Back to GetFilings.com
1
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, 1996 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 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: (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, 1996, the Registrant had 219,112,247 Ordinary Shares
outstanding, including 169,774,453 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, 1996 was $2,220,828,292
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, 1996, 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 19, 1996, which has been filed with the Securities and Exchange
Commission.
2
DANKA BUSINESS SYSTEMS PLC
ANNUAL REPORT ON FORM 10-K
MARCH 31, 1996
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
2
3
PART I
ITEM 1. BUSINESS
INTRODUCTION
Danka Business Systems PLC and its Subsidiaries (the "Company") is one
of the largest independent suppliers of photocopiers, facsimiles and other
automated office equipment in North America and Europe. The Company primarily
markets these products and related service, parts and supplies on a direct
basis to retail customers. The Company also markets photocopiers, facsimile
equipment, and related parts and supplies on a wholesale basis to dealers. In
addition, the Company markets private label photocopier and facsimile equipment
and related supplies on a direct and wholesale basis under the Company's
Infotec trademark, and facsimile equipment under its dex and Omnifax
trademarks. Danka has offices in 40 states, nine Canadian provinces and seven
European countries.
The Company is one of the largest independent suppliers of Canon,
Konica, Minolta, Sharp and Toshiba photocopiers and facsimile equipment. As a
result of its recent acquisition of Infotec, a European retail and wholesale
supplier, the Company is also one of the largest independent suppliers of Ricoh
products in Europe. On September 6, 1995, the Company entered into a marketing
agreement with Eastman Kodak's Office Imaging division ("Kodak") granting the
Company the non-exclusive right to sell and service certain high-volume Kodak
copiers in the United States and Canada.
The Company provides a wide range of customer-related support
services, maintenance and supply contracts, training and technical support, and
third-party 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.
The Company's principal business strategy is to increase its presence
as a leading independent supplier of automated office equipment and related
service, parts and supplies in existing and strategic new geographic markets in
North America and Europe. The Company's internal expansion has resulted from
increased product offerings, aggressive marketing to new customers and emphasis
on providing service and supplies. The Company has expanded externally as a
result of the acquisition of selected suppliers of automated office equipment,
and over the last three years has completed over 100 acquisitions in the
industry. The Company seeks to improve the profitability of the businesses it
acquires by integrating them into the Company's sales and service network. The
Company's operating philosophy is to support its sales and service network
through training in technical, marketing, and administrative support
procedures; advertising campaigns; volume purchasing; and uniform operating
procedures.
The North American and European photocopier and facsimile markets are
highly fragmented, with numerous dealers engaged in the same or similar
businesses as the Company. Due to the complexity of new products and the high
costs of product support, new technology is driving consolidation within both
markets. As a result, the Company believes that significant acquisition
opportunities exist in these markets.
Danka Business Systems PLC is a corporation organized under the laws
of England and Wales. The Company's principal operating subsidiaries are
located in the United States, Canada and Europe. The registered and principal
executive office of the Company is located at Masters House, 107 Hammersmith
Road, London, W14 0QH, England, and its telephone number is 011-44171-603-1515.
The Company's principal operating headquarters is located at 11201 Danka Circle
North, St. Petersburg, Florida 33716, and its telephone number is 813-576-6003.
3
4
ACQUISITION STRATEGY
The Company expands 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 is focused on acquiring businesses in current territories
to increase penetration in those markets and on acquiring businesses in new
territories. The Company seeks to acquire companies that generally have (i) an
established customer base, (ii) a product line comparable with the Company's
current and anticipated products; (iii) necessary manufacturer authorizations,
and (iv) the potential to benefit from the Company's uniform operating
procedures and centralized purchasing power.
Acquired companies are integrated 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
which are sold by the Company. This integration generally results in a
replication of the Company's service, sales, marketing and other business
programs. In most business acquisitions, the acquired businesses' owners and
management are contractually bound by executive non-compete and trade secret
protection agreements.
Over the last three years, the Company has completed over 100
acquisitions in the industry which has resulted in a network of over 400
locations. The Company believes that significant additional acquisition
opportunities exist in the highly fragmented North American and European
automated office equipment industry. Technology has increased the complexity
of new products, and the higher costs of product support are driving the
consolidation 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
acquisitions, the Company entered the United Kingdom market in 1993, the
Canadian market in 1994, and Continental Europe in 1995.
The Company's continued success in future acquisitions will be
relative to many things, including the timing and size of an acquisition; the
success or failure to successfully integrate any significant acquisition and
minimize integration costs related thereto; the Company's ability to
successfully grow its infrastructure to sustain, manage, operate and continue
significant expansion; and its ability to maintain, manage and operate its core
business.
The Company is currently engaged in preliminary discussions and
consideration of various possible acquisitions, some of which could be
material. However, the Company currently has no agreement, arrangement or
understanding with respect to any acquisitions that are, individually or in the
aggregate, material to the Company.
INFOTEC ACQUISITION
Effective November 1, 1995, the Company acquired all of the issued and
outstanding shares of Infotec Europe B.V. and its operating subsidiaries
("Infotec"), for aggregate cash consideration of approximately $167.0 million
(the "Infotec Acquisition").
Infotec is one of Europe's largest independent suppliers of
photocopiers, facsimile equipment, and related service, parts and supplies.
Infotec markets a full line of Ricoh products under the Infotec brand name
through its locations in Germany, the United Kingdom, France, Italy, Denmark,
Belgium and the Netherlands, as well as through its wholesale distribution
network of independent dealers in these and other European countries. For
calendar 1994, Infotec had total revenue of approximately $256.0 million and
income from operations of approximately $16.6 million.
The Infotec Acquisition has significantly increased the Company's
business in Europe, and provides the Company with its initial operations in
Germany, France, Italy and Denmark. In fiscal 1996, the Company's total
revenue in Europe was $247 million, or approximately 20% of the Company's total
consolidated revenue. The
4
5
Company is integrating its existing European operations with Infotec and
believes such integrated operations will provide a substantial core operation
from which to pursue its growth strategy in Europe. (Reference is made to Note
6 of the "Notes To The Consolidated Financial Statements" entitled "Foreign
Operations" contained in the Company's Annual Report to Shareholders for the
Year Ended March 31, 1996 which is incorporated by reference).
PRODUCTS
The Company's primary products are photocopiers, facsimile equipment,
other automated office equipment, and related parts and supplies. The
photocopier industry is informally divided into six segments. Segments one and
two contain the least sophisticated photocopiers; segments three and four
contain faster and more sophisticated midrange photocopiers; and segments five
and six contain the most sophisticated and fastest photocopiers in the
industry. The Company sells photocopiers primarily in segments one through
five through its retail operations, while it sells photocopiers primarily in
segment one through its wholesale operations. The principal manufacturers in
segments one through four are Canon, Konica, Sharp, Mita, Minolta, Ricoh and
Toshiba. The Company offers products from each of these manufacturers.
Segments five and six are currently dominated by Kodak and Xerox. It is
important that the Company offer all segments of photocopiers to its customers.
Through its Kodak agreement described below, the Company has increased its
revenues from the sale and service of segment five and six photocopiers. The
Company will continue to expand its product offerings to encompass new
equipment as it is made available by its vendors.
On September 6, 1995, the Company and Kodak entered into an agreement
(the "Kodak Agreement") granting the Company the non-exclusive right to sell
and service Kodak high-volume copiers throughout the United States and Canada.
Danka is selling and servicing all configurations of the Kodak ImageSource 85
copier, as well as the Kodak 3100 duplicator, and the Kodak 2085
copier-duplicator. These Kodak models supplement Danka's existing product
line, by offering a segment six copier (which copies at a rate of 100 copies
per minute) and further enhances the Company's segment five (70 to 90 copies
per minute) product line. The Kodak Agreement better positions Danka to market
a full product line and the related services to major market customers. The
Kodak Agreement is cancelable without cause by either party with 120 days
notice. On January 18, 1996, Kodak announced that it is developing
alternatives to strengthen and reposition its office imaging business. As a
consequence, Kodak is exploring a variety of strategic options and structural
alternatives, which range from expanded use of strategic alliances to the
formation of joint ventures or a potential divestiture. The Company is
currently assessing the possible effect of Kodak's potential actions and is
considering various strategies in connection with these potential actions.
Should the Kodak Agreement be terminated, the Company believes that it can
obtain an alternative source of competing segment five and six equipment.
However, there can be no assurance that the Company will be able to obtain such
products or that the same would be available on terms that would make the
Company competitive in such segments or that the same would be well accepted in
the marketplace.
In addition, the Company distributes a range of facsimile equipment,
with a concentration 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 these
facsimile machines 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 photocopiers have the ability to
communicate with other automated office equipment. This innovation is
resulting in a blurring of the distinction between traditional photocopiers,
facsimile equipment, and laser printers, with the emergence of a range of
multifunctional office equipment.
Many of the Company's existing vendors have expended considerable
resources in the research, development, and creation of digital products and
have been recently introducing digital black and white photocopiers. To
support this new technology, the Company has developed digital research and
support laboratories which enable it to test the manufacturers' equipment in
various networked environments in order to
5
6
evaluate performance prior to releasing the equipment to the Company's sales
network. Additionally, the Company's digital labs provide training and support
to its sales professionals and service technicians, and also serve as a beta
test site for many of its manufacturers' equipment, as well as other vendors
offering digital office products. More recently, the Company has begun
offering digital support service contracts and providing customers with full
software support from the desktop computer through the network to the digital
copier/printer.
Currently, color photocopiers represent a small but growing portion of
the Company's retail copier sales, and represent a growing segment of the
photocopier market. Through the Company's expanded relationship with Ricoh in
the U.S., the Company nearly doubled the number of markets in which it sells
color products during fiscal 1996. Additionally, with a color server, color
photocopiers can be converted into networkable color printers that will 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.
Due to the emergence of digital technology, the Company has
experienced and could continue to experience increased expenses for the
retraining of its service technicians and salespersons.
SERVICE
In fiscal 1996, retail service, supplies and rentals represented 48%
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.
The Company has a stated mission of repairing a machine on the first
service call, and has full time service trainers who teach classes to the
Company's technicians. The Company also maintains an emergency toll-free
number to assist its own service technicians and service technicians of
independent dealers who are customers of its wholesale operations. The Company
maintains a database of common service problems and related solutions to assist
technicians in the field.
MARKETING AND CUSTOMERS
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 which include small to large businesses, 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. No customer represents more than one percent
of the Company's total revenue, and the loss of any one customer would not
materially affect the Company.
As of March 31, 1996, there were 2,810 Company employees devoted to
sales which represents a substantial increase from March 31, 1995. Sales
personnel turnover is common in the industry and the Company makes a
considerable effort to retain qualified sales personnel. Danka's sales teams
are highly specialized, with each office dedicated to marketing the products of
one or two particular manufacturers. Individual team members will concentrate
on particular product groups, focusing on lower segment machines during their
first year and graduating to more complex equipment as their knowledge and
experience increases. With its sales force, Danka emphasizes product
knowledge, commitment and professionalism. Each sales person negotiates a
method of payment - lease, outright sale or rental - to suit the individual
customer. Sales personnel
6
7
have pricing flexibility. Their compensation is comprised of a base salary and
a selling commission, based on achievement of unit placements and gross profit
dollars.
The Company has been aggressively hiring and training new field sales
representatives and support staff. Such expansion of the Company's salesforce
has resulted in substantial cost and expense and has not yet yielded expected
productivity. However, the Company believes that the expansion is in the
long-term best interest of the Company.
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.
MARKET BASED APPROACH
To better support the Company's growth strategy in digital color and
high-volume products, major markets and its core commercial business, Danka is
moving away from its traditional branch management concept to a more
centralized, market oriented, support concept of administration ("Market Based
Approach"). Under a Market Based Approach, most of the administrative and
management functions which were performed at the branch level are centralized
on a regional basis. Such functions include managerial support, service
dispatch, billing and collections, supply sales and equipment setup and
delivery. Danka's implementation of the Market Based Approach has resulted in
unanticipated duplication of certain administrative and management functions,
which has increased selling, general and administrative costs. However, the
Company believes that this Market Based Approach is ultimately expected to
provide for a higher quality of customer support, increased productivity and
reduced administrative costs.
LEASING
Leasing plays a significant role in the Company's sales 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 has initiated the lease, one of a number of
available third-party leasing companies approved the customer's credit and the
Company immediately financed the lease on a nonrecourse basis in return for a
single payment. The Company has continued to hold title to the leased
equipment while eliminating the credit risks normally associated with leasing
arrangements and while improving its cash flow and profit margins. In December
1995, Danka finalized a strategic relationship with a third party leasing
company. This relationship operates in a similar manner as the Company's
previous third party leasing relationships, except that the Company
participates in the leasing company's profits from financing these leases. The
Company is currently negotiating similar agreements with other third party
leasing companies, and intends to route most of its leasing business to these
third party leasing companies.
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.
Through various recent acquisitions, the Company has acquired certain
lease arrangements and installment receivables that have not been sold to
third-party leasing companies. Over time, the Company will seek to convert
these acquisition leasing programs to arrangements similar to those described
above.
TRAINING
A key element of the Company's operating philosophy is the training of
its sales, service and administrative employees in order to assist in uniform
application of the Company's established operating procedures throughout the
sales network. Upon employment, Company salespersons begin a sales program
developed and conducted by the Company. Training continues throughout their
careers in sales and sales management with certifications awarded upon
completion of various courses. The training sessions, coupled with weekly
sales meetings, assist the Company's staff in enhancing and maintaining their
marketing and sales management skills.
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.
7
8
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 1996, the Company's sales of Canon, Kodak, Konica,
Minolta, Ricoh, Sharp and Toshiba equipment represented approximately 68% of
its photocopier equipment revenue to retail customers. As a result of the
Infotec Acquisition, the Company has increased its retail and wholesale
revenues for Ricoh products. The facsimile equipment distributed by the
Company is primarily its dex and Omnifax private label equipment which is
imported from various Japanese and Korean manufacturers. Facsimile equipment
is also purchased from various vendors including Canon, Konica, Ricoh and
Sharp. The Company also relies on its photocopier and facsimile 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,
Sharp and Toshiba and, recently with Ricoh and Kodak. 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. For additional information on the
Kodak Agreement see "Products" above. The Company's wholesale operations'
primary Authorized Manufacturer Agreements are with Copystar, Konica, Minolta
and Sharp, 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 the Company's photocopier
vendors.
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 photocopiers in all segment areas is important in
both retail and wholesale operations. See "Products". The Company also
competes with other large competitors for acquisitions, particularly its
principal competitor Alco Standard Corporation, and in many instances such
competition can raise the price of an acquisition. Certain of the Company's
competitors have greater resources than the Company.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 10,500
persons, of which approximately 4,320 employees were devoted to service, and
approximately 2,810 persons in the Company were devoted to sales. Of the
remaining employees, 390 were devoted to training, management or other
administrative positions at the corporate and regional administrative offices,
and 2,980 were in various administrative and other support positions at other
Company locations. Support provided by these employees at such locations
includes receiving customer service calls and dispatching service technicians,
contacting customers to obtain meter readings from customer copiers, renewing
customer maintenance agreements, collecting accounts receivable, controlling
inventory, and performing certain billing functions.
Some of Infotec's employees are subject to labor agreements with
unions that establish rates of pay, hours of working, procedures for orderly
settlement of disputes and other terms and conditions of employment. The
8
9
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 automated office equipment market 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, 1996 and March 31, 1995 were not
material.
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.
The Company leases its 35,000 square foot headquarters facility in St.
Petersburg, Florida. In addition, the Company leases in excess of 400
properties throughout North America and Europe 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 which it occupies are, in
general, suitable and adequate for the purposes for which they are utilized.
Additional space will be occupied as necessary upon future expansion of
operations.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party to
which the Company believes will have a material adverse effect on its results
of operations or its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
10
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated herein by
reference to the information under the heading "Market Prices of ADSs and
Ordinary Shares" in the Company's Annual Report to Shareholders for the Year
Ended March 31, 1996. See Exhibit 13 to this Report.
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, 1996. 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, 1996. See Exhibit
13 to this Report.
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, 1996. 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.
10
11
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 1996 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 1996 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 1996 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 1996 Annual Meeting of Shareholders, which has
been filed with the Commission.
11
12
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, 1996, 1995 and 1994
Consolidated Balance Sheets - March 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
Years ended March 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements - Years
ended March 31, 1996, 1995 and 1994
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:
Exhibit
Number Description of Document
- ------ -----------------------
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.)
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"]).
12
13
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 1995 general meeting waiving pre-emptive
rights of shareholders under certain circumstances. (Exhibit 4.10 to the Company's Form
10-Q dated August 8, 1995).
4.10* Credit Agreement dated March 19, 1996 among Danka Business Systems PLC, Danka Holding
Company, the several financial institutions from time to time a party to this Agreement,
Bank of America National Trust and Savings Association, Bank of America International
Limited, Nationsbank, N.A., and Southtrust National Bank of Alabama, N.A., in an amount
up to $400.0 million. (Exhibit 1 to the Company's Form 8-K dated March 19, 1996).
No other instruments defining the rights of holders of long-term debt of the Company and
its subsidiary have been included as exhibits because the total amount of 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).
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).
13
14
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* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
Daniel M. Doyle. (Exhibit 10.49 to the 1994 Form 10-K).
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).
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).
13 Annual Report to Shareholders of the Company for the year ended March 31, 1996. Except
for those portions of such Annual Report to Shareholders that may be expressly
incorporated by reference into this Report, such Annual Report to shareholders is
furnished solely for the information of the Securities and Exchange Commission and shall
not be deemed a "filed" document.
14
15
21 List of Current Subsidiaries of the Company.
23 Independent Auditors Consent.
27 Financial Data Schedule
* Document has heretofore been filed with the Commission and is
incorporated by reference and made a part hereof.
(b) Reports on Form 8-K
On April 1, 1996, the Company filed a report on Form 8-K announcing
that it had entered into a loan agreement providing a $400 million
multicurrency credit facility with a consortium of banks replacing its previous
principal credit facility.
On June 26, 1996, the Company filed a report on Form 8-K announcing
expected results of operations for the first quarter of fiscal 1997 and the
effects to the Company resulting from its change to a market based management
approach, expansion of its sales division, and its increased commitment to the
sale of color and higher segment products.
(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.
15
16
INDEPENDENT AUDITORS' REPORT
To the Members of Danka Business Systems PLC:
Under date of June 3, 1996, we reported on the consolidated balance sheets of
Danka Business Systems PLC and subsidiaries as of March 31, 1996 and 1995, 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, 1996, as
contained in the 1996 annual report to shareholders. These financial
statements are incorporated by reference in the annual report on Form 10-K for
the year 1996. 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, present
fairly, in all material respects, the information set forth therein.
Chartered Accountants
Registered Auditors
June 3, 1996 London England
16
17
DANKA BUSINESS SYSTEMS PLC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts (1) Deductions (2) Period
----------- ------ -------- ------------ -------------- ------
Allowance for doubtful accounts:
Year ended March 31, 1994 $1,547 $1,354 $3,496 $(1,107) $5,290
====== ====== ====== ======= ======
Year ended March 31, 1995 $5,290 $2,016 $1,213 $(2,485) $6,034
====== ====== ====== ======= ======
Year ended March 31, 1996 $6,034 $3,717 $8,009 $(8,956) $8,804
====== ====== ====== ======= ======
(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.
17
18
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 24, 1996 DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
By: /s/ DANIEL M. DOYLE
---------------------------------
Daniel M. Doyle, Chief Executive
(Chief Executive Officer)
By: /s/ DAVID C. SNELL
---------------------------------
David C. Snell, Finance Director
(Chief Financial Officer and
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 24, 1996.
SIGNATURE TITLE
- --------- -----
/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, Chief Financial Officer and Principal
- ------------------------------- Accounting Officer
David C. Snell
/s/ DAVID S. HOOKER Director
- -------------------------------
David S. Hooker
/s/ DAVID W. KENDALL Director
- -------------------------------
David W. Kendall
/s/ JAMES F. WHITE, JR. Director
- -------------------------------
James F. White, Jr.
/s/ PIERSON M. GRIEVE Director
- -------------------------------
Pierson M. Grieve
18