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Letter to the editor

Danka's troubles add up to millions

Among other woes, the company said it lost $133-million in the year ended March 31. Also, its CFO is retiring.

By SCOTT BARANCIK
Published June 11, 2005

Here's the financial picture at Danka Business Systems, as of Friday:

It's spending millions trying to fix internal control problems, losses continue to mount and its longtime chief financial officer is calling it quits.

The troubled distributor of office copiers and printers said Friday it lost $133-million in the year ended March 31, all of it in the fourth quarter. Danka, a British company that employs about 1,000 at its U.S. headquarters in St. Petersburg, also disclosed it has "material weaknesses in internal controls," including basic functions such as billing, inventory tracking and information technology. One indicator: The company set aside nearly $18-million in the fourth quarter to cover possible billing slip-ups.

Meanwhile, Danka said CFO Mark Wolfinger, 50, is retiring at month's end. Company officials said there is no connection between the control problems and Wolfinger's departure.

All told, Danka lost $2.43 per share in fiscal year 2005 as its revenues slipped 7 percent to $1.2-billion. The company's stock closed Friday at $1.39, down 8 cents per share.

"We are not confused, nor are we in denial about the fact that our (fourth-quarter) performance was unacceptable, and that fiscal 2005 at best was a difficult year," chief executive officer Todd Mavis told investors and Wall Street analysts during a conference call Friday morning. "With that said, we do believe - no, we know - that we're on the right path strategically. We see progress every day."

Mavis pointed out several positive developments at the company, including ongoing efforts to cut its head count while hiring more sales staff; its expanding relationship with top customers such as United Parcel Service and the federal government; and a decision to save money by outsourcing certain information-technology operations to MCI.

He also tried to make the best of the $9-million Danka paid external consultants, and the millions of dollars more it spent in staff time, to comply with Section 404 of the Sarbanes-Oxley antifraud law, a provision meant to identify weaknesses in internal controls.

Compliance costs will fall in future years because the first year is the hardest, Mavis said. The self-examination also "resulted in us improving many aspects of our operations and business controls."

Asked Friday whether Danka's internal-control problems might make it ripe for a shareholder lawsuit, general counsel and chief administrative officer Keith Nelsen replied with a resounding "No."

"We have been very upfront in our public disclosures about the company's financial-process and information-technology control issues for many years," he said.

Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

[Last modified June 11, 2005, 00:25:17]