Danka Business Systems PLC (NASDAQ: DANKY) today
reported fiscal year 2006 and fourth quarter results.
For the full year ended March 31, 2006:
-- Total revenue was $1.096 billion, down 6.1% over the prior year. 280 basis points of the decline was due to a negative movement in foreign exchange rates.
-- Margins were 31.9%, down 270 basis points from the prior year.
-- The Company's SG&A was $361.0 million, down 17.7% from the prior year. For the year, the Company reported an operating loss of $24.7 million, versus a $116.1 million loss in fiscal year 2005.
-- On a non-operating basis, the Company incurred a $31.9 million loss in its first and second quarters from the sale of its Canada and Latin America operations, largely due to the non-cash write off of currency translation adjustments. Interest expense was $31.7 million for the year and restructuring charges were $12.5 million for the year. Based on the above, the Company's net loss was $79.2 million for the year compared to a net loss of $133.1 million in fiscal year 2005.
-- Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $12.2 million for the year, versus a $35.6 million loss in fiscal year 2005.
"Notwithstanding this loss, we experienced a number of improvements during the fiscal year in several areas of our business," commented Danka Chief Financial Officer Ed Quibell. "For the year, retail equipment and related sales were up over the prior year. This is the first time we have seen an increase in this area in seven years. Additionally, our SG&A expense has declined by $77.8 million, or 17.7% over the last year, reflecting the success we have had in our cost reduction initiatives. Finally, we significantly improved our Sarbanes-Oxley compliance status. The improvement in our internal controls and discipline has resulted in the number of material weaknesses being reduced from eleven to one and we were able to reduce the cost of our compliance program by over 50% year on year."
For the fourth quarter:
-- Total revenue was $271.2 million, 4.5% lower than the prior year quarter, but up 2.2% sequentially. Retail equipment and related sales was $105.3 million for the quarter, down 4.6% from the prior year quarter, but up 5.1% sequentially. Retail service revenue was $122.3 million for the quarter, down 2.9% from the prior year quarter, but up 1.2% sequentially.
-- Consolidated gross margin for the fourth quarter was 29.3%, which was up from 27.4% in the prior year quarter, and down from 31.8% sequentially.
-- SG&A expenses were $88.3 million or 32.6% of revenue for the fourth quarter. These expenses were down 28.8%, or $35.7 million from the prior year quarter. The Company's fourth quarter operating loss was $14.6 million versus a $127.3 million loss in the prior year fourth quarter.
-- Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $9.7 million for the quarter, versus a $45.0 million loss for the prior year fourth quarter.
"We will be focusing much more attention on sales, marketing and customer service in the coming year," said A.D. Frazier, Danka's Chairman and Chief Executive Officer. "We have made major progress in the area of cost reduction during the year and while we have more to do, we will now focus on improving our margins and profitability. Danka's economics are fundamentally different at the start of 2007 than they were a year ago. Because of this, we intend to rebuild, with emphasis on our core business in this fiscal year."
As required by Section 404 of the Sarbanes Oxley Act, the Company will be disclosing that it has a material weakness in internal controls relating to its revenue and billing processes. The Company will report that due to its successful remediation efforts during the year, it no longer has material weaknesses in internal controls related to its information technology general controls, inventory and rental assets custody and tracking processes, its financial statement close processes and its income tax process.
Finally, the Company reported that its U.S. President and Chief Operating Officer, Michael Wedge, will be leaving the Company effective the end of June. "Michael played a prominent role in the Company's Vision 21 success and in providing the back office foundation necessary to significantly improve the Company's internal controls processes and we wish him all good fortune in the years ahead," said Frazier. The sales and service functions previously reporting to Mr. Wedge will now report directly to the Company's Chief Executive Officer.
Conference Call and Webcast
A conference call and Webcast to discuss Danka's fourth quarter results has been scheduled for today, June 7, 2006, at 10:00 a.m. EDT. To access the Webcast, please go to www.danka.com. To participate in the conference call, callers in the United States and Canada (and some United Kingdom callers) can dial 800-309-1555. Other international callers should dial 706-643-7754. Reference conference ID #1108518 when prompted. A recording of the call will be available approximately two hours after it's completed through 12:00 a.m. EDT on June 14, 2006. To access this recording, please call either 800-642-1687 or 706-645-9291 (conference ID #1108518), or visit Danka's website.
About Danka
Danka delivers value to clients worldwide by using its expert technical and professional services to implement effective document information solutions. As one of the largest independent providers of enterprise imaging systems and services, the company enables choice, convenience, and continuity. Danka's vision is to empower customers to benefit fully from the convergence of image and document technologies in a connected environment. This approach will strengthen the company's client relationships and expand its strategic value. For more information, visit Danka at www.danka.com.
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", "could", "should", "intend" 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, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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, unify and effectively utilize 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 incurrence of tax liabilities or tax payments beyond our current expectations, which could adversely affect our liquidity; (xvi) any inability to comply with the financial or other covenants in our debt instruments; (xvii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by 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. 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.
United Kingdom Companies Act: The financial information contained in this announcement for the quarter and year ended March 31, 2006 is unaudited and does not constitute full statutory accounts within the meaning of Section 240 of the United Kingdom Companies Act 1985.
This press release contains information regarding adjusted operating earnings (loss) that is computed as operating earnings before restructuring and impairment charges, free cash flow that is computed as net cash provided by (used in) operating activities less capital expenditures and purchases of subsidiaries plus proceeds from the sale of property and equipment and subsidiaries and net debt that is computed as current maturities of long-term debt and notes payable plus long-term debt and notes payable less cash and cash equivalents. These measures are non-GAAP financial measures, defined as numerical measures of our financial performance that exclude or include amounts so as to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles, or GAAP in our statement of operations, balance sheet or statement of cash flows. Pursuant to the requirements of Regulation G, we have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
Although adjusted operating earnings (loss), free cash flow and net debt represent non-GAAP financial measures, we consider these measures to be key operating metrics of our business. We use these measures in our planning and budgeting processes, to monitor and evaluate our financial and operating results and to measure performance of our separate divisions. We also believe that adjusted operating earnings (loss), free cash flow and net debt are useful to investors because they provide an analysis of financial and operating results using the same measures that we use in evaluating the company. We expect that such measures provide investors with the means to evaluate our financial and operating results against other companies within our industry. We believe that these measures are meaningful to investors in evaluating our ability to meet our future debt service requirements and to fund our capital expenditures and working capital requirements. Our calculation of adjusted operating earnings (loss), free cash flow and net debt may not be consistent with the calculation of these measures by other companies in our industry. Adjusted operating earnings (loss), free cash flow and net debt are not measurements of financial performance under GAAP and should not be considered as an alternative to net earnings (loss) as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity or any other measures of performance derived in accordance with GAAP.
Danka is a registered trademark and Danka @ the Desktop and TechSource are trademarks of Danka Business Systems PLC. All other trademarks are the property of their respective owners. -0- Danka Business Systems PLC Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 (In thousands, except per American Depository Share ("ADS") amounts) (Unaudited) For the Three Months Ended ---------------------- March 31, March 31, 2006 2005 ---------------------- Revenue: Retail equipment and related sales $ 105,298 $ 110,348 Retail service 122,313 125,950 Retail supplies and rentals 18,597 23,060 Wholesale 24,988 24,762 ---------- ---------- Total revenue 271,196 284,120 ---------- ---------- Cost of sales: Retail equipment and related sales costs 76,456 79,830 Retail service costs 81,873 89,820 Retail supplies and rental costs, including depreciation on rental assets 12,652 16,268 Wholesale costs 20,702 20,246 ---------- ---------- Total cost of sales 191,683 206,164 ---------- ---------- Gross Profit 79,513 77,956 Operating expenses: Selling, general and administrative expenses 88,346 124,081 Restructuring charges (credits) 4,924 11,437 Impairment charges -- 70,854 Other expense (income) 821 (1,149) ---------- ---------- Total operating expenses 94,091 205,223 ---------- ---------- Operating earnings (loss) from continuing operations (14,578) (127,267) Interest expense (8,113) (8,697) Interest income -- -- ---------- ---------- Earnings (loss) from continuing operations before income taxes (22,691) (135,964) Provision for income taxes (5) (5,184) ---------- ---------- Earnings (loss) from continuing operations (22,686) (130,780) Earnings (loss) from discontinued operations, net of tax 18 (5,333) Gain (loss) on sale of operations, net of tax (268) - ---------- ---------- Net Earnings (loss) $ (22,936)$ (136,113) ========== ========== Net earnings (loss) from continuing operations available to common shareholders Net earnings (loss) from continuing operations $ (22,686)$ (130,780) Dividends and accretion on participating shares (5,521) (5,190) ---------- ---------- Net earnings (loss) from continuing operations available to common shareholders $ (28,207)$ (135,970) ========== ========== Basic and diluted net earnings (loss) available to common shareholders per ADS: Net earnings (loss) from continuing operations $ (0.44)$ (2.14) Net earnings (loss) from discontinued operations (0.00) (0.08) ---------- ---------- Net earnings (loss) $ (0.44)$ (2.22) ========== ========== Weighted average ADSs 64,130 63,519 ========== ========== -0- Danka Business Systems PLC Consolidated Statements of Operations for the Twelve Months Ended March 31, 2006 and 2005 (In thousands, except per American Depository Share ("ADS") amounts) (Unaudited) For the Twelve Months Ended ---------------------- March 31, March 31, 2006 2005 ---------------------- Revenue: Retail equipment and related sales $ 422,986 $ 422,273 Retail service 498,820 557,022 Retail supplies and rentals 80,686 92,675 Wholesale 93,478 94,781 ---------- ---------- Total revenue 1,095,970 1,166,751 ---------- ---------- Cost of sales: Retail equipment and related sales costs 296,322 282,330 Retail service costs 322,167 344,566 Retail supplies and rental costs, including depreciation on rental assets 51,031 57,823 Wholesale costs 77,214 78,123 ---------- ---------- Total cost of sales 746,734 762,842 ---------- ---------- Gross Profit 349,236 403,909 Operating expenses: Selling, general and administrative expenses 360,972 438,798 Restructuring charges 12,502 9,691 Impairment charges -- 70,854 Other expense (income) 506 684 ---------- ---------- Total operating expenses 373,980 520,027 ---------- ---------- Operating earnings (loss) from continuing operations (24,744) (116,118) Interest expense (31,720) (31,506) Interest income 60 5 ---------- ---------- Earnings (loss) from continuing operations before income taxes (56,404) (147,619) Provision for income taxes (9,054) (21,890) ---------- ---------- Earnings (loss) from continuing operations (47,350) (125,729) Earnings (loss) from discontinued operations, net of tax (1,288) (7,347) Gain (loss) on sale of operations, net of tax (30,590) - ---------- ---------- Net Earnings (loss) $ (79,228)$ (133,076) ========== ========== Net earnings (loss) from continuing operations available to common shareholders Net earnings (loss) from continuing operations $ (47,350)$ (125,729) Dividends and accretion on participating shares (21,635) (20,298) ---------- ---------- Net earnings (loss) from continuing operations available to common shareholders $ (68,985)$ (146,027) ========== ========== Basic and diluted net earnings (loss) available to common shareholders per ADS: Net earnings (loss) from continuing operations $ (1.08)$ (2.31) Net earnings (loss) from discontinued operations (0.50) (0.12) ---------- ---------- Net earnings (loss) $ (1.58)$ (2.43) ========== ========== Weighted average ADSs 63,865 63,081 ========== ========== -0- Danka Business Systems PLC Consolidated Balance Sheets as of March 31, 2006 and 2005 (In Thousands) March 31, March 31, 2006 2005 ---------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 54,468 $ 76,969 Restricted cash 20,529 14,956 Accounts receivable, net of allowance for doubtful accounts 189,354 211,415 Inventories 79,967 91,029 Assets held for sale - discontinued operations -- 44,911 Prepaid expenses, deferred income taxes and other current assets 8,251 14,514 ---------- ---------- Total current assets 352,569 453,794 Equipment on operating leases, net 12,138 19,157 Property and equipment, net 37,098 49,225 Goodwill 206,174 213,531 Other intangible assets, net of accumulated amortization 1,861 2,406 Deferred income taxes 87 7,388 Other assets 18,865 23,525 ---------- ---------- Total assets $ 628,792 $ 769,026 ========== ========== Liabilities and shareholders' equity (deficit) Current liabilities: Current maturities of long-term debt and notes payable $ 11,516 $ 2,308 Accounts payable 165,667 167,292 Accrued expenses and other current liabilities 93,644 121,932 Taxes payable 21,247 36,249 Liabilities held for sale - discontinued operations -- 16,461 Deferred revenue 33,027 37,772 ---------- ---------- Total current liabilities 325,101 382,014 Long-term debt and notes payable, less current maturities 238,081 239,406 Deferred income taxes and other long-term liabilities 51,929 64,387 ---------- ---------- Total liabilities 615,111 685,807 ---------- ---------- 6.5% senior convertible participating shares 321,541 299,906 Shareholders' equity (deficit): Ordinary shares, 1.25 pence stated value 5,330 5,277 Additional paid-in capital 329,745 329,152 Accumulated deficit (596,823) (495,960) Accumulated other comprehensive loss (46,112) (55,156) ---------- ---------- Total shareholders' equity (deficit) (307,860) (216,687) ---------- ---------- Total liabilities and shareholders' equity (deficit) $ 628,792 $ 769,026 ========== ========== -0- Danka Business Systems PLC Consolidated Statements of Cash Flows for the Twelve Months Ended March 31, 2006 and 2005 (In Thousands) (Unaudited) March 31, March 31, 2006 2005 ---------------------- Operating activities: Net earnings (loss) $ (79,228)$ (133,076) Loss from discontinued operations (31,878) (7,347) ---------- ---------- Earnings (loss) from continuing operations (47,350) (125,729) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 28,887 38,716 Deferred income taxes (217) (645) Amortization of debt issuance costs 1,761 2,080 (Gain) loss on sale of property and equipment and equipment on operating leases 2,519 919 Proceeds from sale of equipment on operating leases 728 3,104 Impairment charges -- 70,854 Restructuring charges 12,502 9,691 Changes in net assets and liabilities: Restricted cash (5,573) (5,123) Accounts receivable, net 23,461 17,395 Inventories 11,063 (3,549) Prepaid expenses and other current assets 5,842 969 Other non-current assets 8,200 (6,402) Accounts payable (1,625) 40,258 Accrued expenses and other current liabilities (57,435) (20,093) Deferred revenue (4,744) (4,844) Other long-term liabilities (15,730) (7,200) ---------- ---------- Net cash (used in) provided by continuing operations (37,711) 10,401 Net cash (used in) provided by discontinued operations 87 (5,385) ---------- ---------- Net cash (used in) provided by operating activities (37,624) 5,016 ---------- ---------- Investing activities: Capital expenditures (13,085) (22,071) Purchase of subsidiary, net of cash acquired -- (2,110) Proceeds from sale of discontinued operations, net of cash 16,924 209 Proceeds from the sale of property and equipment 233 443 ---------- ---------- Net cash provided by (used in) continuing investing activities 4,072 (23,529) Net cash used in discontinued investing activities (456) (2,680) ---------- ---------- Net cash provided by (used in) investing activities 3,616 (26,209) ---------- ---------- Financing activities: Borrowings (payments) under line of credit agreements, net 9,686 (1,129) Net payments under capital lease arrangements (2,205) (1,277) Restricted cash -- (5,000) Proceeds from stock options exercised 627 1,165 ---------- ---------- Net cash (used in) provided by continuing financing activities 8,108 (6,241) Net cash used in discontinued financing activities (99) (361) ---------- ---------- Net cash (used in) provided by financing activities 8,009 (6,602) ---------- ---------- Effect of exchange rates (2,693) 2,998 ---------- ---------- Net decrease in cash and cash equivalents (28,692) (24,797) Cash and cash equivalents from continuing operations, beginning of period 76,969 102,021 Cash and cash equivalents from discontinued operations, beginning of period 6,191 5,936 Cash and cash equivalents from discontinued operations, end of period -- (6,191) ---------- ---------- Cash and cash equivalents from continuing operations, end of period $ 54,468 $ 76,969 ========== ========== -0- Danka Business Systems PLC Adjusted operating earnings (loss) from continuing operations for the three and twelve months ended March 31, 2006 and 2005 (In Thousands) (Unaudited) For the Three Months For the Twelve Months Ended Ended March 31, March 31, March 31, March 31, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Operating earnings (loss) from continuing operations $ (14,578) $(127,267) $ (24,744) $(116,118) Restructuring charges 4,924 11,437 12,502 9,691 Impairment charges -- 70,854 -- 70,854 --------- --------- --------- --------- Adjusted operating earnings from continuing operations $ (9,654) $ (44,976) $ (12,242) $ (35,573) ========= ========= ========= ========= Danka Business Systems PLC Free cash flow for the three and twelve months ended March 31, 2006 and 2005 (In Thousands) (Unaudited) For the Three Months For the Twelve Months Ended Ended March 31, March 31, March 31, March 31, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Net cash provided by continuing operations $ 12,997 $ 20,218 $ (37,711) $ 10,401 Capital expenditures (4,880) (8,908) (13,085) (22,071) Purchase of subsidiary - -- -- (2,110) Proceeds from sale of subsidiary - - 16,924 209 Proceeds from the sale of property and equipment 25 130 233 443 --------- --------- --------- --------- Free cash flow $ 8,142 $ 11,440 $ (33,639) $ (13,128) ========= ========= ========= ========= Danka Business Systems PLC Net Debt as of March 31, 2006 and March 31, 2005 (In Thousands) (Unaudited) March 31, March 31, 2006 2005 ---------- ---------- Current maturities of long-term debt and notes payable $ 11,516 $ 2,308 Long-term debt and notes payable 238,081 239,406 Less: Cash and cash equivalents and restricted cash (74,997) (91,925) --------- --------- Net Debt $ 174,600 $ 149,789 ========= =========
For the full year ended March 31, 2006:
-- Total revenue was $1.096 billion, down 6.1% over the prior year. 280 basis points of the decline was due to a negative movement in foreign exchange rates.
-- Margins were 31.9%, down 270 basis points from the prior year.
-- The Company's SG&A was $361.0 million, down 17.7% from the prior year. For the year, the Company reported an operating loss of $24.7 million, versus a $116.1 million loss in fiscal year 2005.
-- On a non-operating basis, the Company incurred a $31.9 million loss in its first and second quarters from the sale of its Canada and Latin America operations, largely due to the non-cash write off of currency translation adjustments. Interest expense was $31.7 million for the year and restructuring charges were $12.5 million for the year. Based on the above, the Company's net loss was $79.2 million for the year compared to a net loss of $133.1 million in fiscal year 2005.
-- Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $12.2 million for the year, versus a $35.6 million loss in fiscal year 2005.
"Notwithstanding this loss, we experienced a number of improvements during the fiscal year in several areas of our business," commented Danka Chief Financial Officer Ed Quibell. "For the year, retail equipment and related sales were up over the prior year. This is the first time we have seen an increase in this area in seven years. Additionally, our SG&A expense has declined by $77.8 million, or 17.7% over the last year, reflecting the success we have had in our cost reduction initiatives. Finally, we significantly improved our Sarbanes-Oxley compliance status. The improvement in our internal controls and discipline has resulted in the number of material weaknesses being reduced from eleven to one and we were able to reduce the cost of our compliance program by over 50% year on year."
For the fourth quarter:
-- Total revenue was $271.2 million, 4.5% lower than the prior year quarter, but up 2.2% sequentially. Retail equipment and related sales was $105.3 million for the quarter, down 4.6% from the prior year quarter, but up 5.1% sequentially. Retail service revenue was $122.3 million for the quarter, down 2.9% from the prior year quarter, but up 1.2% sequentially.
-- Consolidated gross margin for the fourth quarter was 29.3%, which was up from 27.4% in the prior year quarter, and down from 31.8% sequentially.
-- SG&A expenses were $88.3 million or 32.6% of revenue for the fourth quarter. These expenses were down 28.8%, or $35.7 million from the prior year quarter. The Company's fourth quarter operating loss was $14.6 million versus a $127.3 million loss in the prior year fourth quarter.
-- Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $9.7 million for the quarter, versus a $45.0 million loss for the prior year fourth quarter.
"We will be focusing much more attention on sales, marketing and customer service in the coming year," said A.D. Frazier, Danka's Chairman and Chief Executive Officer. "We have made major progress in the area of cost reduction during the year and while we have more to do, we will now focus on improving our margins and profitability. Danka's economics are fundamentally different at the start of 2007 than they were a year ago. Because of this, we intend to rebuild, with emphasis on our core business in this fiscal year."
As required by Section 404 of the Sarbanes Oxley Act, the Company will be disclosing that it has a material weakness in internal controls relating to its revenue and billing processes. The Company will report that due to its successful remediation efforts during the year, it no longer has material weaknesses in internal controls related to its information technology general controls, inventory and rental assets custody and tracking processes, its financial statement close processes and its income tax process.
Finally, the Company reported that its U.S. President and Chief Operating Officer, Michael Wedge, will be leaving the Company effective the end of June. "Michael played a prominent role in the Company's Vision 21 success and in providing the back office foundation necessary to significantly improve the Company's internal controls processes and we wish him all good fortune in the years ahead," said Frazier. The sales and service functions previously reporting to Mr. Wedge will now report directly to the Company's Chief Executive Officer.
Conference Call and Webcast
A conference call and Webcast to discuss Danka's fourth quarter results has been scheduled for today, June 7, 2006, at 10:00 a.m. EDT. To access the Webcast, please go to www.danka.com. To participate in the conference call, callers in the United States and Canada (and some United Kingdom callers) can dial 800-309-1555. Other international callers should dial 706-643-7754. Reference conference ID #1108518 when prompted. A recording of the call will be available approximately two hours after it's completed through 12:00 a.m. EDT on June 14, 2006. To access this recording, please call either 800-642-1687 or 706-645-9291 (conference ID #1108518), or visit Danka's website.
About Danka
Danka delivers value to clients worldwide by using its expert technical and professional services to implement effective document information solutions. As one of the largest independent providers of enterprise imaging systems and services, the company enables choice, convenience, and continuity. Danka's vision is to empower customers to benefit fully from the convergence of image and document technologies in a connected environment. This approach will strengthen the company's client relationships and expand its strategic value. For more information, visit Danka at www.danka.com.
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", "could", "should", "intend" 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, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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, unify and effectively utilize 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 incurrence of tax liabilities or tax payments beyond our current expectations, which could adversely affect our liquidity; (xvi) any inability to comply with the financial or other covenants in our debt instruments; (xvii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by 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. 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.
United Kingdom Companies Act: The financial information contained in this announcement for the quarter and year ended March 31, 2006 is unaudited and does not constitute full statutory accounts within the meaning of Section 240 of the United Kingdom Companies Act 1985.
This press release contains information regarding adjusted operating earnings (loss) that is computed as operating earnings before restructuring and impairment charges, free cash flow that is computed as net cash provided by (used in) operating activities less capital expenditures and purchases of subsidiaries plus proceeds from the sale of property and equipment and subsidiaries and net debt that is computed as current maturities of long-term debt and notes payable plus long-term debt and notes payable less cash and cash equivalents. These measures are non-GAAP financial measures, defined as numerical measures of our financial performance that exclude or include amounts so as to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles, or GAAP in our statement of operations, balance sheet or statement of cash flows. Pursuant to the requirements of Regulation G, we have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
Although adjusted operating earnings (loss), free cash flow and net debt represent non-GAAP financial measures, we consider these measures to be key operating metrics of our business. We use these measures in our planning and budgeting processes, to monitor and evaluate our financial and operating results and to measure performance of our separate divisions. We also believe that adjusted operating earnings (loss), free cash flow and net debt are useful to investors because they provide an analysis of financial and operating results using the same measures that we use in evaluating the company. We expect that such measures provide investors with the means to evaluate our financial and operating results against other companies within our industry. We believe that these measures are meaningful to investors in evaluating our ability to meet our future debt service requirements and to fund our capital expenditures and working capital requirements. Our calculation of adjusted operating earnings (loss), free cash flow and net debt may not be consistent with the calculation of these measures by other companies in our industry. Adjusted operating earnings (loss), free cash flow and net debt are not measurements of financial performance under GAAP and should not be considered as an alternative to net earnings (loss) as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity or any other measures of performance derived in accordance with GAAP.
Danka is a registered trademark and Danka @ the Desktop and TechSource are trademarks of Danka Business Systems PLC. All other trademarks are the property of their respective owners. -0- Danka Business Systems PLC Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 (In thousands, except per American Depository Share ("ADS") amounts) (Unaudited) For the Three Months Ended ---------------------- March 31, March 31, 2006 2005 ---------------------- Revenue: Retail equipment and related sales $ 105,298 $ 110,348 Retail service 122,313 125,950 Retail supplies and rentals 18,597 23,060 Wholesale 24,988 24,762 ---------- ---------- Total revenue 271,196 284,120 ---------- ---------- Cost of sales: Retail equipment and related sales costs 76,456 79,830 Retail service costs 81,873 89,820 Retail supplies and rental costs, including depreciation on rental assets 12,652 16,268 Wholesale costs 20,702 20,246 ---------- ---------- Total cost of sales 191,683 206,164 ---------- ---------- Gross Profit 79,513 77,956 Operating expenses: Selling, general and administrative expenses 88,346 124,081 Restructuring charges (credits) 4,924 11,437 Impairment charges -- 70,854 Other expense (income) 821 (1,149) ---------- ---------- Total operating expenses 94,091 205,223 ---------- ---------- Operating earnings (loss) from continuing operations (14,578) (127,267) Interest expense (8,113) (8,697) Interest income -- -- ---------- ---------- Earnings (loss) from continuing operations before income taxes (22,691) (135,964) Provision for income taxes (5) (5,184) ---------- ---------- Earnings (loss) from continuing operations (22,686) (130,780) Earnings (loss) from discontinued operations, net of tax 18 (5,333) Gain (loss) on sale of operations, net of tax (268) - ---------- ---------- Net Earnings (loss) $ (22,936)$ (136,113) ========== ========== Net earnings (loss) from continuing operations available to common shareholders Net earnings (loss) from continuing operations $ (22,686)$ (130,780) Dividends and accretion on participating shares (5,521) (5,190) ---------- ---------- Net earnings (loss) from continuing operations available to common shareholders $ (28,207)$ (135,970) ========== ========== Basic and diluted net earnings (loss) available to common shareholders per ADS: Net earnings (loss) from continuing operations $ (0.44)$ (2.14) Net earnings (loss) from discontinued operations (0.00) (0.08) ---------- ---------- Net earnings (loss) $ (0.44)$ (2.22) ========== ========== Weighted average ADSs 64,130 63,519 ========== ========== -0- Danka Business Systems PLC Consolidated Statements of Operations for the Twelve Months Ended March 31, 2006 and 2005 (In thousands, except per American Depository Share ("ADS") amounts) (Unaudited) For the Twelve Months Ended ---------------------- March 31, March 31, 2006 2005 ---------------------- Revenue: Retail equipment and related sales $ 422,986 $ 422,273 Retail service 498,820 557,022 Retail supplies and rentals 80,686 92,675 Wholesale 93,478 94,781 ---------- ---------- Total revenue 1,095,970 1,166,751 ---------- ---------- Cost of sales: Retail equipment and related sales costs 296,322 282,330 Retail service costs 322,167 344,566 Retail supplies and rental costs, including depreciation on rental assets 51,031 57,823 Wholesale costs 77,214 78,123 ---------- ---------- Total cost of sales 746,734 762,842 ---------- ---------- Gross Profit 349,236 403,909 Operating expenses: Selling, general and administrative expenses 360,972 438,798 Restructuring charges 12,502 9,691 Impairment charges -- 70,854 Other expense (income) 506 684 ---------- ---------- Total operating expenses 373,980 520,027 ---------- ---------- Operating earnings (loss) from continuing operations (24,744) (116,118) Interest expense (31,720) (31,506) Interest income 60 5 ---------- ---------- Earnings (loss) from continuing operations before income taxes (56,404) (147,619) Provision for income taxes (9,054) (21,890) ---------- ---------- Earnings (loss) from continuing operations (47,350) (125,729) Earnings (loss) from discontinued operations, net of tax (1,288) (7,347) Gain (loss) on sale of operations, net of tax (30,590) - ---------- ---------- Net Earnings (loss) $ (79,228)$ (133,076) ========== ========== Net earnings (loss) from continuing operations available to common shareholders Net earnings (loss) from continuing operations $ (47,350)$ (125,729) Dividends and accretion on participating shares (21,635) (20,298) ---------- ---------- Net earnings (loss) from continuing operations available to common shareholders $ (68,985)$ (146,027) ========== ========== Basic and diluted net earnings (loss) available to common shareholders per ADS: Net earnings (loss) from continuing operations $ (1.08)$ (2.31) Net earnings (loss) from discontinued operations (0.50) (0.12) ---------- ---------- Net earnings (loss) $ (1.58)$ (2.43) ========== ========== Weighted average ADSs 63,865 63,081 ========== ========== -0- Danka Business Systems PLC Consolidated Balance Sheets as of March 31, 2006 and 2005 (In Thousands) March 31, March 31, 2006 2005 ---------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 54,468 $ 76,969 Restricted cash 20,529 14,956 Accounts receivable, net of allowance for doubtful accounts 189,354 211,415 Inventories 79,967 91,029 Assets held for sale - discontinued operations -- 44,911 Prepaid expenses, deferred income taxes and other current assets 8,251 14,514 ---------- ---------- Total current assets 352,569 453,794 Equipment on operating leases, net 12,138 19,157 Property and equipment, net 37,098 49,225 Goodwill 206,174 213,531 Other intangible assets, net of accumulated amortization 1,861 2,406 Deferred income taxes 87 7,388 Other assets 18,865 23,525 ---------- ---------- Total assets $ 628,792 $ 769,026 ========== ========== Liabilities and shareholders' equity (deficit) Current liabilities: Current maturities of long-term debt and notes payable $ 11,516 $ 2,308 Accounts payable 165,667 167,292 Accrued expenses and other current liabilities 93,644 121,932 Taxes payable 21,247 36,249 Liabilities held for sale - discontinued operations -- 16,461 Deferred revenue 33,027 37,772 ---------- ---------- Total current liabilities 325,101 382,014 Long-term debt and notes payable, less current maturities 238,081 239,406 Deferred income taxes and other long-term liabilities 51,929 64,387 ---------- ---------- Total liabilities 615,111 685,807 ---------- ---------- 6.5% senior convertible participating shares 321,541 299,906 Shareholders' equity (deficit): Ordinary shares, 1.25 pence stated value 5,330 5,277 Additional paid-in capital 329,745 329,152 Accumulated deficit (596,823) (495,960) Accumulated other comprehensive loss (46,112) (55,156) ---------- ---------- Total shareholders' equity (deficit) (307,860) (216,687) ---------- ---------- Total liabilities and shareholders' equity (deficit) $ 628,792 $ 769,026 ========== ========== -0- Danka Business Systems PLC Consolidated Statements of Cash Flows for the Twelve Months Ended March 31, 2006 and 2005 (In Thousands) (Unaudited) March 31, March 31, 2006 2005 ---------------------- Operating activities: Net earnings (loss) $ (79,228)$ (133,076) Loss from discontinued operations (31,878) (7,347) ---------- ---------- Earnings (loss) from continuing operations (47,350) (125,729) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 28,887 38,716 Deferred income taxes (217) (645) Amortization of debt issuance costs 1,761 2,080 (Gain) loss on sale of property and equipment and equipment on operating leases 2,519 919 Proceeds from sale of equipment on operating leases 728 3,104 Impairment charges -- 70,854 Restructuring charges 12,502 9,691 Changes in net assets and liabilities: Restricted cash (5,573) (5,123) Accounts receivable, net 23,461 17,395 Inventories 11,063 (3,549) Prepaid expenses and other current assets 5,842 969 Other non-current assets 8,200 (6,402) Accounts payable (1,625) 40,258 Accrued expenses and other current liabilities (57,435) (20,093) Deferred revenue (4,744) (4,844) Other long-term liabilities (15,730) (7,200) ---------- ---------- Net cash (used in) provided by continuing operations (37,711) 10,401 Net cash (used in) provided by discontinued operations 87 (5,385) ---------- ---------- Net cash (used in) provided by operating activities (37,624) 5,016 ---------- ---------- Investing activities: Capital expenditures (13,085) (22,071) Purchase of subsidiary, net of cash acquired -- (2,110) Proceeds from sale of discontinued operations, net of cash 16,924 209 Proceeds from the sale of property and equipment 233 443 ---------- ---------- Net cash provided by (used in) continuing investing activities 4,072 (23,529) Net cash used in discontinued investing activities (456) (2,680) ---------- ---------- Net cash provided by (used in) investing activities 3,616 (26,209) ---------- ---------- Financing activities: Borrowings (payments) under line of credit agreements, net 9,686 (1,129) Net payments under capital lease arrangements (2,205) (1,277) Restricted cash -- (5,000) Proceeds from stock options exercised 627 1,165 ---------- ---------- Net cash (used in) provided by continuing financing activities 8,108 (6,241) Net cash used in discontinued financing activities (99) (361) ---------- ---------- Net cash (used in) provided by financing activities 8,009 (6,602) ---------- ---------- Effect of exchange rates (2,693) 2,998 ---------- ---------- Net decrease in cash and cash equivalents (28,692) (24,797) Cash and cash equivalents from continuing operations, beginning of period 76,969 102,021 Cash and cash equivalents from discontinued operations, beginning of period 6,191 5,936 Cash and cash equivalents from discontinued operations, end of period -- (6,191) ---------- ---------- Cash and cash equivalents from continuing operations, end of period $ 54,468 $ 76,969 ========== ========== -0- Danka Business Systems PLC Adjusted operating earnings (loss) from continuing operations for the three and twelve months ended March 31, 2006 and 2005 (In Thousands) (Unaudited) For the Three Months For the Twelve Months Ended Ended March 31, March 31, March 31, March 31, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Operating earnings (loss) from continuing operations $ (14,578) $(127,267) $ (24,744) $(116,118) Restructuring charges 4,924 11,437 12,502 9,691 Impairment charges -- 70,854 -- 70,854 --------- --------- --------- --------- Adjusted operating earnings from continuing operations $ (9,654) $ (44,976) $ (12,242) $ (35,573) ========= ========= ========= ========= Danka Business Systems PLC Free cash flow for the three and twelve months ended March 31, 2006 and 2005 (In Thousands) (Unaudited) For the Three Months For the Twelve Months Ended Ended March 31, March 31, March 31, March 31, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Net cash provided by continuing operations $ 12,997 $ 20,218 $ (37,711) $ 10,401 Capital expenditures (4,880) (8,908) (13,085) (22,071) Purchase of subsidiary - -- -- (2,110) Proceeds from sale of subsidiary - - 16,924 209 Proceeds from the sale of property and equipment 25 130 233 443 --------- --------- --------- --------- Free cash flow $ 8,142 $ 11,440 $ (33,639) $ (13,128) ========= ========= ========= ========= Danka Business Systems PLC Net Debt as of March 31, 2006 and March 31, 2005 (In Thousands) (Unaudited) March 31, March 31, 2006 2005 ---------- ---------- Current maturities of long-term debt and notes payable $ 11,516 $ 2,308 Long-term debt and notes payable 238,081 239,406 Less: Cash and cash equivalents and restricted cash (74,997) (91,925) --------- --------- Net Debt $ 174,600 $ 149,789 ========= =========
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