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direct costs are based on past practices and expectations of future changes in the
market.
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
9. Goodwill and Other Intangible Assets (continued)
The Group prepares discounted cash flow forecasts derived from the most recent financial budgets approved by management
for
the next three years and extrapolates cash flows for 20 years from the date of testing based on an estimated annual
growth
rate of 1%. A discounted residual value of 5 times the final year's cash flow is included in the forecast. The present
value of the cash flows are then compared to the carrying value of the asset.
Given the recession in the UK and Republic of Ireland during 2009 and the effect on forecast cash flows in 2010, a net
impairment charge of £126.0 million, relating entirely to publishing titles, has been recorded in the period. This
comprises a further impairment charge of £136.1 million relating to the Scotland, North and Republic of Ireland
divisions,
net of a reversal of impairment of £10.1 million in relation to the Northwest, South and Northern Ireland divisions.
The Group has conducted a sensitivity analysis on the impairment test of each CGU's carrying value. A decrease in the
long
term growth rate of 0.5% would result in a further impairment for the Group of £39.0 million, and an increase in the
discount rate of 0.5% would result in a further impairment of £41.0 million.
The only CGU that has not been impaired is the Midlands Division. For the carrying value of the goodwill and intangibles
to
be impaired in this division, a decrease in the growth rate of more than 0.10%, or an increase in the discount rate of
over
0.10%, would be required.
10. Borrowings
2009 2008
£'000 £'000
Bank overdrafts 1,022 8,254
Bank loans - sterling denominated 233,746 166,000
Bank loans - euro denominated 43,193 169,003
2003 Private placement loan notes 96,238 101,245
2006 Private placement loan notes 67,428 74,177
Term debt issue costs (14,265) (504)
Payment-in-kind interest accrual 2,193 -
Total borrowings 429,555 518,175
The borrowings are disclosed in the financial statements as:
2009 2008
£'000 £'000
Current borrowings 31,465 7,864
Non-current borrowings 398,090 510,311
429,555 518,175
The Group's net debt is:
Gross borrowings as above 429,555 518,175
Finance leases - 13
Cash and cash equivalents (12,279) (20,135)
Impact of currency hedge contracted rates (9,483) (21,238)
Net debt at currency hedge contracted rates 407,793 476,815
Term debt issue costs 14,265 504
Net debt excluding term debt issue costs 422,058 477,319
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
10. Borrowings (continued)
Analysis of borrowings by currency:
At 2009 period end
Total Sterling Euros US Dollars
£'000 £'000 £'000 £'000
Bank overdrafts 1,022 1,022 - -
Bank loans 276,939 233,746 43,193 -
2003 Private placement loan notes 96,238 46,200 - 50,038
2006 Private placement loan notes 67,428 - - 67,428
Term debt issue costs (14,265) (14,265) - -
Payment-in-kind interest accrual 2,193 2,193 - -
429,555 268,896 43,193 117,466
At 2008 period end
Bank overdrafts 8,254 8,254 - -
Bank loans 335,003 166,000 169,003 -
2003 Private placement loan notes 101,245 46,200 - 55,045
2006 Private placement loan notes 74,177 - - 74,177
Term debt issue costs (504) (504) - -
518,175 219,950 169,003 129,222
Refinancing
On 28 August 2009, the Group renegotiated its credit facilities with both its bank lenders and private placement loan
note
holders. The renegotiated facilities extended the term of the previous bank agreement until 30 September 2012. The
facility
is secured and share warrants of 5% of the Company's share capital have been issued. There is an agreed amortisation
schedule of £75.0 million over the three years on which no make whole payment to the private placement loan notes is
applicable. Interest rates payable on all facilities are based on leverage multiples and reduce based on agreed ratchets
relating to the Group's ratio of net debt to EBITDA.
Bank loans
The Group has credit facilities with a number of banks. The total facility is £324.0 million (2008: £630.0 million) of
which £47.1 million is unutilised at the balance sheet date (2008: £295.0 million). The credit facilities are provided
under two separate tranches as detailed below.
Facility A
Facility A is a revolving credit facility of £55.0 million, available to be drawn down up to 30 September 2012. This
facility includes a bank overdraft facility of £10.0 million (2008: £30.0 million). The loans can be drawn down on a
one,
two or three monthly basis. Interest is payable at LIBOR plus a maximum cash margin of 4.15% (2008: revolving credit
facility of £630.0 million, at LIBOR plus 1%).
Facility B
Facility B is a term loan facility of £269.0 million, with full repayment due on 30 September 2012. Fixed repayments are
due in 6 monthly intervals from 30 June 2010. Interest is payable quarterly at LIBOR plus a maximum cash margin of
4.15%.
Hedging
In accordance with the credit agreements in place, the Group hedges a portion of the bank loans via interest rate swaps
exchanging floating rate interest for fixed rate interest. Borrowings of £200.0 million (2008: £268.1million) were
arranged at fixed rates and expose the Group to fair value interest rate risk.
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
10. Borrowings (continued)
Private placement loan notes
The Group has total private placement loan notes of £46.2 million and $187.1 million. The notes are repayable in full on
30
September 2012, with fixed repayments at 6 monthly intervals from 30 June 2010. Interest is payable quarterly at fixed
coupon rates up to 9.45% depending on covenants.
2003 Private placement loan notes
The 2003 Private placement loan notes are made up of:
# £46.2 million at a coupon rate of up to 9.45% (2008: £46.2 million at a fixed rate of 6.3%); and
# $79.7 million at a coupon rate of up to 8.90% (2008: $79.7 million at a fixed rate of 5.75%).
Of the $79.7 million, $44.7 million has been swapped into floating sterling of £28.3 million and $35.0 million has been
swapped into fixed sterling of £22.2 million to hedge the Group's exposure to US dollar interest rates (2008: $79.7
million
swapped into floating sterling of £50.5 million).
2006 Private placement loan notes
The 2006 Private placement loan notes are made up of:
# $38.1 million at a coupon rate of up to 9.33% (2008: $38.1 million at a fixed rate of 6.18%); and
# $69.3 million at a coupon rate of up to 9.43% (2009: $69.3 million at a fixed rate of 6.28%).
The total amount of $107.4 million has been swapped back into fixed sterling of £37.1 million (2008: £37.1 million) and
floating sterling of £20.4 million (2008: £20.4 million), again to hedge the Group's exposure to US dollar interest
rates.
Payment-in-kind interest
In addition to the cash margin payable on the bank facilities and private placement loan notes, a payment-in-kind (PIK)
margin will accumulate and is payable at the end of the facility. This margin increases throughout the period of the
facility. If, by 15 May 2010, an amount of £85.0 million or more is repaid, the PIK margin is eliminated throughout the
period of the agreement. The PIK margin is also eliminated from the time £85.0 million has been repaid if this occurs
after
15 May 2010. In addition, any amounts used to reduce debt up to 15 May 2010 will not attract any make whole payment. The
PIK accrues at a margin of between 1.35% and 3.05%.
Interest rates
The weighted average interest rates paid over the course of the year, encompassing the previous and new facilities, were
as
follows:
2009 2008
% %
Bank overdrafts 2.0 6.1
Bank loans 6.0 5.8
2003 Private placement loan notes 5.6 6.9
2006 Private placement loan notes 5.6 6.5
5.8 6.1
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
11. Derivative Financial Instruments
Derivatives that are carried at fair value are as follows:
2009 2008
£'000 £'000
Interest rate swaps - current (liability)/asset (1,045) 303
Interest rate swaps - non-current liability (5,806) (7,615)
Cross currency swaps - non-current asset 15,794 36,488
8,943 29,176
12. Retirement Benefit Obligation
Throughout 2009 the Group operated the Johnston Press Pension Plan (JPPP), together with the following schemes:
# A defined contribution scheme for the Republic of Ireland, the Johnston Press (Ireland) Pension Scheme.
# Two ROI industry-wide final salary schemes and a third final salary scheme for a small number of employees
in
Limerick. There are no additional financial implications to the Group if these schemes are terminated. Consequently, the
Group's obligations to these schemes is included in Long Term Provisions and the details shown below exclude these
schemes.
The JPPP is in two parts, a defined contribution scheme and a defined benefit scheme. The latter is closed to new
members
and a proposal was announced on 14 January 2010 to close the scheme to future accrual from 30 June 2010, subject to
consultation with members which is currently ongoing. The assets of the schemes are held separately from those of the
Group. The contributions are determined by a qualified actuary on the basis of a triennial valuation using the projected
unit method. The contributions are fixed annual amounts and a percentage of salary with the intention of eliminating the
deficit within 10 years from the date of the last triennial valuation on 31 December 2007. As the defined benefit
section
has been closed to new members for a considerable period the last active member is scheduled to retire in 36 years with,
at
current mortality assumptions, the last pension paid in 56 years. On a discounted basis the duration of the pension
liabilities is circa 20 years. The financial information provided below relates to the defined benefit element of the
JPPP.
The composition of the trustees of the JPPP is made up of an independent Chairman, a number of member nominated (by
ballot)
trustees and several Company appointed trustees. Half of the trustees are nominated by members of the JPPP, both current
and past employees. The trustees appoint their own advisers and administrators of the Plan. Discussions take place with
the
Executive Directors of the Company to agree matters such as the contribution rates. Over the past few years the trustees
have reduced the risk exposure to UK equities from a level of 75% of the Plan to 63.1% at 2 January 2010.
The defined contribution schemes provide for employee contributions between 2-6% dependent on age and position in the
Group, with higher contributions from the Group. In addition, the Group bears the majority of the administration costs
and
also life cover.
The pension cost charged to the Income Statement was as follows:
2009 2008
£'000 £'000
Defined benefit schemes 1,070 2,904
Defined contribution schemes and Irish schemes 5,709 6,801
6,779 9,705
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
12. Retirement Benefit Obligation (continued)
Major assumptions:
Valuation at Valuation at
2009 2008
Discount rate 5.7% 6.3%
Expected return on scheme assets 7.1% 6.7%
Expected rate of salary increases 4.0% 3.3%
Future pension increases 3.5% 2.8%
Life expectancy
Male 19.8 years 19.5 years
Female 22.9 years 22.4 years
The valuation of the defined benefits funding position is dependent on a number of assumptions and is therefore
sensitive
to changes in the assumptions used. The impact of variations in the key assumptions are detailed below:
# A change in the discount rate of 0.1% pa would change the value of liabilities by approximately 2% or £9.0
million.
# A change in the life expectancy by one year would change liabilities by approximately 3% or £14.0 million.
Amounts recognised in the Income Statement in respect of defined benefit schemes:
2009 2008
£'000 £'000
Current service cost 1,070 2,904
Interest cost 20,941 23,321
Expected return on scheme assets (21,209) (26,810)
802 (585)
Of the current service cost for the year, £803,000 (2008: £2,178,000) has been included in cost of sales and £267,000
(2008: £726,000) has been included in operating expenses. An actuarial loss of £71,288,000 (2008: £12,227,000) has been
recognised in the Group Statement of Comprehensive Income in the current period. The cumulative amount of actuarial
gains
and losses recognised in the Group Statement of Comprehensive Income since the date of transition to IFRS is a loss of
£48,945,000 (2008: gain of £22,343,000). The actual return on scheme assets was £50,346,000 (2008: £65,620,000 loss).
Amounts included in the Statement of Financial Position:
2009 2008
£'000 £'000
Present value of defined benefit obligations 446,114 340,060
Fair value of scheme assets 362,006 321,849
Deficit in scheme 84,108 18,211
Past service cost not yet recognised in Statement of Financial Position - -
Total liability recognised in Statement of Financial Position 84,108 18,211
Amount included in current liabilities (5,111) (5,980)
Amount included in non-current liabilities 78,997 12,231
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
12. Retirement Benefit Obligation (continued)
Movements in the present value of defined benefit obligations:
2009 2008
£'000 £'000
Balance at the start of the period 340,060 406,900
Service costs 1,070 2,904
Interest costs 20,941 23,321
Contribution from scheme members 3,261 3,730
Changes in assumptions underlying the defined benefit obligations 100,425 (80,193)
Benefits paid (19,643) (16,602)
Balance at the end of the period 446,114 340,060
Movements in the fair value of scheme assets:
2009 2008
£'000 £'000
Balance at the start of the period 321,849 393,757
Expected return on scheme assets 21,209 26,810
Actual return less expected return on scheme assets 29,137 (92,340)
Contributions from the sponsoring companies 6,193 6,494
Contributions from scheme members 3,261 3,730
Benefits paid (19,643) (16,602)
Balance at the end of the period 362,006 321,849
Analysis of the scheme assets and the expected rate of return:
Expected return Fair value of assets
2009 2008 2009 2008
% % £'000 £'000
Equity instruments 8.2 7.6 228,426 186,673
Debt instruments 5.2 5.4 86,157 90,118
Property 6.2 5.6 19,186 22,529
Other assets 4.8 1.5 28,237 22,529
7.1 6.7 362,006 321,849
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
12. Retirement Benefit Obligation (continued)
Five year history:
2009 2008 2007 2006 2005
£'000 £'000 £'000 £'000 £'000
Present value of defined benefit obligations 446,114 340,060 406,900 420,913 364,727
Fair value of scheme assets 362,006 321,849 393,757 375,474 309,538
Deficit in the scheme 84,108 18,211 13,143 45,439 55,189
Experience adjustments on scheme liabilities
Amount (£'000) (100,425) 80,193 30,179 2,547 (37,623)
Percentage of scheme liabilities (%) (22.5%) 23.6% 7.4% 0.6% (10.3%)
Experience adjustments on scheme assets
Amounts (£'000) 29,137 (92,340) (4,895) 7,828 36,454
Percentage of scheme assets (%) 8.0% (28.7%) (1.2%) 2.1% 11.8%
The estimated amounts of contributions expected to be paid to the scheme during 2010 is £5,111,000 (2008: £5,980,000).
13. Share Capital
2009 2008
£'000 £'000
Authorised
860,000,000 Ordinary Shares of 10p each (2008: 860,000,000) 86,000 86,000
756,000 13.75% Cumulative Preference Shares of £1 each (2008: 756,000) 756 756
415,000 13.75% "A" Preference Shares of £1 each (2008: 415,000) 415 415
87,171 87,171
Issued
639,739,965 Ordinary Shares of 10p each (2008: 639,739,766) 63,974 63,974
756,000 13.75% Cumulative Preference Shares of £1 each (2008: 756,000) 756 756
349,600 13.75% "A" Preference Shares of £1 each (2008: 349,600) 350 350
65,080 65,080
During the period ended 2 January 2010, the only change in the issued share capital of the Company was an exercise under
the terms of the SAYE scheme of 199 Ordinary Shares of 10p for a consideration of £75.
The Company has only one class of ordinary shares which has no right to fixed income. All the preference shares carry
the
right, subject to the discretion of the Company to distribute profits, to a fixed dividend of 13.75% and rank in
priority
to the ordinary shares. Given the discretionary nature of the dividend right, the preference shares are considered to be
equity under IAS 32.
Notes to the Condensed Consolidated Financial Statementsfor the 53 week period ended 2 January 2010 continued
14. Notes to the Cash Flow Statement
2009 2008
£'000 £'000
Operating loss (90,614) (399,676)
Adjustments for:
Intangible adjustment - non-recurring - 93,893
Impairment of intangibles - non-recurring 126,000 417,522
Other non-cash non-recurring items 2,344 -
Depreciation of property, plant and equipment (including write-downs) 41,982 31,828
Currency differences 12 (80)
(Credit)/charge from share based payments (108) 1,385
Profit on disposal of property, plant and equipment (259) (730)
Movement on pension provision (3,449) (3,645)
Operating cash flows before movements in working capital 75,908 140,497
Decrease/(increase) in inventories 3,167 (2,012)
Decrease in receivables 15,703 22,364
Decrease in payables (897) (16,301)
Cash generated from operations 93,881 144,548
Cash and cash equivalents (which are presented as a single class of assets on the face of the Statement of Financial
Position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
15. Guarantees and Other Financial Commitments
Tax assessment
As previously reported the Group has recorded a provision for £80.0 million, with an equal and opposite offset in
debtors,
regarding a tax assessment issued against one of the RIM companies acquired by Johnston Press in 2002 in relation to the
prior sale of the RIM companies by United Business Media plc (UBM) in 1998. The debtor was recorded to reflect the terms
of
the full tax indemnity received by UBM at the time of the acquisition of the RIM Group by Johnston Press.
On 5 March 2010, UBM announced the resolution of this dispute with HMRC and that a payment (including interest) of £36.4
million would be made in March 2010. The Group has agreed with both UBM and HMRC that the payment will be paid direct
from
UBM to HMRC and so there will be no cash flow through the Johnston Press plc Group.
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