FP Newspapers Limited Partnerships' Q4 net income up 12.6% year-over-year to C$5.5M, net sales up 6% to C$29.9M, aided by revenue from acquired Derksen Printers, higher digital advertising sales

WINNIPEG, Manitoba , March 16, 2012 (press release) – FP Newspapers Inc. , formerly FP Newspapers Income Fund ("the Fund"), announces financial results for the quarter ended December 30, 2011. FPI is the successor to the business of the Fund and owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").

Fourth quarter operating results of FPI

For the fourth quarter FPI's equity interest from its investment in FPLP was $2.7 million, an increase of $0.3 million or 12.6 % compared to the fourth quarter last year. During the fourth quarter, we recorded a non-cash write-down of $15.0 million in the carrying value of FPI's investment in FPLP to reflect a continuation of soft advertising revenues, which started during the global economic slowdown in 2008, and decreasing newspaper industry valuations. Despite this non-cash write-down, the businesses operated by FPLP continue to deliver annual EBITDA(1) in excess of $23.0 million and an EBITDA margin in excess of 20 percent. The non-cash write-down will not affect the dividend level of FPI which was established at an annual rate of $0.60 per share at the beginning of 2011, and based on the March 15, 2012 closing price of FPI shares of $5.25, yields an 11.4% return. In the fourth quarter administration costs decreased by $0.1 million due to non-recurring conversion costs included in the prior year's fourth quarter results. Deferred income tax expense increased by $0.6 million in the fourth quarter of 2011 compared to the prior year, primarily as a result of the conversion from an income trust to a corporation at the beginning of 2011.

Fourth quarter operating results of FPLP

FPLP's revenue for the three months ended December 31, 2011 was $29.9 million, an increase of $1.7 million from the fourth quarter last year. Excluding revenue of Derksen Printers, which was acquired in February 2011, revenues were higher by $0.1 million or 0.3% compared to the same quarter last year. Print advertising revenues excluding the Derksen business were lower by $0.1 million or 0.6% primarily due to lower display and classified revenues. Circulation revenue was lower by $0.1 million or 1.9% and digital advertising revenues were higher by $0.1 million or 16.0% versus the fourth quarter of 2010. Other revenue increased by $0.3 million primarily due to sales of the book "Back in the Bigs", a history of the Winnipeg Jets written by Winnipeg Free press reporter, Randy Turner.

Operating expenses for the fourth quarter increased by $1.0 million or 4.5% from the fourth quarter last year. Excluding the Derksen business, operating expenses decreased by $0.3 million or 1.5% versus last year. The expense reduction was primarily due to lower employee-related costs as a result of restructuring initiatives implemented largely in 2010.

For the fourth quarter, EBITDA(1) was higher by $0.7 million or 11.2% and excluding the Derksen business was higher by $0.4 million or 5.3% compared to the fourth quarter last year.

Net earnings for the fourth quarter were $5.5 million, an increase of $0.6 million or 12.6%, and excluding the Derksen business were $5.2 million, an increase of $0.3 million or 6.7% from the same quarter last year.

Distributable cash attributable to FPI(2) was $1.7 million or $0.241 per share, down from $2.1 million or $0.301 per share for the same quarter last year. The decrease in distributable cash attributable to FPI is primarily the result of the requirement to establish a reserve for future cash income taxes that will be distributed in future periods to fund taxes payable by the partners of FPLP, partially offset by higher EBITDA(1).

Twelve month operating results of FPI

FPI's net loss was $9.4 million for the twelve months ended December 30, 2011, compared to net earnings of $7.8 million last year. Excluding the $15.0 million non-cash write-down reported in the fourth quarter of 2011, net earnings before income tax for the year were $7.7 million, an increase of $0.4 million or 6.1% compared to 2010. This increase is primarily the result of increased equity earnings from FPI's investment in FPLP and lower administration costs due to non-recurring conversion costs incurred last year. Deferred income tax expense increased by $2.6 million in 2011 compared to the prior year, primarily due to the conversion to a taxable corporation from an income trust at the beginning of 2011.

Twelve month operating results of FPLP

FPLP's revenue for the twelve months ended December 31, 2011 was $111.3 million, an increase of $1.2 million or 1.1% from the same period last year. Excluding revenue of the Derksen business, revenue for the year was lower by $3.7 million or 3.3% compared to last year. The loss of a commercial printing contract at the end of the third quarter of 2010 accounted for $2.8 million of this decrease. Print advertising revenues excluding the Derksen business were lower by $0.4 million or 0.5% primarily due to lower classified revenues partially offset by small increases in flyer delivery revenue and display advertising. Circulation revenue was lower by $1.2 million or 4.3% and digital advertising revenues were higher by $0.6 million or 30.8% versus 2010. Other revenue increased by $0.4 million primarily due to sales of the book "Back in the Bigs", a history of the Winnipeg Jets written by Winnipeg Free press reporter, Randy Turner.

Operating expenses for 2011 increased by $1.2 million or 1.3% over 2010. Excluding the Derksen business, operating expenses decreased by $3.0 million or 3.2% versus last year, primarily the result of lower depreciation and amortization resulting from the accelerated depreciation on the Brandon production assets required last year, lower employee-related costs as a result of restructuring initiatives implemented in previous quarters and lower newsprint costs due to the loss of a commercial printing contract at the end of the third quarter of 2010.

For 2011, EBITDA(1) was lower by $1.5 million or 5.9% and excluding the Derksen business was lower by $2.3 million or 9.6% compared to last year.

Net earnings for the twelve months ending December 31, 2011 were $16.2 million, an increase of $0.2 million or 1.6%. Excluding the Derksen business net earnings were $15.4 million, a decrease of $0.6 million or 3.5% compared to last year.

Distributable cash attributable to FPI(2) for 2011 was $4.6 million or $0.664 per share, down from $7.9 million or $1.140 per share for 2010. The decrease in distributable cash attributable to FPI(2) is primarily a result of lower EBITDA(1) of FPLP, the requirement to establish a reserve for future cash income taxes and the additional funding requirements of the defined benefit pension plan in excess of the accounting expense.

Dividends

FPI declared dividends to shareholders of $1.0 million or $0.15 per share and $4.1 million or $0.60 per share for the three and twelve months ended December 30, 2011, compared to $1.2 million or $0.18 per share and $5.0 million or $0.72 per share for the same periods last year.

March Dividend

FPI today announced a cash dividend of $0.05 per share, payable on April 30, 2012 to shareholders of record at the close of business on March 30, 2012.

Outlook

Advertising revenue in the fourth quarter of 2011, on a same-store basis, decreased slightly by 0.6% versus the same quarter last year and on a same-store basis over the full year decreased by 0.5% versus 2010. Increased revenue growth of 0.7% for the full year in our largest revenue category, display advertising including colour, was unfortunately more than offset by a continued decline in classified advertising revenues. Many economic forecasts are calling for a continuation of slow economic growth in 2012. Advertising revenue is extremely difficult to forecast. Looking ahead into 2012, we are planning for continued, relatively stable overall advertising revenues. 2012 will benefit from having two additional months of revenue and earnings from the Derksen acquisition and three additional months of the Metro printing contract, in addition to a full year under new leadership in both the Brandon and Canstar Community News divisions. We are budgeting for flat circulation revenue coming from rate increases implemented during the first quarter of 2012, partially offset by a continuation of the long-term trend of a slow decline in circulation unit sales. Digital revenues are budgeted to continue to show strong year-over-year increases and we are forecasting growth in excess of 10% in this faster growing revenue area.

Employee compensation, our single biggest expense category, was 46% of our total overall operating costs in 2011. Compensation costs are forecasted to increase in 2012 as a result of the two percent annual rate increases included in our collective bargaining agreements and higher employee benefit costs largely related to increases in the accounting expense for our defined benefit pension plan. Overall salary and benefits are being budgeted to increase between 3% and 4% in 2012. Newsprint prices have not changed since the last increase in September 2010. If prices remain at current levels for 2012, we will see lower same-store costs resulting from lower circulation copies, offset by the extra months of the Derksen operation and Metro printing contract. We are budgeting for flat delivery expenses as rate increases are expected to be offset by lower units delivered. Other costs are forecasted to increase by approximately 5% due to planned additional costs for circulation promotions and full-year costs for our new sponsorship agreement with the owners of the Winnipeg Jets.

Maintenance capital spending for 2012 is forecasted to be approximately $1.3 million, primarily made up of a number of software and hardware upgrades at all our business units, together with production equipment replacements and upgrades at our Winnipeg and Steinbach printing plants.

Finance costs are forecasted to be slightly lower in 2012 with lower interest on our HSBC term loan due to lower principal balances, partially offset by a full year of interest on the finance leases and mortgage loan entered into in 2011. In 2012 we are forecasting a continuation of the trend of higher year-over-year funding requirements relating to the defined benefit pension plan. Our forecasts primarily result from the lower investment return environment in 2011 combined with lower yields on fixed income investments used for setting the discount rate on future pension obligations. While an actuarial valuation at December 31, 2011 is planned to be completed during the second quarter of 2012 and will determine the level of required additional funding, preliminary estimates are in the range of $0.8 million to $1.5 million. The province of Manitoba, in response to the funding pressures facing many similar plans, introduced solvency relief measures which will be utilized wherever possible by FPLP to moderate the impact on actual funding levels in 2012.

Additional Information

Additional information including financial statements and management's discussion and analysis can be found on the Company's website at www.fpnewspapers.com or on SEDAR at www.sedar.com .

FP Newspapers Inc.
        (formerly FP Newspapers Income Fund)
        Condensed Consolidated Statements of Earnings and Comprehensive Income
        (Loss)
        (unaudited, in thousands of Canadian dollars except per share amounts)
                                      Three Months Ended       Twelve Months Ended
                                December 30, December 31, December 30, December 31,
                                       2011         2010         2011         2010
        ---------------------------------------------------------------------------
        Equity interest from FP
         Canadian Newspapers
         Limited Partnership
         Class A limited
         partner units              $ 2,718      $ 2,413      $ 7,954      $ 7,827
        Write-down of
         investment in FP
         Canadian Newspapers
         Limited Partnership
         Class A limited
         partner units              (15,000)           -      (15,000)           -
        Equity interest from
         FPCN General Partner
         Inc.                             -            -           37            -
        Administration expenses         (70)        (168)        (336)        (606)
        Other income                      1            -            5            1
        ---------------------------------------------------------------------------
        Net earnings (loss)
         before income tax          (12,351)       2,245       (7,340)       7,222
        Deferred income tax
         (expense) recovery            (752)         (86)      (2,060)         631
        ---------------------------------------------------------------------------
        Net earnings (loss) for
         the period               $ (13,103)     $ 2,159     $ (9,400)     $ 7,853
        ---------------------------------------------------------------------------
        ---------------------------------------------------------------------------
        Equity interest of
         other comprehensive
         loss from FP Canadian
         Newspapers Limited
         Partnership                   (264)        (212)      (2,714)        (846)
        Deferred income tax
         recovery                        71           57          733          157
        ---------------------------------------------------------------------------
        Comprehensive income
         (loss) for the period    $ (13,296)     $ 2,004    $ (11,381)     $ 7,164
        ---------------------------------------------------------------------------
        ---------------------------------------------------------------------------
        Weighted average number
         of Common Shares
         outstanding              6,902,592    6,902,592    6,902,592    6,902,592
        Net earnings (loss) per
         share                     $ (1.898)     $ 0.313     $ (1.362)     $ 1.138
        FP Canadian Newspapers Limited Partnership
        Condensed Consolidated Income Statements and Statements of Comprehensive
         Income (Loss)
        (unaudited, tabular amounts in thousands of Canadian dollars)
                                            Three Months             Twelve months
                                       Ended December 31,        Ended December 31,
                                       2011         2010         2011         2010
        ---------------------------------------------------------------------------
        Revenue
         Advertising               $ 20,839     $ 20,398     $ 76,513     $ 75,283
         Circulation                  6,864        6,915       27,384       28,391
         Commercial Printing          1,022          139        3,284        3,593
         Digital                        670          578        2,601        1,978
         Promotion and services         547          216        1,487          787
        ---------------------------------------------------------------------------
                                   $ 29,942     $ 28,246    $ 111,269    $ 110,032
        Operating expenses
         Employee compensation       10,620       10,134       42,738       41,497
         Newsprint and other
          paper                       2,704        2,505       10,004        9,519
         Delivery of newspapers       4,545        4,592       17,164       16,944
         Other                        4,739        4,417       18,006       17,521
         Depreciation and
          amortization                1,132        1,072        4,441        5,967
         Restructuring charge             -            -          264            -
        ---------------------------------------------------------------------------
        Operating income              6,202        5,526       18,652       18,584
        Other income                     46           49          202            8
        Finance costs                  (701)        (650)      (2,622)      (2,619)
        ---------------------------------------------------------------------------
        Net earnings for the
         period                     $ 5,547      $ 4,925     $ 16,232     $ 15,973
        ---------------------------------------------------------------------------
        ---------------------------------------------------------------------------
         Unrealized gain (loss)
          on investment                 (31)         134          (60)         203
         Actuarial (loss) on
          defined benefits plan        (540)        (432)      (5,540)      (1,727)
        ---------------------------------------------------------------------------
        Comprehensive income
         (loss) for the period      $ 4,976      $ 4,627     $ 10,632     $ 14,449
        ---------------------------------------------------------------------------
        ---------------------------------------------------------------------------

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