The DATA Group Income Fund announces second quarter results for 2010
HIGHLIGHTS
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Q2 2010
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- Second quarter 2010 ("Q2") Revenues of $81.0 million; Q2 Gross Profit
of $19.5 million; Q2 Net Loss of $0.1 million, includes a one time
charge of $2.3 million for the issuance of convertible debentures
during Q2
- Q2 Cash Available for Distribution of $4.7 million or $0.201 per unit
and Cash Distributions of $6.8 million or $0.290 per unit (see Table
4 and "Non-GAAP Measures" below)
- Q2 Payout Ratio of 144.3% (See Table 4 below); Q2 Payout Ratio
(excluding one-time restructuring charges) of 139.7%
- Q2 Adjusted EBITDA of $7.4 million (See Table 3 and "Non-GAAP
Measures" below)
YTD 2010
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- Year to Date ("YTD") 2010 Revenues of $166.6 million, YTD Gross
Profit of $40.4 million, YTD Net Income of $3.3 million, includes a
one time charge of $2.3 million for the issuance of convertible
debentures during Q2
- YTD Cash Available for Distribution of $10.9 million or $0.464 per
unit and Cash Distributions of $13.6 million or $0.580 per unit (see
Table 4 and "Non-GAAP Measures" below)
- YTD Payout Ratio of 124.8% (See Table 4 below), YTD Payout Ratio
(excluding one-time restructuring charges) of 121.2%
- YTD Adjusted EBITDA of $15.7 million (See Table 3 and "Non-GAAP
Measures" below)
BRAMPTON, ON, Aug. 10 /CNW/ - The DATA Group Income Fund (TSX: DGI.UN) ("the Fund") today announced financial and operating results for the second quarter ended June 30, 2010, which include the results of operations for The Data Group Limited Partnership (the "Data Group").
"The second quarter of 2010 results suggest that the operating environment continues to be very inconsistent as the Data Group experienced volatile operating results during the quarter", said David Odell, President and Chief Executive Officer.
OUTLOOK
The second quarter of 2010 continued to be uncertain. While the Data Group continued to benefit from new business wins achieved in 2009, many of its traditional customers continued to experience lower activity levels. As a result, the Data Group experienced a 3.9% reduction in second quarter revenues compared to the same period in 2009. The Fund's Board of Trustees will continue to closely monitor the Fund's monthly distribution levels in light of the current economy, the Fund's on-going and anticipated cash available for distribution and cash resources. The Board of Trustees anticipates making an announcement in the fourth quarter of 2010 regarding the Fund's distribution policy for 2011. The current economic environment continues to be difficult to predict. Management will continue to manage the Data Group's business on a "more of the same basis" and believes the Data Group is well positioned to benefit from an economic recovery.
Table 1 The following table sets out selected historical financial
information for the periods noted.
Consolidated Financial Information
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For the periods ended
June 30, 2010 and 2009 Apr. 1 to Apr. 1 to Jan. 1 to Jan. 1 to
(in thousands of dollars, June 30, June 30, June 30, June 30,
except per unit amounts, 2010 2009 2010 2009
unaudited) $ $ $ $
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Revenues 80,995 84,269 166,559 174,686
Cost of revenues 61,516 62,938 126,170 130,213
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Gross profit 19,479 21,331 40,389 44,473
Selling, general and
administrative expenses 13,680 15,693 27,990 31,621
Lease exit charge - 866 - 866
Gain on cancellation of
convertible debentures - - - (2)
Amortization of intangible
assets 2,566 2,649 5,132 5,298
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Income before interest and
income taxes 3,233 2,123 7,267 6,690
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Interest expense and
financing costs 3,916 1,253 5,210 2,689
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(Loss) income before income
taxes (683) 870 2,057 4,001
Income tax expense
(recovery)
Current - - (324) -
Future (600) 121 (915) 455
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(600) 121 (1,239) 455
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Net (loss) income for the
period (83) 749 3,296 3,546
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Basic and diluted (loss)
income per unit (0.00) 0.03 0.14 0.15
Number of units
outstanding 23,490,592 23,490,592 23,490,592 23,490,592
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Consolidated Balance Sheet As at As at
Information June 30, June 30,
(in thousands of dollars, 2010 2009
unaudited) $ $
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Current assets 101,810 103,446
Current liabilities 41,151 39,436
Total assets 310,249 330,536
Total long-term liabilities 119,074 129,132
Unitholders' equity 150,024 161,968
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Table 2 The following table sets out selected historical financial
information by business segment for the periods noted.
Consolidated Financial Information
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For the periods ended
June 30, 2010 and 2009 Apr. 1 to Apr. 1 to Jan. 1 to Jan. 1 to
(in thousands of dollars, June 30, June 30, June 30, June 30,
except percentage 2010 2009 2010 2009
amounts, unaudited) $ $ $ $
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Revenues
DATA East and West 73,785 77,289 151,858 159,670
Sundog 4,333 4,699 9,171 10,030
Multiple Pakfold 3,740 3,211 7,484 6,921
Intersegment (863) (930) (1,954) (1,935)
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80,995 84,269 166,559 174,686
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Gross profit
DATA East and West 17,763 19,905 36,749 41,133
Sundog 1,057 1,187 2,325 2,665
Multiple Pakfold 659 239 1,315 675
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19,479 21,331 40,389 44,473
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Gross profit, as a
percentage of revenues
DATA East and West 24.1% 25.8% 24.2% 25.8%
Sundog 24.4% 25.3% 25.4% 26.6%
Multiple Pakfold 17.6% 7.4% 17.6% 9.8%
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24.0% 25.3% 24.2% 25.5%
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Selling, general and
administrative expenses 13,680 15,693 27,990 31,621
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As a percentage of
revenues 16.9% 18.6% 16.8% 18.1%
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Adjusted EBITDA (see
Table 3) 7,414 7,430 15,653 16,526
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Adjusted EBITDA margin,
as a percentage of
revenues 9.2% 8.8% 9.4% 9.5%
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Net (loss) income for
the period (83) 749 3,296 3,546
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Table 3 The following table provides a reconciliation of net (loss)
income to Adjusted EBITDA for the periods noted. See "Non-GAAP
Measures".
Adjusted EBITDA Reconciliation
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For the periods ended Apr. 1 to Apr. 1 to Jan. 1 to Jan. 1 to
June 30, 2010 and 2009 June 30, June 30, June 30, June 30,
(in thousands of dollars, 2010 2009 2010 2009
unaudited) $ $ $ $
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Net (loss) income for
the period (83) 749 3,296 3,546
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Net interest expense
on long-term debt 1,650 1,253 2,944 2,689
Financing costs 2,266 - 2,266 -
Depreciation of property,
plant and equipment 1,615 1,792 3,254 3,674
Amortization of intangible
assets 2,566 2,649 5,132 5,298
Lease exit charge - 866 - 866
Gain on cancellation of
convertible debentures - - - (2)
Current income tax recovery - - (324) -
Future income tax (recovery)
expense (600) 121 (915) 455
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Adjusted EBITDA 7,414 7,430 15,653 16,526
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RESULTS OF OPERATIONS
THE DATA GROUP INCOME FUND
Overview
The Data Group is a leading provider of total document management solutions, including printed products, and operates as three segments. DATA East and West (which provided approximately 90% of total revenues for the second quarter of 2010) sells a broad range of printed products and document management services directly to end users. Sundog (which provided approximately 5% of total revenues for the second quarter of 2010) sells commercial printing products, document management services and event tickets. Multiple Pakfold (which provided approximately 5% of total revenues for the second quarter of 2010) sells business forms and labels to independent brokers and resellers.
Revenues
During the six months of 2010, the Data Group continued to encounter weakness in the domestic economic environment, which negatively impacted the Fund's revenues over that period. The decline in revenues was partially offset by revenues from new business. For the quarter ended June 30, 2010, the Fund recorded revenues of $81.0 million, a decrease of $3.3 million or 3.9% compared with the same period in 2009. The decrease, before intersegment revenues, was primarily the result of a $3.5 million decrease in the DATA East and West segment, a $0.4 million decrease in the Sundog segment and offset by a $0.5 million increase in the Multiple Pakfold segment. For the six months ended June 30, 2010, the Fund recorded revenues of $166.6 million, a decrease of $8.1 million or 4.7% compared with the same period in 2009. The decrease, before intersegment revenues, was primarily the result of a $7.8 million decrease in the DATA East and West segment, a $0.8 million decrease in the Sundog segment and offset by a $0.6 million increase in the Multiple Pakfold segment. A more detailed discussion of the results of operations of each of the Fund's reporting segments is set out below.
Cost of Revenues and Gross Profit
For the quarter ended June 30, 2010, cost of revenues decreased to $61.5 million from $62.9 million for the same period in 2009. Gross profit for the quarter ended June 30, 2010 was $19.5 million, which represented a decrease of $1.8 million or 8.7% from $21.3 million for the same period in 2009. The decrease in gross profit for the quarter ended June 30, 2010 was attributable to a gross profit decrease of $2.1 million in the DATA East and West segment, a gross profit decrease of $0.1 million in the Sundog segment and was offset by a gross profit increase of $0.4 million in the Multiple Pakfold segment. Gross profit as a percentage of revenues decreased to 24.0% for the quarter ended June 30, 2010 compared to 25.3% for the same period in 2009. For the six months ended June 30, 2010, cost of revenues decreased to $126.2 million from $130.2 million for the same period in 2009. Gross profit for the six months ended June 30, 2010 was $40.4 million, which represented a decrease of $4.1 million or 9.2% from $44.5 million for the same period in 2009. The decrease in gross profit for the six months ended June 30, 2010 was attributable to a gross profit decrease of $4.4 million in the DATA East and West segment, a gross profit decrease of $0.3 million in the Sundog segment and was offset by a gross profit increase of $0.6 million in the Multiple Pakfold segment. Gross profit as a percentage of revenues decreased to 24.0% for the six months ended June 30, 2010 compared to 25.3% for the same period in 2009.
Selling, General and Administrative Expenses and Restructuring Expenses
Selling, general and administrative ("SG&A") expenses, including administrative expenses of the Fund, for the quarter ended June 30, 2010 decreased $2.0 million to $13.7 million compared to $15.7 million in the same period of 2009. The decrease in SG&A expenses was the result of the Data Group's on-going productivity improvements and cost reduction initiatives. As a percentage of revenues, these costs were 16.9% of revenues for the quarter ended June 30, 2010 compared to 18.6% of revenues for the same period in 2009. For the quarters ended June 30, 2010 and 2009, the Data Group incurred $0.2 million and $0.3 million of severance expenses, respectively. These costs were included in SG&A and were related to the Data Group's on-going productivity improvement initiatives. SG&A expenses for the six months ended June 30, 2010 decreased $3.6 million to $28.0 million compared to $31.6 million for the same period of 2009. The decrease in SG&A expenses was the result of the Data Group's on-going productivity improvements and cost reduction initiatives. As a percentage of revenues, these costs were 16.8% of revenues for the six months ended June 30, 2010 compared to 18.1% of revenues for the same period in 2009. For the six months ended June 30, 2010 and 2009, the Data Group incurred $0.3 million and $0.3 million of severance expenses, respectively. These costs were included in SG&A and were related to the Data Group's on-going productivity improvement initiatives.
Asset Sales
During the six months ended June 30, 2010, the Data Group completed the sale of its Orangeville, Ontario property for gross proceeds of $2.2 million. During the six months ended June 30, 2009, the Data Group sublet its Dorval, Québec facility for the remainder of the lease term expiring in 2021 and incurred a lease exit charge of $0.9 million, representing the liability (at present value) for remaining lease costs under the lease agreement net of sublease income. During the six months ended June 30, 2009, the Data Group completed the sale of its Hemmingford, Québec property for gross proceeds of $0.7 million and recorded a pre-tax gain on disposal of $0.1 million.
Adjusted EBITDA
For the quarter ended June 30, 2010, Adjusted EBITDA was $7.4 million, or 9.2% of revenues. Adjusted EBITDA for the quarter ended June 30, 2010 remained largely unchanged from the same period in the prior year and the Adjusted EBITDA margin for the quarter, as a percentage of revenues, increased from 8.8% of revenues in 2009 to 9.2% of revenues in 2010. For the six month ended June 30, 2010, Adjusted EBITDA was $15.7 million, or 9.4% of revenues. Adjusted EBITDA for the six months ended June 30, 2010 decreased $0.9 million or 5.3% from the same period in the prior year and the Adjusted EBITDA margin for the six month period, as a percentage of revenues, decreased from 9.5% of revenues in 2009 to 9.4% of revenues in 2010.
Interest expense and financing costs
Net interest expense on long-term debt outstanding under the Data Group's credit facilities, the Fund's outstanding $34.8 million aggregate principal amount of 6.75% convertible debentures and the Fund's outstanding $45.0 million aggregate principal amount of 6.00% convertible debentures was $1.7 million for the quarter ended June 30, 2010 compared to $1.3 million for the same period in 2009. Net interest expense on long-term debt was $2.9 million for the six months ended June 30, 2010 compared to $2.7 million for the same period in 2009. During the quarter ended June 30, 2010, the Fund incurred $2.3 million of financing costs related to the issuance of the 6.00% convertible debentures and repaid $45.0 million of long-term debt outstanding under the Data Group's credit facilities.
Income Taxes
The Fund reported loss before income taxes of $0.7 million and a future income tax recovery of $0.6 million for the quarter ended June 30, 2010. The future income tax recovery was due to a change in estimates of future reversals of temporary differences and new temporary differences that arose in the quarter. The Fund reported income before income taxes of $0.9 million and a future income tax expense of $0.2 million for the quarter ended June 30, 2009. The future income tax expense was due to a change in estimates of future reversals of temporary differences.
The Fund reported income before income taxes of $2.1 million, a current income tax recovery of $0.3 million and a future income tax recovery of $0.9 million for the six months ended June 30, 2010. The current income tax recovery represents the final adjustment related to the amount payable by the Data Group to settle reassessments by the Canada Revenue Agency and certain provincial tax authorities that, in each case, adjust the pricing of transactions between Relizon Canada and its former parent company prior to its acquisition by the Fund. The future income tax recovery was due to a change in estimates of future reversals of temporary differences and new temporary differences that arose during the period. The Fund reported income before income taxes of $4.0 million and a future income tax expense of $0.4 million for the six months ended June 30, 2009. The future income tax expense was due to a change in estimates of future reversals of temporary differences and changes to substantively enacted income tax rates.
Net (Loss) Income
Net loss for the quarter ended June 30, 2010 was $0.1 million compared to a net income of $0.7 million for the quarter ended June 30, 2009. The decrease in comparable profitability for the quarter ended June 30, 2010 was substantially due to the one time financing costs relating to the issuance of $45.0 million convertible debentures expensed in the quarter and lower gross profit in 2010 as a result of lower revenues due to generally uncertain economic conditions. The decrease in profitability was offset by the cost savings from on-going productivity improvement and cost reduction initiatives, reductions in SG&A and a future income tax recovery in the second quarter of 2010 compared to a future income tax expense and a lease exit charge during 2009 as discussed above.
Net income for the six months ended June 30, 2010 was $3.3 million compared to a net income of $3.5 million for the six months ended June 30, 2009. The decrease in comparable profitability for the six months ended June 30, 2010 was substantially due to $2.3 million in convertible debenture issuance costs, lower gross profit as a result of lower revenues due to generally uncertain economic conditions, offset by a future income tax recovery in 2010 compared to a future income tax expense in the same period in 2009, realized cost savings from on-going productivity improvement and cost reduction initiatives, reductions in SG&A and a lease exit charge during 2009 that did not reoccur in 2010 as discussed above.
DATA EAST AND WEST
Revenues at the Data Group's DATA East and West segment for the quarter ended June 30, 2010 decreased $3.5 million or 4.5% to $73.8 million from $77.3 million for the same period in the prior year. Revenues for the six months ended June 30, 2010 decreased $7.8 million or 4.9% to $151.9 million from $159.7 million for the same period in the prior year.
Revenues for the three and six months ended June 30, 2010 decreased due to lower spending from customers in the government and direct mail industries as a result of continuing generally uncertain economic conditions in Canada. During the three months ended June 30, 2010, the segment experienced strong sales in June after weaker sales in April and May. In addition, revenues from lotteries during the first quarter of 2010 were lower than the same period in 2009 and continued to be lower during the second quarter of 2010. During the first six months of 2010, the segment experienced revenue gains from new business, which partially offset declines in revenues from existing customers.
For the quarter ended June 30, 2010, gross profit decreased $2.1 million to $17.8 million from $19.9 million for the same period in 2009. Gross profit as a percentage of revenues for the quarter ended June 30, 2010 decreased to 24.1% from 25.8% for the same period in 2009. The decrease in gross profit as a percentage of revenues during the quarter ended June 30, 2010 was due to lower revenues as discussed above.
For the six months ending June 30, 2010, gross profit decreased $4.4 million to $36.7 million from $41.1 million in the same period of 2009. Gross profit as a percentage of revenues for the six months ended June 30, 2010 decreased to 24.2% from 25.8% for the same period in 2009. The decrease in gross profit as a percentage of revenues during the six months ended June 30, 2010, was due to lower revenues and was partially offset by realized savings from on-going productivity improvements and cost reduction initiatives.
SUNDOG
Revenues at the Data Group's Sundog segment for the quarter ended June 30, 2010 decreased $0.4 million or 7.8% to $4.3 million from $4.7 million for the same period in the prior year. Revenues for the six months ended June 30, 2010 decreased $0.8 million or 8.6% to $9.2 million from $10.0 million for the same period in the prior year.
The decrease in revenues for the three and six months ended June 30, 2010 was due to a highly competitive printing market in Alberta and due to uncertain economic conditions in that province, which continue to negatively affect demand for commercial printing in that market, primarily marketing materials. The first quarter of 2010 revenues were also impacted by lower annual report volumes.
For the quarter ended June 30, 2010, gross profit decreased $0.1 million to $1.1 million from $1.2 million for the same period in 2009. Gross profit as a percentage of revenues for the quarter ended June 30, 2010 decreased to 24.4% from 25.3% for the same period in 2009. The decrease in gross profit as a percentage of revenues for the three months ended June 30, 2010 was principally due to lower revenues as noted above.
For the six months ended June 30, 2010, gross profit decreased $0.3 million to $2.3 million from $2.7 million for the same period in 2009. Gross profit as a percentage of revenues for the six months ended June 30, 2010 decreased to 25.4% from 26.6% for the same period in 2009. The decrease in gross profit as a percentage of revenues for the six months ended June 30, 2010 was principally due to the revenue shortfall discussed above and was partially offset by realized savings from cost reduction initiatives.
MULTIPLE PAKFOLD
Revenues at the Data Group's Multiple Pakfold segment for the quarter ended June 30, 2010 increased $0.5 million or 16.5% to $3.7 million from $3.2 million for the same period in the prior year. Revenues for the six months ended June 30, 2010 increased $0.6 million or 8.1% to $7.5 million from $6.9 million for the same period in the prior year.
The increase in revenues for the three and six months ended June 30, 2010 was attributable to an increase in market share due the bankruptcy of a competitor. Economic conditions continue to adversely impact the segment, which affects quoting activity, order quantities and reorder cycles.
For the quarter ended June 30, 2010, gross profit increased $0.4 million to $0.6 million from $0.2 million for the same period in 2009. Gross profit as a percentage of revenues for the quarter ended June 30, 2010 increased to 17.6% from 7.4% for the same period in 2009. For the six months ended June 30, 2010, gross profit increased $0.6 million to $1.3 million from $0.7 million for the same period of 2009. Gross profit as percentage of revenues for the six months ended June 30, 2010 was 17.6% compared to 9.8% for the same period in 2009. The improvement in gross profit as a percentage of revenues for the three and six months ended June 30, 2010 was due to the increase in revenues and the cost reduction initiatives undertaken in prior periods by the segment to improve operating efficiencies.
Table 4 The following table provides a reconciliation of cash provided
by (used in) operating activities to cash available for
distribution for the periods noted. See "Non-GAAP Measures".
Cash Available for Distribution Reconciliation
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For the periods ended
June 30, 2010 and 2009
(in thousands of dollars, Apr. 1 to Apr. 1 to Jan. 1 to Jan. 1 to
except percentages and June 30, June 30, June 30, June 30,
per unit amounts, 2010 2009 2010 2009
unaudited) $ $ $ $
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Cash provided by (used in)
operating activities 5,639 3,952 18,485 13,874
Capital adjustments
Maintenance capital
expenditures(1) (485) (167) (735) (1,306)
Purchase of convertible
debentures - - - (6)
Other adjustments
including discretionary
items:
Changes in non-cash
working capital(2) (589) 1,937 (8,078) (755)
Pension plan wind-up
contributions(3) - - 1,260 -
Other(4) 150 117 (28) 224
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Cash available for
distribution 4,715 5,839 10,904 12,031
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Distributions to
unitholders(5) 6,805 6,805 13,610 13,610
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Shortfall of cash
available for
distribution over
actual
distributions (2,090) (966) (2,706) (1,579)
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Per unit(6)
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Cash available for
distribution per unit(6) 0.201 0.249 0.464 0.513
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Distributions to
unitholders per unit(6) 0.290 0.290 0.580 0.580
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Shortfall of cash available
for distribution per unit
over actual distributions
per unit (0.089) (0.041) (0.116) (0.067)
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Payout ratio(7) 144.3% 116.5% 124.8% 113.1%
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Notes:
(1) Maintenance capital expenditures are additions, replacements or
improvements to property, plant and equipment to maintain the Data
Group's business operations. These expenditures involve the
replacement of printing and digital equipment, computers and
software, and leasehold improvements.
(2) Cash provided by (used in) operating activities has been adjusted for
changes in non-cash working capital and other items so as to remove
the impact of timing differences in cash receipts and cash
disbursements, which generally reverse themselves but can vary
significantly across quarters.
(3) Excludes pension plan wind-up contributions to the Data Group's
Relizon Canada defined benefit pension plan. During the six months
ended June 30, 2010, the Data Group made its 2010 annual contribution
of $0.6 million and an additional wind-up contribution prepayment of
$0.6 million to that pension plan. It is currently expected that the
wind-up benefit obligations will be substantially settled within this
fiscal year. Subsequent to the quarter ended June 30, 2010, the final
outstanding wind-up deficiency of $0.8 million was funded by the Data
Group in advance of the benefit settlement, as required under
applicable pension regulations.
(4) Includes income tax related expenses and other amounts that do not
reflect the ongoing operations of the Data Group's business.
(5) Distributions are in respect of the distributions declared.
(6) Per unit calculations are based upon the number of units outstanding
at the end of each month consistent with the number of units upon
which distributions are declared or paid and not the weighted average
number of units outstanding. As at June 30, 2010 and 2009, 23,490,592
units were outstanding.
(7) The payout ratio represents the distributions paid or declared to
unitholders as a percentage of the cash available for distribution,
in each case for the relevant period.
CASH AVAILABLE FOR DISTRIBUTION
See Table 4 above for a reconciliation of cash provided by (used in) operating activities to cash available for distribution for the three and six month periods ended June 30, 2010 and 2009, respectively, and the amounts discussed below. For the quarter ended June 30, 2010, the Fund generated $4.7 million or $0.201 per unit of cash available for distribution compared to $5.8 million or $0.249 per unit for the same period in 2009. Cash available for distribution for the quarter ended June 30, 2010 was calculated by deducting from cash provided by (used in) operating activities of $5.6 million, maintenance capital expenditures of $0.5 million and changes in non-cash working capital of $0.6 million, respectively, and adding back other non-cash items of $0.2 million. Cash available for distribution for the quarter ended June 30, 2009 was calculated by deducting from cash provided by (used in) operating activities of $4.0 million, maintenance capital expenditures of $0.2 million and adding back changes in non-cash working capital of $1.9 million and other non-cash items of $0.1 million, respectively.
For the six months ended June 30, 2010, the Fund generated $10.9 million or $0.464 per unit of cash available for distribution compared to $12.0 million or $0.513 per unit for the same period in 2009. Cash available for distribution for the six months ended June 30, 2010 was calculated by deducting from cash provided by operating activities of $18.5 million, maintenance capital expenditures of $0.7 million, changes in non-cash working capital of $8.1 million and other non-cash items of $0.1 million, respectively, and adding back pension plan wind-up contributions of $1.3 million. Cash available for distribution for the six months ended June 30, 2009 was calculated by deducting from cash provided by operating activities of $13.9 million, maintenance capital expenditures of $1.2 million and changes in non-cash working capital of $0.8 million, respectively, and adding back other non-cash items of $0.2 million.
For the quarter ended June 30, 2010, the Fund declared distributions of $6.8 million or $0.290 per unit. Actual distributions exceeded cash available for distribution by $2.1 million or $0.089 per unit for the quarter ended June 30, 2010. During the quarter ended June 30, 2010, the Data Group made cash payments of $0.4 million for the accrued restructuring provisions related to severance costs incurred as part of the Data Group's on-going productivity improvement initiatives charged to restructuring expense. These cash payments were funded by cash generated from operations and existing cash resources. The restructuring costs paid during the quarter have been deducted in determining cash available for distribution as these payments are included in cash provided by (used in) operating activities.
For the quarter ended June 30, 2009, the Fund declared distributions of $6.8 million or $0.290 per unit. Actual distributions exceeded cash available for distribution by $1.0 million or $0.041 per unit for the quarter ended June 30, 2009. During the quarter ended June 30, 2009, the Data Group made cash payments of $1.0 million for the restructuring costs accrued as part of the purchase price accounting for the Relizon Canada acquisition and for the related integration costs, consisting primarily of severance payments and moving costs and accrued restructuring provisions related to severance costs incurred as part of the Data Group's on-going productivity improvements initiatives charged to restructuring expense. These cash payments were funded entirely by cash generated from operations and the net proceeds from asset dispositions. The restructuring and integration costs paid during the quarter have been deducted in determining cash available for distribution as these payments are included in cash provided by (used in) operating activities.
For the six months ended June 30, 2010, the Fund declared distributions of $13.6 million or $0.580 per unit. Actual distributions exceeded cash available for distribution by $2.7 million or $0.464 per unit for the six months ended June 30, 2010. During the six months ended June 30, 2010, the Data Group made cash payments of $1.2 million for the restructuring costs accrued as part of the purchase price accounting for the Relizon Canada acquisition and for the related integration costs, consisting primarily of severance payments and moving costs and accrued restructuring provisions related to severance costs incurred as part of the Data Group's on-going productivity improvements initiatives charged to restructuring expense. These cash payments were funded by cash generated from operations, the net proceeds from the sale of the Data Group's former facility in Orangeville Ontario and existing cash resources. The restructuring and integration costs paid during the quarter have been deducted in determining cash available for distribution as these payments are included in cash provided by (used in) operating activities.
For the six months ended June 30, 2009, the Fund declared distributions of $13.6 million or $0.580 per unit. Actual distributions exceeded cash available for distribution by $1.6 million or $0.067 per unit for the six months ended June 30, 2009. During the six months ended June 30, 2009, the Data Group made cash payments of $1.9 million for the restructuring costs accrued as part of the purchase price accounting for the Relizon Canada acquisition and for the related integration costs, consisting primarily of severance payments and moving costs and accrued restructuring provisions related to severance costs incurred as part of the Data Group's on-going productivity improvement initiatives charged to restructuring expense in 2008. These cash payments were funded by cash generated from operations, the net proceeds from asset dispositions and existing cash resources. The restructuring and integration costs paid during the quarter have been deducted in determining cash available for distribution as these payments are included in cash provided by (used in) operating activities.
INVESTING ACTIVITIES
Capital expenditures for the quarter ended June 30, 2010 of $0.5 million related primarily to maintenance capital expenditures and were financed by cash flow from operations and existing cash resources. Capital expenditures for the six months ended June 30, 2010 of $0.7 million related primarily to maintenance capital expenditures and were financed by cash flow from operations and net proceeds from asset dispositions. During the six months ended June 30, 2010, the Data Group sold its former Orangeville, Ontario facility for gross proceeds of $2.2 million.
FINANCING ACTIVITIES
During the quarter ended June 30, 2010, the Fund issued $45.0 million aggregate principal amount of 6.00% convertible unsecured subordinated debentures (the "6.00% Convertible Debentures"). The terms of the 6.00% Convertible Debentures are described in greater detail in the Fund's short form prospectus dated April 16, 2010 which is available on System for Electronic Document Analysis and Retrieval at www.sedar.com. During the three months ended June 30, 2010, the net proceeds from the sale of the 6.00% Convertible Debentures of approximately $42.7 million and a portion of cash on hand totalling $45.0 million were used to repay a portion of the Data Group's outstanding borrowings under its credit facility. For the quarter ended June 30, 2010, the Fund paid or declared aggregate cash distributions of $6.8 million to its unitholders. For the six months ended June 30, 2010, the Fund paid or declared aggregate cash distributions of $13.6 million to its unitholders.
About The DATA Group Income Fund
--------------------------------
The Fund owns directly and indirectly all of the outstanding partnership units of The Data Group Limited Partnership (the "Data Group") and all of the outstanding shares of the Data Group's general partner, Data Business Forms Limited. The DATA Group is a leading provider of document management solutions including printed products. Founded in 1959, the Data Group operates numerous facilities in 11 regions across Canada and has a leading market share in the total document management services segment.
Additional information relating to The DATA Group Income Fund is available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and www.datagroupincomefund.com.
All financial information in this press release is presented in Canadian dollars and in accordance with Canadian generally accepted accounting principles ("GAAP"), unless specified otherwise.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of the Fund and/or the Data Group, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward-looking statements. When used in this press release, words such as "may", "would", "could", "will", "expect", "anticipate", "estimate", "believe", "intend", "plan", and other similar expressions are intended to identify forward-looking statements. These statements reflect the Fund's current views regarding future events and operating performance, are based on information currently available to the Fund, and speak only as of the date of this press release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Many factors could cause the actual results, performance or achievements of the Fund and the Data Group to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. The principal assumptions and risks that the Fund made or took into account in the preparation of these forward-looking statements include the impact of the weakened domestic and global economic conditions on the Data Group's businesses; the risk that the Data Group's efforts to reduce its operating costs may not become effective as quickly as the Data Group expects, thereby impacting the Data Group's profitability and cash available for distribution should the Data Group's revenues decline further than expected; the risk that, should the Data Group's revenues decline further than expected, the cost reduction measures taken by the Data Group in response to the current economic environment may not be sufficient and further reductions may be necessary; the Data Group's ability to grow its sales or even maintain historical levels of its sales of product and services including printed business documents; increases in the costs of paper and other raw materials used by the Data Group; the Data Group's ability to maintain relationships with its customers; competition from competitors supplying similar products and services; and the application of recent changes to the income tax treatment of certain income trusts, such as the Fund, which will subject the Fund to tax commencing in 2011, and the effect of those changes on the trading price of the Fund's units. Additional factors are discussed elsewhere in this press release and under the heading "Risks and Uncertainties" in the Fund's management's discussion and analysis and in the Fund's other publicly available disclosure documents, as filed by the Fund on SEDAR (www.sedar.com). Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, the Fund does not intend and does not assume any obligation to update these forward-looking statements.
NON-GAAP MEASURES
This press release includes certain non-GAAP measures as supplementary information. When used in this press release, EBITDA means earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA for the three and six months ended June 30, 2010 means EBITDA adjusted for financing costs. Adjusted EBITDA for the three months ended June 30, 2009 means EBITDA adjusted for lease exit charges. Adjusted EBITDA for the six months ended June 30, 2009 means EBITDA adjusted for gains on cancellation of convertible debentures and lease exit charges. The Fund believes that, in addition to net income (loss), EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the performance of the Data Group and/or the Fund. Cash available for distribution for the three months ended June 30, 2010 and 2009 means cash provided by (used in) operating activities increased by, or reduced for, maintenance capital expenditures, changes in non-cash working capital, and other non-cash items. Cash available for distribution for the six months ended June 30, 2010 means cash provided by (used in) operating activities increased by, or reduced for, maintenance capital expenditures, pension plan wind-up contributions, changes in non-cash working capital, and other non-cash items. Cash available for distribution for the six months ended June 30, 2009 means cash provided by (used in) operating activities increased by, or reduced for, maintenance capital expenditures, purchases of convertible debentures, changes in non-cash working capital, and other non-cash items. Specifically, the Fund views cash available for distribution as a measure generally used by Canadian income funds, investors and management as an indicator of financial performance. EBITDA, Adjusted EBITDA and cash available for distribution are not earnings or cash flow measures recognized by Canadian generally accepted accounting principles ("GAAP") and do not have any standardized meanings prescribed by GAAP. Therefore, EBITDA, Adjusted EBITDA and cash available for distribution are unlikely to be comparable to similar measures presented by other issuers.
Investors are cautioned that EBITDA and Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with GAAP as an indicator of the Data Group's or the Fund's performance, nor is cash available for distribution an alternative to cash flows from operating, investing and financing activities determined in accordance with GAAP as measures of liquidity and cash flows. For a reconciliation of net (loss) income to Adjusted EBITDA, see Table 3 above. For a reconciliation of cash provided by (used in) operating activities to cash available for distribution, see Table 4 above.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) June 30, December 31,
2010 2009
$ $
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 15,684 11,736
Accounts receivable 38,064 44,930
Inventories 43,216 47,449
Prepaid expenses and other current assets 4,846 4,192
Assets held for sale - 2,085
-----------------------
101,810 110,392
Property, plant and equipment 28,060 30,672
Goodwill 141,206 141,206
Intangible assets 39,173 44,305
-----------------------
310,249 326,575
-----------------------
-----------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 28,238 29,663
Accrued restructuring provisions 731 1,556
Income taxes payable 109 1,059
Deferred revenue 9,804 8,971
Distributions payable 2,269 2,269
-----------------------
41,151 43,518
Revolving bank facility 25,000 70,000
Convertible debentures 77,484 34,488
Future income taxes 5,103 6,018
Deferred gain 1,432 1,530
Unfavourable lease obligation 963 1,025
Deferred lease inducement 796 858
Lease exit accrual 719 793
Pension obligations 5,418 8,003
Post-employment and post-retirement benefits 2,159 2,143
-----------------------
160,225 168,376
-----------------------
Unitholders' Equity
Units 215,336 215,336
Conversion options 3,036 897
Deficit (68,348) (58,034)
-----------------------
150,024 158,199
-----------------------
310,249 326,575
-----------------------
-----------------------
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
-------------------------------------------------------------------------
(in thousands of dollars, except per For the For the
unit amounts, unaudited) three three
months months
ended ended
June 30, June 30,
2010 2009
$ $
-------------------------------------------------------------------------
Revenues 80,995 84,269
Cost of revenues (including depreciation of $1,541
and $1,726, respectively) 61,516 62,938
-----------------------
Gross profit 19,479 21,331
-----------------------
Expenses
Selling, commissions and expenses 7,979 8,408
General and administration expenses (including
depreciation of $74 and $66, respectively) 5,701 7,285
Lease exit charge - 866
Amortization of intangible assets 2,566 2,649
-----------------------
16,246 19,208
-----------------------
Income before interest and income taxes 3,233 2,123
Interest expense and financing costs (net of
interest income of $26 and $207, respectively) 3,916 1,253
-----------------------
(Loss) income before income taxes (683) 870
-----------------------
Future income tax (recovery) expense (600) 121
-----------------------
Net (loss) income for the period (83) 749
-----------------------
-----------------------
Gain on cash flow hedges - 434
-----------------------
Comprehensive income for the period (83) 1,183
-----------------------
-----------------------
Basic (loss) income per unit (0.00) 0.03
-----------------------
Diluted (loss) income per unit (0.00) 0.03
-----------------------
Units outstanding 23,490,592 23,490,592
-----------------------
-----------------------
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
-------------------------------------------------------------------------
(in thousands of dollars, except per For the For the
unit amounts, unaudited) three three
months months
ended ended
June 30, June 30,
2010 2009
$ $
-------------------------------------------------------------------------
Revenues 166,559 174,686
Cost of revenues (including depreciation of
$3,103 and $3,532, respectively) 126,170 130,213
-----------------------
Gross profit 40,389 44,473
-----------------------
Expenses
Selling, commissions and expenses 16,291 17,209
General and administration expenses (including
depreciation of $151 and $142, respectively) 11,699 14,412
Lease exit charge - 866
Gain on cancellation of convertible debentures - (2)
Amortization of intangible assets 5,132 5,298
-----------------------
33,122 37,783
-----------------------
Income before interest and income taxes 7,267 6,690
-----------------------
Interest expense and financing costs (net of
interest income of $26 and $247, respectively) 5,210 2,689
-----------------------
Income before income taxes 2,057 4,001
-----------------------
Income tax expense (recovery)
Current (324) -
Future (915) 455
-----------------------
(1,239) 455
-----------------------
Net income for the period 3,296 3,546
-----------------------
-----------------------
Gain on cash flow hedges - 715
-----------------------
Comprehensive income for the period 3,296 4,261
-----------------------
-----------------------
Basic income per unit 0.14 0.15
-----------------------
Diluted income per unit 0.14 0.15
-----------------------
Units outstanding 23,490,592 23,490,592
-----------------------
-----------------------
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
-------------------------------------------------------------------------
(in thousands Accumu-
of dollars, lated
unaudited) other
compre- Total
hensive Unit-
Conversion income holders'
Units options (loss) Deficit Equity
$ $ $ $ $
-------------------------------------------------------------------------
Balance as at
December 31, 2008 215,336 898 (1,059) (43,857) 171,318
Distributions
declared - - - (13,610) (13,610)
Cancellation of
convertible
debentures - (1) - - (1)
Gain on cash
flow hedges - - 715 - 715
Net income for
the period - - - 3,546 3,546
-----------------------------------------------------
Balance as at
June 30, 2009 215,336 897 (344) (53,921) 161,968
-----------------------------------------------------
-----------------------------------------------------
Balance as at
December 31, 2009 215,336 897 - (58,034) 158,199
Distributions
declared - - - (13,610) (13,610)
Issuance of
convertible
debentures - 2,139 - - 2,139
Net income for
the period - - - 3,296 3,296
-----------------------------------------------------
Balance as at
June 30, 2010 215,336 3,036 - (68,348) 150,024
-----------------------------------------------------
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) For the For the
three three
months months
ended ended
June 30, June 30,
2010 2009
$ $
-------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
-------------------------------------------------------------------------
Net (loss) income for the period (83) 749
Adjustments to net (loss) income
Depreciation of property, plant and equipment 1,615 1,792
Amortization of intangible assets 2,566 2,649
Pension expense 367 230
Contributions made to pension plans (1,017) (484)
(Gain) loss on disposal of property, plant
and equipment (16) 18
Lease exit charge - 866
Financing costs 2,266 -
Accretion of convertible debentures 94 42
Amortization of deferred gain (49) (49)
Unfavourable lease obligation (31) (29)
Amortization of lease inducement (31) (31)
Accretion of lease exit accrual (39) (8)
Post-employment and post-retirement benefits 8 23
Future income tax (recovery) expense (600) 121
-----------------------
5,050 5,889
Changes in non-cash items relating to
operating activities 589 (1,937)
-----------------------
5,639 3,952
-----------------------
Investing activities
-------------------------------------------------------------------------
Purchase of property, plant and equipment (485) (167)
Proceeds on disposal of property, plant and equipment - 588
-----------------------
(485) 421
-----------------------
Financing activities
-------------------------------------------------------------------------
Issuance of convertible debentures, net 42,734 -
Repayment of revolving bank facility (45,000) -
Distributions to unitholders (6,805) (6,805)
-----------------------
(9,071) (6,805)
-----------------------
Decrease in cash and cash equivalents
during the period (3,917) (2,432)
-------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 19,601 14,112
-------------------------------------------------------------------------
Cash and cash equivalents - end of period 15,684 11,680
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 1,431 1,865
Income taxes paid - 3,470
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) For the For the
six six
months months
ended ended
June 30, June 30,
2010 2009
$ $
-------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
-------------------------------------------------------------------------
Net income for the period 3,296 3,546
Adjustments to net income
Depreciation of property, plant and equipment 3,254 3,674
Amortization of intangible assets 5,132 5,298
Pension expense 734 460
Contributions made to pension plans (3,319) (986)
Loss (gain) on disposal of property, plant
and equipment 104 (87)
Gain on cancellation of convertible debentures - (2)
Lease exit charge - 866
Financing costs 2,266 -
Accretion of convertible debentures 135 83
Amortization of deferred gain (98) (97)
Unfavourable lease obligation (62) (58)
Amortization of lease inducement (62) (61)
Accretion of lease exit accrual (74) (8)
Post-employment and post-retirement benefits 16 36
Future income tax (recovery) expense (915) 455
-----------------------
10,407 13,119
Changes in non-cash items relating to
operating activities 8,078 755
-----------------------
18,485 13,874
-----------------------
Investing activities
-------------------------------------------------------------------------
Purchase of property, plant and equipment (735) (1,306)
Proceeds on disposal of property, plant and
equipment 2,074 1,236
-----------------------
1,339 (70)
-----------------------
Financing activities
-------------------------------------------------------------------------
Issuance (repurchase) of convertible debentures,
net 42,734 (6)
Repayment of revolving bank facility (45,000) -
Distributions to unitholders (13,610) (13,610)
-----------------------
(15,876) (13,616)
-----------------------
Increase in cash and cash equivalents during
the period 3,948 188
-------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 11,736 11,492
-------------------------------------------------------------------------
Cash and cash equivalents - end of period 15,684 11,680
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 2,009 2,541
Income taxes paid 596 3,470
For further information: Mr. David Odell, President and CEO, The Data Group Limited Partnership, Tel: (905) 791-3151; Mr. Paul O'Shea, Chief Financial Officer, The Data Group Limited Partnership, Tel: (905) 791-3151
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