News Column

FP Newspapers Inc. Reports Second Quarter 2014 Results and August 2014 Dividend

August 14, 2014

WINNIPEG, MANITOBA--(Marketwired - Aug. 14, 2014) - FP Newspapers Inc. ("FPI") (TSX:FP) announces financial results for the quarter ended June 30, 2014. FPI is the successor to the business of the FP Newspapers Income Fund and owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").

Second quarter operating results of FPI

FPI had net earnings of $1.1 million, or $0.166 per share, during the three months ended June 30, 2014, compared to net earnings of $1.5 million, or $0.217 per share in the same quarter last year.

Second quarter operating results of FPLP

FPLP's revenue for the three months ended June 2014 was $25.8 million, a decrease of $1.5 million or 5.6% from the same three months in the prior year. FPLP's print advertising revenues for the three months ended June 2014 were $16.7 million, a $1.3 million or 7.5% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, was $10.1 million, a decrease of $1.3 million or 11.2% from the same period in the prior year, primarily due to decreased spending in the national automotive, government and national retail categories. Classified advertising revenues for the second quarter decreased by $0.1 million or 4.2% compared to the same period last year, primarily due to decreased spending in automotive and employment categories, partly offset by increased obituary category revenues.

Print circulation revenues for the three months ended June 2014 were $6.5 million, a decrease of $0.2 million or 2.4% from the second quarter of 2013, with lower unit sales offsetting increased revenue from higher subscription rates.

Operating expenses for the three months ended June 30, 2014 were $22.0 million, a decrease of $0.6 million or 2.7% compared to the same quarter last year. Employee compensation costs for the second quarter decreased by $0.4 million from the same period in the prior year, primarily due to a reduction in the number of employees. During the second quarter a restructuring charge of $0.1 million was incurred relating to termination payments to employees. We had anticipated that some employees would choose to retire as a result of the elimination of the lump sum commuted value transfer option of the earned pension benefit effective for retirements after May 31, 2014 and, during the second quarter twenty-six employees left our businesses, primarily through retirements. Newsprint expense for FPLP's own publications for the second quarter decreased by $0.2 million or 8.8% compared to the same period in the prior year, primarily due to lower volumes resulting from fewer circulation copies and a slightly lower average rate per metric tonne. Newsprint expense for commercial printing increased by $0.1 million compared to last year, primarily due to an increase in print jobs generated from the addition of ultra-violet ink printing equipment at our Steinbach print shop. Other expenses decreased by $0.2 million or 3.8% compared to the same quarter last year, primarily due to lower contracted inserting costs from consolidating our inserting in-house, partly offset by a non-recurring drawdown of surplus bad debt reserve in the second quarter last year.

EBITDA(1) for the three a months ended June 30, 2014 was $4.9 million compared to $5.7 million and for the same period last year, a decrease of 15.2%. EBITDA(1) margin for the three months ending June 30, 2014 was 18.9% and compared to 21.0% in the same period last year.

FPLP's net earnings were $3.3 million for the three months ended June 30, 2014, compared to $4.3 million for the same period last year.

Distributable cash attributable to FPI(2) for the three months ended June 30, 2014 was $0.7 million or $0.105 per share, compared to $1.1 million or $0.160 per share for the same period last year.

Dividends

FPI declared dividends to shareholders of $1.0 million or $0.150 per share for the three months ended June 30, 2014, unchanged from the same period in 2013.

August 2014 Dividend

FPI today announced a cash dividend of $0.05 per share, payable on September 30, 2014 to shareholders of record at the close of business on August 29, 2014. As previously announced in June, dividend frequency will be changed from monthly to quarterly following the September 2014 dividend.

All dividends paid by the Company in 2014 and subsequent years, unless stated otherwise, are designated to be eligible dividends pursuant to subsection 89(14) of the Income Tax Act (Canada) and any applicable provincial legislation pertaining to eligible dividends. Holders of shares who are non-residents of Canada will be required to pay all withholding taxes payable in respect of the dividend.

Outlook

Year-over-year declines in advertising revenue in the second quarter were less steep than those experienced during the first quarter. Early into the third quarter we are experiencing similar declines as reported in the second quarter.

The second half of 2014 will see a decrease in expenses, year-over-year, primarily attributable to the employee reductions experienced during the first six months of 2014. The preliminary valuation report on our defined benefit pension plan shows an improvement in both the going concern and solvency valuation positions, as we expected. On a going concern valuation basis, the plan has a surplus of $3.5 million at December 31, 2013 compared to the previous year's unfunded liability of $0.3 million. On the solvency basis valuation approach, the plan has a solvency ratio of 84% versus 61% at December 31, 2012. FPLP's minimum special payment required to fund the solvency deficiency for 2014 is $1.3 million and this amount has been funded by July 2014. While we're not anticipating any material change in these preliminary results, review work will continue prior to the final report being filed with the federal and provincial regulatory agencies no later than September 27, 2014. The improvement in the solvency deficiency is primarily the result of an increase in the discount rate used in calculating the pension obligation and, to a lesser extent, the improved investment returns on the plans assets realized in 2013.

Significant amount of research and planning work is underway for a re-launch of our Winnipeg digital product offering. This work will continue during the second half of 2014 and will ultimately culminate in a roll-out of integrated paid web and mobile platforms.

Looking forward into the remainder of 2014 and beyond there is no shortage of major openings and announcements in and around the City of Winnipeg. In July the highly anticipated 10 acre Journey to Churchill exhibit opened at the Assiniboine Park Zoo. This major development includes new habitat exhibits featuring among others, polar bears, wolf, fox and seals in addition to showcasing incredible underwater viewing tunnels and Manitoba's largest 360-degree theatre. In September the Canadian Museum for Human Rights will open its doors. The Museum is dedicated to the evolution, celebration and the future of human rights through creating inspiring encounters which will engage Canadians and international visitors in immersive, interactive experience that offers both inspiration and tools to make a difference in the lives of others. The Canadian Museum for Human Rights is the first national museum to be built in nearly half a century and the first outside the National Capital Region. On the commercial front, many Manitoba fashion enthusiasts are anxiously anticipating the arrival of the first H&M store scheduled to open on September 10 in Winnipeg'sPolo Park Shopping Centre. Earlier this year developers announced plans for a 910,000 square foot commercial development in Winnipeg'sTuxedo area, which would include a 385,000 square foot enclosed premier fashion outlet mall scheduled to open in the spring of 2017. On the sporting front, Winnipeg has been selected to host the 2015 Grey Cup game to be played at Winnipeg's new Investor's Group Football Stadium.

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 on 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 13, 2014, which is available at www.sedar.com.

In addition, although the forward-looking statements contained in this news release are based upon assumptions that management of FPI and FPLP believe to be reasonable, 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 six community newspapers in the Winnipeg region, The Carillon in Steinbach with its related commercial printing operations and the Carberry News Express weekly publication. 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 109,700 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 11,900 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 510 full-time equivalent people in Winnipeg, Brandon, Steinbach and Carberry, Manitoba.

Conference Call

FPI invites you to participate in a conference call on Friday, August 15, 2014 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, the call will be available to listeners upon completion of the call until September 4, 2014. To hear the replay, dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 2168701.

Non-IFRS financial measures (1) EBITDA



FPLP believes that in addition to net earnings as reported on FPLP's interim 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 and 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 other issuers and, accordingly, EBITDA may not be comparable to measures used by other issuers. FPLP's method of calculating EBITDA is detailed in the Management's Discussion and Analysis for the quarter ended June 30, 2014 on FPI's website 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 uses 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 June 30, 2014 on FPI's website www.fpnewspapers.com or on SEDAR at www.sedar.com.

FP Newspapers Inc. Condensed Statements of Earnings and Comprehensive Income (unaudited, in thousands of Canadian dollars except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 ---------------------------------------------------------------------------- Equity interest from FP Canadian Newspapers Limited Partnership Class A limited partner units $ 1,637$ 2,108$ 2,446$ 3,532 Administration expenses (58) (49) (118) (132) Other income 1 1 1 1 ---------------------------------------------------------------------------- Net earnings before income taxes 1,580 2,060 2,329 3,401 Current income tax (expense) (382) (384) (764) (751) Deferred income tax (expense) recovery (50) (177) 128 (177) ---------------------------------------------------------------------------- Net earnings for the period $ 1,148$ 1,499$ 1,693$ 2,473 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Items that will not be reclassified to net earnings: Equity interest of other comprehensive gain (loss) from FP Canadian Newspapers Limited Partnership (163) 182 (663) 17 Deferred income tax (expense) recovery 44 (49) 178 (5) ---------------------------------------------------------------------------- Comprehensive income for the period $ 1,029$ 1,632$ 1,208$ 2,485 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Weighted average number of Common Shares outstanding 6,902,592 6,902,592 6,902,592 6,902,592 Net earnings per share - basic and diluted $ 0.166$ 0.217$ 0.245$ 0.358FP Canadian Newspapers Limited Partnership Condensed Consolidated Income Statements and Statements of Comprehensive Income (unaudited, in thousands of Canadian dollars) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 ---------------------------------------------------------------------------- Revenue Print advertising $ 16,744$ 18,093$ 31,929$ 35,128 Print circulation 6,513 6,672 12,562 13,096 Commercial Printing 1,351 1,307 2,591 2,500 Digital 977 933 1,761 1,654 Promotion and services 202 319 437 674 ---------------------------------------------------------------------------- TOTAL REVENUE 25,787 27,324 49,280 53,052 Operating expenses Employee compensation 10,453 10,851 20,797 21,540 Newsprint and other paper 2,269 2,373 4,371 4,545 Delivery of newspapers 4,109 4,212 7,967 8,118 Other 3,985 4,142 8,051 8,741 Depreciation and amortization 1,110 1,062 2,154 2,132 Restructuring charge 97 - 146 - ---------------------------------------------------------------------------- OPERATING INCOME 3,764 4,684 5,794 7,976 Other income 38 38 69 82 Finance costs (462) (424) (871) (849) Gain (loss) on interest rate swap 1 4 1 - ---------------------------------------------------------------------------- NET EARNINGS FOR THE PERIOD $ 3,341$ 4,302$ 4,993$ 7,209 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Items that may be reclassified subsequently to net earnings: Unrealized gain (loss) on investment (5) 10 (5) 28 Items that will not be reclassified to net earnings: Remeasurements for defined benefit pension plan (333) 372 (1,353) 34 ---------------------------------------------------------------------------- COMPREHENSIVE INCOME FOR THE PERIOD $ 3,003$ 4,684$ 3,635$ 7,271 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- FOR FURTHER INFORMATION PLEASE CONTACT: Daniel Koshowski, CFO FP Newspapers Inc. (204) 697-7425 (204) 632-0281 (FAX) Source: FP Newspapers Inc.


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