Newport Partners Income Fund
TSX : NPF.UN
TSX : NPF.DB
TSX : NPF.DB.A

Newport Partners Income Fund

November 09, 2010 08:00 ET

Newport Partners Income Fund Announces Q3 Financial Results

TORONTO, ONTARIO--(Marketwire - Nov. 9, 2010) -

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

Newport Partners Income Fund ("the Fund") (TSX:NPF.UN)(TSX:NPF.DB)(TSX:NPF.DB.A) today announced its results for the three and nine months ended September 30, 2010.

Third Quarter and Year-to-Date

          9 months   9 months  
($ millions) Q3 2010   Q3 2009   2010   2009  
Revenue $ 133.4   $ 147.5   $ 384.8   $ 412.0  
Gross profit $ 30.6   $ 37.0   $ 93.3   $ 98.8  
Selling, general & administrative expenses $ 22.9   $ 23.8   $ 70.6   $ 75.1  
Net loss $ (13.5 ) $ (12.0 ) $ (27.6 ) $ (32.0 )
Adjusted EBITDA from continuing operations $ 8.8   $ 13.8   $ 25.7   $ 25.5  
Distributable cash from (used by) continuing operations $ (3.1 ) $ 2.7   $ (4.3 ) $ (9.5 )

Revenue for the quarter ended September 30, 2010 was $133.4 million, a decrease of 9.6 percent from $147.5 million produced in the third quarter of 2009. Revenue for the nine month period ended September 30, 2010 was $384.8 million compared to $412.0 million in the prior year period. Gross profit for the quarter ended September 30, 2010 decreased 17.3 percent to $30.6 million representing a gross profit margin of 22.9 percent. For the same period last year, the Fund reported gross profit of $37.0 million representing a gross profit margin of 25.1 percent. On a year to date basis, gross profit was $93.3 million or 24.2 percent of revenue compared to $98.8 million or 24.0 percent of revenue in the prior year.

Adjusted EBITDA from continuing operations for the quarter decreased to $8.8 million versus $13.8 million for the same period last year. For the nine months ended adjusted EBITDA was $25.7 million compared to $25.5 million in the prior year.

The net loss for the third quarter of 2010 was $13.5 million versus $12.0 million in 2009. On a year to date basis there was a net loss of $27.6 million compared to $32.0 million in the prior year.

In October 2010 the Fund reached an agreement with its lenders to extend the Forbearance agreement by more than ninety days. The Fund agreed to repay the loan balance of $112.0 million plus associated fees and interest by January 31, 2011. "Progress is being made on asset sales to satisfy the Fund's obligations under the Forbearance agreement." said Dean MacDonald President and CEO of the Fund.

Management of the Fund is looking to address its capital structure and is reviewing all of its strategic options.

Operationally, the third quarter results were at best mixed. The industrial services segment results were down from the prior year quarter. At NPC, revenues from the conventional maintenance services were improved however volumes in the wear technology division have not yet returned to the levels seen in the prior year. At Quantum Murray revenues are down from the prior year which benefited from a large remediation project. There is some indication of an improving economy as more bidding opportunities for industrial demolition and remediation projects are becoming available.

"The financial services and marketing portfolios have produced variable results this quarter. Client pullbacks at a couple of our investments have hurt the overall performance of these segments.

We continue to monitor our costs and cashflows carefully through this period. Our expectation is that the fourth quarter will see improved results, largely driven by our industrial services segment" said Dean MacDonald.

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. The Fund 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. We target above-average rates of return by putting our money to work behind talented entrepreneurs who have a record of success in their business and a growth opportunity for the future. The Fund currently has $452 million invested in 14 companies representing a diverse cross-section of the Canadian economy.

Investor Conference Call

Management of the Fund will not hold a Q3 conference call. Management is focused on evaluating strategic re-financing options. A conference call for investors, analysts, brokers and media representatives will be announced in the future to provide an update on the progress of this initiative.

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 constitute forward-looking information. 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, compliance with the terms of the Amended Forbearance Agreement with the senior lenders, ability to meet working capital requirements and capital expenditures needs of the Operating Partners, 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. 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 except as required by law. 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 "Fourth Quarter Outlook" presented. Readers are cautioned that this information may not be appropriate for any other purpose.

Non-GAAP Measures The terms "distributable cash" and "EBITDA", (collectively the "Non-GAAP Measures") are financial measures used in this news release 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, the Fund's Non-GAAP Measures, as presented may not be comparable to similar measures presented by other issuers.

EBITDA refers to net earnings determined in accordance with GAAP, before depreciation and amortization, net of gain or loss on disposal of capital assets and disposal of investments, 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.

Adjusted EBITDA refers to EBITDA excluding the gain or loss on reduction of ownership interest (dilution gains or losses), the write-down of goodwill and intangibles and the impairment of long-term investments. 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 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 suspended distributions paid to its unitholders in October 2008. Under the Amended Forbearance Agreement, the Fund is prohibited from making distributions to unitholders and the Fund is retaining cash to meet working capital requirements, capital expenditures needs of the Operating Partners and to repay debt. Management believes it is, therefore, a useful financial measure as an indication of the Fund's ability to generate cash and use such cash to repay debt and fund operations. Distributable cash generated by an Operating Partnership is also used by management in the calculation of yield which it uses to monitor the performance of the Fund's Operating Partnerships.

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)
(unaudited)
 
    September 30,     December 31,
    2010     2009
Assets          
Current assets:          
  Cash and cash equivalents $ 17,535   $ 43,561
  Cash and short-term investments held in trust   20,401     20,142
  Accounts receivable   106,494     115,525
  Inventories   30,412     24,236
  Prepaid expenses   4,121     2,843
  Other current assets   15,577     14,246
  Current assets of discontinued operations   223     14,068
  $ 194,763   $ 234,621
Property, plant and equipment   37,843     43,005
Long-term investments   15,776     16,047
Goodwill   69,034     67,994
Intangible assets   70,654     84,096
Other assets   14,194     13,683
Long-term assets of discontinued operations   -     20,357
  $ 402,264   $ 479,803
Liabilities and Unitholders' Equity          
Current liabilities:          
  Revolving credit facilities $ 10,089   $ 10,089
  Current portion of long-term debt   111,994     150,499
  Convertible debentures   158,939     156,136
  Accounts payable and accrued liabilities   106,727     113,475
  Deferred revenue   11,080     10,652
  Current portion of obligations under capital leases   4,447     4,588
  Current portion of future tax liability   -     105
  Current liabilities of discontinued operations   321     1,393
  $ 403,597   $ 446,937
Obligations under capital leases   4,005     5,915
Future tax liability   -     906
Long-term liabilities of discontinued operations   -     5,026
Unitholders' equity (deficit)   (5,338 )   21,019
  $ 402,264   $ 479,803
 
 
NEWPORT PARTNERS INCOME FUND
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of dollars, except per unit amounts)
(unaudited) 
 
  Three months ended   Nine months ended  
  September 30   September 30  
  2010   2009   2010   2009  
Revenues $ 133,433   $ 147,493   $ 384,832   $ 411,983  
Cost of revenues   102,806     110,545     291,526     313,196  
Gross profit   30,627     36,948     93,306     98,787  
Expenses                        
  Selling, general and administrative   22,878     23,787     70,596     75,069  
  Amortization of intangible assets   5,318     6,610     15,728     19,844  
  Depreciation   3,035     2,982     8,895     9,006  
    31,231     33,379     95,219     103,919  
Income (loss) before the undernoted   (604 )   3,569     (1,913 )   (5,132 )
Income from equity investments   748     349     2,121     861  
Interest expense, net   9,313     11,029     25,669     31,511  
Loss on sale of investment   442     -     442     -  
Write-down of goodwill and intangible assets   -     12,151     1,779     15,666  
Loss before income taxes   (9,611 )   (19,262 )   (27,682 )   (51,448 )
Income tax expense - current   166     24     230     55  
Income tax recovery - future   (2,294 )   (6,538 )   (3,377 )   (10,298 )
Loss from continuing operations before non-controlling interest   (7,483 )   (12,748 )   (24,535 )   (41,205 )
Non-controlling interest relating to continuing operations   -     134     -     6,613  
    (7,483 )   (12,614 )   (24,535 )   (34,592 )
Income (loss) from discontinued operations before non-controlling interest   (6,047 )   635     (3,055 )   2,995  
Non-controlling interest relating to discontinued operations   -     (7 )   -     (405 )
Income (loss) from discontinued operations   (6,047 )   628     (3,055 )   2,590  
Net loss and comprehensive loss $ (13,530 ) $ (11,986 ) $ (27,590 ) $ (32,002 )
Income (loss) per unit                        
Basic and diluted:                        
  Continuing operations $ (0.11 ) $ (0.18 ) $ (0.34 ) $ (0.57 )
  Discontinued operations   (0.08 )   0.01     (0.04 )   0.04  
  Net loss $ (0.19 ) $ (0.17 ) $ (0.38 ) $ (0.52 )
 
 
NEWPORT PARTNERS INCOME FUND
Consolidated Statements of Cash Flows
(In thousands of dollars)
(unaudited)
 
    Three months ended     Nine months ended  
    September 30     September 30  
    2010     2009     2010     2009  
Cash provided by (used in):                        
Operating activities:                        
  Net loss for the period $ (13,530 ) $ (11,986 ) $ (27,590 ) $ (32,002 )
  Items not affecting cash:                        
  (Income) loss from discontinued operations before non-controlling interest   6,047     (635 )   3,055     (2,995 )
  Amortization of intangible assets   5,318     6,610     15,728     19,844  
  Depreciation   3,049     2,998     8,939     9,056  
  Future income tax recovery   (2,294 )   (6,538 )   (3,377 )   (10,298 )
  Income from equity investments, net of cash received   (699 )   (252 )   (120 )   (227 )
  Loss on sale of investment   442           442        
  Non-cash interest expense   955     873     2,803     2,560  
  Non-cash compensation expense   -     -     -     498  
  Stock based compensation expense   153     -     1,233     -  
  Write-down of goodwill and intangibles   -     12,151     1,779     15,666  
  Non-controlling interest   -     (127 )   -     (6,208 )
  Changes in non-cash working capital   (2,074 )   10,080     (7,225 )   27,467  
  Distributions from discontinued operations   1,315     2,021     4,937     5,066  
  Cash provided by (used in) discontinued operations   (351 )   6,134     4,183     7,802  
    (1,669 )   21,329     4,787     36,229  
Investing activities:                        
  Acquisition of businesses, net cash acquired   -     (2,337 )   (4,321 )   (10,824 )
  Proceeds on disposal of business   23,310     -     23,581     1,197  
  Purchase of property, plant and equipment   (1,021 )   (1,747 )   (2,630 )   (7,357 )
  Purchase of software   (329 )   -     (329 )   -  
  Increase in other assets   -     -     (511 )   -  
  Cash used in discontinued operations   (25 )   (36 )   (41 )   (141 )
    21,935     (4,120 )   15,749     (17,125 )
Financing activities:                        
  Repayment of long-term debt   (20,280 )   -     (38,505 )   -  
  Increase in revolving credit facilities   -     10,093     -     14,793  
  Increase (decrease) in cash held in trust   2,194     3,081     (259 )   (4,022 )
  Repayment of capital lease obligations   (1,205 )   (991 )   (3,656 )   (3,842 )
  Cash provided by (used in) discontinued operations   38     (5,548 )   (4,463 )   (6,588 )
    (19,253 )   6,635     (46,883 )   341  
Increase (decrease) in cash and cash equivalents   1,013     23,844     (26,347 )   19,445  
  Cash and cash equivalents, beginning of period - continuing operations   16,184     18,393     43,561     23,315  
  Cash and cash equivalents, beginning of period - discontinued operations   338     1,063     321     540  
  Cash and cash equivalents, end of period $ 17,535   $ 43,300   $ 17,535   $ 43,300  
  Cash and cash equivalents, end of period - discontinued operations   -     1,613     -     1,613  
  Cash and cash equivalents, end of period - continuing operations $ 17,535   $ 41,687   $ 17,535   $ 41,687  
Supplemental cash flow information:                        
  Interest paid   5,087     5,141     12,861     18,275  
  Cash acquired upon acquisition   -     -     4     -  
  Cash removed on disposal of business   -     1,384     -     1,384  
Supplemental disclosure of non-cash financial and investing activities:                     -  
  Acquisition of property, plant and equipment through capital leases   986     -     1,632     1,354  

Newport Partners Income Fund's 2010 Third Quarter Financial Statements and Management's Discussion and Analysis are available on the investor info section of www.newportpartnersincomefund.ca and on SEDAR at www.sedar.com.

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