Electronics Production | February 09, 2005
DDi to discontinue European business
DDi Corp. has been unable to obtain a satisfactory agreement on restructuring the terms of, and obtaining a further extension of credit under, the DDi Europe credit facilities. As a result, in light of current and forecasted liquidity constraints on it, DDi Europe will undergo a restructuring that will have the effect of DDi Corp. no longer having its UK-based businesses.
Bruce D. McMaster, Chief Executive Officer of DDi Corp. stated, "We believe that the discontinuation of our UK-based business is a positive development for our shareholders. It provides a resolution to the liquidity challenges that have beset that business, enables us to cease reporting that business as an ongoing operation, and permits us to concentrate our efforts on the North American market. While our focus going forward will be in North America, we believe the knowledge gained from operating in the UK over the past eight years gives us the ability to effectively pursue sales in Europe and also build upon the domestic effort to grow the value added reseller services business that we have recently begun in the U.S." McMaster continued, "The senior debt of DDi Europe has been in place since before DDi Corp. purchased that business in the year 2000, at which time DDi Europe's business outlook was significantly more robust. Commencing with the downturn of our markets in Europe, we have tried repeatedly to negotiate a restructuring of the DDi Europe credit facilities that would provide adequate flexibility to allow the business to operate profitably. However, restructuring discussions have consistently involved requests for additional cash contributions. In light of the current level of debt-to-earnings, forecasted business performance of DDi Europe, constraints in our financial instruments regarding investments in DDi Europe, and our assessment of the DDi Europe business valuation, we could not justify further investment." Based upon DDi Corp.'s current understanding of the restructuring plan, DDi Europe will be placed into administration. The Company believes that these proceedings will enable it to remove approximately $38 million of the UK-based indebtedness from its consolidated financial statements in the near future. In addition, because the DDi Europe credit facilities look solely to UK assets as security, and those assets, according to recent valuations, are likely worth no more than the amount of outstanding indebtedness, the Company expects that administration will leave DDi Corp. with no residual value in the UK-based businesses. Further, the Company believes that these actions will negatively impact its Series A Preferred shares which look solely to DDi Europe for value. In recent quarters, DDi Europe has contributed approximately one-third of DDi Corp.'s consolidated net sales. The discontinuance of the DDi Europe business is expected to be accretive to DDi Corp.'s consolidated earnings and is not expected to have a bearing on its North American operations. In addition, DDi Corp. does not anticipate any net write-off or material cash restructuring charges in connection with this discontinuation of its European business.
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