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FP Newspapers Inc. Reports Fourth Quarter 2012 Results and March 2013 Dividend

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WINNIPEG, MANITOBA -- (Marketwire) -- 03/13/13 -- FP Newspapers Inc. ("FPI") (TSX: FP) announces financial results for the quarter ended December 30, 2012. 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").

Fourth quarter operating results of FPI

FPI reported net earnings of $2.0 million for the three months ended December 30, 2012, compared to a net loss of $13.1 million for the same period last year. The increase in net earnings is due to a $15.0 million non-cash write-down of the investment in FPLP Class A limited partner units during the fourth quarter of 2011 to reflect a continuation of soft advertising revenues, which started in 2008 and decreasing newspaper industry valuations.

Fourth quarter operating results of FPLP

FPLP's revenue for the three months ended December 31, 2012 was $30.2 million, an increase of $0.2 million or 0.8% from the same three months in the prior year. Advertising revenues for the three months ended December 31, 2012 were $20.6 million, a 0.9% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, was $13.6 million, a decrease of $0.1 million or 0.6% from the same period in the prior year, primarily due to decreased spending in the automotive and travel categories, partly offset by increased spending in telecommunications and government categories. Classified advertising revenues for the fourth quarter decreased by $0.2 million or 8.8% compared to the same period last year, primarily due to a decrease in the employment and obituary categories, partly offset by an increase in the real estate category. Flyer distribution revenues for the fourth quarter were higher by $0.1 million or 3.1% compared to the same period in 2011, primarily due to an increase in flyer volumes and a small increase in the average earned rate.

Circulation revenues for the fourth quarter decreased by $0.1 million or 1.5%, with lower unit sales offsetting increased revenue from higher subscription rates. Commercial printing revenues for the quarter increased by $0.4 million, primarily due to increased printing at our Derksen Printers operation. Digital revenues for the fourth quarter increased by $0.1 million or 14.9% compared to the same period last year, primarily due to the increases in revenues from online advertising and website design services.

Operating expenses for the three months ended December 31, 2012 were $24.0 million, a $0.2 million or 0.9% increase from the same quarter last year. Employee compensation costs for the fourth quarter increased by $0.3 million or 2.5%, primarily due to the wage increases included in the collective agreements and an increase in the expense for the defined benefit pension plan, partially offset by the reduction in the number of employees. Newsprint expense for FPLP's own publications for the quarter decreased by $0.2 million, primarily due to lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the fourth quarter increased by $0.1 million compared to the same period in the prior year, primarily due to increased commercial printing at Derksen Printers. During the fourth quarter a restructuring charge of $0.1 million relating to employee severance costs was incurred.

Excluding the restructuring charge, EBITDA(1) for the three months ended December 31, 2012 was $7.4 million, an increase of $0.1 million or 1.2% from the same period last year. EBITDA(1) margin, excluding the restructuring charge, for the three months ending December 31, 2012 was 24.6% compared to 24.5% in the same period last year.

Finance costs for the three months ended December 31, 2012 decreased by $0.2 million compared to the previous year, primarily due to lower principal balances together with a reduction in interest rates resulting from a long-term loan renewal agreement, which was completed effective the beginning of June 2012. In addition, during the first quarter of 2012, FPLP negotiated the release of the guarantee requirement which eliminated the need for the collateral provided by FP Funding Corporation ("FundingCo") and FPLP's guarantee payments to FundingCo, which were approximately $0.1 million per quarter. These decreases were partly offset by interest expense on the finance leases and mortgage loan entered into in 2011 and the first quarter of 2012.

FPLP's net earnings were $5.9 million for the three months ended December 31, 2012, compared to $5.5 million for the same period last year.

Distributable cash attributable to FPI(2) for the fourth quarter was $2.0 million or $0.293 per share, an increase from $1.6 million or $0.236 per share for the same quarter last year. The increase in distributable cash attributable to FPI is primarily the result of lower finance costs and lower principal repayments on FPLP's term loan, partly offset by higher maintenance capital spending in the fourth quarter compared to the prior year.

Twelve month operating results of FPI

FPI's net earnings for the year ended December 30, 2012 were $5.2 million compared to a net loss of $9.4 million in 2011. In the fourth quarter of 2011 a non-cash write-down of $15.0 million was recorded based on FPI's determination that its 49% equity investment in FPLP was impaired, primarily due to continued soft advertising revenues, which started in 2008, and decreasing newspaper industry valuations. Excluding the non-cash write-down of the investment of FPLP Class A limited partner units in 2011, FPI's net earnings decreased by $0.4 million, primarily due to lower equity earnings from FPI's investment in FPLP. Other comprehensive loss for 2012 was $2.2 million compared to a loss of $2.0 million in 2011. The other comprehensive loss results from FPI's equity share of FPLP's recognition of actuarial losses related to FPLP's defined benefit pension plan.

Twelve month operating results of FPLP

FPLP's revenue for the twelve months ended December 31, 2012 was $111.5 million, an increase of $0.3 million or 0.2% from the prior year. Excluding revenue attributable to the Derksen operation for the first quarter of 2012 and 2011, revenue decreased by $0.7 million or 0.6%. Advertising revenues for the year ended December 31, 2012, excluding the Derksen business for the first quarter, were $74.7 million, a 2.2% decrease compared to last year. FPLP's largest advertising revenue category, display advertising including colour, excluding the Derksen business for the first quarter, was $48.3 million, a decrease of $0.8 million or 1.7% from the prior year, primarily due to decreased spending in the telecommunications, retail, and travel categories, partly offset by increased spending in the automotive category. Classified advertising revenues for the 2012 year, on a same-store basis, decreased by $1.1 million or 9.5% compared to last year, primarily due to lower spending in the automotive and employment categories, partly offset by increased spending in the real estate category. Excluding the Derksen business for the first quarter of 2012 and 2011, flyer distribution revenues increased by $0.2 million or 1.5% compared to last year, primarily due to increased quantities and marginally higher earned rates.

Circulation revenues for the year ended December 31, 2012, excluding the Derksen business for the first quarter of 2012 and 2011, decreased by $0.4 million or 1.5%, with lower unit sales offsetting increased revenue from higher subscription rates. Commercial printing revenues for 2012, excluding the Derksen business for the first quarter of 2012 and 2011, increased by $0.8 million, which is primarily attributable to increased printing volumes at Derksen Printers. Digital revenues for 2012 increased by $0.3 million or 12.3%, primarily due to the increase in online and mobile product revenues and website design services. Other revenue increased by $0.3 million primarily due to sales of the Winnipeg Jets officially licensed medallion collection in the first quarter of 2012.

Operating expenses for the year ended December 31, 2012 were $94.8 million, a $2.2 million or 2.4% increase from last year. Operating expenses for 2012, excluding the Derksen business for the first quarter, were $93.6 million, a $1.4 million or 1.5% increase from last year. Employee compensation costs for the year, excluding the Derksen business for the first quarter of 2012 and 2011, increased by $0.5 million or 1.1%, primarily due to the 2% wage increase included in the collective agreements effective October 1, 2011 and higher defined benefit pension expense, partially offset by employee reductions in the second, third and fourth quarters of 2012, which resulted in thirty positions being eliminated through a combination of retirements, voluntary resignations and layoffs. During 2012 a restructuring charge of $0.6 million was incurred relating to termination payments for positions eliminated during the year, compared to a charge of $0.3 million in the prior year, which also related to employee termination payments. Newsprint expense for FPLP's own publications for the year, excluding the Derksen business for the first quarter of 2012 and 2011, decreased by $0.7 million or 7.8%, primarily due to lower printing volumes mainly from fewer circulation copies. Newsprint expense for commercial printing for the year, excluding the Derksen business for the first quarter of 2012 and 2011, increased by $0.4 million compared to the prior year, primarily due to an increase in commercial printing at Derksen Printers compared to 2011. Delivery costs, excluding the Derksen business for the first quarter of 2012 and 2011, remained unchanged compared to the prior year. Other expenses for the year, excluding the Derksen business for the first quarter of 2012 and 2011, increased by $1.0 million or 5.6% compared to the prior year, primarily due to increases during the first quarter, which included new outside print costs for two third-party magazines, costs for the Winnipeg Jets medallion circulation promotion project, a non-recurring reduction in an accrual relating to a labour matter during the first quarter in the prior year and increased costs on our long-term sponsorship agreement with the Winnipeg Jets.

EBITDA(1) for the year ended December 31, 2012 was $21.0 million compared to $23.1 million in 2011, a decrease of 9.1%. Excluding the Derksen business for the first quarter and the full year restructuring charges, EBITDA(1) for the twelve months ended December 31, 2012 was $21.4 million compared to $23.3 million in 2011, a decrease of 8.2%.

For the year ended December 31, 2012 finance costs decreased as a result of lower interest on the term loan resulting from lower principal balances together with a reduction in interest rates from a long-term loan renewal agreement, which was completed effective at the beginning of June 2012. In addition, during the first quarter, FPLP negotiated the release of the guarantee requirement which eliminated the need for the collateral provided by FP Funding Corporation ("FundingCo") and FPLP's guarantee payments to FundingCo, which were approximately $0.1 million per quarter. These decreases were partially offset by increased interest on the new finance leases and the mortgage loan entered into in 2011 and the first quarter of 2012.

FPLP's net earnings were $14.9 million for the year ended December 31, 2012, compared to $16.2 million in the prior year.

Cash available for distribution attributable to FPI(2) was $4.4 million or $0.635 per share for the twelve months ended December 31, 2012, compared to $4.5 million or $0.658 per share in 2011. The decrease in cash available for distribution attributable to FPI in 2012 is primarily due to the additional funding requirements of the defined benefit pension plan in excess of the accounting expense, and lower EBITDA(1) of FPLP, partially offset by lower principal repayments on FPLP's term loan.

Dividends

FPI declared dividends to shareholders of $4.1 million or $0.60 per share for the year ended December 30, 2012, unchanged from the prior year.

March 2013 Dividend

FPI today announced a cash dividend of $0.05 per share, payable on April 30, 2013 to shareholders of record at the close of business on March 28, 2013.

Outlook

Advertising revenue is extremely difficult to predict and for 2013 we are planning for a continuation of relatively stable overall advertising revenues. Classified revenues are projected to continue to decline but this category accounts for only approximately 14.0% of our overall print advertising and delivery revenues. Circulation revenue is also forecasted to be around 2012 full-year levels with lower unit sales offset by higher rates primarily from the introduction of a new subscription pricing structure that charges more to subscribers who receive the Winnipeg TV book on Saturdays. We are planning to see increased commercial printing revenues as our Derksen printing facility is anticipating continued growth. Digital revenues are expected to continue growing from existing and new product launches and we are forecasting growth in excess of 10% in this category.

Contracted salary increases included in our collective bargaining agreements of 1.5% were effective October 1, 2012 at the Winnipeg Free Press and Canstar Community News in advance of the June 2013 contract expiry date. Meetings between the company and the union bargaining committee aimed at renewing these agreements have started. The Brandon collective bargaining agreement, which runs through to December 31, 2013, includes a 2.0% wage level increase effective January 1, 2013. We are budgeting for overall salaries and benefits to increase by less than 1.0% in 2013 primarily resulting from another year of increased defined benefit pension plan accounting expense together with the contracted annual increases, which will be partially offset by savings from the staff reductions implemented in 2012, which reduced our full time equivalent employees by thirty.

Newsprint prices decreased during the first quarter of 2013, the first price change since September 2010. If newsprint prices remain at this lower level for the remainder of 2013, we anticipate newsprint prices will be lower by approximately 2.0% versus the prior year. Newsprint expense for commercial printing is planned to increase as a result of anticipated additional work, largely at our Derksen printing location. Delivery costs are forecasted to be flat versus 2012 full year levels and other expenses are forecasted to be lower as a result of general reductions across all areas and non-recurring costs incurred in 2012 for the Winnipeg Jets medallion circulation promotion.

Finance costs are forecasted to be slightly lower in 2013 with expected lower interest on our term loan due to lower principal balances and little change forecasted for future short-term bankers' acceptance rates. In recent years, as with many other defined benefit pension plans, significant employer funding increases have been required. At this time, we are not anticipating a significant change in the 2013 funding requirements from the 2012 levels. An actuarial valuation of our plan required as at December 31, 2012, which will be completed during the second and third quarters of 2013, will determine the actual minimum level of required employer funding.

Maintenance capital spending for 2013 is forecasted to be approximately $2.2 million. In addition to the regularly required system hardware and software investments and upgrades, we are planning to replace the conveyor system, which transfers printed papers from our presses into the packaging and distribution centre, at our Winnipeg facility. We anticipate this increased level of maintenance capital investment to continue through the 2014 fiscal year and then return to a more normal level of between $1.0 million and $1.5 million.

With the reduction in required annual principal repayments on our senior debt, required repayments will decrease by $1.1 million in 2013 versus the 2012 level.

We are pleased to announce two important additions to our management group which have taken place during the first quarter. Tim Happychuk was hired to lead our Information Technology team and Tony Leblanc was hired to lead our Audience Development Department. These positions were being temporarily overseen by existing staff. Both come to us with extensive experience and accomplishments in their respective fields and we look forward to their contributions in identifying and executing on opportunities to improve our operations for the future. In addition to these new appointments, Christine Fehler has been promoted to manage the Winnipeg Creative Services Department, a position vacated by George Denoon who accepted the new position of Purchasing Manager.

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, costs related to capital expenditures, cyclical and seasonal variations in FPLP's revenues, 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 15, 2012, 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 111,200 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 12,475 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 540 people in Winnipeg, Brandon, Steinbach and Carberry, Manitoba.

Conference Call

The Corporation invites you to participate in a conference call on Thursday, March 14, 2013 at 12:00 p.m. Eastern (11:00 a.m. Central) to discuss the fourth quarter results.

The dial-in number is 416-340-2217, or dial toll free at 866-696-5910. To ensure your participation, please dial in five minutes before the start of the conference call. The participant code is 5947144. 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 March 28, 2013. To hear the replay dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 5753583.

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 year ended December 31, 2012 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 year ended December 31, 2012 on FPI's website www.fpnewspapers.com or on SEDAR at www.sedar.com.

FP Newspapers Inc.Statements of Earnings and Comprehensive Income (Loss)(unaudited, in thousands of Canadian dollars except per share amounts) Three Months Twelve Months Ended Ended December 30, December 30, 2012 2011 2012 2011----------------------------------------------------------------------------Equity interest from FP Canadian Newspapers Limited Partnership Class A limited partner units $ 2,870 $ 2,718 $ 7,285 $ 7,954Write-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. - - - 37Administration expenses (65) (70) (251) (336)Other income 1 1 5 5----------------------------------------------------------------------------Net earnings (loss) before income tax 2,806 (12,351) 7,039 (7,340)Current income tax expense (89) - (3,462) -Deferred income tax recovery (expense) (688) (752) 1,578 (2,060)----------------------------------------------------------------------------Net earnings (loss) for the period $ 2,029 $ (13,103) $ 5,155 $ (9,400)--------------------------------------------------------------------------------------------------------------------------------------------------------Equity interest of other comprehensive loss from FP Canadian Newspapers Limited Partnership (1,640) (264) (2,969) (2,714)Deferred income tax recovery 442 71 800 733----------------------------------------------------------------------------Comprehensive income (loss) for the period $ 831 $ (13,296) $ 2,986 $ (11,381)--------------------------------------------------------------------------------------------------------------------------------------------------------Weighted average number of Common Shares outstanding 6,902,592 6,902,592 6,902,592 6,902,592Net earnings (loss) per share $ 0.294 $ (1.898) $ 0.747 $ (1.362)FP Canadian Newspapers Limited PartnershipConsolidated Income Statements and Statements of Comprehensive Income (Loss)(unaudited, in thousands of Canadian dollars) Three Months Twelve months Ended Ended December 31, December 31, 2012 2011 2012 2011----------------------------------------------------------------------------Revenue Advertising $ 20,649 $ 20,839 $ 75,034 $ 76,513 Circulation 6,760 6,864 27,006 27,384 Commercial Printing 1,422 1,022 4,763 3,284 Digital 770 670 2,906 2,601 Promotion and services 583 547 1,819 1,487----------------------------------------------------------------------------TOTAL REVENUE $ 30,184 $ 29,942 $ 111,528 $ 111,269Operating expenses Employee compensation 10,885 10,620 43,637 42,738 Newsprint and other paper 2,579 2,704 9,899 10,004 Delivery 4,512 4,545 17,150 17,164 Other 4,783 4,739 19,200 18,006 Depreciation and amortization 1,061 1,132 4,314 4,441 Restructuring charge 137 - 639 264----------------------------------------------------------------------------OPERATING INCOME 6,227 6,202 16,689 18,652Other income 59 46 200 202Finance costs (435) (658) (2,064) (2,579)Gain (loss) on interest rate swap 6 (43) 43 (43)----------------------------------------------------------------------------NET EARNINGS FOR THE PERIOD $ 5,857 $ 5,547 $ 14,868 $ 16,232--------------------------------------------------------------------------------------------------------------------------------------------------------Unrealized gain (loss) on investment (7) (31) 25 (60)Actuarial (loss) on defined benefits plan (3,348) (540) (6,061) (5,540)----------------------------------------------------------------------------COMPREHENSIVE INCOME FOR THE PERIOD $ 2,502 $ 4,976 $ 8,832 $ 10,632--------------------------------------------------------------------------------------------------------------------------------------------------------





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



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