FP Newspapers Income Fund
TSX : FP.UN

FP Newspapers Income Fund

March 11, 2009 06:00 ET

FP Newspapers Income Fund Reports Fourth Quarter 2008 Results

WINNIPEG, MANITOBA--(Marketwire - March 11, 2009) - FP Newspapers Income Fund (TSX:FP.UN) announces financial results for the quarter ended December 31, 2008. FP Newspapers Income Fund owns securities entitling it to 49 percent of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP"), which owns the Winnipeg Free Press and Brandon Sun daily newspapers, and Canstar Community News Limited ("Canstar") which operates five weekly newspapers, a weekly entertainment newspaper and a twice monthly newspaper aimed at age 50-plus readers in the Winnipeg area, as well as delivery businesses in Winnipeg and Thunder Bay.

Total revenue for FPLP for the three months ended December 31, 2008 was $27.7 million, a $5.6 million or 16.7 percent decrease over the same period last year. Revenues during the quarter were impacted by the loss of 16 Winnipeg Free Press publishing days and the normally scheduled publications of the Canstar Community News operation, due to a strike by the unionized workers and delivery contractors in October, in addition to reduced advertising revenue resulting from the current economic slowdown. Total revenue for the two months of November and December was $21.3 million, a $1.2 million or 5.5 percent decrease compared to the same two months from the prior year. Total EBITDA(1) of FPLP for the quarter was $3.3 million, a $5.3 million or 61.9 percent decrease from the same quarter last year. The reduction in EBITDA(1) was primarily due to the impact of the loss of publishing days resulting from the October strike at the Winnipeg operation, reduced advertising revenues resulting from the general economic slowdown, and a $0.4 million restructuring charge for voluntary and involuntary employee reductions at the Winnipeg Free Press. FPLP had a net loss of $0.5 million in the quarter compared to net earnings of $4.6 million in the same quarter last year.

The Fund had net earnings of $0.3 million, or $0.048 per Unit, during the three months ended December 31, 2008, compared to net earnings of $3.2 million, or $0.469 per Unit, in the same quarter last year. The decrease in the Fund's net earnings in the fourth quarter is primarily due to the decrease in the net earnings of FPLP.

Operations

During the quarter FPLP was impacted by the loss of 16 Winnipeg Free Press publishing days and the normally scheduled publications of the Canstar Community News operation, due to a strike by the unionized workers and delivery contractors in October. We estimate the overall impact of the strike was to lower fourth quarter EBITDA(1) by $3.5 million.

Advertising revenues in the fourth quarter was $19.8 million, a $3.7 million or 15.8 percent decrease over the same quarter last year. Advertising revenues for the two months of November and December was $15.0 million, a $1.1 million or 6.9 percent decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, for the two months of November and December was $9.2 million, a decrease of $0.7 million or 6.8 percent compared to the same period last year, primarily due to decreased spending in the local and national automotive categories, with lower spending in the retail department store and telecommunications categories largely offset by increases in Manitoba Crown Corporation spending and the travel category. Classified advertising revenues for the two months of November and December decreased by $0.1 million or 5.8 percent compared to the same period last year, primarily due to a decrease in the employment category partially offset by increases in the real estate and obituary categories. Flyer distribution revenues for the two months of November and December decreased by $0.3 million or 8.2 percent compared to the same period last year, due to decreased volumes slightly offset by increased rates. Circulation revenues for the two months of November and December remained unchanged, due to increased revenue from home delivery rate increases in the fourth quarter of 2007 offset by targeted discounting to increase single-copy unit sales as well as higher than historical levels of home delivery subscription non-renewals and cancellations. The Winnipeg Free Press generates approximately 91 percent of FPLP's total circulation revenue. Overall for the combined third and fourth quarters of 2008, the paper experienced a year-over-year decline of approximately 4.2 percent in home delivery customers which compares to a decline of 0.8 percent for the same two quarters in 2007 versus 2006. A number of factors contributed to this decline including lower than normal subscription starts in the third quarter this year, production disruptions, and sixteen missed publishing days due to the October strike. Commercial printing revenues for the two months of November and December decreased by $0.2 million or 14.5 percent compared to the same period last year, primarily due to the cancellation of the National Post Winnipeg printing contract. Promotions and Services revenues for the two months of November and December increased by $0.1 million or 16.0 percent compared to the same period last year, primarily due to increased internet revenues.

Operating expenses, excluding amortization for the fourth quarter, were $24.5 million, a 1.0 percent decrease from $24.7 million in the same quarter last year. Operating expenses for the two months of November and December excluding amortization and the restructuring charge were $16.6 million, a decrease of $0.4 million or 2.4 percent from the same two-month period in the prior year. Employee compensation costs, excluding the restructuring charge, for the two months of November and December decreased by $0.3 million or 3.6 percent, primarily due to lower management bonus plan and long-term incentive plan costs, partially offset by annual contracted rate increases. Newsprint expense for FPLP's own publications for the two months of November and December increased by $0.3 million or 13.2 percent as a result of higher newsprint prices, partially offset by lower consumption. Newsprint expense for commercial printing for the two months of November and December decreased by $0.1 million or 32.2 percent primarily due to lower consumption as a result of the loss of commercial print jobs. Other expenses for the two months of November and December decreased by $0.1 million or 2.7 percent, primarily due to recording a recovery on the previously expensed Canstar facility lease as a result of the space being subleased.

The economic slowdown affecting most businesses is having a significant impact on all media operations as retailers and manufacturers reduce advertising spending. These reductions, which we started to see in the two months following the October strike, can occur quickly and can be deep. Management has initially responded by developing a restructuring plan during the fourth quarter to reduce compensation expenses by approximately $1.3 million annually, and incurred a restructuring charge of $0.4 million for voluntary and involuntary employee reductions at the Winnipeg Free Press. As detailed under the Outlook section of this report, further work to achieve cost savings is underway in response to a continued decline in advertising revenue.

The Winnipeg Free Press placed first among major newspapers in North America in the International Association of Fire Fighters 2008 Media Awards Contest. The paper won for its coverage of two Winnipeg firefighters who died in 2007 while battling a house blaze. As well, the Free Press published and launched The Greatest Manitobans, a book written by newspaper staff based on choices made by readers in an online contest. The book became an immediate bestseller. We are very pleased to announce that in February, David Brolhorst joined the Winnipeg Free Press as Vice President of Operations and Production. David has thirty-six years' experience in the press, packaging and distribution areas of the newspaper business. Most recently, he was Pressroom Manager and Director of Production at the Kansas City Star.

At the Brandon Sun, new collective bargaining agreements were completed which run to December 31, 2013. The new agreements include annual wage increases of two percent, similar to the levels agreed to in the recently completed Winnipeg Free Press collective agreements. The Brandon Sun was noted for its commitment to hiring people with disabilities in the fourth quarter. The paper was selected for a province-wide award for medium-sized businesses by the Manitoba Business Leadership Network. The Sun has over 30 people with handicaps in its ranks, working primarily in the distribution area of the company. The Sun raised $56,000 for the region's Christmas Cheer Board, with funds directed to Brandon's less fortunate. In the fourth quarter, the Sun finalized agreements to assist in three other major fundraising efforts in the city of Brandon. The Sun is partnering with the YMCA as it raises funds to build a new facility, with Brandon University in its efforts to build a Wellness and Fitness Centre that will serve not only the university's needs but be open to community use, and is assisting Assiniboine Community College in its undertaking to build a new campus with expanded teaching facilities.

At Canstar Community News Limited, our weekly community and special interest publication group has been reorganized to further integrate operations with the Winnipeg Free Press. Canstar staff now operate out of the Free Press building, receiving co-ordination, guidance and training from Free Press senior managers, the objective being to develop the newspapers into even stronger reflections of the communities they serve. As well, distribution of flyers and newspapers is being co-ordinated between Canstar and the Flyer Advantage distribution force to achieve more comprehensive coverage of households in Winnipeg and improve overall service to customers.

Distributions

Distributable cash attributable to the Fund(2) for the three months ended December 31, 2008 was $0.9 million, or $0.137 per Unit compared to $3.5 million or $0.508 per Unit last year. For the trailing twelve months ended December 31, 2008, FPLP has generated distributable cash attributable to the Fund(2) of $1.187 per Unit, and the Fund has declared distributions of $1.253 per Unit, resulting in a payout ratio of 105.6 percent.

The Fund declared distributions to Unitholders of $0.285 per Unit for the fourth quarter, compared to $0.323 per Unit for the same quarter last year.

Outlook

Advertising revenue in the two months of November and December 2008 decreased by 6.9 percent compared to the same two months last year, which is a reversal from the first nine months of 2008, where we reported year-over-year advertising revenue growth of 1.2 percent. The economic slowdown is negatively impacting revenue for all media-related businesses. Early into 2009, we are continuing to experience year-over-year advertising revenue declines. Given the significant uncertainty facing most businesses during this period of economic contraction, we are not able to provide guidance with respect to a 2009 full year advertising revenue forecast. Similar to the fourth quarter revenue declines in the advertising category, in November and December 2008 circulation revenue was 0.6 percent lower compared to the same months last year. Year-over-year circulation revenue for the first nine months of 2008 showed an increase of 0.7 percent. The Winnipeg Free Press generates approximately 91 percent of FPLP's total circulation revenue. During the latter portion of the third and continuing into the fourth quarter of the year, the Winnipeg Free Press started to experience higher than historical levels of home delivery subscription non-renewals and cancellations. Overall for the combined third and fourth quarters of 2008, the paper experienced a year-over-year decline of approximately 4.2 percent in home delivery customers, which compares to a decline of 0.8 percent for the same two quarters in 2007 versus 2006. We believe the steeper decline experienced in 2008 is the result of a number of factors including some lower than normal subscription starts in the third quarter, production disruptions, and sixteen missed publishing days due to the October strike. Management is making a concerted effort to re-gain home delivery customers. Circulation rate increases which are normally done annually during the fourth quarter have not been implemented yet, but one is planned for the first quarter of 2009. Commercial printing revenue in the fourth quarter was affected by the cancellation of the National Post printing contract, and 2009 commercial printing revenues will be lower due to the full year impact of this lost contract.

Employee compensation is our single biggest expense category and in 2008 was 46 percent of total overall operating costs before amortization and restructuring charge. The new collective bargaining agreements will result in a 2 percent compensation rate increase in 2009. The restructuring efforts during the fourth quarter of 2008 will result in a restructuring charge of $0.4 million and a net reduction of 26 full-time equivalent positions from not filling six positions which were vacant for part of the 2008 year and voluntary and involuntary layoffs of 20 positions. Further cost reduction plans are being implemented in the first quarter of 2009, resulting in a one-time severance cost of approximately $0.6 million. Annual savings in 2009 from both employee reduction plans are estimated to be $2.3 million. In 2009, management and staff across all our business units will continue to review processes and staffing levels to improve efficiencies and help offset the impact of expected lower revenue levels. Newsprint price increases were effective in the first quarter of 2009 and if these levels are in place for the remainder of the year, our average price for 2009 would be approximately 10 percent higher than the 2008 full year average price. These price increases will be partially offset by reduced consumption due to lower page counts resulting from a decrease in advertising space and a tightening in the editorial content, in addition to lower usage if fewer circulation copies are printed. Delivery costs will include a component of the negotiated rate increase included in the city carrier delivery rate but a reduction in home delivery subscriptions would reduce this increase to some extent.

During the fourth quarter FPLP submitted a conditional proposal in response to CTVglobemedia Inc.'s ("Globe and Mail") formal requests for proposals ("RFP") to provide long term printing and related services. The current Brandon Sun contract for printing the Globe and Mail newspapers for the Manitoba and Saskatchewan markets ends on February 1, 2010. The Globe and Mail's future printing requirements as outlined in its RFP cannot be achieved without a significant investment in upgrading our production equipment. FPLP's submission is conditional on the availability of financing, agreement on final pricing and other critical terms of a formal printing agreement. Management is also developing alternative operational models to help mitigate the loss of this printing contract if we are not able to reach a long-term agreement for future printing of the Globe and Mail.

In addition to management's efforts to implement expense reductions to help offset the impact of lower revenue levels, capital spending will be managed prudently. While our initial 2009 maintenance capital spending budget was $1.7 million, this overall level will be reduced if we are able to defer non-critical spending into future periods. Strategic capital investments, being ones which are not necessary for the current on-going operation of the business but are justified based on a return on the investment, will be made if projects are identified which meet internal return on investment criteria.

Conference Call

FP Newspapers Income Fund invites you to participate in a conference call on Wednesday, March 11, 2009 at 12:00 p.m. Eastern (11:00 a.m. Central) to discuss results.

The dial-in number is 1-416-695-9761, or toll free at 1-866-542-4270. 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, a taped rebroadcast will be available to listeners upon completion of the call until March 25, 2009. To access the rebroadcast, please dial 1-416-695-5800 or dial toll free at 1-800-408-3053, and use the passcode 3282376.

About FP Newspapers Income Fund

FP Canadian Newspapers Limited Partnership owns the Winnipeg Free Press, the Brandon Sun, and their related businesses, as well as Canstar Community News Limited, the publisher of seven community and special interest newspapers in the Winnipeg region. The Winnipeg Free Press newspaper publishes seven days a week, serving Winnipeg and Manitoba with an average seven-day circulation of approximately 124,000 copies. The Brandon Sun also publishes seven days a week, serving the region with an average circulation of approximately 14,000 copies. Canstar Community News publishes weekly with an average circulation of approximately 206,000 copies. Based in Winnipeg, the businesses employ approximately 630 people in Winnipeg, Brandon and Thunder Bay. Further information can be found at www.fpnewspapers.com, and in the disclosure documents filed by FP Newspapers Income Fund with the securities regulatory authorities available at www.sedar.com.

Caution Regarding Forward-Looking Statements

Certain statements in this news release and accompanying management's discussion and analysis 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" 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 the Fund 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 not limited to, the current significant general economic uncertainty and credit and financial market volatility, 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, FPLP's ability to refinance its core long-term debt, 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 our Annual Information Form dated March 11, 2008, which is available at www.sedar.com.

In addition, although the forward-looking statements contained in this management's discussion and analysis are based upon what management of FPLP believes 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, the Fund 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.

Management's Discussion and Analysis

Overview

Management's Discussion and Analysis is as at March 10, 2009 and provides a review of significant developments that have affected the Fund's performance in the twelve months ended December 31, 2008. This review is based on financial information contained in the consolidated interim financial statements. Factors that could affect future operations are also discussed. As indicated above, these factors may be affected by known and unknown risks and uncertainties that may cause the actual future results to be materially different from those expressed in this discussion.

The following information provides analysis of the operations and financial position of the Fund and FPLP and should be read in conjunction with the most recent audited consolidated financial statements and accompanying notes for the year ended December 31, 2007. The consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), however, the consolidated interim financial statements do not include all the information and disclosures required for annual financial statements.

Further information relating to the Fund is available at www.sedar.com.

Formation and Legal Entities

FP Newspapers Income Fund (the "Fund") was created on May 15, 2002 and commenced operations on May 28, 2002 when it completed an Initial Public Offering and purchased an interest in FP Canadian Newspapers Limited Partnership ("FPLP"). The Fund owns securities entitling it to 49% of the distributable cash of FPLP. The Fund is dependent on the operations of FPLP, its sole investment.

FPLP is a limited partnership formed on August 9, 1999. FPLP acquired the business and assets and assumed certain liabilities of the Winnipeg Free Press and Brandon Sun newspapers effective November 29, 2001. On July 13, 2004, FPLP acquired five weekly newspapers in the Winnipeg area, as well as delivery businesses in Winnipeg, Brandon and Thunder Bay and operates them under its wholly owned subsidiary Canstar Community News Limited ("Canstar").

FP Newspapers Income Fund

The Fund is dependent on the operations of FPLP, its sole investment. The Fund's net earnings were $330,000 and $6,682,000 for the three and twelve months ended December 31, 2008 compared to net earnings of $3,237,000 and $7,968,000 for the same periods last year. The decrease for the three and twelve months ended December 31, 2008 is due to the decrease in the net earnings of FPLP as discussed in the FPLP portion of this report and an increase in a future income tax charge due to the timing differences between accounting and taxable income. Interest income on the 11.5% Subordinated notes issued by FPLP to the Fund was $1,690,000 and $6,722,000 for the three and twelve months ended December 31, 2008 compared to $1,725,000 and $6,843,000 in the same periods last year. The Fund's equity interest from its Class A limited partner Units was ($1,119,000) and $471,000 for the three and twelve months ended December 31, 2008 compared to $1,385,000 and $3,085,000 in the same periods last year. The Fund recorded a future income tax expense of $176,000 and $253,000 for the three and twelve months ended December 31, 2008, which relate to the ongoing requirement to calculate future income taxes resulting from the substantive enactment of Bill C-52 Budget Implementation Act 2007 in the second quarter of 2007, compared to ($197,000) and $1,682,000 in the same periods last year. The expense for the three months ended December 31, 2008 is due to asset additions made during the quarter and the adjustment of a valuation allowance due to the timing differences between accounting and taxable income. During the fourth quarter of 2007, the tax rates on distributions made by flow-through entities were lowered, which created a future income tax recovery. The decrease for the twelve months ended December 31, 2008 is primarily due to the initial setup in the second quarter of the prior year of the future income tax expense and future income tax liability. Operating expenses incurred by the Fund were $68,000 and $273,000 for the three and twelve months ended December 31, 2008 compared to $73,000 and $289,000 in the same periods last year.

The Fund declared distributions to Unitholders of $1,967,000 or $0.285 per Unit and $8,646,000 or $1.253 per Unit for the three and twelve months ended December 31, 2008, which has decreased from $2,225,000 or $0.323 per Unit and $8,904,000 or $1.290 per Unit in the same periods last year. Cash provided by operating activities of the Fund was $2,061,000 and $8,819,000 for the three and twelve months ended December 31, 2008 compared to $2,307,000 and $9,051,000 for the same periods last year.

Distributable Cash Attributable to the Fund(2)

Cash available for distribution attributable to the Fund(2) was $945,000 or $0.137 per Unit and $8,190,000 or $1.187 per Unit for the three and twelve months ended December 31, 2008 compared to $3,505,000 or $0.508 per Unit and $11,100,000 or $1.608 per Unit for the same periods last year. The decrease in cash available for distribution attributable to the Fund(2) for the three months ended December 31 is due to the decrease in EBITDA(1) of FPLP as discussed in the FPLP section of this report.

The Fund monitors the cumulative cash available for distribution attributable to the Fund(2) as a factor in determining whether to make an adjustment to the level of monthly distributions. The Fund believes it is prudent to pay out cumulatively less than 100% of cash available for distribution attributable to the Fund(2).

From commencement of the Fund on May 28, 2002 until December 31, 2008, distributable cash attributable to the Fund(2) totals $9.133 per Unit and during that period the Fund declared distributions to Unitholders of $8.363 per Unit. Because the Fund makes an allowance for maintenance capital spending which is estimated to be sufficient to maintain the productive capacity of the business when calculating distributable cash attributable to the Fund(2), and because cumulative distributions declared are less than the cumulative distributable cash attributable to the Fund(2), the Fund believes there has been no economic "return of capital".



FP Canadian Newspapers Limited Partnership
Results of Operations

Revenue: Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- ----------------------

2008 2007 2008 2007
-------- ---------- ----------- ----------
In thousands In thousands
Advertising $ 19,807 $ 23,535 $ 84,115 $ 87,055
Circulation 5,744 7,339 27,674 29,106
Commercial Printing 1,465 1,743 6,097 6,535
Promotions and Services 713 685 3,226 3,166
-------- ---------- ----------- ----------
$ 27,730 $ 33,302 $ 121,112 $ 125,862
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------


Revenue in the fourth quarter was $27.7 million, a $5.6 million or 16.7% decrease over the same quarter last year. Total revenue for November and December (excluding October due to the strike impact) was $21.3 million in 2008, a decrease of $1.3 million or 5.5% from the same two months in 2007. Advertising revenues for the two months of November and December was $15.0 million, a $1.1 million or 6.9% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, for the two months of November and December was $9.2 million, a decrease of $0.7 million or 6.8% compared to the same period last year, primarily due to decreased spending in the local and national automotive categories, with lower spending in the retail department store and telecommunications categories largely offset by increases in Manitoba Crown Corporation spending and the travel category. Classified advertising revenues for the two months of November and December decreased by $0.1 million or 5.8% compared to the same period last year, primarily due to a decrease in the employment category partially offset by increases in the real estate and obituary categories. Flyer distribution revenues for the two months of November and December decreased by $0.3 million or 8.2% compared to the same period last year, due to decreased volumes from national multi-market retail customers slightly offset by increased rates. Circulation revenues for the two months of November and December remained unchanged, due to increased revenue from home delivery rate increases in the fourth quarter of 2007 offset by targeted discounting to increase single-copy unit sales as well as higher than historical levels of home delivery subscription non-renewals and cancellations. The Winnipeg Free Press generates approximately 91% of FPLP's total circulation revenue. Overall for the combined third and fourth quarters of 2008, the paper experienced a year-over-year decline of approximately 4.2% in home delivery customers which compares to a decline of 0.8% for the same two quarters in 2007 versus 2006. A number of factors contributed to this decline including lower than normal subscription starts in the third quarter this year, production disruptions, and sixteen missed publishing days due to the October strike. Commercial printing revenues for the two months of November and December decreased by $0.2 million or 14.5% compared to the same period last year, primarily due to the cancellation of the National Post Winnipeg printing contract. Promotions and Services revenues for the two months of November and December increased by $0.1 million or 16.0% when compared to the same period last year, primarily due to increased internet revenues.

Revenue for the twelve months ended December 31, 2008 was $121.1 million, a decrease of $4.8 million or 3.8% compared to the same period last year. Total revenue (excluding October for the impact of the strike) was $114.7 million, a decrease of $0.4 million or 0.4% compared to the same eleven months of 2007. Advertising revenues for the eleven months excluding October was $79.3 million, a decrease of $0.3 million or 0.4% compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, for the eleven months excluding October was $47.3 million, a decrease of $0.2 million or 0.5%, due to a decrease in the telecommunications and retail categories offset by increases in the local and national automotive categories. Classified advertising revenues for the eleven months excluding October decreased by $0.1 million or 0.3%, primarily due to a decline in the employment category partially offset by increases in the obituary and real estate categories. Flyer distribution revenues for the eleven months excluding October decreased by $0.1 million or 0.4%, primarily due to decreased volumes partially offset by increased rates. Circulation revenues for the eleven months excluding October increased by $0.1 million or 0.5%, due to increased revenue from home delivery rate increases in the fourth quarter of 2007 offset by targeted discounting to increase single-copy unit sales as well as higher than historical levels of home delivery subscription non-renewals and cancellations. Commercial printing revenues for the eleven months excluding October decreased by $0.5 million or 7.8%, primarily due to lower charges for newsprint cost recovery and the cancellation of the National Post Winnipeg printing contract. Promotions and Services revenues for the eleven months excluding October increased by $0.3 million or 9.3%, due to increased internet revenues partially offset by lower revenue from the Hermetic Code book which was published in the prior year.



Operating expenses, excluding Three Months Twelve Months
amortization: Ended December 31, Ended December 31,
-------------------- ----------------------

2008 2007 2008 2007
-------- ---------- ----------- ----------
In thousands In thousands
Employee Compensation,
excluding Restructuring
Charge $ 10,137 $ 11,612 $ 44,624 $ 45,356
Newsprint - Own Use 2,836 2,986 12,114 12,814
Newsprint - Commercial
Printing 318 460 1,435 1,947
Delivery of Newspapers 4,797 5,198 19,120 19,052
Other 5,949 4,451 20,421 18,176
-------- ---------- ----------- ----------
$ 24,037 $ 24,707 $ 97,714 $ 97,345
Restructuring Charge 417 - 417 -
-------- ---------- ----------- ----------
$ 24,454 $ 24,707 $ 98,131 $ 97,345
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------


Operating expenses, excluding amortization for the fourth quarter, were $24.5 million, a 1.0% decrease from $24.7 million in the same quarter last year. Operating expenses for the two months of November and December excluding amortization and the restructuring charge were $16.6 million, a decrease of $0.4 million or 2.4 percent from the same two-month period in the prior year. Employee compensation costs, excluding the restructuring charge, for the two months of November and December decreased $0.3 million or 3.6%, primarily due to lower management bonus plan and long-term incentive plan costs partially offset by annual contracted rate increases. A restructuring charge of $0.4 million was incurred for the two months of November and December for voluntary and involuntary employee reductions at the Winnipeg Free Press. Newsprint expense for FPLP's own publications for the two months of November and December increased by $0.3 million or 13.2%, as a result of higher newsprint prices partially offset by lower consumption. Newsprint expense for commercial printing for the two months of November and December decreased by $0.1 million or 32.2% primarily due to lower consumption due to the loss of commercial print jobs. Other expenses for the two months of November and December decreased by $0.1 million or 2.7%, primarily due to recording a recovery on the previously expensed Canstar facility lease as a result of the space being subleased.

Operating expenses excluding amortization in the twelve months ended December 31, 2008 were $98.1 million, an increase of $0.8 million or 0.8% compared to the same period last year. Employee compensation costs excluding the restructuring charge for the eleven months excluding October increased $0.5 million or 1.1% compared to the same period last year, primarily due to annual contracted rate increases offset by lower management bonus plan and long-term incentive plan costs. A restructuring charge of $0.4 million was incurred for the eleven months excluding October for voluntary and involuntary employee reductions at the Winnipeg Free Press. Newsprint expense for FPLP's own publications for the eleven months excluding October decreased by $0.3 million or 2.5%, primarily due to lower newsprint consumption as well as lower newsprint prices during the first two quarters of 2008 primarily offset by higher newsprint prices during the last two quarters of 2008. Newsprint expense for FPLP's commercial printing for the eleven months excluding October decreased by $0.5 million or 26.1%, primarily due to lower newsprint consumption as well as lower newsprint prices during the first two quarters of 2008 partially offset by higher newsprint prices during the last two quarters of 2008. Delivery costs for the eleven months excluding October increased $0.5 million or 2.6%, compared to the same period last year, primarily due to increased carrier costs due to contracted rate increases. Other expenses for the eleven months excluding October increased by $0.7 million or 4.0% primarily due to extra costs from adding new advertising supplements for the eleven months excluding October compared to the same period last year as well as costs associated with expensing the remaining months of the Canstar facility lease due to the movement of office employees to the existing Winnipeg Free Press building.

EBITDA(1) for the three and twelve months ended December 31, 2008 was $3.3 million and $23.0 million, compared to $8.6 million and $28.5 million for the same periods last year. EBITDA(1) for the two months of November and December excluding the restructuring charge was $4.1 million, compared to $6.0 million for the same period last year. EBITDA(1) for the eleven months, excluding October and the restructuring charge, was $23.8 million compared to $25.9 million for the same period last year. EBITDA(1) margin excluding the restructuring charge for the two months of November and December was 23.1% when compared to 26.4% in the same period last year. EBITDA(1) margin excluding the restructuring charge for the eleven months excluding October was 21.5% compared to 22.5% in the same period last year.

Interest expense on the notes payable, the subordinated notes and capital lease obligations for the three and twelve months ended December 31, 2008 was $2.6 million and $10.5 million compared to $2.7 million and $10.6 million in the same periods last year.

Amortization of property, plant and equipment for the three and twelve months ended December 31, 2008 was $1.1 million and $4.3 million compared to $1.1 million and $4.2 million in the same periods last year.

Interest income is higher in the twelve months ended December 31, 2008 compared to last year due to higher cash balances for most of 2008.

Income tax expense for the three months ended December 31, 2008 was lower when compared to the same period last year, as in the current year Canstar had been expensing its future income tax asset evenly throughout the year, whereas in the prior year the full year's expense was taken within the fourth quarter.

FPLP's net (loss) earnings were $(0.5) million and $8.0 million for the three and twelve months ended December 31, 2008 compared to $4.6 million and $13.4 million for the same periods last year.

Newspaper publishing is, to a certain extent, a seasonal business with a higher proportion of revenues and operating earnings occurring during the second and fourth quarters of the calendar year. Revenue, EBITDA(1) and net earnings of FPLP by quarter for 2008, 2007 and 2006 was as follows:



2008 2007 2006
----------------- -------------- ------------

Revenue In thousands
---------
Quarter 1 $ 29,998 $ 29,829 $ 28,582
Quarter 2 32,409 32,224 31,261
Quarter 3 30,975 30,507 29,804
Quarter 4 27,730(ii) 33,302 32,573
----------------- -------------- ------------
$ 121,112 $ 125,862 $ 122,220
----------------- -------------- ------------
----------------- -------------- ------------
EBITDA(1)
---------
Quarter 1 $ 6,025 $ 5,740 $ 4,746
Quarter 2 7,468 7,611 7,196
Quarter 3 6,212 6,571 5,853
Quarter 4 3,276(ii) 8,595 7,672
----------------- -------------- ------------
$ 22,981 $ 28,517 $ 25,467
----------------- -------------- ------------
----------------- -------------- ------------
Net earnings
------------
Quarter 1 $ 2,338 $ 2,062 $ 1,038
Quarter 2 3,653 3,925 3,492
Quarter 3 2,492 2,809 827(i)
Quarter 4 (526)(ii) 4,622 3,649
----------------- -------------- ------------
$ 7,957 $ 13,418 $ 9,006
----------------- -------------- ------------
----------------- -------------- ------------

(i) The decrease in net earnings in the third quarter of 2006 is due to a
write-down on the value of excess press components held for sale which
resulted in a $1.3 million non-cash charge against net earnings.

(ii) The decrease in revenue, EBITDA(1) and net earnings in the fourth
quarter of 2008 is the result of a loss of sixteen publications in
October of the Winnipeg Free Press as well as the publications that
would normally be printed for the weekly Canstar Community News
Limited business due to the strike by the unionized workers.


The distribution policy of FPLP is to make distributions in approximately equal monthly amounts based on expected operating results for each fiscal year. Distribution levels are reviewed regularly by management and the Board of Directors of the managing general partner and are subject to change based on a number of factors including the overall operating results and capital requirements of the business.

Working Capital Position of FPLP

Total working capital at December 31, 2008 was $8.8 million, down from $9.4 million at December 31, 2007. The decrease in working capital is caused by cash used in operating activities, capital expenditures and distributions to partners.

Liquidity and Capital Resources of FPLP

Cash and cash equivalents at December 31, 2008 was $7.8 million compared to $9.9 million at December 31, 2007. Cash and cash equivalents may be used to pay future distributions, to reduce debt, to fund future capital expenditures, or for other general purposes. Operating activities used $0.1 million during the fourth quarter, while $0.2 million was used for investing activities and $2.6 million was used for financing activities. Cash flow from operations, together with cash balances on hand, are currently expected to be sufficient to fund FPLP's operating requirements, capital expenditures and anticipated distributions, assuming that advertising revenues do not materially deteriorate beyond management's current expectations.

Cash Flow from Operating Activities

During the three and twelve months ended December 31, 2008, cash (used in) generated from operating activities was $(0.1) million and $11.9 million, compared to $6.9 million and $20.6 million for the same periods last year. The net change in non-cash working capital in the three and twelve months ended December 31, 2008 was a decrease of $0.9 million and $1.4 million compared to an increase of $0.8 million and $2.0 million for the same periods last year. The net change in non-cash working capital for the three-month period is primarily the result of the timing of receipts from customers and payments to suppliers. The net change in non-cash working capital for the twelve month period is primarily the result of the timing of receipts from customers and payments to suppliers, as well as increases in purchases of inventory and prepaid expenses.

Investing Activities

Capital purchases totalled $0.2 million and $1.6 million for the three and twelve months ended December 31, 2008, compared to $0.3 million and $2.0 million in the same periods last year. Maintenance capital spending, representing the replacement of capital in order to sustain current business operations, for the three and twelve months ended December 31, 2008 was $0.2 million and $0.9 million compared to $0.3 million and $2.0 million for the same periods in the prior year. Maintenance capital spending during the fourth quarter of 2008 consisted primarily of an upgrade to the FPLP accounting computer system. While our initial 2009 capital spending budget was $1.7 million, actual capital spending could be lower than this in light of the impact on the business from the economic downturn.

Strategic capital spending is defined as investments not necessary for the current on-going operation of the business, but are justified based on a return on the investment which meets internal return on investment criteria. Strategic capital purchases for the twelve months ending December 31, 2008 were $0.7 million. The strategic capital spending consisted primarily of the renovations to the Winnipeg Free Press building to accommodate the Canstar Community News employees, and software which automates the planning and management of circulation routes which will allow for selective delivery of products to home delivered customers. There was no strategic capital spending during the fourth quarter.

Financing Activities

Distributions to partners of FPLP for the three and twelve months ended December 31, 2008 totalled $2.6 million and $11.8 million, of which $0.4 million and $2.4 million was paid to the Fund as holder of Class A limited partner Units. This is compared to $3.0 million and $12.1 million in the same periods last year, of which $0.6 million and $2.4 million was paid to the Fund as holder of Class A limited partner Units. The distributions to partners have been determined in accordance with the Amended and Restated Agreement of Limited Partnership dated May 3, 2005.

Contractual Obligations

There have been no significant changes in contractual obligations since the year ended December 31, 2007.

Reserve Related to Distributable Cash Attributable to the Fund(2)

Under the terms of the Amended and Restated Agreement of Limited Partnership dated May 3, 2005, the Managing General Partner is required to determine reserves which are necessary or desirable to withhold from any distributions to Partners, including among other things for capital expenditures and operating expenses. A summary of the reserve for maintenance capital for the three and twelve months ended December 31, 2008 and 2007 is as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- ---------- ----------- ----------
In thousands In thousands
Reserve at beginning of
period $ 1,164 $ 167 $ 348 $ 370
Increase in reserve 316 181 1,132 181
Decrease in reserve - - - (203)
-------- ---------- ----------- ----------
Reserve at end of period $ 1,480 $ 348 $ 1,480 $ 348
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------


Increases in the reserve for maintenance capital are shown as a deduction in determining distributable cash(2) of FPLP. Decreases in the reserve for maintenance capital are shown as an increase in determining distributable cash(2).

The use of a reserve for maintenance capital in calculating distributable cash attributable to the Fund(2) is intended to provide an allowance for estimated annual capital expenditures required to maintain the productive capacity of the business. The level of the annual allowance for maintenance capital is reviewed periodically based on historical spending levels and future plans, and adjusted based on reasonable and supportable assumptions. Actual future capital expenditures necessary to maintain the current productive capacity of the business may vary, perhaps materially, from the allowance used in determining distributable cash(2), due to technological change, unexpected equipment failure, changes in customer service expectations and other reasons.

This reserve is a non-GAAP measure established and utilized at the discretion of the board of directors of FPLP, and has no impact on the GAAP financial statements.

Productive Capacity Maintenance Strategy

The key sources of revenue of FPLP are dependent upon our ability to sell and publish display and classified advertising lineage, both in our newspapers and on our websites, our ability to distribute advertising flyers, and our ability to produce and distribute newspapers. The key capital assets used in these activities are premises, computer hardware and software, printing presses and distribution related machinery. The available capital assets are used by our staff to deliver the products and services which results in revenue to FPLP.

It is the complex interaction of asset utilization, staffing levels and contracted services which ultimately determine our productive capacity on any given day, but there is no single measure which would accurately portray the productive capacity of the business. Generally speaking, we manage the business to ensure there is excess capacity available that would allow us to comfortably increase the volume of lineage, circulation and flyer distribution to take advantage of market opportunities.

Therefore, the strategy of FPLP is to maintain a reasonable level of excess productive capacity to at least ensure we are able to produce and distribute products and services at currently anticipated peak volumes. This is accomplished by conducting capital and non-capital preventive maintenance programs for machinery and equipment, performing repairs when necessary, evaluating new technologies as they become available, and investing in new technologies when appropriate.

Debt Management Strategy

While it has historically been FPLP's intent to refinance the $60 million core long-term debt, on a non-amortizing basis, prior to the June 5, 2010 maturity date, significant recent changes in the commercial lending market could materially impact the refinancing terms. The capital assets with the most significant estimated replacement costs are buildings and printing presses, which have very long expected remaining useful lives. The ability to refinance the core debt at maturity will be dependent upon many factors, including the future EBITDA(1) of FPLP and the general conditions in the commercial lending market in the future.

Debt Covenants

Under the terms of the $60 million Series A Senior Secured Notes, FPLP is subject to various positive and negative covenants which must be maintained in order to avoid an accelerated termination of the agreements. These covenants include certain restrictions on the incurrence of additional debt, requirements to maintain insurance, certain restrictions on the sale of assets, and other requirements and restrictions common to lending agreements of this nature. FPLP is restricted from making distributions which cumulatively exceed by more than $1.4 million the total of distributable cash of FPLP(2) since May 28, 2002. FPLP is required to maintain a ratio of net debt to EBITDA(1) of no greater than 3.5 to 1.0, and a ratio of EBITDA(1) to net external interest expense of no less than 3.0 to 1.0, measured quarterly on a trailing twelve month basis. Financial amounts used in the calculations are specifically defined in the debt agreements, but are substantially equal to the corresponding terms used in the external financial reports filed by FPLP and the Fund, where applicable, except that the maximum cash balance allowable for the calculation of net debt under the debt agreements is $5.0 million. At December 31, 2008 FPLP was in compliance with all the terms and conditions of its debt agreements. The financial ratios calculated in accordance with the debt agreements for the five most recent twelve-month periods are as follows:



Net Debt/EBITDA(1) EBITDA(1)/Net Interest
----------------- ----------------------
December 31, 2008 2.39 8.02
September 30, 2008 1.93 9.91
June 30, 2008 1.91 10.01
March 31, 2008 1.90 9.89
December 31, 2007 1.92 9.59


During the third quarter, FPLP cancelled its credit facility providing up to $10 million in financing.

Related Party Transactions

FPLP purchases a portion of its newsprint from Alberta Newsprint Company ("ANC"), a related party as disclosed under the related party transaction section of FPLP's Annual Management Discussion and Analysis at December 31, 2007. There have been no changes during 2008 to the process for selection of newsprint suppliers and the quarterly review by the Audit Committee of newsprint purchases. Total newsprint purchases from ANC for the three and twelve months ended December 31, 2008 was $2,401,000 and $9,656,000 compared to $1,510,000 and $5,761,000 for the same periods last year.

Internal Controls over Financial Reporting

There have been no significant changes in internal controls over financial reporting since the year ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, the Fund's or FPLP's internal controls over financial reporting.

Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates since the year ended December 31, 2007.

Initial Adoption of New Accounting Pronouncements

Effective January 1, 2008, the Fund and FPLP prospectively adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535 Capital Disclosures, Section 3862 Financial Instruments - Disclosures and Section 3863 Financial Instruments - Presentation. The adoption of the Capital Disclosure standard resulted in additional disclosure requirements in presenting management's policies and processes, both qualitatively and quantitatively, in defining and managing its capital, as further discussed in note 4 of the Fund's interim financial statements and note 6 of FPLP's interim consolidated financial statements. The adoption of the Financial Instrument - Disclosures and Financial Instruments - Presentation sections enhance the existing disclosures for financial instruments. In particular, Section 3862 focuses on the identification of risk exposures and FPLP's approach to management of these risks, as further discussed in note 7 of FPLP's interim consolidated financial statements. The comparative interim consolidated financial statements have not been restated.

There was no financial impact to the financial statements as a result of adopting these new standards.

Future Accounting Developments

In 2006, the Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of GAAP with International Financial Reporting Standards ("IFRS") over an expected five-year transitional period. In February 2008, AcSB announced that IFRS will be used for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. FPLP and the Fund will require the restatement for comparative purposes of amounts reported in our financial statements for the year ended December 31, 2010. While we have begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

Historical Distributions Paid Analysis



FPLP: Three Twelve Twelve Twelve
Months Months Months Months
ended ended ended ended
December 31, December 31, December 31, December 31,
2008 2008 2007 2006
----------- ----------- ----------- -----------
In thousands
Cash (used) provided by
operating activities $ (105) $ 11,933 $ 20,641 $ 15,387
Net (loss) earnings (526) 7,957 13,418 9,006
Distributions paid
during the period 2,588 11,820 12,143 11,527

(Shortfall) excess of
cash provided by
operating activities
over cash distributions
paid $ (2,693) $ 113 $ 8,498 $ 3,860
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

(Short-fall) excess
of net earnings over
cash distributions
paid $ (3,114) $ (3,863) $ 1,275 $ (2,521)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


Cash distributions paid in three of the four periods exceeded net earnings. FPLP does not use net earnings as a basis in determining the level of distributions to Class A and Class B Unitholders. Distributions are determined in accordance with the agreement of limited partnership. Because amortization charged as an expense in calculating net income, in accordance with GAAP, exceeds capital expenditures charged as a reduction of distributable cash in all periods, this result is not unexpected.



Fund: Three Twelve Twelve Twelve
Months Months Months Months
ended ended ended ended
December 31, December 31, December 31, December 31,
2008 2008 2007 2006
----------- ----------- ----------- -----------
In thousands
Cash provided by
operating activities $ 2,061 $ 8,819 $ 9,051 $ 8,951
Net earnings 330 6,682 7,968 7,677
Distributions paid
during the period 2,053 8,732 8,904 8,904

Excess of cash provided
by operating activities
over cash distributions
paid $ 8 $ 87 $ 147 $ 47
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Short-fall of net
earnings over cash
distributions paid $ (1,723) $ (2,050) $ (936) $ (1,227)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


Cash distributions paid in all periods exceeded net earnings. The Fund does not use net earnings as a basis in determining the level of distributions to Unitholders. Distributions are determined by the Trustees in accordance with the Deed of Trust of the Fund and are primarily dependent upon the amount of interest and distributions received from FPLP. Because amortization charged as an expense in calculating net earnings of FPLP, in accordance with GAAP, has exceeded capital expenditures charged as a reduction of distributable cash of FPLP in all periods, this result is not unexpected. Cash provided by operating activities exceeded distributions in all periods.

Business Risks and Uncertainties

Revenue

Advertising revenues, which account for approximately 69% of total revenue, is historically dependent upon general economic conditions and the specific spending plans of high volume advertisers. A significant downturn in the national or regional economy, like the one which is currently being experienced, will likely decrease advertising revenue earned by our newspapers. Similarly, a change in promotional strategy by significant users of newspaper advertising, such as the automotive industry, financial services industry and national retailers, could reduce or increase revenue.

Employee Relations

The majority of FPLP's employees are unionized and their employment is governed by the terms of collective agreements. A strike like the one that occurred in October 2008 at the Winnipeg Free Press and Canstar Community News or other work stoppage could restrict or eliminate the ability of FPLP to earn revenue from its publishing business during the strike or stoppage. Contracts are now in place with unionized employees at the Winnipeg Free Press and Canstar which run to June 30, 2013, and collective agreements covering unionized employees at the Brandon Sun are in place which run to December 31, 2013.

Expenses

Newspaper publishing is both capital and labour intensive, and as a result newspapers have relatively high fixed cost structures. During periods of declining revenue, significant portions of costs may remain fixed, resulting in decreased earnings. Newsprint is a significant cost for FPLP, accounting for $13.5 million during 2008. Newsprint costs vary widely from time to time. If newsprint costs rise rapidly, there is no assurance that advertising and circulation revenues can be increased to offset the increased newsprint expense.

Outlook

The outlook for operations is described earlier in this document.

Non GAAP Measures

(1) EBITDA

EBITDA is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"). FPLP believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides investors with an indication of cash available for distribution prior to debt service and capital expenditures. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of FPLP's performance. FPLP's method of calculating EBITDA may differ from that of other issuers and, accordingly, EBITDA may not be comparable to measures used by other issuers. FPLP determines EBITDA as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- ---------- ----------- ----------
In thousands In thousands
Net (loss) earnings for the
period $ (526) $ 4,622 $ 7,957 $ 13,418
Add (subtract):
Amortization of property,
plant and equipment 1,082 1,093 4,341 4,173
Amortization of intangible
assets 90 92 360 362
Interest expense 2,621 2,660 10,463 10,571
Interest income (52) (75) (296) (224)
Gain on sale of property,
plant and equipment (3) (1) (6) (18)
Current income tax expense 14 7 30 38
Future income tax expense 50 197 132 197
-------- ---------- ----------- ----------
EBITDA $ 3,276 $ 8,595 $ 22,981 $ 28,517
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------


(2) Distributable Cash Attributable to the Fund

The Fund believes that in addition to the disclosure of cash flow from operations, distributable cash attributable to the Fund is an important supplemental measure of cash flow because it provides investors with an indication of the amount of cash available for distribution to Unitholders and because such calculations are required by the terms of the partnership agreement governing FPLP and by the terms of the deed of trust governing the Fund. Distributable cash attributable to the Fund is not a defined term under Canadian GAAP and it should not be construed as an alternative to using net earnings or the statement of cash flows as measures of profitability and cash flow. Readers are cautioned that distributable cash as calculated by the fund may not be comparable to similar measures presented by other issuers. The Fund uses this measure as a factor to determine whether to adjust the monthly distributions to Unitholders. Management has determined distributable cash attributable to the Fund as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- ---------- ----------- ----------
Distributable cash of FPLP: In thousands In thousands
EBITDA(1) $ 3,276 $ 8,595 $ 22,981 $ 28,517
Interest income 52 75 296 224
Interest expense on Notes
payable and capital leases,
excluding amortization of
related deferred financing
costs (780) (796) (3,160) (3,197)
Principal repayment of capital
leases - (73) (197) (318)
Maintenance capital
expenditures (184) (319) (868) (2,022)
(Increase) decrease in reserve
for future maintenance capital (316) (181) (1,132) 22
Strategic capital expenditures - - (681) -
Proceeds from sale of
property, plant and equipment 28 2 31 33
Current income and capital
taxes expense (14) (7) (30) (38)
-------- ---------- ----------- ----------
$ 2,062 $ 7,296 $ 17,240 $ 23,221
-------- ---------- ----------- ----------

49% attributable to the Fund $ 1,010 $ 3,575 $ 8,448 $ 11,378
Administration expenses (68) (73) (273) (289)
Interest income 3 3 15 11
-------- ---------- ----------- ----------
Distributable cash
attributable to the Fund $ 945 $ 3,505 $ 8,190 $ 11,100
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------
Distributable cash
attributable to the Fund
- per Unit $ 0.137 $ 0.508 $ 1.187 $ 1.608
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------


A summary of distributable cash and distributions declared for the trailing twelve months to December 31, 2008 and for the period from commencement of the Fund on May 28, 2002 to December 31, 2008 is as follows:



Distributable Cash of FPLP:

Last Since
Twelve May 28,
Months 2002
-------- --------
In thousands
EBITDA(1) $ 22,981 $162,710
Interest income 296 845
Interest expense on Notes payable and capital leases,
excluding amortization of related deferred financing
costs (3,160) (20,650)
Principal repayment of capital leases (197) (1,136)
Maintenance capital expenditures (868) (7,361)
Increase in reserve for future maintenance capital
expenditures (1,132) (1,480)
Strategic capital expenditures (681) (1,331)
Increase in reserve for strategic capital, acquisitions,
and/or debt reduction - (353)
Proceeds on disposal of property, plant and equipment 31 1,134
Current income and capital tax expense (30) (192)
-------- --------

Distributable cash of FPLP $ 17,240 $132,186
-------- --------
-------- --------

Distributable Cash Attributable to the Fund:

Last Since
Twelve May 28,
Months 2002
-------- --------
In thousands
49% of FPLP distributable cash $ 8,448 $ 64,771
Administration expenses (273) (1,780)
Interest income 15 49
-------- --------

Distributable cash attributable to the Fund $ 8,190 $ 63,040
-------- --------
-------- --------

Distributable cash attributable to the Fund per Unit $ 1.187 $9.133
Distributions declared by the Fund per Unit $ 1.253 $8.363

Payout Ratio 105.6% 91.6%

A reconciliation of FPLP's distributable cash to cash flows from operating
activities, as reported in FPLP's fourth quarter Consolidated Statements of
Cash Flows is as follows:

Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- ---------- ----------- ----------
In thousands In thousands
Cash flow from operating
activities of FPLP $ (105) $ 6,908 $ 11,933 $ 20,641
Add (subtract):
Interest on Subordinated
notes (i) 1,690 1,725 6,722 6,843
Net change in non-cash working
capital items (ii) 949 (766) 1,432 (1,978)
Maintenance capital
expenditures (184) (319) (868) (2,022)
(Increase) decrease in reserve
for future maintenance
capital (iii) (316) (181) (1,132) 22
Strategic capital expenditures - - (681) -
Principal repayment of capital
leases - (73) (197) (318)
Proceeds from sale of property,
plant and equipment (iiii) 28 2 31 33
-------- ---------- ----------- ----------
Distributable cash of FPLP $ 2,062 $ 7,296 $ 17,240 $ 23,221
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------

This reconciliation is provided by the Fund in order to comply with the
guidance of the Canadian Securities Administrators National Policy 41-201.
The Fund does not use this information for any purpose other than
compliance.

(i) Distributable cash of FPLP is determined before deduction of
interest on the Subordinated notes, since these amounts are paid to
the Fund as holder of the Subordinated notes.

(ii) While changes in non-cash working capital is a component in
determining cash flow from operations in the statements of cash
flows, changes in non-cash working capital are not normally included
in the calculation of distributable cash, as these changes can often
be financed with an available operating line of credit, or represent
only a temporary source of cash, due to seasonal fluctuations.

(iii) Increase in the reserve for future capital is shown as a deduction
in determining distributable cash. A decrease in the reserve is
shown as an increase in the determination of distributable cash.
This reserve is a non-GAAP measure established and utilized at the
discretion of the board of directors of FPLP, and has no impact on
the GAAP financial statements.

(iiii) Proceeds from sale of property, plant and equipment is a component
of distributable cash, but is not included in cash flow from
operating activities because it is classified as an investing
activity in the statement of cash flows.


FP Newspapers Income Fund
Consolidated Balance Sheets
(unaudited, in thousands of Canadian dollars)
As at As at
December 31, December 31,
2008 2007
--------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 435 $ 358
Interest receivable from FP Canadian Newspapers
Limited Partnership 569 571
Due from FPCN Media Funding Inc. 26 26
Prepaid expenses 12 13
--------------------------------------------------------------------------
1,042 968

Investment in FPCN General Partner Inc. 40 30
Investment in FP Canadian Newspapers Limited
Partnership (note 2) 59,499 61,386
--------------------------------------------------------------------------
$ 60,581 $ 62,384
--------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 121 $ 127
Distribution payable (note 3) 656 742
--------------------------------------------------------------------------
777 869
--------------------------------------------------------------------------

Long-Term Liabilities:
Future income taxes 1,935 1,682
--------------------------------------------------------------------------
2,712 2,551
--------------------------------------------------------------------------

Unitholders' Equity:
Trust Units 69,026 69,026
Cumulative earnings 46,562 39,880
Cumulative distributions (57,719) (49,073)
--------------------------------------------------------------------------
57,869 59,833
--------------------------------------------------------------------------
$ 60,581 $ 62,384
--------------------------------------------------------------------------

(See accompanying notes)


FP Newspapers Income Fund
Consolidated Statements of Earnings, Comprehensive Income and Cumulative
Earnings
(unaudited, in thousands of Canadian dollars except per Unit amounts)

Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Earnings from investment
in FP Canadian Newspapers
Limited Partnership
Interest from subordinated
notes $ 1,690 $ 1,725 $ 6,722 $ 6,843
Equity interest from Class
A limited partner Units
(note 2) (1,119) 1,385 471 3,085
Other interest 3 3 15 11
--------------------------------------------------------------------------
574 3,113 7,208 9,939

Administration expenses (68) (73) (273) (289)
--------------------------------------------------------------------------
Earnings before income
taxes $ 506 $ 3,040 $ 6,935 $ 9,650

Future income tax (expense)
recovery (176) 197 (253) (1,682)
--------------------------------------------------------------------------
Net earnings and
Comprehensive income for
the period $ 330 $ 3,237 $ 6,682 $ 7,968

Cumulative earnings,
beginning of period 46,232 36,643 39,880 31,632
Transitional amount - - - 280
--------------------------------------------------------------------------
Adjusted cumulative
earnings, beginning of
period 46,232 36,643 39,880 31,912

Cumulative earnings, end
of period $ 46,562 $ 39,880 $ 46,562 $ 39,880
--------------------------------------------------------------------------

Number of trust Units
outstanding 6,902,592 6,902,592 6,902,592 6,902,592
--------------------------------------------------------------------------

Net earnings per trust
Unit $ 0.048 $ 0.469 $ 0.968 $ 1.154
--------------------------------------------------------------------------


FP Newspapers Income Fund
Consolidated Statements of Unitholders' Equity
(unaudited, in thousands of Canadian dollars)

Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Balance - beginning of
period $ 59,506 $ 58,821 $ 59,833 $ 60,489
Transitional amount - - - 280
--------------------------------------------------------------------------
Adjusted balance
- beginning of period 59,506 58,821 59,833 60,769

Net earnings for the period 330 3,237 6,682 7,968
Distributions to Unitholders (1,967) (2,225) (8,646) (8,904)
--------------------------------------------------------------------------
Balance - end of period $ 57,869 $ 59,833 $ 57,869 $ 59,833
--------------------------------------------------------------------------

(See accompanying notes)


FP Newspapers Income Fund
Consolidated Statements of Cash Flows
(unaudited, in thousands of Canadian dollars)

Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Cash provided by (used in):

Operating activities:
Net earnings for the period $ 330 $ 3,237 $ 6,682 $ 7,968
Items not affecting cash:
Equity interest from Class A
Units of FP Canadian
Newspapers Limited
Partnership (note 2) 1,119 (1,385) (471) (3,085)
Future income tax expense
(recovery) 176 (197) 253 1,682
Distributions received on
Class A Units of FP
Canadian Newspapers Limited
Partnership (note 2) 416 617 2,358 2,443
Net change in non-cash working
capital items 20 35 (3) 43
--------------------------------------------------------------------------

2,061 2,307 8,819 9,051
--------------------------------------------------------------------------

Financing activities:
Distributions to Unitholders (2,053) (2,225) (8,732) (8,904)
--------------------------------------------------------------------------

Investment activities:
Investment in FPCN General
Partner Inc. - - (10) (10)
--------------------------------------------------------------------------

Increase in cash and cash
equivalents 8 82 77 137

Cash and cash equivalents
- beginning of period 427 276 358 221
--------------------------------------------------------------------------
Cash and cash equivalents
- end of period $ 435 $ 358 $ 435 $ 358
--------------------------------------------------------------------------

(See accompanying notes)


FP Newspapers Income Fund

Notes to Consolidated Financial Statements as at December 31, 2008

(unaudited, tabular amounts in thousands of dollars)

1. Basis of presentation

FP Newspapers Income Fund (the "Fund") was created on May 15, 2002 and commenced operations on May 28, 2002 when it completed an initial public offering and purchased an interest in FP Canadian Newspapers Limited Partnership ("FPLP"). The Fund owns securities entitling it to 49% of the distributable cash of FPLP.

These interim consolidated financial statements of the Fund have been prepared by management in accordance with accounting principles generally accepted in Canada for interim financial statements and include the accounts of the Fund and its wholly-owned subsidiary, FPCN Holdings Trust. However, these interim financial statements do not include all the information and disclosures required for annual financial statements. These interim financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements of the Fund as at December 31, 2008, except as described below. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto and other financial information contained in the audited consolidated financial statements for the year ended December 31, 2007.

FPLP's revenues are seasonal. As FPLP is the Fund's sole investment, the Fund's equity interest is seasonal as well. The Fund's equity interest from Class A limited partner Units is highest in the second and fourth quarters. The Fund's fourth quarter equity interest from Class A limited partner Units was impacted by the work stoppage by unionized workers at the Winnipeg operation.

2. Investment in FP Canadian Newspapers Limited Partnership

On May 28, 2002, FPCN Holdings Trust subscribed for 6,573,897 Class A limited partner Units of FPLP and $65,670,000 principal amount of subordinated notes of FPLP. On June 27, 2002, FPCN Holdings Trust subscribed for a further 328,695 Class A limited partner Units of FPLP and $3,283,500 principal amount of subordinated notes of FPLP. FPCN Holdings Trust holds all of the Class A limited partner Units of FPLP, which, together with the subordinated notes, entitles it to 49% of the distributable cash (as defined in the Partnership Agreement) of FPLP.

Future repayment of the subordinated notes will be applied as a contribution to the Class A limited partner Units of FPLP.

The investment in FPLP is summarized as follows:



Subordinated Class A limited
notes partner Units Total

Balance at September 30, 2008 $ 58,454 $ 2,580 $ 61,034

Equity interest in the period - (1,119) (1,119)

Distributions received - (416) (416)

------------------------------------------------------------------------
Balance at December 31, 2008 $ 58,454 $ 1,045 $ 59,499
------------------------------------------------------------------------


The change in equity interest for the three and twelve months ended December 31, 2008 and 2007 from the Fund's investment in Class A limited partner Units of FPLP is calculated as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
-------- ---------- ---------- ----------

Net (loss) earnings of FPLP $ (526) $ 4,622 $ 7,957 $ 13,418
Plus: Interest on subordinated
notes 1,690 1,725 6,722 6,843
--------------------------------------------------------------------------
Net earnings before interest
on subordinated notes $ 1,164 $ 6,347 $ 14,679 $ 20,261
--------------------------------------------------------------------------

49% interest attributable to
the Fund 571 3,110 7,193 9,928
Less: Interest from
subordinated notes (1,690) (1,725) (6,722) (6,843)
--------------------------------------------------------------------------
Equity interest from Class
A limited partner Units $ (1,119) $ 1,385 $ 471 $ 3,085
--------------------------------------------------------------------------


3. Distribution payable

The Fund recorded a distribution payable at December 31, 2008 of $0.095 per Unit. The distribution was paid January 30, 2009 to Unitholders of record on December 31, 2008 and is in respect of the month of December 2008.

4. Capital management

On January 1, 2008, the Fund adopted CICA Handbook Section 1535 Capital Disclosures. This section establishes disclosure requirements for management's policies and processes in defining and managing its capital. There was no financial impact to previously reported financial statements as a result of the implementation of this new standard.

The Fund was established as a limited purpose trust for the sole purpose of investing the proceeds of the initial public offering to purchase securities of FPLP which entitle it to 49% of the distributable cash, as defined in the partner agreement of FPLP. While the Fund does not have a capital management program given its limited purpose, the FPLP's capital management objectives are disclosed in note 6 of its financial statements for the year ended December 31, 2008.

As a result of the Canadian trust taxation passed in June 2007 and effective January 1, 2011, the Fund is subject to certain capital growth restrictions referred to as "normal growth" equity rules. These rules limit the amount of Unitholder's capital that can be issued by the Fund in each of the next two years, based on the fund's market capitalization on October 31, 2006 as follows:



Annual Cumulative
Normal growth capital allowed in: ($ millions)
2009 50.0 58.0
2010 50.0 72.5


If the maximum equity growth capital allowed is exceeded, the Trust may be subject to trust taxation prior to 2011.

5. Subsequent event

In the first quarter of 2009, further voluntary and involuntary employee reductions were made by FPLP. One time severance costs recorded in the first quarter of 2009 are approximately $600,000 and the 2009 savings from reduced compensation costs will be approximately $1,000,000.



FP Canadian Newspapers Limited Partnership
Consolidated Balance Sheets
(unaudited, in thousands of Canadian dollars)
As at As at
December 31, December 31,
2008 2007
--------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,835 $ 9,920
Accounts receivable 12,880 11,740
Inventories 1,699 1,123
Prepaid expenses 1,119 823
Future income taxes 50 182
--------------------------------------------------------------------------
23,583 23,788

Property, plant and equipment 47,817 50,634

Investment (note 3) 208 -

Intangible assets 7,743 8,103

Goodwill 71,160 71,160
--------------------------------------------------------------------------

$ 150,511 $ 153,685
--------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 11,604 $ 11,017
Income taxes payable 10 21
Prepaid subscriptions and deferred revenue 3,171 3,167
Current obligations under capital leases - 197
--------------------------------------------------------------------------
14,785 14,402
--------------------------------------------------------------------------

Long-Term Liabilities:
Notes payable 59,769 59,617
Subordinated notes 56,498 56,069
--------------------------------------------------------------------------
116,267 115,686
--------------------------------------------------------------------------
131,052 130,088
--------------------------------------------------------------------------

Unitholders' Equity:
Partner Units 41,293 41,293
Cumulative earnings 61,074 53,117
Cumulative distributions (82,633) (70,813)
Accumulated other comprehensive loss (275) -
--------------------------------------------------------------------------
19,459 23,597
--------------------------------------------------------------------------

$ 150,511 $ 153,685
--------------------------------------------------------------------------

(See accompanying notes)


FP Canadian Newspapers Limited Partnership
Consolidated Statements of Earnings and Cumulative Earnings
(unaudited, in thousands of Canadian dollars)

--------------------------------------------------------------------------
Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007

Revenue $ 27,730 $ 33,302 $ 121,112 $ 125,862

Operating expenses, excluding
amortization and
restructuring charge (24,037) (24,707) (97,714) (97,345)
Restructuring charge (note 8) (417) - (417) -
--------------------------------------------------------------------------
3,276 8,595 22,981 28,517

Amortization of property,
plant and equipment (1,082) (1,093) (4,341) (4,173)
Amortization of intangible
assets (90) (92) (360) (362)
--------------------------------------------------------------------------

Earnings before the under-noted 2,104 7,410 18,280 23,982

Interest expense (note 5) (2,621) (2,660) (10,463) (10,571)
Interest income 52 75 296 224
Gain on sale of property,
plant and equipment 3 1 6 18
--------------------------------------------------------------------------
(Loss) earnings before income
taxes (462) 4,826 8,119 13,653

Income tax expense:
- Current (14) (7) (30) (38)
- Future (50) (197) (132) (197)
--------------------------------------------------------------------------
Net (loss) earnings for the
period (526) 4,622 7,957 13,418

Cumulative earnings
- beginning of period 61,600 48,495 53,117 39,128
Transitional amount - - - 571
--------------------------------------------------------------------------
Adjusted cumulative earnings
- beginning of period 61,600 48,495 53,117 39,699

Cumulative earnings - end of
period $ 61,074 $ 53,117 $ 61,074 $ 53,117
--------------------------------------------------------------------------


Consolidated Statements of Comprehensive Income
(unaudited, in thousands of Canadian dollars)

Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Net (loss) earnings for the
period $ (526) $ 4,622 $ 7,957 $ 13,418

Other comprehensive loss
Unrealized loss on investment
(note 3) (138) - (275) -
--------------------------------------------------------------------------

Comprehensive (loss) income
for the period $ (664) $ 4,622 $ 7,682 $ 13,418
--------------------------------------------------------------------------

(See accompanying notes)


FP Canadian Newspapers Limited Partnership
Consolidated Statements of Unitholders' Equity
(unaudited, in thousands of Canadian dollars)

Class A
General limited
partner partner
Units Units Total
--------------------------------------------------------------------------

Unitholders' equity - December 31, 2006 $ 13,348 $ 7,353 $ 20,701
Transitional amount 508 63 571
--------------------------------------------------------------------------

Adjusted Unitholders' equity - January 1,
2007 $ 13,856 $ 7,416 $ 21,272
--------------------------------------------------------------------------

Net earnings for the period 1,661 401 2,062
Distributions paid (2,392) (578) (2,970)
--------------------------------------------------------------------------

Unitholders' equity - March 31, 2007 $ 13,125 $ 7,239 $ 20,364
--------------------------------------------------------------------------

Net earnings for the period 3,134 791 3,925
Distributions paid (2,445) (624) (3,069)
--------------------------------------------------------------------------

Unitholders' equity - June 30, 2007 $ 13,814 $ 7,406 $ 21,220
--------------------------------------------------------------------------

Net earnings for the period 2,237 572 2,809
Distributions paid (2,445) (624) (3,069)
--------------------------------------------------------------------------

Unitholders' equity - September 30, 2007 $ 13,606 $ 7,354 $ 20,960
--------------------------------------------------------------------------

Contributions - 1,050 1,050
Net earnings for the period 3,686 936 4,622
Distributions paid (2,418) (617) (3,035)
--------------------------------------------------------------------------

Unitholders' equity - December 31, 2007 $ 14,874 $ 8,723 $ 23,597
--------------------------------------------------------------------------

Net earnings for the period 1,850 488 2,338
Distributions paid (2,414) (636) (3,050)
--------------------------------------------------------------------------

Unitholders' equity - March 31, 2008 $ 14,310 $ 8,575 $ 22,885
--------------------------------------------------------------------------

Net earnings for the period 2,883 770 3,653
Distributions paid (2,438) (653) (3,091)
Other comprehensive loss (32) (8) (40)
--------------------------------------------------------------------------

Unitholders' equity - June 30, 2008 $ 14,723 $ 8,684 $ 23,407
--------------------------------------------------------------------------

Net earnings for the period 1,968 524 2,492
Distributions paid (2,438) (653) (3,091)
Other comprehensive loss (77) (20) (97)
--------------------------------------------------------------------------

Unitholders' equity - September 30, 2008 $ 14,176 $ 8,535 $ 22,711
--------------------------------------------------------------------------

Net loss for the period (331) (195) (526)
Distributions paid (2,172) (416) (2,588)
Other comprehensive loss (111) (27) (138)
--------------------------------------------------------------------------

Unitholders' equity - December 31, 2008 $ 11,562 $ 7,897 $ 19,459
--------------------------------------------------------------------------

(See accompanying notes)


FP Canadian Newspapers Limited Partnership
Consolidated Statements of Cash Flows
(unaudited, in thousands of Canadian dollars)

Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Cash provided by (used in)

Operating activities:
Net (loss) earnings for the
period $ (526) $ 4,622 $ 7,957 $ 13,418
Items not affecting cash:
Amortization of property,
plant and equipment and
intangible assets 1,172 1,185 4,701 4,535
Amortization of deferred
financing costs (note 5) 151 139 581 531
Future income tax expense 50 197 132 197
Gain on disposal of property,
plant and equipment (3) (1) (6) (18)
--------------------------------------------------------------------------
844 6,142 13,365 18,663

Net change in non-cash working
capital items (949) 766 (1,432) 1,978
--------------------------------------------------------------------------
(105) 6,908 11,933 20,641
--------------------------------------------------------------------------

Investing activities:
Purchases of property, plant
and equipment (184) (319) (1,549) (2,022)
Proceeds from sale of
property, plant and equipment 28 2 31 33
Purchase of investment - - (483) -
--------------------------------------------------------------------------
(156) (317) (2,001) (1,989)
--------------------------------------------------------------------------

Financing activities:
Distributions to partners (2,588) (3,035) (11,820) (12,143)
Principal repayment of capital
leases - (73) (197) (318)
--------------------------------------------------------------------------
(2,588) (3,108) (12,017) (12,461)
--------------------------------------------------------------------------

(Decrease) increase in cash
and cash equivalents (2,849) 3,483 (2,085) 6,191

Cash and cash equivalents
- beginning of period 10,684 6,437 9,920 3,729
--------------------------------------------------------------------------

Cash and cash equivalents
- end of period $ 7,835 $ 9,920 $ 7,835 $ 9,920
--------------------------------------------------------------------------

Supplemental Cash Flow
Information:
Interest paid during the
period $ 2,448 $ 2,510 $ 9,876 $ 10,053
Taxes paid during the period 11 10 37 23

(See accompanying notes)


FP Canadian Newspapers Limited Partnership

Notes to Consolidated Financial Statements as at December 31, 2008

(unaudited, tabular amounts in thousands of dollars)

1. Basis of presentation

FP Canadian Newspapers Limited Partnership ("FPLP") is a limited partnership formed on August 9, 1999 in accordance with the laws of British Columbia.

These interim consolidated financial statements include the accounts of FPLP and Canstar Community News Limited ("Canstar"). In addition, the FP Canadian Newspapers Limited Partnership Employee Benefits Plan Trust Fund ("Trust Fund") and FPCN Media Funding Inc. ("Funding") have been determined to be variable interest entities ("VIE"), which also have been consolidated. The managing general partner of FPLP is FPCN General Partner Inc. These consolidated interim financial statements include only the assets, liabilities, revenues and expenses of FPLP and its subsidiaries and do not include the other assets, liabilities, revenues and expenses, including income taxes, of the partners.

These interim consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada for interim financial statements and reflect all adjustments which are, in the opinion of management, necessary for fair statement of the results of the interim periods presented. However, these consolidated interim financial statements do not include all the information and disclosures required for annual financial statements. The accounting policies used in the preparation of these consolidated interim financial statements are the same as those used in the most recent annual consolidated financial statements, except as described below. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of FPLP for the year ended December 31, 2007.

FPLP's advertising revenues are seasonal. Revenue and accounts receivable are highest in the second and fourth quarters while expenses are relatively constant. Results for the fourth quarter of 2008 were impacted by a work stoppage by unionized workers at the Winnipeg operation.

2. Allocation of net income

The amended and restated Agreement of Limited Partnership dated May 3, 2005 sets out the method for allocating net income between the general and limited partner Units. Net income is allocated to the general partner Units and the Class A limited partner Units in proportion to the distributions made to the partners over an annual basis ending December 31 each year. As the allocation is defined using an annual period, quarterly allocations are determined by using a proportionate share of cumulative distributions and cumulative net income to the end of each quarter.

3. Investment

During the second quarter, the Trust Fund acquired units of FP Newspapers Income Fund. These units have been classified as "available for sale" and are measured at fair value, as determined by the published price quote. Gains and losses resulting from the periodic revaluation are recorded in other comprehensive earnings. As at December 31, 2008, FPLP holds 37,813 units at the carrying value of $208,000.

4. Employee future benefit plans

The net future benefit plan costs included in operating expenses is as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
-------- ---------- ---------- ----------
Defined benefit pension plan $ 358 $ 409 $ 1,423 $ 1,508
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------


5. Interest expense

Interest expense is summarized as follows:



Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
-------- ---------- ---------- ----------
Subordinated notes $ 1,690 $ 1,725 $ 6,722 $ 6,843
Amortization of subordinated
notes deferred financing costs 112 102 429 386
Notes payable 780 793 3,156 3,179
Amortization of notes payable
deferred financing costs 39 37 152 145
Capital lease obligations - 3 4 18
-------- ---------- ---------- ----------
$ 2,621 $ 2,660 $ 10,463 $ 10,571
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------


6. Capital management

On January 1, 2008, FPLP adopted CICA Handbook Section 1535 Capital Disclosures. This section establishes disclosure requirements for management's policies and processes in defining and managing its capital. There was no financial impact to previously reported financial statements as a result of the implementation of this new standard.

FPLP's objective for managing the capital structure is to take advantage of leverage with the prudent use of debt, while maintaining flexibility through historically setting distribution levels that are less than the cumulative amounts available for distribution. There are no set quantitative targets established for monitoring the capital structure. Management continuously monitors capital markets in the context of the general economic environment, FPLP's financial position and outlook, and strategic development plans. FPLP can alter the mix within the capital structure by repaying debt, increasing debt, adjusting distributions to partners or raising additional equity capital.

FPLP's capital consists of cash and cash equivalents, debt and Unitholders' equity. The components at December 31, 2008 and December 31, 2007 were as follows:



As at As at
December 31, December 31,
2008 2007
----------- -----------
Notes payable $ 59,769 $ 59,617
Capital leases - 197
Cash and cash equivalents (7,835) (9,920)
----------- -----------
External net debt 51,934 49,894

Subordinated notes 56,498 56,069
Unitholders' equity 19,459 23,597
----------- -----------
Total capitalization $ 127,891 $ 129,560
----------- -----------
----------- -----------

External net debt as a percentage of total
capitalization 40.6% 38.5%
----------- -----------
----------- -----------


The notes payable include negative covenants which must be maintained in order to avoid an accelerated termination of the agreement. These covenants include certain restrictions on the incurrence of additional debt, requirements to maintain insurance, certain restrictions on the sale of assets and other requirements and restrictions common to lending agreements of this nature. FPLP is restricted from making distributions which cumulatively exceed by more than $1.4 million the total of distributable cash as defined in this agreement. FPLP is required to maintain a ratio of net debt to earnings, as defined in the agreement, of no greater than 3.5 to 1.0 and a net external interest expense of no less than 3.0 to 1.0 measured quarterly on a trailing 12-month basis. At December 31, 2008, FPLP was in compliance with all the terms and conditions of its debt agreements. The financial ratios calculated in accordance with the debt agreements for the trailing 12-month periods ending December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008 and December 31, 2007 are as follows:



Net Debt / Earnings Earnings as defined
as defined under under agreement / Net
agreement interest
December 31, 2008 2.39 8.02
September 30, 2008 1.93 9.91
June 30, 2008 1.91 10.01
March 31, 2008 1.90 9.89
December 31, 2007 1.92 9.59


During the third quarter, FPLP cancelled its credit facility providing up to $10 million in financing.

7. Financial instrument risk management

On January 1, 2008, FPLP adopted CICA Handbook Sections 3862 Financial Instruments - Disclosures and 3863 Financial Instruments - Presentation, which enhances existing disclosures for financial instruments. In particular, Section 3862 focuses on the identification of risk exposures and FPLP's approach to management of these risks. There was no financial impact to previously reported financial statements as a result of the implementation of these new standards.

FPLP's financial assets and liabilities are comprised of cash and cash equivalents, accounts receivable, investment, accounts payable and accrued liabilities and long-term debt which include subordinated notes and notes payable.

FPLP is exposed to financial risks arising from its financial assets and liabilities. The financial risks include credit risk, interest rate risk and liquidity risk.

Credit Risk

Credit risk is the risk a customer will fail to perform an obligation or fail to pay amounts due causing a financial loss. Credit risk arises from cash and cash equivalents and outstanding accounts receivable. The maximum exposure to credit risk is the carrying value of these financial assets. Cash and cash equivalents are all held at large chartered Canadian banks and FPLP does not expect the counterparties to fail to meet their obligations.

As FPLP is in the business of publishing newspapers and performing printing services for third parties, included in the accounts receivable are primarily amounts owed from advertisers and advertising agencies, circulation customers and commercial print clients. FPLP does not hold collateral as security for these balances. FPLP's credit risk relating to these accounts receivable is spread over a large number of national and local advertising clients and advertising agencies, in addition to many circulation retail customers and third party printing clients. FPLP manages credit risk on a customer by customer basis and establishes a reasonable allowance for non collectible amounts with this allowance netted against the accounts receivable on the balance sheet. The adequacy of the allowance is reviewed on a regular basis, and is estimated based on past experience, specific risks associated with the customers and other relevant information. The ten largest receivable amounts total $3,161,000 and approximately 80% of these balances are owed from national advertising agencies. The largest amount due from a single national agency is $634,000 which represents 4.8% of total receivables at December 31, 2008.

Accounts receivable are impaired when there is evidence that collection is unlikely. Collection is determined to be unlikely if the customer is in bankruptcy or FPLP has exhausted all efforts to obtain payment. At December 31, 2008, FPLP estimates the value of impaired accounts receivable is $156,000 and these amounts are included as part of the allowance for doubtful accounts.

The age of receivables and allowance for doubtful accounts is as follows:



As at
December 31,
2008
-----------
Accounts receivable:
Current $ 7,520
Up to three months past due 5,276
Greater than three months past due 367
Impaired 156
-----------
13,319

Allowance for doubtful accounts (439)
-----------
$ 12,880
-----------
-----------


Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As FPLP currently has no variable interest long term debt, there is no interest rate risk. The current fixed rate debt facility is scheduled to mature on June 5, 2010 and FPLP's intention is to negotiate the refinancing of this debt and at that time the interest rate and the other terms could be significantly different than existing terms.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. FPLP believes that it has access to sufficient capital through internally generated cashflows and external sources (debt capital markets) to meet current spending forecasts. Trade payables are due within one year and notes payable are due June 5, 2010. Future repayments of the subordinated notes will be applied as a contribution to the Class A limited partner Units.

8. Restructuring charge

During the quarter, FPLP incurred a restructuring charge of $417,000, for voluntary and involuntary employee reductions at the Winnipeg Free Press and the 2009 savings from reduced compensation costs will be approximately $1,300,000. The charge was included in the accounts payable and accrued liabilities at December 31, 2008.

9. Subsequent Event

In the first quarter of 2009, further voluntary and involuntary employee reductions were made. One time severance costs recorded in the first quarter of 2009 are approximately $600,000 and the 2009 savings from reduced compensation costs will be approximately $1,000,000.

Contact Information

  • FP Newspapers Income Fund
    Dan Koshowski
    Vice President, Finance and Administration
    (204) 697-7425
    Website: www.fpnewspapers.com