<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
SEPTEMBER 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)
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<S> <C>
ENGLAND 98-0052869
- ------------------------------------------------ ------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
- ------------------------------------------------ ------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 727-576-6003
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 September 30,
1998.
<PAGE> 2
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Statements of Operations for the three months ended
September 30, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Operations for the six months ended
September 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Balance Sheets as of September 30, 1998
(Unaudited) and March 31, 1998 (Audited) 5
Consolidated Statements of Cash Flows for the six months
ended September 30, 1998 and 1997 (Unaudited) 6
Consolidated Statements of Shareholders' Equity for the six months
ended September 30, 1998 and 1997 (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 28
Item 2 - Changes in Securities 28
Item 3 - Defaults upon Senior Securities 28
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 5 - Other Information 30
Item 6 - Exhibits and Reports on Form 8-K 30
Signature 33
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $ 203,997 $ 238,214
Retail service, supplies and rentals 476,318 514,538
Wholesale 53,529 62,011
- ----------------------------------------------- ------------------ ------------------
Total revenue 733,844 814,763
- ----------------------------------------------- ------------------ ------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 143,116 154,837
Retail service, supplies and rental costs 297,087 310,996
Wholesale costs of revenue 43,919 49,902
Selling, general and administrative expenses 234,962 235,306
Amortization of intangible assets 5,007 4,688
Research & development costs 12,500 12,502
- ----------------------------------------------- ------------------ ------------------
Total costs and operating expenses 736,591 768,231
- ----------------------------------------------- ------------------ ------------------
(LOSS) EARNINGS FROM OPERATIONS (2,747) 46,532
Interest expense and other, net 18,520 15,084
- ----------------------------------------------- ------------------ ------------------
(LOSS) EARNINGS BEFORE INCOME TAXES (21,267) 31,448
Provision for income taxes (7,912) 11,723
- ----------------------------------------------- ------------------ ------------------
NET (LOSS) EARNINGS $ (13,355) $ 19,725
=============================================== ================== ==================
BASIC (LOSS) EARNINGS PER ADS:
Net (loss) earnings per ADS $ (0.23) $ 0.35
Weighted average ADSs 56,874 56,771
DILUTED (LOSS) EARNINGS PER ADS:
Net (loss) earnings per ADS $ (0.23) $ 0.34
Weighted average ADSs 56,874 58,029
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
- ------------------------------------------------------ ------------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $ 398,665 $ 485,454
Retail service, supplies and rentals 978,865 1,037,963
Wholesale 121,713 125,434
- ------------------------------------------------------ ------------------ ------------------
Total revenue 1,499,243 1,648,851
- ------------------------------------------------------ ------------------ ------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 278,505 314,524
Retail service, supplies and rental costs 590,276 625,002
Wholesale costs of revenue 101,669 101,135
Selling, general and administrative expenses 472,758 481,179
Amortization of intangible assets 10,379 9,352
Research & development costs 25,000 25,002
- ------------------------------------------------------ ------------------ ------------------
Total costs and operating expenses 1,478,587 1,556,194
- ------------------------------------------------------ ------------------ ------------------
EARNINGS FROM OPERATIONS 20,656 92,657
Interest expense and other, net 33,944 31,843
- ------------------------------------------------------ ------------------ ------------------
(LOSS) EARNINGS BEFORE INCOME TAXES (13,288) 60,814
Provision for income taxes (4,944) 22,623
- ------------------------------------------------------ ------------------ ------------------
NET (LOSS) EARNINGS $ (8,344) $ 38,191
====================================================== ================== ==================
BASIC (LOSS) EARNINGS PER ADS:
Net (loss) earnings per ADS $ (0.15) $ 0.67
Weighted average ADSs 56,874 56,741
DILUTED (LOSS) EARNINGS PER ADS:
Net (loss) earnings per ADS $ (0.15) $ 0.66
Weighted average ADSs 56,874 57,866
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
- -------------------------------------------------------- ------------------ ------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,376 $ 34,653
Accounts receivable, net 615,053 628,052
Inventories 540,088 482,656
Prepaid expenses and other current assets 34,931 35,414
- -------------------------------------------------------- ------------------ ------------------
TOTAL CURRENT ASSETS 1,205,448 1,180,775
Equipment on operating leases, net 308,282 294,348
Property and equipment, net 103,319 87,916
Intangible assets, net 487,427 485,032
Other assets 130,698 130,870
- -------------------------------------------------------- ------------------ ------------------
TOTAL ASSETS $ 2,235,174 $ 2,178,941
======================================================== ================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 102,987 $ 84,490
Accounts payable 311,953 297,464
Accrued expenses and other current liabilities 297,172 338,237
Deferred revenue 68,465 70,476
- -------------------------------------------------------- ------------------ ------------------
TOTAL CURRENT LIABILITIES 780,577 790,667
Convertible subordinated notes 200,000 200,000
Other long-term debt 744,474 658,892
Deferred income taxes and other long-term liabilities 39,301 49,075
- -------------------------------------------------------- ------------------ ------------------
TOTAL LIABILITIES 1,764,352 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 213,621 227,917
Accumulated other comprehensive income (51,742) (56,553)
- -------------------------------------------------------- ------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 470,822 480,307
- -------------------------------------------------------- ------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,235,174 $ 2,178,941
======================================================== ================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
- -------------------------------------------------------------------------- ------------------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) earnings $ (8,344) $ 38,191
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 82,695 82,982
Loss on sale of property and equipment 7,309 757
Proceeds from sale of rental equipment 17,482 7,165
Changes in assets and liabilities, net of effects from the purchase of
subsidiaries:
Accounts receivable 11,211 (6,411)
Inventories (52,738) (60,239)
Prepaid expenses and other current assets 4,689 (12,117)
Other noncurrent assets 785 4,891
Accounts payable 11,790 12,850
Accrued expenses (35,658) (38,635)
Deferred revenue (1,844) (705)
Deferred income taxes and other long-term liabilities (9,635) 1,093
- -------------------------------------------------------------------------- -------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,742 29,822
- -------------------------------------------------------------------------- -------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (117,374) (79,749)
Proceeds from sale of property and equipment 2,475 7,020
Purchase of subsidiaries, net and proceeds
from settlement of fiscal year 1997 acquisition (1,341) 106,568
- -------------------------------------------------------------------------- -------------- ---------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (116,240) 33,839
- -------------------------------------------------------------------------- -------------- ---------------
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit agreements 68,278 (97,444)
Principal payments on debt (679) (1,831)
Proceeds from stock options exercised -- 1,885
Dividends (5,952) (4,847)
- -------------------------------------------------------------------------- -------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 61,647 (102,237)
- -------------------------------------------------------------------------- -------------- ---------------
EFFECT OF EXCHANGE RATES 7,574 10,612
- --------------------------------------------------------------------------
-------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19,277) (27,964)
Cash and cash equivalents, beginning of period 34,653 73,875
- --------------------------------------------------------------------------
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,376 $ 45,911
========================================================================== ============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY
ORDINARY PAID-IN RETAINED TRANSLATION
SHARES CAPITAL EARNINGS ADJUSTMENT TOTAL
- ---------------------------------------- --------------- ------------- --------------- --------------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1998 $ 4,746 $ 304,197 $ 227,917 $ (56,553) $ 480,307
Net loss (8,344) (8,344)
Dividends (5,952) (5,952)
Currency translation adjustment 4,811 4,811
- ---------------------------------------- -------------- -------------- -------------- -------------- --------------
BALANCES AT SEPTEMBER 30, 1998 $ 4,746 $ 304,197 $ 213,621 $ (51,742) $ 470,822
======================================== ============== ============== ============== ============== ==============
BALANCES AT MARCH 31, 1997 $ 4,734 $ 301,623 $ 186,306 $ (26,932) $ 465,731
Net earnings 38,191 38,191
Dividends (4,847) (4,847)
Shares issued under employee
option plans 7 1,878 1,885
Currency Translation (11,734) (11,734)
- ---------------------------------------- -------------- -------------- -------------- -------------- ---------------
BALANCES AT SEPTEMBER 30, 1997 $ 4,741 $ 303,501 $ 219,650 $ (38,666) $ 469,226
======================================== ============== ============== ============== ============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 8
DANKA BUSINESS SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of September
30, 1998, consolidated statements of operations for the three months and
six months ended September 30, 1998 and 1997, the consolidated statements
of shareholders' equity for the six months ended September 30, 1998 and
1997, and the consolidated statements of cash flows for the six months
ended September 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 September 30, 1998, approximately $2.4 million remained in accrued
liabilities for these separations. The reductions related to this charge,
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 September 30, 1998,
approximately $11.5 million remained in accrued liabilities, primarily for
the closing of duplicate facilities. The closure of the facilities related
to this charge is expected to be substantially completed on a worldwide
basis by the end of fiscal 1999.
NOTE 3. CREDIT AGREEMENT BANK WAIVER AND OTHER CONTINGENCIES
As a result of the Company's profitability shortfall for the three
months ended September 30, 1998, the Company requested and the Lenders
granted a waiver of certain financial covenants and the consequences of
failing to comply with such covenants for the period beginning on September
30, 1998 and ending February 28, 1999. Terms of the waiver included
limitation of new loans to be made under the Credit Agreement during the
waiver period to a total of $75 million, a 70 basis point increase in the
interest rate on certain borrowings under the Credit Agreement during the
waiver period, the granting of security interests in substantially all of
the Company's U.S. subsidiaries' assets to secure up to $225 million of the
borrowings under the Credit Agreement and a $50 million reduction in the
total commitment by the Lenders. The Company also agreed to use its best
efforts to maintain, during the waiver period, at least $30 million of
lines of credit outside the U.S. Furthermore, the Company agreed that it
shall not incur additional Indebtedness (as defined in the Credit
Agreement) except Indebtedness under the Credit Agreement and indebtedness
under the lines required to be maintained outside the U.S. During the term
of the waiver, the Company may not pay dividends and the Lenders' consent
is required for any acquisition or investments by the Company. A copy of
the waiver is available as exhibit 4.11 to the Company's Current Report on
Form 8-K filed October 21, 1998.
8
<PAGE> 9
Since granting the waiver, the Lenders have advanced $40 million in new
loans to the Company. The Company expects to receive the remaining $35
million in loans which is to be available during the waiver period on or
about November 30, 1998, subject to the Company's providing on or before
November 30, 1998 a business plan demonstrating a process for reducing
outstanding indebtedness and achieving results of operations necessary to
permit performance under and satisfactory compliance with the Credit
Agreement, review by the Lenders' consultant and the Lenders of the
business plan and the Company's providing cash flow projections
demonstrating the need for the additional loans. There can be no assurance
that the business plan will be deemed satisfactory or that such loans will
be made. Furthermore, there can be no assurance that such funding will be
sufficient for the Company's operations through the waiver period if the
loans are made.
On October 14, 1998 Kodak purported to exercise provisions of the
Supply Agreements between the Company terminating the Supply Agreements on
60 days notice based on Kodak's claim that the Company had failed to pay
undisputed invoices, subject to payment or notice to the contrary prior to
the date of termination. At that time, Kodak had ceased to ship parts and
supplies to the Company and had also informed the Company that it would no
longer ship equipment to the Company. On October 30, 1998 Kodak purported
to terminate the exclusivity rights with respect to new products on 30 days
notice, stating that the basis for such termination was failure of the
Company to make a scheduled payment under the research and development
agreement between the Company and Kodak. The Company has reached an interim
agreement with Kodak under which Kodak has agreed to provide parts and
supplies to the Company in both its International and America's divisions
on a cash basis through November 30, 1998. Under this agreement, the
Company must make payments of 125% of the purchase price with the excess to
be applied to outstanding invoices from Kodak for parts and supplies
previously shipped. In addition, the Company agreed to pay to Kodak $5
million on November 10, 1998 and $2.5 million on November 16, 1998 in each
case to be applied to invoices from Kodak for parts and supplies previously
shipped. Because of current high levels of Kodak equipment in inventory,
the Company does not believe that failure by Kodak to ship equipment will
present a material problem in the short term. The Company is in discussions
with Kodak with respect to a longer term agreement to address the overall
relationship on a going forward basis. The Company believes that there
should be a mutually satisfactory basis for reaching a longer term
agreement with Kodak and is endeavoring to obtain Kodak's agreement to
continue the relationship on terms reasonably satisfactory to both parties.
However, there can be no assurance that Kodak will agree to any agreement
beyond November 30, 1998 or that such a mutually satisfactory agreement can
be reached. Nevertheless, the Company believes that Kodak is obligated
under contract and antitrust law to ship parts and supplies to the Company
so long as the Company pays cash on order. At times during the second
quarter, other suppliers suspended shipments to the Company. The Company's
major suppliers other than Kodak have resumed shipment of equipment, parts
and supplies, although, in some cases they are only shipping on a cash
basis.
The Supply Agreements with Kodak state that the Company is to make
minimum purchases of equipment and related parts and supplies and to fund
certain research and development activities of Kodak. As a result of these
agreements, significant payments were made to Kodak during the six months
ended September 30, 1998 for (i) research and development of a digital
high-volume copier and (ii) for certain Kodak equipment which significantly
exceeded the Company's inventory needs. Based upon currently anticipated
demand for such products, cash flows and availability of financing, the
Company does not believe it will have sufficient funds to make the minimum
payments set forth in the agreements with Kodak. In addition, Kodak has
claimed that certain payments on account of such minimums are due as to
prior periods. The Company intends to address prior excess purchases,
stated minimums for future periods and Kodak's claims as to prior periods
as part of the discussions of the overall relationship with Kodak.
9
<PAGE> 10
If the Company is unable to reach a satisfactory resolution with Kodak
regarding the matters discussed above, litigation could ensue as to one or
more such matters. As the outcome of any litigation is inherently
uncertain, there can be no assurance that the Company will achieve a
successful result in any such litigation.
The Company has historically financed a substantial portion of its
leasing business using various funding sources. One of the largest programs
to obtain such funding is one under which General Electric Capital
Corporation ("GE Capital") provides funding used by a master trust to
acquire customer leases from a subsidiary of the Company. On November 12,
1998 GE Capital served a notice demanding various actions and assurances in
connection with this program, including confirmation from the Company's
bank Lenders that assets transferred to the master trust will be free and
clear of the Lender's liens and making certain assertions which, under the
terms of the program, could have a material adverse effect on the Company.
The Company is currently in discussions with GE Capital and attempting to
satisfy the requirements imposed by GE Capital. It is essential to the
Company's continued operations that the GE Capital funding or an adequate
substitute is available. The Company believes that there should be a
mutually satisfactory basis for reaching an agreement with GE Capital.
However, there can be no assurance that such a mutually satisfactory
agreement can be reached. Therefore, there can be no assurance that such
funding will be available or, if available, will be available on terms
reasonably satisfactory to the Company. Notwithstanding the November 12,
1998 notice, the Company has been in discussions with GE Capital with
respect to a new, more extensive lease financing arrangement and has
received from GE Capital a term sheet dated November 13, 1998 for such an
arrangement and expects to reach a satisfactory agreement with GE Capital
with respect to a renegotiation of the existing financing arrangements.
However, the GE Capital term sheet expressly provided that it will be
necessary to address the issues raised by GE Capital's November 12, 1998
notice to reach a more extensive agreement. There can no assurance the
Company will be able to reach such an agreement.
As a result of the amendments to the Credit Agreement effective June
30, 1998 and the terms of the waiver discussed above, 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 September 30, 1998 the Credit
Agreement had an outstanding balance of approximately $328.0 million under
the revolving component and $484.5 million under the term loan, all of
which was incurring interest at a weighted average rate of 7.4% per annum.
Additional investments in facilities and computer equipment may
continue to be necessary to support the Company's operations, including the
transition of the Office Imaging business from Kodak's computer system. As
discussed above, in the absence of a restructuring of the Company's
indebtedness and businesses there can be no assurance that cash flow from
operations together with the borrowing capacity under the Credit Agreement
(which is limited to an additional $35 million through the balance of the
waiver period), will be adequate to finance the Company's operating cash
requirements and capital expenditures. On a long term basis it will be
necessary for the Company to obtain additional or replacement financing.
There can be no assurance that such financing will be available or, if
available, will be available on terms reasonably satisfactory to the
Company.
10
<PAGE> 11
In light of the Company's current financial situation, it engaged the
investment banking firm of Wasserstein, Perella & Co. to aid it in an
examination of its businesses and advise the Company concerning a possible
restructuring. The Company currently anticipates that it is likely that a
future restructuring of its businesses will be necessary to address these
difficulties. A key element of any such restructuring is anticipated to
involve the Company's relationship with Kodak. However, there can be no
assurance that Kodak will agree to a renegotiation of its agreements, or,
if it does, will agree to a restructuring that resolves difficulties
arising from the agreements between the Company and Kodak on a basis which
will give the Company reasonable assurance of long term viability. Another
likely part of any restructuring would involve the Company's consideration
of the sale of one or more of its divisions or operating units to pay down
debt and raise funds for operation of the remaining businesses. Another key
element of a restructuring is anticipated to be an effort to bring the SG&A
expenditures of the Company's U.S. division in line with anticipated sales.
A restructuring would also likely include a renegotiation of the Credit
Agreement in an effort to provide additional financial flexibility to the
Company. There can be no assurance that the Company will be able to
successfully address the relationship with Kodak, that the Company will be
able to bring SG&A expenditures into line with actual sales levels of the
Company's U.S. division, that the sale of one or more of the Company's
divisions or operating units can be accomplished, or if accomplished, can
be accomplished on terms reasonably satisfactory to the Company or that the
Company can obtain the Lenders' agreement to amend the Credit Agreement or
to amend it in a manner reasonably satisfactory to the Company.
As stated above, management believes that the Company's fundamental
businesses are sound. Nevertheless, as outlined above, the Company is
facing many challenges and there are material risks that the Company will
be unable to manage all of the issues it is facing. Based upon the business
plan being developed, the Company believes that there should be a
reasonable basis for meeting the challenges faced by the Company and
managing the issues it is facing in a manner reasonably satisfactory to the
Company. However, the Company is unable to predict the outcome of the
issues outlined above. If the Company is unable to address one or more of
these issues and reach resolutions reasonably satisfactory to the Company,
the outcome may have a material adverse effect on the Company and its
operations, including the recoverability of recorded asset amounts. If this
occurs one alternative that the Company might choose, either in the
immediate future or in the longer term, would be to seek protection under
Chapter 11 of the U.S. Bankruptcy Code and, to the extent appropriate, the
laws of the United Kingdom and other non-U.S. jurisdictions providing
protection from creditors.
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. The Company has received various notices of proposed
adjustments; the principal adjustment relates to the timing of certain
deductions associated with leased equipment financing. While the ultimate
result can not be determined with certainty, 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.
11
<PAGE> 12
NOTE 4. 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 FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
--------------------------------------- ----------------------------------------
(In 000's except per share INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
amounts) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss ($13,355) ($8,344)
BASIC LOSS PER ADS (1):
Income available to
shareholders (13,355) 56,874 ($0.23) (8,344) 56,874 ($0.15)
====== ======
</TABLE>
(1) Basic loss per ADS equals diluted loss per ADS due to the net loss
incurred by the Company for the three and six months ended September 30,
1998.
NOTE 5. COMPREHENSIVE (LOSS) INCOME
The following table presents comprehensive (loss) income for the three and
six months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net (loss) earnings ($13,355) $19,725 ($8,344) $38,191
Foreign currency translation 6,358 (6,717) 4,811 (11,734)
---------- ---------- ---------- ----------
Total comprehensive (loss) income ($6,997) $13,009 ($3,533) $26,457
========== ========== ========== ==========
</TABLE>
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
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.
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<PAGE> 13
NOTE 7. 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.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Danka Business Systems PLC and its Subsidiaries ("Danka" or 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.
Danka 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 also purchased Kodak's outsourcing business, now
known as Danka Services International ("DSI").
On June 26, 1998 the Company announced that its revenue for the first
quarter of fiscal 1999 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 experiencing a
recent increase in competition among equipment sales and this is impacting
margins. See - "Gross Profit."
In September, Danka announced a new strategic alliance with Canon that
allows the Company to offer a complete line of color copiers to
customers of all sizes throughout North America, Europe and select Latin
American countries. The Company is also in negotiations with its vendors
in efforts to broaden its black and white digital product portfolio.
On October 5, 1998 the Company announced that its revenue for the
second quarter of fiscal 1999 would be approximately 5% below the first
quarter, or about 10% below the same quarter a year ago, and that the
Company would likely report a loss for the quarter. The Company reported
actual revenue of $733.8 million for the second quarter, a 4% decline over
the first quarter and a 10% decline over the same quarter a year ago. On a
sequential basis, the Company's equipment sales improved by 5%, in both
the U.S. and International markets, while retail service, supplies and
rentals revenue as well as wholesale sales were down. See - "Revenue."
On October 16, 1998, the Company announced the appointment of
Wasserstein Perella & Co. as financial advisor to the Company. In
conjunction with Wasserstein, the Company is evaluating its strategic and
financial options, including the possible sale of certain divisions.
Upon the resignation of Daniel M. Doyle, Chief Executive, on October
23, 1998, Larry K. Switzer, the Company's Chief Financial Officer was
appointed as interim Chief Executive. On the same date, David W.
Kendall, a non-executive Director was appointed Chairman of the
Company, following the
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<PAGE> 15
resignation of Mark A. Vaughan-Lee. The Company has retained Spencer
Stuart, an executive recruiting firm to review both internal and
external candidates for the position of Chief Executive.
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 Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Retail equipment sales..................... 27.8 % 29.2 % 26.6 % 29.4 %
Retail service, supplies and rentals....... 64.9 63.2 65.3 63.0
Wholesale.................................. 7.3 7.6 8.1 7.6
--- --- --- ---
Total revenue.......................... 100.0 100.0 100.0 100.0
Cost of revenue.............................. 66.0 63.3 64.7 63.1
---- ---- ---- ----
Gross profit................................. 34.0 36.7 35.3 36.9
Selling, general and administrative expenses. 32.0 28.9 31.5 29.2
Amortization of intangible assets............ 0.7 0.6 0.7 0.6
Research and development costs............... 1.7 1.5 1.7 1.5
--- --- --- ---
(Loss) earnings from operations........ (0.4) 5.7 1.4 5.6
Interest expense and other, net.............. 2.5 1.9 2.3 1.9
--- --- --- ---
(Loss) earnings before income taxes.... (2.9) 3.8 (0.9) 3.7
Provision for income taxes................... (1.1) 1.4 (0.3) 1.4
----- --- ----- ---
Net (loss) earnings.................... (1.8) % 2.4 % (0.6) % 2.3 %
===== === ===== ===
</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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Retail equipment sales....................... 29.8 % 35.0 % 30.1 % 35.2 %
Retail service, supplies and rentals......... 37.6 39.6 39.7 39.8
Wholesale.................................... 18.0 19.5 16.5 19.4
</TABLE>
15
<PAGE> 16
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30,
1997:
Revenue
Revenue declined 10% to $733.8 million for the three months ended
September 30, 1998 ("second quarter of fiscal 1999") compared to $814.8
million for the three months ended September 30, 1997 ("second quarter of
fiscal 1998"), primarily due to lower equipment sales and reduced retail
service, supplies and rentals revenue in both the U.S. and international
markets. The Company believes the shortfall in equipment sales is related
to a number of factors, which include the integration of the sales force
in the U.S., and an accelerated shift to digital products in the U.S. and
Australasia. The Company is taking steps to improve its digital product
availability in these regions to meet customer demand. In September 1998,
the Company announced a strategic alliance with Canon allowing Danka to
sell a complete line of color copiers throughout North America, Europe and
select Latin American countries. The Company is also in negotiations with
its vendors in efforts to broaden its black and white digital product
portfolio. Equipment sales were also impacted in the International
division, primarily in the UK and Australasia. As a result of the economic
malaise in the Far East, competitive pressures from Japanese manufacturers
selling directly to customers impacted equipment sales. Despite the
revenue shortfall, the Company did benefit from stronger color copier and
digital equipment sales in the U.S. for the second quarter of fiscal 1999,
which grew 8% and 34% from the second quarter of fiscal 1998,
respectively.
The Company's retail service, supplies and rentals revenue
declined to $476.3 million in the second quarter of fiscal 1999 from
$514.5 million in the second quarter of fiscal 1998. The decline is
primarily due to two factors. First, the erosion of the U.S. installed
machine base, specifically within its named accounts, has resulted in a
decline in service and supply revenue. Second, supply sales in the
Company's International division have weakened due to competitive
pressures from Japanese manufacturers selling directly to customers.
Wholesale sales declined 14% to $53.5 million in the second
quarter of fiscal 1999 from $62.0 million in the second quarter of fiscal
1998 primarily due to lower sales in the U.S. in both equipment and
supplies.
Approximately 40% of the Company's revenue is generated in
countries outside of the United States. As in prior periods, foreign
exchange rate fluctuations have negatively impacted the Company's
comparable financial results. Excluding the effect of foreign currency
fluctuations, total revenue would have been approximately $5.0 million
higher during the second quarter of fiscal 1999.
Gross Profit
Gross profit declined 16% to $249.7 million for the second
quarter of fiscal 1999 from $299.0 million for the second quarter of
fiscal 1998. The gross profit margin as a percentage of total revenue
decreased to 34.0% for the second quarter of fiscal 1999 from 36.7% for
the second quarter of fiscal 1998. The decline in the Company's combined
gross profit margin was primarily due to lower retail margins in equipment
and service, supplies and rentals.
Gross profit as a percentage of retail equipment sales decreased
to 29.8% for the second quarter of fiscal 1999 from 35.0% for the second
quarter of fiscal 1998. The decline in the retail equipment margin is
attributable to several factors. First, the International division is
experiencing pressure on its equipment margins due to competitive
pressures, some of which is coming from Japanese manufacturers
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<PAGE> 17
selling directly to customers. Second, the impact of competitive pressures
on equipment sales has also increased in the U.S. The Company believes
that these competitive pressures in the U.S. and international markets
will continue. Third, the Company's equipment margin was also affected by
the Company's continued efforts to reduce inventory levels which were
accompanied with lower pricing.
As a percentage of revenue, the gross profit margin on retail
service, supplies and rentals decreased to 37.6% for the second quarter of
fiscal 1999 from 39.6% for the second quarter of fiscal 1998. The decline
is due to several factors. First, the margin was affected by the loss of
the installed machine base and related service revenue in the U.S., while
costs remained relatively constant. Although a reduction in the installed
machine base has affected the gross margin, pricing has remained stable.
Second, the direct selling by Japanese manufacturers of copier supplies in
the International division has impacted the Company's retail service,
supplies and rentals margin. Excluding the Company's outsourcing business
(DSI), the retail service, supply and rentals margin was 40.2% compared to
41.6% for the second quarter of fiscal 1998. DSI has a lower gross profit
margin due to the nature of the business. Although DSI has a lower gross
profit margin than the Company's core copier business, its operating
profit margin was approximately 10% of revenue for the second quarter of
fiscal 1999.
As a percentage of revenue, the gross profit margin on wholesale
sales declined to 18.0% for the second quarter of fiscal 1999 from 19.5%
for the second quarter of fiscal 1998. The comparable wholesale margin for
the second quarter of fiscal 1998 was particularly strong last year due to
solid private label sales last year.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses remained
relatively flat at $235.0 million for the second quarter of fiscal 1999
compared to $235.3 million for the second quarter of fiscal 1998. The
Company's reduction in selling expenses was offset by higher general and
administrative expenses due to increased advertising costs and
administrative expenses related to IT. The Company's U.S. advertising
expenses increased by $4.2 million as a result of a campaign that ran
during the second quarter. As a percentage of revenue, selling, general
and administrative expenses increased to 32.0% for the second quarter of
fiscal 1999 from 28.9% for the second quarter of fiscal 1998. The increase
was primarily due to the lower revenue for the second quarter of fiscal
1999.
Amortization of Intangible Assets
Amortization of intangible assets increased to $5.0 million
for the second quarter of fiscal 1999 from $4.7 million for the second
quarter of fiscal 1998.
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 second
quarter of fiscal 1999, research and development costs totaled $12.5
million.
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<PAGE> 18
Earnings from Operations
The Company reported an operating loss of $2.7 million for the
second quarter of fiscal 1999 compared to earnings from operations of
$46.5 million for the second quarter of fiscal 1998. Earnings from
operations were primarily impacted by the shortfall in revenue, lower
combined gross profit and higher SG&A expenses in the U.S. As a
percentage of revenue, the Company incurred a loss from operations of 0.4%
for the second quarter of fiscal 1999 as compared to earnings from
operations of 5.7% for the second quarter of fiscal 1998.
Interest Expense and Other, Net
Interest expense and other, net increased to $18.5 million for
the second quarter of fiscal 1999 compared to $15.1 million for the second
quarter of fiscal 1998. The increase primarily related to higher levels of
borrowings and a higher interest rate during the second quarter of fiscal
1999. The interest rate increase was due to the amendments to the
Company's Credit Agreement effective June 30, 1998. (Refer to "Liquidity
and Capital Resources").
Income Taxes
The Company recorded a tax benefit of $7.9 million for the second
quarter of fiscal 1999 compared to income taxes of $11.7 million for the
second quarter of fiscal 1998. The tax benefit was due to the loss before
income taxes, which resulted from the factors discussed above. The
combined effective income tax rate remained constant at 37.2% for the
second quarter of fiscal 1998 and fiscal 1999.
Net (Loss) Earnings
As a result of the above factors, the Company reported a net loss
of $13.4 million for the second quarter of fiscal 1999 compared to net
earnings of $19.7 million for the second quarter of fiscal 1998. As a
percentage of revenue, the Company reported a net loss of 1.8% for the
second quarter of fiscal 1999 as compared to net earnings of 2.4% for the
second quarter of fiscal 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1997:
Revenue
Revenue declined 9% to $1.5 billion for the six months ended
September 30, 1998 compared to $1.6 billion for the six months ended
September 30, 1997, primarily due to lower equipment sales and reduced
retail service, supplies and rentals revenue in both the U.S. and
international markets. The Company believes the shortfall in equipment
sales is related to a number of factors which include the integration of
the sales force in the U.S., and an accelerated shift to digital products
in the U.S. and Australasia. The Company is taking steps to improve its
digital product availability in these regions to meet customer demand.
(Refer to the revenue comparison for quarter ended September 30, 1998 for
further discussion.) Equipment sales were also impacted in the
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<PAGE> 19
International division, primarily in the UK and Australasia. As a result
of the economic malaise in the Far East, competitive pressures from
Japanese manufacturers selling directly to customers impacted equipment
sales.
The Company's retail service, supplies and rentals revenue
declined to $978.9 million for the six months ended September 30, 1998
from $1.0 billion for the six months ended September 30, 1997. The decline
is primarily due to two factors. First, the erosion of the U.S.
installed machine base, specifically within the Company's named accounts,
has resulted in a decline in service and supply revenue. Second, supply
sales in the Company's international division have weakened due to the
competitive pressures from Japanese manufacturers selling directly to
customers.
Wholesale revenue remained relatively constant at $121.7
million and $125.4 million for the six months ended September 30, 1998
and 1997, respectively.
Approximately 40% of the Company's revenue is generated in
countries outside of the United States. As in prior periods, foreign
exchange rate fluctuations have negatively impacted the Company's
comparable financial results. Excluding the effect of foreign currency
fluctuations, total revenue would have been approximately $14.0 million
higher during the six months ended September 30, 1998.
Gross Profit
Gross profit declined 13% to $528.8 million for the six months
ended September 30, 1998 from $608.2 million for the six months ended
September 30, 1997. The gross profit margin as a percentage of total
revenue decreased to 35.3% for the six months ended September 30, 1998
from 36.9% for the six months ended September 30, 1997. The decline in the
Company's combined gross profit margin was primarily due to lower retail
equipment margins.
Gross profit as a percentage of retail equipment sales decreased
to 30.1% for the six months ended September 30, 1998 from 35.2% for the
six months ended September 30, 1997. The decline in the retail equipment
margin is attributable to several factors. First, the International
division is experiencing pressure on its equipment margins due to
competitive pressures, some of which is coming from Japanese
manufacturers selling directly to customers. Second, the impact of
competitive pressures on equipment sales has also increased in the U.S.
The Company believes that these competitive pressures in the U.S. and
international markets will continue. Third, the Company's equipment
margin was also affected by the Company's continued efforts to reduce
inventory levels which were accompanied with lower pricing.
As a percentage of revenue, the gross profit margin on retail
service, supplies and rentals remained stable at 39.7% and 39.8% for the
six months ended September 30, 1998 and 1997, respectively. Excluding the
Company's outsourcing business (DSI), the retail service, supply and
rentals margin was higher at 42.5% compared to 42.0% for the six months
ended September 30, 1998 and 1997, respectively.
As a percentage of revenue, the gross profit margin on wholesale
sales declined to 16.5% for the six months ended September 30, 1998
compared to 19.4% for the six months ended September 30, 1997. The
wholesale margin was primarily affected by lower equipment and supply
margins in the U.S. during the first quarter of fiscal 1999. In addition,
the comparable wholesale margin for the six months ended September 30,
1997 was particularly strong due to solid private label sales last year.
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<PAGE> 20
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 2% to
$472.8 million for the six months ended September 30, 1998 from $481.2
million for the six months ended September 30, 1997. The decrease was
primarily due to lower selling expenses as a result of lower equipment
sales during the first six months of fiscal 1999. The Company's reduction
in selling expenses was offset by higher general and administrative
expenses due to increased advertising costs and administrative expenses
related to IT during the second quarter of fiscal 1999. The Company's U.S.
advertising expenses increased by $4.2 million as a result of a campaign
that ran during the second quarter. As a percentage of revenue, selling,
general and administrative expenses increased to 31.5% for the six months
ended September 30, 1998 from 29.2% for the six months ended September 30,
1997. The increase was primarily due to the lower revenue for the six
months ended September 30, 1998.
Amortization of Intangible Assets
Amortization of intangible assets increased to $10.4 million for
the six months ended September 30, 1998 from $9.3 million for the six
months ended September 30, 1997.
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 six
months ended September 30, 1998, research and development costs totaled
$25.0 million.
Earnings from Operations
Earnings from operations decreased 78% to $20.6 million for the
six months ended September 30, 1998 from $92.6 million for the six months
ended September 30, 1997. The decrease is primarily due to the shortfall
in revenue, lower combined gross profit and higher SG&A expenses in the
U.S. As a percentage of revenue, earnings from operations decreased to
1.4% for the six months ended September 30, 1998 from 5.6% for the six
months ended September 30, 1997.
Interest Expense and Other, Net
Interest expense and other, net increased to $33.9 million for the
six months ended September 30, 1998 compared to $31.8 million for the six
months ended September 30, 1997. The increase primarily related to higher
levels of borrowings and a higher interest rate during the six months
ended September 30, 1998. The interest rate increase was due to the
amendments to the Company's Credit Agreement effective June 30, 1998.
(Refer to "Liquidity and Capital Resources").
Income Taxes
The Company recorded a tax benefit of $4.9 million for the six
months ended September 30, 1998 compared to income taxes of $22.6 million
for the six months ended September 30, 1997. The tax
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<PAGE> 21
benefit was due to the loss before income taxes, which resulted from the
factors discussed above. The combined effective income tax rate remained
constant at 37.2% for the six months ended September 30, 1998 and fiscal
1997.
Net (Loss) Earnings
As a result of the above factors, the Company reported a net loss
of $8.3 million for the six months ended September 30, 1998 compared to
net earnings of $38.2 million for the six months ended September 30, 1997.
As a percentage of revenue, the Company reported a net loss of 0.6% for
the six months ended September 30, 1998 as compared to net earnings of
2.3% for the six months ended September 30, 1997.
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 has declared 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow provided by operating activities was
$27.7 million and $29.8 million for the six months ended September 30,
1998 and 1997, respectively. The Company's inventory
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<PAGE> 22
has increased during the six months ended September 30, 1998 as a result of
a slowdown in U.S. equipment sales and the Company's requirements to
purchase various levels of equipment pursuant to supply agreements with
Kodak (the "Supply Agreements"). Cash flow (used in) provided by investing
activities was ($116.2) million and $33.8 million for the six months ended
September 30, 1998 and 1997, respectively. The decrease in cash from
investing activities for the six months ended September 30, 1998 is due to
the refund of approximately $100.0 million the Company received from Kodak
during the second quarter of fiscal 1998 related to the purchase price
adjustment provision. In addition, the Company's capital expenditures
increased during the six months ended September 30, 1998 due to higher
spending in the first quarter of fiscal 1999, which has now been reduced.
Net cash provided by (used in) financing activities was $61.6 million and
($102.2) million for the six months ended September 30, 1998 and 1997,
respectively. Cash provided by financing activities was higher for the six
months ended September 30, 1998 primarily due to the increase 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 "Lenders"). 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
September 30, 1998, the term loan component had amortized to $505.0 million
bringing the full capacity to $1.115 billion. 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. The
amendments principally provided for a revision of certain definitions and
an adjustment to certain financial ratios the Company is required to
maintain.
Management believes the Company's fundamental businesses are sound.
Nevertheless, the Company faces significant challenges and risks as
outlined below.
As a result of the Company's profitability shortfall for the three
months ended September 30, 1998, the Company requested and the Lenders
granted a waiver of certain financial covenants and the consequences of
failing to comply with such covenants for the period beginning on September
30, 1998 and ending February 28, 1999. Terms of the waiver included
limitation of new loans to be made under the Credit Agreement during the
waiver period to a total of $75 million, a 70 basis point increase in the
interest rate on certain borrowings under the Credit Agreement during the
waiver period, the granting of security interests in substantially all of
the Company's U.S. subsidiaries' assets to secure up to $225 million of the
borrowings under the Credit Agreement and a $50 million reduction in the
total commitment by the Lenders. The Company also agreed to use its best
efforts to maintain, during the waiver period, at least $30 million of
lines of credit outside the U.S. Furthermore, the Company agreed that it
shall not incur additional Indebtedness (as defined in the Credit
Agreement) except Indebtedness under the Credit Agreement and indebtedness
under the lines required to be maintained outside the U.S. During the term
of the waiver, the Company may not pay dividends and the Lenders' consent
is required for any acquisition or investments by the Company. A copy of
the waiver is available as exhibit 4.11 to the Company's Current Report on
Form 8-K filed October 21, 1998.
Since granting the waiver, the Lenders have advanced $40 million in
new loans to the Company. The Company expects to receive the remaining $35
million in loans which is to be available during the waiver period on or
about November 30, 1998, subject to the Company's providing on or before
November 30, 1998 a business plan demonstrating a process for reducing
outstanding indebtedness and achieving results of operations necessary to
permit performance under and satisfactory compliance with the Credit
Agreement, review by the Lenders' consultant and the Lenders of the
business plan and the Company's providing cash flow projections
demonstrating the need for the additional loans. There can be no assurance
that the business plan will be deemed satisfactory or that such loans will
be made. Furthermore, there can be no assurance that such funding will be
sufficient for the Company's operations through the waiver period if the
loans are made.
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<PAGE> 23
On October 14, 1998 Kodak purported to exercise provisions of the
Supply Agreements between the Company terminating the Supply Agreements on
60 days notice based on Kodak's claim that the Company had failed to pay
undisputed invoices, subject to payment or notice to the contrary prior to
the date of termination. At that time, Kodak had ceased to ship parts and
supplies to the Company and had also informed the Company that it would no
longer ship equipment to the Company. On October 30, 1998 Kodak purported
to terminate the exclusivity rights with respect to new products on 30 days
notice, stating that the basis for such termination was failure of the
Company to make a scheduled payment under the research and development
agreement between the Company and Kodak. The Company has reached an interim
agreement with Kodak under which Kodak has agreed to provide parts and
supplies to the Company in both its International and America's divisions
on a cash basis through November 30, 1998. Under this agreement, the
Company must make payments of 125% of the purchase price with the excess to
be applied to outstanding invoices from Kodak for parts and supplies
previously shipped. In addition, the Company agreed to pay to Kodak $5
million on November 10, 1998 and $2.5 million on November 16, 1998 in each
case to be applied to invoices from Kodak for parts and supplies previously
shipped. Because of current high levels of Kodak equipment in inventory,
the Company does not believe that failure by Kodak to ship equipment will
present a material problem in the short term. The Company is in discussions
with Kodak with respect to a longer term agreement to address the overall
relationship on a going forward basis. The Company believes that there
should be a mutually satisfactory basis for reaching a longer term
agreement with Kodak and is endeavoring to obtain Kodak's agreement to
continue the relationship on terms reasonably satisfactory to both parties.
However, there can be no assurance that Kodak will agree to any agreement
beyond November 30, 1998 or that such a mutually satisfactory agreement can
be reached. Nevertheless, the Company believes that Kodak is obligated
under contract and antitrust law to ship parts and supplies to the Company
so long as the Company pays cash on order. At times during the second
quarter, other suppliers suspended shipments to the Company. The Company's
major suppliers other than Kodak have resumed shipment of equipment, parts
and supplies, although, in some cases they are only shipping on a cash
basis.
The Supply Agreements with Kodak state that the Company is to make
minimum purchases of equipment and related parts and supplies and to fund
certain research and development activities of Kodak. As a result of these
agreements, significant payments were made to Kodak during the six months
ended September 30, 1998 for (i) research and development of a digital
high-volume copier and (ii) for certain Kodak equipment which significantly
exceeded the Company's inventory needs. Based upon currently anticipated
demand for such products, cash flows and availability of financing, the
Company does not believe it will have sufficient funds to make the minimum
payments set forth in the agreements with Kodak. In addition, Kodak has
claimed that certain payments on account of such minimums are due as to
prior periods. The Company intends to address prior excess purchases,
stated minimums for future periods and Kodak's claims as to prior periods
as part of the discussions of the overall relationship with Kodak.
23
<PAGE> 24
If the Company is unable to reach a satisfactory resolution with Kodak
regarding the matters discussed above, litigation could ensue as to one or
more such matters. As the outcome of any litigation is inherently
uncertain, there can be no assurance that the Company will achieve a
successful result in any such litigation.
The Company has historically financed a substantial portion of its
leasing business using various funding sources. One of the largest programs
to obtain such funding is one under which General Electric Capital
Corporation ("GE Capital") provides funding used by a master trust to
acquire customer leases from a subsidiary of the Company. On November 12,
1998 GE Capital served a notice demanding various actions and assurances in
connection with this program, including confirmation from the Company's
bank Lenders that assets transferred to the master trust will be free and
clear of the Lender's liens and making certain assertions which, under the
terms of the program, could have a material adverse effect on the Company.
The Company is currently in discussions with GE Capital and attempting to
satisfy the requirements imposed by GE Capital. It is essential to the
Company's continued operations that the GE Capital funding or an adequate
substitute is available. The Company believes that there should be a
mutually satisfactory basis for reaching an agreement with GE Capital.
However, there can be no assurance that such a mutually satisfactory
agreement can be reached. Therefore, there can be no assurance that such
funding will be available or, if available, will be available on terms
reasonably satisfactory to the Company. Notwithstanding the November 12,
1998 notice, the Company has been in discussions with GE Capital with
respect to a new, more extensive lease financing arrangement and has
received from GE Capital a term sheet dated November 13, 1998 for such an
arrangement and expects to reach a satisfactory agreement with GE Capital
with respect to a renegotiation of the existing financing arrangements.
However, the GE Capital term sheet expressly provided that it will be
necessary to address the issues raised by GE Capital's November 12, 1998
notice to reach a more extensive agreement. There can no assurance the
Company will be able to reach such an agreement.
As a result of the amendments to the Credit Agreement effective June
30, 1998 and the terms of the waiver discussed above, 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 September 30, 1998 the Credit
Agreement had an outstanding balance of approximately $328.0 million under
the revolving component and $484.5 million under the term loan, all of
which was incurring interest at a weighted average rate of 7.4% per annum.
Additional investments in facilities and computer equipment may
continue to be necessary to support the Company's operations, including the
transition of the Office Imaging business from Kodak's computer system. As
discussed above, in the absence of a restructuring of the Company's
indebtedness and businesses there can be no assurance that cash flow from
operations together with the borrowing capacity under the Credit Agreement
(which is limited to an additional $35 million through the balance of the
waiver period), will be adequate to finance the Company's operating cash
requirements and capital expenditures. On a long term basis it will be
necessary for the Company to obtain additional or replacement financing.
There can be no assurance that such financing will be available or, if
available, will be available on terms reasonably satisfactory to the
Company.
24
<PAGE> 25
In light of the Company's current financial situation, it engaged the
investment banking firm of Wasserstein, Perella & Co. to aid it in an
examination of its businesses and advise the Company concerning a possible
restructuring. The Company currently anticipates that it is likely that a
future restructuring of its businesses will be necessary to address these
difficulties. A key element of any such restructuring is anticipated to
involve the Company's relationship with Kodak. However, there can be no
assurance that Kodak will agree to a renegotiation of its agreements, or,
if it does, will agree to a restructuring that resolves difficulties
arising from the agreements between the Company and Kodak on a basis which
will give the Company reasonable assurance of long term viability. Another
likely part of any restructuring would involve the Company's consideration
of the sale of one or more of its divisions or operating units to pay down
debt and raise funds for operation of the remaining businesses. Another key
element of a restructuring is anticipated to be an effort to bring the SG&A
expenditures of the Company's U.S. division in line with anticipated sales.
A restructuring would also likely include a renegotiation of the Credit
Agreement in an effort to provide additional financial flexibility to the
Company. There can be no assurance that the Company will be able to
successfully address the relationship with Kodak, that the Company will be
able to bring SG&A expenditures into line with actual sales levels of the
Company's U.S. division, that the sale of one or more of the Company's
divisions or operating units can be accomplished, or if accomplished, can
be accomplished on terms reasonably satisfactory to the Company or that the
Company can obtain the Lenders' agreement to amend the Credit Agreement or
to amend it in a manner reasonably satisfactory to the Company.
As stated above, management believes that the Company's fundamental
businesses are sound. Nevertheless, as outlined above, the Company is
facing many challenges and there are material risks that the Company will
be unable to manage all of the issues it is facing. Based upon the business
plan being developed, the Company believes that there should be a
reasonable basis for meeting the challenges faced by the Company and
managing the issues it is facing in a manner reasonably satisfactory to the
Company. However, the Company is unable to predict the outcome of the
issues outlined above. If the Company is unable to address one or more of
these issues and reach resolutions reasonably satisfactory to the Company,
the outcome may have a material adverse effect on the Company and its
operations, including the recoverability of recorded asset amounts. If this
occurs one alternative that the Company might choose, either in the
immediate future or in the longer term, would be to seek protection under
Chapter 11 of the U.S. Bankruptcy Code and, to the extent appropriate, the
laws of the United Kingdom and other non-U.S. jurisdictions providing
protection from creditors.
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. The Company has received various notices of proposed
adjustments; the principal adjustment relates to the timing of certain
deductions associated with leased equipment financing. While the ultimate
result can not be determined with certainty, 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.
25
<PAGE> 26
YEAR 2000 READINESS DISCLOSURE
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 the hardware, software and
embedded technologies, need to be modified prior to the Year 2000, in
order to remain functional. The Company has a Year 2000 worldwide program
office that has developed an overall Year 2000 plan to address the
possible impact of Year 2000 on the processing of date sensitive
information by computer systems. The Company's Year 2000 worldwide program
office is comprised of senior executives, legal counsel and program
managers. The progress of the overall Year 2000 program plan is being
monitored and reported to a Worldwide Steering Committee and to the Board
of Directors on a regular basis.
The Company's Year 2000 program plan contains program
administration and a six phased remediation approach. The six phases are:
1) Inventory - comprehensive lists of hardware, software and embedded
technologies with assigned compliance status, 2) Assessment and Analysis -
remediation solutions and options are researched, selected and detailed
plans with target completion dates are developed, 3) Remediation
Development - includes hardware and software upgrades, vendor and supplier
certification and other related changes, 4) Test and Validate - testing,
conversion and integration of business applications and systems, including
compliance demonstration and user acceptance, 5) Deployment Implementation
of solutions into the operating environment and 6) Contingency Planning
and Post-Year 2000 Support - the development of alternative actions to
limit any adverse impact on the Company's operations. The Company's Year
2000 worldwide program office meets regularly to review plan progress,
issues and issues resolution.
The Company's Year 2000 plans include identification and
assessment of operational systems, including without limitation, business
applications, infrastructure hardware and software applications. To
prepare for the Year 2000, where appropriate, the Company is performing
testing, remediation, and validation of operational systems. The Company
is in the process of implementing a new corporate wide IT infrastructure
thereby enabling it to operate independently from Kodak's computer
systems, when implemented. It is possible that the Year 2000 may have an
impact on the operations of the Company in the event certain remaining IT
systems, primarily related to the U.S. and Latin American applications
separation, and Canadian application conversions are not implemented as
planned. The Company will also perform comprehensive integration testing
and validation of its major operational systems during the last phases of
the Year 2000 program.
The Company is currently evaluating its products and service
offerings, supplier relationships and vendor manufacturing relationships
to assess the potential impact on operations if third parties are not
successful in having their systems Year 2000 compliant in a timely manner.
The Company's Year 2000 plans include working with its suppliers, vendors
and customers to identify and assess any Year 2000 issues associated with
its products, services and facilities (including non-IT/embedded systems).
If the Company believes that a supplier will not be able to continue to
provide an adequate level of service, the Company intends to take
appropriate actions to minimize the impact of the Year 2000 changeover on
its operations.
26
<PAGE> 27
The Company believes it is taking reasonable steps to avoid
interruption in the business, which may be caused by the Year 2000
changeover. The Company believes that its efforts will enable the Company
to operate without significant interruption caused by the Year 2000
changeover. Presently, the Company is unable to quantify the costs of any
such modifications or other activities required to address the Year 2000
issue, and therefore, is unable to determine if such costs and expenses
will be material to the Company.
The Company is currently evaluating its products and service
offerings, supplier relationships and vendor manufacturing relationships
to assess the potential impact on operations if third parties are not
successful in having their systems year 2000 compliant in a timely manner.
The Company believes it is taking reasonable steps to avoid interruption
in the business caused by year 2000 problems. Presently, the Company is
unable to quantify the costs of any such modifications or other activities
required to address the year 2000 issue, and therefore, is unable to
determine if such costs and expenses will be material to the Company.
EURO
On January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union ("EMU") are scheduled to establish fixed
conversion rates between their existing currencies and one common currency
- the Euro. The Euro will then trade on currency exchanges and may be used
in business transactions. Countries in which the Company operates that are
converting to the Euro include Austria, Belgium, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain. The Company's
operating subsidiaries affected by the Euro conversion have established
plans to address the systems and business issues raised by the Euro
currency conversion including information technology systems, the
processes of preparing accounting records, financial instruments and the
continuity of contracts. Where necessary, systems are being updated to
allow "dual currency" functionality to enable the Company to invoice and
be invoiced in either local currencies or the Euro. The conversion to the
Euro is also expected to eliminate exchange risks among the EMU countries
and reduce the need for forward contracts. Those countries not converting
to the Euro on January 1, 1999 (e.g., the U.K.) are preparing for the
conversion as well, to enable a switch to the Euro, should the local
government of these countries decide to convert at some later date. All
existing contracts will still be legally enforceable despite the Euro
conversion. While there can be no assurances that external factors
associated with the conversion will not impact the Company, based upon
steps taken to date, the Company anticipates that the Euro conversion will
not have a material impact on its financial condition or results of
operations.
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.
27
<PAGE> 28
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", "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 potential increased
costs resulting from technological developments, revisions to existing
information technology systems, year 2000 issues and the separation of the
Office Imaging business off of Kodak's computer system, (ii) business
disruption resulting from year 2000 issues including unidentified
noncompliance of technology, delays or difficulties in implementing new IT
infrastructure, delays or difficulties in converting remaining systems and
applications, and untimely third party completion of year 2000 compliance,
(iii) increased competition resulting from other high volume and digital
copier distributors and the discounting of such copiers by competitors,
(iv) any inability by the Company to manage and reduce its outstanding
debt, meet its working capital needs, maintain compliance with the
covenants of the Credit Agreement or the Company's inability to satisfy
the requirements for the additional $35.0 million under the waiver
agreement with its bank lenders in effect through February 28, 1999 and
whether such additional funding will be sufficient to meet the Company's
liquidity needs, (v) any inability by the Company to procure longer term
financing beyond the waiver period to meet its liquidity needs, (vi) any
inability by the Company to continue to gain access to and successfully
distribute new, including digital products, and current products brought
to the marketplace at competitive costs and prices, (vii) any inability by
the Company to comply with the purchasing requirements under its supply
agreements with its vendors, including Kodak, and the impact thereof,
(viii) any inability by the Company to successfully close facilities
without negative impact on the Company's operations, (ix) the ultimate
outcome and impact of the pending class action lawsuit, (x) any negative
impact from the loss of any key upper management personnel, (xi) any
inability by the Company to adequately address its liquidity challenges,
(xii) the refusal by any vendor to provide equipment, parts and supplies
as a result of the Company's financial condition, (xiii) any negative
impact on the Company's financial condition or results of operations
caused by the Euro conversion, (xiv) any significant assessment, pursuant
to the review by the Internal Revenue Service, (xv) any inability by the
Company to obtain adequate funding for its leasing business, (xvi) any
inability by the Company to bring SG&A expenditures of the Company's U.S.
division in line with anticipated sales, (xvii) any inability by the
Company to reach a mutually satisfactory agreement with Kodak, with terms
reasonably satisfactory to both parties, (xviii) any inability by the
Company to sell one or more of its divisions or operating units, (xix)
fluctuations in foreign currencies and (xx) 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.
28
<PAGE> 29
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 and all briefs have been submitted to the Court.
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.
The Annual General Meeting of shareholders of Danka Business Systems
PLC was held on July 24, 1998. At the meeting, the following actions were
taken by the shareholders:
1. The payment of a final dividend for fiscal year 1998 in the amount of
1.56 pence per Ordinary Share (net) was authorized. The voting on the
resolution
was as follows:
<TABLE>
<S> <C>
FOR 82,736,319
AGAINST 1,551,514
ABSTAINED 35,000
</TABLE>
29
<PAGE> 30
2. James F. White was re-elected to serve as a Director of the Company,
in accordance with the Company's Articles of Association. The voting on
the resolution was as follows:
<TABLE>
<S> <C>
FOR 82,129,541
AGAINST 2,158,292
ABSTAINED 35,000
</TABLE>
3. J. Ernest Riddle, who was appointed during the course of the year,
was re-elected to serve as a Director of the Company, in accordance with
the Company's Articles of Association. The voting on the resolution was as
follows:
<TABLE>
<S> <C>
FOR 82,490,006
AGAINST 1,797,827
ABSTAINED 35,000
</TABLE>
4. KPMG Audit Plc was appointed as the Company's auditors for fiscal
year 1999, and the Board of Directors was authorized to fix the auditor's
remuneration. The voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 83,456,560
AGAINST 831,273
ABSTAINED 35,000
</TABLE>
5. The Board of Directors of the Company was granted the authority to
allot securities up to an aggregate nominal amount of (pound)947,898. The
voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 76,741,331
AGAINST 7,546,502
ABSTAINED 35,000
</TABLE>
6. The Board of Directors of the Company was granted the authority to
allot equity securities up to an aggregate nominal amount of
(pound)568,740 without providing certain pre-emptive rights. The voting on
the resolution was as follows:
<TABLE>
<S> <C>
FOR 70,379,551
AGAINST 13,045,699
ABSTAINED 897,583
</TABLE>
7. The Company was granted the authority to buy back up to 15% of its
outstanding share capital. The voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 83,589,495
AGAINST 748,338
ABSTAINED 35,000
</TABLE>
8. Approval of the 1998 Executive Performance Plan was granted. The
voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 75,536,335
AGAINST 8,701,498
ABSTAINED 35,000
</TABLE>
30
<PAGE> 31
9. Approval of the Amendments to the Danka 1996 Share Option Plan
was granted. The voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 76,242,604
AGAINST 7,182,646
ABSTAINED 897,583
</TABLE>
10. Approval of the Danka Business Systems PLC Savings Related Share
Option Scheme was granted. The voting on the resolution was as follows:
<TABLE>
<S> <C>
FOR 79,559,238
AGAINST 4,728,595
ABSTAINED 35,000
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
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.
</TABLE>
31
<PAGE> 32
<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).
4.8* 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).
4.11* Waiver dated October 20, 1998, of certain financial
covenants contained in the Credit Agreement among Danka
Business Systems PLC, Dankalux Sarl & Co., SCA and
Danka Holding Company, NationsBank, N.A., each other
Bank signatory to the Credit Agreement and
NationsBank, N.A., as agent. (Exhibit 4.11 to the
Company's Form 8-K October 21, 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.
10.1 Employment Agreement dated August 28, 1998 among the
Company, Danka Business Systems PLC and Larry K. Switzer.
10.2 Employment Agreement dated August 1,1998 among the
Company, Danka Business Systems PLC and Brian L. Merriman.
27.1 Financial Data Schedule (for SEC purposes only)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
27.2 Restated Financial Data Schedule (September 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 July 28, 1998, the Company filed a report on Form 8-K
announcing the second amendment to the Company's Credit Agreement.
33
<PAGE> 34
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: November 19, 1998 /S/ LARRY K. SWITZER
----------------- ------------------------------
Larry K. Switzer, Chief Executive
(Finance Director, Chief Financial Officer,
and Principal Accounting Officer)
34
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 28, 1998, between Danka Business
Systems, PLC (the "Company"), and Larry Switzer ("Executive").
W I T N E S S E T H :
WHEREAS, the Company wishes to provide for the employment of Executive as
Finance Director and Chief Financial Officer of the Company on the terms and
conditions herein set forth; and
WHEREAS, Executive wishes to serve in such capacity on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Employment, Powers, Duties and Acceptance.
1.1 The Company hereby employs Executive, for the Term (as
hereinafter defined), to render services to the Company as Chief
Financial Officer and an executive member of the Board of
Directors of the Company. For the Term (as hereinafter defined),
Executive shall be nominated by the Board of Directors of the
Company to serve as director and executive member of the Board
of Directors of the Company and the Company shall use its best
efforts to cause the Executive to be elected as a director and
executive member of the Board of Directors.
1.2 Executive hereby accepts the employment hereunder and agrees to
use his best efforts to carry out the duties and
responsibilities of Chief Financial Officer of the Company and
such additional assignments and duties (which may include
assignments and duties on behalf of the Company's affiliates) as
may be given to Executive by the Chief Executive, consistent
with the position of Chief Financial Officer of the Company.
Executive shall report directly to the Chief Executive of the
Company. Executive agrees to discharge his obligations hereunder
and perform his duties in accordance with the general policies
established by the Board of Directors of the Company.
1.3 Executive shall be a full-time employee of the Company, and
subject to customary paid holidays and vacations, Executive
agrees to devote his full working time to the business of the
Company.
1.4 The principal place of employment of Executive hereunder shall
be at the offices of the Company in the City of St. Petersburg,
Florida. Executive shall travel as may be required to discharge
his obligations and perform his duties hereunder.
1.5 Executive shall be entitled to 4 weeks of vacation with pay
during each calendar year of the Term.
2. Term of Employment. The term of Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall
end, unless such employment is sooner terminated pursuant to Section
5 hereof, on August 28, 2000 (the "Termination Date") Notwithstanding
anything to the contrary herein, immediately prior to the Termination
Date,
<PAGE> 2
and immediately prior to each anniversary thereof, the Term shall
automatically be extended for additional one-year periods unless
otherwise terminated as provided in this Agreement.
3. Compensation.
3.1 During the Term, the Company shall pay Executive, as
compensation for services to be rendered pursuant to this
Agreement, a salary, payable in accordance with the Company's
standard payroll practices, at the rate of $500,000.00 per
annum. Executive shall be eligible for annual increases at the
discretion of the Chief Executive. Base Compensation shall be
Executive's then current salary which includes all increases to
the salary at the rate of $500,000.00 per annum.
3.2 Executive shall have a target bonus of $250,000.00 based upon
achievement of established corporate and individual objectives
as determined by the Board of Directors. Executive will also be
eligible for an additional "stretch" bonus of $200,000.00 based
upon established "stretch" objectives approved by the Chief
Executive, which will be upon the Company obtaining 103% of its
annual profit plan and EPS objectives, including cash flow, ROI
as approved by the Board of Directors.
3.3 During the Company's Fiscal Year 1999 of this Agreement, Company
shall guarantee that Executive receive a minimum bonus of not
less than $250,000.00 payable on or before May 31, 1999.
3.3.1. Further, on or before October 15, 1998, Company shall pay
Executive $200,000.00, which amount represents the
benefits of Executive at his prior employer.
3.3.2. Company shall grant Executive 320,000 ordinary share
stock options upon his employment. Such stock options
shall have an exercise price equal to the fair market
value, as determined by the trading price of the
Company's shares on the London Stock Exchange, on the
date hereof, or on the first available date if the date
hereof occurs in Company's closed period. Further,
106,667 of the stock options shall become exercisable on
the first anniversary of grant of the options, an
additional 106,667 of such options shall become
exercisable on the second anniversary of the grant of the
options, and the remaining 106,666 of such options shall
become exercisable on the third anniversary of the grant
of the options.
3.4 Executive shall be reimbursed for any reasonable expenses
incurred by Executive in his relocation to the Tampa-St.
Petersburg metropolitan area (reasonable expenses as defined in
the Company's relocation plan). Such reasonable relocation
expenses shall be "grossed up" for tax and withholding purposes.
In the event Executive voluntarily leaves the employment of the
Company within 24 months of the initial date herein, Executive
agrees to pay a prorated amount of Executive's total relocation
cost based on Executive's time with the Company.
3.5 Executive shall receive all of the fringe benefits and
perquisites of office made available to the officers of the
Company.
3.6 Subject to Executive's satisfying the eligibility requirements
thereof, Executive shall be entitled to participate in and be
covered by any Executive Deferred Compensation Plan,
<PAGE> 3
Supplemental Executive Retirement Plan, pension, life insurance,
long term disability insurance, health insurance,
hospitalization or other employee benefit plan established and
maintained by the Company on the same basis as generally made
available to executives of the Company without limitation or
restriction by reason of this Agreement. Nothing herein shall be
deemed to require the Company to establish or maintain any
employee benefit plan whatsoever, and Company shall have the
right, in its sole and absolute discretion, to alter, amend,
modify, discontinue or terminate at any time any and all
employee benefit plans maintained by the Company.
4. Expenses. In addition to the compensation provided to be paid under
Section 3 hereof, the Company shall reimburse Executive for all
reasonable out-of-pocket expenses paid or incurred by Executive in
the performance of his duties hereunder upon submission of signed
itemized lists thereof on the forms used, and in accordance with the
procedures established from time to time, by the Company for that
purpose.
5. Termination. This Agreement may be terminated in accordance with the
following:
5.1 If Executive shall die during the Term, this Agreement shall
terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive the
compensation provided for herein to the last day of the month in
which his death occurs.
5.2 The Company shall have the right (without any liability to
Executive hereunder other than the payment of sum due through
the date of termination) to terminate the employment of
Executive, to relieve Executive of any and all functions as
Chief Financial Officer of the Company, and to terminate his
right to the compensation provided for herein for cause. As used
in this Section 5.2, the term "for cause" shall mean and be
limited to the following events:
5.2.1 Executive's material breach of any term or condition of
this Agreement after Company has provided written notice
to Executive and such breach continues after Executive
shall have reasonable opportunity to cure said breach,
unless Executive cures such breach within ten days after
the Company gives Executive written notice of the breach;
or
5.2.2 Executive's commission of any crime that (i) constitutes
a felony in the jurisdiction involved or (ii) involves
loss or damage to or destruction of property of the
Company or (iii) results in the incarceration of
Executive following his conviction for such crime; or
5.2.3 Executive's willful and material violation of any lawful
directions of the Chief Executive or Board of Directors
of the Company after Company has provided written notice
to Executive and said violation continues after Executive
shall have reasonable opportunity to cure said violation;
or
5.2.4 Executive's failure or refusal to perform his duties in
accordance with Section 1 hereof; provided, however, that
no discharge "for cause" under this Section 5.2.4 shall
be deemed effective unless Executive shall have first
been given written notice by the Company advising
Executive of the specific acts or omissions alleged to
constitute a failure to perform his duties, and such
failure continues after Executive shall have had a
reasonable opportunity (which shall be defined
<PAGE> 4
as a period of time consisting of at least three days
from the date Executive receives said notice from the
Company) to correct the acts or omissions so complained
of.
5.3 The Company shall have the right to terminate the employment of
Executive, to relieve Executive of any or all functions as Chief
Financial Officer and to terminate his right to Base
Compensation at any time upon notice to Executive. If the
Company shall terminate the employment of Executive for any
reason not specified in Section 5.1, or 5.2 hereof, the
Executive's sole remedy shall be to receive the following as and
for liquidated damages:
a) If the Company terminates the Agreement on or before August
1, 1999, Company shall pay Executive his Base Compensation
through the term of the Agreement, or
b) If the Company terminates the Agreement after August 1, 1999,
Company shall pay Executive his Base Compensation for the
next 12 succeeding months following termination.
Executive agrees that in order to receive liquidated damages
described herein, Executive at the time of termination, agrees
to execute the General Release and Waiver in, a form similar
to Exhibit A.
5.4 The Executive shall have the right to terminate his employment
for Good Reason (as hereinafter defined) and receive the
following as and for liquidated damages:
a) If the Executive terminates this Agreement for Good Reason on
or before August 1, 1999, Company shall pay Executive his
Base Compensation through the term of the Agreement, or
b) If the Executive terminates the Agreement for Good Reason
after August 1, 1999, Company shall pay Executive his Base
Compensation for the next 12 succeeding months following
termination.
Executive agrees that in order to receive liquidated damages
described herein, Executive at the time of termination agrees to
execute the General Release and Waiver in a form similar to
Exhibit A. If Executive terminates his employment for any reason
other than Good Reason, the Executive shall be entitled to Base
Compensation only through the date of his termination. As used
in this Section 5.4, the term "Good Reason" shall mean and be
limited to the Company's breach of any term or condition of this
Agreement, unless the Company cures such breach within ten days
after Executive gives the Company written notice of the breach.
5.5 Executive shall not be required to mitigate amounts payable
under this Agreement by seeking other employment or otherwise.
6. Non-Competition and Confidentiality
6.1 As used in this Section 6, the term "Restricted Area" shall
mean: (i) during the Term, the entire world, and (ii) during the
twelve months following the termination of Executive's
employment hereunder for any reason specified in Section 5.3
hereof, the area within 50
<PAGE> 5
miles of the location of any business activity conducted by the
Company, any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates. During the Term
and for a period of twelve months following the termination of
Executive's employment hereunder for any reason specified in
Section 5.3 hereof, Executive shall not, in the Restricted Area,
directly or indirectly, enter the employ of, or render any
services to, any person, firm or corporation engaged in any
business competitive with the businesses engaged in by the
Company, any constituent partners of the Company or any of their
respective parents, subsidiaries or affiliates; he shall not
engage in such business on his own account in the Restricted
Area; and he shall not become interested in such business,
directly or indirectly, as an individual, partner, shareholder,
director, officer, principal, agent, employee, trustee,
consultant, or any other relationship or capacity; provided,
however, that nothing contained in this Section 6 shall be
deemed to prohibit Executive from acquiring, solely as an
investment, a less than one percent interest in the equity of
any publicly traded corporation or limited partnership.
6.2 Executive shall not, at any time hereafter, disclose to any
person, firm or corporation any confidential information
regarding the customers, suppliers, market arrangements or
methods of operations of the Company, any constituent partner of
the Company or any of their respective parents, subsidiaries or
affiliates or any other information of the Company, any
constituent partner of the Company or any of their respective
parents, subsidiaries, affiliates. Without limiting the
generality of the foregoing, the parties hereto acknowledge and
agree that all information not otherwise generally known to the
public relating to each of (i) this Agreement, (ii) the Company,
any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates is confidential
and proprietary and is not to be disclosed to any persons or
entities, except to the extent necessary to conduce the business
of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
6.3 Any invention, improvement, design, development or discovery
conceived, developed, invented or made by Executive, alone or
with others, during his employment hereunder and applicable to
the business of the Company, its parents, subsidiaries or
affiliates shall become the sole and exclusive property of the
Company. Executive shall (i) disclose the same completely and
promptly to the Company, (ii) execute all documents requested by
the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all
documents required by the Company for the filing, and
prosecuting of such applications for patents, copyrights and/or
trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all
assistance it may reasonably require including, without
limitation, the giving of testimony in any suit, action or
proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
6.4 Executive, except within the course of the performance of his
duties hereunder, shall not at any time while he is in the
employ of the Company, any constituent partner of the Company or
any of their respective parents, subsidiaries, or affiliates and
for 12 months thereafter (i) employ any individual who is then
employed by the Company, any constituent partner of the Company
or any of their respective parents, subsidiaries, affiliates, or
(ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the
Company's best interests, as determined by the Company in its
sole discretion.
<PAGE> 6
6.5 Executive's services are unique and any breach or threatened
breach by Executive of any provision of this Section 6 shall
cause the Company irreparable harm which cannot be remedied
solely by damages. In the event of a breach or threatened breach
by Executive of any of the provisions of this Section 6, the
Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened
breach. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in
equity for such breach or threatened breach, including the
recovery of damages and the immediate termination of the
employment of Executive hereunder.
6.6 If any of the provisions of or covenants contained in this
Section 6 are hereafter construed to be invalid or unenforceable
in a particular jurisdiction, the same shall not affect the
remainder of the provisions or the enforceability thereof in
that jurisdiction, which shall be given full effect, without
regard to the invalidity or unenforceability thereof in a
particular jurisdiction because of the duration and/or scope of
such provision or covenant in that jurisdiction and, in its
reduced form, said provision or covenant shall be enforceable.
In all other jurisdictions this Section 6 shall at all times
remain in full force and effect.
7. Representations and Warranties. Executive hereby represents and
warrants to the Company as follows:
7.1 Executive is an individual residing at the address set forth in
Section 8.2 hereof.
7.2 Executive has full power and authority to enter into this
Agreement and the execution and delivery of this Agreement by
Executive will not conflict with or result in the breach of or a
default under any agreement or other instrument to which
Executive is a party.
7.3 Executive is not a party to any covenant not-to-compete,
non-disclosure agreement or other similar obligation which is
inconsistent with, or which could impair the performance of,
Executive's duties hereunder.
8. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and
shall be deemed to have been duly given if delivered personally or
sent by prepaid telegram, or mailed first-class, postage prepaid, by
registered or certified mail (notices sent by telegram or mailed
shall be deemed to have been given on the date sent), as follows (or
to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
8.1 If to the Company:
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
<PAGE> 7
8.2 If to Executive:
Attention: Larry Switzer
2080 Augusta Terrace
Coral Springs, FL 33071
9. General.
9.1 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.2 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings
written or oral, relating to the subject matter hereof. No
representation, promise or inducement has been made by either
party that is not embodied in this Agreement, and neither party
shall be bound by or liable for any alleged representation,
promise or inducement not so set forth.
9.3 This Agreement, and Executive's rights and obligations
hereunder, may not be assigned or otherwise transferred by
Executive. The Company may assign its rights hereunder to any
parent, subsidiary, or affiliate and in connection with any
sale, transfer or other disposition of all or substantially all
of its businesses or assets. Upon such assignment, the assignee
thereunder shall be required to assume the obligations of
Executive hereunder and, upon such assumption, the Company shall
be relieved of its obligations hereunder.
9.4 This Agreement constitutes the entire agreement between the
parties with respect to the transactions contemplated hereby and
may be amended, modified, superseded, canceled, renewed or
extended and the terms or covenants hereof may be waived, only
by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this
Agreement.
9.5 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Florida applicable to agreements
entered into and wholly performed therein.
9.6 Any controversy or claim arising out of or relating to this
Employment Agreement, other than a claim for injunctive relief,
shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (the "Rules") in effect at the time demand for
arbitration is made by any party. One arbitrator shall be named
by the Company, a second by the Executive and the third
arbitrator shall be named by the two arbitrators so
<PAGE> 8
chosen. In the even that the third arbitrator is not agreed
upon, he or she shall be named by the American Arbitration
Association. Arbitration shall occur in St. Petersburg, Florida.
The award made by all or a majority of the panel of arbitrators
shall be final and binding, and judgment may be entered in any
court of law having competent jurisdiction. The prevailing party
shall be entitled to an award of reasonable attorney's fees,
costs and expenses incurred in connection with the arbitration
and any judicial proceedings related thereto.
9.7 This Agreement may be executed in any number of counterpart
copies, each of which shall be deemed an original, but which
together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DANKA BUSINESS SYSTEMS, PLC
By:
----------------------------------
Title:
-------------------------------------
Executive
By:
----------------------------------
Witness:
- ----------------------------------
<PAGE> 9
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, Larry Switzer, ("Employee"), intend all words used in this
Release to have their plain meaning in ordinary English. Technical legal words
are not needed to describe what I mean. Specific terms I use in this Release
have the following meanings:
A. I, Me, and My include both me and anyone who has or obtains any legal
rights or claims through me.
B. Employer, as used herein, shall at all times mean Danka Corporation
or any parent company, subsidiaries, affiliated companies or entities
and their employees, officers, directors, successors and assigns, its
attorneys, consultants and agents, whether in their individual or
official capacities.
C. My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights, arising
out of or in any way related to my employment with Employer, any my
termination of employment, or any employee benefit plan, including,
but not limited to, common law, or equitable claims, claims for
violation or breach of any employment agreement or understanding;
fraud or misrepresentation; and any statutory claims including
alleged violations of the, the federal Age Discrimination in
Employment Act, the Americans with Disabilities Act, or any other
federal, state, or local civil rights laws or ordinances, defamation;
intentional or negligent infliction of emotional distress; breach of
the covenant of good faith and fair dealing; promissory estoppel;
negligence, wrongful termination of employment, any any other claims.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of claims. I
agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any alleged claims. The money I am receiving is a full and fair payment for the
release of all My Claims.
ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
I understand that I may have twenty-one (21) calendar days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had
sufficient time to decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal civil rights claims
(if any). To be effective, my rescission must be in writing and delivered to
the Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:
<PAGE> 10
1. Postmarked within the relevant period;
2. Properly addressed to the General Counsel; and
3. Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I
have had the opportunity to review this Release with my own attorney.
In agreeing to sign this Release, I have not relied on any statements
or explanations made by the Employer or its agents other than those
set forth in the Release and Employment Agreement.
I understand and agree that this Release and Employment Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.
Dated:
---------------------------------
- ---------------------------------------
Witness:
-------------------------------
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 1, 1998, between Danka Office
Imaging (the "Company"), and Brian Merriman ("Executive").
W I T N E S S E T H :
WHEREAS, the Company wishes to provide for the employment of Executive as
President - United States Operations of the Company on the terms and conditions
herein set forth; and
WHEREAS, Executive wishes to serve in such capacity on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Employment, Powers, Duties and Acceptance.
1.1 The Company hereby employs Executive, for the Term (as
hereinafter defined), to render services to the company as
President - United States Operations of the Company.
1.2 Executive hereby accepts the employment hereunder and agrees to
use his best efforts to carry out the duties and
responsibilities of President - United States Operations of the
Company and such additional assignments and duties (which may
include assignments and duties on behalf of the Company's
affiliates) as may be given to Executive by the Chief Executive
of the Company or his designee. Executive shall report directly
to the Chief Executive of the Company. Executive agrees to
discharge his obligations hereunder and perform his duties in
accordance with the general policies established by the Board of
Directors of the Company.
1.3 Executive shall be a full-time employee of the Company, and
subject to customary paid holidays and vacations, Executive
agrees to devote his full working time to the business of the
Company.
1.4 The principal place of employment of Executive hereunder shall
be at the offices of the company in the City of St. Petersburg,
Florida. Executive shall travel as may be required to discharge
his obligations and perform his duties hereunder.
1.5 Executive shall be entitled to 3 weeks of vacation with pay
during each calendar year of the Term.
2. Term of Employment. The term of Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall
end, unless such employment is sooner terminated pursuant to Section
5 hereof, on August 1, 2001 (the "Termination Date").
3. Compensation.
3.1 During the Term, the Company shall pay Executive, as
compensation for services to be rendered pursuant to this
Agreement, a salary, payable in accordance with the company's
standard payroll practices, at the rate of $650,000 per annum
(the "Base Compensation"). Executive shall be eligible for
annual increases at the discretion of the Chief Executive.
<PAGE> 2
3.2 Executive shall have a target bonus of $250,000.00 based upon
achievement of established corporate corporate, division and
individual objectives as determined by the Chief Executive.
Executive will also be eligible for an additional "stretch"
bonus of $100,000.00 based upon established "stretch" objectives
approved by the Chief Executive, which will be upon the Company
obtaining 103% of its annual profit plan as approved by the
Board of Directors.
3.3 During the first year of this Agreement, Company shall guarantee
that Executive receive a minimum bonus of not less than
$100,000.00. Further, Company Shall grant Executive 80,000.00
ordinary stock options annually. Executive understands and
agrees that any granting of stock options is subject to Board of
Directors approval.
3.3.1 Further, on or before December 31, 1998, Company shall
pay Executive $132,000.00, which amount represents the
bonus Executive would have received from his prior
Employer.
3.4 Executive shall be reimbursed for any reasonable expenses
incurred by Executive in his relocation to the Tampa-St.
Petersburg metropolitan area (reasonable expenses as defined in
the Company's relocation plan). Such reasonable relocation
expenses shall be "grossed up" for tax and withholding purposes.
Company shall increase Executive's temporary living assistance
to 12 months and provide for up to three (3) house hunting trips
for Executive and his spouse. The Company shall assist Executive
in obtaining a bridge loan in an amount up to $250,000.00, said
bridge loan to be repaid by Executive within one (1) month of
Executive selling his residence in California. In the event
Executive voluntarily leaves the employment of the Company
within 24 months of the initial date herein, Executive agrees to
pay a prorated amount of Executive's total relocation cost based
on Executive's time with the Company.
3.5 Executive shall receive all of the fringe benefits and
perquisites of office made available to the officers of the
Company, including the following:
* Airline Club expenses - up to $1,000.00 annually
* Life Insurance Premium - up to $15,000.00 annually
3.6 Subject to Executive's satisfying the eligibility requirements
thereof, Executive shall be entitled to participate in and be
covered by any Executive Deferred Compensation Plan,
Supplemental Executive Retirement Plan, pension, life insurance,
long term disability insurance, health insurance,
hospitalization or other employee benefit plan established and
maintained by the company on the same basis as generally made
available to executives of the Company without limitation or
restriction by reason of this Agreement. Nothing herein shall be
deemed to require the Company to establish or maintain any
employee benefit plan whatsoever, and Company shall have the
right, in its sole and absolute discretion, to alter, amend,
modify, discontinue or terminate at any time any and all
employee benefit plans maintained by the Company.
4. Expenses. In addition to the compensation provided to be paid under
Section 3 hereof, the Company shall reimburse Executive for all
reasonable out-of-pocket expenses paid or incurred by Executive in
the performance of his duties hereunder upon submission of signed
itemized lists thereof on the forms used, and in accordance with the
procedures established from time to time, by the Company for that
purpose.
<PAGE> 3
4.1 Company shall provide, at Company's expense, a Mercedes or
Jaguar, or similar type automobile for Executive's use.
5. Termination. This Agreement may be terminated prior to the
Termination Date in accordance with the following:
5.1 If Executive shall die during the Term, this Agreement shall
terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive the
compensation provided for herein to the last day of the month in
which his death occurs.
5.2 The Company shall have the right (without any liability to
Executive hereunder other than the payment of sum due through
the date of termination) to terminate the employment of
Executive, to relieve Executive of any and all functions as
President - United States Operations of the Company, and to
terminate his right to the compensation provided for herein for
cause. As used in this Section 5.2, the term "for cause" shall
mean and be limited to the following events:
5.2.1 Executive's material breach of any term or condition of
this Agreement, unless Executive cures such breach within
ten days after the company gives Executive notice of the
breach; or
5.2.2 Executive's commission of any crime that (i) constitutes
a felony in the jurisdiction involved or (ii) involves
loss or damage to or destruction of property of the
company or (iii) results in the incarceration of
Executive following his conviction for such crime; or
5.2.3 Executive's willful and material violation of any lawful
directions of the Chief Executive or Board of Directors
of the Company; or
5.2.4 Executive's failure or refusal to perform his duties in
accordance with Section 1 hereof; provided, however, that
no discharge "for cause" under this Section 5.3.4 shall
be deemed effective unless Executive shall have first
been given notice by the company advising Executive of
the specific acts or omissions alleged to constitute a
failure to perform his duties, and such failure continues
after Executive shall have had a reasonable opportunity
(which shall be defined as a period of time consisting or
at least three days from the date Executive receives said
notice from the company) to correct the acts or omissions
so complained of.
5.3 The Company shall have the right to terminate the employment of
Executive, to relieve Executive of any or all functions as the
company and to terminate his right to Base Compensation at any
time prior to the Termination Date upon notice to Executive. If
the Company shall terminate the employment of Executive for any
reason not specified in Section 5.1, or 5.2 hereof, the
Executive's sole remedy shall be to receive the following as and
for liquidated damages:
a) If the Company terminates the Agreement on or before
August 1, 2000, Company shall pay Executive his Base
Compensation through the term of the Agreement, or
<PAGE> 4
b) If the Company terminates the Agreement after August 1, 2000,
Company shall pay Executive his Base Compensation for the
next 12 succeeding months following termination provided that
at time of termination, Executive executes the General
Release and Waiver in, a form similar to Exhibit A.
Notwithstanding the foregoing, Executive shall not be entitled
to any liquidated damages hereunder if termination occurs prior
to the Termination Date and Company or any of their respective
affiliates agrees to employ Executive in an executive capacity
with powers and duties similar to those assigned to Executive
hereunder for a period equal to or greater than the balance of
the Term and to provide Executive during such period with
compensation and benefits equivalent to those which he would
have received hereunder had termination not occurred.
6. Non-Competition and Confidentiality
6.1 As used in this Section 6, the term "Restricted Area" shall
mean: (i) during the Term, the entire world, and (ii) during the
six months following the termination of Executive's employment
hereunder for any reason specified in Section 5.3 hereof, the
area within 50 miles of the location of any business activity
conducted by the Company, any constituent partner of the Company
or any of their respective parents, subsidiaries or affiliates.
During the Term and for a period of six months following the
termination of Executive's employment hereunder for any reason
specified in Section 5.3 hereof, Executive shall not, in the
Restricted Area, directly or indirectly, enter the employ of, or
render any services to, any person, firm or corporation engaged
in any business competitive with the businesses engaged in by
the company, any constituent partners of the company or any of
their respective parents, subsidiaries or affiliates; he shall
not engage in such business on his own account in the Restricted
Area; and he shall not become interested in such business,
directly or indirectly, as an individual, partner, shareholder,
director, officer, principal, agent, employee, trustee,
consultant, or any other relationship or capacity; provided,
however, that nothing contained in this Section 6 shall be
deemed to prohibit Executive from acquiring, solely as an
investment, a less than one percent interest in the equity of
any publicly traded corporation or limited partnership.
6.2 Executive shall not, at any time hereafter, disclose to any
person, firm or corporation any confidential information
regarding the customers, suppliers, market arrangements or
methods of operations of the Company, any constituent partner of
the company or any of their respective parents, subsidiaries or
affiliates or any other information of the Company, any
constituent partner of the company or any of their respective
parents, subsidiaries, affiliates. Without limiting the
generality of the foregoing, the parties hereto acknowledge and
agree that all information not otherwise generally known to the
public relating to each of (i) this Agreement, (ii) the company,
any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates is confidential
and proprietary and is not to be disclosed to any persons or
entities, except to the extent necessary to conduce the business
of the company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
6.3 Any invention, improvement, design, development or discovery
conceived, developed, invented or made by Executive, alone or
with others, during his employment hereunder and applicable to
the business of the Company, its parents, subsidiaries or
affiliates shall become the sole and exclusive property of the
company. Executive shall (i) disclose the same completely and
promptly to the company, (ii) execute all documents requested by
<PAGE> 5
the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all
documents required by the Company for the filing, and
prosecuting of such applications for patents, copyrights and/or
trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the company all
assistance it may reasonably require including, without
limitation, the giving of testimony in any suit, action or
proceeding, in order to obtain, maintain and protect the
company's rights therein and thereto.
6.4 Executive, except within the course of the performance of his
duties hereunder, shall not at any time while he is in the
employ of the company, any constituent partner of the Company or
any of their respective parents, subsidiaries, or affiliates and
for two years thereafter (I) employ any individual who was
employed by the company, any constituent partner of the company
or any of their respective parents, subsidiaries, affiliates, at
any time during the period of two years prior to the date
Executive intends to employ such person or (ii) in any way
cause, influence, or participate in the employment of any
individual which would be contrary to the company's best
interests, as determined by the Company in its sole discretion.
6.5 Executive's services are unique and any breach or threatened
breach by Executive of any provision of this Section 6 shall
cause the Company irreparable harm which cannot be remedied
solely by damages. In the event of a breach or threatened breach
by Executive of any of the provisions of this Section 6, the
Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened
breach. Nothing herein shall be construed as prohibiting the
company form pursuing any other remedies available at law or in
equity for such breach or threatened breach, including the
recovery of damages and the immediate termination of the
employment of Executive hereunder.
6.6 If any of the provisions of or covenants contained in this
Section 6 are hereafter construed to be invalid or unenforceable
in a particular jurisdiction, the same shall not affect the
remainder of the provisions or the enforceability thereof in
that jurisdiction, which shall be given full effect, without
regard to the invalidity or unenforceability thereof in a
particular jurisdiction because of the duration and/or scope of
such provision or covenant in that jurisdiction and, in its
reduced form, said provision or covenant shall be enforceable.
In all other jurisdictions this Section 6 shall at all times
remain in full force and effect.
7. Representations and Warranties. Executive hereby represents and
warrants to the company as follows:
7.1 Executive is an individual residing at the address set forth in
Section 8.2 hereof.
7.2 Executive has full power and authority to enter into this
Agreement and the execution and delivery of this Agreement by
Executive will not conflict with or result in the breach of or a
default under any agreement or other instrument to which
Executive is a party.
7.3 Executive is not a party to any covenant not-to-compete,
non-disclosure agreement or other similar obligation which is
inconsistent with, or which could impair the performance of,
Executive's duties hereunder.
<PAGE> 6
8. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and
shall be deemed to have been duly given if delivered personally or
sent by prepaid telegram, or mailed first-class, postage prepaid, by
registered or certified mail (notices sent by telegram or mailed
shall be deemed to have been given on the date sent), as follows (or
to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
8.1 If to the Company:
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
8.2 If to Executive:
Brian Merriman
9. General.
9.1 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.2 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings
written or oral, relating to the subject matter hereof. No
representation, promise or inducement has been made by either
party that is not embodied in this Agreement, and neither party
shall be bound by or liable for any alleged representation,
promise or inducement not so set forth.
9.3 This Agreement, and Executive's rights and obligations
hereunder, may not be assigned or otherwise transferred by
Executive. The Company may assign its rights hereunder to any
parent, subsidiary, or affiliate and in connection with any
sale, transfer or other disposition of all or substantially all
of its businesses or assets. Upon such assignment, the assignee
thereunder shall be required to assume the obligations of
Executive hereunder and, upon such assumption, the Company shall
be relieved of its obligations hereunder.
9.4 This Agreement constitutes the entire agreement between the
parties with respect to the transactions contemplated hereby and
may be amended, modified, superseded, canceled, renewed or
extended and the terms or covenants hereof may be waived, only
by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such
<PAGE> 7
breach, or a waiver of the breach of any other term or covenant
contained in this Agreement.
9.5 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Florida applicable to agreements
entered into and wholly performed therein.
9.6 This Agreement may be executed in any number of counterpart
copies, each of which shall be deemed an original, but which
together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DANKA OFFICE IMAGING COMPANY
By:
----------------------------------
Title:
-------------------------------------
Executive
By:
----------------------------------
Witness:
- ----------------------------------
<PAGE> 8
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, Brian Merriman, ("Employee"), intend all words used in this
Release to have their plain meaning in ordinary English. Technical legal words
are not needed to describe what I mean. Specific terms I use in this Release
have the following meanings:
A. I, Me, and My include both me and anyone who has or obtains any legal
rights or claims through me.
B. Employer, as used herein, shall at all times mean Danka Corporation or
any parent company, subsidiaries, affiliated companies or entities and
their employees, officers, directors, successors and assigns, its
attorneys, consultants and agents, whether in their individual or
official capacities.
C. My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights, arising
out of or in any way related to my employment with Employer, any my
termination of employment, or any employee benefit plan, including,
but not limited to, common law, or equitable claims, claims for
violation or breach of any employment agreement or understanding;
fraud or misrepresentation; and any statutory claims including alleged
violations of the, the federal Age Discrimination in Employment Act,
the Americans with Disabilities Act, or any other federal, state, or
local civil rights laws or ordinances, defamation; intentional or
negligent infliction of emotional distress; breach of the covenant of
good faith and fair dealing; promissory estoppel; negligence, wrongful
termination of employment, any any other claims.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of claims. I
agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any alleged claims. The money I am receiving is a full and fair payment for the
release of all My Claims.
ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
I understand that I may have twenty-one (21) calendar days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had
sufficient time to decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal civil rights claims
(if any). To be effective, my rescission must be in writing and delivered to
the Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:
1. Postmarked within the relevant period;
<PAGE> 9
2. Properly addressed to the General Counsel; and
3. Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I
have had the opportunity to review this Release with my own attorney.
In agreeing to sign this Release, I have not relied on any statements
or explanations made by the Employer or its agents other than those
set forth in the Release and Employment Agreement.
I understand and agree that this Release and Employment Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.
Dated:
--------------------------------
- --------------------------------------
Witness:
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIALS 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 15,376
<SECURITIES> 0
<RECEIVABLES> 615,053
<ALLOWANCES> 19,023
<INVENTORY> 540,088
<CURRENT-ASSETS> 1,205,448
<PP&E> 741,262
<DEPRECIATION> 329,661
<TOTAL-ASSETS> 2,235,174
<CURRENT-LIABILITIES> 780,577
<BONDS> 944,474
<COMMON> 4,746
0
0
<OTHER-SE> 466,076
<TOTAL-LIABILITY-AND-EQUITY> 2,235,174
<SALES> 1,499,243
<TOTAL-REVENUES> 1,499,243
<CGS> 970,450
<TOTAL-COSTS> 970,450
<OTHER-EXPENSES> 508,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,944
<INCOME-PRETAX> (13,288)
<INCOME-TAX> (4,944)
<INCOME-CONTINUING> (8,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,344)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<TABLE> <S> <C>
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 45,911
<SECURITIES> 0
<RECEIVABLES> 635,555
<ALLOWANCES> 34,921
<INVENTORY> 545,215
<CURRENT-ASSETS> 1,277,785
<PP&E> 581,221
<DEPRECIATION> 195,140
<TOTAL-ASSETS> 2,234,429
<CURRENT-LIABILITIES> 784,324
<BONDS> 900,016
<COMMON> 4,741
0
0
<OTHER-SE> 484,485
<TOTAL-LIABILITY-AND-EQUITY> 2,234,429
<SALES> 1,648,851
<TOTAL-REVENUES> 1,648,851
<CGS> 1,040,661
<TOTAL-COSTS> 1,040,661
<OTHER-EXPENSES> 515,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,843
<INCOME-PRETAX> 60,814
<INCOME-TAX> 22,623
<INCOME-CONTINUING> 38,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,191
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
</TABLE>
