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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MARCH 31, 1998 Commission file number: 0-20828
DANKA BUSINESS SYSTEMS PLC
(Exact name of registrant as specified in its charter)
ENGLAND 98-0052869
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 576-6003
Securities registered pursuant to Section 12(g) of the Act:
ORDINARY SHARES
1.25 p each
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or an amendment to this
Form 10-K. [ ]
As of March 31, 1998, the Registrant had 227,495,865 Ordinary Shares
outstanding, including 166,129,791 represented by American Depositary Shares
("ADS"). Each ADS represents four Ordinary Shares. The ADSs are evidenced by
American Depositary Receipts. The aggregate market value of voting shares held
by non-affiliates of the Registrant as of March 31, 1998 was $1,006,932,824
based on the average bid and asked prices of ADSs as quoted on the NASDAQ
National Market.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
March 31, 1998, are incorporated by reference in Part I and Part II of this
Form 10-K.
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
July 24, 1998, which has been filed with the Securities and Exchange
Commission.
DANKA BUSINESS SYSTEMS PLC
ANNUAL REPORT ON FORM 10-K
MARCH 31, 1998
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price for the Registrant's Common Equity and Related Shareholder
Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Danka Business Systems PLC and its subsidiaries (the "Company") is one
of the world's largest independent suppliers of photocopiers, facsimiles and
other related automated office imaging equipment. The Company primarily
markets these products and related services, parts and supplies on a direct
basis to retail customers. The Company also markets photocopiers, facsimiles,
and related parts and supplies on a wholesale basis to independent dealers.
The Company principally distributes the products of Canon, Kodak, Konica,
Minolta, Ricoh, Sharp and Toshiba. In addition, the Company markets private
label photocopiers and facsimiles, and related supplies on a direct basis under
the Company's Infotec trademark, and facsimile equipment under its dex and
Omnifax trademarks. The Company became the exclusive distributor of Kodak
branded photocopiers and printers in December 1996 after completing the
acquisition of the sales, marketing and equipment service operations of Eastman
Kodak Company's ("Kodak") Office Imaging division and outsourcing business.
The acquired businesses are known as Danka Office Imaging and Danka Services
International ("DSI"). The Company is currently in the process of integrating
Danka Office Imaging with its core operations and as it proceeds, there will be
less reference to the acquired Office Imaging business and more focus on the
new, unified sales and service organization. See - "Integration of Office
Imaging Business."
The Company provides a wide range of customer-related support
services, maintenance and supply contracts, training and technical support, and
leasing arrangements. The Company's focus on customer service and the
contractual nature of its service business, combined with its service contract
renewals, provide a significant source of recurring revenue. In addition, the
Company provides outsourcing services ranging from traditional facilities
management to strategic consulting services. See - "Services."
The Company's principal business strategy is to increase its worldwide
presence as one of the largest providers of office imaging and document
management solutions. Through its multi-vendor approach, it is the Company's
goal to provide its customers with a total service solution for their office
imaging needs. The Company's internal expansion has resulted from increased
product offerings, aggressive marketing to new customers and an emphasis on
providing service and supplies. The Company has expanded externally as a
result of the acquisition of select office equipment suppliers, and throughout
its history, has completed over 140 acquisitions in the industry. See --
"Acquisition History." The Company has sought to improve the profitability of
the businesses it acquires by integrating them into the Company's sales and
service network and standardizing their operations with the Company's.
Danka Business Systems PLC is a corporation organized under the laws
of England and Wales. The Company's principal operating subsidiaries are
located in North America, Europe, Australasia and Latin America. The
registered and principal executive office of the Company is located at 33
Cavendish Square, London W1M 0DE England, and its telephone number is
011-44-171-399-3000. The Company's Americas headquarters are located at 11201
Danka Circle North, St. Petersburg, Florida 33716, and its telephone number is
813-576-6003.
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INTEGRATION OF OFFICE IMAGING BUSINESS
The Company's goal is to increase its net margins through certain cost
efficiencies and synergies it expects to achieve by integrating the Office
Imaging business with the Company's core operations. In September 1997, the
Company announced its global integration project (the "Uniting Danka Project"),
with a goal of accelerating the unification of Danka Office Imaging with the
Company's core operations. The Company chose to accelerate the integration
process after careful consideration of the responses by customers, vendors,
suppliers and employees. Management, having received advice from independent
consultants, based their decision to immediately combine the two organizations
upon the belief that an accelerated integration plan was in the long-term best
interest of the Company.
During the second quarter of fiscal 1998, the Company realigned its
management structure and geographical reporting responsibilities. The
organization was split into two regions: Danka Americas and Danka
International. Danka Americas, currently representing 61 percent of the
Company's revenue, includes the United States, Canada and Latin America. Danka
International represents 31 percent of the Company's revenue and includes
Europe, Australia and the Asia/Pacific region. These geographic regions are
supported by the Company's areas of specialization which operate worldwide,
including Finance & Planning and Markets & Strategy. DSI, which accounts for
the remaining 8 percent of the Company's revenue, falls under the Company's
Markets & Strategy specialization and operates on a worldwide basis.
On December 16, 1997 the Company announced that the Uniting Danka
Project was progressing slower than anticipated and that the Company's
accelerated integration plan was impacting its operations and financial
results, which resulted in a shortfall in expected revenue and earnings.
Although the benefits of the combined organization are being realized slower
than initially expected, and while there can be no assurances that such
benefits will ultimately be achieved to the extent that the Company strives to
attain them, the Company remains committed to the complete integration of the
two organizations.
The Company completed the final stages of integrating its existing
sales force with the Office Imaging sales force in April 1998. At the same
time, the Company introduced a new compensation plan. The Company's goal was
to establish one face to the customer and provide a compensation plan that is
not only competitive in the industry, but also keeps the Company's
entrepreneurial spirit alive. See - "Marketing, Customers and Sales
Organization."
The Company is implementing several key projects which are designed
with the goal of maximizing the future benefits of the integration. The first
is the development and transition to common information technology ("IT")
systems in each country. The Company has been making significant investments
in its IT and operations infrastructures, including the use of various
independent computer and process improvement consulting groups. The Company
believes that these investments are an important element in its efforts to
successfully integrate the businesses and to provide a solid foundation for
future growth. The Company's goal is to link the sales, service, billing and
finance efforts electronically, with the goal of providing better service to
its customers, improving communication to and support of its employees, as well
as more effectively positioning Danka for the technological trends impacting
the industry. The final stages of the transition of the Company's core
operations to the Foresight system in the United States was completed in
December 1997, and the transition of the Office Imaging business is expected to
be completed by the end of calendar 1998. The second project is the
consolidation of real estate. The Company expects to generate savings through
the closure of duplicate facilities. By April 1998, the Company had
consolidated and reduced its U.S. dispatch call centers from eighteen to two.
The Company is also in the process of developing and implementing plans to
reduce the number of warehouses and operating centers. Finally, as announced
in December 1997, the Company estimates it will eliminate more than 1,000
positions to improve efficiencies and maximize productivity. By the end of
March 1998, the Company had reduced the workforce by over 400 of these
positions, slightly exceeding its target, and expects the balance of these
planned reductions to be completed by December 1998. The reductions in the
workforce are principally coming from sales support, administration and
management.
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RESEARCH & DEVELOPMENT
The Company has also agreed to contribute a total of $175.0 million
(plus an additional $30.0 million if certain research milestones are met) to
Kodak's ongoing research and development for new electrophotographic products
to be funded over the period April 1, 1997 through December 31, 2002. The
Company and Kodak have appointed representatives to serve as members of an
advisory committee which meet on a regular basis to discuss overall research
and development progress. The Company recorded research and development costs
of $50.0 million and $12.5 million in fiscal 1998 and fiscal 1997,
respectively.
PRODUCTS
The Company's primary products are photocopiers, facsimile equipment,
other office imaging equipment, and related parts and supplies. The
photocopier industry is informally divided into six segments. Segments one and
two contain the least sophisticated photocopiers and can run up to 30 copies
per minute; segments three and four contain faster and more sophisticated
mid-range photocopiers at 31 to 69 copies per minute; and segments five and six
contain the most sophisticated and fastest photocopiers in the industry which
run 70 to 90+ copies per minute. The principal manufacturers in segments one
through four are Canon, Konica, Minolta, Ricoh, Sharp and Toshiba. The Company
offers products from each of these manufacturers. Advances in technology and
changing market demands have also led to the emergence of color, digital and
multifunctional equipment as well as high-speed printers, all of which the
Company currently distributes. As a result of the acquisition of the Office
Imaging business, the Company is now the exclusive distributor of Kodak branded
high-volume photocopiers and printers worldwide. The Company sells
photocopiers in segments one through six, color and digital products through
its retail operations. In addition, the Company principally sells segment one
equipment through its wholesale operations. During fiscal 1998, the Company
formed a strategic alliance with Hewlett-Packard Company ("HP") through which
it is distributing and servicing the full line of HP Laserjet printers,
scanners and other peripherals throughout North America. The Company will
continue to expand its product offerings to encompass new equipment as it is
made available by its vendors and through strategic alliances.
The Company distributes a range of facsimile equipment, concentrating
in the more sophisticated plain paper and multifunctional models. The plain
paper and multifunctional models use toner and other supplies and require
maintenance similar to photocopiers. A majority of the facsimile machines the
Company sells are private label products of the Company.
TECHNOLOGY
The Company believes that the black and white photocopier and
facsimile equipment markets will continue to change with the increasing
acceptance of digital technology. Digital products have the ability to
communicate with other office imaging equipment. This innovation is resulting
in a blurring of the distinction between traditional photocopiers, facsimile
equipment and printers, with the emergence of a range of multifunctional office
imaging equipment that prints, copies, scans and faxes all from one machine.
Many of the Company's existing vendors have expended considerable
resources in the research, development, and creation of digital products and
have introduced several digital black and white and color photocopiers and
printers. The Company has developed and acquired certain of the expertise
necessary to support the transition to digital technology and provides training
and support to its sales professionals and service technicians for new vendor
digital product offerings. In acquiring the Office Imaging business, the
Company gained additional digital expertise and products including Kodak's
LionHeart products that enable digital devices to be connected to a computer.
The use of digital equipment is playing an important role in the industry as
companies transition to a digital office environment and shift from a
traditional print-then-distribute orientation to a distribute-then-print
orientation. As a percentage of copier equipment sales, digital products sold
by the Company in the U.S. now represent approximately 12 percent, increasing
from about 7 percent at the end of fiscal 1997.
Currently, color photocopiers represent a growing segment of the
office imaging market. The Company continues to expand its color markets
through its principal relationship with Canon, Ricoh and Minolta. With a color
server, color photocopiers can be converted into networkable color printers
that will
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accept digital output from a computer as well as hard copy inputs
which can be reproduced or scanned into the computer, thus increasing the
functionality of the unit.
SERVICES
In fiscal 1998, retail service, supplies and rentals represented 63
percent of the Company's total revenue. This revenue is primarily derived from
its equipment, maintenance and supply contracts ("EMS Contracts") and other
maintenance contracts. Generally, EMS Contracts are for a one-year term and
are automatically renewable. Although the Company has various payment
arrangements, most maintenance contracts are based upon a per copy charge.
These arrangements provide the customer with scheduled payments that can be
conveniently budgeted and provide the Company with a steady source of revenue.
As a percentage of total revenue, retail service, supplies and rentals have
increased significantly since the acquisition of the Office Imaging and
outsourcing businesses, in which a significantly higher portion of revenue is
generated from retail service, supplies and rentals. This is due to the higher
levels of recurring revenue associated with high-end copiers and printers and
the contractual nature of the outsourcing business as discussed below.
DSI, the Company's document management outsourcing operations, is also
included in the Company's retail service, supplies and rentals revenue stream.
DSI provides services including the management of central reprographics
departments, placement of convenience copiers, fleet management of customer
equipment, print-on-demand operations, and document archiving and retrieval
services. DSI also provides strategic consulting services, advising customers
on how to manage their document systems and how to add efficiencies --
including the shift from a stand alone analog copier to a networked digital
copier/printer system, the storage of data, and the flow of information
throughout the business. Generally, the Company's outsourcing contracts are
based on a five-year term.
MARKETING, CUSTOMERS AND SALES ORGANIZATION
The Company believes that, in addition to price and product
performance and capabilities, its retail customers primarily base their
purchasing decisions on the quality of post-sales service and support, speed of
service, and the availability of financing and rental programs. The Company
believes that its wholesale customers primarily base their purchasing decisions
on price, speed of delivery, dealer support, product performance and
capabilities, and availability of financing.
The Company's retail operations target a broad range of customer
groups, including small businesses to large multinational companies,
professional firms, and governmental and educational institutions. Customers
of the Company's wholesale operations consist generally of independent dealers
who are not authorized dealers for major manufacturers. Additionally, the
Company markets Infotec private label copiers and facsimiles as well as its dex
private label facsimile equipment and related supplies on a wholesale basis to
a network of authorized independent dealers.
As of March 31, 1998, there were over 3,000 sales representatives
devoted to generating sales for the Company. When compared to the employee
breakdown reported in March 31, 1997, it appears that the Company's sales
representatives have declined, however, this is not the case. The Company
introduced a new compensation plan, effective April 1, 1998, which reclassified
certain positions. The new plan redefined the Company's sales positions
distinguishing between sales generating representatives and other sales
management and support positions. Sales positions reported at March 31, 1997
included sales management and sales support as well, which are now classified
as all other administration.
Sales personnel turnover is common in the industry and the Company
makes a considerable effort to retain qualified sales personnel. The new
compensation plan introduced in April 1998 is based on external benchmarking
studies within the industry. The new plan is designed to provide a career path
for the Company's sales representatives and the opportunity to move up from
selling lower segment machines and service to more complex systems. By
increasing training and providing a career path, it is the Company's goal to
reduce current attrition levels. The compensation is comprised of a base salary
and a selling commission, which is based on several variables. These variables
include revenue as a percent of quota, service pricing levels, gross profit and
the net installed equipment base or population.
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Along with the new compensation plan, the Company has introduced a new
customer account structure with the goal of presenting one face to the
customer. The Company's sales representatives now offer the Company's full
product portfolio through a more simplified customer account structure. The
new structure helps to emphasize the need for one face and one vision
worldwide to better serve the Company's customers.
The Company utilizes a wide range of advertising and promotional
activities, including television, radio, and billboard advertising campaigns,
sponsorship of major sporting events and teams, distribution of descriptive
brochures and direct mail pieces, and informational seminars and presentations.
The Company's marketing efforts are enhanced by manufacturers' national
advertising campaigns and co-op arrangements where appropriate and applicable.
LEASING
Leasing plays a significant role in the Company's sale of equipment.
The Company believes that the ability of its sales force to offer customers the
option to lease equipment leads to additional sales. In substantially all of
its lease transactions, the Company initiates the lease, then securitizes the
lease through one of a number of available third-party leasing companies. The
Company has significantly reduced the credit risks normally associated with
leasing arrangements, while improving its cash flow and profit margins.
The Company believes customers are less resistant to a small increase
in monthly lease payments as opposed to an increase in the outright cash sales
price of such equipment. As a result, in most of these leasing arrangements,
the Company is able to achieve a higher sale price, and a higher profit margin
than that which would have been obtained by a cash sale of such equipment.
Finally, these leasing arrangements permit the Company to utilize its capital
for other business activities. The Company has similar arrangements for
leases, which are offered to customers outside the U.S.
TRAINING
A key element of the Company's operating philosophy is the training of
its employees in order to assist in the uniform application of the Company's
established operating procedures throughout the sales network. As described
above, the Company has introduced a new compensation plan designed to provide a
career path for its sales representative. Upon employment, Company sales
representatives participate in an intensive information and skills training
program with areas of focus including company overview, competitive
marketplace, selling skills, customer satisfaction, product knowledge as well
as finance and business skills. After the initial training has been
successfully completed, the Company continues to develop the skills and
knowledge of its sales representatives with new product training, self-study
computer based courses and on-going sales skills development.
Service technicians new to the Company are immediately trained and
certified in accordance with the Company's methods, procedures, and standards.
The Company's technical personnel are continuously updated and retrained as new
technology is developed. The Company's service training centers are certified
as manufacturers' authorized service facilities. The Company monitors service
technicians' continued educational experience and fulfillment of requirements
in order to evaluate the competence of its service technicians. All the
Company's service technicians receive service bulletins, service technician
tips and continued training seminars throughout their careers with the Company.
VENDORS
The Company's business is dependent upon close relationships with its
vendors and its ability to purchase products from these vendors on competitive
terms. During fiscal 1998, the Company's sales of Canon, Konica, Minolta,
Ricoh, Sharp and Toshiba photocopiers, facsimile equipment and related
accessories represented approximately 55 percent of its total equipment
revenue. The sale of Kodak branded equipment and accessories represented
approximately 25 percent of total equipment revenue. The Company's dex and
Omnifax
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private labels are imported from various Japanese and Korean manufacturers. In
addition, the Company relies on its equipment vendors for parts and supplies.
The Company conducts its business in reliance upon its continuing
ability to purchase equipment, supplies, and parts from its current
manufacturers pursuant to authorized retail dealer and wholesale agreements
("Authorized Manufacturer Agreements"). The Company's retail operations'
primary Authorized Manufacturer Agreements are with Canon, Konica, Minolta,
Ricoh, Sharp and Toshiba. Such agreements are generally for one-year terms,
cover only specific products, have specific territorial boundaries, and may be
terminated with cause, and in some instances, without cause. Although
Authorized Manufacturer Agreements are non-exclusive, they are generally
limited to one or two authorized dealers within specific territorial
boundaries. The Company also has multi-year supply agreements with Kodak, the
terms of which vary from the Company's traditional Authorized Manufacturing
Agreements. See -- "Kodak Supply Agreements" below. The Company's wholesale
operations' primary Authorized Manufacturer Agreements are with Copystar,
Konica, Minolta, Ricoh, Sharp and Toshiba, and contain terms which are
substantially similar to those of the Company's retail operations. Private
label facsimile products are provided under purchase agreements with various
manufacturers, and the terms of these agreements are similar to the agreements
with certain of the Company's photocopier vendors.
KODAK SUPPLY AGREEMENTS
Pursuant to the various multi-year supply agreements (the "Supply
Agreements"), the Company is required to purchase from Kodak various levels of
Kodak manufactured or remanufactured electrophotographic equipment and
accessories, spare parts, supplies and toner. The Company's pricing for
purchases of Kodak branded products is based on the Company purchasing certain
agreed upon levels. To the extent the Company exceeds or fails to purchase
these amounts, the Company may either receive a refund or be required to make
additional payments. The Company's inventory levels increased during fiscal
1998 as a result of the requirements to purchase various levels of equipment
pursuant to the Supply Agreements. The Company's goal is to build its
high-volume sales force and to improve productivity of its sales force in an
effort to meet the purchasing requirements contained in the Supply Agreements.
Subject to certain limitations, the Company has the worldwide exclusive right
to distribute Kodak's existing line of electrophotographic equipment for office
imaging and reprographics manufactured or remanufactured by Kodak, and the
related software, supplies, accessories and spare parts and a right of first
refusal to exclusively distribute worldwide certain future electrophotographic
products manufactured by Kodak for office imaging and reprographics.
COMPETITION
The Company's business is highly competitive with a number of
competitors in most geographic markets. The Company's retail operations are in
direct competition with local and regional equipment suppliers and dealers,
manufacturers, mass merchandisers, and wholesale clubs. Depending upon the
customer, principal areas of competition may include: quality and speed of
post-sales service support; availability of competitive products, parts and
supplies; speed of delivery; product capability and performance; financing
terms; and the availability of financing, leasing, or rental programs. The
Company's wholesale operations are in direct competition with local, regional,
and national distributors and manufacturers. Principal areas of competition
for wholesale operations are availability of competitive products, price, speed
of delivery, dealer support, centralized volume buying, product performance,
and the availability of financing programs. The continued ability of the
Company to offer competitive office imaging equipment in all segment areas is
important in both retail and wholesale operations. See -- "Products." As a
result of acquiring the Office Imaging business, the Company increased
significantly its presence in the high-volume photocopier market currently
dominated by Xerox Corporation. The Company is also becoming a leading player
in the document outsourcing industry. Other leading players in the document
outsourcing industry include Xerox Corporation, IKON Office Solutions, Inc. and
Pitney Bowes, all of which vary in current product offerings. Competition in
the outsourcing industry is based primarily on the technical solutions devised,
the breadth of services offered and pricing. Historically, the Company has also
competed with other competitors for acquisitions, and in some instances, such
competition can prevail or result in an increase in the price of an acquisition.
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ACQUISITION HISTORY
The Company has completed over 140 acquisitions throughout its
history. The acquisition of the Office Imaging and outsourcing businesses from
Kodak was the Company's largest to date, adding over $1.5 billion in annual
revenue, operations in more than 15 new countries, approximately 10,000
employees and an expanded product and service portfolio.
The Company has expanded its business through internal growth by
increasing its penetration in existing markets, and by entering new geographic
areas primarily through the acquisition of existing businesses. The Company's
acquisition strategy has been focused on acquiring businesses in current
territories to increase penetration in those markets and on acquiring
businesses in new territories. The Company has sought to acquire companies
that generally had (i) an established customer base, (ii) a product line that
compliments or is comparable with the Company's current and anticipated
products and services; (iii) necessary manufacturer authorizations, and (iv)
the potential to benefit from the Company's centralized purchasing power as
well as from other potential synergies including increasing productivity and
streamlining operations.
The Company seeks to integrate acquired companies into the Company
through the implementation of the Company's operating procedures, which (i)
establishes financial controls, common information systems and reporting
requirements, (ii) introduces the Company's service, marketing and sales
programs and compensation plans, (iii) evaluates, transfers and retrains
personnel as necessary, and (iv) in many cases, expands the acquiree's product
mix to incorporate new products and services which are sold by the Company. In
most business acquisitions, the acquired businesses' owners and management are
contractually bound by executive non-compete and trade secret protection
agreements.
Technological developments increasing the complexity of new products,
combined with the higher costs of product support, has driven the consolidation
of the industry within the North American and European markets. This trend has
caused smaller independent distributors to consider selling their dealerships
to larger marketing and service organizations such as the Company. Through
such acquisitions, the Company entered the United Kingdom in 1993, the Canadian
market in 1994, Continental Europe in 1995, Australasia in 1996, and as
discussed above, the Company now operates in over 30 countries as a result of
the Office Imaging and outsourcing businesses acquired from Kodak.
The Company believes that acquisition opportunities continue to exist
in the office imaging and document management industry. The Company's future
acquisition activity will focus on companies that provide services which can be
leveraged across distribution channels, document management companies with
outsourcing opportunities and companies with a presence in strategic networks
and consulting markets.
The Company's continued success in future acquisitions will be
dependent on a variety of factors, including the timing and size of an
acquisition; the success or failure to integrate any significant acquisition
and minimize integration costs related thereto; and the Company's ability to
successfully grow its infrastructure to sustain, manage, operate and continue
significant expansion. The Company evaluates the potential acquisition of, and
holds discussions with, various potential acquisition candidates and as a
general rule the Company publicly announces such acquisitions only after a
definitive agreement has been reached.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 20,000
persons, of which approximately 9,700 were service engineers and approximately
3,000 were devoted to generating sales. The remaining employees were devoted
to training, management, and other administrative and support positions in the
field and corporate locations. Support positions in the field include
warehouse and delivery functions, dispatch, meter readings, renewal of customer
maintenance agreements, accounts receivable collection and billing functions.
Some of the Company's non-U.S. employees are subject to labor
agreements that establish rates of pay, working hours, procedures for orderly
settlement of disputes and other terms and conditions of employment.
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The Company considers its employee relations to be good, and believes that it
provides working conditions and wages, which compare favorably to those of its
competitors.
The Company relies heavily on its senior management, and the loss of
certain Executive Officers could have an adverse effect on the Company.
Additionally, the Company's ability to successfully grow and maintain its
management and employee base, as well as to successfully integrate acquired
company employees during periods of expansion, are extremely important to the
Company's continued success.
TRADEMARKS AND SERVICE MARKS
The Company believes that its trademarks and service marks have gained
significant recognition in the office imaging and document management industry
and are important to its marketing efforts. The Company has registered various
trademarks and service marks in certain markets. The trademarks "Danka",
"dex", "Omnifax" and "Infotec" are among those registered marks, which are
viewed as important to the Company's ongoing business. The Company's policy is
to continue to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its proprietary rights. Depending on the
jurisdiction, trademarks and service marks are valid as long as they are in use
and/or their registrations are properly maintained, and they have not been
found to have become generic. Registrations of trademarks and service marks in
the United States can generally be renewed indefinitely as long as the
trademarks and service marks are in use.
BACKLOG
The backlog of orders at March 31, 1998 and March 31, 1997 were not
material.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K, or otherwise made by officers
of the Company, including statements related to the progress of and anticipated
benefits from the Uniting Danka Project, the Company's ability to meet
challenges it faces, the Company's future performance and the Company's outlook
for its businesses and respective markets, projections, statements of
management's plans or objectives, forecasts of market trends and other matters,
are forward-looking statements, and contain information relating to the Company
that is based on the beliefs of management as well as assumptions, made by, and
information currently available to, management. The words "goal", "expect",
"believe" and similar expressions as they relate to the Company or the
Company's management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions that
could cause actual results to differ materially from those reflected in the
forward-looking statements. No assurance can be given that the results in any
forward-looking statement will be achieved. For the forward-looking
statements, the Company claims the protection of the safe harbor for
forward-looking statements provided for in the Private Securities Litigation
Act of 1995. Factors that might cause such differences include, but are not
limited to (i) the demands that the Office Imaging ("OI") acquisition (the
"Acquisition") and the unification thereof with the Company's core operations
will place on the Company's resources, infrastructure, current operations and
employees, (ii) the Company's inability to achieve substantial operating cost
reductions and efficiencies in productivity from the Acquisition, the revised
information technology system, the revised management structure or other similar
Company-wide initiatives associated with the unification, (iii) the potential
for unanticipated increases in expenditures for labor, equipment, materials and
supplies required to manage the increased size of the Company as a result of the
Acquisition, (iv) the Company's inability to effectively manage the increased
number of employees and retain current key management personnel and other key
employees added as a result of the Acquisition, who are accustomed to a
different corporate culture, compensation arrangements and benefits programs,
while the Company simultaneously implements a new sales compensation program and
reduces the overall size of its worldwide workforce, (v) the potential increased
costs resulting from technological developments, revisions to existing
information technology systems, year 2000 issues and the integration of
information technologies between OI and the Company's core operations, (vi)
increased competition resulting from other high volume copier distributors and
the discounting of such copiers by competitors, (vii) the Company's ability to
manage and reduce its outstanding debt, meet its working capital needs and
maintain compliance with the covenants of its
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credit facility, (viii) the inability of the Company to continue to gain access
to and successfully distribute new and current products brought to the
marketplace at competitive costs and prices, (ix) the ultimate amount of
additional costs associated with the accelerated unification and ultimate
integration and the amount and timing of the realization of the anticipated
benefits from such unification and complete integration, (x) the inability of
the Company to effectively manage the increased size of its inventory and
product line, (xi) the Company's inability to comply with the purchasing
requirements under its supply agreements with its vendors, including Kodak, and
the impact thereof, including the Company's inability to obtain such equipment
and supplies elsewhere, (xii) the ultimate outcome and impact of the pending
class action lawsuits filed in December 1997 and January 1998, (xiii)
fluctuations in foreign currencies, (xiv) economic conditions in regions
worldwide where the Company does business, (xv) significant acquisitions or
divestures, (xvi) various competitive pressures, (xvii) any negative impact from
the loss of any key upper management personnel, (xviii) any failure by the
Company to meet market expectations on financial performance and (xix) other
risks including those risks identified in any of the Company's filings with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation and
does not intend to update these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Furthermore, as a matter of
policy, the Company does not generally make any specific projections as to
future earnings nor does it endorse any projections regarding future
performance, which may be made by others outside the Company.
ITEM 2. PROPERTIES
The Company's general policy is to lease, rather than own, its
business locations. The Company leases numerous properties for administration,
sales and service, and distribution functions. The terms vary under the
respective leases and some contain a right of first refusal or an option to
purchase the underlying real property and improvements. In general, the
Company's lease agreements require it to pay its proportionate share of taxes,
common area expenses, insurance, and related costs of such rental properties.
In addition, the Company leases approximately 650 properties for its retail and
wholesale operations.
The Company owns several smaller business locations, none of which are
necessary to the success of the particular location's business. Generally,
these properties were included among the assets obtained in certain
acquisitions. In the future, the Company may dispose of such properties and
enter into leases of properties, which the Company believes may be more
desirable or more centrally located.
Management believes that the properties it occupies are, in general,
suitable and adequate for the purposes for which they are utilized. The
Company is currently involved in the consolidation of certain real estate
related to the integration of the Office Imaging business with the Company's
core operations. By April 1998, the Company had consolidated and reduced its
U.S. dispatch call centers from eighteen to two. The Company is also in the
process of developing and implementing plans to reduce the number of warehouses
and operating centers.
ITEM 3. LEGAL PROCEEDINGS
The Company, certain of its executive officers who are also directors, a
former director and two former officers are defendants in several purported
class action lawsuits filed in the United States District Court for the Middle
District of Florida, Tampa Division.(1) The complaints allege, principally,
that the Company and the other defendants issued materially false and misleading
statements related to the progress of the Company's integration of its
acquisition of Kodak's Office Imaging and outsourcing businesses, in violation
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. The plaintiffs seek to certify their complaints
as class actions on behalf of all purchasers of the Company's American
Depositary Receipts in the period between May 12, 1997 and December 16, 1997,
and seek an award of an unspecified amount of monetary damages (including
punitive damages) to all of the members of the purported class. The plaintiffs
are in the process of filing a single, amended complaint. The cases are in the
early stages and while it is impossible to predict the outcome or impact of such
litigation, management believes this litigation is without merit and intends to
vigorously defend the lawsuits.
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The Company is subject to other legal proceedings and claims, which arise in
the ordinary course of its business. Management believes that the resolution
of the above matters will not have a material effect upon the Company's
financial position or results of operations or liquidity.
- ---------------
(1) The purported class action lawsuits are as follows: (i) Amy L. Ollendorf
and Anne Marie Davis on Behalf of Themselves and All Others Similarly Situated
against Danka Business Systems PLC et al, (filed on January 15, 1998); (ii)
Peter Devree on Behalf of Himself and All Others Similarly Situated against
Danka Business Systems PLC et al, (filed on January 22, 1998); (iii) Real J.
Audet, Michael and Nancy Hagen, Joint Tenants on Behalf of Themselves and All
Others Similarly Situated v. Danka Business Systems PLC et al, (filed on January
28, 1998); (iv) Gary Hughes, on Behalf of Himself and All Others Similarly
Situated v. Danka Business Systems PLC et al, (filed on December 23, 1997); (v)
Frederick H. Modlin and Joseph McGeary, on Behalf of Themselves and All Others
Similarly Situated against Danka Business Systems PLC et al, (filed on December
23, 1997); (vi) Robert L. Wenz and David I. Wise, on Behalf of Themselves and
All Others Similarly Situated v. Danka Business Systems PLC et al, (filed on
January 13, 1998).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The following table sets forth the high and low sale price per American
Depositary Share ("ADS") as reported by the Nasdaq National Market and the high
and low middle market quotations (which represent an average of bid and offered
prices in pence) for the Ordinary Shares as reported on the London Stock
Exchange Official List. Each ADS represents four Ordinary Shares.
U.S. Dollars per Pence per
ADS Ordinary Share
High Low High Low
- ------------------------------------------------------------------------------------------
Fiscal Year 1998:
Quarter ended June 30, 1997 $43.63 $26.50 648p 425p
Quarter ended September 30, 1997 51.31 37.00 788 558
Quarter ended December 31, 1997 47.00 12.38 713 215
Quarter ended March 31, 1998 21.13 15.25 322 239
Fiscal Year 1997:
Quarter ended June 30, 1996 $51.88 $26.50 848p 468p
Quarter ended September 30, 1996 45.25 22.25 700 403
Quarter ended December 31, 1996 45.13 35.13 663 533
Quarter ended March 31, 1997 46.25 30.25 683 472
As of March 31, 1998, 41,532,448 ADSs were held of record by 4,276 registered
holders and 61,366,074 Ordinary Shares were held of record by 3,950 registered
holders. Since some of the ADSs and Ordinary Shares are held by nominees, the
number of holders may not be representative of the number of beneficial owners.
The Company currently expects to continue its policy of paying semi-annual cash
dividends, although there can be no assurance as to future dividends because
they are dependent upon future operating results, capital requirements and the
Company's financial condition.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to the information under the heading "Selected Consolidated Financial
Data" in the Company's Annual Report to Shareholders for the Year Ended March
31, 1998. See Exhibit 13 to this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report to Shareholders for the Year Ended March 31, 1998. See Exhibit
13 to this Report.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to the information under the headings "Consolidated Statements of
Earnings", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Shareholders' Equity" and "Notes to the
Consolidated Financial Statements" in the Company's Annual Report to
Shareholders for the Year Ended March 31, 1998. See Exhibit 13 to this Report.
As is the case with any company, prior financial condition and results of
operations are not necessarily indicative of future results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Directors and
Executive Officers" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1998 Annual Meeting of Shareholders, which has
been filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information under the headings "MANAGEMENT - Compensation of
Executive Officers and Directors" in the Company's definitive Proxy Statement
to be used in connection with the Company's 1998 Annual Meeting of
Shareholders, which has been filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information under the heading "MANAGEMENT - Security Ownership
of Management and Others" in the Company's definitive Proxy Statement to be
used in connection with the Company's 1998 Annual Meeting of Shareholders,
which has been filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1998 Annual Meeting of Shareholders, which has
been filed with the Commission.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. The following Financial Statements of the Registrant
included in Part II, Item 8, of this Report are
incorporated herein by reference as described in Item
8:
Consolidated Statements of Earnings - Years ended
March 31, 1998, 1997 and 1996
Consolidated Balance Sheets - March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity -
Years ended March 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements -
Years ended March 31, 1998, 1997 and 1996
Independent Auditors' Report
2. The following Financial Statement Schedules of the
Registrant are included in Item 14(d):
Independent Auditors' Report
II - Valuation and Qualifying Accounts
All other schedules are omitted because the required
information is not present in amounts sufficient to
require submission of the schedule, the information
required is included in the financial statements and
notes thereto or the schedule is not required or
inapplicable under the related instructions.
3. Exhibit index:
Exhibit
Number Description of Document
- ------ -----------------------
2.1* Asset Purchase Agreement between Eastman Kodak Company and Danka Business Systems PLC
dated as of September 6, 1996, including Exhibit 5.19 (a) which is the form of Amended
and Restated Supply Agreement by and between Eastman Kodak Company and
_______________________ dated as of ____________________, 1996. (Exhibit 2.1 to the
Company's Form 8-K dated November 14, 1996.)
2.2* Amendment No. 1 to Asset Purchase Agreement between Eastman Kodak Company and Danka
Business Systems PLC dated December 20, 1996 (Excluding schedules and similar
attachments). (Exhibit 2.2 to the Company's Form 8-K dated January 15, 1997).
3.1* Memorandum of Association of the Company. (Exhibit 3.1 of Company's Registration
Statement on Form 20-F, No. 0-20828, filed on November 10, 1992 [the "1992 Registration
Statement"].)
3.2* Articles of Association of the Company. (Exhibit 3.2 to the 1992 Registration
Statement.)
4.1* Memorandum of Association of the Company, including paragraphs 5 and 6. (Exhibit 2.1
to the 1992 Registration Statement.)
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4.2* Articles of Association of the Company, including sections relating to Shares,
Variation of Rights and Votes of Members. (Exhibit 2.2 to the 1992 Registration
Statement.)
4.3* Form of Ordinary Share certificate. (Exhibit 4.3 of Company's Registration Statement
on Form S-1, No. 33-68278, filed on October 8, 1993 [the "1993 Registration
Statement"]).
4.4* Form of American Depositary Receipt. (Exhibit 4.4 to the 1993 Registration Statement.)
4.5* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993 (Exhibit 4.9 to the 1993 Registration Statement.)
and Amendment No. 3 dated August 16, 1994 between The Bank of New York, Company and
Owners and Holders of American Depositary Receipts.
4.6* Indenture dated March 13, 1995 between the Company and The Bank of New York, as
Trustee. (Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
4.7* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21,
1995).
4.8* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and
among the Company and Prudential Securities Incorporated and Smith Barney, Inc. and
Robert W. Baird & Co. and Raymond James & Associates, Inc. (Exhibit 4.12 to the
Company's 1995 Form 10-K).
4.9* Resolution No. 7 adopted by shareholders at the 1997 annual general meeting waiving
pre-emptive rights of shareholders under certain circumstances filed with the Company's
1997 Proxy Statement.
4.11* Credit Agreement dated December 5, 1996, by and among Danka Business Systems PLC,
Dankalux Sarl & Co. SCA, Danka Holding Company, the several financial institutions from
time to time a party and NationsBank, N.A., as agent (Exhibit 4 to the Company's Form
8-K dated December 16, 1996).
4.12* First Amendment to Credit Agreement dated December 5, 1997 among Danka Business Systems
PLC, Dankalux Sarl & Co., SCA, and Danka Holding Company, Nationsbank, National
Association, each other Bank signatory thereto and Nationsbank, National Association,
as agent. (Exhibit 4.9 to the Company's Form 10-Q dated February 12, 1998).
No other instruments defining the rights of holders of long-term debt of the Company
and its subsidiary have been included as exhibits because the total amount of
obligation authorized under any such agreement does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees
to furnish supplementally a copy of any omitted long-term debt instrument to the
Commission upon request.
10.1* Office Building Lease dated February 4, 1986 between Daniel M. Doyle and Francis J.
McPeak, Jr., and Copies, Inc. (Exhibit 3.4 to the 1993 Form 20-F).
10.2* Office Building Lease dated May 1, 1992 between Daniel M. Doyle and Francis J. McPeak,
Jr., and Gulf Coast Business Machines. (Exhibit 3.5 to the 1993 Form 20-F).
10.3* Office Building Lease dated April 1, 1990 between Daniel M. Doyle and Francis J.
McPeak, Jr., and Danka. (Exhibit 3.6 to the 1993 Form 20-F).
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10.4* Lease Agreement dated December 22, 1986, and Addendum Lease Agreement dated March 1,
1987, between Daniel M. Doyle and Francis J. McPeak and Danka. (Exhibit 3.7 to the
1993 Form 20-F).
10.5* U.K. Executive Share Option Scheme. (Exhibit 3.11 to the 1993 Form 20-F).
10.6* U.S. Executive Incentive Stock Option Plan. (Exhibit 3.12 to the 1993 Form 20-F).
10.7* Form of Stock Option Agreement. (Exhibit 3.13 to the 1993 Form 20-F).
10.8* Addendum to Lease Agreement dated September 1, 1992, between Mid-County Investments,
Inc. and Danka. (Exhibit 3.38 to the 1993 Form 20-F).
10.9* Lease Agreement dated November 12, 1992 and Lease Commencement Agreement dated April 7,
1993 between PARD, Inc. and Danka. (Exhibit 10.41 to the 1993 Form 20-F).
10.10* Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and
Amendment No. 2 dated July 2, 1993, between The Bank of New York, Company and Owners
and Holders of American Depositary Receipts, filed as Exhibit 4.5 and incorporated as
reference.
10.11 Amended and Restated Employment Agreement dated as of April 1, 1997 among the Company,
Danka Holding Company and Daniel M. Doyle.
10.12* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
David C. Snell. (Exhibit 10.50 to the 1994 Form 10-K).
10.13* Employment Agreement dated April 1, 1994 among the Company, Danka Industries, Inc. and
Mark A. Vaughan-Lee. (Exhibit 10.51 to the 1994 Form 10-K).
10.14* Danka Business Systems PLC 1994 Executive Performance Plan. (Exhibit 10.52 to the 1994
Form 10-K).
10.15* Indenture dated March 13, 1995 between the Company and The Bank of New York, as
Trustee. (Exhibit 2 to the Company's Form 8-K dated March 21, 1995).
10.16* Deposit and Custody Agreement dated March 13, 1995, between The Bank of New York as
Depositary and the Company. (Exhibit 3 to the Company's Form 8-K dated March 21,
1995).
10.17* Registration Rights Agreement dated as of March 13, 1995 relating to $175,000,000 in
Aggregate Principal Amount of 6.75% Convertible Subordinated Notes Due 2002 by and
among the Company and Prudential Securities Incorporated and Smith Barney, Inc. and
Robert W. Baird & Co. and Raymond James & Associates, Inc. (Exhibit 10.24 to the
Company's 1995 Form 10-K).
10.18* Purchase Agreement dated October 25, 1995 between ABN AMRO Bank N.V. and Credit
Lyonnais Bank Nederland N.V. and Danka Europe B.V. (Exhibit 2 to the Company's
Form 8- K dated November 3, 1995).
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10.19* Credit Agreement dated March 19, 1996 among Danka Business Systems PLC, Danka Holding
Company, the several financial institutions from time to time a party to this
Agreement, Bank of America National Trust and Savings Association, Bank of America
International Limited, Nationsbank, N.A., and Southtrust National Bank of Alabama,
N.A., in an amount up to $400.0 million. (Exhibit 1 to the Company's Form 8-K dated
March 19, 1996).
10.20* The Danka 1996 Share Option Plan filed as Appendix 1 of the 1996 Annual Proxy Statement
and approved by shareholders under Resolution 10.
10.21* The Danka 1996 Non-Employee Directors Share Option Plan filed as Appendix 2 of the 1996
Annual Proxy Statement and approved by shareholders under Resolution 11.
10.22* No other instruments defining the rights of holders of long-term debt of the Company
and its subsidiary have been included as exhibits because the total amount of
obligation authorized under any such agreement does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees
to furnish supplementally a copy of any omitted long-term debt instrument to the
Commission upon request.
13 Annual Report to Shareholders of the Company for the year ended March 31, 1998. The
portions of the Company's Annual Report to Shareholders incorporated by reference into
this Report are included herein as exhibits.
21 List of Current Subsidiaries of the Company.
23 Independent Auditors Consent.
27 Financial Data Schedule.
27.1 Financial Data Schedule Restated and Amended (September 30, 1997 Form 10-Q).
27.2 Financial Data Schedule Restated and Amended (June 30, 1997 Form 10-Q).
27.3 Financial Data Schedule Restated and Amended (March 31, 1997 Form 10-K).
27.4 Financial Data Schedule Restated and Amended (December 31, 1996 Form 10-Q).
27.5 Financial Data Schedule Restated and Amended (September 30, 1996 Form 10-Q).
27.6 Financial Data Schedule Restated and Amended (June 30, 1996 Form 10-Q).
27.7 Financial Data Schedule Restated and Amended (March 31, 1996 Form 10-K).
* Document has heretofore been filed with the Commission and is
incorporated by reference and made a part hereof.
(b) Reports on Form 8-K
On December 17, 1997, the Company filed a report on Form 8-K
announcing its estimated results for the third quarter of fiscal 1998.
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(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.
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INDEPENDENT AUDITORS' REPORT
To the Members of Danka Business Systems PLC:
Under date of May 15, 1998, we reported on the consolidated balance sheets of
Danka Business Systems PLC and subsidiaries as of March 31, 1998 and 1997 and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended March 31, 1998, as
contained in the 1998 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1998. In connection with our
audits of the aforementioned financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
May 15, 1998 London, England
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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
Beginning of Costs and Other at End
Description Period Expenses Accounts (1) Deductions (2) of Period
----------- ------------- ---------- ------------ -------------- ---------
Allowance for doubtful accounts:
Year ended March 31, 1996 $6,034 $3,717 $8,009 $(8,956) $8,804
====== ====== ====== ====== ======
Year ended March 31, 1997 $8,804 $21,062 $12,382 $(14,395) $27,853
====== ======= ======= ======= =======
Year ended March 31, 1998 $27,853 $29,928 $2,046 $(28,854) $30,973
======= ======= ====== ======= =======
(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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: June 22, 1998 DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
By: /s/ DANIEL M. DOYLE
-------------------------------
Daniel M. Doyle, Chief Executive
(The Chief Executive Officer)
By: /s/ DAVID C. SNELL
-------------------------------
David C. Snell, Finance Director
(Executive Vice President and the
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities indicated on June 22, 1998.
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, Executive Vice President
- --------------------------------- and the Principal Accounting Office
David C. Snell
/s/ PIERSON M. GRIEVE Director
- ---------------------------------
Pierson M. Grieve
/s/ DAVID W. KENDALL Director
- ---------------------------------
David W. Kendall
/s/ KEITH J. MERRIFIELD Director
- ---------------------------------
Keith J. Merrifield
/s/ J. ERNEST RIDDLE Director
- ---------------------------------
J. Ernest Riddle
/s/ JAMES F. WHITE, JR. Director
- ---------------------------------
James F. White, Jr.
22