Financial problems grow after aggressive expansion
By Brent Snavely
March 27, 2000
The financial picture worsened at Lason Inc. last week after the company announced a $50 million net loss for its fourth quarter.
The $2.78-per-share loss stemmed from the company’s decision to discontinue unprofitable portions of its business, and a variety of one-time charges related to acquisitions.
The Troy-based data management company announced revised earnings projections on Dec. 17, but Thursday’s results for the fourth quarter came in at a loss of 92 cents a share before discontinued operations; Wall Street expected a gain of 38 cents.
After discontinued operations, Lason’s loss for all of 1999 came to $36.3 million, or $2.19 per share, compared with earnings of $18.2 million, or $135 in 1998.
Lason stock (Nasdaq: LSON) closed on Friday at $7.13, up 10 cents from Thursday. Trading of Lason’s stock was halted for nearly an hour Thursday morning, and traded as low as $4 a share. Trading resumed at 11:10 a.m.
In December Lason’s stock dropped from $20 a share to about $10 a share, after the company restated earnings projections. Shareholders filed a flurry of class-action lawsuits in the following weeks, alleging the company made false and misleading financial disclosures.
Last week’s report is being viewed by plaintiffs’ law firms as additional evidence in the suits pending in federal courts, including U.S. District Court in Detroit.
E. Powell Miller, partner of Mantese Miller and Mantese, P.L.L.C., said more than 12 plaintiff firms have reached an agreement to consolidate the cases and appoint four law firms to take the lead. They include Miller’s firm, the Royal Oak firm Wasinger Kickam and Kohls, the New York firm of Milberg Weiss Bershad Hynes & Lerach, and the Los Angeles offices of Lional Z. Glancy.
“We believe that we have a very strong case. As time goes on it appears to be getting stronger and stronger,” Miller said.
The four lead firms plan to file an amended complaint within the next 90 days, Miller said.
Lason CFO and executive vice president William Rauwerdink did not return phone calls Thursday or Friday, and no analyst conference was held last week.
“It was hot held on the advice of counsel because of the pending suits,” said Gil Fuqua, an investor relations representative for Lason from the Nashville, Tenn., firm of Corporate Communications Inc.
Fuqua said the data management company is repositioning operations to focus on digital data management and e-commerce document management, and is discontinuing operations that rely on outdated data storage technologies.
Discontinued operations caused fourth quarter revenue to be $12 million less than the company expected when it issued its restated earnings projections in December, Fuqua said.
But continuing operations suffered as well to the tune of $39.3 millions in losses before taxes. With a $13.4 million tax benefit, the net loss on continuing operations was $26 million in the fourth quarter.
Lason has been on a rapid growth curve for the last two years. In 1999, Lason made four acquisitions. The deals were valued at a combined $194.4 million, according to the company’s annual 10-K disclosure to the U.S. Securities and Exchange Commission. Lason’s largest acquisition was London-based M-R Group, which was valued at $145 million and completed last June.
The company’s earnings report said the accounting of the M-R transaction was changed in December. As a result, Lason added $128 million in goodwill assets from M-R to its balance sheet. Goodwill is the amount paid for an asset over its book value.
The company disclosed Thursday that it has decided to scrub plans to spin off e-commerce offerings.
The company’s statement suggests it is piling as many expected losses into 1999 as possible, in an attempt to post better results in 2000.
The fourth-quarter includes $21.1 million in non-cash expenses from the expected sale or elimination of discontinued operations, $14.9 million in restructuring charges resulting from the company’s actions focused on future cost savings, and $29.4 million of non-recurring cash expenses caused by the elimination of existing operations.
Fuqua emphasized that Lason’s fourth quarter revenue increased to $130 million compared to $87 million in 1998, and revenue for the year increased to $480 million compared to $258 million in 1998. And, the company is projecting revenue of more than $600 million for 2000.
But when asked whether the company would be forced to take any additional charges or write-offs related to the company’s strategy to reposition itself, Fuqua said: “I don’t have an answer for that.”
Brent Snavely: (313) 446-0405, firstname.lastname@example.org.
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