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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003

OR

FOR THE TRANSITION PERIOD FROM              TO             

Commission file number: 0-20828

DANKA BUSINESS SYSTEMS PLC

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:

(727) 622-2100 in the United States

011-44-207-605-0150 in the United Kingdom

NOT APPLICABLE

(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The registrant had 250,585,359 Ordinary Shares outstanding as of February 2, 2003.

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained herein, or otherwise made by our officers, including statements related to our future performance and our outlook for our businesses and respective markets, projections, statements of our plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on our beliefs as well as assumptions, made by, and information currently available to us. The words “goal”, “anticipate”, “expect”, “believe” and similar expressions as they relate to us are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to, the following: (i) any inability to successfully implement our strategy; (ii) any inability to successfully implement our cost restructuring plan to achieve and maintain cost savings; (iii) any material adverse change in financial markets, the economy or in our financial position; (iv) increased competition in our industry and the discounting of products by our competitors; (v) new competition as the result of evolving technology; (vi) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute, new products, including digital products, color products, multi-function products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices; (vii) any inability to arrange financing for our customers’ purchases of equipment from us; (viii) any inability to successfully enhance and unify our management information systems; (ix) any inability to record and process key data due to ineffective implementation of business processes and policies; (x) any negative impact from the loss of a key vendor or customer; (xi) any negative impact from the loss of any of our senior or key management personnel; (xii) any change in economic conditions in domestic or international markets where we operate or have material investments which may affect demand for our products or services; (xiii) any negative impact from the international scope of our operations; (xiv) fluctuations in foreign currencies; (xv) any inability to comply with the financial or other covenants in our debt instruments (xvi) any incurrence of tax liabilities beyond our current expectations, which could adversely affect our liquidity; (xvii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by past or future terrorist attacks, the related war on terrorism, and the fear of additional terrorist attacks; and (xviii) other risks including those risks identified in any of our filings with the Securities and Exchange Commission, or the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our analysis only as of the date they are made. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a matter of policy, we do not generally make any specific projections as to future earnings, nor do we endorse any projections regarding future performance, which may be made by others outside our company.

RISK FACTORS

Business Strategy - We believe that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement the strategies discussed elsewhere in this quarterly report.

In connection with the implementation of our strategies, we have launched, and expect to continue to launch, several initiatives. However, the success of any of these initiatives may not be achieved if:

Failure to implement one or more of our strategies and related initiatives could materially and adversely affect our business, financial condition or results of operations.

Profitability – We generated a net loss from continuing operations for the first nine months ended December 31, 2003 of $35.0 million compared to net earnings of $10.8 million in the year-ago period and have incurred losses in prior years. The net loss from continuing operations for the first nine months ended December 31, 2003 included a $20.6 million pre-tax write-off of debt issuance costs or $14.4 million on an after-tax basis and a $20.0 million pre-tax cost restructuring charge or $14.0 million on an after-tax basis.

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We believe that our results for the first nine months of fiscal year 2004 and fiscal years 2003 and 2002 were impacted in large part by:

If we continue to incur losses in the future, our growth potential and our ability to execute our business strategy may be limited. In addition, our ability to service our indebtedness may be impaired because we may not generate sufficient cash flow from operations to pay principal or interest when due.

At December 31, 2003, we had deferred tax assets in excess of deferred tax liabilities of $139.5 million and had determined that it is more likely than not that $103.7 million of such net assets will be realized, resulting in a valuation allowance of $35.8 million. Approximately $228 million of future United States taxable income and approximately $43 million of future United Kingdom taxable income is ultimately needed to realize the net deferred tax assets at December 31, 2003. It is possible that we may have to record a non-cash write-off in future quarters of all or a portion of the deferred tax assets recorded at December 31, 2003, which could materially affect our financial condition, total shareholders’ equity and results of operations.

Restructuring of Operations – We have implemented a plan to reduce costs in order to stay competitive within our industry. This cost reduction plan involves, among other things, significant headcount reductions, the exit of certain non-strategic facility locations and the consolidation of many back-office functions into more centralized locations. If we fail to successfully implement our cost restructuring plan and achieve our other long-term cost reduction goals, then we may not reduce costs quickly enough to remain competitive within our industry, may lose valuable institutional knowledge and incur a breakdown in our business and operational functions, including certain critical back-office operations, any of which could result in negative consequences to our customer service and operating results.

Economic Downturn - The profitability of our business is susceptible to downturns in the global economy. Overall demand for our products and services and their profit margins may decline as a direct result of an economic recession, inflation, interest rates or governmental fiscal policy. As a result, our customers may reduce or delay capital expenditures for our products and services.

Competition - The industry in which we operate is highly competitive. We have competitors in all markets in which we operate, and our competitors include a number of companies worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology, performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our equipment suppliers continue to establish themselves as direct competitors in many of the areas in which we do business.

As our suppliers develop new products, there is no guarantee that they will permit us to distribute such products or that such products will meet our customer’s needs and demands. Furthermore, some of our principal competitors design and manufacture new technology, which may give them a competitive advantage over us.

Besides competition from within the office imaging industry, we are also experiencing competition from other sources as a result of evolving technology, including the development of alternative means of document processing, retention, storage and printing. Our retail operations are in direct competition with local and regional equipment suppliers and dealers, manufacturers, mass

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merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our market share because of the high level of competition in our industry. The intense competition in our industry may result in pressure on the prices and margins that we can obtain for our products and may affect our ability to retain customers, both of which could materially and adversely affect our business, financial condition or results of operations.

Technological Changes – The industry in which we operate is characterized by rapidly changing technology. Technological changes have contributed to declines in our revenues in the past and may continue to do so in the future. For example, the office imaging industry continues to change from analog to digital copiers, MFPs and printers. Most of our digital products replace analog products. Digital copiers and MFPs are more efficient than analog copiers, meaning that our customers may require fewer of them to provide the same level of output. Digital copiers and MFPs are also increasingly more reliable than analog copiers and require less maintenance. This has contributed, in part, to a decline in our service contract revenue, which has traditionally formed a significant portion of our revenues. Moreover, color printing and copying represents an important and growing part of our industry. We must improve our execution of color sales and meet the demand for color products if we are to maintain and improve our operating performance and our ability to compete.

Another industry change that has been fueled by technological changes, such as the advent of e-mail and the Internet, is the migration of copy volume from traditional stand-alone copiers to network printers as end users print distributed documents on printers linked directly to their personal computers as opposed to receiving copies of such documents that were copied on a traditional stand-alone copier. We will need to provide comprehensive solutions to our customers, such as offering digital copiers, MFPs and printers that are directly linked to their networks, in order to remain competitive. Finally, the speed of technological changes has caused us in the past, and may cause us in the future, to accelerate the write down of our inventory, including, but not limited to, showroom, rental and other equipment and related supplies and parts including parts and supplies for our TechSource initiative, as a result of obsolescence. In order to remain competitive, we must quickly and effectively respond to changing technology. The development of technologies in our industry, including digital and color products and the further development of MFPs, may impair our business, financial condition, results of operations or competitive position if we are not able to procure or gain access to products, bring them to the marketplace, maintain connectivity or make the investments necessary to maintain a technologically competitive workforce.

Third Party Financing Arrangements - A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. With respect to our qualified United States customers, we have an agreement with General Electric Capital Corporation, or GECC, under which GECC has agreed to provide financing to our United States customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our United States business. GECC has current and prospective lease financing agreements with our competitors. If these agreements result in more favorable terms to our competitiors than our current agreement with GECC, we may be placed at a competitive disadvantage within the industry in arranging third party financing to our customers, which could negatively affect our operating results. With respect to our customers outside the United States, we have country by country arrangements with various third party finance and leasing companies.

If we were to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC, then such source might refuse to provide financing to our customers. For example, our agreement with GECC requires us to maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such consolidated net worth as provided under the GECC agreement may result in a termination event under the GECC agreement. If one or more of our financing sources were to fail to arrange financing to our customers, those customers might be unable to purchase equipment from us if we were unable to arrange alternative financing arrangements on similar terms or provide financing ourself. In addition, if we were unable to arrange financing, we would lose sales, which could negatively affect our operating results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Financing Arrangements—GECC Arrangement.”

Information Systems – Prior to October 2003, our United States management information systems had run on numerous disparate legacy IT systems that were outdated and incompatible. The operation and coordination of these legacy management information systems and billing systems was labor-intensive and expensive. During October 2003, we completed the geographic rollout of the new Oracle ERP System in the United States. Although it is still early, we believe that this system should, in large part, postively address the prior system limitations, which required us to manually collect, compile and consolidate certain information. However, due to data conversion and other issues, we are continuing to experience problems in updating and processing certain customer information, which results in some inaccurate billing of our customers and the untimely crediting of their accounts. While we do expect improvements in these areas as the required adjustments are made to the Oracle system, it is too early to tell when such improvements will be actually achieved.

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We must also obtain an accurate measure of usage on each of our United States customers’ machines in order to properly bill them for usage. We have been unable to establish a uniform, non-manual process for obtaining this information. In the past, we estimated the usage of our customer’s machines. We intend to implement processes to get an actual reading of the customer’s meter to bill them for any usage in excess of the standard contract minimum. We cannot guarantee that these processes will be timely implemented or that they will operate to effectively address this problem with our billing operations.

The implementation of the Oracle ERP System required expenditures of approximately $48 million, excluding ancillary expenses of approximately $13 million. If we are not able to successfully leverage the benefits of our Oracle ERP System, then we will continue to incur substantial costs using manual procedures to process information.

For many of the same deficiencies as in the United States, we are evaluating what information system investments we should make for the countries within our European and International operations. We have determined that we need to upgrade our information systems in Italy, Germany, the United Kingdom and other countries and will spend approximately $6 million for such upgrades. Any implementation of new or improved information systems in such countries may take considerable time and could require a substantial investment.

Due to the delayed investment in our information systems, we have not properly invested in world-wide disaster recovery systems. In the event that one or more of our business systems were to fail, we would be at risk of losing valuable business knowledge.

Business Processes and Policies - Our rapid expansion through acquisitions, past financial difficulties and a historical lack of focus on and investment in our information systems have impeded our ability to develop and implement internal controls and business processes consistently and enforce policies effectively. We have identified instances where our business processes and policies have not been properly implemented or followed in the past, which have resulted in, among other things, poor billing and credit practices, weak customer contract management, excessive and undisciplined issuances of customer credits, inaccurate customer data, inconsistent customer contract terms and conditions, inadequate document retention and inconsistent lease classification. While we believe that some of these issues that relate to the United States will be addressed with the implementation of new manual internal control procedures and the implementation of the Oracle ERP system, which is configured with better system internal controls, there is no assurance that all of these issues will be completely corrected by such changes. If these matters worsen, they could adversely affect our ability to record, process, summarize and report key data consistent with the assertions of management.

Vendor Relationships - We primarily have relationships with Canon, Ricoh, Toshiba, Heidelberg/Nexpress and Konica. These companies manufacture equipment, parts, supplies and software for resale by us in the markets in which we operate. We also rely on our equipment suppliers for related parts and supplies and for financial support in certain competitive transactions and markets which may include vendor rebates and market development funds. An inability to obtain equipment, parts, supplies or software in the volumes required and at competitive prices from our major vendors, or the loss of any major vendor, or the lack of vendor support may seriously harm our business because we may not be able to supply those vendors’ products to our customers on a timely basis in sufficient quantities or at all. In addition, we rely on our vendors to effectively respond to changing technology and manufacture new products to meet the demands of evolving customer needs. There is no guarantee that these vendors or any of our other vendors will effectively respond to changing technology, continue to sell their products and services to us, or that they will do so at competitive prices. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors’ ability to effectively respond to changing technology or provide products in a timely manner or at competitive prices.

Senior Management and Key Personnel - Our success depends on the efforts and ability of our senior management and key personnel. These executive officers have many years of experience in the office technology and related industries. If certain members of our senior management team or other key personnel were to resign, our business could suffer because of the loss of their expertise and knowledge of us and the loss of their relationships with our major customers and suppliers. In addition, it may be difficult for us to find suitable replacements.

International Scope of Operations - Danka Business Systems PLC (also referred to herein as “Danka” or the “Company”) is incorporated under the laws of England and Wales, and we conduct a significant portion of our business outside of the United States. We generated 51% of our revenue outside the United States during the first nine months of fiscal year 2004. We market office imaging equipment, document solutions and related services and supplies directly to customers in 24 countries. The international scope of our operations may lead to volatile financial results and difficulties in managing our operations because of, but not limited to, the following:

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With respect to our operations in South American and European countries that are experiencing difficulties as described above, we continue to evaluate the viability and future prospects of these businesses. Further, should we decide to downsize or exit any of these businesses, we could incur costs in respect of severance and closure of facilities, and we may also be required to recognize cumulative translation losses that would reduce our earnings. We disposed of our Hungary operations in the third quarter of fiscal year 2004.

Any of these factors could materially and adversely affect our business, financial condition or results of operations.

Currency Fluctuations - As a multinational company, changes in currency exchange rates affect our revenues, cost of sales and operating expenses. In addition, fluctuations in exchange rates between the United States dollar and the currencies in each of the countries in which we operate affect the results of our operations and the value of the net assets of our non-United States operations when reported in United States dollars in our United States financial statements. These fluctuations may negatively impact our results of operations or financial condition or, in some circumstances, may positively impact our results of operations disproportionately to underlying levels of actual growth or improvement in our businesses.

We generated 51% of our revenues outside the United States during the first nine months of fiscal year 2004, with the majority of these revenues denominated in either the euro or United Kingdom pound. During the first nine months of fiscal year 2004, the euro strengthened 18.9% against the United States dollar and the United Kingdom pound strengthened 7.6% against the United States dollar with significant positive effects on our reported revenue and income.

Further, our intercompany loans are subject to fluctuations in exchange rates between the United States dollar and the currencies in each of the countries in which we operate, primarily the euro and the United Kingdom pound. Based on the outstanding balance of our intercompany loans at December 31, 2003, a change of 1% in the exchange rate for the euro and United Kingdom pound, would cause a change in our foreign exchange gain of approximately $0.2 million.

Moreover, we pay for some inventory in euro countries in United States dollars, but we generally invoice our customers in such countries in euros. If the euro weakens against the United States dollar, our operating margins and cash flow may be negatively impacted when we receive payment in euros but we pay our suppliers in United States dollars.

We generally do not hedge our exposure to changes in foreign currency.

Tax Payments - We are either currently under audit or may be audited in the key jurisdictions in which we operate. While we believe we have adequately reserved for such liabilities, should revenue agencies require payments in excess of those we currently expect to pay, our liquidity could be adversely affected based upon the size and timing of such payments.

Indebtedness - At December 31, 2003, we had consolidated long-term indebtedness, including current maturities of long-term debt, of $244.5 million which included $64.5 million in principal amount of 10% subordinated notes due April 1, 2008, or the subordinated notes and $175.0 million in principal amount of senior notes, or the senior notes. The subordinated notes have interest which is paid every six months on April 1 and October 1 while the senior notes have interest payable every six months on June 15 and December 15, which commenced December 15, 2003.

The amount of our indebtedness could have important consequences, including the following:

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Senior Notes and Other Covenants - The indenture governing our senior notes, the $50 million senior secured revolving credit facility with Fleet Capital Corporation or “Fleet credit facility” and the €10 million ABN Amro Bank credit facility or “ABN credit facility” contain covenants that, among other things, limit our ability to: incur additional indebtedness or, in the case of our restricted subsidiaries, issue preferred stock; create liens; pay dividends or make other restricted payments; make certain investments; sell or make certain dispositions of assets or engage in sale and leaseback transactions; engage in transactions with affiliates; place restrictions on the ability of our restricted subsidiaries to pay dividends, or make other payment to us; engage in certain business activities; and engage in mergers or consolidations. In addition, the indenture governing the senior notes will require us to use a portion of our excess cash flow (as defined in the indenture) to repay other senior indebtedness or offer to repurchase the senior notes.

Disclosure Controls and Procedures and Internal Controls - We maintain disclosure controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We also maintain internal controls that are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Further, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Share Price - The market price of our ordinary shares and American depositary shares could be subject to significant fluctuations as a result of many factors. In addition, global stock markets have from time to time experienced significant price and volume fluctuations. These fluctuations may lead to a drop in the market price of our ordinary shares and American depositary shares. Factors which may add to the volatility of the price of our ordinary shares and American depositary shares include many of the factors set out above, and may also include changes in liquidity in the market for our ordinary shares and American depositary shares, sales of our ordinary shares and American depositary shares, investor sentiment towards the business sector in which we operate and conditions in the capital markets generally. Many of these factors are beyond our control. These factors may change the market price of our ordinary shares and American depositary shares, regardless of our operating performance.

Dividends on Ordinary Shares - We have not paid any cash or other dividends on our ordinary shares since 1998 and we do not expect to do so for the foreseeable future. We are an English company and, under English law, we are allowed to pay dividends to shareholders only if, as determined by reference to our financial statements prepared in accordance with UK GAAP:

As of the date of filing of this quarterly report we have insufficient, accumulated realized profits to pay dividends on our ordinary shares. In addition, our Fleet credit facility prohibits us from paying dividends on our ordinary shares without our lenders’ consent, and the indenture governing the senior notes restricts our ability to pay such dividends. Also, we may only pay dividends on our ordinary shares if we have paid all dividends due on our 6.50% senior convertible participating shares.

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ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEB-SITE

Our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports may be viewed or downloaded electronically or as paper copies from our website: http://www.danka.com. Our recent press releases are also available to be viewed or downloaded electronically at http://www.danka.com. We will also provide electronic or paper copies of our SEC filings free of charge on request. Any information on or linked from our website is not incorporated by reference into this quarterly report.

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PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Danka Business Systems PLC

Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2003 and 2002

(In thousands, except per American Depositary Share (“ADS”) amounts)

(Unaudited)

See accompanying notes to the consolidated financial statements

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Danka Business Systems PLC

Condensed Consolidated Balance Sheets as of December 31, 2003 and March 31, 2003

(In Thousands)

See accompanying notes to the consolidated financial statements

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Danka Business Systems PLC

Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2003 and 2002

(In Thousands)

(Unaudited)

See accompanying notes to the consolidated financial statements

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Danka Business Systems PLC

Consolidated Statements of Shareholders’ Equity and Accumulated Other Comprehensive Loss for the Nine Months Ended December 31, 2003 and 2002

(In Thousands)

(Unaudited)

See accompanying notes to the consolidated financial statements

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Danka Business Systems PLC

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

The accompanying financial statements are unaudited as of December 31, 2003. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results, which may be expected for the entire fiscal year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2003 and the Registration Statement on Form S-4 filed on September 26, 2003. Certain prior year amounts have been reclassified to conform to current year presentations.

The financial statements contained herein for the three and nine months ended December 31, 2003 and December 31, 2002 do not comprise statutory accounts within the meaning of Section 240 of the United Kingdom Companies Act 1985. Statutory accounts for the year ended March 31, 2003 were delivered to the Registrar of Companies for England and Wales following our 2003 annual general meeting. The independent auditors’ report on those statutory accounts was unqualified and did not contain a statement under Section 237(2) or 237(3) of the United Kingdom Companies Act 1985.

On December 31, 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation- Transition and Disclosure—an Amendment to SFAS 123” (“SFAS 148”). SFAS 148 requires additional disclosures that are incremental to those required by SFAS 123 and requires the following disclosures in the Company’s interim financial statements.

As permitted by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) we continue to account for our stock option plans under the intrinsic value recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As the exercise price of all options granted under these plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in net income. In general, these options expire in ten years and vest over three years. The proceeds from options exercised are credited to shareholders’ equity.

The following table illustrates the effect on net income/(loss) available/(attributable) and earnings/(loss) available/(attributable) per ADS shareholder if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to employee stock benefits, including shares issued under the stock option plans. For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be amortized to expense over the options’ vesting periods.

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SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the option’s expected life and price volatility of the underlying stock. Because our stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing model does not necessarily provide a reliable single measure of the fair value of employee stock options.

The fair value of options granted for the first three and nine months in fiscal year 2004 and 2003 reported above was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Note 2. Intangible Assets

Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) requires goodwill and indefinite-lived intangible assets to be reviewed annually for possible impairment or more frequently if impairment indicators arise. We perform our annual impairment test during the fourth quarter of our fiscal year.

As of December 31, 2003, goodwill amounted to $280.2 million. Changes to goodwill for the nine months ended December 31, 2003 resulted primarily from fluctuations in foreign currency exchange rates. Non-compete agreements, trademarks and other intangible assets, net amounted to $2.3 million, after $1.3 million of accumulated amortization.

Aggregate amortization expense of other intangible assets, including non-compete agreements, tradenames and customer lists for the nine months of fiscal 2004 amounted to less than $0.1 million. Estimated amortization expense for the current fiscal year is $0.2 million and the succeeding five fiscal years are between $0.1 million and $0.2 million per year.

Goodwill by operating segment as of December 31, 2003 (in thousands) was:

Note 3. Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”) which is effective for fiscal years beginning after May 15, 2002. This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, as well as SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. As a result, the gains or losses from debt extinguishments will no longer be classified as extraordinary items unless they meet the requirements in APB 30 of being unusual and infrequently occurring. Additionally, this Statement amends SFAS No. 13, “Accounting for Leases”, to eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. We adopted the provisions of Statement 145 in the first quarter of our fiscal year 2004 and reclassified the fiscal year 2002 gains from debt extinguishment to continuing operations.

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SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” requires mandatorily redeemable instruments to be classified as liabilities if they embody an obligation outside the control of the issuer to redeem the instrument by transferring cash or other assets and if the obligation is required to be redeemed at a specified or determinable date or upon an event certain to occur. We adopted the provisions of Statement 150 in the second quarter of our fiscal year 2004. Since the holders of our 6.5% convertible participating shares can only require the company to redeem the shares for cash upon events not certain to occur, such shares are not currently required to be classified as a liability.

Note 4. Restructuring and Other Special Charges

Fiscal Year 2004 Charge: In the third quarter of fiscal year 2004, we formulated a plan to significantly reduce our operating costs by consolidating our back-office functions in the United States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part of that plan, we recorded a $20.0 million restructuring charge in the third quarter of fiscal year 2004 that included $8.9 million related to severance for employees and $11.1 million related to future lease obligations for facilities that were vacated by December 31, 2003. Cash outlays for the employee severance during fiscal year 2004 were $0.9 million. Substantially all of these employee reductions were completed by December 31, 2003 but approximately $8.1 million of severance payments will be made over the next two years. Cash outlays for the remaining term of the facility leases during fiscal year 2004 were $0.1 million. The remaining liability of the 2004 restructuring charge is categorized within “Accrued expenses and other current liabilities.” The following table summarizes the fiscal year 2004 restructuring charge:

2004 Restructuring Charge:

2004 Restructuring Severance Charge by Operating Segment:

2004 Restructuring Facility Charge by Operating Segment:

Fiscal Year 2002 Charge: Our fiscal year 2002 restructuring charge included $5.0 million related to severance for employees in the United States, Canada and Europe. Cash outlays for the employee severance during fiscal year 2004 were less than $0.1 million. Substantially all of these reductions were completed by March 31, 2003 but approximately $0.2 million of severance payments will be made over the next two years ending March 31, 2005. The restructuring charge also included $6.1 million for future lease obligations on facilities that were vacated by March 31, 2002. Cash outlays for the facilities during fiscal year 2004 were less than $0.1 million. Due to a change in estimate, we reversed $0.5 million of fiscal year 2002 severance and facility charges during the first quarter of fiscal year 2004. The remaining liability of the 2002 restructuring charge is categorized within “Accrued expenses and other current liabilities.” The following table summarizes the fiscal year 2002 restructuring charge:

2002 Restructuring Charge:

The remaining balance of the 2002 restructuring charge is for our European operating segment.

Fiscal Year 2001 Charge: Our fiscal year 2001 restructuring charge included $21.8 million related to severance, which represented the anticipated reduction of approximately 1,200 positions worldwide. Cash outlays for the employee severance during fiscal year 2004 were less than $0.1 million. Substantially all of these reductions were completed by March 31, 2002, but approximately $0.1 million of severance payments will be made over the next two years ending March 31, 2005. The fiscal year 2001 restructuring charge also included $4.3 million for future lease obligations on facility closures and exit costs. Cash outlays for facilities during the first quarter of fiscal year 2004 were less than $0.01 million. Due to a change in estimate, we reversed $0.1 million of fiscal year 2001 facility charges during fiscal year 2004. The remaining liability of the 2001 restructuring charge is categorized within “Accrued expenses and other current liabilities.” The following table summarizes the fiscal year 2001 restructuring charge:

2001 Restructuring Charge: