EX-99.1 3 dex991.txt PRESS RELEASE Exhibit 99.1 DANKA For Immediate Release Sanjay Sood 727-576-6003 Paul G. Dumond 011-44-207-603-1515 DANKA REPORTS FOURTH QUARTER AND FISCAL YEAR END RESULTS St. Petersburg, FL, June 8, 2001 - Danka Business Systems PLC (NASDAQ: DANKY) today announced results for its fourth quarter and twelve months ended March 31, 2001 (fiscal year 2001). The Company reported a loss from operations of $105.3 million for the fourth quarter as compared to earnings of $1.3 million in the fourth quarter of fiscal year 2000. During the fourth quarter, the Company's cost of sales and earnings from operations were negatively impacted by a pre-tax, non-cash charge of $53.9 million related to the write-off of excess, obsolete and non-recoverable equipment, parts and accessories. The Company recorded $40.2 million of this write-off in cost of retail equipment sales and $13.7 million of the write-off in cost of retail service, supplies and rentals. The Company's SG&A expenses were negatively impacted by a pre-tax, non-cash charge of $28.6 million, of which $15.3 million related to the Company's facilities and $8.0 million related to additional trade receivable reserves. The Company also wrote-off goodwill attributable to one of its U.S. subsidiaries resulting in a charge of $6.9 million. The Company incurred a net loss of $127.4 million in the fourth quarter compared to a net loss of $18.6 million in the fourth quarter of fiscal year 2000. Danka's Chief Executive Officer, Lang Lowrey, commented, "The year-end and fourth quarter performance was significantly impacted by asset write-offs and charges, which include the write-off of most of our remaining analog assets and charges related to our non-strategic facilities. Overall, these charges are consistent with our plan to substantially exit the analog business and position Danka as a preeminent provider of digital equipment, services and solutions to its customers." Total revenue for the fourth quarter declined by $118.8 million or 19.3% to $496.3 million from $615.1 million in the fourth quarter of fiscal year 2000. Foreign currency movements negatively impacted the Company's total revenue during the fourth quarter by approximately $14.9 million. Sequentially, total revenues declined slightly after excluding the positive impact of foreign currency movements of approximately $8.0 million. The Company's combined gross profit margin was 18.7% for the fourth quarter compared to 31.4% sequentially and 31.2% for the fourth quarter a year ago. The sequential decrease in gross profit margin was primarily due to the write-off of excess, obsolete and non-recoverable equipment, parts and accessories noted above. The fourth quarter retail equipment margin was -4.7% as compared to 24.0% sequentially. Excluding the write-off of excess, obsolete and non-recoverable equipment, the retail equipment margin was 22.4%. Page 1 of 9 The fourth quarter retail service, supplies and rentals margin was 29.6% as compared to 36.1% sequentially. Excluding the write-off of excess and obsolete rental equipment, parts and accessories, the retail service, supplies and rentals margin was 33.8%. SG&A expenses increased by $1.9 million to $189.1 million in the fourth quarter, from $187.2 million in the fourth quarter of fiscal year 2000. Sequentially, SG&A expenses increased by $32.4 million, primarily as a result of the charges related to certain facilities and increased provisions for trade receivables discussed above. Excluding these charges, SG&A expenses increased sequentially by 2.4%. Interest expense decreased by $10.2 million to $18.2 million for the fourth quarter of fiscal year 2001 from $28.4 million in the fourth quarter of fiscal year 2000. The decrease is related to a $5.9 million reduction in the amount of bank waiver fees expensed during these periods under the Company's current credit facility and a $4.3 million reduction in interest expense due to lower debt outstanding in fiscal year 2001. Lowrey commented: "Our disappointing fourth quarter results are due in large part to a decline in margins, which is a result of decreased sales productivity, competitive conditions and the industry's transition from analog to digital products. In addition, we have failed to reduce SG&A expenses in line with margin declines. We are continuing to actively take steps to reposition our business from analog to digital, address sales productivity and reduce SG&A expenses to a level commensurate with our margins, including continuing to implement the restructuring measures commenced in the third quarter of fiscal year 2001." The Company reported a loss from operations before restructuring charges of $153.5 million for fiscal year 2001 compared to earnings of $113.0 million for fiscal year 2000, also before restructuring charges. Including the effect of restructuring charges, the Company incurred losses from operations of $169.2 million for fiscal year 2001 and earnings of $117.1 million for fiscal year 2000. Total revenues decreased by 17.3% to $2.1 billion in fiscal year 2001 from $2.5 billion in fiscal year 2000. The retail equipment margin decreased to 15.7% from 29.4% in fiscal 2000. This was primarily due to a $62.6 million write-off of excess, obsolete and non-recoverable equipment. The retail service, supplies and rentals margin decreased to 34.1% from 38.4% in fiscal 2000. SG&A expenses declined by $61.3 million to $677.0 million for fiscal year 2001 from $738.3 million in fiscal year 2000. The decline in SG&A expenses over these periods was primarily due to currency fluctuations and lower employment costs. Due to decreased revenue, SG&A expenses as a percentage of revenue increased to 32.8% in fiscal year 2001 from 29.6% in fiscal year 2000. The Company incurred a net loss of $220.6 million for fiscal year 2001 compared to net earnings of $10.3 million for fiscal year 2000. After allowing for payment-in-kind dividends on the Company's participating shares, the Company incurred a net loss of $2.12 and $3.91 per American Depositary Share ("ADS") in the fourth quarter and twelve months ended March 31, 2001, respectively, compared to a net loss of $0.39 and net earnings of $0.10 per ADS in the corresponding periods ended March 31, 2000. Agreement on Terms for New Credit Facility Page 2 of 9 Danka also announced today that it has reached an agreement with the Steering Committee of its existing consortium of banks on the principal terms of a new Credit Facility which will consist of revolver, term loan and letter of credit commitments. The Credit Facility is subject to approval by 100% of the Company's existing banks, finalization of definitive documentation, the completion of the sale of Danka Services International ("DSI"), and the tender of the requisite amount of notes under the Company's exchange offer for its outstanding 6.75% convertible subordinated notes due April 1, 2002. The new Credit Facility will mature on the earlier of the third anniversary of its closing or the date which is one day in advance of the maturity of the senior subordinated notes being offered pursuant to the exchange offer, which is expected to be March 31, 2004. Danka's Chief Executive Officer, Lang Lowrey, commented, "We are pleased that our banks have so strongly endorsed the ongoing restructuring and operating efforts of the Company. This new facility will provide the necessary financing for the Company's strategic initiatives and will allow Danka to emerge from the difficult credit environment it has been operating under during the past two and a half years. Debt reduction continues to be a principal focus of the Company and we will continue to review all opportunities for additional debt reduction." The full bank group will meet on June 13, 2001 to discuss approval of the Credit Facility and the Company expects that the new Credit Facility will be executed by all parties by the end of June. Sale of DSI On April 9, 2001, the Company entered into an agreement to sell its outsourcing business, DSI, to Pitney Bowes Inc. for a cash consideration of $290.0 million, subject to adjustment depending on the value of DSI's net assets at closing. Completion of the sale is contingent upon the approval of the Company's shareholders, consent of its senior lenders, clearance by UK competition authorities and the satisfaction of other conditions customary to a transaction of this nature. The sale has been cleared by U.S. and German competition authorities. The Company will hold a shareholder meeting for the purpose of approving the sale of DSI in June 2001 and intends to close the sale on or about June 29, 2001. Cash Flow and Financing On February 20, 2001, the Company announced an integrated three-part plan to reduce and refinance its debt. First is the sale of DSI described above, with net proceeds to be used primarily to repay a substantial portion of its existing senior credit facility. Second is an exchange offer for all $200.0 million of the Company's outstanding 6.75% convertible subordinated notes due April 1, 2002. Third is the refinancing of Danka's indebtedness under its existing senior credit facility, which is due for repayment in full on March 31, 2002. The Company anticipates that it will close the exchange offer, the refinancing of its senior credit facility and the sale of DSI on or about June 29, 2001. The Company is implementing the refinancing plan because it does not believe that it would otherwise be in a position to repay in full its indebtedness under its senior credit facility and the subordinated notes when they become due for payment in 2002. If the Company fails to complete its refinancing plan, it will be required to consider other alternatives to refinance its debt. Page 3 of 9 The report of the Company's independent auditors on the Company's U.S. GAAP consolidated financial statements for the year ended March 31, 2001 contains an explanatory paragraph stating that there is substantial doubt about the Company's ability to continue as a going concern as a result of the uncertainty regarding the Company's ability to repay its indebtedness under the existing senior credit facility and the outstanding subordinated notes when they become due for repayment on March 31, 2002 and April 1, 2002, respectively. As discussed above, the Company is in the process of implementing a plan to reduce and refinance its existing indebtedness which, if successful, will result in the Company's indebtedness under the senior credit facility and the subordinated notes being refinanced in advance of their stated maturities. As a result of the magnitude of the write-offs and charges taken in the fourth quarter of fiscal year 2001 and the explanatory paragraph contained in the report of the independent auditors on the financial statements for the year ended March 31, 2001, the Company was in non-compliance with all of the financial covenants in its existing senior credit facility. This non-compliance was cured by an amendment to the senior credit facility excluding certain of the fourth quarter charges and write-offs from the calculation of the financial covenants and waiving the requirement that the Company's independent auditor's report must not contain such an explanatory statement. The Company continues to operate under modified financial covenants through July 16, 2001 pursuant to the amendment. If the Company's indebtedness under the senior credit facility is not refinanced by that time, the Company expects that it will require an additional amendment to, or waiver of, the financial covenants that will be in effect from that date. In the absence of an additional amendment or waiver, lenders owning a majority of the outstanding indebtedness could declare all amounts outstanding under the senior credit facility immediately due. Lowrey added: "We are in the final stages of our restructuring plan and are optimistic that it will be concluded as planned by the end of June. The DSI sale, exchange offer and the announcement today of the agreement of principal terms of a new Credit Facility constitute the three elements of our plan, and each is progressing to conclusion. While we understand the U.S. GAAP requirements which necessitate the going concern paragraph, we believe that once these restructuring transactions are concluded, Danka will be in position to solidify its future as a major player in the digital solutions market." The Company generated cash flow from operations of $56.2 million and $146.5 million in the fourth quarter and twelve months ended March 31, 2001, respectively, compared to $62.7 million and $180.6 million in the corresponding periods of the prior year, respectively. For the three months ended March 31, 2001, the Company reported negative EBITDA of $62.1 million, or -12.5% of revenue, compared to positive EBITDA of $43.1 million, or 7% of revenue, for the quarter ended March 31, 2000. For fiscal 2001, the Company generated $3.3 million of EBITDA, or .2% of revenue, compared to $279.7 million, or 11.2% of revenue, in the prior fiscal year. At March 31, 2001, the Company had approximately $515.0 million in debt outstanding under its senior credit facility, which represented a reduction of over $80.0 million since March 31, 2000. Forward-Looking Statements Certain statements contained in this press release, or otherwise made by officers of the Company, including statements related to the Company's future performance and outlook for its businesses Page 4 of 9 and respective markets, projections, statements of management's plans or objectives, forecasts of market trends, the sale of DSI, the exchange offer, the refinancing of the Company's indebtedness and other matters, are forward-looking statements, and contain information relating to the Company that is based on the beliefs of management as well as assumptions made by, and information currently available to, management. The words "goal", "anticipate", "expect", "intends", "believe" and similar expressions as they relate to the Company or the Company's management, are intended to identify forward-looking statements. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such differences include, but are not limited to (i) failure of the Company to complete any or all of the parts of the refinancing plan, including the closing of the sale of DSI, the completion of the exchange offer, closing of the new credit facility and the refinancing of the Company's indebtedness under its credit agreement, whether within the anticipated timeframe or at all, (ii) failure of the lenders under the Company's senior credit facility to agree an amendment to, or waiver of, the financial covenants applicable on and after July 17, 2001, (iii) any material adverse change in financial markets or Danka, (iv) any inability to achieve or maintain cost savings, (v) increased competition from other high-volume and digital copier distributors and the discounting of such copiers by competitors, (vi) any inability by the Company to procure, or any inability by the Company to continue to gain access to and successfully distribute new products, including digital products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices, (vii) any negative impact from the loss of any of the Company's key upper management personnel, (viii) the ultimate outcome and impact of pending lawsuits, (ix) the ultimate outcome of pending tax audits, (x) any inability to achieve minimum equipment leasing commitments under the Company's customer financing arrangements, (xi) fluctuations in foreign currency exchange rates, and (xii) other risks including those risks identified in any of the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect the Company's analysis only as of the date they are made. The Company undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances that arise after the date such statements are made. Furthermore, as a matter of policy, the Company does not generally make any specific projections as to future earnings nor does it endorse any projections regarding future performance, which may be made by others outside the Company. 11201 Danka Circle North 107 Hammersmith Road St. Petersburg, FL 33716 London W14 0QH Page 5 of 9 DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per American Depositary Share ("ADS") amounts)
For the three months ended -------------------------------- March 31, March 31 2001 2000 ------------------------------------------------------------------- ------------ ------------ Revenue: Retail equipment sales $ 148,299 $ 209,119 Retail service, supplies and rentals 323,601 381,017 Wholesale 24,411 25,013 ------------------------------------------------------------------- ------------ ------------ Total revenue 496,311 615,149 ------------------------------------------------------------------- ------------ ------------ Costs and operating expenses: Cost of retail equipment sales 155,337 151,378 Retail service, supplies and rental costs 227,878 250,899 Wholesale costs of revenue 20,182 21,020 Selling, general and administrative expenses 189,065 187,224 Amortization of intangible assets 2,832 3,553 Write-off of goodwill 6,859 -- Restructuring charges (credits) (3,605) (4,148) Other expense 3,081 3,894 ------------------------------------------------------------------- ------------ ------------ Total costs and operating expenses 601,629 613,820 ------------------------------------------------------------------- ------------ ------------ (Loss) earnings from operations (105,318) 1,329 Interest expense 18,240 28,369 Interest income 474 1,270 ------------------------------------------------------------------- ------------ ------------ (Loss) earnings before income taxes (123,084) (25,770) Provision (benefit) for income taxes 4,300 (7,215) ------------------------------------------------------------------- ------------ ------------ Net (loss) earnings $ (127,384) $ (18,555) =================================================================== ============ ============ Basic (loss) earnings available to common shareholders per ADS: Net (loss) earnings per ADS $ (2.12) $ (0.39) Weighted average ADSs 61,893 58,529
Page 6 of 9 Diluted (loss) earnings available to common shareholders per ADS: Net (loss) earnings per ADS $ (2.12) $ (0.39) Weighted average ADSs 61,893 58,529
Note: Certain prior year amounts have been reclassified to conform with the current year presentation Page 7 of 9 DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per American Depositary Share ("ADS") amounts)
For the twelve months ended ------------------------------------------------- March 31, March 31 2001 2000 ------------------------------------------------------------------- ---------------------- ----------------------- Revenue: Retail equipment sales $ 626,717 $ 742,084 Retail service, supplies and rentals 1,339,415 1,648,069 Wholesale 97,128 105,469 ------------------------------------------------------------------- ---------------------- ---------------------- Total revenue 2,063,260 2,495,622 ------------------------------------------------------------------- ---------------------- ---------------------- Costs and operating expenses: Cost of retail equipment sales 528,287 523,993 Retail service, supplies and rental costs 882,125 1,014,401 Wholesale costs of revenue 80,922 86,815 Selling, general and administrative expenses 676,953 738,319 Amortization of intangible assets 13,252 14,258 Write-off of goodwill 25,577 -- Restructuring charges (credits) 15,705 (4,148) Other expense 9,622 4,879 ------------------------------------------------------------------- ---------------------- ---------------------- Total costs and operating expenses 2,232,443 2,378,517 ------------------------------------------------------------------- ---------------------- ---------------------- (Loss) earnings from operations (169,183) 117,105 Interest expense 82,639 105,060 Interest income 3,163 4,369 Loss on sale of business -- 2,061 ------------------------------------------------------------------- ---------------------- ---------------------- (Loss) earnings before income taxes (248,659) 14,353 Provision (benefit) for income taxes (28,099) 4,019 ------------------------------------------------------------------- ---------------------- ---------------------- Net (loss) earnings $ (220,560) $ 10,334 =================================================================== ====================== ======================
Basic (loss) earnings available to common shareholders per ADS: Page 8 of 9 Net (loss) earnings per ADS $ (3.91) $ 0.10 Weighted average ADSs 60,438 57,624 Diluted (loss) earnings available to common shareholders per ADS: Net (loss) earnings per ADS $ (3.91) $ 0.10 Weighted average ADSs 60,438 58,525
Note: Certain prior year amounts have been reclassified to conform with the current year presentation Page 9 of 9 DANKA BUSINESS SYSTEMS PLC CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, March 31, 2001 2000 ---------------------------------------------------------- -------------------- --------------------- Assets Current assets: Cash and cash equivalents $ 69,085 $ 64,861 Accounts receivable, net 395,849 527,793 Inventories 201,645 328,290 Prepaid expenses, deferred income taxes and other current assets 83,229 81,837 ---------------------------------------------------------- -------------------- --------------------- Total current assets 749,808 1,002,781 Equipment on operating leases, net 134,434 199,551 Property and equipment, net 77,716 92,614 Intangible assets, net 252,699 306,906 Other assets 68,286 65,845 ---------------------------------------------------------- -------------------- --------------------- Total assets $ 1,282,943 $ 1,667,697 ========================================================== ==================== ===================== Liabilities and shareholders' equity (deficit) Current liabilities: Current maturities of long-term debt and notes payable $ 517,447 86,776 Accounts payable 153,392 178,870 Accrued expenses and other current liabilities 194,509 229,472 Deferred revenue 35,158 40,045 ---------------------------------------------------------- -------------------- --------------------- Total current liabilities 900,506 535,163 Convertible subordinated notes 200,000 200,000 Long-term debt and notes payable, less current maturities 1,731 515,406 Deferred income taxes and other long-term liabilities 29,343 32,536 ---------------------------------------------------------- -------------------- --------------------- Total liabilities 1,131,580 1,283,105 ---------------------------------------------------------- -------------------- --------------------- 6.50% convertible participating shares, redeemable, $1.00 stated value 223,713 207,878 -------------------- --------------------- Shareholders' equity (deficit): Ordinary shares, 1.25 pence stated value 5,130 4,892 Additional paid-in capital 325,399 317,056 Retained earnings (deficit) (302,619) (66,226) Accumulated other comprehensive (loss) income (100,260) (79,008) ------------------------------------------------------ -------------------- --------------------- Total shareholders' equity (deficit) (72,350) 176,714 ------------------------------------------------------ -------------------- --------------------- Total liabilities and shareholders' equity (deficit) $ 1,282,943 $ 1,667,697 ====================================================== ==================== =====================
DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
------------------------------------------------- For the twelve months ended ------------------------------------------------- March 31, March 31, 2001 2000 ------------------------------------------------------------------------- ---------------------- --------------------- Operating activities Net (loss) earnings $ (220,560) $ 10,334 Adjustments to reconcile net (loss) earnings to net cash Provided by operating activities: Depreciation and amortization 169,270 160,292 Amortization of debt issuance costs 1,912 4,101 Deferred income taxes (32,831) (10,904) Loss on sale of property and equipment and equipment on operating leases 17,771 17,524 Proceeds from sale of equipment on operating leases 7,971 16,921 Restructuring charges (credits) 15,705 (4,148) Loss on sale of Omnifax business -- 2,061 Changes in assets and liabilities: Accounts receivable 109,020 23,828 Inventories 121,398 14,693 Prepaid expenses and other current assets (3,805) (6,040) Other non-current assets 19,597 24,509 Accounts payable (20,924) 38,313 Accrued expenses and other current liabilities (30,691) (99,095) Deferred revenue (3,702) (11,165) Other long-term liabilities (3,652) (665) --------------------------------------------------------------------------------------------------- --------------------- Net cash provided by operating activities 146,479 180,559 ------------------------------------------------------------------------- ---------------------- --------------------- Investing activities Capital expenditures (88,419) (126,879) Proceeds from sale of property and equipment 6,108 3,960 Proceeds from sale of Omnifax business -- 45,000 Payment for purchase of subsidiaries -- (733) Payment for purchase of noncompete agreements -- (178) ------------------------------------------------------------------------- ---------------------- --------------------- Net cash used in investing activities (82,311) (78,830) ------------------------------------------------------------------------- ---------------------- --------------------- Financing activities Net payments under line of credit agreements (67,685) (307,383) Principal borrowings (payments) on other long-term debt 45 (4,004) Proceeds from stock options exercised -- 87 Capital contributions -- 205,223 ------------------------------------------------------------------------- ---------------------- --------------------- Net cash used in financing activities (67,640) (106,077) ------------------------------------------------------------------------- ---------------------- --------------------- Effect of exchange rates 7,696 3,114 ------------------------------------------------------------------------- ---------------------- --------------------- Net increase (decrease) in cash and cash equivalents 4,224 (1,234) Cash and cash equivalents, beginning of period 64,861 66,095 ------------------------------------------------------------------------- ---------------------- --------------------- Cash and cash equivalents, end of period $ 69,085 $ 64,861 ------------------------------------------------------------------------- ---------------------- ---------------------