The DATA Group Income Fund announces third quarter results for 2008
HIGHLIGHTS
----------
- Q3 Revenues of $ 89.2 million, Q3 Gross Profit of $23.0 million and
Q3 Net Income of $1.1 million
- Q3 Cash Available for Distribution of $6.1 million or $0.260 per
unit, an increase of 12.5% over Q3 2007 and Cash Distributions of
$6.8 million or $0.290 per unit (see Table 4 and "Non-GAAP Measures"
below)
- Q3 Payout Ratio of 111.2% (See Table 4 below)
- Q3 Adjusted EBITDA of $8.2 million (see Table 3 and "Non-GAAP
Measures" below)
- YTD Revenues of $284.0 million, YTD Gross Profit of $77.3 million
and YTD Net Income of $10.7 million
- YTD Cash Available for Distribution of $24.5 million or $1.045 per
unit, an increase of 43.1% over YTD 2007 and Cash Distributions of
$20.4 million or $0.870 per unit (see Table 4 and "Non-GAAP
Measures" below)
- YTD Payout Ratio of 83.2% (See Table 4 below)
- YTD Adjusted EBITDA of $31.1 million (see Table 3 and "Non-GAAP
Measures" below)
BRAMPTON, ON, Nov. 6 /CNW/ - The DATA Group Income Fund (TSX: DGI.UN)
("the Fund") today announced financial and operating results for the third
quarter ended September 30, 2008.
"Cash available for distribution during the nine month period of 2008
improved 43.1% to $24.5 million or $1.045 per unit with a payout ratio of
83.2%. Cash available for distribution during the nine month period of 2007
was $17.2 million or $0.730 per unit with a payout ratio of 118.9%. During the
quarter we extended our amended credit facility for an additional year. The
terms and conditions remain the same and our amended credit facility now
expires on August 31, 2010", said David Odell, President and Chief Executive
Officer.
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 total document management
solutions, including printed products, and operates as three segments. DATA
East and West (which provided approximately 90% of total revenue for the third
quarter of 2008) sells a broad range of printed products and document
management services directly to end users. Sundog (which provided
approximately 6% of total revenue for the third quarter of 2008) is a
commercial printer specializing in the production of high-quality annual
reports, marketing materials and event tickets. Multiple Pakfold (which
provided approximately 4% of total revenue for the third quarter of 2008)
sells forms and labels to independent brokers and resellers.
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 Data Group's
ability to grow its sales or even maintain historical levels of its sales of
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; the impact of an uncertain domestic economy
the Data Group's businesses; the accuracy of estimated synergies in respect of
expected cash flows, cost savings and profitability from the combination of
the Data Business Forms Limited and Relizon Canada Inc. ("Relizon Canada")
businesses; the risk that any savings, growth prospects or other synergies
from the combination of those businesses will not be fully realized or will
take longer to realize than expected; competition from competitors supplying
similar products and services; 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 (assuming the Fund complies with the
"normal growth guidelines" contained in such changes), and the effect of those
proposed 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 ("MD&A") 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 nine months ended September 30, 2008 means EBITDA adjusted for write downs
of assets held for sale and Adjusted EBITDA for the three and nine months
ended September 30, 2007 means EBITDA with no adjustments. The Fund believes
that, in addition to net income, EBITDA and Adjusted EBITDA are useful
supplemental measures in evaluating the performance of the Data Group and/or
the Fund. Cash available for distribution 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.
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 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 indicators 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 income to
Adjusted EBITDA, see Table 3 below. For a reconciliation of cash provided by
operating activities to cash available for distribution, see Table 4 below.
Table 1 The following table sets out selected historical financial
information for the periods noted.
Consolidated Financial Information
-------------------------------------------------------------------------
For the periods ended Jul. 1 Jul. 1 Jan. 1 Jan. 1
September 30, 2008 and 2007 to to to to
(in thousands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except per unit amounts, 2008 2007 2008 2007
unaudited) $ $ $ $
-------------------------------------------------------------------------
Revenues 89,205 90,221 283,964 291,418
Cost of revenues 66,220 66,672 206,644 214,885
-------------------------------------------------------------------------
Gross profit 22,985 23,549 77,320 76,533
Selling, general and
administrative expenses 16,749 16,930 52,333 53,505
Integration costs - 578 - 3,997
Write down of assets
held for sale 927 - 927 -
Amortization of
intangible assets 2,744 2,411 8,232 7,233
-------------------------------------------------------------------------
Income before interest
and income taxes 2,565 3,630 15,828 11,798
-------------------------------------------------------------------------
Interest expense on
long-term debt 1,500 1,626 4,569 4,733
-------------------------------------------------------------------------
Income before income taxes 1,065 2,004 11,259 7,065
Future income tax
(recovery) expense (82) 566 518 10,312
-------------------------------------------------------------------------
Net income (loss)
for the period 1,147 1,438 10,741 (3,247)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted
income (loss) per unit 0.05 0.06 0.46 (0.14)
Weighted average number
of units outstanding 23,490,592 23,486,891 23,490,592 23,497,417
Consolidated Balance
Sheet Information
Current assets 111,451 101,146 111,451 101,146
Current liabilities 44,675 54,019 44,675 54,019
Total assets 360,674 371,229 360,674 371,229
Total long-term
liabilities 127,257 128,019 127,257 128,019
Unitholders' equity 188,742 189,191 188,742 189,191
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Table 2 The following table sets out selected historical financial
information by business segment for the periods noted.
Consolidated Financial Information
-------------------------------------------------------------------------
For the periods ended Jul. 1 Jul. 1 Jan. 1 Jan. 1
September 30, 2008 and 2007 to to to to
(in thousands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except percentage amounts, 2008 2007 2008 2007
unaudited) $ $ $ $
Revenues
-------------------------------------------------------------------------
DATA East and West 81,973 81,698 258,712 262,576
Sundog 5,063 5,939 17,191 19,584
Multiple Pakfold 3,931 4,279 11,938 13,866
Intersegment (1,762) (1,695) (3,877) (4,608)
-------------------------------------------------------------------------
89,205 90,221 283,964 291,418
-------------------------------------------------------------------------
Gross profit
-------------------------------------------------------------------------
DATA East and West 21,373 21,462 71,360 68,477
Sundog 1,167 1,765 4,752 6,529
Multiple Pakfold 445 322 1,208 1,527
-------------------------------------------------------------------------
22,985 23,549 77,320 76,533
-------------------------------------------------------------------------
Gross profit, as a
percentage of revenues
-------------------------------------------------------------------------
DATA East and West 26.1% 26.3% 27.6% 26.1%
Sundog 23.0% 29.7% 27.6% 33.3%
Multiple Pakfold 11.3% 7.5% 10.1% 11.0%
-------------------------------------------------------------------------
25.8% 26.1% 27.2% 26.3%
-------------------------------------------------------------------------
Selling, general and
administrative expenses 16,749 16,930 52,333 53,505
-------------------------------------------------------------------------
As a percentage of revenues 18.8% 18.8% 18.4% 18.4%
-------------------------------------------------------------------------
Adjusted EBITDA (Table 3) 8,219 8,106 31,091 25,474
-------------------------------------------------------------------------
Adjusted EBITDA margin, as
a percentage of revenues 9.2% 9.0% 10.9% 8.7%
-------------------------------------------------------------------------
Net income (loss) 1,147 1,438 10,741 (3,247)
-------------------------------------------------------------------------
Table 3 The following table provides a reconciliation of Adjusted EBITDA
to net income (loss) for the periods noted. See "Non-GAAP
Measures".
Adjusted EBITDA Reconciliation
-------------------------------------------------------------------------
For the periods ended Jul. 1 Jul. 1 Jan. 1 Jan. 1
September 30, 2008 and 2007 to to to to
(in thousands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
unaudited) 2008 2007 2008 2007
$ $ $ $
-------------------------------------------------------------------------
Net income (loss) for
the period 1,147 1,438 10,741 (3,247)
-------------------------------------------------------------------------
Net interest expense on
long-term debt 1,500 1,626 4,569 4,733
Depreciation of property,
plant and equipment 1,983 2,065 6,104 6,443
Write down of assets held
for sale 927 - 927 -
Amortization of
intangible assets 2,744 2,411 8,232 7,233
Future income tax
(recovery) expense (82) 566 518 10,312
-------------------------------------------------------------------------
Adjusted EBITDA 8,219 8,106 31,091 25,474
-------------------------------------------------------------------------
RESULTS OF OPERATIONS
THE DATA GROUP INCOME FUND
Revenues
For the quarter ended September 30, 2008, the Fund recorded revenues of
$89.2 million, a decrease of $1.0 million or 1.1% compared with the same
period in 2007. The net decrease, before intersegment revenues, was the result
of a $0.3 million increase in the Data East and West segment offset by a $0.9
million decrease in the Sundog segment and $0.3 million decrease in the
Multiple Pakfold segment. For the nine months ended September 30, 2008, the
Fund recorded revenues of $284.0 million, a decrease of $7.5 million or 2.6%
compared with the same period in 2007. The net decrease, before intersegment
revenues, was the result of a $3.9 million decrease in the DATA East and West
segment, a $2.4 million decrease in the Sundog segment and a $1.9 million
decrease 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 September 30, 2008, cost of revenues decreased to
$66.2 million from $66.7 million for the same period in 2007. Gross profit for
the quarter ended September 30, 2008 was $23.0 million, which represented a
decrease of $0.6 million or 2.4% from $23.5 million for the same period in
2007. The decrease in gross profit was attributable to a $0.6 million decrease
in the Sundog segment. Gross profit as a percentage of revenues decreased to
25.8% for the quarter ended September 30, 2008 compared to 26.1% for the same
period in 2007. The net decrease in gross profit for 2008 resulted from a
gross profit decrease in the Sundog segment offset by an improvement in gross
profit in the Multiple Pakfold segment. For the nine months ended September
30, 2008, cost of revenues decreased to $206.6 million from $214.9 million for
the same period in 2007. Gross profit for the nine months ended September 30,
2008 was $77.3 million, which represented an increase of $0.8 million or 1.0%
from $76.5 million in the same period of 2007. Gross profit as a percentage of
revenue increased to 27.2% for the nine months ended September 30, 2008 from
26.3% for the same period in 2007.
Selling, General and Administrative Expenses and Integration Costs
Selling, general and administrative ("SG&A") expenses, including
administrative expenses of the Fund, for the quarter ended September 30, 2008
decreased $0.2 million to $16.7 million compared to $16.9 million in the same
period of 2007. SG&A expenses for the three months ended September 30, 2008
included $0.2 million of severance costs related to the Data Group's on-going
productivity improvements initiatives. As a percentage of revenues, these
costs were 18.8% of revenues for the quarters ended September 30, 2008 and
2007. SG&A expenses for the nine months ended September 30, 2008 decreased by
$1.2 million to $52.3 million compared to $53.5 million in the same period of
2007. SG&A expenses for the nine months ended September 30, 2008 were lower
due to cost savings realized from the Data Group's restructuring and on-going
productivity improvement initiatives. For the nine months ended September 30,
2008, the Data Group incurred $0.5 million of severance costs included in SG&A
related to those on-going productivity improvement initiatives. For the
quarter ended September 30, 2007, the Data Group incurred $0.6 million of
costs related to the integration of the former Data Business Forms Limited and
Relizon Canada businesses, which primarily consisted of severance and moving
expenses incurred in connection with the restructuring announced by the Fund
on March 1, 2007. Those integration costs were attributable primarily to the
DATA East and West segment, by virtue of the fact that the operations of the
former Relizon Canada business now form part of that segment. The balance of
those integration costs were attributable to the Multiple Pakfold segment. For
the nine months ended September 30, 2007, the Data Group incurred $4.0 million
of costs related to the integration of the former Data Business Forms Limited
and Relizon Canada businesses, which primarily consisted of severance and
moving expenses incurred in connection with the restructuring announced by the
Fund on March 1, 2007.
Write down of assets held for sale
During the quarter ended September 30, 2008, the Data Group determined
that the carrying value of a property held for sale required a write down and
therefore recorded a charge of $0.9 million before income tax recovery of $0.3
million.
Adjusted EBITDA
For the quarter ended September 30, 2008, Adjusted EBITDA was $8.2
million, or 9.2% of revenues. Adjusted EBITDA for the quarter ended September
30, 2008 increased $0.1 million or 1.4% from the same period in the prior year
and the Adjusted EBITDA margin for the quarter, as a percentage of revenues,
increased from 9.0% of revenues in 2007 to 9.2% of revenues in 2008. For the
nine months ended September 30, 2008, Adjusted EBITDA was $31.1 million or
10.9% of revenues. Adjusted EBITDA for the nine months ended September 30,
2008 increased $5.6 million or 22.0% from the same period in the prior year
and the Adjusted EBITDA margin for the nine month period, as a percentage of
revenues, increased from 8.7% of revenues in 2007 to 10.9% of revenues in
2008.
Interest Expense
Net interest expense on long-term debt relating to the Data Group's
credit facilities and the Fund's $34.8 million aggregate principal amount of
outstanding Convertible Debentures was $1.5 million for the quarter ended
September 30, 2008 compared to $1.6 million for the same period in 2007. Net
interest expense on long-term debt was $4.6 million for the nine months ended
September 30, 2008 compared to $4.7 million for the same period in 2007.
Interest income of $0.1 million and $0.3 million earned during the three
and nine month periods ended September 30, 2008, respectively, was consistent
with the applicable prior periods. This interest income was substantially
related to the cash and cash equivalents held by the Data Group.
Income Taxes
The Fund reported income before income taxes of $1.1 million and a future
income recovery of $0.1 million for the quarter ended September 30, 2008. The
net future income tax liability of $7.2 million represents estimated temporary
differences at September 30, 2008 that are expected to reverse starting in
fiscal year 2011. The future income tax recovery was due to a change in
estimates of future reversals of temporary differences. The Fund reported
income before income taxes of $2.0 million and a future income tax expense of
$0.6 million for the quarter ended September 30, 2007. On June 22, 2007, Bill
C-52, which contained the SIFT rules (described below under the heading
"Outlook"), became law. As a result, under GAAP the Fund commenced accounting
for tax changes during the quarter ended June 30, 2007 and recorded a net
long-term future income tax liability of $9.3 million with a corresponding
amount of $9.7 million recognized in the Fund's consolidated statement of
income and comprehensive income.
The Fund reported income before income taxes of $11.3 million and a
future income tax expense of $0.5 million for the nine months ended September
30, 2008. 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 $7.1 million and a future income tax expense of $10.3 million
for the nine months ended September 30, 2007 related to the change in tax law
described above.
Net Income (Loss)
Net income for the quarter ended September 30, 2008 was $1.1 million
compared to a net income of $1.4 million for the quarter ended September 30,
2007. Net income for the nine months ended September 30, 2008 was $10.7
million compared to a net loss of $3.2 million for the nine months ended
September 30, 2007. The increase in comparable profitability was due to the
factors discussed above.
DATA EAST AND WEST
Revenues at the Data Group's DATA East and West segment for the three
months ended September 30, 2008 increased $0.3 million or 0.3% to $82.0
million from $81.7 million for the same period in the prior year. Revenues for
the nine months ended September 30, 2008 decreased $3.9 million or 1.5% to
$258.7 million from $262.6 million for the same period in the prior year.
Revenues for the three months ended September 30, 2008 increased in
Western Canada but were offset by declines in Eastern Canada due to lower
demand for direct mail and traditional business forms.
The decrease in revenues for the nine months ended September 30, 2008 was
due to the Data Group's determination, following a strategic review that
commenced in 2007, to eliminate from its customer offering certain low margin
products and services previously manufactured and provided by the segment. In
addition, there have been declines in revenues earned from traditional
business forms and direct mail. A factor in the decline in traditional forms
revenues has been a decrease in revenues from small to medium sized customers.
The Data Group increased its focus on the revenues from these customers during
the third quarter of 2008. The segment continued to experience increases in
sales of variable imaging and fulfillment warehousing services as a result of
contracts signed in the fourth quarter of 2007.
For the quarter ended September 30, 2008, gross profit decreased $0.1
million to $21.4 million from $21.5 million for the same period in 2007. Gross
profit as a percentage of revenues for the quarter ended September 30, 2008
decreased to 26.1% from 26.3% for the same period in 2007. The relatively flat
gross profit as a percentage of revenues during the quarter ended September
30, 2008 was due to weakness in our direct mail and traditional business forms
businesses. This segment continues to be focused upon improving productivity
and efficiencies in the operation of the equipment transferred between
locations in connection with the Data Group's restructuring announced in March
2007. During the quarter ended September 30, 2008, these initiatives gave rise
to the severance costs noted in Selling, General and Administrative Expenses
and Integration Costs above.
For the nine months ended September 30, 2008, gross profit increased $2.9
million to $71.4 million from $68.5 million in the same period in 2007. Gross
profit as a percentage of revenues for the nine months ended September 30,
2008 increased to 27.6% from 26.1% for the same period in 2007. The increase
in gross profit was due to the integration and restructuring initiatives
completed in 2007, which resulted in lower labour and overhead costs. In
addition, the increase in the gross profit as a percentage of revenues during
the nine month period was due to the elimination of certain low margin
products and services from the segment's customer offering. This segment
continues to be focused upon improving productivity and efficiencies in the
operation of the equipment transferred between locations in connection with
that restructuring as noted above. During the nine months ended September 30,
2008, these initiatives gave rise to the severance costs noted in Selling,
General and Administrative Expenses and Integration Costs above.
SUNDOG
Revenues at the Data Group's Sundog segment for the quarter ended
September 30, 2008 decreased $0.9 million to $5.1 million from $6.0 million in
2007. Revenues for the nine months ending September 30, 2008 decreased $2.4
million to $17.2 million from $19.6 million for the same period in the prior
year. The decrease in revenues for the three and nine months ended September
30, 2008 were a result of continued weaker local market demand for commercial
printing in Alberta and increased competition in that market. In addition,
current economic conditions continue to negatively affect demand for
commercial printing in that market, primarily marketing materials.
For the quarter ended September 30, 2008, gross profit decreased $0.6
million to $1.2 million from $1.8 million for the same period in 2007. Gross
profit as a percentage of revenues for the quarter ended September 30, 2008
decreased to 23.0% from 29.7% for the same period in 2007. For the nine months
ended September 30, 2008, gross profit decreased $1.8 million to $4.8 million
from $6.6 million in the same period of 2007. Gross profit as a percentage of
revenues for the nine months ended September 30, 2008 decreased to 27.6% from
33.3% for the same period in 2007. The overall decrease in gross profit was
due to the revenue shortfall for the three and nine months ended September 30,
2008 as noted above. During the fourth quarter of 2007, the Data Group
strengthened Sundog's sales management, added new sales representatives and
tightened cost controls, all of which were expected to help mitigate the
impact of current market conditions on Sundog's results of operations. The
expected impact has not yet materialized due to continued weak market
conditions.
MULTIPLE PAKFOLD
Revenues at the Data Group's Multiple Pakfold segment for the quarter
ended September 30, 2008 decreased $0.3 million or 8.1% to $4.0 million from
$4.3 million in 2007. Revenues for the nine months ended September 30, 2008
decreased $1.9 million or 13.9% to $12.0 million from $13.9 million for the
same period in the prior year.
The decline in revenues for the three and nine months ended September 30,
2008 were attributable to the loss of business in the Ontario and Quebec
market as a result of the integration and restructuring activities in 2007,
which disrupted Multiple Pakfold's operations and adversely affected the
segment's ability to meet customer delivery requirements. The Data Group has
implemented management and other changes in its Multiple Pakfold segment which
it believes have resolved those operational difficulties and that revenues
should improve over the longer term as Multiple Pakfold demonstrates to its
customers that it is able to meet their delivery requirements.
Gross profit was $0.4 million and $0.3 million for the quarters ended
September 30, 2008 and 2007, respectively. Gross profit as a percentage of
revenues for the quarter ended September 30, 2008 was 11.3% compared to 7.5%
for the same period in 2007. The increase in gross profit was due to the
initiatives referred to above. For the nine months ended September 30, 2008,
gross profit decreased $0.3 million to $1.2 million from $1.5 million for the
same period of 2007. Gross profit as percentage of revenues for the nine
months ended September 30, 2008 was 10.1% compared to 11.0% for the same
period in 2007. Gross profit for the nine months ended September 30, 2008 was
negatively impacted by the operational difficulties referred above.
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
-------------------------------------------------------------------------
For the periods ended Jul. 1 Jul. 1 Jan. 1 Jan. 1
September 30, 2008 and 2007 to to to to
(in thousands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except percentages and per 2008 2007 2008 2007
unit amounts, unaudited) $ $ $ $
-------------------------------------------------------------------------
Cash provided by
operating activities 6,341 1,358 29,332 13,990
Capital adjustments
Maintenance capital
expenditures(1) (692) (1,404) (2,159) (4,156)
Other adjustments
including discretionary
items:
Changes in non-cash
working capital
and other(2) 470 5,487 (2,629) 7,323
-------------------------------------------------------------------------
Cash available for
distribution 6,119 5,441 24,544 17,157
-------------------------------------------------------------------------
Distributions to
unitholders(3) 6,805 6,804 20,415 20,406
-------------------------------------------------------------------------
Excess (shortfall) of
cash available for
distribution over
actual distributions (686) (1,363) 4,129 (3,249)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Per unit(4)
Cash available for
distribution per unit(4) 0.260 0.232 1.045 0.731
-------------------------------------------------------------------------
Distributions to
unitholders per unit(4) 0.290 0.290 0.870 0.870
-------------------------------------------------------------------------
Excess (shortfall) of
cash available for
distribution per unit
over actual distributions
per unit (0.030) (0.058) 0.175 (0.139)
-------------------------------------------------------------------------
Payout ratio(5) 111.2% 125.1% 83.2% 118.9%
-------------------------------------------------------------------------
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 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 and the impact of cash payments related to the restructuring
liabilities assumed in the acquisition of Relizon Canada.
(3) Distributions are in respect of the distributions declared.
(4) 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 and paid and not the weighted
average number of units outstanding. As at September 30, 2008 and
2007, 23,490,592 units were outstanding.
(5) The payout ratio represents the percentage of distributions declared
to unitholders divided by the cash available for distribution.
CASH AVAILABLE FOR DISTRIBUTION
For the quarter ended September 30, 2008, the Fund generated $6.1 million
or $0.260 per unit of cash available for distribution compared to $5.4 million
or $0.232 per unit for the same period in 2007. Cash available for
distribution for the quarter ended September 30, 2008 was calculated by adding
back changes in non-cash working capital and other non-cash items of $0.5
million and deducting maintenance capital expenditures of $0.7 million from
cash provided by operating activities of $6.3 million. Cash available for
distribution for the quarter ended September 30, 2007 was calculated by adding
back the changes in non-cash working capital and other non-cash items of $5.4
million and deducting maintenance capital expenditures of $1.4 million from
cash provided by operating activities of $1.4 million. See Table 4 above for a
breakdown of these figures for the three months ended September 30, 2008 and
2007, respectively.
For the nine months ended September 30, 2008, the Fund generated $24.5
million or $1.045 per unit of cash available for distribution compared to
$17.2 million or $0.731 per unit in the prior year. Cash available for
distribution for the nine months ended September 30, 2008 was calculated by
deducting the changes in non-cash working capital and other non-cash items of
$2.6 million and deducting maintenance capital expenditures of $2.2 million
from cash provided by operating activities of $29.3 million. Cash available
for distribution for the nine months ended September 30, 2007 was calculated
by adding back the changes in non-cash working capital and other non-cash
items of $7.3 million and deducting maintenance capital expenditures of $4.2
million from cash provided by operating activities of $14.0 million. See Table
4 above for a breakdown of these figures for the periods from January 1, 2008
to September 30, 2008 and from January 1, 2007 to September 30, 2007,
respectively.
For the quarter ended September 30, 2008, the Fund declared distributions
of $6.8 million or $0.290 per unit. Actual distributions exceeded cash
available for distribution by $0.7 million or $0.030 per unit for the quarter
ended September 30, 2008. During the quarter ended September 30, 2008, the
Data Group made cash payments of $0.4 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 of primarily
severance payments and moving costs. These cash payments were funded by cash
generated from operations. During the quarter ended September 30, 2007, the
Data Group made cash payments of $2.6 million for those restructuring and
integration costs. For the quarter ended September 30, 2007, the Fund declared
distributions of $6.8 million or $0.290 per unit. Actual distributions
exceeded cash available for distribution by $1.4 million or $0.058 per unit
for the quarter ended September 30, 2007. See Table 4 above for a breakdown of
these figures for the three months ended September 30, 2008 and 2007,
respectively.
For the nine months ended September 30, 2008, the Fund declared
distributions of $20.4 million or $0.870 per unit. Cash available for
distribution exceeded actual distributions by $4.1 million or $0.175 per unit
for the nine months ended September 30, 2008. During the nine months ended
September 30, 2008, the Data Group made cash payments of $2.2 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
of primarily severance payments and moving costs. These cash payments were
funded by cash generated from operations and the net proceeds from asset
dispositions. During the nine months ended September 30, 2007, the Data Group
made cash payments of $6.7 million for those restructuring and integration
costs. For the nine months ended September 30, 2007, the Fund declared
distributions of $20.4 million or $0.870 per unit. Actual distributions
exceeded cash available for distribution by $3.2 million or $0.139 per unit
for the nine months ended September 30, 2007. See Table 4 above for a
breakdown of these figures for the periods from January 1, 2008 to September
30, 2008 and from January 1, 2007 to September 30, 2007, respectively.
INVESTING ACTIVITIES
Capital expenditures for the quarter ended September 30, 2008 of $0.7
million related primarily to maintenance capital expenditures which were
financed by cash flow from operations. Capital expenditures for the nine
months ended September 30, 2008 of $2.2 million related primarily to
maintenance capital expenditures. During the nine months ended September 30,
2008, the Data Group sold its Medicine Hat, Alberta facility for gross
proceeds of $1.8 million.
FINANCING ACTIVITIES
For the quarter ended September 30, 2008, the Fund paid or declared
aggregate cash distributions of $6.8 million to its unitholders. For the nine
months ended September 30, 2008, the Fund paid or declared aggregate cash
distributions of $20.4 million to its unitholders.
OUTLOOK
Management believes that the Fund will continue to meet its objectives,
continuing to meet its monthly per unit distributions to unitholders of
$0.09656 for the foreseeable future. The Fund's Board of Trustees will
continue to monitor the Fund's cash available for distribution, its payout
ratio and the need to pay distributions to ensure the Fund is not taxable.
The Fund believes that substantially all of the restructuring charges
related to the integration of the former Data Business Forms Limited and
Relizon Canada businesses have been accrued in the twelve months ended
December 31, 2007.
The Data Group will continue to review its operations and undertake
restructuring initiatives to maintain a competitive cost structure. These
initiatives may result in the further consolidation of facilities, and the
Data Group may incur additional severance costs, accelerated further
depreciation expense, impairment charges related to property, plant and
equipment, goodwill, and costs attributable to the termination of contracts
for leases, supplier arrangements and other contractual obligations.
The Fund expects that the previously announced federal income tax changes
applicable to income trusts will, all other things being equal, likely result
in a reduction of cash available for distribution from the Fund commencing in
2011. With respect to the limitations on equity unit issuances under the
guidelines that accompanied those tax changes, the Fund believes that it
should be able to fund its currently identified growth plan without exceeding
its "normal growth". However, with the current uncertainty in the capital
markets resulting from the tax changes, there can be no assurance that
sufficient capital to fund further acquisitions or expansion projects will be
available on terms acceptable to the Fund, or at all.
The Fund's Board of Trustees has determined that there are no current
economic benefits associated with an early conversion from a SIFT trust to a
taxable entity not subject to the SIFT rules. There is meaningful value in the
interim period and the Fund therefore has no current intention to make
significant changes to its structure during this period without compelling
reasons to do otherwise. The Minister of Finance has released draft
legislation that purports to permit the conversion from a SIFT trust to a
taxable entity not subject to the SIFT rules without any adverse material
consequences for the SIFT trust and its investors. The Fund, with input from
external legal and financial advisors, will continue to closely monitor
developments in this area and expects to make further decisions over time with
a view to maximizing value for the Fund's unitholders, including what the
Fund's Board of Trustees determines will be the optimal structure post-2010.
The Fund will also continue to closely monitor its payout ratio over the 2008
to 2010 period, continuing to take into account the current and anticipated
performance of the Data Group and its business and the Fund's cash available
for distribution during this period. The Fund's current objective is to
maintain its existing level of cash distributions to unitholders in 2011,
notwithstanding the cash taxes which may then be payable by the Fund.
Many of the Data Group's customers are being affected by economic
conditions affecting the broader market. Current and future conditions in the
domestic and global economies remain uncertain. As a result, it is difficult
to estimate the level of growth or contraction for the economy as a whole. It
is even more difficult to estimate growth or contraction in various parts,
sectors and regions of the economy, including the many different markets in
which the Data Group participates. Because all components of the Data Group's
budgeting and forecasting are dependent upon estimates of growth or
contraction in the markets it serves and demand for its products and services,
the prevailing economic uncertainties render estimates of future income and
expenditures very difficult to make. Adverse changes may occur as a result of
soft economic conditions, wavering consumer confidence, unemployment, declines
in stock markets, contraction of credit availability, declines in real estate
values, or other factors affecting economic conditions generally. These
changes may negatively affect the sales of the Data Group's products and
services, increase exposure to losses from bad debts, increase the cost and
decrease the availability of financing, or increase costs associated with
manufacturing and distributing products or delivering services to the Data
Group's customers.
Sales of some of the Data Group's products are subject to seasonal
fluctuations in demand. Certain elements of the gift card and direct mail
businesses and the buying pattern of certain major customers of the Data Group
generate higher revenues and profit in the fourth quarter than the other three
quarters.
The Data Group will continue to fund necessary maintenance capital
expenditures by utilizing cash flow from operations. It is anticipated that
maintenance capital expenditures in 2008 will be approximately $3.5 million.
The Data Group will continue its strategic focus on being the leading
document management service provider in Canada, concentrating on providing
high value-added products and services. The Data Group will also selectively
pursue acquisition opportunities within its existing business segments.
About The DATA Group Income Fund
--------------------------------
The DATA Group Income Fund owns a 100% interest in The DATA Group Limited
Partnership ("The DATA Group"). 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.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) September 30, December 31,
2008 2007
$ $
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 13,715 5,315
Accounts receivable 44,079 57,417
Inventories 48,798 42,266
Prepaid expenses and other current assets 4,482 3,649
Income taxes recoverable 377 837
-------------------------
111,451 109,484
Property, plant and equipment 40,983 47,528
Goodwill 150,706 151,206
Intangible assets 57,534 65,766
-------------------------
360,674 373,984
-------------------------
-------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 31,877 40,014
Accrued restructuring and
integration provisions 2,592 5,245
Deferred revenue 7,937 6,886
Distributions payable 2,269 2,269
-------------------------
44,675 54,414
Revolving bank facility 70,000 70,000
Convertible debentures 34,285 34,159
Future income taxes 7,173 6,655
Deferred gain 1,773 1,920
Unfavourable lease obligation 1,170 1,251
Deferred lease inducement 1,011 1,103
Pension obligation 9,670 9,668
Post-employment and post-retirement benefits 2,175 2,153
-------------------------
171,932 181,323
-------------------------
Unitholders' Equity
Units 215,336 215,336
Conversion option 898 898
Accumulated other comprehensive loss (486) (66)
Deficit (27,006) (23,507)
-------------------------
188,742 192,661
-------------------------
360,674 373,984
-------------------------
-------------------------
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
-------------------------------------------------------------------------
(in thousands of dollars, For the For the
except per unit amounts, unaudited) three three
months months
ended ended
September 30, September 30,
2008 2007
$ $
-------------------------------------------------------------------------
Revenues 89,205 90,221
Cost of revenues (including depreciation
of $1,892 and $1,909, respectively) 66,220 66,672
-------------------------
Gross profit 22,985 23,549
-------------------------
Expenses
Selling, commissions and expenses 8,955 9,689
General and administration expenses (including
depreciation of $91 and $156, respectively) 7,794 7,241
Write down of assets held for sale 927 -
Integration costs - 578
Amortization of intangible assets 2,744 2,411
-------------------------
20,420 19,919
-------------------------
Income before interest and income taxes 2,565 3,630
-------------------------
Interest expense on long-term debt
(net of interest income of $121
and $67, respectively) 1,500 1,626
-------------------------
Income before income taxes 1,065 2,004
-------------------------
Future income tax (recovery) expense (82) 566
-------------------------
Net income for the period 1,147 1,438
-------------------------
-------------------------
Loss on cash flow hedges (45) (412)
-------------------------
Comprehensive income for the period 1,102 1,026
-------------------------
-------------------------
Basic income per unit 0.05 0.06
-------------------------
Diluted income per unit 0.05 0.06
-------------------------
Weighted average units outstanding 23,490,592 23,486,891
-------------------------
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
-------------------------------------------------------------------------
(in thousands of dollars, For the For the
except per unit amounts, unaudited) nine nine
months months
ended ended
September 30, September 30,
2008 2007
$ $
-------------------------------------------------------------------------
Revenues 283,964 291,418
Cost of revenues (including depreciation
of $5,763 and $5,934, respectively) 206,644 214,885
-------------------------
Gross profit 77,320 76,533
-------------------------
Expenses
Selling, commissions and expenses 28,619 31,322
General and administration expenses (including
depreciation of $341 and $509, respectively) 23,714 22,183
Write down of assets held for sale 927 -
Integration costs - 3,997
Amortization of intangible assets 8,232 7,233
-------------------------
61,492 64,735
-------------------------
Income before interest and income taxes 15,828 11,798
-------------------------
Interest expense on long-term debt
(net of interest income of $331
and $220, respectively) 4,569 4,733
-------------------------
Income before income taxes 11,259 7,065
-------------------------
Future income tax expense 518 10,312
-------------------------
Net income (loss) for the period 10,741 (3,247)
-------------------------
-------------------------
(Loss) gain on cash flow hedges (420) 273
-------------------------
Comprehensive income (loss) for the period 10,321 (2,974)
-------------------------
-------------------------
Basic income (loss) per unit 0.46 (0.14)
-------------------------
Diluted income (loss) per unit 0.46 (0.14)
-------------------------
Weighted average units outstanding 23,490,592 23,479,417
-------------------------
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
-------------------------------------------------------------------------
(in thousands of Accumu-
dollars, unaudited) lated
other
compre- Total
Conver- hensive Unit-
sion income holders'
Units option (loss) Deficit Equity
$ $ $ $ $
-------------------------------------------------------------------------
Balance as at
December 31, 2006 215,164 902 - (1,409) 214,657
Accounting policy
change - - 58 (2,312) (2,254)
-------------------------------------------------
Balance as at
January 1, 2007 215,164 902 58 (3,721) 212,403
Distributions declared - - - (20,406) (20,406)
Gain on cash flow hedges - - 273 - 273
Conversion of convertible
debentures 172 (4) - - 168
Net loss for the period - - - (3,247) (3,247)
-------------------------------------------------
Balance as at
September 30, 2007 215,336 898 331 (27,374) 189,191
-------------------------------------------------
-------------------------------------------------
Balance as at
December 31, 2007 215,336 898 (66) (23,507) 192,661
-------------------------------------------------
Accounting policy change - - - 6,175 6,175
-------------------------------------------------
Balance as at
January 1, 2008 215,336 898 (66) (17,332) 198,836
Distributions declared - - - (20,415) (20,415)
Loss on cash flow hedges - - (420) - (420)
Net income for the period - - - 10,741 10,741
-------------------------------------------------
Balance as at
September 30, 2008 215,336 898 (486) (27,006) 188,742
-------------------------------------------------
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) For the For the
three three
months months
ended ended
September 30, September 30,
2008 2007
$ $
-------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
-------------------------------------------------------------------------
Net income (loss) for the period 1,147 1,438
Items not involving cash
Depreciation of property, plant and equipment 1,983 2,065
Amortization of intangible assets 2,744 2,411
Pension expense 494 1,015
Contributions made to pension plans (498) (697)
Write down of assets held for sale 927 -
Loss (gain) on disposal of property,
plant and equipment 46 (5)
Accretion of convertible debentures 42 42
Amortization of deferred gain (50) -
Unfavourable lease obligation (27) (26)
Amortization of lease inducement (30) (31)
Post-employment and post-retirement benefits 8 (55)
Future income tax (recovery) expense (82) 566
-------------------------
6,704 6,723
Changes in non-cash items relating to
operating activities (363) (5,365)
-------------------------
6,341 1,358
-------------------------
Investing activities
-------------------------------------------------------------------------
Purchase of property, plant and equipment (692) (1,404)
Proceeds on disposal of property,
plant and equipment 7 706
-------------------------
(685) (698)
-------------------------
Financing activities
-------------------------------------------------------------------------
Bank overdraft - 4,017
Distributions to unitholders (6,805) (6,804)
-------------------------
(6,805) (2,787)
-------------------------
Decrease in cash and cash equivalents
during the period (1,149) (2,127)
-------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 14,864 2,127
-------------------------------------------------------------------------
Cash and cash equivalents - end of period 13,715 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 940 2,211
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(in thousands of dollars, unaudited) For the For the
nine nine
months months
ended ended
September 30, September 30,
2008 2007
$ $
-------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
-------------------------------------------------------------------------
Net income (loss) for the period 10,741 (3,247)
Items not involving cash
Depreciation of property, plant and equipment 6,104 6,443
Amortization of intangible assets 8,232 7,233
Pension expense 1,481 2,507
Contributions made to pension plans (1,479) (2,129)
Write down of assets held for sale 927 -
Loss on disposal of property, plant and equipment 31 56
Accretion of convertible debentures 126 128
Amortization of deferred gain (147) -
Unfavourable lease obligation (81) (77)
Amortization of lease inducement (92) (92)
Post-employment and post-retirement benefits 22 (44)
Future income tax expense 518 10,312
-------------------------
26,383 21,090
Changes in non-cash items relating to
operating activities 2,949 (7,100)
-------------------------
29,332 13,990
-------------------------
Investing activities
-------------------------------------------------------------------------
Purchase of property, plant and equipment (2,159) (4,156)
Proceeds on disposal of property,
plant and equipment 1,642 788
Acquisition of business - 1,000
-------------------------
(517) (2,368)
-------------------------
Financing activities
-------------------------------------------------------------------------
Bank overdraft - 4,017
Distributions to unitholders (20,415) (20,406)
-------------------------
(20,415) (16,389)
-------------------------
Increase (decrease) in cash and cash equivalents
during the period 8,400 (4,767)
-------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 5,315 4,767
-------------------------------------------------------------------------
Cash and cash equivalents - end of period 13,715 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information
Interest paid 3,791 5,134
Non-cash lease inducement - 766
%SEDAR: 00021422E
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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