Newport Partners Income Fund
TSX : NPF.UN

Newport Partners Income Fund

August 12, 2009 08:06 ET

Newport Partners Income Fund Announces Q2 Financial Results

TORONTO, ONTARIO--(Marketwire - Aug. 12, 2009) -

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

Newport Partners Income Fund ("NPF" or "the Fund") (TSX:NPF.UN) today announced its results for the three and six months period ended June 30, 2009.



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($ millions) Q2 2009 Q2 2008 6 months 6 months
2009 2008
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Revenue 132.4 174.8 291.2 328.6
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Gross profit 40.1 55.5 79.0 102.3
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Selling, general &
administrative expenses 30.3 33.3 61.6 64.6
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Net (loss) income (8.7) 1.6 (22.6) (1.2)
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EBITDA from continuing
operations 10.9 24.0 18.8 41.0
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Distributable cash (2.1) 15.3 (4.9) 26.4
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Distributable cash per unit $(0.03) $0.21 $(0.07) $0.37
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Revenue for the three-month period ended June 30, 2009 was $132.4 million, down 24 percent from $174.8 million reported in the same period last year. Revenue for the six month period ended June 30, 2009 was $291.2 compared to $328.6 million in the prior year period. Gross profit for the three months declined to $40.1 million (30% of revenue) from $55.5 million (32% of revenue) for the same period last year. On a year to date basis, gross profit was $79.0 million (27% of revenue) compared to $102.3 million or 31 percent of revenue in the prior year period. The decline in gross profit margins is primarily attributable to pricing pressure in all of the four business segments.

Selling, general and administrative expenses of $30.3 million were down from $33.3 in the same prior last year. For the six months period, selling, general and administrative expenses were $61.6 million compared to $64.6 million in the prior year period.

EBITDA from continuing operations was $10.9 million for the current quarter compared to $24.0 million in last year's quarter. On a year to date basis, EBITDA was $18.8 million compared to $41.0 million in the prior year. The net loss for the quarter was $8.7 million versus net income of $1.6 million for the same period last year. For the six months ended June 30, 2009, there was a net loss of $22.6 million compared to a net loss of $1.2 million.

During the three and six months ended June 30, 2009 the Fund was not in compliance with certain covenants under its Senior Credit Agreement. The Fund was in active and cooperative discussions with the Fund's lenders through the period and on July 21, 2009 signed a Forbearance Agreement in which the Lenders have agreed not to enforce their default related rights and remedies under the Senior Credit Agreement for a period of up to 365 days.

"We have taken an important step in our balance sheet restructuring process by signing the Forbearance Agreement with the lenders. There is much work to be done to reduce our debt levels, and we also are now focusing on restructuring the convertible debt." noted Dean MacDonald, President and Chief Executive Officer of the Fund. "All our work on restructuring the balance sheet has been done against a backdrop of a severely weakened economy which is putting pressure on all segments of our business. Our customers are looking for us to provide more service for the same price. We can't ignore this new reality, and in order to retain business we need to be careful to get the right balance between achieving cost reductions and servicing the needs of existing customers and new ones when the economy rebounds."

Q2 Portfolio Highlights

NPC/Golosky's maintenance and oil sands operations reported reduced revenues over the same period a year ago. This reflects a significant pullback from clients who previously have completed major shutdown/turnaround maintenance projects at this time of year. These projects have been deferred or postponed indefinitely by clients. Quantum Murray's environmental division performed satisfactorily, but both the demolition and scrap metals divisions are being impacted by a significant reduction in larger industrial demolition projects. Peerless had a solid quarter as it executes on two large contracts. Both Titan and Gusgo are experiencing reduced revenue levels. The harsh economic climate in Alberta continues to impact drilling, construction and transportation customers of Titan and the manufacturing challenges in Ontario are impacting Gusgo's transportation business.

Despite the economic climate, the Fund's specialty marketing businesses have fared relatively well although all businesses are seeing some erosion in client spending which has impacted margins.

The asset managers in the Fund's financial services segment have fared better than the previous quarter as equity markets have strengthened, however, compared to a year ago Morrison Williams, NP LP and Brompton have all been impacted by reduced AUM following the significant financial market sell off in the fall of 2008. All of the insurance businesses - ESR, Hargraft and BMI continue to be hurt by lower commission income as a result of softer insurance markets and continuing intense competition.

About Newport Partners Income Fund

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

Newport Partners Income Fund is a publicly-traded diversified fund that invests in successful Canadian private businesses run by proven entrepreneurs at reasonable prices. The Fund currently has $552 million invested in 17 companies representing a diverse cross-section of the Canadian economy.

Investor Conference Call

Management will hold a conference call at 10:30 am (Eastern Standard Time) on August 12, 2009 to discuss the second quarter financial results. The call may be accessed by dialling 416-340-8018 within the Toronto area or 1-866-225-2055 (toll free). This conference call will be recorded and available for replay until Wednesday, August 26, 2009. To listen to the replay, please dial 416-695-5800 or 1-800-408-3053, passcode is 7102555.

Forward-Looking Information

Certain information included in this news release may constitute forward-looking information within the meaning of securities laws. 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. Forward-looking information may relate to management's future outlook and anticipated events or results and may include statements or information regarding the future plans or prospects of the Fund or the Operating Partnerships and reflects management's expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of the Fund and the Operating Partnerships. Without limitation, information regarding the future operating results and economic performance of the Fund and the Operating Partnerships, and statements about net asset value constitute forward-looking information and the estimate is updated quarterly. Such forward-looking information reflects management's current beliefs and is based on information currently available to management of the Fund and the Operating Partnerships. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking information including risks related to investments, conditions of capital markets, economic conditions, taxation of income trusts, dependence on key personnel, limited customer bases, interest rates, regulatory change, continued availability of credit facilities, availability of future financing, factors relating to the weather and availability of labour. These factors should not be considered exhaustive. In addition, 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.

In formulating forward-looking information herein, management has assumed that business and economic conditions affecting the Fund and the Operating Partnerships will continue substantially in the ordinary course, including without limitation with respect to general levels of economic activity, regulations, taxes, interest rates, that there will be no material changes in its credit arrangements. Although the forward-looking information is based on what management of the Fund 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 news release, and the Fund does not assume any obligation to update or revise them to reflect new events or circumstances. Undue reliance should not be placed on forward-looking information. The Fund is providing the forward-looking financial information for the purpose of providing investors with some context for the "2009 Outlook" presented. Readers are cautioned that this information may not be appropriate for any other purpose.

Non-GAAP Measures

The terms "adjusted EBITDA , "distributable cash or adjusted distribution base", "EBITDA", "invested capital" "standardized distributable cash" (collectively the "Non-GAAP Measures") are financial measures used in this MD&A that are not standard measures under Canadian generally accepted accounting principles ("GAAP"). NPF's method of calculating Non-GAAP Measures may differ from the methods used by other issuers. Therefore, NPF's Non-GAAP Measures, as presented may not be comparable to similar measures presented by other issuers.

Adjusted EBITDA refers to EBITDA excluding the gain or loss on reduction of ownership interest (dilution gains or losses) and the write-down of goodwill and intangibles. The Fund has used Adjusted EBITDA as the basis for the analysis of its past operating financial performance. Adjusted EBITDA is used by the Fund and management believes it is a useful supplemental measure from which to determine the Fund's ability to generate cash available for debt service, working capital, capital expenditures, income taxes and distributions. Adjusted EBITDA is a measure that management believes facilitates the comparability of the results of historical periods and the analysis of its operating financial performance which may be useful to investors.

Distributable cash or Adjusted distribution base is not a standard measure under GAAP and is generally used by Canadian income funds as an indicator of financial performance. The Fund's method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. The Fund has provided a reconciliation of cash provided by operations to distributable cash in this MD&A and is calculated as standardized distributable cash adjusted for changes in working capital, growth capital expenditure and priority income amounts. References to distributable cash are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. As the Fund intends to make monthly cash distributions and management believes it is therefore a useful financial measure as an indication of the Fund's ability to make such distributions and is used by management and the Trustees for this purpose. Distributable cash is also used by management in the calculation of overall yield which it uses to monitor the performance of the Fund's Operating Partnerships. One of the factors that may be considered relevant by prospective investors is the cash distributions by the Fund relative to distributable cash and the price of the Units. Management believes that distributable cash is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.

EBITDA refers to net earnings determined in accordance with GAAP, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. EBITDA is used by management and the Trustees as well as many investors to determine the ability of an issuer to generate cash from operations. Management also uses EBITDA to monitor the performance of the Fund's reportable segments and believes that in addition to net income or loss and cash provided by operating activities, EBITDA is a useful supplemental measure from which to determine the Fund's ability to generate cash available for debt service, working capital, capital expenditures, income taxes and distributions. The Fund has provided a reconciliation of income to EBITDA in its MD&A.

Invested capital refers to the cost to acquire an equity interest in an Operating Partnership and excludes transaction costs and any working capital provided to such Operating Partnership. Management uses this measure to monitor the performance of its investment strategy and as an input to the calculation of its targeted overall yield for an Operating Partnership. Management believes that invested capital is a useful supplemental measure that provides investors with useful information about the capital that the Fund deploys for each Operating Partnership which can subsequently be used to determine the performance of each Operating Partnership.

Standardized distributable cash is defined as the GAAP measure of cash from operating activities after adjusting for capacity expenditures, restrictions on distributions arising from compliance with financial covenants restrictive at the time of reporting, and minority interests. This is a measure that the CICA believes is of use to investors as a benchmark to compare investments.

Investors are cautioned that the Non-GAAP Measures are not alternatives to measures under GAAP and should not, on their own, be construed as an indicator of 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 included in the MD&A and the Fund's annual audited financial statements available on SEDAR at www.sedar.com or at www.newportpartnersincomefund.ca.



NEWPORT PARTNERS INCOME FUND
Consolidated Balance Sheets
(In thousands of dollars)

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June 30, December 31,
2009 2008
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(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 19,456 $ 23,855
Cash and short-term investments held in trust 29,118 19,839
Accounts receivable 136,324 154,463
Inventories 33,527 33,112
Prepaid expenses 3,014 3,184
Other current assets 23,574 22,830
Future tax asset - 1,393
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245,013 258,676
Property, plant and equipment 47,526 44,498
Long-term investments 16,859 16,494
Goodwill 100,339 94,362
Intangible assets 175,358 189,306
Other assets 13,749 15,706
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$ 598,844 $ 619,042
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Liabilities and Unitholders' Equity
Current liabilities:
Revolving credit facility $ 32,100 $ 27,400
Current portion of long-term debt 210,000 210,000
Accounts payable and accrued liabilities 119,898 123,103
Deferred revenue 15,726 10,742
Current portion of obligations under capital
leases 4,641 5,695
Current portion of future tax liability 1,192 -
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383,557 376,940
Obligations under capital leases 7,299 7,741
Future tax liability 20,598 26,076
Convertible debentures 154,370 152,683
Non-controlling interest - -
Unitholders' equity 33,020 55,602
Going concern
Subsequent events
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$ 598,844 $ 619,042
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NEWPORT PARTNERS INCOME FUND
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(In thousands of dollars, except unit amounts)
(Unaudited)
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Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
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Revenues $ 132,420 $ 174,793 $ 291,232 $ 328,554
Cost of revenues 92,311 119,334 212,276 226,242
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40,109 55,459 78,956 102,312

Expenses
Selling, general and
administrative 30,300 33,294 61,587 64,617
Amortization of intangible
assets 9,519 9,960 17,810 19,920
Depreciation 3,027 2,774 6,112 5,308
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42,846 46,028 85,509 89,845
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(Loss) income before the
undernoted (2,737) 9,431 (6,553) 12,467

Income from equity investments 781 962 818 1,494
Other income - 382 - 712
Interest expense 10,563 9,050 20,615 18,369
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(Loss) income before income
taxes (12,519) 1,725 (26,350) (3,696)

Income tax expense - current 14 15 31 18
Income tax (recovery) - future (3,799) (40) (3,799) (105)
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(Loss) income from continuing
operations before
non-controlling interest (8,734) 1,750 (22,582) (3,609)

Non-controlling interest relating
to continuing operations - (638) - 1,628
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(Loss) income from continuing
operations $ (8,734) $ 1,112 $ (22,582) $ (1,981)
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Income from discontinued
operations before
non-controlling interest - 846 - 1,423

Non-controlling interest relating
to discontinued operations - (398) - (642)
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Income from discontinued
operations - 448 - 781
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Net (loss) income and
comprehensive (loss) income $ (8,734) $ 1,560 $ (22,582) $ (1,200)
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(Loss) income per unit
Basic and diluted:
Continuing operations $ (0.14) $ 0.03 $ (0.41) $ (0.05)
Discontinued operations - 0.01 - 0.02
Net (loss) income (0.14) 0.04 (0.41) (0.03)
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NEWPORT PARTNERS INCOME FUND
Consolidated Statements of Cash Flows
(In thousands of dollars, except unit amounts)
(Unaudited)

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Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
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Cash (used in) provided by:
Operating activities:
Net (loss) income $ (8,734) $ 1,560 $ (22,582) $ (1,200)
Items not affecting cash:
Income from discontinued
operations before
non-controlling interest - (846) - (1,423)
Amortization of intangible
assets 9,519 9,960 17,810 19,920
Depreciation 3,046 2,797 6,154 5,474
Future income tax (recovery) (3,799) (40) (3,799) (105)
Income from equity investments,
net of cash received (433) 656 (201) 964
Non-cash interest expense 853 1,055 1,687 2,086
Non-cash compensation expense - 753 498 1,554
Non-controlling interest - 1,036 - (986)
Changes in non-cash working
capital 17,283 6,266 15,504 4,333
Cash provided by discontinued
operations - 536 - 2,132
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17,735 23,733 15,071 32,749
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Financing activities:
Increase in cash and short-term
investments held in trust (5,803) (4,102) (8,331) (2,052)
Increase (decrease) in revolving
credit facility 40 (5,418) 4,700 (5,396)
Repayment of capital lease
obligations (1,428) (1,562) (2,851) (3,005)
Distributions to unitholders - (6,934) - (13,695)
Distributions to non-controlling
interest - (4,752) - (9,677)
Cash used in discontinued
operations - (1,271) - (1,742)
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(7,191) (24,039) (6,482) (35,567)
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Investing activities:
Acquisition of businesses, net
of cash acquired - 305 (8,487) (892)
Proceeds on disposal of business - - 1,197 -
Purchase of property, plant and
equipment (3,741) (1,411) (5,698) (2,368)
Increase in other assets - (1,379) - (880)
Cash used in discontinued
operations - (386) - (589)
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(3,741) (2,871) (12,988) (4,729)
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Increase (decrease) in cash and
cash equivalents 6,803 (3,177) (4,399) (7,547)
Cash and cash equivalents,
beginning of period -
continuing operations 12,653 9,165 23,855 14,457
Cash and cash equivalents,
beginning of period -
discontinued operations - 6,743 - 5,821
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Cash and cash equivalents,
end of period 19,456 12,731 19,456 12,731
Cash and cash equivalents, end
of period - discontinued
operations - 5,622 - 5,622
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Cash and cash equivalents, end
of period - continuing
operations 19,456 7,109 19,456 7,109
Cash 19,456 7,029 19,456 7,029
Cash equivalents - 80 - 80
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Supplemental cash flow information:
Interest paid $ 4,925 $ 8,221 $ 9,974 $ 16,758
Cash acquired upon acquisition - - 113 61
Cash removed on disposal of
business - - 77 -
Supplemental disclosure of non-cash
financial and investing
activities:
Acquisition of property, plant
and equipment through capital
leases 604 1,929 1,355 2,494
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