<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________
TO _______________
Commission file number: 0-20828
DANKA BUSINESS SYSTEMS PLC
-------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND 98-0052869
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 727-576-6003
------------
NOT APPLICABLE
-------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
The registrant had 242,749,466 Ordinary Shares outstanding as of October 31,
2000.
===============================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements (Unaudited)
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999 3
Consolidated Statements of Operations for the six months ended
September 30, 2000 and 1999 4
Condensed Consolidated Balance Sheets as of September 30, 2000
and March 31, 2000 5
Consolidated Statements of Cash Flows for the six months
ended September 30, 2000 and 1999 6
Consolidated Statements of Shareholders' Equity for the six months
ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities and Use of Proceeds 21
Item 3 - Defaults upon Senior Securities 21
Item 4 - Submission of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
Signature 23
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------------------------------- ------------- -------------
REVENUE:
Retail equipment sales $ 170,185 $183,374
Retail service, supplies and rentals 337,745 414,170
Wholesale 20,711 22,735
-------------------------------------------- --------- --------
Total revenue 528,641 620,279
-------------------------------------------- --------- --------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 150,877 129,567
Retail service, supplies and rental costs 225,569 252,554
Wholesale costs of revenue 17,190 18,917
Selling, general and administrative expenses 163,451 179,622
Amortization of intangible assets 22,181 3,503
-------------------------------------------- --------- --------
Total costs and operating expenses 579,268 584,163
-------------------------------------------- --------- --------
(LOSS) EARNINGS FROM OPERATIONS (50,627) 36,116
Interest expense and other, net 23,426 26,729
-------------------------------------------- --------- --------
(LOSS) EARNINGS BEFORE INCOME TAXES (74,053) 9,387
Provision (benefit) for income taxes (13,875) 2,628
-------------------------------------------- --------- --------
NET (LOSS) EARNINGS $ (60,178) $ 6,759
============================================ ========= ========
BASIC (LOSS) EARNINGS AVAILABLE TO COMMON
SHAREHOLDERS PER ADS:
Net (loss) earnings per ADS $ (1.08) $ 0.12
Weighted average ADSs 59,593 57,017
DILUTED (LOSS) EARNINGS AVAILABLE TO COMMON
SHAREHOLDERS PER ADS:
Net (loss) earnings per ADS $ (1.08) $ 0.12
Weighted average ADSs 59,593 58,345
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------------------------------- ------------- -------------
REVENUE:
Retail equipment sales $ 325,496 $ 350,435
Retail service, supplies and rentals 696,385 865,649
Wholesale 46,971 49,904
-------------------------------------------- ----------- ----------
Total revenue 1,068,852 1,265,988
-------------------------------------------- ----------- ----------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 256,733 248,363
Retail service, supplies and rental costs 450,110 515,683
Wholesale costs of revenue 39,230 40,630
Selling, general and administrative expenses 331,256 379,077
Amortization of intangible assets 25,737 7,084
Restructuring charges (credits) (8,158) --
-------------------------------------------- ----------- ----------
Total costs and operating expenses 1,094,908 1,190,837
-------------------------------------------- ----------- ----------
(LOSS) EARNINGS FROM OPERATIONS (26,056) 75,151
Interest expense and other, net 49,769 48,760
-------------------------------------------- ----------- ----------
(LOSS) EARNINGS BEFORE INCOME TAXES (75,825) 26,391
Provision (benefit) for income taxes (14,407) 7,389
-------------------------------------------- ----------- ----------
NET (LOSS) EARNINGS $ (61,418) $ 19,002
============================================ =========== ==========
BASIC (LOSS) EARNINGS AVAILABLE TO COMMON
SHAREHOLDERS PER ADS:
Net (loss) earnings per ADS $ (1.17) $ 0.33
Weighted average ADSs 59,252 57,017
DILUTED (LOSS) EARNINGS AVAILABLE TO COMMON
SHAREHOLDERS PER ADS:
Net (loss) earnings per ADS $ (1.17) $ 0.33
Weighted average ADSs 59,252 57,825
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
--------------------------------------------------------- ----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42,405 $ 64,861
Accounts receivable, net 471,907 527,793
Inventories 278,123 328,290
Prepaid expenses, deferred income taxes
and other current assets 89,248 81,837
--------------------------------------------------------- ----------- -----------
TOTAL CURRENT ASSETS 881,683 1,002,781
Equipment on operating leases, net 160,892 199,551
Property and equipment, net 90,075 92,614
Intangible assets, net 266,836 306,906
Other assets 80,154 65,845
--------------------------------------------------------- ----------- -----------
TOTAL ASSETS $ 1,479,640 $ 1,667,697
========================================================= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 61,309 $ 86,776
Accounts payable 170,883 178,870
Accrued expenses and other current liabilities 177,996 229,472
Deferred revenue 35,934 40,045
--------------------------------------------------------- ----------- -----------
TOTAL CURRENT LIABILITIES 446,122 535,163
Convertible subordinated notes 200,000 200,000
Long-term debt and notes payable, less current maturities 490,825 515,406
Deferred income taxes and other long-term liabilities 32,424 32,536
--------------------------------------------------------- ----------- -----------
TOTAL LIABILITIES 1,169,371 1,283,105
--------------------------------------------------------- ----------- -----------
6.50% CONVERTIBLE PARTICIPATING SHARES-REDEEMABLE:
$1.00 stated value, 500,000 authorized: 227,539 issued
and outstanding (March 31, 2000 - 220,320) 215,616 207,878
----------- -----------
SHAREHOLDERS' EQUITY:
Ordinary shares, 1.25 pence stated value; 500,000,000
authorized; 240,229,646 issued and outstanding
(March 31, 2000 - 234,573,862) 4,997 4,892
Additional paid-in capital 321,725 317,056
Retained earnings (deficit) (135,443) (66,226)
Accumulated other comprehensive (loss) income (96,626) (79,008)
--------------------------------------------------------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 94,653 176,714
--------------------------------------------------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,479,640 $ 1,667,697
========================================================= =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------------------------------------------------- ------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) earnings $ (61,418) $ 19,002
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization 94,810 80,891
Loss on sale of property and equipment and
equipment on operating leases 9,815 3,339
Proceeds from sale of equipment on operating leases 3,237 7,786
Restructuring charges (credits) (8,158) --
Loss on sale of Omnifax business -- 2,061
Changes in assets and liabilities:
Accounts receivable 42,023 6,763
Inventories 44,711 13,546
Prepaid expenses, deferred income taxes
and other current assets (6,843) (10,069)
Other non-current assets (13,638) 10,536
Accounts payable (2,336) 15,720
Accrued expenses and other current liabilities (40,117) (59,672)
Deferred revenue (3,125) (2,800)
Deferred income taxes and other long-term liabilities 988 260
-------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,949 87,363
-------------------------------------------------------------- ----------- -----------
INVESTING ACTIVITIES
Capital expenditures (46,600) (63,825)
Proceeds from sale of property and equipment 466 864
Proceeds from sale of Omnifax business -- 45,000
Payment for purchase of subsidiaries -- (332)
-------------------------------------------------------------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (46,134) (18,293)
-------------------------------------------------------------- ----------- -----------
FINANCING ACTIVITIES
Net payments under line of credit agreements (34,590) (57,167)
Principal payments on other long-term debt (587) (3,583)
-------------------------------------------------------------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (35,177) (60,750)
-------------------------------------------------------------- ----------- -----------
EFFECT OF EXCHANGE RATES (1,094) (387)
-------------------------------------------------------------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,456) 7,933
Cash and cash equivalents, beginning of period 64,861 66,095
-------------------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,405 $ 74,028
============================================================== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) INCOME (LOSS) TOTAL
------------------------------------------------- -------- ----------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 2000 $4,892 $317,056 $ (66,226) $(79,008) $ 176,714
Net loss (61,418) (61,418)
Currency translation adjustment (17,618) (17,618)
---------
Comprehensive loss (79,036)
Dividends and accretion of participating shares (7,799) (7,799)
Shares issued under employee purchase plans 105 4,669 4,774
------------------------------------------------- ------ -------- --------- -------- ---------
BALANCES AT SEPTEMBER 30, 2000 $4,997 $321,725 $(135,443) $(96,626) $ 94,653
================================================= ====== ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) INCOME (LOSS) TOTAL
------------------------------------------------- -------- ----------- --------- ----------------- --------
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1999 $4,758 $304,436 $(72,815) $(65,215) $171,164
Net earnings 19,002 19,002
Currency translation adjustment (1,778) (1,778)
--------
Comprehensive income 17,224
------------------------------------------------- ------ -------- --------- -------- -------
BALANCES AT SEPTEMBER 30, 1999 $4,758 $304,436 $(53,813) $(66,993) $188,388
================================================= ====== ======== ========= ======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE> 8
DANKA BUSINESS SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Danka
Business Systems PLC (the "Company") are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the results of operations for the interim periods
presented have been reflected therein. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for the entire fiscal year. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report to Stockholders for
the year ended March 31, 2000.
NOTE 2. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to
current year classifications.
NOTE 3. RESTRUCTURING CHARGES (CREDITS)
FISCAL 1999 CHARGE:
The Company recorded pre-tax restructuring charges totaling $42.7
million for the third and fourth quarters of fiscal 1999. The restructuring
charges were related to the Company's worldwide cost reduction program
initiated in the third quarter of fiscal 1999 with the goal of reducing
selling, general and administrative expenses and improving profitability. The
restructuring charges were for headcount reductions, the elimination of excess
facilities and the write-down of assets. The Company has completed the planned
reduction of 1,400 positions. Generally, severance is paid out to individuals
over a period of time rather than one lump sum payment. The lease obligations
relate to the closure of 60 facilities, some of which are expected to continue
beyond the year 2001. For the first quarter ended June 30, 2000, the Company
reversed $8.2 million of reserves for future lease obligations due to favorable
lease settlements and revised estimates of amounts required to settle remaining
lease obligations. The following table summarizes the restructuring charge and
related cash outlays:
1999 RESTRUCTURING CHARGE:
<TABLE>
<CAPTION>
TOTAL SECOND QTR.
FISCAL RESERVE AT SECOND QTR. OTHER RESERVE AT
1999 JUNE 30, CASH NON-CASH SEPTEMBER 30,
(in 000's) EXPENSE 2000 OUTLAYS CHANGES 2000
------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Severance $19,820 $ 514 -- -- $ 514
Future lease obligations on facility
closures 19,790 3,259 $203 -- 3,056
Write-off of leasehold improvements
on facility closures 3,084 -- -- -- --
------- ------ ---- ------ ------
Total restructuring charge $42,694 $3,773 $203 -- $3,570
------- ------ ---- ------ ------
</TABLE>
8
<PAGE> 9
NOTE 4. EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the
basic and diluted earnings (loss) per ADS computations for the three months and
six months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------------------- -----------------------------------------
(In 000's except per share amounts) EARNINGS EARNINGS
(LOSS) SHARES PER-SHARE (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net (loss) earnings $(60,178) $6,759
BASIC (LOSS) EARNINGS AVAILABLE TO
COMMON SHAREHOLDERS PER ADS:
Dividends and accretion on
participating shares (3,957) --
-------- ------
Earnings (loss) (64,135) 59,593 $ (1.08) 6,759 57,017 $ 0.12
======= ======
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 1,328
------ -------
DILUTED (LOSS) EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS PER ADS:
Earnings (loss) $(64,135) 59,593 $ (1.08) $6,759 58,345 $ 0.12
======== ====== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------------------- -----------------------------------------
(In 000's except per share amounts) EARNINGS EARNINGS
(LOSS) SHARES PER-SHARE (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net (loss) earnings $(61,418) $19,002
BASIC (LOSS) EARNINGS AVAILABLE TO
COMMON SHAREHOLDERS PER ADS:
Dividends and accretion on
participating shares (7,859) --
-------- -------
Earnings (loss) (69,277) 59,252 $ (1.17) 19,002 57,017 $ 0.33
======= ======
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 808
------ ------
DILUTED (LOSS) EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS PER ADS:
Earnings (loss) $(69,277) 59,252 $ (1.17) $19,002 57,825 $ 0.33
======== ====== ======= ======= ====== ======
</TABLE>
The effect of the Company's $200.0 million of Convertible Subordinated
Notes are not included in the computation of diluted earnings per share for the
three and six months ended September 30, 2000 and 1999 because they are not
dilutive.
9
<PAGE> 10
The effect of the Company's 6.5% senior convertible participating
shares and the effect of stock options are not included in the computation of
diluted earnings per share for the three and six months ended September 30,
2000 because they are not dilutive.
NOTE 5. SEGMENT REPORTING
The Company's reportable segments include Danka Americas, Danka
International and Danka Services International (DSI). Danka Americas
distributes photocopiers, facsimiles and other related office imaging equipment
together with related parts, supplies and services on a direct basis to retail
customers. The geographical areas covered by Danka Americas include the United
States, Canada and Latin America. Danka International distributes photocopiers,
facsimiles and other related office imaging equipment. These products, together
with related services, parts and supplies, are marketed primarily on a direct
basis to retail customers. Danka International also provides photocopiers,
facsimiles and other related office imaging equipment on a wholesale basis to
independent dealers. Danka International has an extensive sales and service
network throughout Europe and additional operations in Australia and New
Zealand. DSI is the Company's worldwide document outsourcing business, which
provides a wide range of document management solutions, including the
management of central reprographics departments, the placement and maintenance
of convenience copiers, print-on-demand operations and document archiving and
retrieval services and document management consulting. The Company measures
segment performance as earnings from operations, which is defined as earnings
before interest expense and other, net and income taxes, as shown on the
Company's consolidated statements of operations. Other items are shown for
purposes of reconciling to the Company's total consolidated amounts as shown in
the following tables for the three and six months ended September 30, 2000 and
1999:
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
THREE MONTHS ENDED SEPTEMBER 30 $000 $000 $000 $000 $000
------------------------------- -------- ------------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C>
2000
Total revenue 295,452 167,361 75,517 (9,689) 528,641
Earnings (loss) from operations (29,733) (20,946) 7,785 (7,733) (50,627)
Interest expense and other, net 23,426 23,426
Provision (benefit) for income taxes (13,875) (13,875)
Net loss (60,178)
---------------------------------------------------------------------------------------------------------------
1999
Total revenue 340,847 210,284 69,148 -- 620,279
Earnings (loss) from operations 26,368 7,135 5,765 (3,152) 36,116
Interest expense and other, net 26,729 26,729
Provision for income taxes 2,628 2,628
Net earnings 6,759
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
SIX MONTHS ENDED SEPTEMBER 30 $000 $000 $000 $000 $000
------------------------------- -------- ------------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C>
2000
Total revenue 595,489 337,929 145,123 (9,689) 1,068,852
Earnings (loss) from operations before
restructure charges and (credits) (21,166) (16,165) 15,675 (12,558) (34,214)
Restructuring charges (credits) (8,158) (8,158)
Interest expense & other, net 49,769 49,769
Provision (benefit) for income taxes (14,407) (14,407)
Net loss (61,418)
------------------------------------------------------------------------------------------------------------------------------
1999
Total revenue 709,211 417,523 139,254 -- 1,265,988
Earnings (loss) from operations 59,703 13,523 12,312 (10,387) 75,151
Interest expense & other, net 48,760 48,760
Provision for income taxes 7,389 7,389
Net earnings 19,002
</TABLE>
NOTE 6. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three months ended September 30,
2000 and 1999 was $(72.4) million and $11.1 million, respectively.
NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES:
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", which is
effective for transfers after March 31, 2001. It is effective for disclosures
about securitizations and collateral and for recognition and reclassification
of collateral for fiscal years ending after December 15, 2000. Statement No.
140 replaces FASB Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosure, but it carries over most of
Statement 125's provisions without reconsideration. The Company has not yet
evaluated the potential impact of Statement No. 140 on its results of
operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the first quarter
of the fiscal year beginning after June 15, 2000. Statement No. 133 as amended
establishes accounting and reporting requirements for derivative instruments
and hedging activities, and modifies disclosures previously required under
other accounting standards. The Company does not expect the adoption of
Statement No. 133 to have a material impact on its results of operations.
11
<PAGE> 12
NOTE 8. PENDING LITIGATION
On March 22, 2000, the United States District Court for the Middle
District of Florida, Tampa Division entered an order dismissing a consolidated
class action complaint brought against the Company and certain former Directors
and former officers on or about June 18, 1998. The complaint had alleged,
principally, that the Company and the other defendants issued materially false
and misleading statements related to the progress of the Company's integration
of its acquisition of Kodak's Office Imaging and outsourcing businesses,
engaged in improper accounting practices and that certain former officers
utilized insider information, in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
On March 15, 2000 the United States District Court, Southern District
of New York entered an order dismissing a complaint brought against the Company
and its outside law firm in February 1999. The complaint had alleged claims of
breach of contract, breach of duty of good faith and fair dealing, conversion
and violation of the Uniform Commercial Code. More particularly, the plaintiffs
had alleged that in December 1997, they attempted to sell approximately one
million restricted American Depositary Shares at approximately $35.00 per share
and that the Company and its attorneys had wrongfully refused and/or
unreasonably delayed in registering the transfer of the plaintiffs' restricted
shares. The complaint further alleged that the plaintiffs were unable to
complete the sale of shares and were later forced to sell the shares in
February 1998 at approximately $17.00 per share. The plaintiffs were attempting
to recover the difference from the Company and its outside law firm.
Although both dismissals have been appealed, the Company believes that
the orders of dismissal should be upheld or that the Company will be able to
favorably and completely resolve these matters in a manner that will not have a
material financial impact on the Company.
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business that are not expected to have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are one of the world's largest independent suppliers of
photocopiers and office imaging equipment. We primarily market these products
and services, parts and supplies direct to customers throughout 29 countries.
We principally distribute the products of Canon, Heidelberg, Ricoh and Toshiba.
Throughout Europe, we also market private label photocopiers and facsimile
machines and related supplies direct to customers under our Infotec trademark.
In addition, we market photocopiers, parts and supplies on a wholesale basis to
independent dealers through our international operations.
We also provide worldwide document management services through our
outsourcing business, Danka Services International. Services provided by Danka
Services International range from on- and off-site document management
services, including the management of central reprographics departments, the
placement and maintenance of photocopiers, print-on-demand operations and
document archiving and retrieval services.
The following table sets forth for the periods indicated the
percentage of our total revenue represented by the principal items in our
consolidated statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Retail equipment sales.......................... 32.2% 29.6% 30.5% 27.7%
Retail service, supplies and rentals............ 63.9 66.7 65.1 68.4
Wholesale....................................... 3.9 3.7 4.4 3.9
----- ----- ----- -----
Total revenue............................... 100.0 100.0 100.0 100.0
Cost of revenue................................... 74.5 64.7 69.8 63.6
----- ----- ----- -----
Gross profit...................................... 25.5 35.3 30.2 36.4
Selling, general and administrative expenses...... 30.9 29.0 31.0 29.9
Amortization of intangible assets................. 4.2 0.5 2.4 0.6
Restructuring charges (credits)................... -- -- (.8) --
----- ----- ----- -----
(Loss) earnings from operations............. (9.6) 5.8 (2.4) 5.9
Interest expense and other, net................... 4.4 4.3 4.7 3.8
----- ----- ----- -----
(Loss) earnings before income taxes......... (14.0) 1.5 (7.1) 2.1
Provision (benefit) for income taxes.............. (2.6) 0.4 (1.3) 0.6
----- ----- ----- -----
Net (loss) earnings......................... (11.4)% 1.1% (5.7)% 1.5%
===== ===== ===== =====
</TABLE>
The following table sets forth for the periods indicated the gross
profit margin percentage for each of our revenue classifications:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Retail equipment sales................ 11.3% 29.3% 21.1% 29.1%
Retail service, supplies and rentals.. 33.2 39.0 35.4 40.4
Wholesale............................. 17.0 16.8 16.5 18.6
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<PAGE> 14
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999:
Revenue
Our total revenue declined 14.8% to $528.6 million for the second
quarter of fiscal 2001 compared to $620.3 million for the second quarter of
fiscal 2000. Excluding our Omnifax business, which we sold in July 1999, our
total revenue was down 13.6% for the second quarter of fiscal 2001 compared to
the second quarter of fiscal 2000. Our revenues in the second quarter of fiscal
2001 were reduced by foreign currency movements which adversely affected our
international operations (primarily the decline of the Euro and the pound
sterling against the dollar). These foreign currency movements reduced our
revenues by approximately $31.7 million, or 5.1%, compared to the second
quarter of fiscal 2000.
Our retail equipment sales declined 7.2% to $170.2 million for the
second quarter of fiscal 2001, compared to $183.4 million for the second
quarter of fiscal 2000. The decrease was primarily due to lower sales in Europe
and the negative impact of foreign currency movements on our international
operations of approximately $6.8 million. Excluding revenues generated in the
second quarter of fiscal 2000 by the Omnifax business, our U.S. operations
increased retail equipment sales by 6.4% to $102.1 million for the second
quarter of fiscal 2001, from $96.0 million for the second quarter of fiscal
2000.
Our retail service, supplies and rentals revenue declined 18.5% to
$337.7 million for the second quarter of fiscal 2001, from $414.2 million in
the second quarter of fiscal 2000. The decline was primarily due to fewer
rental machines, the continuing reduction of machines under service contracts,
the negative impact of foreign currency movements on our international
operations ($19.8 million) and the sale of our Omnifax business (which
generated $6.0 million of revenues in the second quarter of fiscal 2000).
Gross Profit
Our gross profit decreased 38.0% to $135.0 million for the second
quarter of fiscal 2001, from $219.2 million for the second quarter of fiscal
2000. Our results for the second quarter of fiscal 2001 include the write-down
to fair market value of analog inventory and rental equipment in the U.S. and
Europe totaling $32.9 million. The write-down is included in Cost of Retail
Equipment Sales ($22.4 million) and Retail Service, Supplies and Rental Costs
($10.5 million). The write-down to fair market value reflects the decrease in
value of our analog assets caused by the photocopier industry's rapid
transition to digital products. Before inventory and rental equipment
write-downs, gross profit decreased 23.0% or $51.3 million due to both lower
revenue and lower margins.
Our gross profit as a percentage of our retail equipment sales
decreased to 11.3% for the second quarter of fiscal 2001 from 29.3% for the
second quarter of fiscal 2000. This decrease was primarily due to the
write-down of analog inventory and rental equipment values discussed above.
Excluding the write-down, our gross profit as a percentage of our retail
equipment sales was 24.5% for the second quarter of fiscal 2001. This decrease
from the second quarter of fiscal 2000 is primarily due to increased
competition and pricing pressures for our business, which are affecting the
photocopier industry as a whole.
As a percentage of revenue, the gross profit margin on our retail
service, supplies and rentals decreased to 33.2% for the second quarter of
fiscal 2001 from 39.0% for the second quarter of fiscal 2000, due in part to
the write-down of analog inventory discussed above. Excluding the write-down,
gross profit as a percentage of retail service, supplies and rentals revenue
was 36.3% for the second quarter of fiscal 2001. The decrease in margin is
primarily due to lower service revenue, which is a result of the decline in the
number of service contracts that we have for analog photocopiers.
As a percentage of revenue, the gross profit margin on our wholesale
sales increased to 17.0% for the second quarter of fiscal 2001 from 16.8% for
the second quarter of fiscal 2000.
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<PAGE> 15
Selling, General and Administrative Expenses
Our selling, general and administrative expenses decreased by $16.1
million to $163.5 million for the second quarter of fiscal 2001, from $179.6
million in the second quarter of fiscal 2000. However, expenses increased as a
percentage of our total revenue from 29.0% to 30.9%. The lower expenses were
primarily due to foreign currency movements reducing the costs of our
international operations, lower employment costs resulting from the 1999
restructuring program, and lower sales commissions due to lower revenues.
Amortization of Intangible Assets
Amortization of our intangible assets increased to $22.2 million for
the second quarter of fiscal 2001, from $3.5 million for the second quarter of
fiscal 2000 primarily due to the write-off of goodwill attributable to our
Australian subsidiary of $18.8 million. The write-off of the goodwill was
necessary because our forecast of future cash flow and earnings from our
Australian subsidiary's operations is insufficient for recovery of the
goodwill.
Earnings (loss) from Operations
We reported an operating loss of $50.6 million for the second quarter
of fiscal 2001, compared to earnings of $36.1 million for the second quarter of
fiscal 2000. The current year fiscal quarter included write-downs of $32.9
million for analog inventory and rental equipment in the U.S. and Europe and a
write-off of $18.8 million of goodwill for our Australian subsidiary. Excluding
these items, our earnings from operations was $1.0 million for the second
quarter of fiscal 2001. This decline was due primarily to lower gross profit
margins resulting from the factors previously discussed.
Interest Expense and Other, Net
Interest expense and other, net decreased to $23.4 million for the
second quarter of fiscal year 2001, from $26.7 million in the second quarter of
fiscal 2000. Excluding the $2.1 million loss related to the sale of our Omnifax
business in the prior year second quarter, interest expense and other, net
decreased by $1.3 million. The decrease is related to several factors, including
a $2.2 million reduction in the amount of bank waiver fees that we expensed
during the second quarter of fiscal 2001 and a $2.4 million reduction in
interest expense due to lower indebtedness in fiscal year 2001, partially offset
by a $3.9 million increase in foreign exchange losses.
Income Taxes
We recorded an income tax benefit of $13.9 million for the second
quarter of fiscal 2001, compared to a $2.6 million provision in the second
quarter of fiscal 2000. The decrease was primarily due to the loss in the
current year. The combined effective income tax rate decreased to 18.7% for the
second quarter of fiscal 2001, compared to 28.0% for the second quarter of
fiscal 2000. The decrease is primarily due to the write-off of goodwill with no
associated tax benefit.
Net Earnings (Loss)
As a result of factors discussed above, we incurred a net loss of
$60.2 million in the second quarter of fiscal year 2001, compared to net
earnings of $6.8 million in the second quarter of fiscal 2000. After allowing
for the payment of dividends on our participating shares, we incurred a net
loss of $(1.08) per American depository share in the current year second
quarter compared to net earnings of $0.12 per American depository share in the
prior year second quarter.
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<PAGE> 16
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1999:
Revenue
Our revenue decreased 15.6% to $1.1 billion for the six months ended
September 30, 2000, compared to $1.3 billion for the six months ended September
30, 1999. Excluding our Omnifax business, which we sold in July 1999, and the
negative impact of foreign currency movements, our total revenue was down 9.1%.
Our retail equipment sales decreased by 7.1% to $325.5 million for the
six months ended September 30, 2000, from $350.4 million for the six months
ended September 30, 1999. After excluding the negative impact on our
international operations of foreign currency movements ($13.7 million) and the
sale of the Omnifax business ($7.7 million), our retail equipment sales were
slightly lower for the six months ended September 30, 2000 compared to the six
months ended September 30, 1999.
Our retail service, supplies and rentals revenue decreased by 19.6% to
$696.4 million for the six months ended September 30, 2000, from $865.6 million
for the six months ended September 30, 1999. The decrease was primarily due to
fewer rental machines, the continuing reduction of machines under service
contracts, the negative impact on our international operations of foreign
currency movements ($30.6 million) and the sale of our Omnifax business ($25.5
million).
Gross Profit
Our gross profit decreased 30.0% to $322.8 million for the six months
ended September 30, 2000, from $461.3 million for the six months ended
September 30, 1999. Our results for the second quarter of fiscal 2001 include
the write-down to fair market value of analog inventory and rental equipment in
the U.S. and Europe totaling $32.9 million. The write-down is included in Cost
of Retail Equipment Sales ($22.4 million) and Retail Service, Supplies and
Rental Costs ($10.5 million). The write-down to fair market value reflects the
decrease in value of our analog assets caused by the photocopier industry's
rapid transition to digital products.
Our gross profit as a percentage of our retail equipment sales
declined to 21.1% for the six months ended September 30, 2000, from 29.1% for
the six months ended September 30, 1999. This decrease was primarily due to the
write-down of analog inventory and rental equipment discussed above. Excluding
the write-down, our gross profit as a percentage of retail equipment sales was
28.0% for the six months ended September 30, 2000. The decrease is primarily
due to further increased competition and pricing pressures on our business,
which are affecting the photocopier industry as a whole.
As a percentage of revenue, the gross profit margin on retail service,
supplies and rentals decreased to 35.4% for the six months ended September 30,
2000 from 40.4% for the six months ended September 30, 1999, due in part to the
write-down of analog inventory discussed above. Excluding the write-down, gross
profit as a percentage of retail service, supplies and rentals revenue was
36.9% for the six months ended September 30, 2000. The decrease in margin is
primarily due to lower service revenue, which is a result of the decline in the
number of service contracts that we have for analog photocopiers.
As a percentage of revenue, the gross profit margin on our wholesale
sales decreased to 16.5% for the six months ended September 30, 2000 from 18.6%
for the six months ended September 30, 1999. Excluding the Omnifax business
sold in July 1999, the gross profit margin on wholesale sales remained
essentially flat for the six months ended September 30, 2000 as compared to the
same period in the prior fiscal year.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses declined by $47.8
million to $331.3 million for the six months ended September 30, 2000, from
$379.1 million for the six months ended September 30, 1999. However, they
increased as a percentage of total revenue from 29.9% to 31.0%. The lower
expense amounts were primarily due to foreign currency
16
<PAGE> 17
movements reducing the costs of our international operations, lower employment
costs resulting from the 1999 restructuring program, and lower sales
commissions due to lower revenues.
Amortization of Intangible Assets
Amortization of our intangible assets increased to $25.7 million for
the six months ended September 30, 2000, from $7.1 million for the six months
ended September 30, 1999 primarily due to the write-off of goodwill
attributable to our Australian subsidiary of $18.8 million. The write-off of
the goodwill was necessary because our forecast of future cash flow and
earnings from our Australian subsidiary's operations is insufficient for
recovery of the goodwill.
Earnings (loss) from Operations
We reported an operating loss of $26.1 million for the six months ended
September 30, 2000, compared to earnings of $75.2 million for the six months
ended September 30, 1999. The six-month period to September 30, 2000 included an
$8.2 million credit for the reversal of fiscal year 1999 restructuring reserves
for future lease obligations due to favorable lease settlements and revised
estimates of amounts required to settle remaining lease obligations. It also
included a charge of $32.9 million for the write-down of analog inventory and
rental equipment in the U.S. and Europe and a charge of $18.8 million for the
write-off of goodwill for our Australian subsidiary. Excluding these items, our
earnings from operations were $17.5 million for the six months ended September
30, 2000. This decline was due primarily to lower revenues and gross profit
margins as previously discussed.
Interest Expense and Other, Net
Interest expense and other, net increased to $49.8 million for the six
months ended September 30, 2000, compared to $48.8 million for the six months
ended September 30, 1999. Excluding the $2.1 million loss related to the sale of
our Omnifax business in the prior year, interest expense and other, net
increased by $3.1 million. The increase is related to several factors, including
a $5.9 million increase in the amount of bank waiver fees that we expensed
during the six months ended September 30, 2000 and a $4.5 million increase in
foreign exchange losses, partially offset by a $7.0 million reduction in
interest expense due to lower indebtedness in fiscal 2001.
Income Taxes
We recorded an income tax benefit of $14.4 million for the six months
ended September 30, 2000, compared to a $7.4 million provision for the six
months ended September 30, 1999. The decrease was primarily due to the loss in
the current year. The combined effective income tax rate decreased to 19.0% for
the six months ended September 30, 2000, compared to 28.0% for the six months
ended September 30, 1999. The decrease is primarily due to the write-off of
goodwill with no associated tax benefit.
Net Earnings (Loss)
As a result of the factors discussed above, we incurred a net loss of
$61.4 million for the six months ended September 30, 2000, compared to net
earnings of $19.0 million for the six months ended September 30, 1999.
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<PAGE> 18
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the
U.S. dollar affect the dollar equivalent of the pound sterling market price of
our Ordinary Shares on the London Stock Exchange and, as a result, are likely
to affect the market price of our American depositary shares. We operate in 29
countries worldwide, and therefore, fluctuations in exchange rates between the
U.S. dollar and the currencies in each of the countries in which we operate
affect the results of our international operations and the value of their net
assets, which are reported in U.S. dollars. The results of operations,
financial condition and competitive position of our business are affected by
the relative strength of the currencies in countries where our products are
currently sold. Our results of operations and financial condition have been,
and may continue to be, adversely affected by fluctuations in foreign
currencies and by the translation of the financial statements of our foreign
subsidiaries from local currencies into U.S. dollars. In particular, the
results of several of our European subsidiaries have been adversely affected by
the decline of the Euro against the dollar.
LIQUIDITY AND CAPITAL RESOURCES
We have a credit agreement with a consortium of international bank
lenders through March 31, 2002. As amended on December 1, 1999, the credit
agreement requires that we maintain minimum levels of adjusted consolidated net
worth, cumulative consolidated EBITDA, a ratio of consolidated EBITDA to
interest expense, and effective September 30, 2000, a consolidated fixed charge
coverage ratio and a consolidated total leverage ratio, each as defined in the
credit agreement.
On October 31, 2000, we obtained an amendment to the credit agreement
which modifies the financial covenants for the period September 30, 2000
through December 30, 2000. During the waiver period ending December 30, 2000,
we may receive advances under the credit agreement for ordinary operational
needs. We expect that we will require an additional amendment, or a further
waiver, of the financial covenants that will be in effect under the credit
agreement as of December 31, 2000.
We will pay fees to our bank lenders for the October 31, 2000 waiver
agreement of $1.4 million. These fees will be expensed in the quarter ended
December 31, 2000.
The aggregate commitment of our bank lenders under the credit agreement
as of September 30, 2000 is $635.4 million. The indebtedness under the credit
agreement is due on March 31, 2002. We intend to extend or refinance the
indebtedness by March 31, 2001. However, we cannot assure you that we will be
able to do so.
Effective interest rates under the credit agreement are LIBOR plus 2.75
percent.
Our indebtedness under the credit agreement is secured by
substantially all of our U.S. assets. The credit agreement contains negative
and affirmative covenants which place restrictions on dispositions of assets,
capital expenditures, incurring additional indebtedness and creating liens,
prohibit the payment of dividends (other than payment-in-kind dividends on our
participating shares) and require us to maintain certain financial ratios as
described above. We are not permitted to make any acquisitions of businesses,
except with the approval of our bank lenders. We cannot dispose of any of our
assets outside the ordinary course of our business without the approval of our
bank lenders.
As of September 30, 2000, we owed $493.7 million under the revolving
component and $52.4 million under the term loan. We were incurring interest on
that indebtedness at a weighted average rate of 9.12% and 7.62% per annum,
respectively.
While we are generally prohibited from incurring new indebtedness
other than under the credit agreement, we are permitted to borrow up to $40.0
million at any one time outside of the credit agreement to finance the purchase
of high-volume digital copiers and to secure those loans with liens upon the
financed equipment.
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<PAGE> 19
On December 17, 1999, we issued 218,000 new 6.50% senior convertible
participating shares for $218.0 million. The participating shares are entitled
to dividends equal to the greater of 6.50% per annum or ordinary share
dividends on an as converted basis. Dividends are cumulative and are paid in
the form of additional participating shares for the first five years. The
participating shares are convertible into ordinary shares at a conversion price
of $3.125 per ordinary share (equal to $12.50 per American depositary share),
subject to adjustment in certain circumstances to avoid dilution of the
interests of participating shareholders. The participating shares have voting
rights, on an as converted basis, currently corresponding to approximately 23%
of the total voting power of our capital stock. As of September 30, 2000, we
have issued an additional 9,539 participating shares as payment-in-kind
dividends.
We are not permitted to pay dividends (other than payment-in-kind
dividends on our participating shares) under the credit agreement and do not
anticipate the payment of a dividend on ordinary shares in the foreseeable
future.
The Internal Revenue Service has completed an examination of our
federal income tax returns for the fiscal years ended March 31, 1996 and 1995.
We received a notice of proposed deficiency in November 1999. The principal
adjustments relate to the timing of certain deductions associated with leased
equipment financing. We have filed a protest and are meeting with the Appellate
Division of the Internal Revenue Service to resolve this issue. If the Internal
Revenue Service were to prevail, net operating losses available for carryback
to these years would increase by corresponding amounts. We believe, however,
that we will prevail on this issue on its merits. We believe, in any event, the
resolution will not have a material adverse impact upon our consolidated
results of operations, liquidity or financial position.
The Internal Revenue Service has also commenced an examination of our
federal income tax returns for the fiscal years 1998 and 1997. This audit is in
an early stage and no adjustments have been proposed.
In addition to the foregoing, an audit by fiscal authorities in the
Netherlands has commenced into our Dutch operations, which we expect to be
completed by fiscal year end. We do not believe that this audit, or any result
thereof, will have a materially adverse impact on our consolidated results of
operations. Until finalization of the audit, we cannot determine the ultimate
amount of taxes due in the Netherlands nor whether any additional assessments,
potentially including interest and penalties, could have an adverse impact on
our results of operations and liquidity.
Our net cash flow provided by operating activities was $59.9 million
and $87.4 million for the six months ended September 30, 2000 and 1999,
respectively. Operating cash flow for the six months ended September 30, 2000
was primarily affected by a decrease in cash provided by net earnings, as well
as changes in working capital accounts. Accounts receivable and inventory
account changes provided $86.7 million in cash but this was partially offset by
decreases in accounts payable and accrued expenses due to payments of trade
payables, employee commissions, and a legal settlement. Cash flow used in
investing activities was $46.1 million and $18.3 million for the six months
ended September 30, 2000 and 1999, respectively. The increase of cash used in
investing activities for the six months ended September 30, 2000 was primarily
due to the effect of exceptional items in the prior fiscal year, including
$45.0 million in cash proceeds received from the sale of our Omnifax business
in July 1999. Excluding the Omnifax sale, cash flow used in investing
activities would have decreased by $17.2 million for the six months ended
September 30, 2000 as compared to the six months ended September 30, 1999, due
in large part to our reduction in capital expenditures for equipment on
operating leases. Net cash used in financing activities was $35.2 million and
$60.7 million for the six months ended September 30, 2000 and 1999,
respectively. The change in cash used in financing activities was primarily due
to prior year repayment of borrowings from the cash received as a result of the
Omnifax sale in July 1999.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, or otherwise made by
officers of the Company, including statements related to our future business,
financial performance and contemplated financing arrangements, are
forward-looking, and contain information relating to the Company that is based
on the beliefs of the Company as well as assumptions, made by, and information
currently available to, the Company. The words "goal", "anticipate", "expect",
"believe" and similar expressions as they relate to the Company or the
Company's management, are intended to identify forward-looking statements. No
19
<PAGE> 20
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. 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)
failure of the Company's bank lenders under the credit agreement to amend or
waive financial covenants applicable on and after December 31, 2000, (ii)
failure to identify an appropriate candidate to serve as the Company's
permanent Chief Executive Officer and/or failure to hire such a candidate on a
timely basis, (iii) any negative impact from the loss of any key upper
management personnel, (iv) any material adverse change in financial markets or
Danka, (v) any inability to maintain achieved cost savings, (vi) increased
competition resulting from other high-volume and digital copier distributors
and the discounting of such copiers by competitors, (vii) any inability by the
Company to procure, or any inability by the Company to continue to gain access
to and successfully distribute new products, including digital products and
high-volume copiers, or to continue to bring current products to the
marketplace at competitive costs and prices, (viii) the ultimate outcome and
impact of pending lawsuits, (ix) the ultimate outcome of pending tax audits,
(x) fluctuations in foreign currencies, (xi) the reversals by the Appellate
Court of the dismissals granted to the Company as referenced below in Part II,
Item 1: Legal Proceedings, and (xii) other risks including those risks
identified in any of the Company's other 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 they are made. 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 such statements are made. 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> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Part I, Item 1, Note 8 to Consolidated Financial
Statements for a description of pending litigation.
The Company is also subject to other legal proceedings and claims
which arise in the ordinary course of its business that will not have a
material adverse effect upon the Company's financial position, results of
operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual General Meeting of the shareholders of the Company was held
on July 11, 2000. The actions taken by the shareholders at that meeting and
details of the relevant shareholder votes are set out in the Form 10-Q filed by
the Company in respect of the quarter ended June 30, 2000.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER EXHIBIT
------- -------
4.23 Ninth Amendment to Credit Agreement dated October 31, 2000
among Danka Business Systems PLC, Dankalux Sarl & Co., SCA
and Danka Holding Company, Bank of America, N.A., each
other Bank signatory to the Credit Agreement and Bank of
America, N.A., as agent.
4.24 Amended and Restated Employment Agreement dated July 2000
between Danka Office Imaging and Forrest Mark Wolfinger.
27.1 Financial Data Schedule
21
<PAGE> 22
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K, the earliest event occurring
on July 11, 2000, announcing the retirement of two of the Company's Directors,
Keith J. Merrifield and James F. White, Jr., at the Annual General Meeting held
in London England.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DANKA BUSINESS SYSTEMS PLC
(Registrant)
Date: November 14, 2000 /S/ F. MARK WOLFINGER
------------------ ----------------------------------
F. Mark Wolfinger,
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
23
