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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MARCH 31, 1998 Commission file number: 0-20828
DANKA BUSINESS SYSTEMS PLC
(Exact name of registrant as specified in its charter)
ENGLAND 98-0052869
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 576-6003
Securities registered pursuant to Section 12(g) of the Act:
ORDINARY SHARES
1.25 p each
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or an amendment to this
Form 10-K. [ ]
As of March 31, 1998, the Registrant had 227,495,865 Ordinary Shares
outstanding, including 166,129,791 represented by American Depositary Shares
("ADS"). Each ADS represents four Ordinary Shares. The ADSs are evidenced by
American Depositary Receipts. The aggregate market value of voting shares held
by non-affiliates of the Registrant as of March 31, 1998 was $1,006,932,824
based on the average bid and asked prices of ADSs as quoted on the NASDAQ
National Market.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
March 31, 1998, are incorporated by reference in Part I and Part II of this
Form 10-K.
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
July 24, 1998, which has been filed with the Securities and Exchange
Commission.
DANKA BUSINESS SYSTEMS PLC
ANNUAL REPORT ON FORM 10-K
MARCH 31, 1998
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TABLE OF CONTENTS
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PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price for the Registrant's Common Equity and Related Shareholder
Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Danka Business Systems PLC and its subsidiaries (the "Company") is one
of the world's largest independent suppliers of photocopiers, facsimiles and
other related automated office imaging equipment. The Company primarily
markets these products and related services, parts and supplies on a direct
basis to retail customers. The Company also markets photocopiers, facsimiles,
and related parts and supplies on a wholesale basis to independent dealers.
The Company principally distributes the products of Canon, Kodak, Konica,
Minolta, Ricoh, Sharp and Toshiba. In addition, the Company markets private
label photocopiers and facsimiles, and related supplies on a direct basis under
the Company's Infotec trademark, and facsimile equipment under its dex and
Omnifax trademarks. The Company became the exclusive distributor of Kodak
branded photocopiers and printers in December 1996 after completing the
acquisition of the sales, marketing and equipment service operations of Eastman
Kodak Company's ("Kodak") Office Imaging division and outsourcing business.
The acquired businesses are known as Danka Office Imaging and Danka Services
International ("DSI"). The Company is currently in the process of integrating
Danka Office Imaging with its core operations and as it proceeds, there will be
less reference to the acquired Office Imaging business and more focus on the
new, unified sales and service organization. See - "Integration of Office
Imaging Business."
The Company provides a wide range of customer-related support
services, maintenance and supply contracts, training and technical support, and
leasing arrangements. The Company's focus on customer service and the
contractual nature of its service business, combined with its service contract
renewals, provide a significant source of recurring revenue. In addition, the
Company provides outsourcing services ranging from traditional facilities
management to strategic consulting services. See - "Services."
The Company's principal business strategy is to increase its worldwide
presence as one of the largest providers of office imaging and document
management solutions. Through its multi-vendor approach, it is the Company's
goal to provide its customers with a total service solution for their office
imaging needs. The Company's internal expansion has resulted from increased
product offerings, aggressive marketing to new customers and an emphasis on
providing service and supplies. The Company has expanded externally as a
result of the acquisition of select office equipment suppliers, and throughout
its history, has completed over 140 acquisitions in the industry. See --
"Acquisition History." The Company has sought to improve the profitability of
the businesses it acquires by integrating them into the Company's sales and
service network and standardizing their operations with the Company's.
Danka Business Systems PLC is a corporation organized under the laws
of England and Wales. The Company's principal operating subsidiaries are
located in North America, Europe, Australasia and Latin America. The
registered and principal executive office of the Company is located at 33
Cavendish Square, London W1M 0DE England, and its telephone number is
011-44-171-399-3000. The Company's Americas headquarters are located at 11201
Danka Circle North, St. Petersburg, Florida 33716, and its telephone number is
813-576-6003.
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INTEGRATION OF OFFICE IMAGING BUSINESS
The Company's goal is to increase its net margins through certain cost
efficiencies and synergies it expects to achieve by integrating the Office
Imaging business with the Company's core operations. In September 1997, the
Company announced its global integration project (the "Uniting Danka Project"),
with a goal of accelerating the unification of Danka Office Imaging with the
Company's core operations. The Company chose to accelerate the integration
process after careful consideration of the responses by customers, vendors,
suppliers and employees. Management, having received advice from independent
consultants, based their decision to immediately combine the two organizations
upon the belief that an accelerated integration plan was in the long-term best
interest of the Company.
During the second quarter of fiscal 1998, the Company realigned its
management structure and geographical reporting responsibilities. The
organization was split into two regions: Danka Americas and Danka
International. Danka Americas, currently representing 61 percent of the
Company's revenue, includes the United States, Canada and Latin America. Danka
International represents 31 percent of the Company's revenue and includes
Europe, Australia and the Asia/Pacific region. These geographic regions are
supported by the Company's areas of specialization which operate worldwide,
including Finance & Planning and Markets & Strategy. DSI, which accounts for
the remaining 8 percent of the Company's revenue, falls under the Company's
Markets & Strategy specialization and operates on a worldwide basis.
On December 16, 1997 the Company announced that the Uniting Danka
Project was progressing slower than anticipated and that the Company's
accelerated integration plan was impacting its operations and financial
results, which resulted in a shortfall in expected revenue and earnings.
Although the benefits of the combined organization are being realized slower
than initially expected, and while there can be no assurances that such
benefits will ultimately be achieved to the extent that the Company strives to
attain them, the Company remains committed to the complete integration of the
two organizations.
The Company completed the final stages of integrating its existing
sales force with the Office Imaging sales force in April 1998. At the same
time, the Company introduced a new compensation plan. The Company's goal was
to establish one face to the customer and provide a compensation plan that is
not only competitive in the industry, but also keeps the Company's
entrepreneurial spirit alive. See - "Marketing, Customers and Sales
Organization."
The Company is implementing several key projects which are designed
with the goal of maximizing the future benefits of the integration. The first
is the development and transition to common information technology ("IT")
systems in each country. The Company has been making significant investments
in its IT and operations infrastructures, including the use of various
independent computer and process improvement consulting groups. The Company
believes that these investments are an important element in its efforts to
successfully integrate the businesses and to provide a solid foundation for
future growth. The Company's goal is to link the sales, service, billing and
finance efforts electronically, with the goal of providing better service to
its customers, improving communication to and support of its employees, as well
as more effectively positioning Danka for the technological trends impacting
the industry. The final stages of the transition of the Company's core
operations to the Foresight system in the United States was completed in
December 1997, and the transition of the Office Imaging business is expected to
be completed by the end of calendar 1998. The second project is the
consolidation of real estate. The Company expects to generate savings through
the closure of duplicate facilities. By April 1998, the Company had
consolidated and reduced its U.S. dispatch call centers from eighteen to two.
The Company is also in the process of developing and implementing plans to
reduce the number of warehouses and operating centers. Finally, as announced
in December 1997, the Company estimates it will eliminate more than 1,000
positions to improve efficiencies and maximize productivity. By the end of
March 1998, the Company had reduced the workforce by over 400 of these
positions, slightly exceeding its target, and expects the balance of these
planned reductions to be completed by December 1998. The reductions in the
workforce are principally coming from sales support, administration and
management.
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RESEARCH & DEVELOPMENT
The Company has also agreed to contribute a total of $175.0 million
(plus an additional $30.0 million if certain research milestones are met) to
Kodak's ongoing research and development for new electrophotographic products
to be funded over the period April 1, 1997 through December 31, 2002. The
Company and Kodak have appointed representatives to serve as members of an
advisory committee which meet on a regular basis to discuss overall research
and development progress. The Company recorded research and development costs
of $50.0 million and $12.5 million in fiscal 1998 and fiscal 1997,
respectively.
PRODUCTS
The Company's primary products are photocopiers, facsimile equipment,
other office imaging equipment, and related parts and supplies. The
photocopier industry is informally divided into six segments. Segments one and
two contain the least sophisticated photocopiers and can run up to 30 copies
per minute; segments three and four contain faster and more sophisticated
mid-range photocopiers at 31 to 69 copies per minute; and segments five and six
contain the most sophisticated and fastest photocopiers in the industry which
run 70 to 90+ copies per minute. The principal manufacturers in segments one
through four are Canon, Konica, Minolta, Ricoh, Sharp and Toshiba. The Company
offers products from each of these manufacturers. Advances in technology and
changing market demands have also led to the emergence of color, digital and
multifunctional equipment as well as high-speed printers, all of which the
Company currently distributes. As a result of the acquisition of the Office
Imaging business, the Company is now the exclusive distributor of Kodak branded
high-volume photocopiers and printers worldwide. The Company sells
photocopiers in segments one through six, color and digital products through
its retail operations. In addition, the Company principally sells segment one
equipment through its wholesale operations. During fiscal 1998, the Company
formed a strategic alliance with Hewlett-Packard Company ("HP") through which
it is distributing and servicing the full line of HP Laserjet printers,
scanners and other peripherals throughout North America. The Company will
continue to expand its product offerings to encompass new equipment as it is
made available by its vendors and through strategic alliances.
The Company distributes a range of facsimile equipment, concentrating
in the more sophisticated plain paper and multifunctional models. The plain
paper and multifunctional models use toner and other supplies and require
maintenance similar to photocopiers. A majority of the facsimile machines the
Company sells are private label products of the Company.
TECHNOLOGY
The Company believes that the black and white photocopier and
facsimile equipment markets will continue to change with the increasing
acceptance of digital technology. Digital products have the ability to
communicate with other office imaging equipment. This innovation is resulting
in a blurring of the distinction between traditional photocopiers, facsimile
equipment and printers, with the emergence of a range of multifunctional office
imaging equipment that prints, copies, scans and faxes all from one machine.
Many of the Company's existing vendors have expended considerable
resources in the research, development, and creation of digital products and
have introduced several digital black and white and color photocopiers and
printers. The Company has developed and acquired certain of the expertise
necessary to support the transition to digital technology and provides training
and support to its sales professionals and service technicians for new vendor
digital product offerings. In acquiring the Office Imaging business, the
Company gained additional digital expertise and products including Kodak's
LionHeart products that enable digital devices to be connected to a computer.
The use of digital equipment is playing an important role in the industry as
companies transition to a digital office environment and shift from a
traditional print-then-distribute orientation to a distribute-then-print
orientation. As a percentage of copier equipment sales, digital products sold
by the Company in the U.S. now represent approximately 12 percent, increasing
from about 7 percent at the end of fiscal 1997.
Currently, color photocopiers represent a growing segment of the
office imaging market. The Company continues to expand its color markets
through its principal relationship with Canon, Ricoh and Minolta. With a color
server, color photocopiers can be converted into networkable color printers
that will
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accept digital output from a computer as well as hard copy inputs
which can be reproduced or scanned into the computer, thus increasing the
functionality of the unit.
SERVICES
In fiscal 1998, retail service, supplies and rentals represented 63
percent of the Company's total revenue. This revenue is primarily derived from
its equipment, maintenance and supply contracts ("EMS Contracts") and other
maintenance contracts. Generally, EMS Contracts are for a one-year term and
are automatically renewable. Although the Company has various payment
arrangements, most maintenance contracts are based upon a per copy charge.
These arrangements provide the customer with scheduled payments that can be
conveniently budgeted and provide the Company with a steady source of revenue.
As a percentage of total revenue, retail service, supplies and rentals have
increased significantly since the acquisition of the Office Imaging and
outsourcing businesses, in which a significantly higher portion of revenue is
generated from retail service, supplies and rentals. This is due to the higher
levels of recurring revenue associated with high-end copiers and printers and
the contractual nature of the outsourcing business as discussed below.
DSI, the Company's document management outsourcing operations, is also
included in the Company's retail service, supplies and rentals revenue stream.
DSI provides services including the management of central reprographics
departments, placement of convenience copiers, fleet management of customer
equipment, print-on-demand operations, and document archiving and retrieval
services. DSI also provides strategic consulting services, advising customers
on how to manage their document systems and how to add efficiencies --
including the shift from a stand alone analog copier to a networked digital
copier/printer system, the storage of data, and the flow of information
throughout the business. Generally, the Company's outsourcing contracts are
based on a five-year term.
MARKETING, CUSTOMERS AND SALES ORGANIZATION
The Company believes that, in addition to price and product
performance and capabilities, its retail customers primarily base their
purchasing decisions on the quality of post-sales service and support, speed of
service, and the availability of financing and rental programs. The Company
believes that its wholesale customers primarily base their purchasing decisions
on price, speed of delivery, dealer support, product performance and
capabilities, and availability of financing.
The Company's retail operations target a broad range of customer
groups, including small businesses to large multinational companies,
professional firms, and governmental and educational institutions. Customers
of the Company's wholesale operations consist generally of independent dealers
who are not authorized dealers for major manufacturers. Additionally, the
Company markets Infotec private label copiers and facsimiles as well as its dex
private label facsimile equipment and related supplies on a wholesale basis to
a network of authorized independent dealers.
As of March 31, 1998, there were over 3,000 sales representatives
devoted to generating sales for the Company. When compared to the employee
breakdown reported in March 31, 1997, it appears that the Company's sales
representatives have declined, however, this is not the case. The Company
introduced a new compensation plan, effective April 1, 1998, which reclassified
certain positions. The new plan redefined the Company's sales positions
distinguishing between sales generating representatives and other sales
management and support positions. Sales positions reported at March 31, 1997
included sales management and sales support as well, which are now classified
as all other administration.
Sales personnel turnover is common in the industry and the Company
makes a considerable effort to retain qualified sales personnel. The new
compensation plan introduced in April 1998 is based on external benchmarking
studies within the industry. The new plan is designed to provide a career path
for the Company's sales representatives and the opportunity to move up from
selling lower segment machines and service to more complex systems. By
increasing training and providing a career path, it is the Company's goal to
reduce current attrition levels. The compensation is comprised of a base salary
and a selling commission, which is based on several variables. These variables
include revenue as a percent of quota, service pricing levels, gross profit and
the net installed equipment base or population.
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Along with the new compensation plan, the Company has introduced a new
customer account structure with the goal of presenting one face to the
customer. The Company's sales representatives now offer the Company's full
product portfolio through a more simplified customer account structure. The
new structure helps to emphasize the need for one face and one vision
worldwide to better serve the Company's customers.
The Company utilizes a wide range of advertising and promotional
activities, including television, radio, and billboard advertising campaigns,
sponsorship of major sporting events and teams, distribution of descriptive
brochures and direct mail pieces, and informational seminars and presentations.
The Company's marketing efforts are enhanced by manufacturers' national
advertising campaigns and co-op arrangements where appropriate and applicable.
LEASING
Leasing plays a significant role in the Company's sale of equipment.
The Company believes that the ability of its sales force to offer customers the
option to lease equipment leads to additional sales. In substantially all of
its lease transactions, the Company initiates the lease, then securitizes the
lease through one of a number of available third-party leasing companies. The
Company has significantly reduced the credit risks normally associated with
leasing arrangements, while improving its cash flow and profit margins.
The Company believes customers are less resistant to a small increase
in monthly lease payments as opposed to an increase in the outright cash sales
price of such equipment. As a result, in most of these leasing arrangements,
the Company is able to achieve a higher sale price, and a higher profit margin
than that which would have been obtained by a cash sale of such equipment.
Finally, these leasing arrangements permit the Company to utilize its capital
for other business activities. The Company has similar arrangements for
leases, which are offered to customers outside the U.S.
TRAINING
A key element of the Company's operating philosophy is the training of
its employees in order to assist in the uniform application of the Company's
established operating procedures throughout the sales network. As described
above, the Company has introduced a new compensation plan designed to provide a
career path for its sales representative. Upon employment, Company sales
representatives participate in an intensive information and skills training
program with areas of focus including company overview, competitive
marketplace, selling skills, customer satisfaction, product knowledge as well
as finance and business skills. After the initial training has been
successfully completed, the Company continues to develop the skills and
knowledge of its sales representatives with new product training, self-study
computer based courses and on-going sales skills development.
Service technicians new to the Company are immediately trained and
certified in accordance with the Company's methods, procedures, and standards.
The Company's technical personnel are continuously updated and retrained as new
technology is developed. The Company's service training centers are certified
as manufacturers' authorized service facilities. The Company monitors service
technicians' continued educational experience and fulfillment of requirements
in order to evaluate the competence of its service technicians. All the
Company's service technicians receive service bulletins, service technician
tips and continued training seminars throughout their careers with the Company.
VENDORS
The Company's business is dependent upon close relationships with its
vendors and its ability to purchase products from these vendors on competitive
terms. During fiscal 1998, the Company's sales of Canon, Konica, Minolta,
Ricoh, Sharp and Toshiba photocopiers, facsimile equipment and related
accessories represented approximately 55 percent of its total equipment
revenue. The sale of Kodak branded equipment and accessories represented
approximately 25 percent of total equipment revenue. The Company's dex and
Omnifax
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private labels are imported from various Japanese and Korean manufacturers. In
addition, the Company relies on its equipment vendors for parts and supplies.
The Company conducts its business in reliance upon its continuing
ability to purchase equipment, supplies, and parts from its current
manufacturers pursuant to authorized retail dealer and wholesale agreements
("Authorized Manufacturer Agreements"). The Company's retail operations'
primary Authorized Manufacturer Agreements are with Canon, Konica, Minolta,
Ricoh, Sharp and Toshiba. Such agreements are generally for one-year terms,
cover only specific products, have specific territorial boundaries, and may be
terminated with cause, and in some instances, without cause. Although
Authorized Manufacturer Agreements are non-exclusive, they are generally
limited to one or two authorized dealers within specific territorial
boundaries. The Company also has multi-year supply agreements with Kodak, the
terms of which vary from the Company's traditional Authorized Manufacturing
Agreements. See -- "Kodak Supply Agreements" below. The Company's wholesale
operations' primary Authorized Manufacturer Agreements are with Copystar,
Konica, Minolta, Ricoh, Sharp and Toshiba, and contain terms which are
substantially similar to those of the Company's retail operations. Private
label facsimile products are provided under purchase agreements with various
manufacturers, and the terms of these agreements are similar to the agreements
with certain of the Company's photocopier vendors.
KODAK SUPPLY AGREEMENTS
Pursuant to the various multi-year supply agreements (the "Supply
Agreements"), the Company is required to purchase from Kodak various levels of
Kodak manufactured or remanufactured electrophotographic equipment and
accessories, spare parts, supplies and toner. The Company's pricing for
purchases of Kodak branded products is based on the Company purchasing certain
agreed upon levels. To the extent the Company exceeds or fails to purchase
these amounts, the Company may either receive a refund or be required to make
additional payments. The Company's inventory levels increased during fiscal
1998 as a result of the requirements to purchase various levels of equipment
pursuant to the Supply Agreements. The Company's goal is to build its
high-volume sales force and to improve productivity of its sales force in an
effort to meet the purchasing requirements contained in the Supply Agreements.
Subject to certain limitations, the Company has the worldwide exclusive right
to distribute Kodak's existing line of electrophotographic equipment for office
imaging and reprographics manufactured or remanufactured by Kodak, and the
related software, supplies, accessories and spare parts and a right of first
refusal to exclusively distribute worldwide certain future electrophotographic
products manufactured by Kodak for office imaging and reprographics.
COMPETITION
The Company's business is highly competitive with a number of
competitors in most geographic markets. The Company's retail operations are in
direct competition with local and regional equipment suppliers and dealers,
manufacturers, mass merchandisers, and wholesale clubs. Depending upon the
customer, principal areas of competition may include: quality and speed of
post-sales service support; availability of competitive products, parts and
supplies; speed of delivery; product capability and performance; financing
terms; and the availability of financing, leasing, or rental programs. The
Company's wholesale operations are in direct competition with local, regional,
and national distributors and manufacturers. Principal areas of competition
for wholesale operations are availability of competitive products, price, speed
of delivery, dealer support, centralized volume buying, product performance,
and the availability of financing programs. The continued ability of the
Company to offer competitive office imaging equipment in all segment areas is
important in both retail and wholesale operations. See -- "Products." As a
result of acquiring the Office Imaging business, the Company increased
significantly its presence in the high-volume photocopier market currently
dominated by Xerox Corporation. The Company is also becoming a leading player
in the document outsourcing industry. Other leading players in the document
outsourcing industry include Xerox Corporation, IKON Office Solutions, Inc. and
Pitney Bowes, all of which vary in current product offerings. Competition in
the outsourcing industry is based primarily on the technical solutions devised,
the breadth of services offered and pricing. Historically, the Company has also
competed with other competitors for acquisitions, and in some instances, such
competition can prevail or result in an increase in the price of an acquisition.
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ACQUISITION HISTORY
The Company has completed over 140 acquisitions throughout its
history. The acquisition of the Office Imaging and outsourcing businesses from
Kodak was the Company's largest to date, adding over $1.5 billion in annual
revenue, operations in more than 15 new countries, approximately 10,000
employees and an expanded product and service portfolio.
The Company has expanded its business through internal growth by
increasing its penetration in existing markets, and by entering new geographic
areas primarily through the acquisition of existing businesses. The Company's
acquisition strategy has been focused on acquiring businesses in current
territories to increase penetration in those markets and on acquiring
businesses in new territories. The Company has sought to acquire companies
that generally had (i) an established customer base, (ii) a product line that
compliments or is comparable with the Company's current and anticipated
products and services; (iii) necessary manufacturer authorizations, and (iv)
the potential to benefit from the Company's centralized purchasing power as
well as from other potential synergies including increasing productivity and
streamlining operations.
The Company seeks to integrate acquired companies into the Company
through the implementation of the Company's operating procedures, which (i)
establishes financial controls, common information systems and reporting
requirements, (ii) introduces the Company's service, marketing and sales
programs and compensation plans, (iii) evaluates, transfers and retrains
personnel as necessary, and (iv) in many cases, expands the acquiree's product
mix to incorporate new products and services which are sold by the Company. In
most business acquisitions, the acquired businesses' owners and management are
contractually bound by executive non-compete and trade secret protection
agreements.
Technological developments increasing the complexity of new products,
combined with the higher costs of product support, has driven the consolidation
of the industry within the North American and European markets. This trend has
caused smaller independent distributors to consider selling their dealerships
to larger marketing and service organizations such as the Company. Through
such acquisitions, the Company entered the United Kingdom in 1993, the Canadian
market in 1994, Continental Europe in 1995, Australasia in 1996, and as
discussed above, the Company now operates in over 30 countries as a result of
the Office Imaging and outsourcing businesses acquired from Kodak.
The Company believes that acquisition opportunities continue to exist
in the office imaging and document management industry. The Company's future
acquisition activity will focus on companies that provide services which can be
leveraged across distribution channels, document management companies with
outsourcing opportunities and companies with a presence in strategic networks
and consulting markets.
The Company's continued success in future acquisitions will be
dependent on a variety of factors, including the timing and size of an
acquisition; the success or failure to integrate any significant acquisition
and minimize integration costs related thereto; and the Company's ability to
successfully grow its infrastructure to sustain, manage, operate and continue
significant expansion. The Company evaluates the potential acquisition of, and
holds discussions with, various potential acquisition candidates and as a
general rule the Company publicly announces such acquisitions only after a
definitive agreement has been reached.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 20,000
persons, of which approximately 9,700 were service engineers and approximately
3,000 were devoted to generating sales. The remaining employees were devoted
to training, management, and other administrative and support positions in the
field and corporate locations. Support positions in the field include
warehouse and delivery functions, dispatch, meter readings, renewal of customer
maintenance agreements, accounts receivable collection and billing functions.
Some of the Company's non-U.S. employees are subject to labor
agreements that establish rates of pay, working hours, procedures for orderly
settlement of disputes and other terms and conditions of employment.
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The Company considers its employee relations to be good, and believes that it
provides working conditions and wages, which compare favorably to those of its
competitors.
The Company relies heavily on its senior management, and the loss of
certain Executive Officers could have an adverse effect on the Company.
Additionally, the Company's ability to successfully grow and maintain its
management and employee base, as well as to successfully integrate acquired
company employees during periods of expansion, are extremely important to the
Company's continued success.
TRADEMARKS AND SERVICE MARKS
The Company believes that its trademarks and service marks have gained
significant recognition in the office imaging and document management industry
and are important to its marketing efforts. The Company has registered various
trademarks and service marks in certain markets. The trademarks "Danka",
"dex", "Omnifax" and "Infotec" are among those registered marks, which are
viewed as important to the Company's ongoing business. The Company's policy is
to continue to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its proprietary rights. Depending on the
jurisdiction, trademarks and service marks are valid as long as they are in use
and/or their registrations are properly maintained, and they have not been
found to have become generic. Registrations of trademarks and service marks in
the United States can generally be renewed indefinitely as long as the
trademarks and service marks are in use.
BACKLOG
The backlog of orders at March 31, 1998 and March 31, 1997 were not
material.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K, 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 demands that the Office Imaging ("OI") acquisition (the
"Acquisition") and the unification thereof with the Company's core operations
will place on the Company's resources, infrastructure, current operations and
employees, (ii) the Company's inability to achieve substantial operating cost
reductions and efficiencies in productivity from the Acquisition, the revised
information technology system, the revised management structure or other similar
Company-wide initiatives associated with the unification, (iii) the potential
for unanticipated increases in expenditures for labor, equipment, materials and
supplies required to manage the increased size of the Company as a result of the
Acquisition, (iv) the Company's inability to effectively manage the increased
number of employees and retain current key management personnel and other key
employees added as a result of the Acquisition, who are accustomed to a
different corporate culture, compensation arrangements and benefits programs,
while the Company simultaneously implements a new sales compensation program and
reduces the overall size of its worldwide workforce, (v) the potential increased
costs resulting from technological developments, revisions to existing
information technology systems, year 2000 issues and the integration of
information technologies between OI and the Company's core operations, (vi)
increased competition resulting from other high volume copier distributors and
the discounting of such copiers by competitors, (vii) the Company's ability to
manage and reduce its outstanding debt, meet its working capital needs and
maintain compliance with the covenants of its
10
<PAGE> 11
credit facility, (viii) the inability of the Company to continue to gain access
to and successfully distribute new and current products brought to the
marketplace at competitive costs and prices, (ix) the ultimate amount of
additional costs associated with the accelerated unification and ultimate
integration and the amount and timing of the realization of the anticipated
benefits from such unification and complete integration, (x) the inability of
the Company to effectively manage the increased size of its inventory and
product line, (xi) the Company's inability to comply with the purchasing
requirements under its supply agreements with its vendors, including Kodak, and
the impact thereof, including the Company's inability to obtain such equipment
and supplies elsewhere, (xii) the ultimate outcome and impact of the pending
class action lawsuits filed in December 1997 and January 1998, (xiii)
fluctuations in foreign currencies, (xiv) economic conditions in regions
worldwide where the Company does business, (xv) significant acquisitions or
divestures, (xvi) various competitive pressures, (xvii) any negative impact from
the loss of any key upper management personnel, (xviii) any failure by the
Company to meet market expectations on financial performance and (xix) 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.
ITEM 2. PROPERTIES
The Company's general policy is to lease, rather than own, its
business locations. The Company leases numerous properties for administration,
sales and service, and distribution functions. The terms vary under the
respective leases and some contain a right of first refusal or an option to
purchase the underlying real property and improvements. In general, the
Company's lease agreements require it to pay its proportionate share of taxes,
common area expenses, insurance, and related costs of such rental properties.
In addition, the Company leases approximately 650 properties for its retail and
wholesale operations.
The Company owns several smaller business locations, none of which are
necessary to the success of the particular location's business. Generally,
these properties were included among the assets obtained in certain
acquisitions. In the future, the Company may dispose of such properties and
enter into leases of properties, which the Company believes may be more
desirable or more centrally located.
Management believes that the properties it occupies are, in general,
suitable and adequate for the purposes for which they are utilized. The
Company is currently involved in the consolidation of certain real estate
related to the integration of the Office Imaging business with the Company's
core operations. By April 1998, the Company had consolidated and reduced its
U.S. dispatch call centers from eighteen to two. The Company is also in the
process of developing and implementing plans to reduce the number of warehouses
and operating centers.
ITEM 3. LEGAL PROCEEDINGS
The Company, certain of its executive officers who are also directors, a
former director and two former officers are defendants in several purported
class action lawsuits filed in the United States District Court for the Middle
District of Florida, Tampa Division.(1) The complaints allege, 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, 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 12, 1997 and December 16, 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 plaintiffs
are in the process of filing a single, amended complaint. The cases are 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 lawsuits.
11
<PAGE> 12
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.
- ---------------
(1) The purported class action lawsuits are as follows: (i) Amy L. Ollendorf
and Anne Marie Davis on Behalf of Themselves and All Others Similarly Situated
against Danka Business Systems PLC et al, (filed on January 15, 1998); (ii)
Peter Devree on Behalf of Himself and All Others Similarly Situated against
Danka Business Systems PLC et al, (filed on January 22, 1998); (iii) Real J.
Audet, Michael and Nancy Hagen, Joint Tenants on Behalf of Themselves and All
Others Similarly Situated v. Danka Business Systems PLC et al, (filed on January
28, 1998); (iv) Gary Hughes, on Behalf of Himself and All Others Similarly
Situated v. Danka Business Systems PLC et al, (filed on December 23, 1997); (v)
Frederick H. Modlin and Joseph McGeary, on Behalf of Themselves and All Others
Similarly Situated against Danka Business Systems PLC et al, (filed on December
23, 1997); (vi) Robert L. Wenz and David I. Wise, on Behalf of Themselves and
All Others Similarly Situated v. Danka Business Systems PLC et al, (filed on
January 13, 1998).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 13
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The following table sets forth the high and low sale price per American
Depositary Share ("ADS") as reported by the Nasdaq National Market and the high
and low middle market quotations (which represent an average of bid and offered
prices in pence) for the Ordinary Shares as reported on the London Stock
Exchange Official List. Each ADS represents four Ordinary Shares.
<TABLE>
<CAPTION>
U.S. Dollars per Pence per
ADS Ordinary Share
High Low High Low
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1998:
Quarter ended June 30, 1997 $43.63 $26.50 648p 425p
Quarter ended September 30, 1997 51.31 37.00 788 558
Quarter ended December 31, 1997 47.00 12.38 713 215
Quarter ended March 31, 1998 21.13 15.25 322 239
Fiscal Year 1997:
Quarter ended June 30, 1996 $51.88 $26.50 848p 468p
Quarter ended September 30, 1996 45.25 22.25 700 403
Quarter ended December 31, 1996 45.13 35.13 663 533
Quarter ended March 31, 1997 46.25 30.25 683 472
</TABLE>
As of March 31, 1998, 41,532,448 ADSs were held of record by 4,276 registered
holders and 61,366,074 Ordinary Shares were held of record by 3,950 registered
holders. Since some of the ADSs and Ordinary Shares are held by nominees, the
number of holders may not be representative of the number of beneficial owners.
The Company currently expects to continue its policy of paying semi-annual cash
dividends, although there can be no assurance as to future dividends because
they are dependent upon future operating results, capital requirements and the
Company's financial condition.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to the information under the heading "Selected Consolidated Financial
Data" in the Company's Annual Report to Shareholders for the Year Ended March
31, 1998. See Exhibit 13 to this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report to Shareholders for the Year Ended March 31, 1998. See Exhibit
13 to this Report.
13
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to the information under the headings "Consolidated Statements of
Earnings", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Shareholders' Equity" and "Notes to the
Consolidated Financial Statements" in the Company's Annual Report to
Shareholders for the Year Ended March 31, 1998. See Exhibit 13 to this Report.
As is the case with any company, prior financial condition and results of
operations are not necessarily indicative of future results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Directors and
Executive Officers" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1998 Annual Meeting of Shareholders, which has
been filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Compensation of
Executive Officers and Directors" in the Company's definitive Proxy Statement
to be used in connection with the Company's 1998 Annual Meeting of
Shareholders, which has been filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information under the heading "MANAGEMENT - Security Ownership
of Management and Others" in the Company's definitive Proxy Statement to be
used in connection with the Company's 1998 Annual Meeting of Shareholders,
which has been filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1998 Annual Meeting of Shareholders, which has
been filed with the Commission.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. The following Financial Statements of the Registrant
included in Part II, Item 8, of this Report are
incorporated herein by reference as described in Item
8:
Consolidated Statements of Earnings - Years ended
March 31, 1998, 1997 and 1996
Consolidated Balance Sheets - March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity -
Years ended March 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements -
Years ended March 31, 1998, 1997 and 1996
Independent Auditors' Report
2. The following Financial Statement Schedules of the
Registrant are included in Item 14(d):
Independent Auditors' Report
II - Valuation and Qualifying Accounts
All other schedules are omitted because the required
information is not present in amounts sufficient to
require submission of the schedule, the information
required is included in the financial statements and
notes thereto or the schedule is not required or
inapplicable under the related instructions.
3. Exhibit index:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
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).
3.1* Memorandum of Association of the Company. (Exhibit 3.1 of Company's Registration
Statement on Form 20-F, No. 0-20828, filed on November 10, 1992 [the "1992 Registration
Statement"].)
3.2* Articles of Association of the Company. (Exhibit 3.2 to the 1992 Registration
Statement.)
4.1* Memorandum of Association of the Company, including paragraphs 5 and 6. (Exhibit 2.1
to the 1992 Registration Statement.)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
4.2* Articles of Association of the Company, including sections relating to Shares,
Variation of Rights and Votes of Members. (Exhibit 2.2 to the 1992 Registration
Statement.)
4.3* Form of Ordinary Share certificate. (Exhibit 4.3 of Company's Registration Statement
on Form S-1, No. 33-68278, filed on October 8, 1993 [the "1993 Registration
Statement"]).
4.4* Form of American Depositary Receipt. (Exhibit 4.4 to the 1993 Registration Statement.)
4.5* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993 (Exhibit 4.9 to the 1993 Registration Statement.)
and Amendment No. 3 dated August 16, 1994 between The Bank of New York, Company and
Owners and Holders of American Depositary Receipts.
4.6* Indenture dated March 13, 1995 between the Company and The Bank of New York, as
Trustee. (Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
4.7* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21,
1995).
4.8* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and
among the Company and Prudential Securities Incorporated and Smith Barney, Inc. and
Robert W. Baird & Co. and Raymond James & Associates, Inc. (Exhibit 4.12 to the
Company's 1995 Form 10-K).
4.9* Resolution No. 7 adopted by shareholders at the 1997 annual general meeting waiving
pre-emptive rights of shareholders under certain circumstances filed with the Company's
1997 Proxy Statement.
4.11* 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 dated December 16, 1996).
4.12* 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 dated February 12, 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
obligation authorized under any such agreement does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees
to furnish supplementally a copy of any omitted long-term debt instrument to the
Commission upon request.
10.1* Office Building Lease dated February 4, 1986 between Daniel M. Doyle and Francis J.
McPeak, Jr., and Copies, Inc. (Exhibit 3.4 to the 1993 Form 20-F).
10.2* Office Building Lease dated May 1, 1992 between Daniel M. Doyle and Francis J. McPeak,
Jr., and Gulf Coast Business Machines. (Exhibit 3.5 to the 1993 Form 20-F).
10.3* Office Building Lease dated April 1, 1990 between Daniel M. Doyle and Francis J.
McPeak, Jr., and Danka. (Exhibit 3.6 to the 1993 Form 20-F).
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
10.4* Lease Agreement dated December 22, 1986, and Addendum Lease Agreement dated March 1,
1987, between Daniel M. Doyle and Francis J. McPeak and Danka. (Exhibit 3.7 to the
1993 Form 20-F).
10.5* U.K. Executive Share Option Scheme. (Exhibit 3.11 to the 1993 Form 20-F).
10.6* U.S. Executive Incentive Stock Option Plan. (Exhibit 3.12 to the 1993 Form 20-F).
10.7* Form of Stock Option Agreement. (Exhibit 3.13 to the 1993 Form 20-F).
10.8* Addendum to Lease Agreement dated September 1, 1992, between Mid-County Investments,
Inc. and Danka. (Exhibit 3.38 to the 1993 Form 20-F).
10.9* Lease Agreement dated November 12, 1992 and Lease Commencement Agreement dated April 7,
1993 between PARD, Inc. and Danka. (Exhibit 10.41 to the 1993 Form 20-F).
10.10* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993, between The Bank of New York, Company and Owners
and Holders of American Depositary Receipts, filed as Exhibit 4.5 and incorporated as
reference.
10.11 Amended and Restated Employment Agreement dated as of April 1, 1997 among the Company,
Danka Holding Company and Daniel M. Doyle.
10.12* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
David C. Snell. (Exhibit 10.50 to the 1994 Form 10-K).
10.13* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
Mark A. Vaughan-Lee. (Exhibit 10.51 to the 1994 Form 10-K).
10.14* Danka Business Systems PLC 1994 Executive Performance Plan. (Exhibit 10.52 to the 1994
Form 10-K).
10.15* Indenture dated March 13, 1995 between the Company and The Bank of New York, as
Trustee. (Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
10.16* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21,
1995).
10.17* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and
among the Company and Prudential Securities Incorporated and Smith Barney, Inc. and
Robert W. Baird & Co. and Raymond James & Associates, Inc. (Exhibit 10.24 to the
Company's 1995 Form 10-K).
10.18* Purchase Agreement dated October 25, 1995 between ABN AMRO Bank N.V. and Credit
Lyonnais Bank Nederland N.V. and Danka Europe B.V. (Exhibit 2 to the Company's
Form 8- K dated November 3, 1995).
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
10.19* Credit Agreement dated March 19, 1996 among Danka Business Systems PLC, Danka Holding
Company, the several financial institutions from time to time a party to this
Agreement, Bank of America National Trust and Savings Association, Bank of America
International Limited, Nationsbank, N.A., and Southtrust National Bank of Alabama,
N.A., in an amount up to $400.0 million. (Exhibit 1 to the Company's Form 8-K dated
March 19, 1996).
10.20* The Danka 1996 Share Option Plan filed as Appendix 1 of the 1996 Annual Proxy Statement
and approved by shareholders under Resolution 10.
10.21* The Danka 1996 Non-Employee Directors Share Option Plan filed as Appendix 2 of the 1996
Annual Proxy Statement and approved by shareholders under Resolution 11.
10.22* No other instruments defining the rights of holders of long-term debt of the Company
and its subsidiary have been included as exhibits because the total amount of
obligation authorized under any such agreement does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees
to furnish supplementally a copy of any omitted long-term debt instrument to the
Commission upon request.
13 Annual Report to Shareholders of the Company for the year ended March 31, 1998. The
portions of the Company's Annual Report to Shareholders incorporated by reference into
this Report are included herein as exhibits.
21 List of Current Subsidiaries of the Company.
23 Independent Auditors Consent.
27 Financial Data Schedule.
27.1 Financial Data Schedule Restated and Amended (September 30, 1997 Form 10-Q).
27.2 Financial Data Schedule Restated and Amended (June 30, 1997 Form 10-Q).
27.3 Financial Data Schedule Restated and Amended (March 31, 1997 Form 10-K).
27.4 Financial Data Schedule Restated and Amended (December 31, 1996 Form 10-Q).
27.5 Financial Data Schedule Restated and Amended (September 30, 1996 Form 10-Q).
27.6 Financial Data Schedule Restated and Amended (June 30, 1996 Form 10-Q).
27.7 Financial Data Schedule Restated and Amended (March 31, 1996 Form 10-K).
</TABLE>
* Document has heretofore been filed with the Commission and is
incorporated by reference and made a part hereof.
(b) Reports on Form 8-K
On December 17, 1997, the Company filed a report on Form 8-K
announcing its estimated results for the third quarter of fiscal 1998.
18
<PAGE> 19
(c) Exhibits:
The exhibits listed in Item 14(a)(3) to this Report are filed with
this Report.
(d) Financial Statement Schedules
Report of Independent Auditors
II - Valuation and Qualifying Accounts
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedules.
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Members of Danka Business Systems PLC:
Under date of May 15, 1998, we reported on the consolidated balance sheets of
Danka Business Systems PLC and subsidiaries as of March 31, 1998 and 1997 and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended March 31, 1998, as
contained in the 1998 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1998. In connection with our
audits of the aforementioned financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
May 15, 1998 London, England
20
<PAGE> 21
DANKA BUSINESS SYSTEMS PLC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------- ------------- ------------------------------ -------------- ---------
Balance at Charged to Charged to Balance
Beginning of Costs and Other at End
Description Period Expenses Accounts (1) Deductions (2) of Period
----------- ------------- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1996 $6,034 $3,717 $8,009 $(8,956) $8,804
====== ====== ====== ====== ======
Year ended March 31, 1997 $8,804 $21,062 $12,382 $(14,395) $27,853
====== ======= ======= ======= =======
Year ended March 31, 1998 $27,853 $29,928 $2,046 $(28,854) $30,973
======= ======= ====== ======= =======
</TABLE>
(1) Represents beginning balances of acquired companies.
(2) Represents accounts written off during the year, net of recoveries.
Note: Certain prior year amounts have been reclassified to conform to the
current year presentation.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: June 22, 1998 DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
By: /s/ DANIEL M. DOYLE
-------------------------------
Daniel M. Doyle, Chief Executive
(The Chief Executive Officer)
By: /s/ DAVID C. SNELL
-------------------------------
David C. Snell, Finance Director
(Executive Vice President and the
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities indicated on June 22, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ MARK A. VAUGHAN-LEE Chairman and Director
- ---------------------------------
Mark A. Vaughan-Lee
/s/ DANIEL M. DOYLE Chief Executive and Director
- ---------------------------------
Daniel M. Doyle
/s/ DAVID C. SNELL Finance Director, Executive Vice President
- --------------------------------- and the Principal Accounting Office
David C. Snell
/s/ PIERSON M. GRIEVE Director
- ---------------------------------
Pierson M. Grieve
/s/ DAVID W. KENDALL Director
- ---------------------------------
David W. Kendall
/s/ KEITH J. MERRIFIELD Director
- ---------------------------------
Keith J. Merrifield
/s/ J. ERNEST RIDDLE Director
- ---------------------------------
J. Ernest Riddle
/s/ JAMES F. WHITE, JR. Director
- ---------------------------------
James F. White, Jr.
</TABLE>
22
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Employment
Agreement") is made and entered into as of the 1st day of April, 1997, by and
among Danka Business Systems PLC, a public limited company incorporated and
registered under the laws of England and Wales ("Danka Business Systems"), Danka
Holding Company, a Delaware corporation ("Danka") (Danka Business Systems and
Danka hereinafter collectively referred to as the "Company"), and Daniel M.
Doyle, an individual ("Executive").
WITNESSETH:
WHEREAS, Executive is a party to an Employment Agreement dated as of
April 1, 1994 by and among Danka Business Systems PLC, the Executive and Danka
Industries, Inc., a Florida corporation, which Employment Agreement provided for
an initial three-year term ending March 31, 1997;
WHEREAS, the Company wishes to assure itself of the services of
Executive for an additional five year term, on the terms and conditions set
forth herein; and
WHEREAS, Executive desires to be so employed by the Company on said
terms.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties agree as follows:
Section 1. EMPLOYMENT. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
Section 2. CAPACITY AND DUTIES. Executive is and shall be employed in
the capacity of Chief Executive/Chief Executive Officer and President of the
Company and shall have such other duties, responsibilities and authorities as
are assigned to him by the Board of Directors of Danka Business Systems (the
"Board") as long as such additional duties, responsibilities and authorities are
consistent with Executive's position and level of authority as the Chief
Executive Officer of the Company. Executive shall report directly to the Board
with directors fees in the amount of (pound)7,500 per annum to be paid for his
services as a director of Danka Business Systems. Executive may serve as a
director of any direct or indirect subsidiary of Danka Business Systems, without
additional consideration unless agreed otherwise by the Board, but Executive's
failure or refusal to serve on the Board of one or more subsidiaries shall not
constitute a breach of this Agreement.
Section 3. TERM OF EMPLOYMENT. The term of employment of Executive by
the Company pursuant to this Employment Agreement shall be for the period (the
"Employment Period") commencing on April 1, 1997 (the "Commencement Date"), and
ending on March 31, 2002 or such earlier date that Executive's employment is
terminated in accordance with the provisions of this Employment Agreement.
-1-
<PAGE> 2
Section 4. PLACE OF EMPLOYMENT. Executive's principal place of work
shall be located in the Tampa Bay, Florida metropolitan area. The parties
acknowledge that this is consistent with the extensive national and
international business travel which may be required of Executive in connection
with his performance of his duties under this Agreement.
Section 5. BASE SALARY AND BONUS. During the Employment Period and
subject to all the terms and conditions of this Employment Agreement, the
Company shall pay Executive a base salary at an annual rate of not less than
$800,000 per annum, payable in a manner consistent with the Company's payroll
procedures for U.S. salaried employees. The Human Resources Committee of the
Board (the "H.R. Committee") shall review Executive's annual base salary on or
before the beginning of each fiscal year of the Company beginning subsequent to
March 31, 1999 in which this Agreement is in effect and may increase Executive's
annual base salary from time to time as the H.R. Committee deems to be
appropriate.
In addition to the annual base salary, for each fiscal year of the
Company during the Employment Period beginning subsequent to March 31, 1998,
Executive shall be entitled to receive an annual bonus under a performance bonus
plan developed by the H.R. Committee. The H.R. Committee shall establish during
the first quarter of each fiscal year financial performance targets for such
fiscal year, stated in terms of net income, diluted earnings per share,
operating cash flow or such other measures as may be selected by the H.R.
Committee, as well as the annual bonuses available upon achievement of target,
threshold and maximum levels of performance. The bonus available upon
achievement of the target level shall be one hundred percent (100%) of
Executive's annual base salary, and the bonus available for meeting or exceeding
maximum level of performance shall be one hundred fifty percent (150%) of
Executive's annual base salary. Subject to H.R. Committee's certification of the
Company's achievement of the relevant financial goals for the fiscal year at not
less than the threshold level, payment of each such annual bonus shall be made
to Executive in cash (net of applicable taxes) as promptly after the end of the
relevant fiscal year as the H.R. Committee is able to certify the achievement of
the applicable target performance goals, subject to any deferral election made
by Executive under the terms of the Company's deferred compensation plan for
U.S. executives. These annual bonuses are intended to qualify as
"performance-based" awards under Section 162(m) of the Internal Revenue Code,
and shall therefore be subject to approval of the general terms of the
performance bonus plan by the Company's shareholders.
All salary and bonus payments to Executive under this Agreement shall
be paid to Executive by Danka, or for periods after March 31, 1998, Danka Office
Imaging Company, through its U.S. payroll system [with the exception of the
directors fees for Executive's services as a director of Danka Business Systems,
which shall be paid by Danka Business Systems]. If Danka or Danka Office Imaging
Company should fail to make any such payment to Executive when due, Danka, Danka
Office Imaging Company and Danka Business Systems shall be jointly and severally
liable to Executive.
Section 6. ADDITIONAL COMPENSATION AND BENEFITS. During the Employment
Period, the Company shall pay to or provide Executive such other compensation
and benefits as are established by or approved by the H.R. Committee, including
the following additional compensation and welfare and fringe benefits:
(a) Stock Options. Executive shall receive annual stock option
awards, as described in Section 7 below.
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(b) Medical Insurance. The Company shall provide Executive and his
dependents with health insurance coverage no less favorable
than that from time to time made available to other key
employees of the Company located in the United States.
(c) Vacation. Executive shall be entitled to at least six weeks of
vacation during each year during the term of this Agreement,
prorated for partial years.
(d) Business Expenses. The Company shall reimburse Executive for
all reasonable, ordinary and necessary expenses he incurs in
connection with his employment by the Company (including but
not limited to, automobile and other business travel, and
customer entertainment expenses). As long as the Company
continues to operate a corporate jet for its business, the
Company will also provide the use of such jet for personal use
of Executive for which the Company will be repaid on a
first-class ticket basis for non-business passenger use.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 6, the Executive shall be eligible to participate in
all executive compensation and retirement plans of the Company applicable
generally to officers of the Company located in the United States, and in such
welfare benefit plans, programs, practices and policies of the Company as are
generally applicable to other United States employees from time to time.
Section 7. STOCK OPTIONS. Danka Business Systems shall award Executive
stock options with respect to not less than 150,000 American Depositary Shares
representing ordinary shares of Danka Business Systems ("ADSs") in May, 1998.
This award shall be made on a date at least two (2) trading days and not more
than ten (10) trading days after the Company has publicly announced its results
for the fiscal year ended March 31, 1998. Danka Business Systems shall also
award Executive stock options with respect to an additional 350,000 ADSs in
July, 1998, subject to approval by the shareholders at the 1998 Annual General
Meeting of an amendment to the Danka Business Systems, PLC, 1996 Share Option
Plan to increase the limit on stock option awards to any individual.
During the remainder of the Employment Period, during each March
subsequent to 1998 (that is, during March 1999, March 2000, March 2001, and
March 2002), Executive shall be granted additional stock options with respect to
an additional 125,000 ADSs, subject to the availability of sufficient ADSs and
ordinary shares for such awards under stock option plans of the Company approved
by the Company's shareholders, provided that Executive has continued his
employment with the Company through the relevant grant date and has not given a
Notice of Termination as defined in Section 11 below.
All of the foregoing stock options shall be subject to the following
terms and conditions, in addition to any terms imposed by Danka Business
Systems' 1996 Share Option Plan:
(a) Each award of options shall have a maximum ten (10) year term,
and shall not be incentive stock options within the meaning of
Internal Revenue Code Section 422;
(b) Each award of options shall be awarded at market price, so
that the option price payable by Executive upon exercise shall
be equal to the market value of an ADS on the date the award
was granted;
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(c) These options granted pursuant to this Section 7 prior to
March, 2001 shall each vest on the fifth anniversary of the
date of grant, provided Executive's employment has continued
through such date (or has been terminated upon terms
acceptable to the H.R. Committee). Notwithstanding the
preceding sentence, one-third (1/3rd) of the shares covered by
each such option award granted before March 2001, shall vest
on an accelerated basis if for any fiscal year of the Company
which includes one of the first three anniversaries of the
relevant date of grant the Company has achieved, on a
cumulative basis, the performance-related financial target for
that period approved by the H. R. Committee, as set forth in
writing in the form of Stock Option Certificate approved by
the H.R. Committee. The option awards granted in March 2001
and March 2002 shall each vest in three (3) annual
installments, consisting of one-third of the ADSs, on the
first three anniversaries of the relevant date of grant,
provided Executive's employment continues through such date
(or been terminated on terms acceptable to the H.R.
Committee), but such vesting shall not be conditioned on
satisfaction of financial performance targets.
(d) The Options granted to Executive under this Section shall
become fully vested on an accelerated basis upon: (1) in the
case of the Options granted in May and July 1998, upon
expiration of the Employment Period if the applicable
performance criteria have not previously been met; (2) in the
case of the Options granted in March 1999 and March 2000, the
third anniversary of the relevant date of grant, if Executive
has previously retired at the expiration of the Employment
Period and any applicable performance criteria have not been
met; (3) Executive's death or permanent disability; (4) an
involuntary termination of Executive's employment other than
for Cause [as defined in Section 11]; (5) Executive's
voluntary termination of employment for Good Reason [as
defined in Section 11 below]; (6) the date the Company gives
Executive a Notice to Terminate [other than for Cause as
defined in Section 11]; or (7) a Change of Control [as defined
in Section 11 below].
(e) Upon termination of Executive's employment for Cause [as
defined in Section 11], any unexercised Options held by
Executive shall be forfeited immediately. Upon delivery of a
Notice of Termination by Executive or other voluntary
termination by Executive [other than for Good Reason as
defined in Section 11.02], any vested but unexercised options
held by Executive shall continue to be exercisable during the
period of twelve (12) months following the date of
termination. If Executive's options vest on an accelerated
basis pursuant to paragraph (d), or if Executive's employment
terminates at the expiration of the Employment Period, the
options not exercised by the termination date shall continue
to be exercisable for a period of thirty-six (36) months
following such date (but not later than the expiration of the
option's original ten (10) year term). Such continued right to
exercise the options shall be subject to Executive's adherence
to the terms of such non-competition, confidentiality and
similar restrictive covenants as the H.R. Committee may
require to be included in the stock option certificates,
provided that such restrictive covenants shall be deemed to be
waived upon a Change of Control [as defined in Section 11
below].
(f) At the Committee's discretions, the options may be granted for
the equivalent number of ordinary shares of Danka Business
Systems, instead of ADSs.
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Section 8. SUPPLEMENTAL CASH PAYMENT. To recognize that the delay in
the grant of stock options with respect to 350,000 ADSs until after the 1998
Annual General Meeting of Shareholders may have an adverse effect on the value
of the grant, the Company agrees to make the supplemental cash payments
described in this Section 8 to Executive if (i) the amendment to the 1996 Share
Option Plan is approved and (ii) the market prices for ADSs for a period of five
(5) consecutive trading days which includes the award date for Executive's July
1998 stock option award, exceed the market prices for ADSs for an equivalent
period of five (5) consecutive trading days which includes the date of the
Executive's May 1998 stock option award. The period of five (5) trading days in
May shall begin on the third trading day after the Company has publicly
announced its financial results.
The aggregate amount of the supplemental cash payments (if any) to be
made to Executive shall be equal to the amount determined in the following
manner:
(a) The number obtained by subtracting (i) the average of the
closing prices quoted for the ADSs in the Wall Street Journal for each
trading day (for the U.S. stock markets) included in the period of five
(5) trading days which includes the award date for Executive's May 1998
stock option award, from (ii) the average of the closing prices quoted
for the ADSs for each trading day in the week which includes the award
date for Executive's July, 1998 stock option award, but (iii) in no
event more than $5.00 per ADS;
(b) multiplied by 350,000 ADSs.
This amount, or a portion thereof, shall be paid to Executive, without interest,
at such time as the July 1998 stock option award (or any installment of such
option award), vests, including payment of a proportionate part of such amount
whenever an installment of the stock option has vested on an accelerated basis
as a result of the Company's financial performance, provided Executive's
employment with the Company has continued through such date, subject to any
deferral election the Executive may file pursuant to the Company's Deferred
Compensation Plan with respect to such payments.
If any part of the stock option award to be granted to Executive in
July 1998 is forfeited by Executive before Executive has received all
installments of these supplemental cash payments, Executive shall forfeit a
portion of the unpaid supplemental cash payments proportionate to the percentage
of the ADSs covered by the July 1998 stock option award Executive forfeits.
Section 9. TERMINATION BY THE COMPANY OR BY EXECUTIVE. This Employment
Agreement may be terminated by the Board of Danka Business Systems or by
Executive upon one (1) year's written notice, provided that Danka Business
Systems or Executive, as the case may be, shall give Notice of Termination (as
hereinafter defined). Compensation paid to Executive during the one-year notice
period following the giving of the Notice of Termination shall be considered to
be part of the severance pay described in Section 10 of this Employment
Agreement.
This Employment Agreement may be terminated upon six months' written
notice by Danka Business Systems by reason of the Disability (as hereinafter
defined) of Executive. This Employment Agreement may be terminated by the Board
of Danka Business Systems immediately upon giving Notice of Termination for
Cause (as hereinafter defined) and may be terminated by Executive for Good
Reason (as hereinafter defined) immediately upon giving Notice of Termination,
provided that the Company shall in either case pay to Executive the compensation
and other benefits described in
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Section 10 of this Employment Agreement. Executive's right to terminate his
employment for Good Reason shall not be affected by his incapacity due to
physical or mental illness.
Section 10. PAYMENTS UPON TERMINATION.
(a) If Executive's employment is terminated during the term of this
Agreement, either by the Board or by Executive, Executive shall be entitled to
receive his base salary accrued through the date of termination, any accrued but
unpaid vacation pay for the year of the termination, plus any bonus earned but
not previously paid with respect to fiscal years preceding the termination date.
If Executive's employment is terminated during the term of this Agreement by
reason of Executive's death or disability, by Executive for Good Reason (as
defined in Section 11 below), or by the Company other than for Cause [as defined
in Section 11], then Executive shall also receive the additional termination pay
and benefits set forth in Sections 10(b), 10(c), 12 or other applicable
provisions of this Employment Agreement.
(b) If Executive's employment is involuntarily terminated by the
Company other than for Cause (as defined in Section 11), including by giving a
Notice of Termination to Executive, or if the Executive gives a Notice of
Termination for Good Reason (as defined in Section 11), the Company shall also
be obligated to provide Executive with the following severance compensation:
(i) The Company shall pay to Executive (subject to withholding of
applicable taxes) a series of monthly termination payments, each equal
to one-twenty-fourth (1/24th) of the sum of (A) two (2) full years of
Executive's annual base salary, at the rate in effect on the date the
Notice of Termination is given, and (B) twice the target annual bonus
(i.e., twice 100 percent of annual base salary) which would be payable
to Executive for the fiscal year in which the Notice of Termination is
given if the Company's financial performance targets were deemed to be
satisfied at the budgeted target level for such fiscal year. These
monthly termination payments shall continue for twenty-four (24)
months, but no termination payments shall be made for periods after the
March 31, 2002, expiration of the Employment Period. These payments
shall be offset by any amounts the Company pays to the Executive as
annual salary or bonus for his services during the one-year notice
period following the date the Notice of Termination was given, but
shall not be offset by any amounts Executive may receive as
compensation for services he performs for any other employer after his
employment with the Company terminates.
(ii) In addition to these termination payments, Executive shall be
entitled to receive a pro rata annual bonus from the Company for the
fiscal year which includes the date of termination, calculated by
determining the performance bonus earned for the fiscal year which
includes the date of termination, based on the extent to which the
Company actually satisfies the relevant financial performance targets
for the fiscal year by the end of such fiscal year, and multiplying
this amount by a percentage equal to the ratio of the number of days
worked by Executive during the fiscal year of the termination to the
total number of work days during such fiscal year. This pro rata bonus
shall be paid to Executive (subject to withholding at applicable taxes)
promptly after the end of the fiscal year, once the H.R. Committee has
certified the Company's achievement of the relevant performance
targets.
(iii) The Company shall continue to provide the Executive and his wife
with coverage under all medical, hospitalization, life and other
insurance benefits being provided to Executive at the date the Notice
of Termination is given, for a period of up to twenty-four (24) months
after the
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date of termination; provided that the Company shall have no obligation
to continue to provide Executive with these benefits for any periods
after the earlier of (A) the expiration of the Employment Period, or
(B) the date Executive obtains comparable benefits (with no significant
pre-existing condition exclusions) as a result of Executive's
employment in a new position.
(iv) Any stock options awarded to Executive under any stock option plan
or scheme maintained by the Company shall (A) if not previously vested,
immediately become fully vested and exercisable in full, and (B) be
deemed to be amended to permit their exercise by Executive at any time
during the period of thirty-six (36) months following the date of
termination (but no later than the expiration of any such stock
option's original ten-year term), subject to the Executive's adherence
to the terms of such non-competition, confidentiality and similar
restrictive covenants as the H.R. Committee may require to be included
in the relevant stock option agreements.
(v) The Executive shall also receive any vested benefits payable to
him under the terms of any deferred compensation, retirement, incentive
or other benefit plan maintained by the Company, payable in accordance
with the terms of the applicable plan.
(c) If, at any time during the period of twenty-four (24) months
following a Change of Control [as defined in Section 11.04], Executive's
employment is involuntarily terminated by the Company or the Executive
terminates his employment for Good Reason [as defined in Section 11.02 below],
then Executive may elect, by delivering written notice to the Company within
thirty (30) days following the date of such termination, to demand that the
Company pay him an undiscounted lump sum payment equal to the sum of (i) two (2)
full year's annual base salary, at the rate in effect on the date the Notice of
Termination is given, plus (ii) twice the target annual bonus which would have
been payable to Executive for the fiscal year if the Company's financial
performance goals were deemed to be satisfied at the target level for such
fiscal year (or, if the executive performance bonus plan is terminated after the
Change of Control or modified to lower the available bonuses, then the annual
performance bonus target for the last fiscal year prior to the Change of
Control). This lump sum payment shall be in lieu of the monthly severance
payments required by Section 10(a)(i) of this Employment Agreement. The Company
shall deliver the lump sum payment (subject to withholding of applicable taxes)
to Executive by wire transfer or cashier's check within ten (10) business days
after the date on which Executive delivers his election to the Company.
(d) If Executive's employment is terminated by the Board for Cause, the
amount Executive shall be entitled to receive from the Company shall be limited
to his base salary accrued through the date of termination, any accrued but
unpaid vacation pay for the year of termination, any bonuses earned but not
previously paid with respect to the fiscal year of Danka Business Systems most
recently ended, and any vested benefits payable to Executive under the terms of
any deferred compensation, retirement, stock option or other incentive plans
maintained by the Company.
(e) If Executive voluntarily terminates his employment by giving Notice
of Termination before the end of the Employment Period (other than for Good
Reason as defined in Section 11.02), or retires at the end of the Employment
Period, the amount Executive shall be entitled to receive from the Company shall
be limited to his base salary accrued through the date of termination, any
accrued but unpaid vacation pay for the year, any bonus earned but not
previously paid with respect to the fiscal year of Danka Business Systems most
recently ended, and any other vested benefits payable to the Executive under the
terms of any deferred compensation, retirement, stock option or other incentive
plans of the Company.
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(f) All payments to Executive under this Section 10 shall be paid by
Danka, or for periods after March 31, 1998, Danka Office Imaging Company, but in
the event Danka should fail to make any such payment when due, Danka, Danka
Office Imaging Company, and Danka Business Systems shall be jointly and
severally liable to Executive.
Section 11. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
11.01 Disability. "Disability" shall mean a physical or mental
illness which, in the judgment of the Company after consultation with
the licensed physician attending Executive, impairs Executive's ability
to substantially perform his duties under this Employment Agreement as
an employee and as a result of which he shall have been unable to
perform his duties for the Company on a full-time basis for six (6)
consecutive months.
11.02 Good Reason. "Good Reason" shall mean the occurrence of
any of the following events without Executive's prior express written
consent: (i) any material change in Executive's status, title,
authorities or responsibilities (including reporting responsibilities)
under this Employment Agreement which represents a demotion from such
status, title, position or responsibilities (including reporting
responsibilities); the assignment to him of any duties or work
responsibilities which are materially inconsistent with his status,
title, position or work responsibilities set forth in this Employment
Agreement or which are materially inconsistent with the status, title,
position or work responsibilities of a chief executive officer of a
United Kingdom/United States publicly traded corporation; or any
removal of Executive from, or failure to appoint, elect, reappoint or
reelect Executive to, any of such positions, including a failure to
reelect Executive as an Executive Director, except as a result of his
death or Disability; (ii) the relocation of the principal office of the
Company or the reassignment of Executive to a location more than thirty
(30) miles from St. Petersburg, Florida; (iii) the failure by the
Company to continue in effect any incentive, bonus or other
compensation plan in which Executive participates, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to the failure to continue such plan, or the
failure by the Company to continue Executive's participation therein,
or any action by the Company which would directly or indirectly
materially reduce his participation therein or reward opportunities
thereunder; provided, however, that Executive continues to meet
substantially all eligibility requirements thereof; (iv) the failure by
the Company to continue in effect any employee benefit plan (including
any medical, hospitalization, life insurance, disability or other group
benefit plan in which Executive participates), or any material fringe
benefit or perquisite enjoyed by him unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to the failure to continue such plan, or the failure by
the Company to continue Executive's participation therein, or any
action by the Company which would directly or indirectly materially
reduce his participation therein or reward opportunities thereunder, or
the failure by the
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Company to provide him with the benefits to which he is entitled under
this Employment Agreement; provided, however, that Executive continues
to meet substantially all eligibility requirements thereof; (v) any
other material breach by the Company of any provision of this
Employment Agreement; or (vi) any purported termination of Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Employment Agreement, and for
purposes of this Employment Agreement, no such purported termination
shall be effective; or (vii) the failure of the Company to obtain a
satisfactory agreement from any successor or assignee of the Company to
assume and agree to perform this Employment Agreement.
11.03 Cause. For purposes of this Agreement, "Cause" shall
mean and be limited to (i) Executive being convicted of a felony (or
entering a guilty or nolo contendere plea to such a crime); or (ii)
Executive being convicted of any lesser crime committed in connection
with the performance of his duties hereunder involving fraud or moral
turpitude; or (iii) the intentional and willful failure by Executive to
substantially perform his duties hereunder as directed by the Board
(other than any such failure resulting from Executive's incapacity due
to physical or mental disability) after a demand for substantial
performance is made on Executive by the Board.
11.04 Change of Control. "Change of Control" shall be deemed
to have occurred when: (i) securities of Danka Business Systems
representing 30 percent or more of the combined voting power of the
then outstanding voting securities of Danka Business Systems are
acquired pursuant to a general offer for the issued share capital of
the Company which is an offer regulated under the U.K. Take-Over Code
or any other tender offer or an exchange offer by any person or group
of persons acting in concert [within the meaning of Section 14(d) of
the Securities Exchange Act of 1934] other than the Company, a direct
or indirect subsidiary or parent of the Company, an employee benefit
plan or similar trust established by the Company, or any other person
whose offer has been solicited or expressly approved by the Board; (ii)
a merger or consolidation is consummated in which Danka Business
Systems is a constituent corporation and which results in less than 50
percent of the outstanding voting securities of the surviving or
resulting entity being owned by the then existing stockholders of Danka
Business Systems; (iii) a sale is consummated by the Company of
substantially all of the Company's assets (or substantially all of the
assets of Danka) to a person or entity which is not a wholly-owned
subsidiary of Danka Business Systems or any of its affiliates; or (iv)
during any period of two consecutive years, individuals who, at the
beginning of such period, constituted the Board cease, for any reason,
to constitute at least a majority thereof, unless the election or
nomination for election for each new director was approved by the vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
11.05 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Employment Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated; provided, however, no such purported termination shall be
effective without such Notice of Termination; provided further,
however, any
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purported termination by the Company or by Executive shall be
communicated by a Notice of Termination to the other party hereto in
accordance with Section 13 of this Employment Agreement.
Section 12. DEATH. Upon Executive's death during the Employment Period,
this Employment Agreement shall terminate immediately upon the date of
Executive's death, provided that the Company shall:
(a) pay to Executive's estate Executive's base salary accrued
through the date of death, accrued but unpaid vacation pay for
the year of death, any bonus earned but unpaid with respect to
periods prior to the date of death, and a pro rata bonus for
the fiscal year which includes the date of death, calculated
by multiplying the performance bonus payable for the fiscal
year, based on the Company's actual satisfaction of its
performance goals for the year, by a percentage equal to the
ratio of the number of days Executive worked prior to his
death to the total number of work days during the fiscal year.
(b) pay any death benefits owed in respect of Executive under the
terms of any life insurance plan, retirement or deferred
compensation plan, or other benefit plan of the Company, to
Executive's surviving spouse or such other beneficiary as
Executive has designated.
Section 13. NOTICES. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with established national reputation,
shipping prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party to the other (provided that all notices to
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company) or to such other address as either party may have
furnished to the other in writing in accordance herewith. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
Section 14. SUCCESSORS. This Employment Agreement shall be binding on
the Company and any successor to any of its businesses or to a substantial
fraction of its business assets. Without limiting the effect of the prior
sentence, the Company shall use its best efforts to require any successor or
assigns (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Employment Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. As used in this
Employment Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assignee to its business and/or a substantial fraction of
its assets as aforesaid which assumes and agrees to perform this Employment
Agreement or which is otherwise obligated under this Agreement, by operation of
law or otherwise.
Section 15. BINDING EFFECT. This Employment Agreement shall inure to
the benefit of and be enforceable by Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
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payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Employment Agreement to Executive's estate.
Section 16. MODIFICATION AND WAIVER. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Executive and such officer of
the Company as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Employment Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
Section 17. HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
Section 18. WAIVER OF BREACH. The waiver of either the Company or
Executive of a breach of any provision of this Employment Agreement shall not
operate or be construed as a waiver of any subsequent breach by either the
Company or Executive.
Section 19. AMENDMENTS. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same is in
writing and signed by all of the parties hereto.
Section 20. SEVERABILITY. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability.
Section 21. ENTIRE AGREEMENT. This Employment Agreement sets forth the
entire agreement and understanding of the Company and Executive in respect of
the terms and conditions of Executive's employment after the Commencement Date,
and supersedes all prior employment agreements, covenants or representations or
warranties, whether oral or written, made by the parties, or any representative
of the Company, with respect to such terms and conditions of employment,
including the Employment Agreement dated April 1, 1994 by and among Executive,
Danka Business Systems and Danka Industries, Inc.
Section 22. GOVERNING LAW. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State of Florida.
Section 23. ARBITRATION. Any controversy or claim arising out of or
relating to this Employment Agreement or any transactions provided for herein,
or the breach thereof, 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 shall be named by Executive and the third arbitrator shall be named by
the two arbitrators so chosen. In the event 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 or such other location as may
be mutually agreed to by the Company and Executive. 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
-11-
<PAGE> 12
award is subject to confirmation, modification, correction, or vacation only as
explicitly provided in Title 9 of the United States Code, as amended. The
prevailing party shall be entitled to an award of pre- and post-award interest
as well as reasonable attorneys' fees, costs and expenses incurred in connection
with the arbitration and any judicial proceedings related thereto.
Section 24. COUNTERPARTS. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
the Company and Executive as of the date first above written.
"COMPANY" - DANKA BUSINESS SYSTEMS PLC
By /s/ Mark A. Vaughan-Lee
--------------------------------------
Mark A. Vaughan-Lee, Chairman
DANKA HOLDING COMPANY
By /s/ David C. Snell
--------------------------------------
David C. Snell, Vice President
"EXECUTIVE"
/s/ Daniel M. Doyle
-----------------------------------------
Daniel M. Doyle
-12-
<PAGE> 1
EXHIBIT 13
Financial and Corporate Information
<TABLE>
<CAPTION>
Contents
<S> <C>
Selected Consolidated Financial Data 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Consolidated Statements of Earnings 21
Consolidated Balance Sheets 22
Consolidated Statements of Cash Flows 23
Consolidated Statements of Shareholders' Equity 24
Notes to Consolidated Financial Statements 25
Independent Auditors' Report 34
</TABLE>
NOTE
The financial information in this section has been prepared under United States
Generally Accepted Accounting Principles in U.S. dollars. Financial information
prepared under United Kingdom Generally Accepted Accounting Principles in
sterling may be obtained by contacting the Company's offices.
13
<PAGE> 2
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
$000 $000 $000 $000 $000
For the years ended March 31 (Except per ADS data)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
REVENUE:
Retail 3,080,417 1,860,516 1,069,593 702,740 453,218
Wholesale 268,569 240,531 170,711 99,456 78,190
- ------------------------------------------------------------------------------------------------------------------------
3,348,986 2,101,047 1,240,304 802,196 531,408
- ------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT:
Retail 1,184,625 775,342 466,533 306,202 199,080
Wholesale 50,644 44,061 30,116 17,691 14,688
- ------------------------------------------------------------------------------------------------------------------------
1,235,269 819,403 496,649 323,893 213,768
Selling, general and administrative expenses 1,005,631 650,655 378,407 245,525 162,119
Amortization of intangible assets 21,232 19,386 13,587 6,818 3,765
Research and development costs 50,000 12,500 -- -- --
Restructuring charges 11,000 35,000 8,500 -- --
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 147,406 101,862 96,155 71,550 47,884
Interest expense and other, net 64,214 33,985 21,566 7,742 3,667
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 83,192 67,877 74,589 63,808 44,217
Provision for income taxes 30,958 25,522 28,241 24,761 17,751
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEM 52,234 42,355 46,348 39,047 26,466
Extraordinary item* -- 578 1,133 -- --
- ------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 52,234 41,777 45,215 39,047 26,466
- ------------------------------------------------------------------------------------------------------------------------
PER ADS DATA:
Basic earnings per ADS** $ 0.92 $ 0.74 $ 0.91 $ 0.83 $ 0.61
Diluted earnings per ADS** $ 0.90 $ 0.72 $ 0.88 $ 0.80 $ 0.59
Dividends per ADS $ 0.20 $ 0.16 $ 0.13 $ 0.11 $ 0.09
BALANCE SHEET DATA:
Total assets 2,178,941 2,352,704 1,091,556 635,314 356,804
Long-term debt, less current maturities 858,892 1,059,823 318,262 233,681 67,520
Shareholders' equity 480,307 465,731 441,843 206,408 169,925
</TABLE>
* Extraordinary item in fiscal 1997 and 1996 represents the loss on early
extinguishment of debt, net of the related income tax benefit.
** Earnings per ADS have been restated (see note 1).
14
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE COMPANY
Danka Business Systems PLC and its subsidiaries (the "Company") is one of the
world's largest independent suppliers of photocopiers, facsimiles and other
related automated office imaging equipment. The Company primarily markets these
products and related services, parts and supplies on a direct basis to retail
customers. The Company also markets photocopiers, facsimiles, and related parts
and supplies on a wholesale basis to independent dealers. The Company
principally distributes the products of Canon, Kodak, Konica, Minolta, Ricoh,
Sharp and Toshiba. In addition, the Company markets private label photocopiers
and facsimiles and related supplies on a direct basis under the Company's
Infotec trademark, and facsimile equipment under its dex and Omnifax trademarks.
The Company became the exclusive distributor of Kodak branded photocopiers and
printers in December 1996 after completing the acquisition of the sales,
marketing, and equipment service operations of Eastman Kodak Company's ("Kodak")
Office Imaging division and outsourcing business. The businesses are now known
as Danka Office Imaging and Danka Services International ("DSI"). As the
Company proceeds with the integration of Danka Office Imaging with its core
operations, there will be less reference to the acquired Office Imaging business
and more focus on the new, unified sales and service organization. DSI provides
services including the management of central reprographics departments,
placement of convenience copiers, fleet management of customer equipment,
print-on-demand operations, document archiving and retrieval services, and
document management consulting.
The Company paid $688.0 million, subject to post closing adjustments, on
December 31, 1996 for Kodak's Office Imaging and outsourcing businesses. In
September 1997, the Company received a cash refund of approximately $100.0
million from Kodak related to the purchase price adjustment provision in the
asset purchase agreement. The settlement amount was based on the net asset
changes of the Office Imaging and outsourcing businesses from December 31, 1995
to December 31, 1996.
The Company's goal is to increase its net margins through certain cost
efficiencies and synergies it expects to achieve by integrating the Office
Imaging business with the Company's core operations. In September 1997, the
Company announced its global integration project (the "Uniting Danka Project"),
with a goal of accelerating the unification of Danka Office Imaging with the
Company's core operations. The Company chose to accelerate the integration
process after careful consideration of the responses by customers and employees.
Management having received advice from independent consultants, based their
decision to immediately combine the two organizations upon the belief that an
accelerated integration plan was in the long-term best interest of the Company.
During the second quarter of fiscal 1998, the Company completed the realignment
of its geographical reporting responsibilities. The organization was split into
two regions: Danka Americas and Danka International. Danka Americas includes the
United States, Canada and Latin America. Danka International includes Europe,
Australia and the Asia/Pacific region. These geographic regions are supported by
the Company's areas of specialization which operate worldwide, including
Finance & Planning and Markets & Strategy. Management of the Company was also
realigned to conform with the organizational changes.
On December 16, 1997 the Company announced that the Uniting Danka Project was
progressing slower than anticipated and that the Company's accelerated
integration plan was impacting its operations and financial results, which
resulted in a shortfall in expected revenue and earnings. Although the benefits
of the combined organization are being realized slower than initially expected,
and while there can be no assurances that such benefits will ultimately be
achieved to the extent that the Company strives to attain them, the Company
remains committed to the complete integration of the two businesses.
The Company completed the final stages of integrating its existing sales force
with the Office Imaging sales force in April 1998. At the same time, the Company
introduced a new compensation plan. The Company's goal was to establish one face
to the customer, and provide a compensation plan that is not only competitive in
the industry, but also keeps the Company's entrepreneurial spirit alive.
The Company is implementing several key projects designed with the goal of
maximizing the future benefits of the integration. The first is the development
and transition to common information technology ("IT") systems in each country.
The Company has been making significant investments in its IT and operations
infrastructures, including the use of various independent computer and process
improvement consulting groups. The Company believes that these investments are
an important element in its efforts to successfully integrate the businesses and
to provide a solid foundation for future growth. The Company's goal is to link
the sales, service, billing and finance efforts electronically, with the goal of
providing better service to its customers, improving communication to and
support of its employees, as well as more effectively positioning Danka for the
technological trends impacting the industry. The final stages of the transition
of the Company's core operations to the Foresight system was completed in
December 1997, and the transition of the Office Imaging business is expected to
be completed by the end of calendar 1998. The second project is the
consolidation of real estate. The Company expects to generate savings through
the closure of duplicate facilities. By April 1998, the Company had consolidated
and reduced its U.S. dispatch call centers from 18 to 2. The Company is also in
the process of developing and implementing plans to reduce the number of
warehouses and operating centers. Finally, as announced in December 1997, the
Company estimates it will eliminate more than 1,000 positions to improve
efficiencies and maximize productivity. By the end of March 1998, the Company
had reduced the workforce by over 400 of these positions, slightly exceeding its
target, and expects the balance of these planned reductions to be completed by
December 1998. The reductions in the workforce are principally coming from
sales support, administration and management. The
15
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Company recorded an $11.0 million pre-tax restructuring change during the third
quarter related to the separation of these 1,000 plus employees. The
restructuring charge principally consisted of severance and other employee
termination benefits.
Following the Company's December 16, 1997 announcement regarding the expected
shortfall in revenue and earnings for the third quarter and 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 cases are in the early stages and while it is impossible to
predict the outcome of such litigation, management believes this litigation is
without merit and intends to vigorously defend the lawsuits.
The Company has completed numerous acquisitions throughout its history. The
acquisition of the Office Imaging and outsourcing businesses, which added over
$1.5 billion in annual revenue, was the Company's largest to date. The
acquisition added operations in more than 15 new countries, approximately 10,000
employees, and an expanded product and service portfolio.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of total
revenue represented by certain items in the Company's Consolidated Statements of
Earnings:
<TABLE>
<CAPTION>
Years Ended March 31
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Retail equipment sales 29.4% 33.3% 38.2%
Retail service, supplies and rentals 62.6 55.3 48.0
Wholesale 8.0 11.4 13.8
- ----------------------------------------------------------------------------------
TOTAL REVENUE 100.0 100.0 100.0
Cost of revenue 63.1 61.0 60.0
- ----------------------------------------------------------------------------------
GROSS PROFIT 36.9 39.0 40.0
Selling, general and
administrative expenses 30.0 31.0 30.5
Amortization of intangible assets 0.6 0.9 1.1
Research and development costs 1.5 0.6 --
Restructuring charges 0.4 1.7 0.7
- ----------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 4.4 4.8 7.7
Interest expense and other, net 1.9 1.6 1.7
- ----------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 2.5 3.2 6.0
Provision for income taxes 0.9 1.2 2.3
- ----------------------------------------------------------------------------------
EARNINGS BEFORE
EXTRAORDINARY ITEM 1.6 2.0 3.7
Extraordinary item -- -- 0.1
- ----------------------------------------------------------------------------------
NET EARNINGS 1.6% 2.0% 3.6%
- ----------------------------------------------------------------------------------
</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>
Years Ended March 31,
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Retail equipment sales 33.2% 37.4% 39.3%
Retail service, supplies and rentals 40.9 44.2 47.1
Wholesale 18.9 18.3 17.6
</TABLE>
REVENUE: In fiscal 1998, the Company achieved record revenue of $3.3 billion
compared with revenue of $2.1 billion in fiscal 1997 and $1.2 billion in fiscal
1996. Revenue increased by 59% in fiscal 1998 and 69% in fiscal 1997.
The increase in fiscal 1998 resulted from significant contributions from
acquisitions, principally the Office Imaging and outsourcing businesses acquired
in December 1996. As a result of the acquisition of the Office Imaging and
outsourcing businesses, the Company's revenue mix significantly changed. The
acquired businesses generate a higher percentage of revenue from service,
supplies and rentals compared to the Company's core operations. As a percentage
of total revenue, retail equipment and wholesale sales declined, as retail
service, supplies and rentals increased. The Company's current revenue mix is
expected to continue in the future. The increase in revenue in fiscal 1997
resulted from organic growth as well as contributions from acquisitions. Organic
growth during fiscal 1997 was principally related to its focus on major
accounts, its increased penetration in segment 5 and its entry into segment 6
high-volume copiers, and its increased sales of digital and color photocopiers.
An increasing amount of the Company's revenue is generated in countries outside
of the U.S. Due to the strength of the U.S. dollar against certain foreign
currencies, the Company's revenue for fiscal 1998 and fiscal 1997 were
negatively impacted by approximately $100.0 million and $23.0 million,
respectively. The fiscal 1996 impact of foreign currency fluctuations was not
material.
GROSS PROFIT: Gross profit increased 51% to $1.2 billion in fiscal 1998 from
$819.4 million in fiscal 1997, and 65% in fiscal 1997 from $496.6 million in
fiscal 1996. Gross profit as a percentage of total revenue decreased to 36.9%
in fiscal 1998 from 39.0% in fiscal 1997 and 40.0% in fiscal 1996. The decrease
in fiscal 1998 was primarily related to the acquisition of the Office Imaging
and outsourcing businesses which have lower individual gross profit margins than
the Company's core operations, as well as the Company's push to reduce inventory
levels at year-end which impacted the retail equipment margin. The fiscal 1998
gross profit margin was also affected by a $10.0 million provision recorded
during the third quarter for the anticipated shortfall in equipment purchases
under the multi-year supply agreements with Kodak ("Supply Agreements"). The
decrease in the fiscal 1997 gross profit margin was a result of the acquisition
of the Office Imaging and outsourcing businesses as well as to lower margins on
retail equipment revenue. The gross profit margin as a percentage of retail
equipment revenue decreased to 33.2% in fiscal 1998 from 37.4% in fiscal 1997
due to the factors discussed above and the higher mix of high-volume equipment
being sold. The Company's high-volume equipment sales generate a lower gross
profit margin than the Company's other equipment sales. The retail equipment
gross profit margin decreased to 37.4% in fiscal 1997 from 39.3% in fiscal 1996
due to several factors, including the acquisition of the
16
<PAGE> 5
Office Imaging and outsourcing businesses, lower margins on retail equipment
revenue and the discounting of high-volume machines during the second half of
fiscal 1997. Under the Supply Agreements, the Company began purchasing Kodak
branded equipment at lower prices than prior to the acquisition of the Office
Imaging and outsourcing businesses. In an effort to increase the sales of the
remaining Kodak high-volume copiers, the Company instituted lower pricing of the
inventory on hand at the time of the acquisition. As a percentage of revenue,
the gross profit margin on retail service, supplies and rentals decreased to
40.9% in fiscal 1998 and 44.2% in fiscal 1997 from 47.1% in fiscal 1996. The
decreases are primarily due to the acquisition of the Office Imaging and
outsourcing businesses which have lower individual gross profit margins. DSI,
the Company's outsourcing operations, has lower gross profit margins than the
Company's core operations, and as it continues to grow, this business is
expected to affect the Company's overall gross profit margin. Gross profit as a
percentage of wholesale revenue increased to 18.9% for fiscal 1998 from 18.3% in
fiscal 1997 and 17.6% in fiscal 1996. The increase has primarily been due to
stronger margins on the Company's private label sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 55% to $1.0 billion in fiscal 1998 and 72% in
fiscal 1997 to $650.7 million. The increases were primarily related to
acquisitions, principally the acquisition of the Office Imaging and outsourcing
businesses. As a percentage of total revenue, selling, general and
administrative expenses decreased to 30.0% in fiscal 1998 from 31.0% in fiscal
1997. The decrease primarily related to the transition to the Market Based
Approach during the first quarter of fiscal 1998 which reduced certain
duplicative administrative costs through the centralization of various
management and administrative functions throughout the Company's core operations
in North America. These reductions in administrative costs were partially offset
by the increased investments and costs associated with the Company's Uniting
Danka Project during the third and fourth quarters of fiscal 1998. As a
percentage of total revenue, selling, general and administrative expenses
increased to 31.0% in fiscal 1997 from 30.5% in fiscal 1996. The increase
related to the Company's aggressive hiring and training of new sales
representatives and support personnel during the first half of fiscal 1997 as
well as to costs incurred during the transition to the Market Based Approach in
North America.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets increased
to $21.2 million in fiscal 1998 from $19.4 million in fiscal 1997 and $13.6
million in fiscal 1996. These increases related to acquisitions for which
additional intangible assets are being amortized.
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. The
Company recorded research and development costs of $50.0 million and $12.5
million in fiscal 1998 and 1997, respectively.
RESTRUCTURING CHARGES: The Company recorded an $11.0 million pre-tax
restructuring charge during the third quarter of fiscal 1998, principally
related to the integration of the Office Imaging business. The restructuring
charge consisted of severance and other employee termination benefits. The
Company recorded a $35.0 million pre-tax restructuring charge during the third
quarter of fiscal 1997 related to the acquisition of the Office Imaging business
and the related transition to the Company's Market Based Approach in North
America. The Company recorded an $8.5 million restructuring charge in the third
quarter of fiscal 1996 principally related to the restructuring of its
international operations. The fiscal 1997 and 1996 restructuring charges
included, among other things, severance and other employee termination benefits,
lease settlement costs associated with the consolidation of duplicate
facilities, and the write-off of certain leasehold improvements and other fixed
assets.
EARNINGS FROM OPERATIONS: Earnings from operations rose to $147.4 million in
fiscal 1998, a 45% increase over fiscal 1997 earnings from operations of $101.9
million. Fiscal 1997 earnings from operations were 6% higher than fiscal 1996
earnings from operations of $96.2 million. The increases primarily related to
increased total revenue. As a percentage of total revenue, earnings from
operations were 4.4%, 4.8% and 7.7% in fiscal 1998, 1997 and 1996, respectively.
The Company's earnings from operations for fiscal 1998 were impacted by the
lower combined gross profit margin, the $10.0 million provision for the
anticipated shortfall in equipment purchases, the $11.0 million pre-tax
restructuring charge and the $50.0 million in research and development costs.
The decrease in earnings from operations as a percentage of revenue during
fiscal 1997 was principally due to the $35.0 million restructuring charge, the
$12.5 million in research and development costs, and to a lower combined gross
profit margin.
INTEREST EXPENSE AND OTHER, NET: Interest expense increased to $64.2 million in
fiscal 1998 from $34.0 million in fiscal 1997 and $21.6 million in fiscal 1996.
Interest expense increased in fiscal 1998 and 1997 primarily due to borrowings
used to fund the acquisition of the Office Imaging and outsourcing businesses.
17
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INCOME TAXES: Income taxes increased to $31.0 million in fiscal 1998 from $25.5
million in fiscal 1997 due to higher levels of earnings before taxes. Fiscal
1997 income taxes decreased to $25.5 million from $28.2 million in fiscal 1996
primarily due to the $35.0 pre-tax million restructuring charge which impacted
earnings before income taxes. The effective tax rate was 37.2% for fiscal 1998,
37.6% for fiscal 1997 and 37.9% for fiscal 1996. These rates have decreased due
to higher earnings outside of the U.S. for which the effective tax rates are
lower.
EXTRAORDINARY ITEM: In the third quarter of fiscal 1997, the Company recorded an
extraordinary loss of $0.6 million related to the early extinguishment of debt,
net of the income tax benefit of $0.3 million. The extraordinary charge resulted
from the early retirement of the Company's $400.0 million credit facility and
consisted primarily of the write-off of unamortized deferred finance costs. The
Company recorded a similar charge in the fourth quarter of fiscal 1996 in the
amount of $1.1 million, net of the income tax benefit of $0.7 million.
NET EARNINGS: As a result of the above factors, net earnings increased 25% to
$52.2 million in fiscal 1998 and decreased 8% from fiscal 1996 to $41.8 million
in fiscal 1997. As a percentage of total revenue, net earnings were 1.6% in
fiscal 1998, 2.0% in fiscal 1997 and 3.6% in fiscal 1996. The decreases in
fiscal 1998 and fiscal 1997 were primarily due to the respective lower combined
gross profit margins, restructuring charges, research and development costs and
to higher levels of interest expense. Fiscal 1998 was also impacted by the $10.0
million provision for the anticipated shortfall in equipment purchases.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the U.S. dollar
affect the dollar equivalent of the pound sterling of the Ordinary Shares of the
Company on the London Stock Exchange and, as a result, are likely to affect the
market price of the ADSs. Additionally, the Company declares its dividends in
pounds sterling. Fluctuations in exchange rates will affect dividends 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 Company has significantly increased its international
business over the last few years and most recently, with the acquisition of the
Office Imaging and outsourcing businesses, has added more than 15 additional
countries. The results of operations, financial condition and competitive
position of the Company's business may be affected by the relative strength of
its currencies in countries where its products are currently sold. The Company's
results of operations and financial condition may be 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 automated office equipment,
related parts and supplies from Japanese manufacturers. The purchase price for
these products is generally 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow provided by operating activities was $171.4 million,
$192.7 million and $57.2 million for fiscal 1998, 1997 and 1996, respectively.
The Company experiences increases in certain balance sheet accounts which result
primarily from acquisitions as well as from normal working capital needs. More
specifically, the acquisition of the Office Imaging and outsourcing businesses
has impacted several of the items within the Company's operating cash flow. In
fiscal 1998, the Company's inventory levels increased as a result of the
requirements to purchase various levels of equipment pursuant to the Supply
Agreements with Kodak. The Company's goal is to build its high-volume sales
force and to improve the productivity of its sales force in an effort to meet
the purchasing requirements contained in the Supply Agreements. The Company was
able to reduce inventory levels during the fourth quarter as a result of strong
equipment sales and its overall efforts to reduce inventory at year end. Fiscal
1997 operating cash flow was significantly impacted by the acquisition of the
Office Imaging and outsourcing businesses due to the fact that the net assets
acquired contained low levels of accounts payable, and the normal buildup of
trade payables positively impacted operating cash flow. Cash flow used in
investing activities was $75.3 million, $871.6 million and $306.6 million for
fiscal 1998, 1997 and 1996, respectively. The higher levels of investing
activities during fiscal 1997 and 1996 were primarily due to the Company's
acquisition of the Office Imaging and outsourcing businesses in fiscal 1997 and
of Infotec Europe B.V. and its subsidiaries in fiscal 1996. In addition, during
fiscal 1998, the Company received a cash refund of approximately $100.0 million
from Kodak related to the purchase price adjustment provision in the asset
purchase agreement. Net cash (used in) provided by financing activities was
$(135.2) million,
18
<PAGE> 7
$707.5 million and $198.1 million in fiscal 1998, 1997 and 1996, respectively.
The use of cash in fiscal 1998 for financing activities was due to the paydown
of total outstanding debt by over $150 million. The higher levels of financing
activities in fiscal 1997 was primarily due to acquisition of the Office Imaging
and outsourcing businesses in which funds were received through the Company's
credit agreement discussed below.
In December 1996 the Company signed a six-year $1.275 billion multicurrency
credit agreement (the "Credit Agreement") with a consortium of international
banks. The proceeds from the Credit Agreement were utilized to purchase the
Office Imaging and outsourcing businesses, 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 the 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. The Company has not
needed the full capacity of the Credit Agreement. The Credit Agreement is
secured and guaranteed by certain of the Company's subsidiaries and a covenant
that the Company will not pledge its assets except as specifically permitted
under the terms of the Credit Agreement. The Credit Agreement contains negative
and affirmative covenants and agreements which place restrictions on the Company
regarding disposition of assets, capital expenditures, additional indebtedness,
permitted liens and payment of dividends, as well as requiring the maintenance
of certain financial ratios. The adjustable interest rate on the Credit
Agreement is, at the option of the Company, either: (i) the applicable InterBank
Offered Rate plus a tiered margin based on leverage for the periods of one, two,
three or six months or (ii) an alternative base rate, consisting of the higher
of the lead bank's prime rate or the Federal Funds Rate plus 0.5%. As of March
31, 1998 the Credit Agreement had an outstanding balance of approximately $231.5
million under the revolving component and $479.9 million under the term loan,
all of which was incurring interest at a weighted average rate of 5.9% per
annum. Therefore, subject to availability under the covenants, the Company had
$448.6 million available for future borrowings.
In March 1995, the Company issued $200.0 million of 6.75% Convertible
Subordinated Notes (the "Notes") at par, in a private placement offering, due
April 2002. The Notes are convertible into the Company's ADSs at a conversion
rate of $29.125 per ADS, or into the Company's Ordinary Shares at a conversion
rate of $7.281 per Ordinary Share (equivalent to approximately 34.335 ADSs or
137.339 Ordinary Shares for each $1,000 principal amount of Notes). Interest is
payable semi-annually on April 1 and October 1. The Notes are not subject to
sinking fund requirements.
The Company has a number of other loans and credit facility arrangements with
banks, financial institutions and certain individuals which had an aggregate
balance of $31.9 million at March 31, 1998. This balance is primarily comprised
of various cash management lines of credit (the "Lines") in each of the
countries in which the Company operates. The Lines provide for daily liquidity
of local operations in each such country, and vary in terms and conditions.
While the Company does not have any other material contractual commitments other
than for the purchase of products under the Supply Agreements and the funding of
Kodak's research and development efforts, additional investments in facilities
and computer equipment will continue to be necessary to support the anticipated
growth of the business, and the transition of the Office Imaging business off of
Kodak's computer system. The Company's cash flow from operations together with
the borrowing capacity under the Credit Agreement are expected to be adequate
to finance its operating cash requirements and capital expenditures for the
short-term. It is anticipated that future acquisitions and growth in the
long-term will be funded primarily, and to the degree available, with cash flow
from operations, borrowings available under the Credit Agreement, other credit
sources and, where desirable, funding from the sale of additional debt or equity
securities.
YEAR 2000
Many computer systems, including several used by the Company, could experience
problems processing information beyond the year 1999. As a result, certain
computer systems, including both the hardware and software, need to be modified
prior to the year 2000, in order to remain functional. Most of the Company's
year 2000 issues are being considered and managed during the integration of
Danka Office Imaging with its core operations. A key project of the integration
is the transition to common IT systems in each country, which is expected to be
completed by the end of calendar 1998. The Company has been making ongoing
investments in its IT and operations infrastructure for the transition to
common IT systems and has considered the year 2000 problems in doing so. The
Company is also in the process of reviewing other computer support systems that
are not directly related to the integration project. The Company believes that,
with the successful transition to common IT systems and any necessary
modifications to other computer support systems, the year 2000 issue will not
pose significant operational problems for the Company. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, any year 2000 issues, which could have an adverse effect on the
business.
SEASONALITY
The Company has experienced some seasonality in its business. 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 automated
office equipment during such period.
19
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
IMPACTS OF INFLATION
The Company believes that inflation has not had a significant impact on its
operations.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," 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, and the Company's future
performance, are forward-looking, 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. Factors that might cause such differences include,
but are not limited to (i) the demands that the Office Imaging ("OI")
acquisition (the "Acquisition") and the unification thereof with the Company's
core operations will place on the Company's resources, infrastructure, current
operations and employees, (ii) the Company's inability to achieve substantial
operating cost reductions and efficiencies in productivity from the Acquisition,
the revised information technology system, the revised management structure or
other similar Company-wide initiatives associated with the unification, (iii)
the potential for unanticipated increases in expenditures for labor, equipment,
materials and supplies required to manage the increased size of the Company as a
result of the Acquisition, (iv) the Company's inability to effectively manage
the increased number of employees and retain current key management personnel
and other key employees added as a result of the Acquisition, who are accustomed
to a different corporate cultue, compensation arrangements and benefits
programs, while the Company simultaneously reduces the overall size of its
worldwide workforce, (v) the potential increased costs resulting from
technological developments, revisions to existing information technology
systems, Year 2000 issues and the integration of information technologies
between OI and the Company's core operations, (vi) increased competition
resulting from other high volume copier distributors and the discounting of such
copiers by competitors, (vii) the Company's ability to manage and reduce its
outstanding debt, meet its working capital needs and maintain compliance with
the covenants of its credit facility, (viii) the inability of the Company to
continue to gain access to and successfully distribute new and current products
brought to the marketplace at competitive costs and prices, (ix) the ultimate
amount of additional costs associated with the accelerated unification and
ultimate integration and the amount and timing of the realization of the
anticipated benefits from such unification and complete integration, (x) the
inability of the Company to effectively manage the increased size of its
inventory and product line, (xi) the Company's inability to comply with the
purchasing requirements under its supply agreements with its vendors, including
Kodak, and the impact thereof, (xii) the ultimate outcome and impact of the
pending class action lawsuits filed in December 1997 and January 1998, (xiii)
fluctuations in foreign currencies and (xiv) other risks including those risks
identified in 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.
20
<PAGE> 9
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
For the years ended March 31 Note (Except per ADS data)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Retail equipment sales 985,303 698,996 474,116
Retail service, supplies and rentals 2,095,114 1,161,520 595,477
Wholesale 268,569 240,531 170,711
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 3,348,986 2,101,047 1,240,304
- ---------------------------------------------------------------------------------------------------------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 657,839 437,387 288,000
Retail service, supplies and rental costs 1,237,953 647,787 315,060
Wholesale costs of revenue 217,925 196,470 140,595
Selling, general and administrative expenses 1,005,631 650,655 378,407
Amortization of intangible assets 21,232 19,386 13,587
Research and development costs 50,000 12,500 --
Restructuring charges 12 11,000 35,000 8,500
- ---------------------------------------------------------------------------------------------------------------------
Total costs and operating expenses 3,201,580 1,999,185 1,144,149
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 147,406 101,862 96,155
Interest expense and other, net 4 64,214 33,985 21,566
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 83,192 67,877 74,589
Provision for income taxes 7 30,958 25,522 28,241
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEM 52,234 42,355 46,348
Extraordinary item--loss on early extinguishment of debt,
net of income tax benefit -- 578 1,133
- ---------------------------------------------------------------------------------------------------------------------
NET EARNINGS 52,234 41,777 45,215
=====================================================================================================================
BASIC EARNINGS PER ADS:
Earnings before extraordinary item $ 0.92 $ 0.75 $ 0.93
Extraordinary item -- (0.01) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings per ADS $ 0.92 $ 0.74 $ 0.91
=====================================================================================================================
Weighted average ADSs 56,799 56,268 49,596
- ---------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER ADS:
Earnings before extraordinary item $ 0.90 $ 0.73 $ 0.90
Extraordinary item -- (0.01) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings per ADS $ 0.90 $ 0.72 $ 0.88
=====================================================================================================================
Weighted average ADSs 57,841 57,725 51,533
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
At March 31 Note $000 $000
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 34,653 73,875
Accounts receivable, net of allowance for doubtful
accounts of $30,973 (1997--$27,853) 628,052 758,903
Inventories 482,656 488,931
Prepaid expenses and other current assets 35,414 39,534
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,180,775 1,361,243
Equipment on operating leases, net 2 294,348 311,069
Property and equipment, net 3 87,916 87,768
Intangible assets:
Goodwill, net of accumulated amortization
of $57,028 (1997--$39,235) 5 478,247 460,262
Noncompete agreements, net of accumulated
amortization of $11,389 (1997--$9,128) 6,785 7,100
Other assets 130,870 125,262
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 2,178,941 2,352,704
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable 4 84,490 41,385
Accounts payable 297,464 358,257
Accrued expenses and other current liabilities 338,237 305,296
Deferred revenue 70,476 69,149
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 790,667 774,087
Convertible subordinated notes 4 200,000 200,000
Other long-term debt 4 658,892 859,823
Deferred income taxes and other long-term liabilities 7 49,075 53,063
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,698,634 1,886,973
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Ordinary Shares 1.25 pence stated value; 500,000,000 authorized;
227,495,865 issued and outstanding (1997--226,827,049) 10 4,746 4,734
Additional paid-in capital 304,197 301,623
Retained earnings 227,917 186,306
Currency translation adjustment (56,553) (26,932)
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 480,307 465,731
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies 11
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,178,941 2,352,704
================================================================================================================
</TABLE>
22
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997 1996
For the years ended March 31 $000 $000 $000
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings 52,234 41,777 45,215
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 171,273 96,414 52,136
Loss on sale of property and equipment 2,306 1,039 3,081
Proceeds from sale of rental equipment 35,087 12,505 9,018
Extraordinary item -- 927 494
Changes in assets and liabilities, net of effects
from the purchase of subsidiaries:
Accounts receivable (4,153) 50,806 (32,806)
Inventories 4,706 (65,204) (16,721)
Prepaid expenses and other current assets 2,992 (8,688) (3,751)
Other noncurrent assets (5,544) (5,837) (4,039)
Accounts payable (28,521) 77,093 3,687
Accrued expenses and other current liabilities (93,185) 1,929 843
Deferred revenue 2,149 (11,160) (9,463)
Deferred income taxes and other long-term liabilities 32,047 1,053 9,511
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 171,391 192,654 57,205
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (189,133) (92,747) (45,212)
Proceeds from sale of property and equipment 10,034 16,890 1,961
Proceeds from settlement of prior year acquisition, net of
payments for purchases of subsidiaries 106,558 (794,672) (269,860)
Payment for purchase of noncompete agreements (2,758) (1,058) (4,312)
Net proceeds from sale of investments -- -- 10,854
- -----------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (75,299) (871,587) (306,569)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit agreements (120,512) 734,057 74,773
Principal payments on debt (6,650) (19,670) (69,047)
Net proceeds from issuance of other long-term debt -- -- 1,599
Net proceeds from ADS offering -- -- 195,985
Proceeds from stock options exercised 2,586 2,131 935
Dividends (10,623) (9,015) (6,164)
- -----------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (135,199) 707,503 198,081
- -----------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES (115) 7,088 2,652
- -----------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (39,222) 35,658 (48,631)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 73,875 38,217 86,848
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 34,653 73,875 38,217
=================================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash flow information:
Interest paid 58,992 26,739 21,958
Income taxes paid 13,064 13,980 15,008
Non-cash flow information:
Notes payable issued for noncompete agreements -- -- 3,030
Notes payable issued for purchase of subsidiaries -- 288 21,932
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Currency
Ordinary paid-in Retained translation
shares capital earnings adjustment Total
$000 $000 $000 $000 $000
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1995 4,050 92,777 110,143 (562) 206,408
Net earnings -- -- 45,215 -- 45,215
Dividends -- -- (6,164) -- (6,164)
Distributions to former shareholders of
pooled companies -- -- (693) -- (693)
Currency translation adjustment -- -- -- (8,059) (8,059)
Shares issued under employee option plans 35 900 -- -- 935
Shares issued in public offering 380 195,605 -- -- 195,985
Shares issued for acquisitions 120 8,096 -- -- 8,216
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1996 4,585 297,378 148,501 (8,621) 441,843
Net earnings -- -- 41,777 -- 41,777
Dividends -- -- (9,015) -- (9,015)
Distributions to former shareholders of
pooled companies -- -- (324) -- (324)
Currency translation adjustment -- -- -- (18,311) (18,311)
Shares issued under employee option plans 14 2,117 -- -- 2,131
Shares issued for acquisitions 135 2,128 5,367 -- 7,630
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1997 4,734 301,623 186,306 (26,932) 465,731
Net earnings -- -- 52,234 -- 52,234
Dividends -- -- (10,623) -- (10,623)
Currency translation adjustment -- -- -- (29,621) (29,621)
Shares issued under employee option plans 12 2,574 -- -- 2,586
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1998 4,746 304,197 227,917 (56,553) 480,307
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PREPARATION: The financial statements have been prepared in
accordance with United States Generally Accepted Accounting Principles. The
principal accounting policies are set forth below.
(b) BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Danka Business Systems PLC and its wholly owned subsidiaries (the
"Company"). The Company's principal operating subsidiaries are located in North
America,Europe, Australasia, and Latin America, and are principally engaged in
the retail and wholesale distribution and service of photocopiers and facsimile
equipment and outsourcing of document imaging solutions. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at year end and
the reported amounts of revenues and expenses during the reporting period.
Certain significant estimates are disclosed throughout this report. Actual
results could differ from these estimates.
(d) REVENUE RECOGNITION: Equipment sales are recognized at the time of
customer acceptance, or in the case of equipment sales financed by third party
leasing companies, at the time of acceptance by the leasing company and the
customer. Supply sales to customers are recognized at the time of shipment, or
in the case of service contracts which include supplies, upon usage by the
customer.
Operating lease income is recognized as earned over the lease term, and
maintenance contract service revenues are recognized ratably over the term of
the underlying maintenance contract. Revenue from outsourcing contracts is
recognized as earned over the contract term. Deferred revenue consists of
unearned maintenance contract revenue that is recognized using the straight-line
method over the life of the related contract, generally twelve months.
(e) PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation and amortization is provided using the straight-line method over
the assets' estimated economic lives. Expenditures for additions, major renewals
or betterments are capitalized and expenditures for repairs and maintenance are
charged to earnings as incurred. When property and equipment are retired or
otherwise disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts and the resulting gain or
loss is reflected in earnings.
(f) INVENTORIES: Inventories consist of photocopiers, facsimile equipment,
other automated office equipment, and related parts and supplies, and are stated
at the lower of cost (specific cost for equipment and first-in, first-out method
for supplies and parts) or market.
(g) INTANGIBLES: Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized over thirty years on a
straight-line basis, and is evaluated for recoverability whenever adverse
effects or changes in circumstances indicate that the carrying amount may not
be recoverable. Impairments would be recognized if future undiscounted cash
flows and earnings from operations were not sufficient to recover the goodwill
and the carrying amount of the goodwill would be reduced by the estimated
shortfall of the discounted cash flows. At March 31, 1998, the Company believes
that there is no impairment of goodwill. Noncompete agreements are amortized
over the lives of the agreements, generally three to seven years on a
straight-line basis. Deferred financing costs incurred in connection with the
issuance of the Convertible Subordinated Notes and other financings are charged
as interest expense over the term of the related debt, and are included in other
noncurrent assets. Other intangibles include the Supply Agreements with Kodak
which are amortized to cost of sales over five years, and are included in other
noncurrent assets.
(h) FOREIGN CURRENCIES: Foreign currency transactions are converted at the
rate of exchange on the date of the transaction or translated at the year end
rate in the case of transactions not then finalized. Assets and liabilities in
currencies other than U.S. dollars are translated into U.S. dollars at the
exchange rate in effect at the balance sheet date. Revenues and expenses are
translated using the average rate of exchange for the period. Exchange
differences arising in consolidation are recorded in shareholders' equity.
25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(i) CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of cash on
hand and commercial paper with original maturities of three months or less.
(j) INCOME TAXES: Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(k) EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share." Statements No. 128 requires the
dual presentation of basic and diluted earnings per share ("EPS") for complex
capital structures on the Consolidated Statement of Earnings. Basic EPS is
computed by dividing net earnings by the weighted average number of shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise of stock options or the conversion of securities into stock. The
Company has implemented Statement No. 128 for the year ended March 31, 1998, and
restated all prior period EPS data to conform with Statement No. 128. Earnings
per American Depositary Share ("ADS") are based on the current ratio of four
Ordinary Shares to one ADS.
(l) CONCENTRATIONS OF RISK: Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash and
cash equivalents and trade receivables. The Company's cash and cash equivalents
are placed with high credit quality financial institutions, and are invested in
short-term maturity, highly rated corporate and government debt securities.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across many different industries and geographical areas. As of
March 31, 1998, the Company had no significant concentrations of credit risk. A
substantial portion of the Company's revenue is derived from the sale of
photocopiers and facsimile equipment. The Company's business is dependent upon
close relationships with its vendors and its ability to purchase products from
these vendors on competitive terms. The Company purchases products from a number
of different vendors. For the year ended March 31, 1998, the Company's purchases
of Kodak branded equipment represented approximately 25% of total equipment
purchases.
(m) FINANCIAL INSTRUMENTS: The Company enters into foreign exchange forward
and option contracts to manage its exposure to fluctuations in foreign currency
exchange rates. Gains and losses that hedge specific currency commitments are
deferred and recognized in net earnings in the period in which the transaction
is consummated. Premiums paid on option contracts that hedge specific currency
commitments are amortized over the term of the option.
(n) RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the current year presentation.
(o) ADVERTISING COSTS: The Company expenses advertising costs as incurred,
except production costs which are expensed the first time the advertising takes
place.
(p) NEW ACCOUNTING STANDARDS: In 1997, the Financial Accounting Standards
Board issued Statement No. 130, "Reporting Comprehensive Income," and Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
These statements which are effective for fiscal years beginning after December
15, 1997, expand or modify disclosures and will have no impact on consolidated
financial position, results of operations or cash flows.
2. EQUIPMENT ON OPERATING LEASES, NET
Included in equipment under operating leases is equipment used to generate
service revenue in the Company's outsourcing business. Substantially all of the
Company's operating leases are cancelable. Equipment on operating leases is
depreciated over three to five years assuming a salvage value ranging from zero
to ten percent and consists of the following at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
$000 $000
- ---------------------------------------------------------------------
<S> <C> <C>
Equipment on operating leases 441,906 345,841
Equipment used in outsourcing business 71,770 53,455
Less accumulated depreciation (219,328) (88,227)
- ---------------------------------------------------------------------
Equipment on operating leases, net 294,348 311,069
- ---------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended March 31, 1998, 1997 and 1996
approximated $109,896,000, $59,985,000, and $28,691,000, respectively.
26
<PAGE> 15
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, along with their useful lives, consist of the following
at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Average
1998 1997 useful life
$000 $000 in years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings 4,460 5,955 31
Office furniture, equipment and
leasehold improvements 137,193 102,977 3-10
Transportation equipment 13,925 12,827 5-15
Land 1,644 1,648 --
- -----------------------------------------------------------------------------------------------------------
Total cost 157,222 123,407
Less accumulated depreciation
and amortization (69,306) (35,639)
- -----------------------------------------------------------------------------------------------------------
Property and equipment, net 87,916 87,768
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended March 31, 1998, 1997 and 1996
approximated $40,145,000, $17,043,000, and $9,858,000, respectively.
4. DEBT
Debt consists of the following at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
$000 $000
- -------------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit (limited
to $610.0 million) interest at
LIBOR plus an applicable
margin or the agent bank's
reference rate (currently
averaging 6.7%), matures
December, 2002 231,521 329,565
Term loan (limited to $550.0
million) interest at LIBOR
plus an applicable margin or
the agent bank's reference rate
(currently averaging 5.5%),
matures December, 2002 479,902 532,200
6.75% Convertible Subordinated
Notes due April, 2002 200,000 200,000
Various notes payable bearing
interest from prime to 12.0%,
maturing principally over the
next 5 years 31,959 39,443
- -------------------------------------------------------------------------
Total long-term debt and
notes payable 943,382 1,101,208
Less current maturities of long-
term debt and notes payable (84,490) (41,385)
- -------------------------------------------------------------------------
Long-term debt, less current
maturities 858,892 1,059,823
- -------------------------------------------------------------------------
</TABLE>
The Company has a $1.160 billion multicurrency credit agreement (the "Credit
Agreement") with a consortium of international banks. The Credit Agreement,
which is secured, matures in December 2002, requires scheduled payments of
interest throughout the term of the loan, and the maintenance of certain
financial ratios. Additionally, the term loan requires quarterly principal
payments. The Company was in compliance with all terms of the Credit Agreement
at March 31, 1998.
In March 1995, the Company issued $200.0 million of 6.75% Convertible
Subordinated Notes (the "Notes") at par, in a private placement offering, due
April 2002. The Notes are currently convertible into the Company's ADSs at a
conversion rate of $29.125 per ADS, or into the Company's Ordinary Shares at a
conversion rate of $7.281 per Ordinary Share (equivalent to approximately 34.335
ADSs or 137.339 Ordinary Shares for each $1,000 principal amount of Notes).
Interest is payable semi-annually on April 1 and October 1. The Notes are not
subject to sinking fund provisions.
Aggregate annual maturities of debt at March 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year ending March 31 $000
-----------------------------------------------
<S> <C>
1999 84,490
2000 77,424
2001 100,782
2002 160,340
2003 519,713
Thereafter 633
-----------------------------------------------
Year 943,382
-----------------------------------------------
</TABLE>
5. ACQUISITIONS
Effective December 31, 1996, the Company acquired from Eastman Kodak Company
("Kodak"), the net assets of Kodak's Office Imaging division and the stock of
Kodak's outsourcing businesses. The acquisition was accounted for as a purchase
for which the Company paid cash of $688.0 million. In September 1997, the
Company received a cash refund of approximately $100.0 million from Kodak
related to the purchase price adjustment provision in the asset purchase
agreement. The settlement amount was based on the net asset changes of the
Office Imaging and outsourcing businesses from December 31, 1995 to December 31,
1996. Based upon the final allocations of the purchase price, the Company
recorded approximately $53.0 million of goodwill. At March 31, 1998,
approximately $15.1 million of accrued costs associated with the acquisition
remained, comprised of $8.7 million of workforce reductions in the acquired
company, $3.7 million for the closing of duplicate acquired facilities, and $2.7
million for other miscellaneous costs.
The Company did not make any material acquisitions for the year ended March 31,
1998.
27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. FOREIGN OPERATIONS
The following table indicates the relative amounts of revenue, earnings from
operations and identifiable assets of the Company by geographic area, for the
three years ended March 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
- -----------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
United States 2,045,654 1,377,101 938,622
Europe 1,025,695 555,555 246,145
Other international 277,637 168,391 55,537
- -----------------------------------------------------------------------
Consolidated revenue 3,348,986 2,101,047 1,240,304
- -----------------------------------------------------------------------
EARNINGS FROM
OPERATIONS:
United States 64,323 64,691 73,821
Europe 77,567 30,545 20,215
Other international 5,516 6,626 2,119
- -----------------------------------------------------------------------
Consolidated earnings
from operations 147,406 101,862 96,155
- -----------------------------------------------------------------------
IDENTIFIABLE ASSETS:
United States 1,170,926 1,366,268 612,428
Europe 786,256 806,438 434,122
Other international 221,759 179,729 44,371
-----------------------------------------------------------------------
2,178,941 2,352,435 1,090,921
Corporate assets -- 269 635
-----------------------------------------------------------------------
Consolidated assets 2,178,941 2,352,704 1,091,556
-----------------------------------------------------------------------
</TABLE>
Other international includes Canada, Latin America and Australasia. Corporate
assets are those assets maintained for general purposes, principally cash and
cash equivalents and short-term investments.
7. INCOME TAXES
The provision for income taxes for the three years ended March 31, 1998 was
allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income
taxes before extra-
ordinary item 30,958 25,522 28,241
Tax benefit from
extraordinary loss on
early extinguishment
of debt -- (349) (691)
------------------------------------------------------------------
Total provision for
income taxes 30,958 25,173 27,550
------------------------------------------------------------------
</TABLE>
The provision for income taxes before the extraordinary item for the three years
ended March 31, 1998 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. INCOME TAX
Current 6,785 (4,848) 13,345
Deferred 2,192 7,438 7,142
- ----------------------------------------------------------------------------------
Total U.S. tax provision 8,977 2,590 20,487
- ----------------------------------------------------------------------------------
EUROPE INCOME TAX
Current 24,180 20,298 6,831
Deferred (5,086) 40 485
- ----------------------------------------------------------------------------------
Total Europe
tax provision 19,094 20,338 7,316
- ----------------------------------------------------------------------------------
OTHER INTERNATIONAL
INCOME TAX
Current 4,912 3,059 438
Deferred (2,025) (465) --
- ----------------------------------------------------------------------------------
Total other international
tax provision 2,887 2,594 438
- ----------------------------------------------------------------------------------
TOTAL PROVISION FOR
INCOME TAXES
BEFORE EXTRA-
ORDINARY ITEM 30,958 25,522 28,241
- ----------------------------------------------------------------------------------
</TABLE>
A reconciliation of the U.K. statutory corporate rate to the effective rate is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
---------------------------------------------------------------------
<S> <C> <C> <C>
Tax charge at standard
U.K. rate 25,798 22,399 24,614
Profits taxed at other
than standard U.K. rate 1,567 (2,962) 3,142
Goodwill amortization
and other permanent
differences 3,593 6,085 485
---------------------------------------------------------------------
Provision for income taxes
before extraordinary item 30,958 25,522 28,241
---------------------------------------------------------------------
</TABLE>
The tax at standard U.K. rate was 31% in fiscal 1998, and 33% in fiscal 1997 and
1996.
28
<PAGE> 17
The tax effects of temporary differences that comprise the elements of deferred
tax at March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
$000 $000
- --------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses not deducted
for tax purposes 5,679 14,063
Reserves for inventory and
accounts receivable not
deducted for tax purposes 21,458 7,160
Restructuring charges not
deducted for tax purposes 1,461 4,963
Inventory costs capitalized for
tax purposes 6,330 8,755
Tax loss carryforwards 40,807 10,659
Tax credit carryforwards 9,859 --
Other 317 382
- --------------------------------------------------------------------
Total gross deferred tax assets 85,911 45,982
Valuation allowance (14,744) (10,659)
- --------------------------------------------------------------------
Net deferred tax assets 71,167 35,323
- --------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Leases (78,196) (65,970)
Depreciation (18,920) (221)
- --------------------------------------------------------------------
Total gross deferred tax liabilities (97,116) (66,191)
- --------------------------------------------------------------------
NET DEFERRED TAX LIABILITY (25,949) (30,868)
- --------------------------------------------------------------------
</TABLE>
At March 31, 1998, the Company has a net operating loss carryforward of
approximately $68,485,000 and a research and development credit of $5,714,000,
both relating to U.S. operations, available through the year March 31, 2013. The
Company has an alternative minimum tax credit carryforward of $4,145,000, also
relating to U.S. operations, which is available indefinitely. The Company has
foreign net operating loss carryforwards of approximately $48,000,000 with
varying expiration dates. Significant amounts of these losses are offset by
valuation allowances reflecting the lack of certainty as to realization. The net
change in the total valuation allowance for the years ended March 31, 1998 and
1997 was $4,085,000 and ($1,306,000), respectively.
8. EMPLOYEE BENEFITS
Substantially all of the U.S. employees are entitled to participate in the
Company's Profit Sharing Plan (the "Plan") established under Section 401(k) of
the U.S. Internal Revenue Code. Employees are eligible to contribute voluntarily
to the Plan after one year of continued service and attaining age 21. At its
discretion, the Company may contribute 100% of the first 3% and 50% of the next
3% of the employee contribution. Employees are always vested in their
contributed balance and become fully vested in the Company's contributions
after four years of service. The expenses related to contributions to the Plan
for the years ended March 31, 1998, 1997 and 1996 were approximately
$15,116,000, $3,968,000, and $2,362,000, respectively.
Certain non-U.S. employees participate in defined contribution plans with
varying vesting and contribution provisions. The expenses related to these
contributions for the years ended March 31, 1998 and 1997 were approximately
$6,032,000, and $2,100,000, respectively. In connection with the acquisition of
the Office Imaging and outsourcing businesses, the Company acquired certain
pension obligations of non-U.S. employees from Kodak. At March 31, 1998 the
provision for these pension obligations was $8.1 million.
The Company has a Supplemental Executive Retirement Plan ("SERP") which provides
additional income for certain of its U.S. executives upon retirement.
Contributions to the SERP are at the discretion of the Company, and were
$177,500 and $435,500, respectively, for the years ended March 31, 1998 and
1997.
9. EARNINGS PER SHARE
The Company has implemented Statement of Financial Accounting Standards No. 128,
"Earnings per Share" for the year ended March 31, 1998. The following table
reconciles the numerator and denominator of the basic and diluted earnings per
ADS computations.
<TABLE>
<CAPTION>
1998 1997
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(In thousands except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $52,234 $41,777
BASIC EARNINGS
PER ADS:
Income available to
shareholders 52,234 56,799 $ 0.92 41,777 56,268 $ 0.74
====== ======
EFFECT OF DILUTIVE
SECURITIES:
Stock options 1,042 1,457
------ ------
DILUTED EARNINGS
PER ADS:
Income available to
shareholders plus
assumed conversion $52,234 57,841 $ 0.90 $41,777 57,725 $ 0.72
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996
Income Shares Per-Share
(Numerator) (Denominator) Amount
(In thousands except per share amounts)
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $45,215
BASIC EARNINGS
PER ADS:
Income available to
shareholders 45,215 49,596 $ 0.91
======
EFFECT OF DILUTIVE
SECURITIES:
Stock options 1,937
DILUTED EARNINGS
PER ADS:
Income available to
shareholders plus
assumed conversion 45,215 51,533 $ 0.88
- -----------------------------------------------------------------------
</TABLE>
29
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effect of the Company's $200.0 million of Convertible Subordinated Notes are
not included in the computation of diluted earnings per ADS for the year ended
March 31, 1998 since they are anti-dilutive.
10. SHARE OPTION PLANS
The Company's share option plans authorize the granting of both incentive and
non-incentive share options for an aggregate of 22,500,000 Ordinary Shares
(5,625,000 ADS equivalents). Under these plans, options are granted at prices
not less than market value on the date of grant and the maximum term of an
option may not exceed ten years. Share options generally become vested after a
period of three years subsequent to the date of the grant. At March 31, 1998, a
total of 4,350,386 options were vested under these plans, with exercise prices
ranging from 26.13 to 445.00 pence per share.
The Company also established The Danka Employees' Trust Fund (the "Employees'
Trust") to be used in conjunction with The Danka 1996 Share Option Plan. The
Employees' Trust may subscribe for shares in the Company, which the Company has
granted in the form of share options, or it may purchase the shares on the open
market. The Employees' Trust will transfer shares to the employee upon exercise
of their options. No shares were acquired by the Company for the year ended
March 31, 1998.
Transactions during the three years ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Number of Exercise price
Ordinary Shares in pence
- -----------------------------------------------------------------------
<S> <C> <C>
Balance outstanding at
March 31, 1995 7,059,499 12.50-377.66
Granted 1,479,373 378.67-699.00
Exercised (1,850,268) 12.50- 74.25
Canceled (90,500) 307.00-351.33
- -----------------------------------------------------------------------
Balance outstanding at
March 31, 1996 6,598,104 12.50-699.00
Granted 3,868,294 359.67-780.00
Exercised (764,802) 12.50-439.67
Canceled (271,500) 286.00-459.00
- -----------------------------------------------------------------------
Balance outstanding at
March 31, 1997 9,430,096 26.13-780.00
Granted 8,780,405 217.92-762.50
Exercised (668,816) 41.00-439.67
Canceled (872,600) 307.00-730.00
- -----------------------------------------------------------------------
Balance outstanding at
March 31, 1998 16,669,085 26.13-780.00
- -----------------------------------------------------------------------
</TABLE>
Information with respect to share options outstanding at March 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Ordinary Shares Contractual Life
------------------------------------------------------------
<S> <C> <C>
Price range
26.13-74.25 pence 3,394,400 2.2 years
Price range
215.66-390.33 pence 7,550,752 9.2 years
Price range
445.00-780.00 pence 5,723,933 8.9 years
- -------------------------------------------------------------
16,669,085
- -------------------------------------------------------------
</TABLE>
The Company accounts for these Plans under APB Opinion No. 25, under which no
compensation cost has been recognized. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Had compensation cost for these
Plans been determined consistent with Statement No. 123, the Company's net
earnings and net earnings per ADS would have been reduced to the following
unaudited pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
(Except per ADS data)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings
As reported 52,234 41,777 45,215
Pro forma 36,869 34,903 43,585
Basic net earnings per ADS
As reported $0.92 $0.74 $0.91
Pro forma $0.65 $0.62 $0.88
Diluted net income per ADS
As reported $0.90 $0.72 $0.88
Pro forma $0.64 $0.60 $0.85
- -----------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes option
pricing model. The following assumptions were used in determining the fair value
of each option grant for fiscal 1998: dividend yield of .51%; expected
volatility of 139.0%; expected option life of 5 years; and the five-year
risk-free rate at the time of each grant (5.8%-6.7%). For fiscal 1997 and 1996:
dividend yield of .42%; expected volatility of 113.7%; expected option life of 5
years; and the five-year risk-free rate at the time of each grant (5.3%-7.0%).
The effects of applying Statement No. 123 in this pro forma disclosure are not
indicative of future amounts.
30
<PAGE> 19
11. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
LEASES: The Company is obligated under various noncancelable operating leases
for its office facilities, office equipment and vehicles. Future noncancelable
lease commitments as of March 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year ending March 31 $000
- ----------------------------------------------------------------
<S> <C>
1999 87,306
2000 63,147
2001 48,143
2002 27,143
2003 16,132
Thereafter 21,647
- ----------------------------------------------------------------
</TABLE>
Rental expense for fiscal years ended March 31, 1998, 1997 and 1996 was
approximately $84,482,000, $53,509,000, and $22,993,000, respectively.
KODAK COMMITMENTS: In connection with the acquisition of the Office Imaging and
outsourcing businesses, Kodak and the Company entered into a number of
agreements effective December 31, 1996 relating to the purchase, sale and
service of electrophotographic equipment and related software, supplies,
accessories and spare parts manufactured or remanufactured by Kodak. The most
significant of these agreements require the Company to purchase from Kodak
various levels of equipment and related parts and supplies through 2001. For the
year ended March 31, 1998, the Company recorded a provision of $10.0 million for
the anticipated shortfall in equipment purchases under this agreement. In
addition, the Company has an agreement to contribute a total of $175.0 million
(plus an additional $30.0 million upon the achievement of identified milestones)
to Kodak for ongoing research and development of new electrophotographic
products through December 31, 2002.
LEASE COMMITMENTS: Danka Holding Company ("DHC"), a U.S. subsidiary of the
Company, has an operating lease agreement (the "Agreement"), which expires on
December 2002. The Agreement provides for DHC to lease certain real property in
the U.S. The Agreement generally provides for DHC to pay property taxes,
maintenance, insurance, and certain other operating costs of the leased
properties. The leases covered by the Agreement provide for a residual guarantee
by DHC at the end of the initial lease term, which has not been included in
the table of future noncancelable lease commitments. The Agreement also
includes purchase and renewal options at fair market values. DHC has the right
to exercise a purchase option on the properties at the end of the lease term, or
the properties can be sold to third parties. DHC expects the fair market value
of the properties, subject to the purchase option or sale to third parties, to
substantially reduce or eliminate DHC's payment under the residual value
guarantee. DHC is obligated to pay the difference between the maximum amount of
the residual guarantee and the fair market value at the termination of each
lease under the Agreement. The maximum residual guarantee relative to the
properties covered by the Agreement is equal to the total cost of the
properties leased under the Agreement, which was approximately $38.2 million at
March 31, 1998.
RELATED PARTY TRANSACTIONS: The Company remains contingently liable for the
repayment of $792,000 of Industrial Revenue Bonds used to finance the
construction of its corporate office in St. Petersburg, Florida. The obligation
was assumed by a company controlled by the Chief Executive when it acquired the
corporate office building. The Company leases its corporate office and three
other offices owned by companies in which the Chief Executive has a significant
interest. The above arrangements were entered into prior to the acquisition
agreement dated December 1986 whereby Danka Business Systems PLC purchased Danka
Industries, Inc. ("Danka"). For the years ended March 31, 1998, 1997 and 1996,
Danka was charged $756,000, $748,000, and $689,000, respectively, for rent due
under these leases. The leases expire at various dates, with the last lease
expiring in December 2003. In addition, for the year ended March 31, 1998, the
Company paid approximately $1,263,000 to a real estate services company whose
president is related to the Chief Executive.
LITIGATION: Following the Company's December 16, 1997 announcement regarding the
expected shortfall in revenue and earnings for the third quarter and 1998 fiscal
year, purported class action lawsuits were filed in federal court in Florida
against the Company and certain of its directors and officers, alleging
violations of the federal securities laws. The cases are 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 lawsuits. 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.
31
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RESTRUCTURING CHARGES
FISCAL 1998: In the third quarter of fiscal 1998, the Company recorded an $11.0
million pre-tax restructuring charge, related to the integration of the Office
Imaging division acquired from Kodak with the Company's existing sales and
service network. The restructuring charge principally consists of severance and
other employee termination benefits, and will result in the separation of over
1,000 employees worldwide. These reductions are principally coming from sales
support, administration and management, and are expected to be completed on a
worldwide basis by December 1998. This charge reduced net earnings by
approximately $6.9 million or $0.12 per ADS.
FISCAL 1997: In the third quarter of fiscal 1997, the Company recorded a $35.0
million pre-tax restructuring charge, related to the acquisition of the Office
Imaging division acquired from Kodak and the related transition to the Company's
Market Based Approach in North America. As of March 31, 1998, approximately
$13.3 million remained in accrued liabilities, primarily for the closing of
duplicate facilities. The closure of these facilities is expected to be
completed on a worldwide basis by December 1998.
13. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS: At March 31, 1998, the carrying values of
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, and other notes payable approximated fair value due to the short-term
maturities of these assets and liabilities. The estimated fair market value of
the Company's $200.0 million 6.75% Convertible Subordinated Notes at March 31,
1998 was approximately $191.3 million, based on the quoted market price of the
Notes. The estimated fair market value at March 31, 1998 of the Company's Credit
Agreement approximated the carrying amount of the debt, due to the short-term
maturities of the individual components of the debt.
FOREIGN CURRENCY INSTRUMENTS: From time to time, the Company enters into forward
and option contracts to manage its exposure to fluctuations in foreign currency
exchange rates on specific transactions. Foreign exchange forward contracts are
legal agreements between two parties to purchase and sell a foreign currency,
for a price specified at the contract date. The fair value of foreign exchange
forward contracts is estimated by obtaining quotes for futures contracts with
similar terms, adjusted where necessary for maturity differences. To hedge its
foreign currency exposure, the Company also purchases foreign exchange
options which permit, but do not require, the Company to exchange foreign
currencies at a future date with another party at a contracted exchange rate.
The fair value of foreign exchange options is estimated using active exchange
quotations. At March 31, 1998, there were no outstanding forward contracts or
option contracts to buy or sell foreign currency. For the year ended March 31,
1998, gains and losses realized on forward contracts and option contracts were
not material.
Under the Company's Credit Agreement, it is required to enter into arrangements
that provide protection from the volatility of variable interest rates for a
portion of the outstanding principal balance on the Credit Agreement. To fulfill
this obligation, the Company has utilized interest rate swap agreements to
eliminate the impact of interest rate changes on certain variable rate principal
balances outstanding under the Credit Agreement. At March 31, 1998, the Company
has interest rate swap agreements with five financial institutions, effectively
converting variable rate principal balances to fixed rates for periods of two to
three years. Therefore, at March 31, 1998, the Company maintained interest rate
swaps on principal/notional amounts of DEM85.0 million ($46.0 million), NLG95.3
million ($45.7 million), and U.S.$100.0 million, with weighted average fixed
rates of approximately 5.0%.
The Company's financial instruments involve, to varying degrees, elements of
exchange risk in excess of the amounts which would be recognized in the
Consolidated Balance Sheet. Exposure to foreign currency contracts results from
fluctuations in currency rates during the periods in which the contracts are
outstanding. Additionally, these contracts contain an element of credit risk to
the extent of nonperformance by the counterparties. The Company minimizes such
risk by limiting the counterparties to a group of major international banks, and
does not expect to record any losses as a result of nonperformance by these
counterparties.
32
<PAGE> 21
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial data for the periods
indicated:
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
$000 $000 $000 $000
(Except per ADS data)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenue 842,838 823,513 842,976 839,659
Gross profit 317,912 307,778 306,108 303,471
Net earnings (loss) 18,466 19,725 (373)(a) 14,416
Net earnings (loss) per ADS (diluted) $ 0.32 $ 0.34 $ (0.01)(a) $ 0.25
- --------------------------------------------------------------------------------------------------------------
Fiscal 1997
Revenue 401,955 420,528 441,146 837,418
Gross profit 159,079 168,038 172,822 319,464
Net earnings (loss) 14,331 14,397 (5,916)(b)(c) 18,965
Net earnings (loss) per ADS (diluted) $ 0.25 $ 0.25 $ (0.10)(b)(c) $ 0.33
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Net earnings (loss) per ADS have been restated (see note 1).
(a) Includes the effect of a restructuring charge of $11.0 million, and a
$10 million provision for the anticipated shortfall in equipment
purchases under the multi-year supply agreements with Kodak, or $0.23
per ADS (diluted).
(b) Includes the effect of a restructuring charge of $35.0 million or $0.38
per ADS (diluted).
(c) Includes the effect of an extraordinary loss of $0.6 million or $0.01
per ADS (diluted) due to the early extinguishment of debt.
33
<PAGE> 22
INDEPENDENT AUDITOR'S REPORT
To the Members of Danka Business Systems PLC
We have audited the consolidated balance sheets of Danka Business Systems PLC
and subsidiaries as of March 31, 1998 and 1997, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1998. These consolidated
financial statements are the responsibility of the group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom and the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly in all material respects the financial position of Danka Business Systems
PLC and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1998 in conformity with generally accepted accounting principles
in the United States.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England May 15, 1998
34
<PAGE> 1
EXHIBIT 21
DANKA BUSINESS SYSTEMS PLC
LIST OF SIGNIFICANT SUBSIDIARIES OF THE COMPANY
STATE/COUNTRY OF
SUBSIDIARY NAME INCORPORATION
NCNR Oil and Gas Ltd. United Kingdom
Danka Holdings Sarl Luxembourg
Dankalux Sarl Luxembourg
Danka Business Finance Ltd. Canada
Danka Canada Inc. Canada
Danka Holding Company Nevada
Danka Office Imaging Company Delaware
KIS Imaging Services, Inc. Delaware
Danka Holdings Belgium NV/SA Belgium
Danka Belgium NV/SA Belgium
Danka Danmark Holding A/S Denmark
Danka Danmark A/S Denmark
Danka Office Imaging A/S Denmark
Danka Holding France Sarl France
Danka France SA France
Danka Deutschland Holding GmbH Germany
Danka Deutschland GmbH Germany
Danka Office Imaging GmbH Germany
Danka SpA Italy
Danka Italia SpA Italy
Danka Europe B.V. The Netherlands
Danka Netherland B.V. The Netherlands
Danka Holdings Norway AS Norway
Danka Office Imaging AS Norway
Danka Holdings Iberia SA Spain
Danka Office Imaging S.A. Spain
Danka Holdings Sweden AB Sweden
Danka Office Imaging AB Sweden
Danka Holdings SA Switzerland
Danka Office Imaging S/A Switzerland
Danka Australia Pty Ltd. Australia
Danka Australia Pty Ltd Australia
Danka Holdings New Zealand, Ltd. New Zealand
Danka New Zealand Limited New Zealand
Danka Philippines, Inc. Philippines
Danka Participacoes Ltda. Brazil
Danka do Brasil Limitada Brazil
Danka Holdings Mexico S. de R.L. de CV Mexico
Danka Mexicana S. de. R.L. de C.V. Mexico
Danka Holdings BV The Netherlands
Danka Group BV The Netherlands
Danka Europe Ltd. United Kingdom
Danka U.K. Holdings Ltd. Untied Kingdom
Danka U.K. PLC United Kingdom
Danka Office Imaging Limited United Kingdom
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Members of Danka Business Systems PLC:
We consent to incorporation by reference in the registration statements (Nos.
33-75468, 33-75474 and 33-18615) on Form S-8, and (Nos. 33-95898, 33-94596 and
333-8455) on Form S-3 of Danka Business Systems PLC of our report dated May 15,
1998, relating to the consolidated balance sheets of Danka Business Systems PLC
and subsidiaries as of March 31, 1998 and 1997, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1998, and related schedules,
which report appears in the March 31, 1998 annual report on Form 10-K of Danka
Business Systems PLC.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
May 15, 1998 London, England
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,653
<SECURITIES> 0
<RECEIVABLES> 628,052
<ALLOWANCES> 30,973
<INVENTORY> 482,656
<CURRENT-ASSETS> 1,180,775
<PP&E> 670,898
<DEPRECIATION> 288,634
<TOTAL-ASSETS> 2,178,941
<CURRENT-LIABILITIES> 790,667
<BONDS> 0
0
0
<COMMON> 4,746
<OTHER-SE> 475,561
<TOTAL-LIABILITY-AND-EQUITY> 2,178,941
<SALES> 3,348,986
<TOTAL-REVENUES> 3,348,986
<CGS> 2,113,717<F1>
<TOTAL-COSTS> 2,113,717<F1>
<OTHER-EXPENSES> 1,087,863<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,214
<INCOME-PRETAX> 83,192
<INCOME-TAX> 30,958
<INCOME-CONTINUING> 52,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,234
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.90
<FN>
<F1>Includes $10.0 million provision for the anticipated shortfall in equipment
purchases under the Kodak multi-year Supply Agreements.
<F2>Includes $11.0 pre-tax restructuring charge.
</FN>
</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>
<RESTATED>
<MULTIPLIER> 1,000
<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
0
0
<COMMON> 4,741
<OTHER-SE> 484,485
<TOTAL-LIABILITY-AND-EQUITY> 2,234,429
<SALES> 1,666,351
<TOTAL-REVENUES> 1,666,351
<CGS> 1,040,661
<TOTAL-COSTS> 1,040,661
<OTHER-EXPENSES> 533,033
<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>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 53,489
<SECURITIES> 0
<RECEIVABLES> 736,146
<ALLOWANCES> 29,536
<INVENTORY> 518,473
<CURRENT-ASSETS> 1,350,794
<PP&E> 560,320
<DEPRECIATION> 165,014
<TOTAL-ASSETS> 2,325,948
<CURRENT-LIABILITIES> 746,737
<BONDS> 1,044,041
0
0
<COMMON> 4,735
<OTHER-SE> 474,687
<TOTAL-LIABILITY-AND-EQUITY> 2,325,948
<SALES> 842,238
<TOTAL-REVENUES> 842,238
<CGS> 524,926
<TOTAL-COSTS> 524,926
<OTHER-EXPENSES> 271,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,759
<INCOME-PRETAX> 29,366
<INCOME-TAX> 10,900
<INCOME-CONTINUING> 18,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,466
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1997 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 73,875
<SECURITIES> 0
<RECEIVABLES> 847,258
<ALLOWANCES> 27,853
<INVENTORY> 488,931
<CURRENT-ASSETS> 1,449,598
<PP&E> 522,703
<DEPRECIATION> 123,866
<TOTAL-ASSETS> 2,459,359
<CURRENT-LIABILITIES> 880,742
<BONDS> 1,059,823
0
0
<COMMON> 4,734
<OTHER-SE> 460,997
<TOTAL-LIABILITY-AND-EQUITY> 2,459,359
<SALES> 2,101,047
<TOTAL-REVENUES> 2,101,047
<CGS> 1,281,644
<TOTAL-COSTS> 1,281,644
<OTHER-EXPENSES> 717,541<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,985
<INCOME-PRETAX> 67,877
<INCOME-TAX> 25,522
<INCOME-CONTINUING> 42,355
<DISCONTINUED> 0
<EXTRAORDINARY> 578
<CHANGES> 0
<NET-INCOME> 41,777
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.72
<FN>
<F1>Includes $35,000 restructuring charge.
</FN>
</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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 74,001
<SECURITIES> 0
<RECEIVABLES> 654,612
<ALLOWANCES> 26,149
<INVENTORY> 486,927
<CURRENT-ASSETS> 1,240,188
<PP&E> 473,952
<DEPRECIATION> 100,945
<TOTAL-ASSETS> 2,209,422
<CURRENT-LIABILITIES> 458,426
<BONDS> 1,235,665
0
0
<COMMON> 4,725
<OTHER-SE> 467,856
<TOTAL-LIABILITY-AND-EQUITY> 2,209,422
<SALES> 1,263,629
<TOTAL-REVENUES> 1,263,629
<CGS> 763,690
<TOTAL-COSTS> 763,690
<OTHER-EXPENSES> 443,315<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,843
<INCOME-PRETAX> 37,781
<INCOME-TAX> 14,391
<INCOME-CONTINUING> 23,390
<DISCONTINUED> 0
<EXTRAORDINARY> 578
<CHANGES> 0
<NET-INCOME> 22,812
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
<FN>
<F1>Includes $35,000 restructuring charge.
</FN>
</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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 21,842
<SECURITIES> 0
<RECEIVABLES> 285,863
<ALLOWANCES> 12,487
<INVENTORY> 277,417
<CURRENT-ASSETS> 596,249
<PP&E> 83,303
<DEPRECIATION> 30,892
<TOTAL-ASSETS> 1,244,463
<CURRENT-LIABILITIES> 304,797
<BONDS> 440,730
0
0
<COMMON> 4,721
<OTHER-SE> 469,106
<TOTAL-LIABILITY-AND-EQUITY> 1,244,463
<SALES> 822,483
<TOTAL-REVENUES> 822,483
<CGS> 495,366
<TOTAL-COSTS> 495,366
<OTHER-EXPENSES> 268,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,865
<INCOME-PRETAX> 46,335
<INCOME-TAX> 17,607
<INCOME-CONTINUING> 28,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,728
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
</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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 44,764
<SECURITIES> 0
<RECEIVABLES> 279,727
<ALLOWANCES> 10,660
<INVENTORY> 243,443
<CURRENT-ASSETS> 579,130
<PP&E> 73,290
<DEPRECIATION> 26,558
<TOTAL-ASSETS> 1,181,978
<CURRENT-LIABILITIES> 298,318
<BONDS> 379,513
0
0
<COMMON> 4,718
<OTHER-SE> 456,621
<TOTAL-LIABILITY-AND-EQUITY> 1,181,978
<SALES> 401,955
<TOTAL-REVENUES> 401,955
<CGS> 242,876
<TOTAL-COSTS> 242,876
<OTHER-EXPENSES> 130,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,033
<INCOME-PRETAX> 23,131
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 14,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,331
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 38,217
<SECURITIES> 0
<RECEIVABLES> 247,479
<ALLOWANCES> 8,804
<INVENTORY> 214,519
<CURRENT-ASSETS> 509,749
<PP&E> 66,036
<DEPRECIATION> 23,241
<TOTAL-ASSETS> 1,091,556
<CURRENT-LIABILITIES> 292,075
<BONDS> 318,262
0
0
<COMMON> 4,585
<OTHER-SE> 437,258
<TOTAL-LIABILITY-AND-EQUITY> 1,091,556
<SALES> 1,240,304
<TOTAL-REVENUES> 1,240,304
<CGS> 743,655
<TOTAL-COSTS> 743,655
<OTHER-EXPENSES> 400,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,566
<INCOME-PRETAX> 74,589
<INCOME-TAX> 28,241
<INCOME-CONTINUING> 46,348
<DISCONTINUED> 0
<EXTRAORDINARY> 1,133
<CHANGES> 0
<NET-INCOME> 45,215
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.88
</TABLE>
