Data Group Inc. announces full year and fourth quarter results for 2012

Highlights

Full Year 2012

  • Revenues of $336.3 million, Gross Profit of $87.2 million, and Net Loss of $37.1 million (DUE TO A NON-CASH GOODWILL IMPAIRMENT CHARGE OF $44.0 MILLION)
  • Full Year Dividends declared of $15.3 million or $0.65 per share
  • Full Year Adjusted EBITDA of $28.7 million (See Table 2 and "Non-GAAP Measures" below)

Q4 2012

  • Revenues of $86.9 million, Gross Profit of $23.2 million, and Net Loss of $41.6 million (DUE TO A NON-CASH GOODWILL IMPAIRMENT CHARGE OF $44.0 MILLION)
  • Q4 Dividends declared of $3.8 million or $0.162 per share
  • Q4 Adjusted EBITDA of $9.1 million (See Table 2 and "Non-GAAP Measures" below)

BRAMPTON, ON, March 6, 2013 /CNW/ - DATA Group Inc. (TSX: DGI) ("DATA Group") announced its financial and operating results for the fourth quarter ("Q4") and the year ended December 31, 2012, which include the operating results of its subsidiaries DATA Group Ltd., The Fulfillment Solutions Advantage Inc. ("FSA") and FSA Datalytics Canada Inc. ("Datalytics").

"DATA Group made strong progress on our growth strategy in the fourth quarter.  Our Q4 2012 Adjusted EBITDA was ahead of the fourth quarter 2011 by 5.1% as we signed significant new client agreements, launched two important new products and initiated a new program to accelerate our rate of cost saving reductions in 2013 and beyond.  We incurred a net loss during the quarter and year to date due to a change in the valuation of our goodwill in Q4.  This was a non-cash adjustment which does not impact current or future cash flows and more closely aligns our book value per share with our current market value per share" said Michael Suksi, President and Chief Executive Officer.  "During the fourth quarter, we announced a change in our dividend policy effective January 1, 2013, which improves the allocation of our available cash among dividends on our common shares, our debt reduction plans and investment in our growth initiatives.  Consistent with that announcement, in a separate press release issued this morning we confirmed a quarterly dividend of $0.075 per share ($0.30 annualized) payable on April 15, 2013 to holders of record on March 28, 2013.  As evidence of the sustainability of our dividend, if we had paid the $0.075 per share in Q4 of 2012, we would have had a 30.5% payout of free cash flow. Based on our current business outlook, we expect to continue with this dividend per share rate for the balance of 2013, while also continuing to reduce our debt and invest in new revenue generating activities.  We believe this strategy will position DATA Group for sustainable profit growth, enterprise value appreciation and a consistent dividend payout to our shareholders over the longer term."

DATA Group continues to expand its capabilities with new electronic communications oriented solutions, in order to position the company for sustainable, long term growth.  The company's growth strategy is to meet its client's evolving requirements by bundling its new e-communication services with its traditional print services into a single, holistic communications management solution.  Clients will enter into multi-year outsourcing contracts with DATA Group for this bundled solution.  DATA Group refers to this set of services as Managed Business Communications Services. This growth strategy also includes selectively expanding into the United States with its existing clients who have U.S. operations and making acquisitions that accelerate our expansion into new products and services.  DATA Group is also focused on continuously reducing costs in its traditional business in order to offset investment in its growth strategy and to improve profitability.  DATA Group believes this strategy provides it with substantial opportunities to offset revenue declines in traditional print services due to technological change, resulting in revenue and profitability growth through expanded market share in its traditional business and from new revenue streams.  DATA Group remains focused on the successful, ongoing execution of this plan in a prudent, well managed fashion, balancing its investment in the growth plan with its financial strategy.

During the fourth quarter and throughout 2012, DATA Group made material progress on this strategy.  Revenues and gross profit both grew during the year.  Adjusted EBITDA for the year was down due to our investment in our growth strategy but increased in the fourth quarter by 5.1%.  The growth in revenues and gross profit was due to increased new business wins and the acquisition of FSA and Datalytics late in 2011.  DATA Group also won a number of new customer agreements that will take material effect in 2013, in which its bundled Managed Business Communications Services ("MBCS") played a key role.  More specifically, DATA Group recently signed a letter of intent for one of the largest single source, multi-year, customer agreements in its history.  This is an expansion of a current agreement with a significant client, and includes management and provision of administrative documents as well as marketing print and communications services in Canada and the U.S.  The new agreement took effect in December of 2012 and has required DATA Group to make modest investments in people and technology throughout the fourth quarter, including the establishment of operations in Niles, Illinois.  Two additional significant new agreements, based on the MBCS approach will begin in the first half of 2013.  Partially offsetting this, DATA Group experienced some losses of business during the fourth quarter due to technological change and competitive activity, which will take effect in 2013.  DATA Group expects the net impact of these wins and losses will be positive to revenues and Adjusted EBITDA in the future.

DATA Group launched two new technology-oriented services in the fourth quarter of 2012.  Marketing Campaign Management, a software-based service enhances the effectiveness of our client's marketing departments by creating collaborative, automated workflows between the clients' marketing staff, their agencies and fulfillment of the campaign by DATA Group.  This results in faster and more effective marketing campaign planning, creative design, execution and reporting on results. DATA Group also launched Document Process Management ("DPM") services.  Rather than just managing the supply of "blank" (or uncompleted) documents which the DATA Group currently does, DPM enables DATA Group to provide services associated with completing and using documents, such as workflow consulting and process automation, scanning and archiving of documents and related data extraction.

In the fourth quarter of 2012, DATA Group achieved approximately $2.0 million in cost saving efficiencies.  In 2012, DATA Group generated approximately $5.3 million in cost savings, which is similar to what we have achieved in the previous two years.  DATA Group is now initiating a new program that it believes will increase our rate of cost savings in the future.

As previously announced, DATA Group made a change to its dividend policy in November of 2012, which took effect in January of 2013.  Our annualized dividend is now $0.30 per share and will be paid on a quarterly basis.  In 2013, we expect to maintain a consistent common share dividend through a 40%-60% payout of free cash flow.  We believe this change is a prudent decision that will help us achieve sustainable growth and value for our investors by enabling us to achieve an improved balance between our dividend policy, our debt reduction goals and investment in our growth initiatives.

Table 1 The following table sets out selected historical financial information for the periods noted.

Consolidated Financial Information
For the periods ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except per share/unit amounts,
unaudited)
Oct. 1 to
Dec. 31,
2012
$
Oct. 1 to
Dec. 31,
2011
$
Jan. 1 to
Dec. 31,
2012
$
Jan. 1 to
Dec. 31,
2011
$
Revenues 86,915 89,798 336,315 332,043
Cost of revenues 63,743 67,285 249,143 248,633
Gross profit 23,172 22,513 87,172 83,410
         
Selling, general and administrative expenses 15,528 15,474 64,225 58,780
Gain on settlement of pension plan (243) - (243) -
Impairment of goodwill 44,000 - 44,000 -
Corporate conversion costs - 148 84 585
Acquisition costs - 410 - 410
Amortization of intangible assets 2,310 2,578 9,242 10,275
         
(Loss) income before finance costs and income taxes (38,423) 3,903 (30,136) 13,360
         
Finance costs        
  Interest expense 1,464 1,486 5,882 5,662
  Interest income - (8) (15) (74)
  Change in fair value of conversion options - 442 - (738)
  Amortization of transaction costs 157 133 617 526
  1,621 2,053 6,484 5,376
         
(Loss) income before income taxes (40,044) 1,850 (36,620) 7,984
         
Income tax expense (recovery)        
  Current 1,452 465 4,220 1,836
  Deferred 119 157 (3,712) 765
  1,571 622 508 2,601
         
Net (loss) income for the period (41,615) 1,228 (37,128) 5,383
         
Net (loss) income attributable to shareholders/unitholders (41,609) 1,265 (37,072) 5,420
Basic and diluted (loss) income per share/unit (1.77) 0.05 (1.58) 0.23
Number of common shares/units outstanding 23,490,592 23,490,592 23,490,592 23,490,592
         
Consolidated Statements of Financial Position
Information
(in thousands of Canadian dollars, unaudited)
As at
Dec. 31,
2012
$
As at
Dec. 31,
2011
$
   
Current assets 84,069 93,170    
Current liabilities 40,316 44,874    
         
Total assets 224,629 289,773    
Total non-current liabilities 122,199 127,223    
         
Shareholders' equity 61,978 -    
Unitholders' equity - 117,363    
Non-controlling interest 136 313    
Total equity 62,114 117,676    


Table 2     The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods noted.  See "Non-GAAP Measures".

Adjusted EBITDA Reconciliation        
For the periods ended December 31, 2012 and 2011

(in thousands of Canadian dollars, unaudited)
Oct. 1 to
Dec. 31,
2012
$
Oct. 1 to
Dec. 31,
2011
$
Jan. 1 to
Dec. 31,
2012
$
Jan. 1 to
Dec. 31,
2011
$
Net (loss) income for the period (41,615) 1,228 (37,128) 5,383
Interest expense 1,464 1,486 5,882 5,662
Interest income - (8) (15) (74)
Change in fair value of conversion options - 442 - (738)
Amortization of transaction costs 157 133 617 526
Depreciation of property, plant and equipment 1,407 1,570 5,727 5,752
Amortization of intangible assets 2,310 2,578 9,242 10,275
Gain on settlement of pension plan (243) - (243) -
Impairment of goodwill 44,000 - 44,000 -
Corporate conversion costs - 148 84 585
Acquisition costs - 410 - 410
Current income tax expense 1,452 465 4,220 1,836
Deferred income tax (recovery) expense 119 157 (3,712) 765
Adjusted EBITDA 9,051 8,609 28,674 30,382
         

RESULTS OF OPERATIONS

Revenues
For the quarter ended December 31, 2012, DATA Group recorded revenues of $86.9 million, a decrease of $2.9 million or 3.2% compared with the same period in 2011.  The net decrease, before intersegment revenues, was the result of a $3.2 million decrease in the DATA East and West segment and was offset by a $0.3 million increase in the Multiple Pakfold segment.  The decrease in revenues in the DATA East and West segment was due to declines in revenues from existing customers and partially offset by revenue gains from new business wins.  During the fourth quarter of 2012, the segment began operations and shipping from its Niles, Illinois facility servicing a large financial institution.  The increase in revenues in the Multiple Pakfold segment was attributable to market share growth as a result of implementing a targeted accounts program and an improvement in successful quoting activity.  For the year ended December 31, 2012, DATA Group recorded revenues of $336.3 million, an increase of $4.3 million or 1.3% compared with the same period in 2011.  The increase, before intersegment revenues, was the result of a $4.1 million increase in the DATA East and West segment and a $0.1 million increase in the Multiple Pakfold segment.  The increase in revenues in the DATA East and West segment was due to the inclusion of the results of operations of FSA and Datalytics for the full year and revenue gains from new business wins.  The increase in revenues was partially offset by declines in revenues from commercial printing in Western Canada, revenues from business documents in Ontario were lower due to several large projects for major customers in the prior year which did not repeat and declines in revenues from existing customers due to technological changes.

Cost of Revenues and Gross Profit
For the quarter ended December 31, 2012, cost of revenues decreased to $63.7 million from $67.3 million for the same period in 2011.  Gross profit for the quarter ended December 31, 2012 was $23.2 million, which represented an increase of $0.7 million or 2.9% from $22.5 million for the same period in 2011.  The increase in gross profit for the quarter ended December 31, 2012 was attributable to an increase in gross profit of $0.5 million in the DATA East and West segment and of $0.1 million in the Multiple Pakfold segment, respectively.  Gross profit as a percentage of revenues increased to 26.7% for the quarter ended December 31, 2012 compared to 25.1% for the same period in 2011.  For the year ended December 31, 2012, cost of revenues increased to $249.1 million from $248.6 million for the same period in 2011.  Gross profit for the year ended December 31, 2012 was $87.2 million, which represented an increase of $3.8 million or 4.5% from $83.4 million for the same period in 2011.  The increase in gross profit for the year ended December 31, 2012 was attributable to an increase in gross profit of $3.7 million in the DATA East and West segment and of $0.1 million in the Multiple Pakfold segment, respectively.  Gross profit as a percentage of revenues increased to 25.9% for the year ended December 31, 2012 compared to 25.1% for the same period in 2011.

Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses, including administrative expenses of DATA Group Inc. (the "Corporation") but excluding amortization of intangible assets, for the quarter ended December 31, 2012 remained unchanged at $15.5 million compared to the same period in 2011.  As a percentage of revenues, these costs were 17.9% of revenues for the quarter ended December 31, 2012 compared to 17.2% of revenues for the same period in 2011.  For the quarter ended December 31, 2011, DATA Group incurred $0.3 million of severance expenses.  SG&A expenses for the year ended December 31, 2012 increased $5.4 million to $64.2 million compared to $58.8 million for the same period of 2011.  The increase in SG&A expenses for the year ended December 31, 2012 was attributable to the inclusion of FSA and Datalytics in DATA Group's results of operations and investments to launch new products and services initiatives. As a percentage of revenues, these costs were 19.1% of revenues for the year ended December 31, 2012 compared to 17.7% of revenues for the same period in 2011.  For each of the years ended December 31, 2012 and 2011, DATA Group incurred $0.7 million and $0.6 million of severance expenses, respectively.  Those severance costs were included in SG&A and were related productivity improvements and cost reduction initiatives.

Gain On Settlement of Pension Plan, Corporate Conversion Costs and Other
During the quarter ended December 31, 2012, DATA Group recorded a gain of $0.2 million on the settlement of a pension plan related to the over contribution to the benefit settlement upon finalizing the wind-up of a pension plan.  During the quarter ended December 31, 2011, DATA Group incurred total professional fees of $0.4 million related to the acquisitions of FSA and Datalytics and $0.1 million related to the conversion to a corporation on January 1, 2012, respectively.

During the year ended December 31, 2012, DATA Group incurred total professional fees of $0.1 million related to the conversion of the Fund to a corporation on January 1, 2012 and recorded a gain of $0.2 million on the settlement of a pension plan related to the over contribution to the benefit settlement upon finalizing the wind-up of a pension plan.  During the year ended December 31, 2011, DATA Group incurred total professional fees of $0.4 million related to the acquisitions of FSA and Datalytics and $0.6 million related to the conversion to the corporation on January 1, 2012, respectively.

Impairment of Goodwill
During the fourth quarter of 2012, DATA Group performed its annual review for impairment of goodwill by comparing the fair value of each of its reporting segments to the segment's carrying value on DATA Group's books.  DATA Group determined the fair value of each cash generating unit ("CGU") by discounting expected future cash flows in accordance with recognized valuation methods.  The process of determining those fair values required DATA Group to make a number of estimates and assumptions such as projected future revenues, costs of revenues, operating margins, market conditions well into the future, and discount rates.  As a result of that review and market indicators, including the trading price of DATA Group's common shares, DATA Group concluded that, the fair value of its DATA East and West CGU was less than its carrying value.  Accordingly, DATA Group recognized an impairment of goodwill charge of $44.0 million related to the DATA East and West CGU in 2012.

Adjusted EBITDA
For the quarter ended December 31, 2012, Adjusted EBITDA was $9.1 million, or 10.4% of revenues.  Adjusted EBITDA for the quarter ended December 31, 2012 increased $0.4 million or 5.1% from the same period in the prior year and the Adjusted EBITDA margin for the quarter, as a percentage of revenues, increased from 9.6% of revenues in 2011 to 10.4% of revenues in 2012.  The increase was attributable to realized costs savings from the on-going productivity improvement and cost reduction initiatives and higher profit margins related to revenues from FSA and new business wins in each of the DATA Group's reporting segments.  Adjusted EBITDA for the year ended December 31, 2012 was $28.7 million, or 8.5% of revenues. Adjusted EBITDA for the year ended December 31, 2012 decreased $1.7 million or 5.6% from the same period in the prior year and the Adjusted EBITDA margin for the year ended December 31, 2012, as a percentage of revenues, decreased from 9.2% of revenues in 2011 to 8.5% of revenues in 2012.  The decrease was attributable to the cost of DATA Group's investment in its growth strategy in 2012.  These costs included SG&A expenses, were related to investments to launch new products and services.

Interest Expense and Finance Costs
Interest expense on long-term debt outstanding under DATA Group's credit facilities and DATA Group's outstanding $45.0 million aggregate principal amount of 6.00% Convertible Unsecured Subordinated Debentures (the 6.00% Convertible Debentures") was $1.5 million for the quarters ended December 31, 2012 and 2011 respectively, and was $5.8 million for the year ended December 31, 2012 compared to $5.7 million for the same period in 2011.  The increase in interest expense during the year ended December 31, 2012 was the result of higher outstanding balances under DATA Group's credit facilities and higher rates of interest charged on those balances during 2012.

Finance costs for the quarter and year ended December 31, 2011 included a charge of $0.4 million and a recovery $0.7 million, respectively, related to the change in the fair value of The DATA Group Income Fund's (the "Fund") conversion options.  The conversion options were the conversion feature in each of the Fund's outstanding convertible debentures, which was measured at fair value at each reporting date.  The Fund's obligations under those convertible debentures were assumed by the Corporation in connection with a plan of arrangement.  As a result of the Fund's conversion to a corporation on January 1, 2012, those conversion option liabilities were classified as equity on the financial statements of the Corporation due to the change in the nature of the underlying security to shares from units and are no longer re-measured at fair value at each reporting date.

Income Taxes
DATA Group reported a loss before income taxes of $40.0 million, a current income tax expense of $1.5 million and a deferred income tax expense of $0. 1 million for the quarter ended December 31, 2012 compared to income before income taxes of $1.9 million, a current income tax expense of $0.5 million and a deferred income tax expense of $0.2 million for the quarter ended December 31, 2011.  DATA Group reported a loss before income taxes of $36.6 million, a current income tax expense of $4.2 million and a deferred income tax recovery of $3.7 million for the year ended December 31, 2012 compared to income before income taxes of $8.0 million, a current income tax expense of $1.8 million and a deferred income tax expense of $0.8 million for the year ended December 31, 2011.  The current tax expense for the quarter and year ended December 31, 2012 were higher than the same periods in 2011 due to the Fund's conversion to a corporation, which resulted in higher taxable income for the quarter and year ended December 31, 2012, respectively. The deferred income tax expense was due to a change in estimates of future reversals of temporary differences and new temporary differences that arose during the quarter ended December 31, 2012.  The deferred income tax recovery was due to the conversion, a change in estimates of future reversals of temporary differences and new temporary differences that arose during the year ended December 31, 2012.  As a result of the conversion, DATA Group re-measured its deferred tax assets and liabilities at the corporate tax rates applicable to corporations, which are lower than the top marginal tax rate for individuals used by the Fund.  In addition, the Fund's conversion option liabilities were reclassified as equity on January 1, 2012 and the associated deferred tax asset was reversed.  As a result of these changes, DATA Group recorded a deferred income tax recovery $1.4 million during the first quarter of 2012.

Net (Loss) Income
Net loss for the quarter ended December 31, 2012 was $41.6 million compared to a net income of $1.2 million for the quarter ended December 31, 2011.  The decrease in comparable profitability for the quarter ended December 31, 2012 was substantially due to a goodwill impairment charge and higher current income tax expense.  The decrease in profitability was partially offset by higher gross profit in 2012, a gain on the settlement of a pension plan, lower corporate conversion costs and acquisition costs that did not re-occur in 2012.

Net loss for the year ended December 31, 2012 was $37.1 million compared to a net income of $5.4 million for the year ended December 31, 2011.  The decrease in comparable profitability for the year ended December 31, 2012 was substantially due to a goodwill impairment charge, higher SG&A expenses, a large recovery related to the change in the fair value of the conversion options in the Fund's outstanding convertible debentures in 2011, and a higher current income tax expense as discussed above.  The decrease in comparable profitability was partially offset by higher gross profit, the acquisition of FSA and Datalytics, a gain on the settlement of a pension plan, acquisition costs during 2011 and the deferred income tax recovery due to the change in estimate of future reversals of temporary differences, new temporary differences that arose during the period and the conversion of the Fund to a corporation.

INVESTING ACTIVITIES

Capital expenditures for the quarter ended December 31, 2012 of $0.4 million related primarily to maintenance capital expenditures.  For the year ended December 31, 2012, DATA Group incurred capital expenditures of $2.0 million related primarily to maintenance capital expenditures and an investment in intangible assets of $0.4 million related to the software licences.  These capital expenditures were financed by cash flow from operations and existing cash resources.

FINANCING ACTIVITIES

At December 31, 2012, DATA Group had a bank overdraft of $1.2 million, which consisted of outstanding cheques of $2.5 million offset by cash and cash equivalents of $1.3 million.  During the year ended December 31, 2012, DATA Group repaid $2.5 million of its Revolving Bank Facility outstanding.  For the quarter and year ended December 31, 2012, DATA Group paid aggregate cash dividends of $3.8 million and $14.0 million, respectively, to its shareholders.  For the year ended December 31, 2012, DATA Group paid aggregate cash distributions of $1.3 million to holders of the common shares of DATA Group (formerly unitholders of the Fund).

About DATA Group Inc.

DATA Group Inc. is a managed business communications services company specializing in customized document management and marketing solutions.  DATA Group develops, manufactures, markets and supports integrated web and print-based communications, information management and direct marketing products and services that help its customers reduce costs, increase revenues, maintain brand consistency and simplify their business process.  DATA Group's expertise and resources enable it to address any document requirement of its customers, from a simple mail-out to an enterprise-wide document management or direct marketing initiative.  We have over 1,800 employees working from 35 locations across Canada and the United Sates to accomplish this.

Additional information relating to DATA Group Inc. is available on www.datagroup.ca, and in the disclosure documents filed by DATA Group Inc. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

All financial information in this press release is presented in Canadian dollars and in accordance with generally accepted accounting principles ("GAAP") measured under International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") for publicly accountable entities, unless otherwise noted.  Financial figures presented prior to January 1, 2012 are those of The DATA Group Income Fund, the predecessor to DATA Group Inc.

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 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 DATA Group's current views regarding future events and operating performance, are based on information currently available to DATA Group, 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, objectives or achievements of DATA Group to be materially different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking statements.  The principal factors, assumptions and risks that DATA Group made or took into account in the preparation of these forward-looking statements include the risk that DATA Group may not be successful in growing its business or in managing its organic growth; DATA Group's ability to develop and successfully market new products and services; competition from competitors supplying similar products and services; DATA Group's ability to grow its sales or even maintain historical levels of its sales of printed business documents; the impact of economic conditions on DATA Group's businesses; risks associated with acquisitions by DATA Group; increases in the costs of paper and other raw materials used by DATA Group and DATA Group's ability to maintain relationships with its customers. Additional factors are discussed elsewhere in this press release and under the heading "Risks and Uncertainties" in DATA Group's management's discussion and analysis and in DATA Group's other publicly available disclosure documents, as filed by DATA Group 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, DATA Group 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 and finance costs, taxes, depreciation and amortization.  Adjusted EBITDA for the three months ended December 31, 2012 means EBITDA adjusted for a gain on the settlement of a pension plan and a goodwill impairment charge.  Adjusted EBITDA for the three months ended December 31, 2011 means EBITDA adjusted for acquisition and corporate conversion costs.  Adjusted EBITDA for the year ended December 31, 2012 means EBITDA adjusted for corporate conversion costs, a gain on the settlement of a pension plan and a goodwill impairment charge.  Adjusted EBITDA for the year ended December 31, 2011 means EBITDA adjusted for acquisition and corporate conversion costs.  DATA Group believes that, in addition to net income (loss), EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the performance of DATA Group and its predecessors.  EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS.  Therefore, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that neither EBITDA nor Adjusted EBITDA should be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of DATA Group's performance.  For a reconciliation of net income (loss) to Adjusted EBITDA, see Table 2 above.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, unaudited)   December 31, 2012
$
  December 31, 2011
$
Assets        
Current assets        
  Cash and cash equivalents   -   4,046
  Trade receivables   41,580   43,647
  Inventories   38,085   40,786
  Prepaid expenses and other current assets   4,404   4,691
    84,069   93,170
         
Non-current assets        
  Deferred income tax assets   1,534   887
  Property, plant and equipment   20,420   24,149
  Intangible assets   17,540   26,367
  Goodwill   101,066   145,200
    224,629   289,773
Liabilities        
Current liabilities        
  Bank overdraft   1,161   -
  Trade payables   28,289   32,280
  Provisions   308   349
  Income taxes payable   1,699   1,933
  Deferred revenue   7,586   9,039
  Dividends/distributions payable   1,273   1,273
    40,316   44,874
         
Non-current liabilities        
  Provisions   867   1,069
  Revolving bank facility   57,553   60,123
  Convertible debentures   42,311   42,229
  Deferred income tax liabilities   766   5,686
  Other non-current liabilities   1,137   1,548
  Pension obligations   16,839   14,043
  Other post-employment benefit plans   2,726   2,525
    162,515   172,097
Equity        
Shareholders' equity        
  Shares   215,336   -
  Units   -   215,336
  Conversion options   516   -
  Foreign currency translation reserve   1   -
  Deficit   (153,875)   (97,973)
    61,978   117,363
Non-controlling interest   136   313
    62,114   117,676
    224,629   289,773


CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(in thousands of Canadian dollars, except per share/unit amounts,
unaudited)
For the three months
ended December 31,
2012
For the three months
ended December 31,
2011
  $ $
Revenues 86,915 89,798
     
Cost of revenues 63,743 67,285
     
Gross profit 23,172 22,513
     
Expenses    
  Selling, commissions and expenses 9,332 9,182
  General and administration expenses excluding
amortization of intangible assets
6,196 6,292
  Gain on settlement of pension plan (243) -
  Impairment of goodwill 44,000 -
  Acquisition costs - 410
  Corporate conversion costs - 148
  Amortization of intangible assets 2,310 2,578
  61,595 18,610
     
(Loss) income before finance costs and income taxes (38,423) 3,903
     
Finance costs    
   Interest expense 1,464 1,486
   Interest income - (8)
   Change in fair value of conversion options - 442
   Amortization of transaction costs 157 133
  1,621 2,053
     
(Loss) income before income taxes (40,044) 1,850
     
Income tax expense (recovery)    
   Current 1,452 465
   Deferred 119 157
  1,571 622
     
Net (loss) income for the period (41,615) 1,228
     
Other comprehensive income    
  Actuarial gains on post-employment benefit obligations 1,076 2,039
  Taxes related to post-employment adjustment above (282) (913)
  Foreign currency translation 1 -
  795 1,126
     
Comprehensive (loss) income for the period (40,820) 2,354
     
ATTRIBUTABLE TO    
SHAREHOLDERS' or UNITHOLDERS'    
    Net (loss) income (41,609) 1,265
    Other comprehensive income (loss) 795 1,126
  Comprehensive income (loss) for the period (40,814) 2,391
     
NON-CONTROLLING INTEREST    
    Net loss (6) (37)
    Other comprehensive income (loss) - -
  Comprehensive loss for the period (6) (37)
     
Basic (loss) income per share/unit (1.77) 0.05
Diluted (loss) income per share/unit (1.77) 0.05


CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(in thousands of Canadian dollars, except per share/unit amounts, unaudited) For the year ended
December 31, 2012
For the year ended
December 31, 2011
  $ $
Revenues 336,315 332,043
     
Cost of revenues 249,143 248,633
     
Gross profit 87,172 83,410
     
Expenses    
  Selling, commissions and expenses 37,317 34,861
  General and administration expenses excluding amortization
     of intangible assets
26,908 23,919
  Gain on settlement of pension plan (243) -
  Impairment of goodwill 44,000 -
  Corporate conversion costs 84 585
  Acquisition costs - 410
  Amortization of intangible assets 9,242 10,275
  117,308 70,050
     
(Loss) income before finance costs and income taxes (30,136) 13,360
     
Finance costs    
  Interest expense 5,882 5,662
  Interest income (15) (74)
  Change in fair value of conversion options - (738)
  Amortization of transaction costs 617 526
  6,484 5,376
     
(Loss) income before income taxes (36,620) 7,984
     
Income tax expense (recovery)    
  Current 4,220 1,836
  Deferred (3,712) 765
  508 2,601
     
Net (loss) income for the year (37,128) 5,383
     
Other comprehensive (loss) income    
  Deferred income tax recovery on conversion to a corporation 406 -
  Actuarial losses on post-employment benefit obligations (5,528) (1,597)
  Taxes related to post-employment adjustment above 1,449 716
  Foreign currency translation 1 -
  (3,672) (881)
     
Comprehensive (loss) income for the year (40,800) 4,502
     
ATTRIBUTABLE TO    
SHAREHOLDERS' or UNITHOLDERS'    
    Net (loss) income (37,072) 5,420
    Other comprehensive loss (3,672) (881)
  Comprehensive (loss) income for the year (40,744) 4,539
     
NON-CONTROLLING INTERESTS    
    Net loss (56) (37)
    Other comprehensive income (loss) - -
  Comprehensive loss for the year (56) (37)
     
Basic (loss) income per share/unit (1.58) 0.23
Diluted (loss) income per share/unit (1.58) 0.23

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  Attributable to Shareholders'    
(in thousands of Canadian dollars, unaudited) Shares Units Conversion options Foreign
currency translation reserve
Deficit Total Shareholders' Equity Non-
controlling interest
Total Equity
  $ $ $ $ $ $ $ $
                 
Balance as at December 31, 2010 - 215,336 - - (87,234) 128,102 - 128,102
                 
Net income (loss) for the year - - - - 5,420 5,420 (37) 5,383
Other comprehensive loss for the year - - - - (881) (881) - (881)
Total comprehensive income (loss) for the year - - - - 4,539 4,539 (37) 4,502
                 
Acquisition of business - - - - - - 350 350
Distributions declared - - - - (15,278) (15,278) - (15,278)
                 
Balance as at December 31, 2011 - 215,336 - - (97,973) 117,363 313 117,676
                 
                 
Balance as at December 31, 2011 - 215,336 - - (97,973) 117,363 313 117,676
Effect of conversion to a corporation 215,336 (215,336) 516 - - 516 - 516
  215,336 - 516 - (97,973) 117,879 313 118,192
                 
Net loss for the year - - - - (37,072) (37,072) (56) (37,128)
Other comprehensive (loss) income for the year - - - 1 (3,673) (3,672) - (3,672)
Total comprehensive (loss) income for the year - - - 1 (40,745) (40,744) (56) (40,800)
                 
Acquisition of non-controlling interest - - - - 121 121 (121) -
Dividends declared - - - - (15,278) (15,278) - (15,278)
                 
Balance as at December 31, 2012 215,336 - 516 1 (153,875) 61,978 136 62,114

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)   For the three
months ended
December 31, 2012
  For the three
months ended
December 31, 2011
    $   $
Cash provided by (used in)        
Operating activities        
Net (loss) income for the period   (41,615)   1,228
Adjustments to net (loss) income        
  Depreciation of property, plant and equipment   1,407   1,570
  Amortization of intangible assets   2,310   2,578
  Pension expense and gain on settlement of pension plan   (159)   42
  Gain on disposal of property, plant and equipment   (9)   (31)
  Change in provisions   (191)   (188)
  Impairment of goodwill   44,000   -
  Change in fair value of conversion options   -   442
  Amortization of transaction costs   157   133
  Accretion of convertible debentures   75   75
  Other non-current liabilities   (215)   (27)
  Other post-employment benefit plans, net   (136)   (113)
  Income tax expense   1,571   622
    7,195   6,331
Changes in working capital   (843)   3,141
Contributions made to pension plans, net   (468)   (897)
Income taxes paid   (537)   (13)
    5,347   8,562
Investing activities        
Purchase of property, plant and equipment   (416)   (841)
Proceeds on disposal of property, plant and equipment   12   53
Acquisition of businesses, net of cash acquired of $58   -   (12,181)
    (404)   (12,969)
Financing activities        
Proceeds from revolving bank facility   -   5,500
Finance costs   (240)   (5)
Dividends or distributions paid   (3,819)   (3,819)
    (4,059)   1,676
         
Increase (decrease) in (bank overdraft) cash and cash equivalents during the period   884   (2,731)
(Bank overdraft) cash and cash equivalents - beginning of period   (2,045)   6,777
(Bank overdraft) cash and cash equivalents - end of period   (1,161)   4,046
         


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)   For the year ended
December 31, 2012
  For the year ended
December 31, 2011
    $   $
Cash provided by (used in)        
Operating activities        
Net (loss) income for the year   (37,128)   5,383
Adjustments to net (loss) income        
  Depreciation of property, plant and equipment   5,727   5,752
  Amortization of intangible assets   9,242   10,275
  Pension expense and gain on settlement of pension plan   165   413
  Loss on disposal of property, plant and equipment   6   4
  Impairment of goodwill   44,000   -
  Change in provisions   (243)   (561)
  Change in fair value of conversion options   -   (738)
  Amortization of transaction costs   617   526
  Accretion of convertible debentures   299   298
  Other non-current liabilities   (411)   (87)
  Other post-employment benefit plans, net   63   (2)
  Income tax expense   508   2,601
    22,845   23,864
Changes in working capital   (254)   (662)
Contributions made to pension plans, net   (2,759)   (3,051)
Income taxes paid   (4,454)   (13)
    15,378   20,138
Investing activities        
Purchase of property, plant and equipment   (2,028)   (2,167)
Purchase of intangible assets   (415)   -
Proceeds on disposal of property, plant and equipment   24   53
Acquisition of businesses, net of cash acquired of $58   -   (12,181)
    (2,419)   (14,295)
Financing activities        
(Repayment of) proceeds from revolving bank facility   (2,500)   5,500
Financing costs   (388)   (14)
Dividends or distributions paid   (15,278)   (15,278)
    (18,166)   (9,792)
         
Decrease in cash and cash equivalents during the year   (5,207)   (3,949)
Cash and cash equivalents - beginning of year   4,046   7,995
(Bank overdraft) cash and cash equivalents - end of year   (1,161)   4,046
         



 

 

 

SOURCE DATA Group Inc.



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