ANKY) today reported fiscal year 2007 second quarter results.On October 12, 2006, the Company announced that it had entered into a Share Purchase Agreement with Ricoh Europe B.V. to sell its European businesses to Ricoh. This divestiture is anticipated to take place on or around December 31, 2006. (For a Transaction Description, please see the October 12, 2006 Press Release announcing the Divestiture).
For the second quarter:
-- The Company's operating earnings from continuing operations
were $4.1 million, versus a $6.0 million loss in the prior
year second quarter and a $5.5 million loss last quarter.
Adjusted operating earnings from continuing operations were
$4.2 million, versus a $4.4 million loss for the prior year
second quarter and earnings of $9.3 million last quarter. The
adjusted operating earnings exclude restructuring charges and
loss on the sale of a subsidiary.
-- Consolidated gross margin was 32.7%, which was up from 32.4%
in the prior year quarter, but down from 33.7% sequentially.
-- SG&A expenses were $69.6 million, or 31.0% of revenue. These
expenses were down 18.4%, or $15.7 million from the prior year
quarter and down $5.0 million, or 6.7% sequentially.
-- Total revenue was $224.8 million, which was 11.1% lower than
the prior year quarter and down 9.2% sequentially. Retail
equipment and related sales was $78.6 million, down 18.4% from
the prior year quarter and down 8.6% sequentially. Retail
service revenue was $113.7 million, down 5.1% from the prior
year quarter and down 6.2% sequentially.
"I am pleased with our continued progress on our initiatives, which have resulted in the 2nd consecutive quarter of adjusted operating earnings. Our focus on profitability and shareholder value is driving these changes and will allow for further investment in the business. With the anticipated conclusion of the divestiture of our European operations to Ricoh, we will be able to channel all of our focus and resources on growing the US business," said A.D. Frazier, Danka's Chairman and Chief Executive Officer.
For the six months:
-- The Company's operating loss from continuing operations was
$1.5 million, versus a $14.8 million loss in the first six
months of the prior year. Adjusted operating earnings from
continuing operations were $13.6 million, versus a $7.3
million loss in the first six months of the prior year. The
adjusted operating earnings exclude restructuring charges and
loss on the sale of a subsidiary.
-- Consolidated gross margin was 33.2%, which was up from 33.0%
in the first six months of the prior year.
-- SG&A expenses were $144.2 million, or 30.5% of revenue and
down from $183.6 million, or 34.5% of revenue in the first six
months of the prior year, representing a 21.5% decrease.
-- Total revenue was $472.4 million, which was 11.2% lower than
the same period prior year. Retail equipment and related sales
was $164.6 million, down 19.2% from the prior year period.
Retail service revenue was $234.9 million, down 5.6% from the
prior year period.
The Company also released a press release in the United Kingdom today which, under International Financial Reporting Standards ("IFRS"), shows the Company's European Operations as discontinued operations.
Conference Call and Webcast
A conference call and Webcast to discuss Danka's second quarter results has been scheduled for today, November 7, 2006, at 10:00 a.m. ET. 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 #9560343 when prompted. A recording of the call will be available approximately two hours after it's completed through 12:00 a.m. ET on November 12, 2006. To access this recording, please call either 800-642-1687 or 706-645-9291 (conference ID #9560343), 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, 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 plans to achieve and maintain cost savings; (iii) any inability to comply with the Sarbanes-Oxley Act of 2002; (iv) any material adverse change in financial markets, the economy or in our financial position; (v) increased competition in our industry and the discounting of products by our competitors; (vi) new competition from non-traditional competitors as the result of evolving and converging technology; (vii) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute current and 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; (viii) any inability to arrange financing for our customers' purchases of equipment from us; (ix) any inability to successfully enhance, unify and effectively utilize our management information systems; (x) any inability to access vendor or bank lines of credit, which could adversely affect our liquidity; (xi) any inability to record and process key data due to ineffective implementation of business processes and policies; (xii) any negative impact from the loss of a key vendor or customer; (xiii) any negative impact from the loss of any of our senior or key management personnel; (xiv) any change in economic conditions in markets where we operate or have material investments which may affect demand for our products or services; (xv) any negative impact from the international scope of our operations; (xvi) fluctuations in foreign currencies; (xvii) any incurrence of tax liabilities or tax payments beyond our current expectations, which could adversely affect our liquidity and profitability; (xviii) any inability to continue to comply with the financial or other representations, warranties, covenants or maturities in our debt instruments; (xix) any delayed or lost sales or other impacts related to the commercial and economic disruption caused by natural disasters, including hurricanes; (xx) 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; (xxi) any inability by us to remediate our material weakness in internal controls over financial reporting and (xxii) 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 ended September, 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 from continuing operations before restructuring and loss on sale of subsidiary; free cash flow that is computed as net cash provided by (used in) operating activities less capital expenditures plus proceeds from the sale of property and equipment and subsidiaries; 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 and restricted cash; adjusted operating expenses that is computed as total operating expenses before restructuring charges and loss on sale of subsidiary; and adjusted basic net earnings (loss) available to common shareholders per ADS that is computed as net earnings (loss) divided by weighted average basic ADSs (without taking into account dividends and accretion on participating shares). 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, net debt, adjusted operating expenses and adjusted basic net earnings (loss) available to common shareholders per ADS 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, net debt, adjusted operating expenses and adjusted basic net earnings (loss) available to common shareholders per ADS 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, net debt, adjusted operating expenses and adjusted basic net earnings (loss) available to common shareholders per ADS may not be consistent with the calculation of these measures by other companies in our industry. Adjusted operating earnings (loss), free cash flow, net debt, adjusted operating expenses and adjusted basic net earnings (loss) available to common shareholders per ADS 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.
Danka Business Systems PLC
Consolidated Condensed Statements of Operations for the Three and Six
Months Ended September 30, 2006 and 2005
(In thousands, except per American Depositary Share ("ADS") amounts)
(Unaudited)
Three months ended Six months ended
September 30 September 30
-------------------- ---------------------
2006 2005 2006 2005
Revenue:
Retail equipment and
related sales $78,623 $96,400 $164,629 $203,674
Retail service 113,681 119,816 234,929 248,785
Retail supplies and rentals 13,133 17,089 29,814 36,010
Wholesale 19,333 19,486 42,995 43,458
--------- ---------- ---------- ----------
Total revenue 224,770 252,791 472,367 531,927
--------- ---------- ---------- ----------
Cost of sales:
Retail equipment and
related sales costs 53,834 69,428 113,306 143,145
Retail service costs 72,751 74,913 148,985 156,159
Retail supplies and rental
costs, including
depreciation on rental
assets 8,741 10,654 17,773 21,754
Wholesale costs 15,953 15,884 35,481 35,475
--------- ---------- ---------- ----------
Total cost of sales 151,279 170,879 315,545 356,533
--------- ---------- ---------- ----------
Gross profit 73,491 81,912 156,822 175,394
Operating expenses:
Selling, general and
administrative expenses 69,588 85,286 144,161 183,582
Restructuring charges 151 1,598 12,502 7,495
Loss on sale of subsidiary 5 - 2,512 -
Other expense (income) (309 ) 1,020 (889 ) (879 )
--------- ---------- ---------- ----------
Total operating
expenses 69,435 87,904 158,286 190,198
--------- ---------- ---------- ----------
Operating earnings
(loss) from continuing
operations 4,056 (5,992 ) (1,464 ) (14,804 )
Interest expense (8,305 ) (8,089 ) (16,266 ) (15,974 )
Interest income 177 137 365 80
--------- ---------- ---------- ----------
Earnings (loss) from
continuing operations
before income taxes (4,072 ) (13,944 ) (17,365 ) (30,698 )
Provision (benefit) for
income taxes 42 1,035 (1,396 ) 2,051
--------- ---------- ---------- ----------
Earnings (loss) from
continuing operations (4,114 ) (14,979 ) (15,969 ) (32,749 )
Earnings (loss) from
discontinued operations,
net of tax 376 410 396 (1,619 )
Gain (loss) on sale of
discontinued operations,
net of tax 9,709 (29,938 ) 9,709 (30,259 )
--------- ---------- ---------- ----------
Net earnings (loss) $5,971 $(44,507 ) $(5,864 ) $(64,627 )
========= ========== ========== ==========
Net earnings (loss)
available to common
shareholders
Net earnings (loss) from
continuing operations (4,114 ) $(14,979 ) $(15,969 ) $(32,749 )
Dividends and accretion on
participating shares (5,693 ) (5,349 ) (11,299 ) (10,675 )
--------- ---------- ---------- ----------
Net earnings (loss) from
continuing operations
available to common
shareholders $(9,807 ) $(20,328 ) $(27,268 ) $(43,424 )
========= ========== ========== ==========
Basic and diluted net
earnings (loss) available
to common shareholders per
ADS:
Net earnings (loss) from
continuing operations $(0.15 ) $(0.32 ) $(0.43 ) $(0.68 )
Net earnings (loss) from
discontinued operations 0.15 (0.46 ) 0.15 (0.50 )
--------- ---------- ---------- ----------
Basic net earnings (loss) $0.00 $(0.78 ) $(0.28 ) $(1.18 )
--------- ---------- ---------- ----------
Weighted average basic ADSs 64,132 63,654 64,132 63,605
========= ========== ========== ==========
Diluted net earnings (loss) $0.00 $(0.78 ) $(0.28 ) $(1.18 )
--------- ---------- ---------- ----------
Weighted average diluted
ADSs 90,949 63,654 64,132 63,605
========= ========== ========== ==========
The accompanying notes are an integral part of these consolidated
condensed financial statements
Danka Business Systems PLC
Consolidated Condensed Balance Sheets as of September 30, 2006 and
March 31, 2006
(In thousands except per share data)
September 30, March 31,
2006 2006
------------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $35,297 $52,538
Restricted cash 22,238 20,529
Accounts receivable, net of allowance
for doubtful accounts 173,497 183,898
Inventories 83,786 76,290
Assets held for sale - discontinued
operations - 11,778
Prepaid expenses, deferred income taxes
and other current assets 10,997 8,138
------------- -----------
Total current assets 325,815 353,171
Equipment on operating leases, net 13,325 12,138
Property and equipment, net 31,820 36,497
Goodwill 211,034 206,174
Other intangible assets, net of accumulated
amortization 604 1,861
Deferred income taxes 1,664 87
Other assets 18,701 18,864
------------- -----------
Total assets $602,963 $628,792
============= ===========
Liabilities and shareholders' equity
(deficit)
Current liabilities:
Current maturities of long-term debt and
notes payable $12,003 $11,516
Accounts payable 153,569 161,992
Accrued expenses and other current
liabilities 80,919 90,359
Taxes payable 20,795 21,133
Liabilities held for sale - discontinued
operations - 9,067
Deferred revenue 31,701 31,425
------------- -----------
Total current liabilities 298,987 325,492
Long-term debt and notes payable, less
current maturities 238,008 238,081
Deferred income taxes and other long-term
liabilities 52,530 51,538
------------- -----------
Total liabilities 589,525 615,111
------------- -----------
6.5% senior convertible participating shares 332,840 321,541
Shareholders' equity (deficit):
Ordinary shares, 1.25 pence stated value 5,330 5,330
Additional paid-in capital 329,745 329,745
Accumulated deficit (613,984 ) (596,823 )
Accumulated other comprehensive loss (40,493 ) (46,112 )
------------- -----------
Total shareholders' equity (deficit) (319,402 ) (307,860 )
------------- -----------
Total liabilities and shareholders' equity
(deficit) $602,963 628,792
============= ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements
Danka Business Systems PLC
Consolidated Condensed Statements of Cash Flows for the Six Months
Ended September 30, 2006 and 2005
(In thousands)
(Unaudited)
Six Months Ended
September 30,
---------------------
2006 2005
Operating activities:
Net earnings (loss) $(5,864 ) $(64,627 )
(Earnings) loss from discontinued operations (10,105 ) 31,878
---------- ----------
Earnings (loss) from continuing operations (15,696 ) (32,749 )
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 11,187 14,984
Deferred income taxes (1,344 ) (113 )
Amortization of debt issuance costs 941 1,035
(Gain) loss on sale of property & equipment
and equipment on operating leases (334 ) 793
Proceeds from sale of equipment on operating
leases 475 269
Restructuring charges 12,502 7,495
Loss on sale of subsidiary, net of cash 2,103 --
Changes in net assets and liabilities:
Accounts receivable 9,480 26,214
Inventories (7,732 ) (5,673 )
Prepaid expenses and other current
assets (2,870 ) 1,114
Other non-current assets (4,687 ) 4,062
Accounts payable (8,056 ) 3,303
Accrued expenses and other current
liabilities (21,633 ) (37,181 )
Deferred revenue 450 (2,492 )
Other long-term liabilities 759 (319 )
---------- ----------
Net cash used in continuing
operations (24,728 ) (19,258 )
Net cash (used in) provided by
discontinued operations (1,042 ) 356
---------- ----------
Net cash used in operating
activities (25,770 ) (18,902 )
---------- ----------
Investing activities:
Capital expenditures (7,373 ) (5,963 )
Proceeds from sale of discontinued
operations, net of cash 11,889 16,924
Proceeds from the sale of property and
equipment 178 62
---------- ----------
Net cash provided by continuing
investing activities 4,694 11,023
Net cash used in discontinued
investing activities (382 ) (573 )
---------- ----------
Net cash provided by investing
activities 4,312 10,450
Financing activities:
Borrowings under line of credit agreements 27,000 15,700
Payments under line of credit agreements (26,014 ) (15,748 )
Payments under capital lease arrangements (857 ) (1,292 )
Proceeds from stock options exercised -- 569
---------- ----------
Net cash provided by (used in)
continuing financing activities 129 (771 )
Net cash used in discontinued
financing activities -- (99 )
---------- ----------
Net cash provided by (used in)
financing activities 129 (870 )
---------- ----------
Effect of exchange rates 2,158 (2,826 )
---------- ----------
Net decrease in cash and cash
equivalents (19,171 ) (12,148 )
Cash and cash equivalents from continuing
operations, beginning of period 52,538 73,996
Cash and cash equivalents from discontinued
operations, beginning of period 1,930 9,164
Cash and cash equivalents from discontinued
operations, end of period -- (2,427 )
---------- ----------
Cash and cash equivalents from continuing
operations, end of period $35,297 $68,585
========== ==========
Danka Business Systems PLC
Adjusted operating earnings (loss) from continuing operations for the
three and twelve months ended September 30, 2006 and 2005
(In Thousands)
(Unaudited)
For the Three Months For the Six Months
Ended Ended
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Operating earnings (loss)
from continuing operations $4,056 $(5,992) $(1,464) $(14,804)
Restructuring charges 151 1,598 12,502 7,495
Loss on sale of subsidiary 5 --- 2,512 ---
--------- --------- --------- ---------
Adjusted operating earnings
from continuing operations $4,212 $(4,394) $13,550 $( 7,309)
========= ========= ========= =========
Danka Business Systems PLC
Free cash flow for the three and twelve months ended September 30,
2006 and 2005
(In Thousands)
(Unaudited)
For the Three Months For the Six Months
Ended Ended
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Net cash provided by (used
in) continuing operations $(10,908) $(5,167) $(24,728) $(19,258)
Capital expenditures (4,438) (2,758) (7,373) (5,693)
Proceeds from sale of
subsidiary 11,889 4,952 11,889 16,924
Proceeds from sale of
property and equipment 177 4 178 62
--------- --------- --------- ---------
Free cash flow $(3,280) $(2,969) $(20,034) $(7,965)
========= ========= ========= =========
Danka Business Systems PLC
Net Debt as of September 30, 2006 and September 30, 2005
(In Thousands)
(Unaudited)
September
30, March 31,
2006 2006
--------- ---------
Current maturities of long-
term debt and notes
payable $12,003 $11,516
Long-term debt and notes
payable 238,008 238,081
Less: Cash and cash
equivalents and restricted
cash (57,535) (73,067)
--------- ---------
Net Debt $192,476 $176,530
========= =========
Danka Business Systems PLC
Adjusted operating expenses
(In Thousands)
(Unaudited)
For the Three Months For the Six Months
Ended Ended
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Total operating expenses $69,435 $87,904 $158,286 $190,198
Restructuring charges 151 1,598 12,502 7,495
Loss on sale of subsidiary 5 --- 2,512 ---
--------- --------- --------- ---------
Adjusted operating expenses $69,591 $89,502 $173,300 $197,693
========= ========= ========= =========
Danka Business Systems PLC
Adjusted basic net earnings (loss) available to common shareholders
per ADS
(In thousands, except per ADS)
(Unaudited)
For the Three Months For the Six Months
Ended Ended
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Earnings (loss) from
continuing operations $(4,114) $(14,979) $(15,969) $(32,749)
Earnings (loss) from
discontinued operations 10,085 (29,528) 10,105 (31,878)
--------- --------- --------- ---------
Adjusted net earnings
(loss) available to common
shareholders $5,971 $(44,507) $(5,864) $(64,627)
========= ========= ========= =========
Adjusted basic net earnings
(loss) available to common
shareholders per ADS $0.09 $(0.70) $(0.09) $(1.02)
--------- --------- --------- ---------
Weighted average ADSs 64,132 63,654 64,132 63,605
========= ========= ========= =========
CONTACT: Danka, St. Petersburg
Danka Investor Relations
Cheley Howes, 727-622-2760
or
Danka London
Paul G. Dumond, 44-207-605-0154
or
The Dilenschneider Group
Mona J. Walsh, 212-922-0900