time, introduced a new compensation plan effective
April 1. The Company's objective is to establish one face to the customer
and provide a compensation plan that is not only competitive in the
industry, but also one that keeps the Company's entrepreneurial spirit
alive. The new compensation plan was based on external benchmarking
studies within the industry and is designed to provide a career path for
the Company's sales representatives. The plan's reward system is based on
several variables, including revenue generated as a percent of quota,
gross profit on the equipment sale and the service pricing level attained.

On June 26, 1998 the Company announced that its revenue for the first
quarter would be approximately 10% below market expectations primarily due
to lower equipment sales in the U.S., and as a result, earnings would be
adversely impacted for the quarter and current fiscal year. The Company
reported actual revenue of $765.4 million for the first quarter, an 8%
decline over last year. The Company believes this shortfall was primarily
related to internal issues, including the integration of the sales force,
changes in the compensation plan introduced April 1 and sales order entry
issues related to the integration of the product portfolios. Additionally,
the Company is recognizing a recent increase in competition among equipment
sales and this is impacting margins. See - "Gross Profit." Furthermore,
there has been an acceleration in the transition to digital equipment in
the U.S. recently and the Company is currently in negotiations with its
vendors with a goal of broadening its digital product portfolio to
capitalize on this industry trend.

The integration of the two organizations encompasses a large number of
projects involving changes and planned improvements in many areas of the
combined organization. The Company is currently involved in several major
initiatives and considerable progress has been made in a number of areas.
The Company has made progress in closing duplicate facilities. Effective
April 1, the Company completed

<PAGE> 11
the centralization and consolidation of its U.S. dispatch call centers from
18 to two locations. In addition, the Company has made progress in closing
its operating centers and warehouses throughout the U.S. The Company has
opened an Atlanta warehouse, which will supply the entire southeast and
mid-Atlantic regions with all equipment and accessories. This will cover
approximately 75% of the Company's U.S. customer base and will allow for
the closure of 50 to 60 existing warehouses. Operating center reductions
include the consolidation of billing centers and collection sites, and to
date, the Company has reduced these centers from 44 to 14. A further
reduction to seven operating centers is expected by the end of this fiscal
year. As of June 30, 1998, the Company had reduced the workforce by over
700 of the more than 1,000 reductions announced in December 1997. The
reductions, which are primarily coming from sales support, administration
and management, are expected to be substantially completed on a worldwide
basis by December 1998.

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,
----------------------------
1998 1997
----- -----
<S> <C> <C>
Revenue:
Retail equipment sales . . . . . . . . . . . . . . 25.4% 29.6%
Retail service, supplies and rentals . . . . . . . 65.7 62.8
Wholesale . . . . . . . . . . . . . . . . . . . . . 8.9 7.6
----- -----
Total revenue . . . . . . . . . . . . . . . 100.0 100.0
Cost of revenue . . . . . . . . . . . . . . . . . . . 63.5 62.9
----- -----
Gross profit . . . . . . . . . . . . . . . . . . . 36.5 37.1
Selling, general and administrative expenses . . . . 31.1 29.5
Amortization of intangible assets . . . . . . . . . . 0.7 0.6
Research and development costs . . . . . . . . . . 1.6 1.5
----- -----
Earnings from operations . . . . . . . . . . 3.1 5.5
Interest expense and other, net . . . . . . . . . . . 2.0 2.0
----- -----
Earnings before income taxes . . . . . . . . 1.1 3.5
Provision for income taxes . . . . . . . . . . . . . 0.4 1.3
----- -----
Net earnings . . . . . . . . . . . . . . . . . 0.7% 2.2%
===== =====

</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,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Retail equipment sales . . . . . . . . . . . . . . 30.5% 35.4%
Retail service, supplies and rentals . . . . . . . 41.7 40.0
Wholesale . . . . . . . . . . . . . . . . . . . . . 15.3 19.2

</TABLE>

<PAGE> 12

QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30, 1997:

Revenue

Revenue declined 8% to $765.4 million for the three months ended
June 30, 1998 ("first quarter of fiscal 1999") compared to $834.1 million
for the three months ended June 30, 1997 ("first quarter of fiscal 1998"),
primarily due to lower equipment sales in the Company's U.S. core copier
business. The Company believes the shortfall in U.S. equipment sales is
primarily related to internal issues, including the integration of the
sales force, changes in the compensation plan introduced April 1, 1998 and
sales order entry issues related to the integration of the product
portfolios. Equipment sales were also impacted in the UK and Australasian
divisions. As a result of the economic malaise in the Far East,
competitive pressures from Japanese manufacturers selling directly to
customers impacted equipment sales particularly in the UK. In addition,
the Company is seeing a dramatic shift to digital products in Australasia
and is taking steps to improve its digital product availability in this
region to meet customer demand.

Approximately 40% of the Company's revenue is now generated in
countries outside of the United States. Due to the strength of the U.S.
dollar against certain foreign currencies, the Company's revenue was
negatively impacted by $14.0 million during the first quarter of fiscal
1999.

Gross Profit

Gross profit declined 10% to $279.1 million for the first quarter
of fiscal 1999 from $309.2 million for the first quarter of fiscal 1998.
The gross profit margin as a percentage of total revenue decreased to
36.5% for the first quarter of fiscal 1999 from 37.1% for the first
quarter of fiscal 1998. The decline in the Company's combined gross
profit margin was primarily due to lower retail equipment and wholesale
margins. Gross profit as a percentage of retail equipment sales decreased
to 30.5% for the first quarter of fiscal 1999 from 35.4% for the first
quarter of fiscal 1998. The decline in the retail equipment margin is
attributable to several factors. First, the UK is experiencing pressure on
its equipment margins due to competitive pressures from Japanese
manufacturers selling direct to customers. Second, the impact of
competitive pressures on hardware sales has also increased in the U.S.
The Company believes that these competitive pressures in the U.S. and the
UK will continue. Third, the Company's equipment margin was also affected
by increases in provisions made during the first quarter due to the higher
inventory levels in the U.S. The Company's wholesale gross profit margin
was affected by lower margin equipment and supply sales in the U.S. As a
percentage of revenue, the gross profit margin on retail service, supplies
and rentals increased to 41.7% for the first quarter of fiscal 1999 from
40.0% for the first quarter of fiscal 1998 due to stronger margins on
service and rental transactions. Excluding the Company's outsourcing
business (DSI), the retail service, supply and rentals margin was even
higher at 44.6% compared to 42.4% for the first quarter of fiscal 1998.
DSI has a lower gross profit margin due to the nature of the business, and
as it continues to expand, this business is expected to impact the
Company's overall gross profit margin. Although DSI has a lower gross
profit margin than the Company's core copier business, its operating
profit margin is approximately 10% of revenue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 3% to
$237.8 million for the first quarter of fiscal 1999 compared to $245.9
million for the first quarter of fiscal 1998. The decrease is

<PAGE> 13

due to lower selling expenses as a result of the lower equipment sales
during the first quarter of fiscal 1999 as well as a reduction in general
and administrative expenses. The Company is realizing savings from its
integration projects and continued improvements in certain processes
throughout the Company. As a percentage of revenue, selling, general and
administrative expenses increased to 31.1% for the first quarter of fiscal
1999 from 29.5% for the first quarter of fiscal 1998. The increase was
primarily due to the lower revenue for the first quarter of fiscal 1999.

Amortization of Intangible Assets

Amortization of intangible assets increased to $5.4 million for
the first quarter of fiscal 1999 from $4.7 million for the first quarter of
fiscal 1998. The increase is principally related to goodwill associated
with the acquisition of the Office Imaging and outsourcing businesses from
Kodak.

Research and Development Costs

In connection with the acquisition of the Office Imaging and
outsourcing businesses, the Company is providing funding to Kodak for
ongoing research and development through December 31, 2002. For the first
quarter of fiscal 1999, research and development costs totaled $12.5
million.

Earnings from Operations

Earnings from operations decreased 49% to $23.4 million for the
first quarter of fiscal 1999. Earnings from operations were primarily
impacted by the shortfall in U.S. equipment sales and the lower combined
gross profit. As a percentage of revenue, earnings from operations
decreased to 3.1% for the first quarter of fiscal 1999 from 5.5% for the
first quarter of fiscal 1998.

Interest Expense and Other, Net

Interest expense and other, net decreased to $15.4 million for the
first quarter of fiscal 1999 compared to $16.8 million for the first quarter
of fiscal 1998. The decrease primarily related to lower levels of
borrowings during the first quarter of fiscal 1999.

Income Taxes

Income taxes decreased to $2.9 million for the first quarter of
fiscal 1999 from $10.9 million for the first quarter of fiscal 1998 due to
lower levels of earnings. The combined effective income tax rate remained
relatively consistent at 37.2% for the first quarter of fiscal 1999 as
compared to 37.1% for the first quarter of fiscal 1998.

13
<PAGE> 14

Net Earnings

As a result of the above factors, net earnings decreased 73% to
$5.0 million for the first quarter of fiscal 1999 from $18.5 million for
the first quarter of fiscal 1998. As a percentage of revenue, net
earnings decreased to 0.7% for the first quarter of fiscal 1999 as
compared to 2.2% for the first quarter of fiscal 1998.

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 operates in over 30
countries worldwide, and therefore, fluctuations in exchange rates between
the U.S. dollar and the currencies in each of the countries in which the
Company operates, 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 results of operations, financial
condition and competitive position of the Company's business are affected
by the relative strength of its currencies in countries where its products
are currently sold. The Company's results of operations and financial
condition can 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 a significant amount of its office imaging
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 from
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,
most of the Company's service contracts are for one year periods and
accordingly, pricing for parts and supplies are not adjusted until the
contract is renewed. Conversely, the purchase price of equipment and
supplies by the Company could be impacted if the value of the Japanese yen
were to decline against the U.S. dollar. As a result, Japanese
manufacturers could lower prices or in some cases provide discounts.
During the first quarter of fiscal 1999, the value of the Japanese yen
declined substantially against the U.S. dollar. The Company did not
experience material price reductions in its equipment purchases from
Japanese manufacturers during this period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net cash flow provided by (used in) operating
activities was $8.3 million and ($23.4) million for the three months ended
June 30, 1998 and 1997, respectively. The Company's inventory increased
during the first quarter of fiscal 1999 as a result of a slowdown in U.S.
equipment sales and the Company's requirements to purchase various levels
of equipment pursuant to the Supply Agreements with Kodak. Cash flow used
in investing activities was $64.1 million and $40.6 million for the three
months ended June 30, 1998 and 1997, respectively. The cash used in
investing activities was higher in the first quarter of fiscal 1999
primarily due to an increase in the Company's capital expenditures. Net
cash provided by financing activities was $22.2 million and $47.9 million
for the three months ended

14
<PAGE> 15
June 30, 1998 and 1997, respectively. Cash provided by financing
activities was lower for the first quarter of fiscal 1999 primarily due to
a decrease in the Company's borrowings.

In December 1996 the Company signed a six-year $1.275 billion
multicurrency credit agreement (the "Credit Agreement") with a consortium
of international banks. The proceeds from the Credit Agreement were
utilized to purchase the Office Imaging and outsourcing businesses from
Kodak, to repay the outstanding balance under the Company's previous
credit facility, as well as for ongoing working capital and general
corporate purposes. The Credit Agreement provided the Company with a
revolving component in an aggregate amount of up to $725.0 million, and a
term loan component of $550.0 million. In December 1997, the revolving
component was reduced by $115.0 million to $610.0 million bringing the
full capacity of the Credit Agreement to $1.160 billion. Furthermore, as
of June 30, 1998, the term loan component was reduced to $520.0 million
bringing the full capacity to $1.13 billion. The Company has not needed
the full capacity of the Credit Agreement. The Credit Agreement is
secured and guaranteed by certain of the Company's subsidiaries and a
covenant that the Company will not pledge its assets except as
specifically permitted under the terms of the Credit Agreement. The
Credit Agreement contains negative and affirmative covenants and
agreements which place restrictions on the Company regarding the
disposition of assets, capital expenditures, additional indebtedness,
permitted liens and payment of dividends, as well as requiring the
maintenance of certain financial ratios. Effective June 30, 1998, certain
of the covenants were amended to provide additional financial flexibility
to the Company. The amendments principally provided for a revision of
certain definitions and an adjustment to certain financial ratios the
Company is required to maintain. As of June 30, 1998 the Company was in
compliance with the covenants of the Credit Agreement, as amended. The
adjustable interest rate on the Credit Agreement is, at the option of the
Company, either: (i) the applicable InterBank Offered Rate plus a tiered
margin based on leverage for the periods of one, two, three or six months
or (ii) an alternative base rate, consisting of the higher of the lead
bank's prime rate or the Federal Funds Rate plus 0.5%. As a result of the
amendments to the Credit Agreement, the Company's tiered margin spread has
increased, and therefore, the Company could experience increases in its
interest expense depending on both the level of borrowings and the
applicable interest rate. As of June 30, 1998 the Credit Agreement had an
outstanding balance of approximately $258.2 million under the revolving
component and $484.2 million under the term loan, all of which was
incurring interest at a weighted average rate of 6.1% per annum. Subject
to availability under the covenants at June 30, 1998, the Company had
$387.6 million available for future borrowings.

In March 1995, the Company issued $200.0 million of 6.75%
Convertible Subordinated Notes (the "Notes") at par, in a private
placement offering, due April 2002. 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 on April 1 and October 1. The Notes are not subject to
sinking fund requirements.

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 $27.4 million at June 30, 1998. This
balance is primarily comprised of various cash management lines of credit
(the "Lines")

<PAGE> 16
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.

While the Company does not have any other significant contractual
commitments other than for the purchase of products and the funding of
Kodak's research and development efforts, additional investments in
facilities and computer equipment will continue to be necessary to support
the anticipated growth of the business, and the transition of the Office
Imaging business off of Kodak's computer system. The Company's cash flow
from operations together with the borrowing capacity under the Credit
Agreement are expected to be adequate to finance its operating cash
requirements and capital expenditures for the short-term. It is
anticipated that future acquisitions and growth in the long-term will be
funded primarily, and to the degree available, with cash flow from
operations, borrowings available under the Credit Agreement, other credit
sources and, where desirable, funding from the sale of additional debt or
equity securities.

YEAR 2000

Many computer systems including several used by the Company, could
experience problems processing information beyond the year 1999. As a
result, certain computer systems, including both the hardware and software,
need to be modified prior to the year 2000 ("Y2K"), in order to remain
functional. The majority of the Company's Y2K issues are being considered
and managed during the integration of the Office Imaging business with the
Company's core operations and its transition to common IT systems. The
Company has initiated a review and assessment of all the areas within its
operations including those affected by information received from or the
systems of, suppliers, vendors and other third parties. A plan and
timeline has been developed for addressing any Y2K problems, and to date,
the Company has implemented the plan substantially in accordance with that
timetable. The Company believes that, with the successful transition to
common IT systems and any necessary modifications to other computer support
systems, the Y2K issue will not pose significant problems for the Company.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, any Y2K issues, which could have an
adverse effect on the business.

SEASONALITY

The Company has experienced some seasonality in its business.
The Company's revenue during the fourth quarter has historically been
higher than other quarters of its fiscal year. The Company believes that
this has been due to year-end sales contests and a focus on the
finalization of transactions before year end. There can be no assurance
that fourth quarter results will continue to be higher this fiscal year or
in future years. The Company's European and Canadian operations have
historically experienced lower revenue 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 office imaging
equipment during such period.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in this Form 10-Q, or otherwise made
by officers of the Company, including statements related to the progress
of and anticipated benefits from the Uniting Danka Project, the Company's
ability to meet challenges it faces, the Company's future performance and
the Company's outlook for its businesses and respective markets,
projections, statements of management's plans or objectives, forecasts of
market trends and other matters, are forward-looking statements, and
contain information relating to the Company that is based on the beliefs
of management as well as assumptions, made by, and information currently
available to, management. The words "goal",

<PAGE> 17

"expect", "believe" and similar expressions as they relate to the Company or
the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions that could cause actual results to differ materially from those
reflected in the forward-looking statements. No assurance can be given
that the results in any forward-looking statement will be achieved. For
the forward-looking statements, the Company claims the protection of the
safe harbor for forward-looking statements provided for in the Private
Securities Litigation Act of 1995. Factors that might cause such
differences include, but are not limited to (i) the demands that the Office
Imaging ("OI") acquisition (the "Acquisition") and the unification thereof
with the Company's core operations will place on the Company's resources,
infrastructure, current operations and employees, (ii) the Company's
inability to achieve substantial operating cost reductions and efficiencies
in productivity from the Acquisition, the revised information technology
system, the revised management structure or other similar Company-wide
initiatives associated with the unification, (iii) the potential for
unanticipated increases in expenditures for labor, equipment, materials and
supplies required to manage the increased size of the Company as a result of
the Acquisition, (iv) the Company's inability to effectively manage the
increased number of employees and retain current key management personnel
and other key employees added as a result of the Acquisition, who are
accustomed to a different corporate culture, compensation
arrangements and benefits programs, while the Company simultaneously
implements a new sales compensation program and reduces the overall size of
its worldwide workforce, (v) the potential increased costs resulting from
technological developments, revisions to existing information technology
systems, year 2000 issues and the integration of information technologies
between OI and the Company's core operations, (vi) increased competition
resulting from other high volume and digital copier distributors and the
discounting of such copiers by competitors, (vii) the Company's ability to
manage and reduce its outstanding debt, meet its working capital needs and
maintain compliance with the covenants of its credit facility, (viii) the
inability of the Company to continue to gain access to and successfully
distribute new and current products brought to the marketplace at
competitive costs and prices, (ix) the ultimate amount of additional costs
associated with the accelerated unification and ultimate integration and the
amount and timing of the realization of the anticipated benefits from such
unification and complete integration, (x) the inability of the Company to
effectively manage the increased size of its inventory and product line,
(xi) the Company's inability to comply with the purchasing requirements
under its supply agreements with its vendors, including Kodak, and the
impact thereof, including the Company's inability to obtain such equipment
and supplies elsewhere, (xii) the ultimate outcome and impact of the pending
class action lawsuit (xiii) fluctuations in foreign currencies, (xiv)
economic conditions in regions worldwide where the Company does business,
(xv) significant acquisitions or divestitures, (xvi) various competitive
pressures, (xvii) any negative impact from the loss of any key upper
management personnel, (xviii) any inability by the Company to finalize
acceptable vendor agreements, (xix) any inability by the Company to solve
problems in the U.S. related to the sales integration and introduction of
the new compensation plan on April 1, 1998, (xx) any inability by the
Company to successfully close facilities without negative impact on the
Company's operations, (xxi) any failure by the Company to meet market
expectations on financial performance and (xxii) other risks including those
risks identified in any of the Company's filings with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only
as of the date hereof. The Company undertakes no obligation and does not
intend to update these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Furthermore, as a matter of
policy, the Company does not generally make any specific projections as to
future earnings nor does it endorse any projections regarding future
performance, which may be made by others outside the Company.

<PAGE> 18

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company, various directors, former officers and a former
director are defendants in a purported class action lawsuit. A
consolidated class action complaint (the "Complaint") was filed in the
United States District Court for the Middle District of Florida, Tampa
Division on or about June 18, 1998. The Complaint alleges, principally,
that the Company and the other defendants issued materially false and
misleading statements related to the progress of the Company's integration
of its acquisition of Kodak's Office Imaging and outsourcing businesses,
engaged in improper accounting practices and that certain former officers
utilized insider information, in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The plaintiffs seek to certify their complaints as class actions on behalf
of all purchasers of the Company's American Depositary Receipts in the
period between May 13, 1997 and December 15, 1997, and seek an award of an
unspecified amount of monetary damages, including punitive damages, to all
of the members of the purported class. The Company filed its motion to
dismiss the Complaint on or about July 29, 1998. The case is in the early
stages and while it is impossible to predict the outcome or impact of such
litigation, management believes this litigation is without merit and
intends to vigorously defend the lawsuit.

The Company is subject to other legal proceedings and claims,
which arise in the ordinary course of its business. Management believes
that the resolution of the above matters will not have a material effect
upon the Company's financial position or results of operations or
liquidity.

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.

Notice of American Depositary Shareholder Proposal Deadline Date
Under New Proxy Rule 14a-4 for the 1999 Annual General Meeting:

The Company hereby notifies all holders of American Depositary
Shares ("Shareholder") that May 3, 1999 (the "Deadline") is the day after
which notice of a shareholder sponsored proposal for consideration at the
Company's 1999 annual general meeting (other than in respect of a nominee
for election to the Board of Directors) submitted outside the processes of
Rule 14a-8 under the Securities Exchange Act of 1934, as amended, will be
considered untimely under the new proxy Rule 14a-4(c)(1) issued by the

<PAGE> 19

Securities and Exchange Commission. A proposal submitted outside the
processes of Rule 14a-8 is any shareholder proposal submitted for
presentation at the next annual general meeting but not submitted for
inclusion in the Company's proxy statement. Under Rule 14a-4(c)(1), if a
proponent fails to notify the Company by the Deadline, then the management
proxies will be permitted to use their discretionary voting authority if
such proposal is raised at the annual general meeting, without any
discussion of the matter in the proxy statement. With respect to
shareholder proposals for consideration for inclusion in the Company's
proxy statement for the 1999 annual general meeting, such shareholder
proposals are still required to be submitted to the Company no later than
February 26, 1999 as previously stated in the Company's June 24, 1998 proxy
statement.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
2.1* Asset Purchase Agreement between Eastman Kodak Company and Danka Business
Systems PLC dated as of September 6, 1996, including Exhibit 5.19(a) which
is the form of Amended and Restated Supply Agreement by and between Eastman
Kodak Company and ________________ dated as of ____________________,
1996. (Exhibit 2.1 to the Company's Form 8-K dated November 14, 1996.)

2.2* Amendment No. 1 to Asset Purchase Agreement between Eastman Kodak Company and
Danka Business Systems PLC dated December 20, 1996 (Excluding schedules and
similar attachments). (Exhibit 2.2 to the Company's Form 8-K dated January
15, 1997).

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.

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).
</TABLE>

<PAGE> 20

<TABLE>

<S> <C>
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).

4.8* Credit Agreement dated December 5, 1996, by and among Danka Business Systems
PLC, Dankalux Sarl & Co. SCA, Danka Holding Company, the several financial
institutions from time to time a party and NationsBank, N.A., as agent
(Exhibit 4 to the Company's Form 8-K December 16, 1996).

4.9* First Amendment to Credit Agreement dated December 5, 1997 among Danka
Business Systems PLC, Dankalux Sarl & Co., SCA, and Danka Holding Company,
Nationsbank, National Association, each other Bank signatory thereto and
Nationsbank, National Association, as agent. (Exhibit 4.9 to the Company's
Form 10-Q February 12, 1998).

4.10* Second Amendment to Credit Agreement dated July 28, 1998 among Danka Business
Systems PLC, Dankalux Sarl & Co., SCA, and Danka Holding Company,
Nationsbank, National Association, each other Bank signatory thereto and
Nationsbank, National Association, as agent. (Exhibit 4.10 to the Company's
Form 8-K July 28, 1998).

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.

27.1 Financial Data Schedule (for SEC purposes only)

27.2 Restated Financial Data Schedule (June 30, 1997 Form 10-Q) (for SEC purposes
only)

* Document has heretofore been filed with the Commission and is incorporated by
reference and made a part hereof.

</TABLE>

(b) Reports on Form 8-K:

On June 29, 1998, the Company filed a report on Form 8-K
announcing its estimated results for the first quarter of fiscal 1999.

20
<PAGE> 21

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 14, 1998 /S/ MICHEL AMBLARD, Corporate Controller
---------------- -----------------------------------------
Michel Amblard, Corporate Controller
(Senior Vice President, Corporate
Controller, and the Principal Accounting
Officer)

<ARTICLE> 5
<LEGEND>
THE 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>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,784
<SECURITIES> 0
<RECEIVABLES> 632,314
<ALLOWANCES> 25,403
<INVENTORY> 526,507
<CURRENT-ASSETS> 1,195,313
<PP&E> 702,130
<DEPRECIATION> 300,296
<TOTAL-ASSETS> 2,213,020
<CURRENT-LIABILITIES> 811,358
<BONDS> 872,878
0
0
<COMMON> 4,746
<OTHER-SE> 479,025
<TOTAL-LIABILITY-AND-EQUITY> 2,213,020
<SALES> 765,399
<TOTAL-REVENUES> 765,399
<CGS> 486,328
<TOTAL-COSTS> 486,328
<OTHER-EXPENSES> 255,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,424
<INCOME-PRETAX> 7,979
<INCOME-TAX> 2,968
<INCOME-CONTINUING> 5,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,011
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09

</TABLE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 53,489
<SECURITIES> 0
<RECEIVABLES> 736,146
<ALLOWANCES> 29,536
<INVENTORY> 518,473
<CURRENT-ASSETS> 1,350,794
<PP&E> 560,320
<DEPRECIATION> 165,014
<TOTAL-ASSETS> 2,325,948
<CURRENT-LIABILITIES> 746,737
<BONDS> 1,044,041
0
0
<COMMON> 4,735
<OTHER-SE> 474,687
<TOTAL-LIABILITY-AND-EQUITY> 2,325,948
<SALES> 834,088
<TOTAL-REVENUES> 834,088
<CGS> 524,926
<TOTAL-COSTS> 524,926
<OTHER-EXPENSES> 263,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,759
<INCOME-PRETAX> 29,366
<INCOME-TAX> 10,900
<INCOME-CONTINUING> 18,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,466
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32

</TABLE>