First quarter operating results of FPI

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FP Newspapers Inc. Reports First Quarter 2012 Results and May 2012 Dividend

(May 15, 2012)

WINNIPEG, MANITOBA -- (Marketwire) -- 05/15/12 -- FP Newspapers Inc. (TSX:FP) ("FPI") 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.

As the existing long-term debt agreement expires on January 31, 2013, negotiations on a renewal agreement are currently taking place.

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.

Caution Regarding Forward-looking Statements

Certain statements in this news release 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", "is budgeting for" 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, the availability of an extension or refinancing of FPLP's term loan facilities, costs related to capital expenditures, cyclical and seasonal variations in FPLP's revenues, the risk of 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 24, 2011, which is available at www.sedar.com.

In addition, although the forward-looking statements contained in this news release 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.

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 six 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.

Conference Call

The Corporation invites you to participate in a conference call on Tuesday, May 15, 2012 at 1:30 p.m. Eastern (12:30 p.m. Central) to discuss the first quarter results.

The dial-in number is 416-340-2218, or dial toll free at 866-226-1793. 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, the call will be available to listeners upon completion of the call until May 29, 2012. To hear the replay dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 7159227.

Non-IFRS financial measures

(1) EBITDA

FPLP believes that in addition to net earnings as reported on FPLP's condensed consolidated statements of earnings, EBITDA is a useful supplemental measure as it is a measure used by many of FPLP's unitholders, creditors and analysts as a proxy for the amount of cash generated by FPLP's operating activities. EBITDA is not a recognized measure of financial performance under IFRS. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of FPLP`s performance. FPLP's method of calculating EBITDA may differ from that used by other issuers and, accordingly, EBITDA as calculated by FPLP may not be comparable to similar measures used by other issuers. FPLP's method of calculating EBITDA is detailed in the Management's Discussion and Analysis for the quarter ended March 31, 2012, available on FPI's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.

(2) Distributable Cash Attributable to FPI

FPI believes that in addition to the disclosure of cash flow from operations, distributable cash attributable to FPI is an important supplemental measure of cash flow because it provides investors with an indication of the amount of cash available for distribution to shareholders and because such calculations are required by the terms of the partnership agreement governing FPLP. Distributable cash attributable to FPI is not a defined term under IFRS, and it should not be construed as an alternative to using net earnings or the statements of cash flows as measures of profitability and cash flow. Readers are cautioned that distributable cash as calculated by FPI may not be comparable to similar measures presented by other issuers. FPI used this measure as a factor to determine whether to adjust its monthly dividends to shareholders. FPLP's method of calculating distributable cash attributable to FPI is detailed in the Management's Discussion and Analysis for the quarter ended March 31, 2012, available on FPI's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.

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 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Contacts:
FP Newspapers Inc.
Daniel Koshowski
CFO
(204) 697-7425
(204) 632-0281 (FAX)
www.fpnewspapers.com


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