FP Newspapers Limited Partnerships' Q1 net income down 16.4% year-over-year to C$2.3M with increased operating expenses; net sales up 7.9% to C$27M with acquired revenue from Derksen Printers, higher print advertising revenues

WINNIPEG, Manitoba , May 15, 2012 (press release) – FP Newspapers Inc. announces financial results for the quarter ended March 31, 2012. FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").

First quarter operating results of FPI

FPI had net earnings of $0.8 million, or $0.117 per share, during the three months ended March 31, 2012, compared to net earnings of $1.0 million, or $0.138 per share, in the same quarter last year. The decrease in net earnings in the quarter is primarily due to a $0.2 million decrease in its equity share of the earnings of FPLP compared to last year.

First quarter operating results of FPLP

FPLP's revenue for the three months ended March 31, 2012 was $27.0 million, an increase of $2.0 million or 7.9% from the first quarter last year. Excluding revenue attributable to Derksen Printers, which was acquired in February 2011, revenues were higher by $1.0 million or 4.2% compared to the same quarter last year. Print advertising revenues, excluding the Derksen business, were higher by $0.5 million or 3.0% primarily due to new revenue from two third party magazines. Excluding this new magazine revenue and the print advertising revenue from the Derksen business, advertising revenues were lower by $0.1 million or 0.6% compared to last year primarily due to lower classified advertising.

Circulation revenues for the first quarter, excluding the Derksen business, were unchanged compared to the first quarter of last year. Commercial printing revenues for the quarter increased by $0.6 million, which is entirely attributable to the Derksen acquisition last year. Digital revenues were higher by $0.1 million or 20.7% versus the first quarter of last year, primarily due to the increase in Winnipeg Free Press website banner advertising and revenues from online web ads and other digital offerings introduced in 2011. Other revenue, excluding the Derksen business, increased by $0.4 million, primarily due to sales of the Winnipeg Jets 2011/12 Officially Licensed Medallion Collection.

Operating expenses for the first quarter increased by $2.5 million or 11.4% from the first quarter last year. Excluding the Derksen business, operating expenses for the first quarter of 2012 increased by $1.6 million or 7.5% versus last year. The expense increase was primarily due to new outside print costs for two third party magazines, costs for the Winnipeg Jets medallion circulation promotion project, higher employee-related costs as a result of the 2% wage increase included in the collective agreements, a non-recurring reduction in the accrual relating to a labour matter during the first quarter last year and increased costs on our long-term sponsorship agreement with the Winnipeg Jets.

For the first quarter, EBITDA(1) was lower by $0.5 million or 10.2%, and excluding the Derksen business was lower by $0.6 million or 14.8% compared to the first quarter last year.

Net earnings for the first quarter of 2012 were $2.3 million, a decrease of $0.4 million or 16.4%, and excluding the Derksen business were $2.1 million, a decrease of $0.6 million or 20.9% from the same quarter last year.

For the three months ended March 31, 2012, distributable cash attributable to FPI(2) was $0.4 million or $0.061 per share, down from $0.6 million or $0.092 per share for the same quarter last year. The decrease in distributable cash attributable to FPI is primarily the result of lower EBITDA(1) of FPLP.

Dividends

FPI declared dividends to shareholders of $1.0 million or $0.15 per share for the three months ended March 31, 2012, unchanged from the first quarter of 2011.

May 2012 Dividend

FPI today announced a cash dividend of $0.05 per share, payable on June 29, 2012 to shareholders of record at the close of business on May 31, 2012.

Outlook

Total advertising revenues for the first quarter after excluding the Derksen business and revenue from two new third party magazines was down by 0.6% compared to the first quarter last year. The advertising revenue results early into the second quarter are showing a further decline primarily attributed to decreased spending by large national customers. Circulation home delivery rate increases of slightly over 5% were implemented at the beginning of March, which we anticipate will largely offset the lost revenue from lower circulation unit sales. Newsprint prices have remained the same since September 2010 and we are not anticipating an increase during 2012.

During the second quarter our Derksen operation in Steinbach will be launching an expanded flyer distribution operation that will see flyer customers able to reach over 13,000 homes in Steinbach and the surrounding trading area once a week. The southeastern region of the province continues to be the fastest growing region in Manitoba.

A preliminary report from our actuarial consultants has been received with updated funding valuation estimates for the Winnipeg and Canstar Community News defined benefit pension plan. The report is showing deterioration in the solvency ratio of the plan from 75% at December 31, 2010 to 59% at December 31, 2011. The decline in the solvency ratio was primarily due to a decrease in the discount rate which is based on long-term bond yields, which fell by approximately 1% during 2011. The impact of the decline in the solvency ratio is an increase in the required funding of the pension plan by FPLP in 2012. In response to similar challenges facing other defined benefit pension plan sponsors, the Manitoba Pension Commission issued Special Payment Relief Regulation 2011 in December of 2011. This regulation allows plan sponsors to request plan members to approve an extension from five to ten years for the funding of this solvency deficiency. FPLP management is planning to request member's permission to extend the solvency deficiency funding to ten years, similar to the process which resulted in FPLP receiving funding relief last year. The preliminary actuarial report indicates a range of additional funding required in 2012 over the 2011 funding level of between $1.3 million, if solvency relief is received, and $2.2 million, if solvency relief is not approved.

During the second quarter the Winnipeg Free Press production department staff have been working on reconfiguring our presses and have successfully implemented changes which will allow for a 33 percent increase in the full colour capacity on our live production runs. Total full colour page capacity will increase by eight pages from twenty-four to thirty two. As demand for full-colour advertising spots continues to increase, this additional capacity will allow our sales staff more colour spots to sell and our page layout will be more efficient to help keep newsprint costs as low as possible. The changes were completed in-house by our press and technical maintenance staff and utilized excess components from our existing spare parts inventory.

        FP Newspapers Inc.
        (formerly FP Newspapers Income Fund)
        Condensed Statements of Earnings and Comprehensive Income
        (unaudited, in thousands of Canadian dollars except per share amounts)
                                                                 Three Months Ended
                                                                           March 31,
                                                                   2012        2011
        ----------------------------------------------------------------------------
                                                                      $           $
        Equity interest from FP Canadian Newspapers Limited
         Partnership Class A limited partner units                1,120       1,339
        Administration expenses                                     (67)        (81)
        Other income                                                  1           1
        ----------------------------------------------------------------------------
        Net earnings before income taxes                          1,054       1,259
        Current income tax (expense)                             (2,403)          -
        Deferred income tax recovery (expense)                    2,160        (306)
        ----------------------------------------------------------------------------
        Net earnings for the period                                 811         953
        ----------------------------------------------------------------------------
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        Equity interest of other comprehensive loss from FP
         Canadian Newspapers Limited Partnership                   (380)        231
        Deferred income tax recovery (expense)                      102         (62)
        ----------------------------------------------------------------------------
        Comprehensive income for the period                         533       1,122
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Weighted average number of Common Shares outstanding  6,902,592   6,902,592
        Net earnings per share - basic and diluted              $ 0.117     $ 0.138
        FP Canadian Newspapers Limited Partnership
        Condensed Consolidated Income Statements and Statements of Comprehensive
         Income
        (in thousands of Canadian dollars)
                                                                 Three Months Ended
                                                                           March 31,
                                                                   2012        2011
                                                                      $           $
        ----------------------------------------------------------------------------
         Revenue
          Advertising                                            17,931      17,197
          Circulation                                             6,562       6,517
          Commercial Printing                                     1,041         431
          Digital                                                   719         596
          Promotion and services                                    726         256
        ----------------------------------------------------------------------------
        TOTAL REVENUE                                            26,979      24,997
          Employee compensation                                  11,035      10,380
          Newsprint and other paper                               2,366       2,207
          Delivery of newspapers                                  4,129       4,000
          Other                                                   5,513       4,026
          Depreciation and amortization                           1,103       1,069
        ----------------------------------------------------------------------------
        OPERATING INCOME                                          2,833       3,315
        Other income                                                 48          48
        Finance costs                                              (639)       (630)
        Gain on interest rate swap                                   43           -
        ----------------------------------------------------------------------------
        NET EARNINGS FOR THE PERIOD                               2,285       2,733
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Unrealized gain on investment                                40           -
        Actuarial gain (loss) on defined benefit pension
         plan                                                      (776)        471
        ----------------------------------------------------------------------------
        COMPREHENSIVE INCOME FOR THE PERIOD                       1,549       3,204
        ----------------------------------------------------------------------------
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