Newport Investment Counsel Inc.
TSX : NPF.UN

Newport Investment Counsel Inc.

March 29, 2007 07:24 ET

Newport Partners Income Fund Announces 2006 Year-End and Fourth Quarter Results

TORONTO, ONTARIO--(CCNMatthews - March 29, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Newport Partners Income Fund ("Newport" or "The Fund")(TSX:NPF.UN) today announced its results for the three months and year ended December 31, 2006.

Newport's financial results are based on a diversified portfolio of 17 private equity investments. The financial results of RGC, an investment that Newport has announced it has a definitive agreement to divest from the Fund, are reported as discontinued operations.

For the year ended December 31, 2006, revenue from continuing operations was $366.1 million which resulted in $70.2 million of EBITDA. Net income for the year from continuing operations before non-controlling interest was $20.6 million. The Fund's net income from continuing operations after non-controlling interest was $11.3 million.

The Fund generated distributable cash of $53.5 million, resulting in $0.80 of distributable cash per unit based on 67.2 million total weighted average units outstanding. Included in this amount is cash from discontinued operations which was negative $2.9 million for the year. Distributions paid were $0.99 per unit.

Including discontinued operations, the portfolio delivered an overall yield on invested capital of 15.5 percent before financing and corporate costs - or 19.8 percent excluding discontinued operations.

Newport estimates RGC's disappointing performance accounted for a deficiency of approximately $0.25 of distributable cash per unit on the overall results management had been expecting for 2006. During fiscal 2006, RGC experienced operational challenges relating to significant margin compression on consumer electronics by manufacturers and retailers and to an acquisition the company completed in 2005 that failed to deliver intended benefits.

On March 27, 2007, Newport announced a definitive agreement for the sale of RGC's assets (excluding RGC's 45 percent interest in RLogistics) which is expected to close on or about April 30, 2007. The Fund's 2006 financial results include a loss from discontinued operations before non-controlling interest of $63.3 million which reflects a $55.8 million writedown on the carrying value of RGC to $29 million based on the estimated net sale proceeds to Newport. The Fund's net loss from discontinued operations after non-controlling interest was $34.7 million. The Fund's net loss after non-controlling interest was $23.3 million.

Corporate costs including head office salaries, professional fees and administration costs were $4.5 million - or approximately 0.94 percent of the Fund's net assets.

"While we are obviously disappointed with what we anticipated would be a long-term investment, we have taken steps to improve performance with the recently announced sale of RGC," said Mr. Peter Wallace, Newport President and CEO. "The disposition of RGC is expected to improve overall returns, as we redeploy the proceeds in investments that can potentially deliver yields of 16 to 20 percent on our invested capital. Removing it from the portfolio also reduces the impact that RGC was having on the seasonality and volatility of the portfolio's distributable cash."

"RGC aside, we are satisfied with the overall performance of the portfolio during our first full year as a public entity," added Wallace. "Excluding discontinued operations, five of the nine holdings owned by the Fund for the full twelve month period delivered yields in excess of 20 percent on invested capital, while one was below 16 percent. The individual yields of these nine holdings ranged from a high of 32.8 percent from NP LP, to a low of 8.1 percent from EZEE. As asset managers, we know that in any given year there will be positive and negative variances. Our diversification strategy helps to smooth out the variances to achieve a satisfactory overall yield."

"With the yields we receive on our invested capital, we don't have to assume a growth rate from our holdings in order to achieve a satisfactory return. That said, the growth rate of the businesses in the past year was impressive. For the twelve month period ended December 31, 2006, excluding discontinued operations the holdings collectively achieved EBITDA growth of 9.8 percent over the prior year. Of the nine companies held for the full year, NP LP, Morrison Williams, Capital C and NPC achieved double-digit levels of EBITDA growth while six achieved record years of performance: Brompton, NP LP, Morrison Williams, ESR, Capital C and NPC," noted Wallace.

During the year, the Fund completed $162.6 million worth of new investments that resulted in the addition of seven new holdings and the expansion of four of its existing businesses through strategic acquisitions.

In December, the Fund increased its funding capacity and replaced its short-term financing with a more permanent debt component through a $320 million multi-purpose senior credit agreement, with an affiliate of Fortress Credit Corp. At year end, the $170 million term loan and $5 million of the revolving credit facility were drawn. Newport had a net debt to last twelve months EBITDA ratio of approximately 1.6x.

Results - 2006 Performance - Newport

DISTRIBUTIONS/UNIT ($000s except per Unit amounts)



Year ended December 31, 2006
--------------------------------------------------------------------------
NPY (representing non-controlling interest) 33,436
Newport 33,744
----------------------------
Total weighted average units outstanding(i) 67,180
----------------------------
Total Distributions paid and payable $ 66,657
----------------------------
Distributions per unit $ 0.99

Cash provided by (used in) continuing
operating activities $ 50,565
Add: changes in non-cash working capital 11,049
Add: priority income per partnership
agreement(ii) 38
Deduct: maintenance capital expenditures and
reserves 2,208
Deduct: capital lease payments 3,009
----------------------------
Distributable cash from continuing operations 56,435
----------------------------
Cash used by discontinued operations (2,934)
----------------------------

Distributable cash $ 53,501
----------------------------
Distributable cash per unit from continuing
operations $ 0.84
----------------------------
Cash used per unit by discontinued operations $ (0.04)
Distributable cash per unit $ 0.80
--------------------------------------------------------------------------
(i) Represents weighted average number of units outstanding during the
period adjusted for C LP units which are currently subordinated and
therefore received no distributions.
(ii) To the extent that in any reporting period, calculated on a
cumulative basis, Newport's proportionate share of distributable
cash is more or less than its priority amount an adjustment to
distributable cash is made to reflect the actual cash distributions
payable to Newport by the operating partner.



BALANCE SHEET ($000S)
as at December 31, 2006
-----------------------------------------------------------
Total assets $ 894,349
Revolving credit facility 5,000
Long-term debt 170,000
Convertible debt 83,970
Unitholder's equity - Newport & NPY 478,235
-----------------------------------------------------------


SUMMARY FINANCIAL TABLE-NEWPORT (SEGMENTED)($000s except per unit amounts)
Year ended December 31, 2006

Financial Industrial
Services Marketing Services Other Corporate Total
(iii)
---------------------------------------------------------------------------
Revenue 69,379 69,323 186,821 40,579 - 366,102
Gross margin 38,601 33,792 39,809 10,761 - 122,963

Income from
continuing
operations
before
non controlling
interest 18,658 5,642 9,188 3,053 (15,930) 20,611
EBITDA 34,915 13,174 19,847 6,746 (4,513) 70,169

Interest
(income) expense (271) 238 1,681 934 7,911 10,493
Income taxes 96 - - - - 96
Maintenance
capital
expenditures and
reserves 297 390 1,017 116 388 2,208
Capital lease
payments 33 138 2,821 17 - 3,009
Compensation
expense
funded by
operating
partner(i) 2,034 - - - - 2,034
Priority income
per partnership
agreement(ii) (720) 689 - 69 - 38
---------------------------------------------------------------------------

Distributable cash
from continuing
operations 36,074 13,097 14,328 5,748 (12,812) 56,435
---------------------------------------------------------------------------

Cash used by
discontinued
operations (2,934)
---------------------------------------------------------------------------

Distributable
cash 53,501
---------------------------------------------------------------------------
Distributable
cash
per unit from
continuing
operations $ 0.84
---------------------------------------------------------------------------
Cash used per
unit
by discontinued
operations $ (0.04)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributable
cash
per unit $ 0.80
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(i) The results of the Corporate segment include corporate costs and
corporate interest expense.
(ii) Newport's agreement with ESR contemplates
that certain employee bonuses are paid for by the 20% limited
partners. GAAP requires that the bonuses be expensed and therefore
reduces EBITDA. Since there is no cash outlay by Newport the expense
is added back in arriving at distributable cash.
(iii) To the extent that in any reporting period, calculated on a
cumulative basis, Newport's proportionate share of distributable cash
is more or less than its priority amount an adjustment to
distributable cash is made to reflect the actual cash distributions
payable to Newport by the operating partner.


Portfolio Summary by Operating Partnership ($000s)
Year ended December 31, 2006
---------------------------------------------------------------------------
2006 2006
Operating Date of Distribut- Cash
Initial Ownership Invested 2006 able Yield
Partnership Investment Interest Capital EBITDA Cash (i)
---------------------------------------------------------------------------
Financial Services
---------------------------------------------------------------------------
EZEE Mar. 2004 100% 30,700 2,538 2,479 8.1%
Brompton Aug. 2005 45% 27,200 4,122 4,332 15.9%
ESR Aug. 2005 80% 56,000 11,023 12,485 22.3%
Morrison Williams Aug. 2005 80% 42,000 8,588 8,582 20.4%
NP LP Aug. 2005 100% 20,700 7,160 6,766 32.8%
Hargraft Apr. 2006 75% 16,000 1,484 1,430 12.5%
---------------------------------------------------------------------------
Marketing
---------------------------------------------------------------------------
S & E Oct. 2004 80% 5,700 831 993 17.4%
Gemma Mar. 2005 80% 28,000 5,051 5,066 18.1%
Capital C Aug. 2005 67% 23,700 5,303 5,029 22.6%
IC Group July 2006 80% 8,000 1,366 1,276 37.0%
Armstrong Oct. 2006 80% 20,000 623 733 15.2%
---------------------------------------------------------------------------
Industrial Services
---------------------------------------------------------------------------
NPC Oct. 2004 80% 36,200 13,474 8,565 23.7%
Murray Mar. 2006 80% 30,500 6,373 5,763 23.9%
---------------------------------------------------------------------------
Other
---------------------------------------------------------------------------
RLogistics May 2006 36% 10,000 970 970 14.6%
---------------------------------------------------------------------------
Peerless June 2006 90% 36,000 3,464 2,983 15.6%
Titan Sept. 2006 88% 25,200 1,943 1,357 16.2%
Gusgo Oct. 2006 80% 12,500 369 438 19.1%
---------------------------------------------------------------------------
Discontinued
Operations
RGC Oct. 2004 80% 77,500 (1,160) (2,934) -3.8%
---------------------------------------------------------------------------
(i) Cash distributions received as a percentage of time-weighted invested
capital
These are non-GAAP measures which do not have any standard meaning and
therefore unlikely to be comparable to similar measures presented by other
issuers,(see Non-GAAP Measures and Forward Looking Information). Footnotes
and definitions are provided on pages 13 and 48 of the 2006 Annual Report.


Fourth Quarter Results

Revenue from continuing operations for the three month period ended December 31, 2006 increased 91% from the prior year period to $111,483. EBITDA from continuing operations more than doubled to $20,787 compared to $9,871 in 2005 reflecting $8,468 of EBITDA from investments added in 2006 and growth from existing holdings. RGC is reported as discontinued operations.

During the period, the slowdown in the Alberta oil and gas sector affected the financial results of both Titan and NPC as these businesses supply products and services to that industry. In our financial services segment, contingent profit commissions from ESR were higher than expected and this contributed positively to the Fund's EBITDA results.

Distributable cash from continuing operations was $14,809 compared with $9,615 in the prior year period.

Overall, the Fund produced distributable cash of $15,328, a slight decline from $16,810 generated in 2005. There were primarily two factors that explained the decline. Distributable cash from RGC discontinued operations was $519, against $7,195 contributed in the prior year period.

As previously reported during the year, RGC has experienced challenges relating to significant margin compression on products it distributes and its acquisition of Sonigem, which has not delivered intended benefits. In the seasonally strong fourth quarter, RGC's revenues were also reduced by the corporate restructuring of a large retail account representing approximately 15% of its sales. This resulted in temporarily reduced demand for RGC's products as the customer adjusted its retail and warehouse inventory levels. Gross profit margin improvement achieved in the third quarter was basically maintained during the period.

The second factor impacting distributable cash was a five-fold increase in interest costs to $4,245 from $895 in the prior year period. This related to an increase in the credit facility and amounts drawn to finance the Fund's investment program and provide it with a more diversified capital structure. Interest costs are affected by the timing of investments. In addition, the 2006 quarter reflects a full quarter's accrual for interest on convertible debentures where 2005 included an accrual from date of issuance, December 12, 2005.

Distributable cash per unit decreased 19% to $0.21 compared to $0.26 generated in 2005. This reduction also reflects the dilution resulting from the issuance of equity units during the year.



RESULTS - Fourth Quarter performance - Newport

SUMMARY FINANCIAL TABLE - NEWPORT (SEGMENTED) ($000s)
Three months ended December 31, 2006

Financial Industrial
Services Marketing Services Other Corporate Total
(i)
---------------------------------------------------------------------------
Revenue 18,951 22,142 46,713 23,677 - $ 111,483
Gross margin 10,588 12,206 20,889 (2,674) - 41,009

Income from
continuing
operations
before
non controlling
interest 4,550 2,019 2,600 946 (6,840) 3,275

EBITDA 8,649 4,261 4,763 4,255 (1,141) 20,787
Interest expense (118) 69 477 592 3,225 4,245
Income taxes 11 24 - - - 35
Maintenance
capital
expenditures
and reserves 14 326 503 112 388 1,343
Capital lease
payments 29 27 657 14 - 727
Compensation
expense
funded by
operating
partner(ii) 354 - - - - 354
Priority income
per
partnership
agreement(iii) - (51) - 69 - 18
---------------------------------------------------------------------------
Distributable
cash from
continuing
operations 9,067 3,764 3,126 3,606 (4,754) 14,809
---------------------------------------------------------------------------
Distributable
cash from
discontinued
operations 519
---------------------------------------------------------------------------
Distributable cash $ 15,328
---------------------------------------------------------------------------
Distributable
cash
per unit
from continuing
operations $ 0.20
---------------------------------------------------------------------------
Distributable
cash
per unit
from
discontinued
operations $ 0.01
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributable
cash
per Unit $ 0.21
---------------------------------------------------------------------------
---------------------------------------------------------------------------



SUMMARY FINANCIAL TABLE - NEWPORT (SEGMENTED) ($000s)
Three months ended December 31, 2005

Financial Industrial
Services Marketing Services Other Corporate Total
(i)
---------------------------------------------------------------------------
Revenue 15,866 12,819 29,702 - - $ 58,387
Gross margin 10,429 6,395 4,615 - - 21,439

Income from
continuing
operations before
non controlling
interest 2,973 161 304 - (1,849) 1,589

EBITDA 7,017 2,281 1,791 - (1,218) 9,871
Interest expense (63) 30 421 - 507 895
Income taxes - - - - - -
Maintenance
capital
expenditures
and reserves 496 254 652 - - 1,402
Compensation
expenses
paid by operating
partner(ii) 1,029 - - - - 1,029
Priority income
per
partnership
agreement(iii) 651 361 - - - 1,012
---------------------------------------------------------------------------
Distributable cash
from
continuing
operations 8,264 2,358 718 - (1,725) 9,615
---------------------------------------------------------------------------
Distributable cash
from
discontinued
operations 7,195
---------------------------------------------------------------------------
Distributable cash $ 16,810
---------------------------------------------------------------------------
Distributable cash
per
unit from
continuing
operations $ 0.15
---------------------------------------------------------------------------
Distributable cash
per
unit from
discontinued
operations $ 0.11
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributable cash
per Unit $ 0.26
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(i) The results of the Corporate segment include corporate costs and
corporate interest expense both at Newport and NPY.
(ii) Newport's agreement with ESR contemplates that certain employee
bonuses are paid for by the 20% limited partners. GAAP requires
that the bonuses be expensed and therefore reduces EBITDA. Since
there is no cash outlay by Newport the expense is added back in
arriving at distributable cash.
(iii) To the extent that in any reporting period, calculated on a
cumulative basis, Newport's proportionate share of distributable cash
is more or less than its priority amount an adjustment to
distributable cash is made to reflect the actual cash distributions
payable to Newport by the operating partner.



Subsequent Events

Subsequent to year end, Newport indirectly invested a total of $49.5 million cash to allow for three of its existing operating partnerships, EZEE, Murray and NPC to make strategic acquisitions to expand their respective operations. Newport drew on its credit facility to make these investments.

Subsequent to year end, under the terms of its Normal Course Issuer Bid, Newport purchased and cancelled a total of 627,500 units with an average purchase price of $6.42.

Outlook

For 2007, we expect organic growth from the portfolio to be flat to slightly negative as the slowdown in the Alberta oil and gas sector and the soft commercial insurance market environment will negatively affect the financial results of some of our larger holdings that operate in these industries, specifically NPC, Titan, ESR and Hargraft. In our Marketing segment, the outlook is favourable for growth at IC Group and Gemma while Armstrong and S&E will be focused on replacing lost revenues from client attrition. Capital C expects top-line growth offset by higher integration costs. Our asset management businesses have budgeted for modest growth but the capital markets will be a key driver of their performance. The contribution from discontinued operations in the first quarter is expected to be generally consistent with the contribution of the prior year.

With the addition of strategic acquisitions made in January, Newport's current EBITDA 'run rate' has increased. For the twelve month period ended December 31, 2006, the Fund's share of the LTM EBITDA produced by all of its holdings as of the date of this report was $98.2 million. Given our planned investment program we expect that interest costs will be higher in 2007.

Our outlook is favourable for growth in 2007 from our investment program. For the current fiscal year, we plan to invest between $100-$150 million of new capital (inclusive of year to date investments of $49.5 million) at generally five to six times cash flow multiples. Our investment pipeline currently has a number of quality opportunities in various stages of review and the Newport Partners brand continues to gain strength and awareness among entrepreneurs as a good financial partner. We believe we have the scalability and management capacity to monitor an expanded portfolio. Using the credit agreement completed in December 2006, and expected proceeds from the sale of RGC, we believe we have the funding capacity we require to execute this plan.

Newport's first quarter outlook is that results will be significantly weaker than the subsequent three quarters of the year. This is due primarily to three factors: the seasonality and timing of large contracts at Quantum Murray; the current soft market for natural gas prices and a weak drilling season that adversely impact business levels at NPC and Titan; and the reduced seasonality of contingent profit commissions from ESR and Hargraft, which are now recognized gradually throughout the year. In the first quarter of 2006, ESR received approximately $2 million of contingent profit commissions that had been budgeted for subsequent quarters. In addition the timing of new investments that are expected to be made during the course of the year should positively impact results in subsequent quarters.

Newport's distribution policy is reviewed by the Fund's Trustees. The current level of distributions, at an annualized rate of $1.00 per unit, is being maintained. It is our expectation that distributable cash from our current holdings and new investments that will be added to the portfolio in 2007, will allow the Fund to make progress on closing the gap caused by the underperformance of RGC.

In light of the federal government's proposed tax policy changes regarding income trusts, we are reviewing the organizational structure that will create the maximum long-term value for unitholders. Whether the Fund's organizational structure takes the form of an income trust or a high dividend paying entity, we expect to continue with its business plan.

ABOUT NEWPORT

Newport is an unincorporated, open-ended trust created to hold through the Company's investment in Newport Partners Commercial Trust, interests in Newport Private Yield LP, ("NPY") a limited partnership established under the laws of the Province of Ontario. Newport began trading on the TSX on August 8, 2005 under the symbol NPF.UN.

Newport Partners Income Fund provides a simple way for investors to own private equity investments. Through ownership of Newport, investors gain access to a professionally-managed diversified portfolio of successful Canadian private businesses that offers income, growth, diversification and liquidity. Newport's core business is asset management. Its investment philosophy is to make long-term equity investments in leading or niche private businesses that have a track record of strong earnings, and potential for future growth. The Fund seeks to minimize risk through diversification, prudent use of leverage and investing in competent operating management who are known and trusted by Newport management. Newport's portfolio currently consists of 17 private company holdings representing a diverse cross-section of the Canadian economy. Newport's management has decades of investment experience and a significant ownership position in the Fund.

Investor Conference Call

Management will hold a conference call at 10:30 am (Eastern Standard Time) on March 29, 2007 to discuss the year end and fourth quarter results. The call may be accessed by dialing 416-695-6130 within the Toronto area or 1-877-888-4210 (toll free). This conference call will be recorded and available for replay until April 12, 2007. To listen to the replay, please dial 416-695-5275 or 1-888-509-0081 and enter pass code 638704.

Forward-Looking Information

This MD&A contains certain forward-looking information. This information relates to future events or future performance and reflects management's expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of Newport and the operating partnerships in which it holds an ownership interest (the "Operating Partnerships"). Such forward-looking information reflects management's current beliefs and is based on information currently available to management of Newport and the Operating Partnerships. In some cases, forward-looking information can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular, information regarding the future operating results and economic performance of Newport and the Operating Partnerships is forward-looking information. A number of factors, including risks and uncertainties, could cause actual events or results to differ materially from the events and results discussed in the forward-looking information. In evaluating this information, investors should specifically consider various factors, including the risks outlined under "Risk Factors", which may cause actual events or results to differ materially from any forward-looking statement. Although the forward-looking information is based on what management of Newport and the Operating Partnerships consider to be reasonable assumptions based on information currently available to it, there can be no assurance that actual events or results will be consistent with this forward-looking information, and management's assumptions may prove to be incorrect. This forward-looking information is made as of the date of this MD&A, and Newport does not assume any obligation to update or revise them to reflect new events or circumstances.

Non-GAAP Measures

The terms "EBITDA", "LTM EBITDA", "Distributable Cash" and "Distributable Cash per Unit", "Invested Capital" , "Net Debt", "Corporate Costs to Net Asset Ratio" (collectively the "Non-GAAP Measures") are financial measures used in this MD&A that are not standard measures under Canadian GAAP. Therefore, Newport's Non-GAAP Measures, as presented in this MD&A, may not be comparable to similar measures presented by other issuers.

EBITDA refers to earnings of Newport and NPY determined in accordance with generally accepted accounting principles, before depreciation and amortization, interest expense and income tax expense. LTM EBITDA refers to EBITDA for the last twelve months. Management believes that EBITDA and LTM EBITDA are useful supplemental measures of performance and are the primary basis on which management assesses financial performance and cash available for debt service, working capital, capital expenditures, income taxes and distributions.

Distributable Cash is generally used by Canadian income funds as an indicator of financial performance. Newport's method of calculating Distributable Cash is disclosed in the Summary Financial Table. Management believes that Distributable Cash and Distributable Cash Per Unit are useful supplemental measures that provide investors with information on cash available for distribution.
Invested Capital includes the cost to acquire the equity interest and excludes transaction costs and any working capital provided to the business being invested in.

Net Debt refers to total debt less cash on hand.

Corporate Costs to Net Asset Ratio is calculated by dividing corporate costs by net assets.

Investors are cautioned that the Non-GAAP Measures should not, on their own, be construed as an indicator of Newport's or NPY's performance or cash flows, a measure of liquidity or as a measure of actual return on the Units. These Non-GAAP Measures should only be used in conjunction with the financial statements of Newport and NPY as at December 31, 2006.




NEWPORT PARTNERS INCOME FUND
Consolidated Balance Sheets
(In thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
December 31, December 31,
2006 2005
---------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 61,643 $ 25,278
Accounts receivable 101,266 65,443
Inventories 33,253 1,970
Prepaid expenses 2,555 1,543
Other current assets 13,790 6,587
Current assets of discontinued operations 68,969 82,434
---------------------------------------------------------------------------
281,476 183,255
Property, plant and equipment 23,706 15,427
Long-term investments 47,001 42,154
Goodwill 253,344 215,021
Intangible assets 265,390 180,931
Other assets 9,029 4,971
Long-lived assets of discontinued operations 14,403 73,345
---------------------------------------------------------------------------
$ 894,349 $ 715,104
---------------------------------------------------------------------------

Liabilities and Partners' Equity
Current liabilities:
Revolving credit facility $ 5,000 $ -
Accounts payable and accrued liabilities 84,737 54,807
Deferred revenue 7,465 4,112
Current portion of obligations under capital
leases 4,122 2,729
Current portion of long-term debt - 35
Current liabilities of discontinued
operations 54,372 66,126
---------------------------------------------------------------------------
155,696 127,809
Obligations under capital leases 3,943 3,082
Long-term debt 170,000 -
Future tax liability 2,505 2,044
Non-controlling interest 176,196 259,090
Convertible debenture 83,970 84,339
Unitholders' equity 302,039 238,740
Commitments and contingencies
Subsequent events
---------------------------------------------------------------------------
$ 894,349 $ 715,104
---------------------------------------------------------------------------
---------------------------------------------------------------------------



NEWPORT PARTNERS INCOME FUND
Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the period from
August 8, 2005
(date of
commencement of
Year ended December operations) to
31, 2006 December 31, 2005
--------------------------------------------------------------------------

Revenue $ 366,102 $ 88,858
Cost of revenue 243,139 58,336
--------------------------------------------------------------------------
122,963 30,522
Expenses
Selling, general and
administrative 59,864 16,381
Amortization of deferred
financing charges 3,506 123
Amortization of intangible
assets 26,952 7,852
Depreciation 6,475 1,446
--------------------------------------------------------------------------
96,797 25,802
--------------------------------------------------------------------------

Income before the undernoted 26,166 4,720

Income from equity investments 3,341 1,136
Other income 1,693 146
Interest expense 10,493 1,001
--------------------------------------------------------------------------
Income before income taxes 20,707 5,001
Income tax expense - current 96 -
--------------------------------------------------------------------------
Income from continuing
operations before
non-controlling
interest 20,611 5,001

Non-controlling interest
relating to
continuing operations (9,303) (3,468)
--------------------------------------------------------------------------
Income from continuing
operations 11,308 1,533
--------------------------------------------------------------------------

Income (loss) from
discontinued
operations before non
controlling interest (63,253) 4,956

Non-controlling interest
relating to
discontinued operations 28,600 (3,437)
--------------------------------------------------------------------------
Income (loss) from
discontinued
operations (34,653) 1,519
--------------------------------------------------------------------------

Income (loss) $ (23,345) $ 3,052
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Income (loss) per unit
Basic and diluted:
Continuing operations $ 0.34 $ 0.06
Discontinued operations (1.03) 0.06
Net income (loss) (0.69) 0.12
--------------------------------------------------------------------------



NEWPORT PARTNERS INCOME FUND
Consolidated Statements of Changes in Financial Position
(In thousands of dollars)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the period from
August 8, 2005
(date of
Year ended commencement of
December operations) to
31, 2006 December 31, 2005
--------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Income (loss) for the year $ (23,345) $ 3,052
Items not affecting cash:
Income (loss) from discontinued
operations 63,253 (4,956)
Amortization of deferred financing
charges 3,506 123
Amortization of intangible assets 26,952 7,852
Depreciation 6,475 1,446
Income from equity investments, net
of cash received 2,036 475
Non-cash compensation expense 2,034 1,029
Non-controlling interest (19,297) 6,905
Changes in non-cash working capital (11,049) (21,829)
Cash provided by (used in)
discontinued operations 2,988 (314)
---------------------------------------------------------------------------
53,553 (6,217)
---------------------------------------------------------------------------

Financing activities:
Issuance of partnership units, net of
costs 71,275 213,476
Issuance of convertible units, net of
costs - 81,298
Distributions to unitholders (32,429) (7,506)
Distributions to non-controlling
interest (33,818) (11,201)
Decrease in bank indebtedness (26,342) (11,184)
Increase in long term debt 169,965 1,231
Repayment of capital lease
obligations (3,009) (517)
Cash provided by (used in)
discontinued operations (1,642) 1,829
---------------------------------------------------------------------------
144,000 267,426
---------------------------------------------------------------------------
Investing activities:
Acquisition of businesses, net of
cash acquired (142,328) (215,496)
Increase in other assets (7,564) -
Purchase of long-term investments (6,914) (1,465)
Purchase of intangible assets - (705)
Purchase of property, plant and
equipment (3,035) (1,380)
Cash used in discontinued operations (1,347) (16,885)
---------------------------------------------------------------------------
(161,188) (235,931)
---------------------------------------------------------------------------
Increase in cash and cash equivalents 36,365 25,278

Cash and cash equivalents, beginning
of year 25,278 -
---------------------------------------------------------------------------
Cash and cash equivalents, end of
year $ 61,643 $ 25,278
---------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 7,456 $ 1,058
Cash acquired upon acquisition 8,565 17,072
Supplemental disclosure of non-cash
financial and
investing activities:
Acquisition of property, plant and
Equipment through capital leases 3,518 1,021
---------------------------------------------------------------------------


Newport's 2006 Annual Financial Statements and Management's Discussion and Analysis are available on the investor relations section of www.newportpartners.ca and on SEDAR at www.sedar.com.

Contact Information