Danka Reports First Quarter Results for Fiscal 1999.LONDON London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. & ST. PETERSBURG Petersburg, city (1990 pop. 38,386), politically independent and in no county, SE Va., on the Appomattox River; inc. 1850. A port of entry and an important tobacco market, it has industries producing chemicals, pharmaceuticals, furniture, structural steel, lumber, , Fla.--(BUSINESS WIRE)--Aug. 13, 1998-- Danka Business Systems PLC: (DANKY) First Quarter Highlights: -- Revenue and earnings disappointing as warned in June June: see month. -- Integration projects continue - 50 to 60 warehouses being consolidated into single Atlanta Atlanta (ətlăn`tə, ăt–), city (1990 pop. 394,017), state capital and seat of Fulton co., NW Ga., on the Chattahoochee R. and Peachtree Creek, near the Appalachian foothills; inc. 1847. facility - U.S. operating centers being consolidated from 14 to 7 - Target headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. reductions of more than 1,000 on schedule -- Increased margin from retail service, supplies and rentals business -- Management team strengthened - Brian Merriman Brian Merriman (circa 1749 – July 27 1805) was an Irish language poet and teacher. His single surviving work of substance, the 1000-line long Cúirt An Mheán Oíche (The Midnight Court appointed President, U.S. Operations - Mark Wolfinger appointed President, Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. , Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of & Specialty Markets
First Quarter Ended June 30,
1998 1997 % Change
(in thousands, except per ADS amounts)
Revenue $765,399 $834,088 (8)%
Earnings from Operations 23,403 46,125 (49)%
Net Earnings 5,011 18,466 (73)%
Diluted Net Earnings per ADS $0.09 $0.32
Dan Doyle Doyle , Sir Arthur Conan 1859-1930. British writer known chiefly for a series of stories featuring the brilliant detective Sherlock Holmes, including The Hound of the Baskervilles (1902). , Chief Executive, commented on the quarter, "Our first quarter revenue fell below market expectations, primarily due to problems affecting our U.S. core copier business. The impact of the sales force integration and changes in the compensation plan has been greater than we initially expected. Despite the difficulties the Company is currently experiencing, we remain committed to the integration of our businesses and believe that the measures we are taking will build the foundation for Danka for the future. Brian Merriman, a former Toshiba Toshiba Corporation (株式会社東芝 Kabushiki-gaisha Tōshiba executive, joined Danka to serve as President of U.S. Operations. With his leadership skills and detailed industry knowledge, I am confident that Brian The name Brian (sometimes spelled Bryan) comes from an Irish backround. It is of Celtic origin and its meaning may be "hill" or "strong, noble, and high"[1]. has the ability to lead our U.S. team." Danka Reports First Quarter Results for Fiscal 1999 Results Danka Business Systems PLC (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : DANKY) today announced results for its first quarter ended June 30, 1998. Revenue for the first quarter declined 8% to $765.4 million, while earnings from operations decreased 49% to $23.4 million. Net earnings for the three months decreased to $5.0 million, or $0.09 per American Depositary Share American Depositary Share (ADS) Foreign stock issued in the US and registered in the ADR system. ("ADS") on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, as compared to $18.5 million, or $0.32 per ADS on a diluted basis last year. The quarter was marked by significant activity in relation to the integration of the Office Imaging business, which was acquired from Eastman Kodak (company) Kodak - The photographic company responsible for Photo CD. http://kodak.com/. Company last year. There was considerable progress on a number of key projects, which form part of the integration. In the U.S., the Company moved to consolidate its warehouses and operating centers and achieved further reductions in headcount towards its goal of eliminating over 1,000 positions. In addition, the Company has recently announced important appointments, which considerably strengthen its management team. However, profitability in the quarter was impacted by a number of factors both internal to the Company and in its marketplace. As previously reported in June, the Company's revenue for the first quarter was below market expectations. The majority of the revenue shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. was due to lower equipment sales in the Company's U.S. core copier business. Compared to the same quarter a year ago, total retail equipment sales were down 21%. Management believes this shortfall was primarily related to internal issues, including the integration of the sales force, changes in the compensation plan introduced April 1 and sales order The sales order, sometimes abbreviated as SO, is an order received by a business from a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways. entry issues related to the integration of the product portfolios. Dan Doyle, Chief Executive comments on the new compensation plan, "Acceptance of the compensation plan is improving, and I believe that the sales force now has a better understanding of the importance of the changes in the plan, and how they will drive the future of Danka." External market factors also affected the Company's performance in the quarter. Increased competition in the area of hardware sales is being recognized and this is impacting margins, as discussed below. Furthermore, there has been an acceleration in the transition to digital equipment in the U.S. recently and the Company is currently in negotiations with its vendors with a goal of broadening its digital product portfolio to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. this industry trend. The Company's International operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. were on target except for the UK and Australasian Aus·tral·a·sia 1. The islands of the southern Pacific Ocean, including Australia, New Zealand, and New Guinea. 2. Broadly, all of Oceania. Aus divisions, which were below the Company's expectations. As a result of the economic malaise malaise /mal·aise/ (mal-az´) a vague feeling of discomfort. mal·aise n. A vague feeling of bodily discomfort, as at the beginning of an illness. in the Far East, competitive pressures from Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and manufacturers selling directly to customers impacted equipment sales particularly in the UK. In addition, Danka is seeing a dramatic shift to digital products in Australasia Australasia (ôstrəlā`zhə, –shə), islands of the South Pacific, including Australia, New Zealand, New Guinea, and adjacent islands. The term is sometimes used to include all of Oceania. and the Company is taking steps to improve its digital product availability in this region to meet customer demand. As in prior quarters, foreign exchange rate fluctuations impacted the Company's comparable financial results. Excluding the effect of foreign currency fluctuations, total revenue would have been approximately 2% higher and net earnings per ADS $0.01 higher on a diluted basis. Dan Doyle, Chief Executive, commented on the quarter, "Our first quarter revenue fell below market expectations, primarily due to problems affecting our U.S. core copier business. The impact of the sales force integration and changes in the compensation plan has been greater than we initially expected. Despite the difficulties the Company is currently experiencing, we remain committed to the integration of our businesses and believe that the measures we are taking will build the foundation for Danka for the future. Brian Merriman, a former Toshiba executive, joined Danka to serve as President of U.S. Operations. With his leadership skills and detailed industry knowledge, I am confident that Brian has the ability to lead our U.S. team." Operational Overview The Company's combined gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. for the quarter declined to 36.5% from 37.1% a year ago. The primary reason for this decline was the reduction in the Company's retail equipment margin from 35.4% to 30.5%. The decline in the retail equipment margin is attributable to several factors. First, the UK is experiencing pressure on its equipment margins as noted above. Second, the impact of competitive pressures on hardware sales has also increased in the U.S. The Company believes that these competitive pressures in the U.S. and the UK will continue. Third, the Company's equipment margin was also affected by increases in provisions made during the first quarter due to the higher inventory levels in the U.S. Despite the expected decline in the Company's recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. retail service, supplies and rentals revenue stream of 4%, the actions which have been taken to date as part of the integration process, had the benefit of increasing the gross margin from 40.0% to 41.7%. Furthermore, on a sequential basis, the combined gross profit margin increased from 36.1% to 36.5% due to stronger margins on service and rental transactions. The Company's wholesale margin was affected by lower margin equipment and supply sales primarily in the U.S., declining from 19.2% to 15.3%. Although the Company's wholesale margin declined during the quarter, the business continues to expand with revenue increasing more than 7% over last year. Excluding DSI (Dynamic Systems Initiative) An umbrella term for a suite of Microsoft products that help manage the Windows environment in large enterprises. DSI was introduced in 2003. , the Company's outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. business, the retail service, supplies and rentals margin was even higher at 44.6%. Although DSI has a lower gross profit margin by the nature of its business, its operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. is approximately 10% of revenue. Dan Doyle commented, "I am excited about the future growth potential we have in the document outsourcing market. Marking another step in our continued advancement in the outsourcing market, we opened DSI's first European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. state-of-the-art document service center in July July: see month. ." The new center is located in Belgium Belgium (bĕl`jəm), Du. België, Fr. La Belgique, officially Kingdom of Belgium, constitutional kingdom (2005 est. pop. 10,364,000), 11,781 sq mi (30,513 sq km), NW Europe. , and will provide some of DSI's largest customers with services including graphic and electronic design, networked printing, full and background color print, statement processing and digital archiving. Selling, general and administrative expenses (SG&A) as a percentage of revenue increased to 31.1% from 29.5% a year ago, primarily due to the shortfall in total revenue for the first quarter. On an absolute dollar basis, SG&A expenses decreased to $237.8 million from $245.9 million a year ago. The decrease in SG&A is due to lower selling expenses as a result of the lower equipment sales as well as a reduction in general and administrative expenses as the Company realizes savings from its integration projects and continued improvements in certain processes throughout the organization. Digital equipment placements in the U.S. were up 77% reflecting strong growth in unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. . Digital equipment revenue increased 3% in the period. As a percentage of U.S. core copier equipment sales, digital products sold by the Company in the U.S. represented approximately 9% during the first quarter compared to 6% a year ago. Digital sales as a percentage of U.S. core copier equipment sales were down from 12% in the fourth quarter. This was primarily due to the strong performance in the fourth quarter by the Company's Named accounts, which encompasses the Company's larger customer accounts. U.S. color equipment placements increased 5% while revenue was down 17%, due to competitive pricing pressures on color products in the U.S. Integration Projects Fiscal 1999 is a transition year for the Company. The integration of the two organizations encompasses a large number of projects involving changes and planned improvements in many areas of the combined organization. The Company is involved in several major initiatives at this time and considerable progress has been made in a number of areas. The Company has made progress in closing duplicate DUPLICATE. The double of anything. 2. It is usually applied to agreements, letters, receipts, and the like, when two originals are made of either of them. Each copy has the same effect. facilities throughout the U.S. including operating centers and warehouses. The Company has opened an Atlanta warehouse, which will supply the entire southeast and mid-Atlantic Adj. 1. mid-Atlantic - of a region of the United States generally including Delaware; Maryland; Virginia; and usually New York; Pennsylvania; New Jersey; "mid-Atlantic states" middle Atlantic regions with all equipment and accessories. This will cover approximately 75% of the Company's U.S. customer base and will allow for the closure of 50 to 60 existing warehouses. In addition, the Company has made progress in reducing its U.S. operating centers from 44 to 14, including the consolidation of billing centers and collection sites. A further reduction to seven is expected by the end of this fiscal year. Effective April 1, the Company's U.S. dispatch A dispatch or dispatches can refer to:
Financing The Company's total debt for the quarter increased by $26.4 million, to a balance of $969.8 million at June 30, 1998. The majority of the increase related to the Company's International operations in which MIS (1) (Management Information System) An information system that integrates data from all the departments it serves and provides operations and management with the information they require. conversions in Germany caused a delay in the processing of customer invoices. This problem has now been largely resolved. Effective June 30, 1998 certain of the Company's covenants under its Credit Agreement were amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. to allow for more financial flexibility. Management Changes As previously announced, Brian Merriman was named President, U.S. Operations, effective August 1, 1998 and is responsible for the sales, service and marketing activity throughout the U.S. Mr. Merriman most recently served as Senior Vice President of the Electronic Imaging Division of Toshiba America Information Systems, Inc. and has also held senior positions at Konica Business Machines USA, Inc. and Savin savin a neurotoxic war gas similar to organophosphorus insecticides but considerably more toxic, as demonstrated in the Tokyo subway massacre in 1995. Corporation. Mark Wolfinger will also join Danka effective August 17, 1998 as President, Latin America, Canada and Specialty Markets. The specialty markets include the Company's wholesale and facsimile divisions. Mr. Wolfinger most recently served as Executive Vice President and Chief Financial Officer of Hollywood Entertainment Corporation and was previously with Metromedia Restaurant Group Metromedia Restaurant Group is a United States casual dining company that operates and franchises more than 800 restaurants under the names Bennigan's, Bonanza, Ponderosa, Steak and Ale, The Plano Tavern, The Southlake Tavern and the 29 Degree Tavern. , Grand Metropolitan PLC and PepsiCo. Peter Meier resigned from his position as Corporate Vice President, Americas to pursue other interests. The Company has found a new Chief Financial Officer and expects to announce the appointment by the end of the month. Danka Business Systems PLC, headquartered in London, England and St. Petersburg, Florida St. Petersburg (often shortened to St. Pete) is a city in Pinellas County, Florida, United States. The city is known as a vacation destination for North American and European vacationers, as well as a politically important battleground in U.S. Presidential politics. , is one of the world's largest independent suppliers of office imaging equipment, supplies and services. Danka employs 20,000 people and provides office products and services globally in over 30 countries around the world. Danka's Ordinary shares are listed on the London Stock Exchange London Stock Exchange London marketplace for securities. It was formed in 1773 by a group of stockbrokers who had been doing business informally in local coffeehouses. and its ADSs are listed on NASDAQ. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Certain statements contained in this press release, or otherwise made by officers of the Company, including statements related to the progress of and anticipated benefits from the integration, the Company's ability to meet challenges it faces, and the Company's future business and financial performance, are forward- looking, and contain information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company that is based on the beliefs of management as well as assumptions, made by, and information currently available to, management. The words "goal", "expect", "believe" and similar expressions as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such differences include, but are not limited to (i) the demands that the Office Imaging ("OI") acquisition (the "Acquisition") and the unification (programming) unification - The generalisation of pattern matching that is the logic programming equivalent of instantiation in logic. When two terms are to be unified, they are compared. thereof with Danka's core operations will place on the Company's resources, infrastructure, current operations and employees, (ii) any inability by the Company to achieve substantial operating cost reductions and efficiencies in productivity from the Acquisition, the revised information technology system, the revised management structure or other similar Company wide initiatives associated with the unification, (iii) the potential for unanticipated increases in expenditures for labor, equipment, materials and supplies required to manage the increased size of the Company as a result of the Acquisition, (iv) the Company's inability to effectively manage the increased number of employees and retain current key management personnel and other key employees added as a result of the Acquisition, who are accustomed to a different corporate culture, compensation arrangements and benefits programs, while the Company simultaneously implements a new sales compensation program and reduces the overall size of its worldwide workforce, (v) the potential increased costs resulting from technological developments, revisions to existing information technology systems, year 2000 issues and the integration of information technologies between OI and the Company's core operations, (vi) increased competition resulting from other high volume and digital copier distributors and the discounting of such copiers by competitors, (vii) any inability by the Company to manage and reduce its outstanding debt, meet its working capital needs and maintain compliance with the covenants of its credit facility, (viii) any inability by the Company to continue to gain access to and successfully distribute new and current products brought to the marketplace at competitive costs and prices, (ix) the ultimate amount of additional costs associated with an accelerated unification and ultimate integration and the amount and timing of the realization of the anticipated benefits from such unification and complete integration, (x) any inability by the Company to effectively manage the increased size of its inventory and product line, (xi) any inability by the Company to comply with the purchasing requirements under its supply agreements with its vendors, including Kodak, and the impact thereof, (xii) any inability by the Company to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... acceptable vendor agreements, (xiii) any inability by the Company to solve problems in the U.S. related to the sales integration and introduction of the new compensation plan on April 1, 1998, (xiv) any inability by the Company to successfully close facilities without negative impact on the Company's operations, (xv) the ultimate outcome and impact of the pending class action lawsuit class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax , (xvi) any negative impact from the loss of any key upper management personnel, (xvii) fluctuations in foreign currencies and (xviii) other risks including those risks identified in any of the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" . The Company undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or that arise after the date hereof. 11201 Danka Circle North 33 Cavendish Square St. Petersburg, FL 33716 London W1M 0DE -0-
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per American Depositary Share ("ADS")
amounts)
For the three months ended
June 30 June 30
1998 1997
(Unaudited) (Unaudited)
Revenue:
Retail equipment sales $ 194,668 $ 247,240
Retail service, supplies
and rentals 502,547 523,425
Wholesale 68,184 63,423
Total revenue 765,399 834,088
Costs and operating expenses:
Cost of retail equipment sales 135,389 159,687
Retail service, supplies and
rental costs 293,189 314,006
Wholesale costs of revenue 57,750 51,233
Selling, general and
administrative expenses 237,796 245,873
Amortization of intangible assets 5,372 4,664
Research and development costs 12,500 12,500
Total costs and operating expenses 741,996 787,963
Earnings from operations 23,403 46,125
Interest expense and other, net 15,424 16,759
Earnings before income taxes 7,979 29,366
Provision for income taxes 2,968 10,900
Net earnings $ 5,011 $ 18,466
Basic Earnings per ADS:
Net earnings per ADS $ 0.09 $ 0.33
Weighted average ADSs 56,874 56,712
Diluted earnings per ADS:
Net earnings per ADS $ 0.09 $ 0.32
Weighted average ADSs 57,732 58,453
Note: Certain prior year amounts have been reclassified to
conform with the current year presentation.
-0-
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, March 31,
1998 1998
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 2,784 $ 34,653
Accounts receivable, net 632,314 628,052
Inventories 526,507 482,656
Prepaid expenses and other
current assets 33,708 35,414
Total current assets 1,195,313 1,180,775
Equipment on operating leases, net 304,399 294,348
Property and equipment, net 97,435 87,916
Intangible assets, net 481,731 485,032
Other assets 134,142 130,870
Total assets $ 2,213,020 $ 2,178,941
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt
and notes payable $ 96,897 $ 84,490
Accounts payable 353,532 297,464
Accrued expenses and other current
liabilities 293,003 338,237
Deferred revenue 67,926 70,476
Total current liabilities 811,358 790,667
Convertible subordinated notes 200,000 200,000
Other long-term debt 672,878 658,892
Deferred income taxes and long-term
liabilities 45,013 49,075
Total liabilities 1,729,249 1,698,634
Shareholders' equity:
Ordinary shares, 1.25 pence
stated value 4,746 4,746
Additional paid-in capital 304,197 304,197
Retained earnings 232,928 227,917
Accumulated other comprehensive income (58,100) (56,553)
Total shareholders' equity 483,771 480,307
Total liabilities and
shareholders' equity $ 2,213,020 $ 2,178,941
CONTACT: Danka Business Systems PLC Paul K. Suijk, 813-576-6003 or Paul G. Dumond, 011-44171-399-3000 |
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