Industry watchers finally received the financial information about Indigo Books & Music Inc. that they have been waiting for, confirming the widespread belief that Canada's second largest bookstore chain was not profitable.
In a circular distributed to Chapters' shareholders, it was disclosed that Indigo lost C$31.7 million ($20.6 million) on revenue of C$94.8 million ($61.5 million) for the fiscal year ending January 2001. The figure includes more than C$8.5 million in revenue generated by its online operation. The losses were higher than the year before, when Indigo lost C$23.3 million on sales of C$65.9 million.
The information was released in time for shareholders to vote on Indigo's merger with Chapters Inc. Once approved by the shareholders, the merger is expected to become effective August 14, 2001. Both the Chapters and Indigo names are expected to survive the merger.
According to the audit, Indigo is dependent on the merger if it is to continue to exist. "Continued operations depends on the successful completion of this merger or other cooperative arrangements with this strategic partner which would allow the Company to generate further profitable operations and/or obtain sufficient additional financing," according to a financial statement issued by the auditors, KPMG Chartered Accountants.
Chapters expects to close up to six stores in addition to the 13 stipulated by the Competition Bureau. Chapters could close more if a substantial number of stores included in the assets to be divested, according to the consent order, are not sold. Store closures would make inventory available for sale, return or reallocation. Based on average inventory at wholesale purchase price, it is estimated that this would reduce working capital by about C$9 million The circular also noted that Larry Stevenson, former CEO of Chapters, received C$855,750 when his position was terminated. Glenn Murphy, former president and CEO of Chapters Retail, received more than C$1.4 million after his job was eliminated. The restructuring and takeover costs amounted to C$30 million.
