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Danka Reports 3Q Progress, Healthier Having Reduced Debt by $377 Million

Friday, February 01, 2002

Press release from the issuing company

ST. PETERSBURG, Fla.--Jan. 31, 2002--Danka Business Systems PLC today announced results for its fiscal 2002 third quarter ended December 31, 2001. Danka reported operating earnings from continuing operations before extraordinary items and discontinued operations of $9.1 million for the three months ended December 31, 2001 compared to an operating loss from continuing operations before extraordinary items and discontinued operations of $9.5 million in the prior year third quarter, when adjusted for a one-time restructuring charge of $27.5 million. This compares to an operating loss from continuing operations before extraordinary items and discontinued operations of $4.2 million, sequentially, for the second quarter of fiscal year 2002. Earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations were $29.4 million or 7.3% of revenue for the three months ended December 31, 2001 compared to EBITDA of $27.3 million or 6.4% of revenue for the prior year third quarter after excluding restructuring and other one-time charges, and $25.5 million or 6.7% of revenue, sequentially. Danka's Chairman and Chief Executive Officer, Lang Lowrey, commented: "This marks the third consecutive quarter of EBITDA improvement. We are pleased with this progress and will continue our efforts to improve on this and all other aspects of our financial performance.'' Total revenue for the third quarter of fiscal year 2002 declined by $24.4 million, or 5.7%, to $400.6 million compared to $425.0 million in the prior year third quarter. This decline was primarily due to a decrease in service and rentals in the U.S. resulting from the continuing transition from analog to digital equipment, negative market trends, and a weakening of global economic conditions. Worldwide, retail equipment sales were down $6.8 million as compared to the prior year third quarter. Retail equipment sales in the U.S. were flat in the third quarter as compared to the prior year third quarter despite a 46% reduction in the number of sales representatives in the U.S. This reduction was partially offset by a 49% increase in U.S. sales productivity (i.e. hardware sales divided by the average number of sales representatives) and the addition of a large national account. The reduction in U.S. sales representatives is part of the Company's strategic plan to improve sales productivity while reducing operating costs. The Company's combined gross profit margin for the third quarter of fiscal year 2002 was 35.2% compared to 33.5% for the prior year third quarter and 34.0% sequentially. The retail equipment sales margin for the third quarter of fiscal year 2002 was 25.0% as compared to 23.9% in the prior year third quarter and 23.4% sequentially. The retail service, supplies and rental margin for the third quarter of fiscal year 2002 was 42.7% as compared to 41.0% in the prior year third quarter and 41.0% sequentially. In the third quarter of fiscal year 2002, SG&A expenses were $131.0 million or 32.7% of revenue, compared to $148.0 million or 34.8% of revenue for the prior year third quarter and $127.4 million or 33.4% sequentially. The Company recorded a pre-tax restructuring charge of $3.2 million in the third quarter of fiscal year 2002 for severance andreversed $3.2 million of prior year restructuring charges. In the category of other (income)/expense for the third quarter of fiscal year 2002 included foreign currency gains of $1.6 million as compared to a foreign currency loss of $0.2 million for the prior year third quarter and a foreign currency gain of $2.4 million sequentially. Interest expense was $7.9 million for the third quarter of fiscal year 2002 which represented a decrease of $11.0 million from the prior year third quarter and a decline of $3.2 million sequentially. This change was primarily the result of lower interest rates and reduced outstanding debt. The Company reported earnings from continuing operations before discontinued operations and extraordinary gain of $0.6 million for the third quarter of fiscal year 2002 compared to a loss of $34.9 million from the prior year third quarter and a loss of $1.9 million sequentially. Net loss for the three months ended December 31, 2001 was $0.9 million which included an after tax loss from discontinued operations of $2.9 million and an after tax extraordinary gain from the early retirement of debt of $1.4 million. The prior year net loss for the comparable period was $31.8 million and included after tax earnings from discontinued operations of $3.2 million. Sequentially, Danka's net loss was $3.4 million which included an after tax loss from discontinued operations of $1.3 million and an after tax extraordinary gain from the early retirement of debt of $0.2 million. After allowing for the dilutive effect of dividends on Danka's participating shares, Danka incurred a net loss from continuing operations of $0.06 per American Depositary Share ("ADS'') in the third quarter of fiscal year 2002 compared to a net loss of $0.63 per American Depositary Share ("ADS'') in the third quarter of fiscal year 2001. The net loss from discontinued operations was $0.04 per ADS in the third quarter of fiscal year 2002 and net earnings from discontinued operations were $0.05 per ADS in the third quarter of fiscal year 2001. Net earnings from extraordinary items were $0.02 per ADS in the third quarter of fiscal year 2002. Net earnings for the first nine months ended December 31, 2001 were $122.3 million and included after tax earnings from discontinued operations of $4.1 million, a first quarter, after tax gain on the sale of Danka Services International (DSI) of $104.8 million, and an after tax extraordinary gain from the early retirement of debt of $27.9 million. Net loss in the nine month period ended December 31, 2000 was $93.2 million and included after tax earnings from discontinued operations of $12.6 million. The prior year nine month period included non-cash charges of $22.4 million for the write-down of analog inventory, $10.5 million for the write-down of rental equipment, $18.8 million for the write-off of goodwill associated with Danka's Australian subsidiary and a $27.5 million restructuring charge. After allowing for the dilutive effect of dividends on Danka's participating shares, Danka incurred a net loss from continuing operations of $0.44 per ADS for the first nine months of fiscal year 2002 compared to a net loss of $1.96 per ADS for the first nine months of fiscal year 2001. Net earnings from discontinued operations were $1.76 per ADS for the first nine months of fiscal year 2002 compared to $0.21 per ADS for the first nine months of fiscal year 2001. Net earnings from extraordinary items were $0.45 per ADS for the first nine months of fiscal year 2002. Danka generated free cash flow (defined as cash flow from operations less capital expenditures) of $30.5 million in the third quarter of fiscal year 2002, compared to $13.2 million in the prior year third quarter and $22.4 million sequentially. Total debt decreased by $32.6 million, sequentially to $342.2 million from $374.8 million. Danka's Chief Financial Officer, Mark Wolfinger, commented: "Due to our financial restructuring, the sale of DSI and our continued progress in generating free cash flow from improved operations, we have decreased our total debt by $377.0 million, or 52%, from $719.2 million at the beginning of the fiscal year. Danka's ratio of total debt to total capitalization (including participating shares) has decreased from 81.9% as of March 31, 2001 to 55.1% as of December 31, 2001.'' In summary, Lowrey stated: " I would like to compliment Danka's associates on the company's achievements in the third quarter. Much of the company's continued operational improvement can be attributed to them and the efforts of the company's new senior management team, including its three recently appointed divisional operating officers: Dr. Peter Williams, President Europe; David Berg, President Canada, Latin America, Asia Pacific; and Todd Mavis, President U.S. The combined efforts of this team have significantly contributed to our improved financial performance and they are implementing programs which place more emphasis on providing value to our customers. Danka's focus remains on debt reduction, improving cash generation, and providing outstanding customer satisfaction.''

 

 

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