FP Newspapers Inc. (TSX: FP) (?FPI?) formerly FP Newspapers Income Fund (?the Fund?) announces financial results for the quarter ended March 31, 2011. FPI is the successor to the business of the Fund. Effective December 31, 2010 all of the outstanding Units of the Fund were exchanged on a one-for-one basis for common shares of FPI pursuant to a plan of arrangement (the ?conversion?). FPI now owns directly the securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership (?FPLP?) in each fiscal year that were previously owned indirectly by the Fund. Effective January 7, 2011, the shares began trading on the Toronto Stock Exchange under the symbol ?FP? in place of the Units.
since there was no change in control as a result of the conversion, the transaction has been accounted for as if the conversion had occurred at the beginning of the earliest comparative period presented. The interim condensed consolidated financial statements reflect the entity which owns the 49% interest in FPLP as a corporation subsequent to December 31, 2010 and an income trust prior to the conversion. all references to ?Share Capital? refer to FPI?s shares subsequent to December 31, 2010 and Fund Units prior to the conversion. all references to ?Dividends? refer to dividends paid or payable to holders of FPI shares after December 31, 2010 and to distributions paid or payable to Fund Unitholders prior to the conversion. all references to ?Shareholders? refer to holders of shares subsequent to December 31, 2010 and to Fund Unitholders prior to the conversion.
FPLP owns the Winnipeg Free Press and Brandon Sun daily newspapers, and Canstar Community News (?Canstar?), which operates six weekly newspapers, a weekly entertainment newspaper and a twice-monthly newspaper aimed at age 50-plus readers. On February 28, 2011, FPLP completed the acquisition of the Steinbach printing and publishing business which operates a commercial web and sheet-fed printing business and publishes a regional paid weekly newspaper, ?The Carillon?.
Total revenue for FPLP for the three months ended March 31, 2011 was $25.0 million, a $1.4 million or 5.2 percent decrease from the same period last year. Total EBITDA(1) of FPLP for the quarter was $4.4 million, a $1.1 million or 20.7 percent decrease from the same quarter last year. FPLP had net earnings of $2.7 million in the quarter compared to $3.0 million in the same quarter last year. The decrease in net earnings is primarily due to lower revenue as detailed below, partly offset by lower operating and financing costs.
FPI had net earnings of $1.0 million, or $0.138 per share, during the three months ended March 31, 2011, compared to net earnings of $1.5 million, or $0.210 per share, in the same quarter last year. The decrease in FPI?s net earnings in the quarter is primarily due to the net decrease in earnings of FPLP as described in the FPLP section of this report and an increase in deferred income tax expense described below.
Operations
FPLP?s revenue in the first quarter was $25.0 million, a decrease of $1.4 million or 5.2% from the same three months in the prior year. Excluding revenue attributable to the Derksen operation for the month of March, revenue decreased by $1.9 million or 7.1%. Advertising revenues for the three months ended March 31, 2011, excluding the Derksen business, were $17.0 million, a 2.9% decrease compared to the same period last year. FPLP?s largest advertising revenue category, display advertising including colour, excluding the Derksen business, was $11.0 million, a decrease of $0.3 million or 2.9% from the same period in the prior year, primarily due to decreased spending in the financial, travel and department store categories, partially offset by increased spending in the local and national automotive categories. Classified advertising revenues for the first quarter, excluding the Derksen business, decreased by $0.3 million or 10.9% compared to the same period last year, primarily due to a decrease in the employment, auto, and real estate categories. Flyer distribution revenues for the first quarter, excluding the Derksen business, increased by $0.2 million or 5.1% compared to the same period last year, primarily due to increased volumes.
Circulation revenues for the first quarter, excluding the Derksen business, decreased by $0.6 million or 8.0%, due primarily to lower paid-subscription and single-copy volumes. A portion of the subscription volume reduction was due to the elimination of some rate discount programs. Commercial printing revenues for the first quarter, excluding the Derksen business, decreased by $1.0 million, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Digital revenues for the first quarter increased by $0.2 million or 45.0%, primarily due to the increase in Winnipeg Free Press website banner advertising and revenues from new product offerings largely by the Winnipeg Free Press.
Operating expenses excluding depreciation and amortization for the three months ended March 31, 2011 were $20.6 million, a $0.2 million or 1.1% decrease from the same quarter last year. Operating expenses excluding depreciation and amortization and excluding the Derksen business, for the three months ended March 31, 2011, decreased $0.7 million or 3.4% compared to last year. Employee compensation costs, for the first quarter, excluding the Derksen business, decreased by $0.2 million or 2.1% primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. Newsprint expense for FPLP?s own publications for the first quarter, excluding the Derksen business, increased by $0.1 million or 7.3%, primarily due to higher newsprint prices partially offset by lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the first quarter, excluding the Derksen business, decreased $0.2 million compared to the same period in the prior year, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Delivery costs for the first quarter, excluding the Derksen business, increased by $0.1 million or 1.4%, primarily due to higher fuel costs. Other expenses for the first quarter, excluding the Derksen business, decreased by $0.5 million when compared to the same period in the prior year, primarily due to a reduction in an accrual relating to a labour matter and decreased marketing costs.
The results of the 2010 Newspaper Audience Databank (NADbank) survey were released in March. once again, the Winnipeg Free Press continues to show the highest readership percentage across all large Canadian cities. The NADbank survey showed the Free Press weekday readership at 39%, down slightly from the 41% level in the 2009 survey results. The same survey showed Saturday readership was 49% versus 51% for the prior year. Our primary competitor, the Winnipeg Sun, had a weekday readership in the 2010 NADbank survey of 19% and a Saturday readership of 12% (versus prior year levels of 17% and 13% respectively). The 2010 NADbank survey showed that the online readership of the Winnipeg Free Press increased to 18% from 16% reported last year. The comparable figures for the Winnipeg Sun were 11% versus 8% in the 2009 survey.
during the first quarter we acquired The Carillon weekly newspaper and the Derksen printing business located in Steinbach, Manitoba. The Carillon is a weekly paid circulation newspaper with a total circulation of approximately 8,000 copies. The Carillon received the award for the best all-around newspaper at the Manitoba Community Newspapers Association annual convention held in May 2011. this was the ninth time in the past fifteen years The Carillon has won this award. in addition, at the 2011 Canadian Community Newspaper Awards Ceremony, The Carillon received the award for the best holiday edition and finished third in the ?best sports coverage? categories in the 4,000 to 12,500 circulation category. in addition to the publishing business, Derksen Printers offers commercial web and sheet-fed printing services. this spring, it signed a multi-year commercial printing contract for the Winnipeg edition of the Metro free daily newspaper which started publishing on April 4.
The Winnipeg Free Press was named runner-up for the Canadian Journalism Foundation?s Excellence in Journalism award, given annually to a top news organization in the country. The newspaper was recognized at a gala in Toronto on June 7. The Free Press previously won the award in 2009 and was runner-up in 2008. in addition to this recognition, journalists from both the Winnipeg Free Press and the Brandon Sun were nominated for National Newspaper Awards. Free Press reporter Mary Agnes Welch was nominated in the Beat category for her work in public policy, reporter Melissa Martin was nominated in the Long Feature category for a story on the disappearing Metis language, Michif, and editorial writer Catherine Mitchell earned a nomination for editorials that examined the no-fail policy in schools, the Manitoba government?s policy to reap the rewards of gambling while trying to mitigate the social problems caused by it, and the folly of a bill in the Senate that would require Supreme Court justices to be fluent in English and French. The winners were announced May 13 at an awards ceremony at the Canadian War Museum in Ottawa.
The Winnipeg Free Press placed both first and third in the digital innovation category of the great ideas competition, organized by the Canadian Newspaper Association. The first-place recognition was for the Free Press? ground-breaking digital coverage of the Winnipeg civic election night in 2010, which supplanted traditional TV coverage by combining the interactivity and depth of the paper?s website with up-to-the minute live video of results and analysis. The third-place recognition was for the paper?s Autos website. Editor Margo Goodhand accepted the awards at the Canadian Newspaper Association conference in Vancouver in April.
The Brandon Sun enhanced its editorial product in the first quarter with the addition of Weekend, a weekly tabloid section offering a mix of light reading including an interview with a local personality and a pictorial of a local home-of-the-week. Locally written columns on fitness, wine, food and fashion are popular reads. The Brandon Sun Weekend also includes travel, comics, and puzzles. Management anticipates that with time there will be additional Saturday readers and advertisers.
The Brandon Sun?s online presence attracts 95,000 unique visitors monthly and is the preferred site for local news as well as provincial, national and international content. two popular features of brandonsun.com in the first quarter were ?All Things Wheat Kings? and ?The Flood of 2011?. The all Things Wheat Kings page reports and archives all stories, art and video that pertain to Brandon?s major junior hockey team. The Flood of 2011 has been a popular destination for flood-weary western Manitobans to read about the latest flood conditions in their area. The page features the latest reports, archived stories, art, video, and live streaming video from two cameras on the surging Assiniboine River.
The Brandon Sun and its editorial staff were proud to receive awards and nominations for awards during the first quarter. Photographer Tim Smith won a National Newspaper Award for feature photography. He also received multiple awards from the News Photographers Association of Canada, including one for photo of the year. The Brandon Sun will be awarded the St. John Ambulance Media Award for outstanding coverage in Manitoba later this spring by Manitoba?s Lieutenant Governor.
Dividends
Distributable cash attributable to FPI(2) for the three months ended March 31, 2011 was $0.6 million or $0.092 per share, compared to $1.9 million or $0.274 per share for the same period last year. For the trailing twelve months ended March 31, 2011, FPLP generated distributable cash attributable to FPI(2) of $0.958 per share, and FPI declared dividends of $0.690 per share, resulting in a payout ratio of 72.0 percent.
FPI declared dividends to Shareholders of $0.15 per share for the first quarter, compared to $0.18 per share in the same quarter last year. since FPI is a taxable corporation, dividends declared to shareholders who hold their shares in non-registered accounts are taxed at lower personal marginal tax rates than were distributions paid under the previous income trust structure which were taxable at the highest personal marginal tax rates as ordinary income.
Outlook
during the first quarter, total advertising revenues, excluding the Derksen business, were lower by 2.9% versus the same quarter last year. So far in the second quarter, we are experiencing some improvement compared to the first quarter trend and advertising revenues for April and May on a same store basis are lower by less than 0.5% compared to the same months last year. Advertising revenues are extremely difficult to forecast, but given the results to date, we think it is less likely that we will be able to achieve our full-year budgeted revenue growth of 2% which excluded the Derksen business. Circulation home delivery rate increases of slightly over 5% were implemented at the beginning of March which we anticipate will largely offset the lost revenue from lower circulation unit sales. Prior to this increase, the last home delivery rate increase at the Winnipeg Free Press was in March of 2009. The acquisition of The Carillon and Derksen Printers business effective February 28, 2011 and the award of the printing contract for the Winnipeg edition of the Metro free daily newspaper is estimated to provide additional advertising and commercial printing revenues of approximately $4.5 million over the final three quarters of 2011. We anticipate the additional EBITDA(1) from Derksen Printers and the Metro printing contract will considerably offset the lost EBITDA(1) from lower advertising revenues, should advertising continue to decline. in May we were pleased to hire Glenn Buffie to fill the role of Publisher at Derksen Printers. Glenn has 34 years of experience in the printing industry in both production and sales positions.
in continued efforts to generate expense reductions, in April and May we laid-off twelve employees between the Winnipeg and Brandon operations. A restructuring charge for severance costs of $260,000 will be incurred in the second quarter and the annual savings from these layoffs is approximately $734,000. While we continue to review cost reduction opportunities in all our businesses, the Brandon Sun management team is completing an in-depth study of all aspects of its business model to identify changes that can improve its overall performance. Newsprint prices have not changed since the end of the third quarter last year, and are estimated to be approximately 14% higher in the second quarter of 2011 than the same quarter last year.
On the capital investment side, we will be making an investment of approximately $1.2 million for additional web printing units and ancillary components at our newly-acquired Steinbach operation to provide the printing capacity required under the Metro Winnipeg printing contract. We expect to finance this investment through a capital lease facility. We also are exploring the potential of mortgage financing for the Steinbach land and buildings as well as capital lease financing for the equipment acquired in the Derksen Printers acquisition.
in May of 2011 we completed the sale of the Brandon press and inserting equipment. Net proceeds were $477,000 and an accounting gain on disposal of approximately $35,000 will be recorded on these assets in the second quarter. Work continues on finding a buyer for the remaining smaller value surplus equipment which has a carrying value of approximately $60,000.
A preliminary meeting has taken place with our actuary relating to the pension funding valuation work which has taken place to-date to finalize the Funding Valuation Report as at December 31, 2010, which is required to be filed with the Manitoba Pension Commission by September 30, 2011. The preliminary results, which continue to be reviewed are showing an increase in the accounting expense for FPLP`s defined benefit pension plan and a significant increase in the required funding levels. Work will continue during the second quarter to further review these results and explore all available options to fund increases as required. We anticipate being able to clarify the precise funding obligations from this work in the second quarter report scheduled for release on August 10, 2011.
despite the reported softness in advertising revenues, there is much going on in-and-around Winnipeg that is likely to fuel future economic growth. Significant infrastructure and other capital investments are being made at unprecedented levels. Winnipeg?s James A. Richardson International Airport is nearing completion of a $585 million upgrade with the largest portion of the project scheduled to be completed later this year. Construction is well underway on the new stadium for the Winnipeg Blue Bombers which is scheduled to be completed for the opening of the 2012 Canadian Football League season. Centreport Canada is Canada?s first foreign trade zone which features a transportation network that will efficiently move goods throughout North America and across the world. The 8,000 hectare inland port is now open next to the James A. Richardson International Airport and the Government of Manitoba is supporting the venture with a $4 billion 10 year commitment to upgrade transportation infrastructure. The planned investment is intended to reroute North American trade through the middle of the country. Centreport recently announced agreements with Chinese partners including China?s largest private shipping company to create a new container-based rail system that will quickly move crops from the Canadian prairies into the Chinese market. The Canadian Museum for Human Rights, a $310 million project funded by both private and public sector partners, is scheduled to open in 2012, and is envisioned as a national and international destination ? a centre of learning where Canadians and people from around the world can engage in discussion and commit to taking action against hate and oppression. to add to the economic growth anticipated from these projects, there is tremendous excitement around the return of a National Hockey League team to Winnipeg.
Conference Call
The Corporation invites you to participate in a conference call on Wednesday, June 8, 2011 at 1:30 p.m. Eastern (12:30 p.m. Central) to discuss the first quarter results.
The dial-in number is 416-340-8530, or toll free at 877-240-9772. to ensure your participation, please dial in five minutes before the start of the conference call. Management?s presentation will be followed by a question and answer period.
For those unable to participate, a taped rebroadcast will be available to listeners upon completion of the call until June 22, 2011. to access the rebroadcast, please dial 905-694-9451 or dial toll free at 800-408-3053, and use the passcode 4452873.
About FPI
FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership (?FPLP?). FPLP owns the Winnipeg Free Press, the Brandon Sun, and their related businesses, as well as the Canstar Community News division, the publisher of eight community and special interest newspapers in the Winnipeg region, and The Carillon in Steinbach with its related commercial printing operations. The Winnipeg Free Press publishes six days a week for delivery to subscribers and single copy sales, serving Winnipeg and Manitoba with an average Monday through Saturday circulation of approximately 123,300 copies. On Sundays the Winnipeg Free Press publishes a newspaper sold through single-copy retail outlets and vending boxes. The Brandon Sun publishes seven days a week, serving the region with an average circulation of approximately 15,000 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 570 people in Winnipeg, Brandon and Steinbach. further information can be found at fpnewspapers.com, and in the disclosure documents filed by FPI with the securities regulatory authorities, available at sedar.com.
Caution regarding Forward-looking Statements
Certain statements in this management?s discussion and analysis may constitute forward-looking statements within the meaning of applicable securities laws. all statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management?s intent, belief or current expectations with respect to market and general economic conditions, future costs and operating performance. Generally, but not always, forward-looking statements will be indicated by words such as ?may?, ?will?, ?intend?, ?anticipate?, ?expect?, ?believe?, ?plan? or similar terminology.
Forward-looking statements are subject to known and unknown risks and uncertainties that may cause the actual results, performance or achievements of FPI or FPLP, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the current general economic uncertainty, FPLP?s ability to effectively manage growth and maintain its profitability, FPLP?s ability to operate in a highly competitive industry, FPLP?s ability to compete with other forms of media, FPLP?s ability to attract advertisers, FPLP?s reliance upon key personnel, FPLP?s relatively high fixed costs, FPLP?s dependence upon particular advertising customer segments, indebtedness incurred in making acquisitions, the availability of financing for capital improvements, costs related to capital expenditures, cyclical and seasonal variations in FPLP?s revenues, acts of terrorism, the cost of newsprint, the potential for labour disruptions, the risk of equipment failure, and the effect of Canadian tax laws. Additional information about these and other factors is discussed under ?Risk Factors? in FPI?s Annual Information Form dated March 17, 2011, which is available at sedar.com.
in addition, although the forward-looking statements contained in this report are based upon what management of FPI and FPLP believe are reasonable assumptions, such assumptions may prove to be incorrect.
Forward-looking statements speak only as of the date hereof and, except as required by law, FPI and FPLP assume no obligation to update or revise them to reflect new events or circumstances. Because forward-looking statements are inherently uncertain, readers should not place undue reliance on them.
Management?s Discussion and Analysis
Overview
Management?s discussion and analysis, prepared as at June 8, 2011, provides a review of significant developments that affected the performance of FP Newspapers Inc. (?FPI?) in the three months ended March 31, 2011. this review is based on financial information contained in the unaudited interim condensed consolidated financial statements and accompanying notes (?Interim financial statements?) for the three months ended March 31, 2011.
The interim financial statements, which are the basis for data presented in this report, have been prepared in accordance with International Financial Reporting Standards (IFRS). The interim financial statements do not include all the information and disclosures required for annual financial statements, and therefore, the following information should be read in conjunction with the most recent audited consolidated financial statements and accompanying notes and management?s discussion and analysis for the year ended December 31, 2010 prepared in accordance with Canadian generally accepted accounting principles (?GAAP?) in the Company?s 2010 Annual Report.
this Management?s Discussion and Analysis contains ?forward-looking statements? that are subject to risks and uncertainties set out below under the heading ?Caution regarding Forward-Looking Statements?. The reader is cautioned not to place undue reliance on forward-looking statements.
further information relating to FPI is available under its profile at sedar.com.
Formation and Legal Entities
FPI which was incorporated under the Canada Business Corporations Act on March 17, 2010, is the successor to the business of FP Newspapers Income Fund (the ?Fund?). The Fund was created on May 15, 2002 and commenced operations on May 28, 2002 when it completed an initial public offering and purchased an interest in FP Canadian Newspapers Limited Partnership (?FPLP?). FPI?s year end is December 30.
On December 31, 2010, the Fund completed its conversion from an income trust to a corporate structure pursuant to a plan of arrangement. Under the plan of arrangement, Unitholders of the Fund received, for each Unit of the Fund held, one common share of the resulting public corporation, FPI. The common shares of FPI commenced trading on the Toronto Stock Exchange on January 7, 2011 under the symbol ?FP?. Concurrently, the Fund?s Units were delisted. Immediately following the closing of the arrangement, FPCN Holdings Trust and the Fund were wound up and dissolved. FPI has acquired all of the assets and assumed all of the liabilities of those entities. FPI owns securities entitling it to 49% of the distributable cash of FPLP. FPI is dependent on the operations of FPLP, its sole investment.
since there was no change in control as a result of the conversion, the transaction has been accounted for as if the conversion had occurred at the beginning of the earliest comparative period presented. These interim financial statements reflect the entity which owns the 49% interest in FPLP as a corporation subsequent to December 31, 2010 and an income trust prior to the conversion. all references to ?Share Capital? refer to FPI?s Common Shares subsequent to December 31, 2010 and Fund Units prior to the conversion. all references to ?dividends? refer to dividends paid or payable to holders of FPI Common Shares after December 31, 2010 and to distributions paid or payable to Fund Unitholders prior to the conversion. all references to ?Shareholders? refer to holders of Common Shares subsequent to December 31, 2010 and to Fund Unitholders prior to the conversion.
FPLP is a limited partnership formed on August 9, 1999. Effective November 29, 2001, FPLP acquired the business assets and assumed certain liabilities of the Winnipeg Free Press and the Brandon Sun. On July 13, 2004, FPLP acquired the business assets and liabilities of Canstar Community News (?Canstar?). On February 28, 2011, FPLP acquired the business assets and assumed certain liabilities of a commercial printing and publishing business operating under the name Derksen Printers based in Steinbach, Manitoba.
FP Newspapers Inc.
FPI is dependent on the operations of FPLP, its sole investment. FPI?s net earnings were $1.0 million for the three months ended March 31, 2011, compared to net earnings of $1.5 million for the same period last year. The decrease in net earnings for the three months ended March 31, 2011 is due to the net decrease in equity earnings from its investment in FPLP as described in the FPLP section of this report and an increase of $0.4 million in deferred income tax expense. Other Comprehensive Income was $0.2 million for the three months ended March 31, 2011, compared to a loss of $0.2 million for the same period last year. in accordance with IAS 19 Employee Benefits, FPLP elected to recognize actuarial gains and losses in other comprehensive income and deficit (see Note 6 of FPLP interim financial statements). FPI?s comprehensive income includes its 49% equity share of the comprehensive income recorded by FPLP.
FPI declared dividends to Shareholders of $1.0 million or $0.15 per share for the three months ended March 31, 2011, compared to $1.2 million or $0.180 per share in the same period last year. Cash provided by operating activities of FPI was $1.0 million for the three months ended March 31, 2011, compared to $0.9 million for the same period last year. The increase in cash provided by operating activities is a result of an increase in cash received from FPLP due to FPI?s final interest payment on the subordinated notes received on December 31, 2009, the date these notes were redeemed, when this interest would have been received in the first quarter of 2010 if the notes had not been redeemed. The increase in net cash received by FPI from FPLP was partially offset by the use of cash for accounts payable.
Working Capital Position of FPI
The working capital deficiency at March 31, 2011 is due to the fact that FPLP?s distributions are payable by the end of the month following the respective month; accordingly, FPLP?s distribution for March is not accrued as a liability on FPLP?s March balance sheet nor recorded as a receivable on FPI?s March balance sheet. FPI received FPLP?s March 2011 distribution before the end of April 2011 and used a portion of this distribution to pay its dividend to Shareholders for March, which was paid on April 28, 2011.
Distributable Cash Attributable to FPI (2)
Cash available for distribution attributable to FPI was $0.6 million or $0.092 per share for the three months ended March 31, 2011, compared to $1.9 million or $0.274 per share for the same period last year. The decrease in cash available for distribution attributable to FPI for the three months ended March 31, 2011 is primarily due to lower EBITDA(1) of FPLP together with a full quarter of principal repayments required under the HSBC term loan versus only two months last year and the establishment of the reserve for future cash income taxes since FPI is a taxable corporation (see ?Taxation? below).
FPI monitors the cumulative cash available for distribution attributable to FPI as a factor in determining whether to make an adjustment to the level of monthly dividends. FPI believes it was prudent to pay out cumulatively less than 100% of cash available for distribution attributable to FPI (2).
From commencement of the Fund on May 28, 2002 until March 31, 2011, cumulative distributable cash attributable to FPI totalled $11.387 per share. during that period FPI declared cash dividends to Shareholders of $10.373 per share, resulting in a cumulative-from-inception payout ratio of 91.1%. Because FPI made an allowance for maintenance capital spending of FPLP in an amount estimated to be sufficient to maintain the productive capacity of the business when calculating distributable cash attributable to FPI(2), and because cumulative dividends declared were less than the cumulative distributable cash attributable to FPI(2), FPI believes there is no economic ?return of capital?.
Taxation
FPI?s year end date is December 30. For FPI?s December 30, 2011 year end, none of the taxable income of FPLP (whose year end is December 31) will be allocated to it prior to that date. as a result FPI will have no current taxes in the year ended December 30, 2011. FPLP?s taxable income for the year ended December 31, 2011 will be allocated to FPI in its year ended December 30, 2012. The increase in FPI?s deferred income taxes payable on March 31, 2011 is primarily due to this deferral of taxable income. The June 6, 2011 federal budget proposed new measures to curtail income deferral by corporations using partnerships with different year-end dates. These proposals would have applied to FPI?s current period but are not considered substantively enacted as at March 31, 2011. if the budget measures are enacted in their current form, corporate partners would be required to accrue the portion of partnership income earned in the stub-period between the end of the partnership?s fiscal period and the end of the corporate partner?s taxation year. The proposed measures include transitional relief by allowing stub-period income for the first affected fiscal period to be recognized over a five year period. if the above noted measures are substantively enacted FPI will be required to include the following percentage of its share of FPLP?s December 31, 2011 taxable income allocation in its determination of current taxes payable:
FPI?s year-end Allocation of December 31, 2011 FPLP taxable income December 30, 2012 15% December 30, 2013 20% December 30, 2014 20% December 30, 2015 20% December 30, 2016 25%
FP Canadian Newspapers Limited Partnership
Results of Operations
FPLP?s revenue in the first quarter was $25.0 million, a decrease of $1.4 million or 5.2% from the same three months in the prior year. Excluding revenue attributable to the Derksen operation for the month of March, revenue decreased by $1.9 million or 7.1%. Advertising revenues for the three months ended March 31, 2011, excluding the Derksen business, were $17.0 million, a 2.9% decrease compared to the same period last year. FPLP?s largest advertising revenue category, display advertising including colour, excluding the Derksen business, was $11.0 million, a decrease of $0.3 million or 2.9% from the same period in the prior year, primarily due to decreased spending in the financial, travel and department store categories, partially offset by increased spending in the local and national automotive categories. Classified advertising revenues for the first quarter, excluding the Derksen business, decreased by $0.3 million or 10.9% compared to the same period last year, primarily due to a decrease in the employment, auto, and real estate categories. Flyer distribution revenues for the first quarter, excluding the Derksen business, increased by $0.2 million or 5.1% compared to the same period last year, primarily due to increased volumes.
Circulation revenues for the first quarter, excluding the Derksen business, decreased by $0.6 million or 8.0%, due primarily to lower paid-subscription and single-copy volumes. A portion of the subscription reduction was due to the elimination of some rate discount programs. Commercial printing revenues for the first quarter, excluding the Derksen business, decreased by $1.0 million, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Digital revenues for the first quarter increased by $0.2 million or 45.0%, primarily due to the increase in Winnipeg Free Press website banner advertising and revenues from new product offerings largely by the Winnipeg Free Press.
Operating expenses excluding depreciation and amortization for the three months ended March 31, 2011 were $20.6 million, a $0.2 million or 1.1% decrease from the same quarter last year. Operating expenses excluding depreciation and amortization and excluding the Derksen business, for the three months ended March 31, 2011, decreased $0.7 million or 3.4% compared to last year. Employee compensation costs, for the first quarter, excluding the Derksen business, decreased by $0.2 million or 2.1% primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. Newsprint expense for FPLP?s own publications for the first quarter, excluding the Derksen business, increased by $0.1 million or 7.3%, primarily due to higher newsprint prices partially offset by lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the first quarter, excluding the Derksen business, decreased $0.2 million compared to the same period in the prior year, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Delivery costs for the first quarter, excluding the Derksen business, increased by $0.1 million or 1.4%, primarily due to higher fuel costs. Other expenses for the first quarter, excluding the Derksen business, decreased by $0.5 million when compared to the same period in the prior year, primarily due to a reduction in an accrual relating to a labour matter and decreased marketing costs.
EBITDA(1) for the three months ended March 31, 2011 was $4.4 million compared to $5.5 million for the same period last year, a decrease of 20.7%. EBITDA(1) margin for the three months ending March 31, 2011 was 17.5% compared to 21.0% in the same period last year.
Depreciation and amortization for the three months ended March 31, 2011 decreased by $0.5 million compared to the prior year, primarily due to accelerated depreciation required to be recorded in the prior year for the Brandon production equipment which was taken out of service effective October 1, 2010.
Finance costs for the three months ended March 31, 2011 decreased by $0.2 million or 20.4% compared to the same period last year, due primarily to lower interest costs on external debt from both lower effective rates and lower principal amounts owing.
FPLP?s net earnings were $2.7 million for the three months ended March 31, 2011, compared to $3.0 million for the same period last year.
Actuarial gains and losses are included as a component of comprehensive income. These gains or losses are primarily related to changes in actuarial discount rate assumptions and differences between actuarial estimates of return on plan assets versus actual returns.
Newspaper publishing is, to a certain extent, a seasonal business, with a higher proportion of revenues and net earnings occurring during the second and fourth quarters of the calendar year. Revenue, EBITDA(1) and net earnings of FPLP by quarter for 2011, 2010 and 2009 were as follows:
2011 2010 2009 ??????????????????- (IFRS) (IFRS) (Canadian GAAP) ??????????????????- Revenue in thousands ??????? Quarter 1 $ 24,997 $ 26,370 $ 26,838 Quarter 2 28,946 29,691 Quarter 3 26,470 26,554 Quarter 4 28,246 30,780 ????????????? $ 110,032 $ 113,863 ????????????? EBITDA(1) ??????? Quarter 1 $ 4,384 $ 5,529 (ii) $ 3,170 Quarter 2 7,068 (ii) 6,581 Quarter 3 5,356 (ii) 4,660 Quarter 4 6,598 7,987 (i) ????????????? $ 24,551 $ 22,398 ????????????? Net earnings (loss) ??????? Quarter 1 $ 2,733 $ 3,018 (iii) $ (496) (iv) Quarter 2 4,878 (iii) 2,838 Quarter 3 3,152 (iii) 1,122 Quarter 4 4,925 3,653 (i) ????????????? $ 15,973 $ 7,117 ?????????????
(i) EBITDA(1) and net earnings in the fourth quarter of 2009 were impacted by restructuring charges of $0.8 million relating to severance costs largely for employee reductions planned from the 2010 consolidation of production in Winnipeg.
(ii) EBITDA(1) in the first three quarters of 2010 were higher than the previous year even though year-over-year revenues were lower in each period as a result of various cost reduction initiatives implemented in response to the economic slowdown which resulted in reduced advertising revenues.
(iii) Net earnings were higher in each quarter of 2010 compared to 2009 primarily due to the settlement of the subordinated notes held by FPI at the end of the fourth quarter of 2009 resulting in lower financing costs and the implementation of the cost reduction initiatives referred to under ((ii)) above.
(iv) The lower net earnings in the first quarter of 2009 are primarily the result of reduced advertising revenues resulting from the economic slowdown and a restructuring charge of $0.6 million relating to employee severance costs.
The distribution policy of FPLP is to make distributions in approximately equal monthly amounts based on expected operating results for each fiscal year. Distribution levels are reviewed regularly by management and the Board of Directors of the managing general partner and are subject to change based on a number of factors including the overall operating results and capital requirements of the business.
Working Capital Position of FPLP
FPLP?s total working capital at March 31, 2011 was $2.6 million, compared to $1.2 million at March 31, 2010. Working capital increased primarily due to an increase in current assets related to the Derksen acquisition and the reclassification of Brandon?s assets held for sale into current assets, partially offset by slightly higher distributions.
Liquidity and Capital Resources of FPLP
Cash and cash equivalents, excluding the restricted cash, at March 31, 2011 was $6.1 million compared to $6.2 million at March 31, 2010. Cash and cash equivalents may be used to pay future distributions, to reduce debt, to fund future capital expenditures, or for other general purposes. Operating activities provided $6.5 million during the first quarter, while $3.8 million was used for investing activities and $3.0 million was used for financing activities. Cash flow from operations, together with cash balances on hand, are currently expected to be sufficient to fund FPLP?s operating requirements, capital expenditures, required principal repayments under FPLP?s HSBC credit facility (see Note 6 to the 2010 Annual Consolidated Financial Statements of FPLP) and anticipated distributions, assuming that advertising revenues do not materially deteriorate beyond management?s current expectations.
Cash Flow from Operating Activities
during the three months ended March 31, 2011, cash generated from operating activities was $6.5 million compared to $5.7 million for the same period last year. The net earnings for the three months ended March 31, 2011 were $2.7 million compared to $3.0 million for the same period in the prior year. The main factors contributing to the change in net earnings are outlined in the FPLP section of this report. The change in the amortization of property, plant and equipment and intangible assets in the three months ended March 31, 2011 was a decrease of $0.5 million from the same period last year as a result of accelerated amortization in the first quarter of 2010 on certain Brandon production equipment resulting from the consolidation of Brandon production at our Winnipeg production site. The net change in non-cash working capital in the three months ended March 31, 2011 was an increase of $2.7 million compared to an increase of $0.9 million for the same period last year, primarily the result of the timing of receipts from customers and payments to suppliers.
Investing Activities
Capital purchases totalled $0.4 million for the three months ended March 31, 2011, compared to $0.2 million for the same period in the prior year. Capital spending during the first quarter consisted of leasehold improvements and equipment for the consolidation of distribution depots and above-ground fuel tanks in Winnipeg, and technology hardware upgrades.
On February 28, 2011, FPLP acquired all of the assets and assumed specified liabilities of a publishing and printing business which will be operated under the name Derksen Printers for cash consideration of $3.5 million. The business has been in operation in Steinbach, Manitoba since 1936. The business publishes The Carillon weekly paid subscription newspaper in addition to a commercial web and sheet-fed printing operation.
in the first quarter of 2010, as part of the HSBC credit agreement, FPLP made a $5.0 million cash deposit into a separate HSBC guarantee account, classified as restricted cash on the balance sheet.
Financing Activities
Distributions to partners of FPLP for the first quarter totalled $2.7 million, of which $1.3 million was paid to FPI as holder of Class A limited partner units. this is compared to $2.6 million in the same period last year, of which $1.0 million was paid to FPI as holder of Class A limited partner units. The distributions to partners were determined in accordance with the limited partnership agreement that governs FPLP (the ?LP Agreement?).
The principal repayments of the HSBC term loan for the three months ended March 31, 2011 totalled $1.3 million, compared to $0.8 million principal repayment plus $0.3 million in financing costs associated with the HSBC loan agreement for the same period of 2010. The increase in the principal repayment in the first quarter of 2011 is a result of three months of repayments compared to only two in the first quarter of 2010.
Contractual Obligations
during 2010, FPLP entered into supplier agreements to invest in two separate equipment upgrades at the Winnipeg Free Press as part of a $2.2 million project to consolidate FPLP?s production operations. FPLP has entered into a finance lease agreement to finance one of the equipment projects during the first quarter of 2011. A deposit on the second piece of equipment of $0.9 million has been paid as of March 31, 2011 and is included in prepaid expenses and other assets on FPLP?s balance sheet. FPLP intends to enter into an additional finance lease agreement to finance the second equipment upgrade once the project is completed which is expected to be in the second quarter of 2011. in connection with these equipment purchases, during the second quarter of 2010, FPLP entered into a $0.4 million annual five-year agreement to purchase production supplies.
Other than as discussed above, there have been no significant changes to contractual obligations since December 31, 2010.
Reserve Related to Distributable Cash Attributable to FPI(2)
Under the terms of the LP Agreement, the managing general partner of FPLP is required to determine reserves which are necessary or desirable to withhold from any distributions to partners, including among other things for capital expenditures and operating expenses. A summary of the reserve for maintenance capital for the three months ended March 31, 2011 and 2010 is as follows:
Three Months ended March 31, 2011 2010 ?????????? in thousands Reserve at beginning of period $ 1,500 $ 1,500 Increase in reserve ? - Decrease in reserve (116) ? ?????????? Reserve at end of period $ 1,384 $ 1,500 ??????????
Increases in the reserve for maintenance capital are shown as a deduction in determining distributable cash(2) of FPLP. Decreases in the reserve for maintenance capital are shown as an increase in determining distributable cash(2).
The use of a reserve for maintenance capital in calculating distributable cash attributable to FPI(2) is intended to provide an allowance for estimated annual capital expenditures required to maintain the productive capacity of the business. The level of the annual allowance for maintenance capital is reviewed periodically based on historical spending levels and future plans, and adjusted based on reasonable and supportable assumptions. Actual future capital expenditures necessary to maintain the current productive capacity of the business may vary, perhaps materially, from the allowance used in determining distributable cash(2) due to technological change, unexpected equipment failure, changes in customer service expectations and other reasons. FPLP has established a maintenance capital maximum reserve policy, the maximum reserve level under which is $1.5 million.
this reserve is a non-IFRS measure established and utilized at the discretion of the board of directors of the managing general partner of FPLP, and has no impact on the IFRS financial statements.
Debt Covenants
The HSBC credit facility (see Note 6 to the 2010 Annual Consolidated Financial Statements of FPLP) includes negative covenants which must be observed in order to avoid an accelerated termination of the agreement. These covenants include certain restrictions on paying distributions, the sale of assets, the purchase of investments and acquisitions, share capital, allowing encumbrances and certain issuances of loans or financial assistance. FPLP is restricted from making distributions which exceed distributable cash by more than $1 million annually, as defined in the credit agreement. FPLP is required to maintain a leverage ratio of no greater than 3.5 to 1.0, a fixed charge coverage ratio of no less than 2.0 to 1.0, and a current ratio of no less than 1.2 to 1.0, all as defined in the agreement and measured quarterly on a trailing 12-month basis. Financial amounts used in the calculations are specifically defined in the credit agreement, but are substantially equal to the corresponding terms used in the external financial reports filed by FPLP. The following financial ratios are calculated in accordance with the HSBC credit agreement:
Twelve Months ended Leverage ratio Fixed Charge ratio Current ratio ?????????????????????????- March 31, 2011 1.9 3.3 2.0 December, 31, 2010 1.8 3.6 3.4 September 30, 2010 1.7 4.5 3.2 June 30, 2010 1.8 5.3 3.1 March 31, 2010 1.9 6.5 2.3
FPLP was in compliance with its covenants during the periods noted above.
Related Party Transactions
FPLP purchases a portion of its newsprint from Alberta Newsprint Company (?ANC?), a related party as disclosed under the related party transaction section of FPLP?s Annual Management?s Discussion and Analysis at December 31, 2010. There have been no changes during 2011 to the process for selection of newsprint suppliers or the quarterly review by the Audit Committee of newsprint purchases. Total newsprint purchases from ANC for the three months ended March 31, 2011 were $1.1 million, compared to $0.8 million for the same period last year.
in connection with the HSBC credit facility, FPLP pays a guarantee fee to FP Funding Corporation (?FundingCo?), a company controlled indirectly by Ronald Stern and Robert Silver, who together control 51% of FPLP, as FundingCo has made a $5.0 million deposit into a HSBC guarantee account (as discussed in Note 6 to the 2010 Annual Consolidated Financial Statements of FPLP) held as collateral until the term loan is repaid. The guarantee fee in the three months ending March 31, 2011 was $0.1 million.
Internal Controls over Financial Reporting
as a result of the transition from Canadian GAAP to IFRS, there have been material changes in internal controls over financial reporting in the following process areas:
? Accounting policy selection (including controls over changes in accounting policies) ? Employee benefits
Management has considered the control risks of the transition to IFRS and has performed procedures to obtain reasonable assurance on the design of internal controls over financial reporting that are new or significantly modified as a result of the transition.
Critical Accounting Estimates
There have been no significant changes in FPI?s or FPLP?s critical accounting estimates since December 31, 2010.
Initial Adoption of new Accounting Pronouncements
in February 2008, the Canadian Accounting Standards Board (?AcSB?) announced that International Financial Reporting Standards (?IFRS?) will be used for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. FPI and FPLP began reporting under IFRS starting with the interim period ended March 31, 2011, with restatement for comparative purposes of amounts reported for the corresponding periods in 2010 including presenting a transitional balance sheet at January 1, 2010.
in order to prepare for the transition date on January 1, 2011, FPI and FPLP finalized the evaluation of this new requirement and created a detailed plan to converge to IFRS. The detailed plan included an analysis of the project structure and governance, resources and training, analysis of key IFRS versus Canadian GAAP differences and a phased approach to the assessment of accounting policies and implementation. FPI?s information technology, data systems and business processes were not impacted significantly by the changeover to IFRS.
Adjustments required on transition to IFRS have been made retrospectively against opening deficit at January 1, 2010. Transitional adjustments relating to those standards where comparative figures are not required to be restated will only be made as of the first day of the fiscal year of adoption.
IFRS 1 -provides entities adopting IFRS for the first time with a number of optional exceptions and mandatory exceptions to the general requirement for the full retrospective application of IFRS. FPI and FPLP analyzed the various accounting policy options available and implemented those determined to be most appropriate for our specific circumstances. The conclusions regarding these options are as follows, but will be subject to ongoing assessment during the transition year:
IFRS Exemption Options Applied
a. Business combinations ? IFRS 1 provides the election to apply IFRS 3, Business Combinations, retrospectively or prospectively from the Transition Date. The retrospective basis would require restatement of all business combinations that occurred prior to the Transition Date or all business combinations that occurred subsequent to a date prior to transition selected by FPLP. FPLP elected to prospectively apply IFRS 3 to all business combinations subsequent to January 1, 2010 (Business Combinations Election Date). Accordingly any business combinations prior to such Business Combinations Election Date have not been restated. Any goodwill arising on such business combinations before the Business Combination Elections Date has not been adjusted from the carrying value previously determined under Canadian GAAP as a result of applying these exemptions. b. Employee Benefits ? IFRS 1 provides an election to recognize all cumulative actuarial gains and losses at the transition date as a direct entry to deficit rather than retrospectively applying IFRS pension guidance and recalculating amounts on transition. FPLP elected to apply the optional exemption and recognized all cumulative actuarial gains and losses at the transition date in retained earnings.
Income taxes (FPI) ? FPI has recognized deferred income taxes related to temporary differences associated with the accounting and tax values of the assets and liabilities within FPLP. Accordingly, FPI recognized deferred income taxes associated with the change in the measurement of employee future benefit assets and liabilities, as described above. The impact of FPI?s 49% equity share is a reduction in the deferred income tax liability at January 1, 2010 of $186,000.
From January 1, 2010 to December 31, 2010, the Fund (the predecessor to FPI) was structured as an income trust and on May 5, 2010 unitholders approved the conversion from an income trust to a corporation. For interim periods prior to May 5, 2010, deferred taxes under IFRS must be measured using the highest marginal tax rate of 43.7%. On January 1, 2010, this resulted in an increase to the Fund?s deferred tax liability of $537,000 as a result of the transition to IFRS. A significant portion of this increase reversed through the statement of earnings as a deferred tax recovery in the second quarter of 2010 as a result of the approved conversion to a corporation.
FPLP Intangible Assets ? Temporary Differences
Under the current Canadian Income Tax Act, ?eligible capital expenditures? are deductible for tax purposes to the extent of 75% of the cost incurred, and proceeds are ultimately taxable only to the extent of 75% of the amount received. Under Canadian GAAP, the 25% of the amounts not deductible are included in the tax basis of the related asset. Under IFRS the 25% of the amounts not deductible do not meet the definition of tax basis. A deferred tax liability of approximately $388,000 was recognized related to such temporary difference.
Property, plant and equipment ? IFRS requires an entity to identify significant component parts within fixed assets and depreciate those parts over their respective useful lives. Canadian GAAP only requires componentization to the extent practicable. FPLP finalized its review of its fixed assets to identify whether any additional components are required to be recognized on transition to IFRS. The annual impact of the additional componentization is insignificant.
Impairment of assets ? upon adoption of IFRS, FPLP is required to test goodwill and mastheads for impairment in accordance with IAS 36. furthermore, IFRS requires FPLP to conduct an asset-impairment test at the date of adoption of IFRS if indicators of impairment exist. There are several differences that exist between current Canadian GAAP and IFRS for impairment of non-financial assets, which include:
? the test for non-financial asset impairment (for finite lived tangible and intangible assets) requires the use of a discounted cash flow model, whereas Canadian GAAP uses a two-step impairment test which is first based on undiscounted cash flows and then discounted cash flows; ? testing for impairment occurs at the level of cash-generating units, which is the lowest level of assets that generate largely independent cash inflows, whereas Canadian GAAP requires impairment tests at the asset group level; and ? IFRS allows the reversal of previous impairment losses, with the exception of goodwill, whereas Canadian GAAP prohibits the reversal of non-financial asset impairments.
FPLP has finalized its IAS 36 impairment assessments related to its recognized goodwill and indefinite lived intangible assets at January 1, 2010 and December 31, 2010, and no impairment charge will be recognized under IFRS.
The AcSB and International Accounting Standards Board may continue to issue new accounting standards during the conversion year. FPI and FPLP will continue to monitor any changes and consider the impact changes in the standards would have on the consolidated financial statements.
Additional disclosure on the impact of the adoption of IFRS on our consolidated financial statements will be provided in future MD&As.
Historical Distributions Paid Analysis
FPLP: Three Twelve Twelve Months Months months ended ended ended ??????????? March 31, December December 2011 31, 2010 31, 2009 ??????????? in thousands Cash provided by operating activities $ 6,484 $ 18,304 $ 11,316 Net earnings 2,733 15,973 7,117 Distributions paid during the period (2,710) (10,749) (9,477) Excess of cash provided by operating activities over cash distributions paid $ 3,774 $ 7,555 $ 1,839 ??????????? Excess (shortfall) of net earnings over cash distributions paid $ 23 $ 5,224 $ (2,360) ???????????
Cash distributions paid in one of the three periods exceeded net earnings. FPLP does not use net earnings as a basis for determining the level of distributions to Shareholders. Distributions are determined in accordance with the LP Agreement. Because amortization charged as an expense in calculating net earnings in accordance with GAAP exceeds capital expenditures charged as a reduction of distributable cash in all periods, this result is not unexpected.
FPI: Three Twelve Twelve Months Months Months ended ended ended ??????????? March 31, December December 2011 31, 2010 31, 2009 ??????????? in thousands Cash provided by operating activities $ 1,107 $ 4,439 $ 8,259 Net earnings 953 7,168 6,853 Dividends paid during the period 1,104 5,212 7,869 Excess (shortfall) of cash provided by operating activities over dividends paid $ 3 $ (773) $ 390 ??????????? Excess (shortfall) of net earnings over dividends paid $ (151) $ 1,956 $ (1,016) ???????????
Dividends paid in two of the three periods exceeded net earnings. FPI does not use net earnings as a basis for determining the level of dividends to Shareholders. Dividends are determined by the Directors (previously the Trustees) and are primarily dependent upon the amount of distributions received from FPLP. Because amortization charged as an expense in calculating net earnings of FPLP in accordance with IFRS has exceeded capital expenditures charged as a reduction of distributable cash of FPLP in all periods and deferred income tax expense is a non-cash reduction of net earnings, this result is not unexpected.
Dividends paid in the twelve months ended December 31, 2010 exceeded cash provided by operating activities due primarily to the settling of the subordinated notes at December 31, 2009 and the non-recurring administration expenses relating to the conversion of the Fund to FPI. The subordinated notes were settled effective December 31, 2009 and interest owing on those notes was paid on that date, when it would normally have been paid in January 2010. this ha
A service of YellowBrix, Inc.
Source: http://www.freegby.com/fp-newspapers-inc-reports-first-quarter-2011-results.html
hcg diet weather st louis st louis weather kansas city weather dancing with the stars winner don t you forget about me biggest loser winner
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.