FP Newspapers Inc. Reports Second Quarter 2011 Results
(firmenpresse) - WINNIPEG, MANITOBA -- (Marketwire) -- 08/11/11 -- FP Newspapers Inc. ("FPI") formerly FP Newspapers Income Fund ("the Fund") announces financial results for the quarter ended June 30, 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, FPI's 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 of Derksen Printers ("Derksen"), 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 June 30, 2011 was $29.9 million, a $1.0 million or 3.4% increase from the same period last year. Total revenue excluding the Derksen business was $28.6 million, a decrease of $0.4 million compared to the second quarter in 2010. Total EBITDA(1) of FPLP for the quarter was $6.9 million, a $0.2 million or 2.9% decrease from the same quarter last year. Total EBITDA(1) of FPLP, excluding the Derksen business was $6.6 million, a decrease of $0.5 million or 7.2% from the same quarter last year. FPLP had net earnings of $5.2 million in the quarter compared to $4.9 million in the same quarter last year. Excluding the Derksen business, FPLP's net earnings were unchanged from the prior year level of $4.9 million.
FPI had net earnings of $1.8 million, or $0.257 per share, during the three months ended June 30, 2011, compared to net earnings of $2.7 million, or $0.396 per share, in the same quarter last year. The decrease in FPI's net earnings in the quarter is primarily due to an increase in deferred income tax expense described below, partially offset by the increased equity share of the earnings of FPLP.
Operations
FPLP's revenue for the three months ended June 30, 2011 was $29.9 million, an increase of $1.0 million or 3.4% from the same three months in the prior year. Excluding revenue attributable to the Derksen operation for the quarter, revenue decreased by $0.4 million or 1.4%. Advertising revenues for the three months ended June 30, 2011, excluding the Derksen business, were $20.3 million, a 2.9% increase compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, excluding the Derksen business, was $13.3 million, an increase of $0.7 million or 5.7% from the same period in the prior year, primarily due to increased spending in the automotive, telecommunications and government categories. Classified advertising revenues for the second quarter, excluding the Derksen business, decreased by $0.3 million or 7.6% compared to the same period last year, primarily due to a decrease in the employment, obituary and automotive categories, partly offset by increased revenue in the real estate category. Flyer distribution revenues for the second quarter, excluding the Derksen business, increased by $0.1 million or 3.2% compared to the same period last year due to increased rates and volumes.
Circulation revenues for the second quarter, excluding the Derksen business, decreased by $0.2 million or 3.1%, due primarily to lower paid-subscription and single-copy volumes, partially offset by increased subscription rates. Commercial printing revenues for the quarter, excluding the Derksen business, decreased by $1.1 million, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Digital revenues for the second quarter increased by $0.2 million or 51.0%, 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 and a restructuring charge for the three months ended June 30, 2011 were $22.8 million, a $0.9 million or 4.2% increase from the same quarter last year. Operating expenses excluding depreciation and amortization, the restructuring charge and the Derksen business, for the three months ended June 30, 2011, decreased $0.2 million or 0.8% compared to last year. Employee compensation costs for the second quarter, excluding the restructuring charge and the Derksen business, decreased by $0.2 million or 1.5% primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. In the second quarter, twelve employees were laid-off between the Winnipeg and Brandon operations and a restructuring charge for severance costs of $0.3 was incurred. Newsprint expense for FPLP's own publications for the quarter, excluding the Derksen business, increased by $0.3 million or 11.8%, primarily due to higher newsprint prices partially offset by lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the second 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 and other expenses for the second quarter, excluding the Derksen business were at the same level compared to the same period in the previous year.
During the second quarter we continued to upgrade our digital product offering and in June the Winnipeg Free Press launched a new version of a mobile application named Winnipeg Free Press News. The application features regularly updated content from the Free Press newsroom, as well as other information sources. It replaces an older Free Press application, which simply displayed a static PDF file of the morning print version of the newspaper. We are currently averaging approximately 1,500 distinct users daily on this new application. The new application is built using the same platform as FP News, a Free Press-owned mobile news application that focuses on national and international stories, which is averaging approximately 10,000 distinct users daily.
In June the Free Press rolled out the first phase of its new reader comment system, which provides increased functionality and personalization options. The new system will allow users to review their activities, edit their profile, link to their Twitter, Facebook or Linked In accounts, and review the rewards that they have earned. Future enhancements will include an interactive rewards package that will include many fun badges for users to earn or for editors to award to users.
During April 2011, in a move to differentiate ourselves from other publications in the Winnipeg market, we introduced a broadsheet publication called Sunday Extra as our single copy newspaper replacing the tabloid sized "On-7" product. To date we have experienced modest increases in circulation and advertising sales since making the change.
In late July, Free Press members of the defined benefit pension plan were sent letters indicating FPLP is requesting pension solvency relief as allowed under the Manitoba Pension Regulations. Under Manitoba pension laws, solvency deficiencies must be funded over a five-year period, unless pension solvency relief is being requested from plan members, which extends this payment period to 10 years. An initial actuarial report is showing required solvency deficiency payments starting in 2011 of $1.5 million per year for five years, which is an increase of $1.2 million from the solvency deficiency payments made in 2010 of $0.3 million. If the solvency relief is obtained, the annual solvency deficiency payments will be approximately $0.8 million per year for ten years. The increased solvency deficiency is primarily the result of three factors: lower than expected investment returns since the last funding valuation study on December 31, 2007; declining bond yields, which increase the present value of plan obligations; and an increase in the average age of active employees covered under the plan. Solvency relief is obtained if fewer than one-third of current plan members, former plan members and any other persons entitled to benefits under the plan object to the proposal. The deadline for receiving objections is August 22, 2011.
Canstar's editorial department earned eight awards at the Manitoba Community Newspapers Association awards in May. The very next day, six of our community journalists spent the day in the Headliner coverage area, talking to residents for a special flood issue of The Headingley Headliner as they anxiously awaited overland flooding from the Assiniboine River.
Uptown Magazine continued its tradition of honouring the best aspects of the city with the publication of the results of its annual Best of the City survey in May. The 20-page supplement led to empty racks and thousands of additional website hits on its site, uptownmag.com, which was updated and relaunched in June, with a new front page design and a new, interactive events widget.
Brandon and western Manitoba suffered through severe flooding this past spring. While the flood caused logistical problems in distributing the paper in the trading area, it also afforded an opportunity for the Brandon Sun's reporters and photographers to provide exceptional coverage in print and online. The coverage was extensive, the stories were compelling and the art was outstanding. The Sun's website component, The Flood of 2011, was a popular destination for flood-weary western Manitobans to read about the latest flood conditions in their area. The page featured the latest reports, archived stories, art, video, and live streaming video from two cameras focused on the surging Assiniboine River. In May - the height of the flood - the Sun's website attracted nearly 200,000 unique visitors and over 1,000,000 page views.
The Brandon Sun was awarded the St. John Ambulance Media Award by Manitoba's Lt. Governor for outstanding coverage in Manitoba in the second quarter.
The Brandon Sun has been a seven-day publication since the early 1990s. The decision to discontinue the Sunday edition was made in the second quarter and the work necessary to transition to a six-day publication was completed in that period. We anticipate minimal advertising revenue shrinkage, as virtually all Sunday linage has been migrated to other publication days. There will be lost circulation revenue given one fewer day, but the net result will be cost savings of about $0.3 million per year. The final Sunday edition was printed on June 26, 2011.
In Steinbach we started printing the Metro Winnipeg free daily newspaper on April 4 and continue to work on the investment to increase our printing capacity. A combination of new and used equipment has been sourced and the installation is expected to be completed before the end of September. We are planning to finance the estimated $1.2 million capital investment through a capital lease facility with HSBC Bank Canada. During the quarter we moved the delivery of our Carillon weekly newspaper from Canada Post to a contracted home delivery network in Steinbach which allows us to get the newspaper to subscribers one day earlier. We have seen an increase of about ten percent in the home delivery subscribers since making the change. The Carillon advertising sales team are finalizing the development of a media kit to help generate new revenue sources and have finalized an annual schedule of twelve special supplement sections, an increase from an average of six in past years. In July a mortgage financing agreement was completed for the Steinbach real estate assets. The loan of $1.0 million, which is to be repaid over 15 years, carries a five-year fixed interest rate of 4.85%.
Dividends
Distributable cash attributable to FPI(2) for the three months ended June 30, 2011 was $1.5 million or $0.211 per share, compared to $2.3 million or $0.330 per share for the same period last year. For the trailing twelve months ended June 30, 2011, FPLP generated distributable cash attributable to FPI(2) of $0.839 per share, and FPI declared dividends of $0.66 per share, resulting in a payout ratio of 78.7%.
FPI declared dividends to Shareholders of $0.150 per share for the quarter, compared to $0.180 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
The advertising revenue growth, excluding the Derksen business, of 2.9% for the second quarter has brought advertising revenue levels for the first six months roughly equal to the prior year. Strength in the display advertising category was partially offset by continuation of the decline in classified revenue. Early in the third quarter, display advertising revenue has softened somewhat from what we experienced in the second quarter. Newsprint prices are expected to remain at current levels, which would result in an average price increase of approximately 5 per cent in the third quarter and 2.5 percent over the next six months.
The Winnipeg Free Press is partnering with Penguin Books to publish a commemorative book that will mark Winnipeg's historic re-entry into the National Hockey League. Back in the Bigs: How Winnipeg Won, Lost and Regained its Place in the NHL, will be written by award-winning sports writer Randy Turner, and is due out in September. The book will track the history of professional hockey in Winnipeg from the wild days of the World Hockey Association to the Winnipeg Jets entry into the NHL in 1979, and from the heartbreaking loss of the franchise in 1996 to its triumphant return in 2011.
Conference Call
The Corporation invites you to participate in a conference call on Thursday, August 11, 2011 at 12:00 p.m. Eastern (11:00 a m. Central) to discuss the second quarter results.
The dial-in number is 416-340-2216, or dial toll free at 866-226-1792. 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 August 25, 2011. To access the rebroadcast, please dial 905-694-9451 or dial toll free at 800-408-3053, and use the passcode 3834345.
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 www fpnewspapers.com, and in the disclosure documents filed by FPI with the securities regulatory authorities, available at .
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 .
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 August 10, 2011, provides a review of significant developments that affected the performance of FP Newspapers Inc. ("FPI") in the three months ended June 30, 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 and six months ended June 30, 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 MD&A should also be read in conjunction with FPI's interim unaudited condensed consolidated financial statements and accompanying notes for Quarter 2, 2011, and FPI's interim unaudited condensed consolidated financial statements and accompanying notes for Quarter 1, 2011.
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 .
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.
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 $1.8 million and $2.7 million for the three and six months ended June 30, 2011, compared to net earnings of $2.7 million and $4.2 million for the same periods last year. The decrease in net earnings for the three months ended June 30, 2011 is due to a deferred income tax expense of $0.6 million in 2011 compared to a deferred income tax recovery of $0.6 million in 2010, as explained in the taxation section of this report. The decrease in net earnings for the six months ended June 30, 2011 is primarily due to deferred income tax expense of $0.9 million in 2011 compared to a deferred income tax recovery of $0.7 million in 2010 as explained in the taxation section of this report. Other Comprehensive Income for the three months ended June 30, 2011 was a loss of $0.2 million, unchanged from the same quarter last year. Other Comprehensive Income for the six months ended June 30, 2011 was nil compared to a loss of $0.4 million in the prior year, primarily due to a reduction in FPI's equity share of FPLP's change in actuarial loss as explained in the FPLP section of this report.
FPI declared dividends to Shareholders of $1.0 million or $0.150 per share and $2.1 million or $0.300 per share for the three and six months ended June 30, 2011, compared to $1.2 million or $0.180 per share and $2.5 million or $0.360 per share for the same periods last year. Cash provided by operating activities of FPI was $1.3 million and $2.4 million for the three and six months ended June 30, 2011, compared to $1.3 million and $2.2 million for the same periods last year. The increase in cash provided by operating activities for the six months 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.
As at August 10, 2011, FPI had 6,902,592 shares outstanding.
Working Capital Position of FPI
The working capital deficiency at June 30, 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 June is not accrued as a liability on FPLP's June balance sheet nor recorded as a receivable on FPI's June balance sheet. FPI received FPLP's June 2011 distribution before the end of July 2011 and used a portion of this distribution to pay its dividend to Shareholders for June, which was paid on July 29, 2011.
Distributable Cash Attributable to FPI(2)
Cash available for distribution attributable to FPI was $1.5 million or $0.211 per share and $2.1 million or $0.302 per share for the three and six months ended June 30, 2011, compared to $2.3 million or $0.330 per share and $4.2 million or $0.604 per share for the same periods last year. The decrease in cash available for distribution attributable to FPI in the quarter is primarily due to the establishment of the reserve for future income taxes since FPI is a taxable corporation (see "Taxation" below) and the establishment of a reserve for pension solvency payments resulting from the draft actuarial report showing required solvency deficiency payments of $1.5 million annually beginning in 2011, as discussed in the operations section of this report.
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 June 30, 2011, cumulative distributable cash attributable to FPI totalled $11.871 per share. During that period FPI declared cash dividends to Shareholders of $10.523 per share, resulting in a cumulative-from-inception payout ratio of 88.6%. 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 June 30, 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 June 30, 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:
FP Canadian Newspapers Limited Partnership
Results of Operations
FPLP's revenue for the three months ended June 30, 2011 was $29.9 million, an increase of $1.0 million or 3.4% from the same three months in the prior year. Excluding revenue attributable to the Derksen operation for the quarter, revenue decreased by $0.4 million or 1.4%. Advertising revenues for the three months ended June 30, 2011, excluding the Derksen business, were $20.3 million, a 2.9% increase compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, excluding the Derksen business, was $13.3 million, an increase of $0.7 million or 5.7% from the same period in the prior year, primarily due to increased spending in the automotive, telecommunications and government categories. Classified advertising revenues for the second quarter, excluding the Derksen business, decreased by $0.3 million or 7.6% compared to the same period last year, primarily due to a decrease in the employment, obituary and automotive categories, partly offset by increased revenue in the real estate category. Flyer distribution revenues for the second quarter, excluding the Derksen business, increased by $0.1 million or 3.2% compared to the same period last year due to increased rates and volumes.
Circulation revenues for the second quarter, excluding the Derksen business, decreased by $0.2 million or 3.1%, due primarily to lower paid-subscription and single-copy volumes, partially offset by increased subscription rates. Commercial printing revenues for the quarter, excluding the Derksen business, decreased by $1.1 million, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Digital revenues for the second quarter increased by $0.2 million or 51.0%, primarily due to the increase in Winnipeg Free Press website banner advertising and revenues from new product offerings largely by the Winnipeg Free Press.
FPLP's revenue in the six months ended June 30, 2011 was $54.9 million, a decrease of $0.4 million or 0.7% from the same period in the prior year. Excluding revenue attributable to the Derksen operation, revenue decreased by $2.3 million or 4.1%. Advertising revenues for the six months ended June 30, 2011, excluding the Derksen business, were $37.4 million, a 0.2% increase compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, excluding the Derksen business, was $24.2 million, an increase of $0.4 million or 1.6% from the same period in the prior year, primarily due to increased spending in the automotive, telecommunications and government categories, partially offset by decreased spending in the travel category. Classified advertising revenues for the six months, excluding the Derksen business, decreased by $0.6 million or 9.2% compared to the same period last year, primarily due to a decrease in the automotive, obituary and employment categories. Flyer distribution revenues for the six months, excluding the Derksen business, increased by $0.3 million or 4.1% compared to the same period last year, due to increased rates and volumes.
Circulation revenues for the six months, excluding the Derksen business, decreased by $0.8 million or 5.5%, due primarily to lower paid-subscription and single-copy volumes, partially offset by higher subscription rates implemented in February 28, 2011 at the Winnipeg Free Press. A portion of the subscription reduction was due to the elimination of some rate discount programs. Commercial printing revenues for the six months, excluding the Derksen business, decreased by $2.1 million, primarily due to the October 1, 2010 non-renewal of the Globe and Mail printing contract. Digital revenues for the six months increased by $0.4 million or 48.3% 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 and a restructuring charge for the three months ended June 30, 2011 were $22.8 million, a $0.9 million or 4.2% increase from the same quarter last year. Operating expenses excluding depreciation and amortization, the restructuring charge and the Derksen business, for the three months ended June 30, 2011, decreased $0.2 million or 0.8% compared to last year. Employee compensation costs for the second quarter, excluding the restructuring charge and the Derksen business, decreased by $0.2 million or 1.5% primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. In the second quarter, twelve employees were laid-off between the Winnipeg and Brandon operations and a restructuring charge for severance costs of $0.3 was incurred. Newsprint expense for FPLP's own publications for the quarter, excluding the Derksen business, increased by $0.3 million or 11.8%, primarily due to higher newsprint prices partially offset by lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the second 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 and other expenses for the second quarter, excluding the Derksen business were at the same level compared to the same period in the previous year.
Operating expenses excluding depreciation and amortization and the restructuring charge for the six months ended June 30, 2011 were $43.4 million, a $0.7 million or 1.6% increase from the same period last year. Operating expenses excluding depreciation and amortization, the restructuring charge and the Derksen business, for the six months ended June 30, 2011, decreased $0.8 million or 1.9% compared to last year. Employee compensation costs, for the six months, excluding the Derksen business and the restructuring charge, decreased by $0.4 million or 1.8%, primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. In the second quarter, twelve employees were laid-off between the Winnipeg and Brandon operations and a restructuring charge for severance costs of $0.3 was incurred. Newsprint expense for FPLP's own publications for the six months, excluding the Derksen business, increased by $0.4 million or 9.5%, primarily due to higher newsprint prices partially offset by lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the six months, excluding the Derksen business, decreased $0.4 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 six months, excluding the Derksen business, increased by $0.1 million or 1.0%, primarily due to higher fuel costs. Other expenses for the six months, excluding the Derksen business, decreased by $0.5 million or 5.5% 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 and six months ended June 30, 2011 was $6.9 million and $11.2 million compared to $7.1 million and $12.6 million for the same periods last year, a decrease of 2.9% and 10.7% respectively. EBITDA(1) margin for the three and six months ending June 30, 2011 was 22.9% and 20.5% compared to 24.4% and 22.8% in the same periods last year. Excluding the Derksen business, EBITDA(1) for the three and six months ended June 30, 2011 was $6.6 million and $10.9 million. The reductions in EBITDA(1) were due to the changes described above.
Depreciation and amortization for the three and six months ended June 30, 2011 decreased by $0.5 million and $1.0 million compared to the same periods in the prior year, primarily due to accelerated depreciation recorded in the prior year for the Brandon production equipment, which was taken out of service effective October 1, 2010, partially offset by increased depreciation from the Derksen business assets acquired.
Finance costs for the three months ended June 30, 2011 increased by $0.1 million compared to the previous year, due to an increase in interest rates on the term loan and interest expense on the new finance leases. Finance costs decreased by $0.1 million for the six months ending June 30, 2011 compared to the previous year, due primarily to lower interest costs on the variable rate term loan versus the fixed 5.2% rate on the notes payable together with lower principal amounts owing, partially offset by interest payments on the new finance leases.
FPLP's net earnings were $5.2 million and $7.9 million for the three and six months ended June 30, 2011, compared to $4.9 million and $7.9 million for the same period last year.
Under IFRS, comprehensive income includes actuarial gains and losses. These gains or losses are primarily related to changes in actuarial discount rate assumptions and differences between actuarial estimates of return on pension plan assets versus actual returns. In the second quarter, the actual investment income of the pension plan assets was less than the actuarial expected return, resulting in an increase in the defined benefit obligation for the second quarter. The actuarial loss for the six months ended June 30, 2011 was lower when compared to the loss in the previous year due to an investment income gain and an increase in the discount rate which resulted in an actuarial gain in the first quarter of 2011.
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:
(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 June 30, 2011 was $3.7 million, compared to $3.6 million at June 30, 2010. The change is working capital is primarily due to an increase in accounts receivable as a result of higher advertising revenues in the month of June compared to the prior year, offset by the acquisition of Derksen Printers.
Liquidity and Capital Resources of FPLP
Cash and cash equivalents, excluding the restricted cash, at June 30, 2011 was $6.3 million compared to $8.4 million at June 30, 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 $9.8 million during the six months, while $3.9 million was used for investing activities and $6.0 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 and six months ended June 30, 2011, cash generated from operating activities was $3.3 million and $9.8 million compared to $6.3 million and $12.1 million for the same periods last year. The net earnings for the three and six months ended June 30, 2011 were $5.2 million and $7.9 million compared to $4.9 million and $7.9 million for the same periods 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 and six months ended June 30, 2011 was a decrease of $0.5 million and $1.0 million from the same periods last year as a result of accelerated amortization in 2010 on certain Brandon production equipment resulting from the consolidation of Brandon production at our Winnipeg production site, partially offset by increased depreciation expense relating to the Derksen acquired assets. The net change in non-cash working capital for the three and six months ended June 30, 2011 was a decrease of $3.0 million and $0.3 million compared to a decrease of $0.2 million and increase of $0.7 million for the same periods last year, primarily the result of the timing of receipts from customers and payments to suppliers.
Investing Activities
Capital purchases totalled $0.3 million and $0.7 million for the three and six months ended June 30, 2011, compared to $0.1 million and $0.3 million for the same periods in the prior year. Capital spending during the six months 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 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 three and six months totalled $2.7 million and $5.4 million, of which $1.3 million and $2.6 million was paid to FPI as holder of Class A limited partner units. This is compared to $2.7 million and $5.3 million in the same periods last year, of which $1.3 million and $2.3 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 and six months ended June 30, 2011 totalled $1.3 million and $2.5 million, compared to $1.3 million and $2.1 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 six-month period of 2011 is a result of six full months of repayments compared to only five in 2010.
Contractual Obligations
During 2011, FPLP entered into two finance lease agreements to finance equipment purchases, one during the first quarter of 2011 and the second in the second quarter.
Other than as discussed above, there have been no significant changes to contractual obligations since December 31, 2010.
Reserves 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 reserves for the three and six months ended June 30, 2011 and 2010 is as follows:
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.
As FPI's year end is December 30 taxes will be temporarily deferred as explained under the taxation section of this report, a reserve is being established to fund future income taxes payable.
As discussed in the operation section of this report, pension solvency deficiency payments will be required starting in the second half of 2011. In the second quarter it was decided to establish a reserve in the distributable cash calculation at the higher end of the range of potential required future payments.
These reserves are non-IFRS measures established and utilized at the discretion of the board of directors of the managing general partner of FPLP, and have 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 $1.0 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:
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 and six months ended June 30, 2011 were $1.0 million and $2.1 million, compared to $1.0 million and $1.8 million for the same periods 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 and six months ending June 30, 2011 was $0.1 million and $0.2 million compared to $0.1 million and $0.2 million for the same periods in 2010.
Disclosure controls and procedures and internal controls over financial reporting
In FPI's 2010 filings, the CEO and CFO certified, as required by National Instrument 52-109, the appropriateness of the financial disclosure, the design and effectiveness of the Corporation's disclosure controls and procedures, and the design and effectiveness of internal controls over financial reporting.
In FPI's second quarter 2011 filings, the CEO and CFO certify, as required by National Instrument 52-109, the appropriateness of the financial disclosure, the design of the Corporation's disclosure controls and procedures, and the design of internal controls over financial reporting.
FPI's Audit Committee reviewed this MD&A, and the interim financial report, and the Board of Directors approved these documents prior to their release.
Changes in internal controls over financial reporting
There have been no changes to FPI's internal controls over financial reporting that occurred during the second quarter of 2011 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.
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 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
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. This increase reversed through the statements of earnings and comprehensive income 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:
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.
Accounting standards issued but not yet effective
IFRS 9 - Financial Instruments
IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment, are recognized in profit or loss; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely. Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.
Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.
This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. FPI has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
IFRS 10 - Consolidation
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation-Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.
This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. FPI has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
IFRS 11 - Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities-Non-monetary Contributions by Venturers.
This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. FPI has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
IFRS 12 - Disclosure of Interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity's interests in other entities.
This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. FPI has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
IFRS 13 - Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.
This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. FPI has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
Amendments to IAS 19 - Employee Benefits
The amendment makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to enhance the disclosures for all employee benefits. Actuarial gains and losses are renamed 'remeasurements' and will be recognized immediately in other comprehensive income ("OCI"). Remeasurements recognized in OCI will not be recycled through profit or loss in subsequent periods. The amendments also accelerate the recognition of past service costs whereby they are recognized in the period of a plan amendment. The annual expense for a funded benefit plan will be computed based on the application of the discount rate to the net defined benefit asset or liability. The amendments to IAS 19 will also impact the presentation of pension expense as benefit cost will be split between (i) the cost of benefits accrued in the current period (service cost) and benefit changes (past- service cost, settlements and curtailments); and (ii) finance expense or income.
A number of other amendments have been made to recognition, measurement and classification i
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