FP Newspapers Inc.

INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Approved for issuance: NOVEMBER 25, 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

This management’s discussion and analysis is dated November 25, 2021 and does not reflect changes or information subsequent to this date. Additional regulatory filings for FP NEWSPAPERS INC. (“FPI”) can be found on the SEDAR website at www.sedar.com.

The following discussion and analysis is supplementary to, and should be read in conjunction with our financial statements for the three and nine months ended September 30, 2021.

Forward-Looking Statements

Certain statements in this discussion and analysis may constitute forward-looking statements that reflect management’s expectations regarding future growth, financial performance and business opportunities that are not historical facts. Such forward-looking statements are subject to risks and uncertainties set out below under the heading “Caution Regarding Forward-Looking Statements”. All such forward-looking statements are made pursuant to the “safe harbour” provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance and speak only as of the date of this discussion and analysis. They are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.

Interim Financial Statements

Our interim financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34 – Interim Financial Reporting. Because interim financial statements do not include the same information and disclosures that are required for annual financial statements, this discussion and analysis should also be read in conjunction with our most recent audited consolidated financial statements for the year ended December 30, 2020, which are available on the SEDAR website.

All monetary amounts, unless otherwise indicated, are expressed in Canadian dollars.

OVERVIEW AND BACKGROUND

FP NEWSPAPERS INC. has no active business. It owns securities entitling it to 49% of the distributable cash flow of FP CANADIAN NEWSPAPERS LP (“FPLP”). FPLP owns and operates the Winnipeg Free Press, along with several other Manitoba based news and media publications that are available in both print and digital formats. The informative and engaging content we produce has an extensive reach throughout the province of Manitoba. The breadth of our reach provides compelling platforms for those looking to effectively reach a Manitoba audience.

OPERATING RESULTS

A discussion of our quarterly operating results

OPERATING RESULTS A discussion of our quarterly operating results
		For the three months				For the nine months
		ended				ended
		September		30,		September		30,
($ in 000’s)		2021		2020		2021		2020
Equity interest in FP Canadian Newspapers LP Income	$	268	$	256	$	685	$	2,270
Administration expenses		(30 )		(50 )		(117 )		(126 )
Other income		-		-		-		-
Income before income taxes		238		206		568		2,144
Current income tax recovery (expense)		172		(97 )		(209 )		(648 )
Deferred income tax recovery		-		17		489		34
Net income for the period		410		126		848		1,530
Items that will not be reclassified to net income (loss):
Equity interest of other comprehensive (loss) income from
FP Canadian Newspapers LP		-		758		-		(709 )
Deferred income tax recovery (expense)		-		(205 )		-		190
Comprehensive income for the period	$	410	$	679	$	848	$	1,011
Weighted average number of Common Shares outstanding		6,902,592	6,902,592			6,902,592	6,902,592
Net income per share–basic and diluted	$	0.059	$	0.018	$	0.123	$	0.222

Equity interest in FP Canadian Newspapers LP Income

FPI’s proportionate share of FPLP net income for the three and nine months ended September 30, 2021, was $0.3 and $0.7 million, respectively, compared to income of $0.3 and $2.3 million in the same period last year. See the supplemental management and analysis of FPLP included herein.

Administrative Expenses

Administrative expenses are flat compared to the same period last year.

Income Taxes

Current income taxes include FPI’s proportionate share of FPLP’s non-conterminous taxable income resulting in fluctuations of FPI’s effective tax rate.

The deferred income tax recovery reflects an adjustment of $0.5 million to the net deferred tax liability relating to eligible capital expenditures, historical goodwill, and intangible assets of FPLP during the three months ended March 31, 2021.

Net Income

Net income for the period reflects FPI’s investment in FPLP and its underlying performance for the period.

Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2021, was $0.4 and $0.8 million, respectively, compared to an income of $0.7 and $1.0 million for the same period last year. Other comprehensive income or losses are a result of FPLP recognizing remeasurement gains or losses related to their defined benefit pension plan. This pension plan was settled in December 2020 as part of FPLP’s transition to the Colleges of Applied Arts & Technology Pension Plan, a multi-employer defined benefit plan.

SUMMARY OF QUARTERLY PERFORMANCE

A summary view of our quarterly financial performance

The following table presents selected financial information for each of the nine most recently completed quarters:

Quarter Ended	Quarter Ended	Quarter Ended
($ in '000's, except share $) 2021 Sep-30 2021 Jun -30 2021 Mar -31 2020 Dec-31 2020 Sep-30 2020 Jun -30 2020 Mar -31 2019 Dec-31 2019 Sep-30

FP CANADIAN NEWSPAPERS LP

Revenue	$	13,101 13,675 12,875 14,444 12,885 11,883 14,218 16,227 15,129

Net income (Loss)	$	547 1,246 (395 ) 6,813 523 3,882 227 2,088 360

Proportionate % of Net Income (Loss) attributable to FP NEWSPAPERS INC		49.0 % 49.0 % 49.0 % 49.0 % 49.0 % 49.0 % 49.0 % 49.0 % 49.0 %

Net income (Loss) attributable to FP NEWSPAPERS INC	$	268 611 (194 ) 3,339 256 1,902 112 1,026 177

FP NEWSPAPERS INC.

Net income	$	410 95 341 2,454 126 1,344 60 687 67

Net income per Share	$	0.059 0.014 0.049 0.355 0.018 0.195 0.009 0.100 0.010

Outstanding Shares	#	6,902.6 6,902.6 6,902.6 6,902.6 6,902.6 6,902.6 6,902.6 6,902.6 6,902.6

INTERNAL CONTROL OVER FINANCIAL REPORTING

A discussion of our disclosure controls and internal controls over financial reporting

In connection with National Instrument 52-109 (Certificate of Disclosure in Issuer’s Annual and Interim Filings), the Chief Executive Officer and Chief Financial Officer of the Company have filed a Venture Issue Basic Certificate with respect to the financial information contained in the financial statements for the quarter ended and this accompanying MD&A. This can be found on SEDAR.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A description of accounting estimates that are critical to determining our financial results

The accounting policies adopted in preparation of the interim condensed financial statements are consistent with those followed in the preparation of our most recent annual financial statements.

SUPPLEMENTAL DISCLOSURE BY FP NEWSPAPERS INC. OF

FP CANADIAN NEWSPAPERS LIMITED PARTNERSHIP

INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

OPERATING RESULTS

A discussion of our quarterly operating results

	For the three months ended	For the three months ended	For the three months ended	For the three months ended	For the nine	For the nine	months ended	months ended
		September		30,		September		30,
($ in 000’s)		2021		2020		2021		2020
Revenue
Print advertising	$	5,602	$	5,614	$	16,961	$	17,402
Circulation		6,310		6,238		18,660		18,026
Digital advertising		474		463		1,458		1,445
Other		715		570		2,572		2,112
TOTAL REVENUE		13,101		12,885		39,651		38,985
Operating expenses
Employee compensation		5,768		5,265		17,397		13,271
Newsprint and other paper		901		966		2,873		2,990
Distribution		2,447		2,540		7,384		7,538
Production		1,179		1,062		3,542		3,189
Other		1,355		1,743		3,941		4,953
Depreciation and amortization		847		662		2,481		2,009
OPERATING INCOME BEFORE RESTRUCTURING		605		647		2,033		5,035
Restructuring charge		-		(37 )		(453 )		(68 )
OPERATING INCOME		605		610		1,580		4,967
Other income (loss)		1		(11 )		6		(13 )
Finance costs		(60 )		(76 )		(188 )		(322 )
NET INCOME FOR THE PERIOD	$	547	$	523	$	1,398	$	4,632

Revenue

Revenue increased $0.2 million or 1.7% to $13.1 million and increased $0.7 million or 1.7% to $39.7 million for the three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year. The increases are reflective of increases in almost all of our advertising categories, mostly due to the recovery of the economy which is attributable to the reopening of businesses in the Province.

Print advertising

Print Advertising revenues were steady for the quarter and decreased $0.4 million or 2.5% to $17.0 million for the nine months ended September 30, 2021, as compared to the same period in the prior year. Classified and Display advertising revenues were steady compared to last year. Flyer distribution revenues were steady for the quarter and decreased $0.5 million or 8.7% for nine months ended September 30, 2021, as compared to the same period in 2020.

Circulation

Circulation revenue increased $0.1 million or 1.2% to $6.3 million and increased $0.6 million or 3.5% to $18.7 million for the three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year. This was primarily due to print subscription rate increases and a moderate increase in overall digital subscriptions.

Digital advertising

Digital Advertising revenues were $0.5 and $1.5 million for three and nine months ended September 30, 2021, respectively, remaining at relatively the same level compared to the same period in 2020.

Other

Other revenues were $0.7 and $2.6 million for three and nine months ended September 30, 2021, respectively, reflecting improved commercial print levels compared to the same period in 2020.

Expenses

Operating expenses increased $0.3 million or 2.1% to $12.5 million and increased $3.7 or 10.8% to $37.6 million for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year.

Employee Compensation

Employee compensation costs increased by $0.5 million or 9.6% and increased $4.1 million or 31.1% for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year. The increase in compensation expense is largely due to the decline in the Canada Emergency Wage Subsidy (“CEWS”) program. CEWS of $0.4 and $1.5 million were received for the three and nine months ended September 30, 2021, respectively (2020 - $1.1 and $5.0 million). A recovery of $0.2 and $0.7 million was reflected in the period for three and nine months ended September 30, 2021, respectively, related to the federal government’s Canadian Journalism Tax credit program (“JTC”). The JTC recovery recorded in the third quarter of 2020 was $0.2 and $0.6 million.

Newsprint and other paper

Newsprint expense decreased by $0.1 million or 6.7% to $0.9 million and decreased $0.1 million or 3.9% to $2.9 million for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year as a result of a slight decrease in printing volumes.

Distribution

Distribution expenses decreased by $0.1 million or 3.7% to $2.4 million and decreased $0.2 million or 2.0% to $7.4 million for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year as a result of a slight decrease in newspaper circulation volumes.

Production

Production expenses increased $0.1 million or 11.0% to $1.2 million and increased $0.4 million or 11.1% to $3.5 million for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year. The increase in production expenses is a result of increases in third party printing services.

Other

Other operating expenses decreased by $0.4 million or 22.3% to $1.4 million and decreased $1.0 million or 20.4% to $3.9 million for three and nine months ended September 30, 2021, respectively as compared to the same period in the prior year, as a result of reduced property taxes and professional fees.

EBITDA[(1)]

EBITDA was $1.5 and $4.1 million for three and nine months ended September 30, 2021, respectively, compared to $1.3 and $7.0 million for the same period last year, an increase of 14.2% and a decrease of 41.8%, respectively. EBITDA margin for the three and nine months ended September 30, 2021 was 11.1% and 10.2%, respectively, compared to 9.9% and 17.9% in the same period last year. The changes in EBITDA were due to the factors described above.

Finance Costs

Finance costs decreased $0.1 million to $0.2 million for nine months ended September 30, 2021 as compared to the same period in the prior year, as a result of less outstanding debt.

Net Income

A net income of $0.5 and $1.4 million was reflected for the three and nine months ended September 30, 2021, respectively, a steady third quarter and a $3.2 million decrease from the previous year due to restructuring charges of $0.5 million related to ongoing transformation cost savings initiatives and reduced Canada Emergency Wage Subsidy.

SUMMARY OF QUARTERLY PERFORMANCE

A summary view of our quarterly financial performance

The following table presents selected financial information for each of the nine most recently completed quarters:

	Quarter Ended
($ in'000's)	2021 Sep-30 2021 Jun-30 2021 Mar-31 2020 Dec-31 2020 Sep-30 2020 Jun-30 2020 Mar-31 2019 Dec-31 2019 Sep-30

Revenue	$ 13,101 13,675 12,875 14,444 12,885 11,883 14,218 16,227 15,129

EBITDA	$ 1,453 2,139 470 7,537 1,272 4,667 1,039 2,956 1,240

Net Income (Loss)	$ 547 1,246 (395 ) 6,813 523 3,882 227 2,088 360



Distributions	$ - 549 200 - 409 211 - - -

Restructuring	$ - - 453 - 37 26 5 118 40

Capital Expenditures	$ 347 266 540 156 14 - 18 40 2

LIQUIDITY AND CAPTIAL RESOURCES

A discussion of our cash flow and liquidity

Cash and cash equivalents at September 30, 2021 was $6.1 million, compared to $5.3 million at December 31, 2020. Our principal uses of funds are for working capital requirements, debt servicing and capital expenditures. Based on our current and anticipated level of operations, we believe that our cash on hand and cash flows from operations, which includes the receipt of CEWS and the journalism tax credits will enable us to meet our working capital, debt servicing, capital expenditure and other funding requirements for the next twelve months. However, our ability to fund our working capital needs, debt servicing and other funding requirements depends on our future operating performance and cash flows. Our cash flows from operating activities may be impacted by, among other things, the overall strength of the economy, competition from digital media and other forms of media as well as competition from alternative emerging technologies. In recent years there has been a growing shift in advertising dollars from print advertising to other advertising formats. We manage this risk by monitoring cash flow forecasts, implementing cost reduction initiatives, deferring or eliminating discretionary spending, monitoring and maintaining compliance with terms of the debt obligations.

Cash Flow from Operating Activities

During the three and nine months ended September 30, 2021, cash generated from operating activities was $1.4 and $4.5 million, respectively compared to $1.6 and $7.8 million for the same period in 2020. Net income for the three and nine months ended September 30, 2021, was $0.5 and $1.4 million, respectively, compared to net income of $0.5 and $4.6 million for the same period in 2020. The change in cash flow from operating activities is primarily from the restructuring charges and CEWS.

Cash Flow from Investing Activities

Capital and intangible assets additions were $0.3 and $1.2 million for the three and nine months ended September 30, 2021. Expenditures were primarily for computer hardware and software upgrades and building improvements.

Cash Flow from Financing Activities

Financing activities used $0.7 and $2.5 million for three and nine months ended September 30, 2021, respectively compared to $0.4 and $6.8 million for the same period in 2020. A principal repayment of $0.7 million was made for the three months ended September 30, 2021; no repayment was made in the same quarter of 2020.

COMMITMENTS AND CONTINGENCIES

A description of changes to our material contractual obligations

There have been no significant changes to contractual obligations since December 31, 2020.

RELATED PARTY TRANSACTIONS

A description of our material transactions with related parties

Virtually all newsprint is purchased from the Alberta Newsprint Company. Total newsprint purchases for the three and nine months ended September 30, 2021, were $0.9 and $2.2 million, respectively (2020 - $0.6 and $2.1 million).

INTERNAL CONTROL OVER FINANCIAL REPORTING

A discussion of our disclosure controls and internal controls over financial reporting

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A description of accounting estimates that are critical to determining our financial results

The accounting policies adopted in preparation of the interim condensed financial statements are consistent with those followed in the preparation of our most recent annual consolidated financial statements.

COVID-19

A description of COVID-19 Implications on the business

With the number of COVID-19 cases, the short and long-term impact on the local and national economies is uncertain and is expected to remain this way for the foreseeable future. The overall impact on our businesses as a result of COVID-19 cannot be predicted with any reliability. While we believe swift actions taken to reduce and defer costs together with meaningful direct support by the federal government have resulted in a relatively stable financial position currently, this could deteriorate quickly if the overall economy does not improve or worsens from the present state.

OUTLOOK

The outlook for our business

On August 7, 2021, the Province lifted some restrictions in general regarding travel and businesses operating within the province. We expect a positive impact in the near term from the lifted restrictions.

The Canada Emergency Wage Subsidy (“CEWS”) program continued to provide financial relief. On April 19, 2021, as part of the proposed budget, the Government of Canada announced the extension of CEWS which ended on October 23, 2021. We will monitor our eligibility for the new financial relief programs as they are announced.

Despite the fact that the impact of the COVID-19 pandemic remains unpredictable, we continue to identify and undertake cost reduction initiatives in an effort to address the underlying revenue declines in the legacy print business.

NON-IFRS MEASURES

A description of how we determine EBITDA and distributable cash flow used by management

(1) Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

EBITDA is often referred to as a useful proxy for operating cash flows of a business. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under IFRS. Readers are therefore cautioned against using this as an alternative to net earnings determined in accordance with IFRS as an indicator of our operating performance. Readers are similarly cautioned that our method for calculating EBITDA, may differ from those of other issuers and may not allow for direct comparisons to be made. Our calculation of EBITDA is the operating income as presented on the consolidated statement of income excluding depreciation, amortization, finance costs, other income and impairment of intangible assets.

	For the Three	For the Three	Months Ended	Months Ended		For the Nine Months Ended	For the Nine Months Ended	For the Nine Months Ended
		September		30,		September		30,
($ in 000’s)		2021		2020		2021		2020
Net income for the period	$	547	$	523	$	1,398	$	4,632
Add (subtract):
Depreciation and amortization		847		662		2,481		2,009
Finance costs		60		76		188		323
Other(income)loss		(1 )		11		(5 )		14
EBITDA	$	1,453	$	1,272	$	4,062	$	6,978

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

An elaboration on the above noted title

Certain statements in this management’s discussion and analysis may constitute “forward-looking information” under applicable Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements using words such as “anticipate,” “believe,” “budgeted,” “could,” “expect,” “estimate,” “intend,” “may,” “will,” “would,” “should” and similar expressions and derivations thereof in connection with any discussion of future events, trends or prospects or future operating or financial performance. By their nature, forward-looking information and statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risks and uncertainties include, among others: competition from digital and other forms of media; the effect of economic conditions on advertising revenue; the ability build out digital media and online businesses; the failure to maintain current print and online newspaper readership and audience levels; the realization of anticipated cost savings; possible damage to the reputation of the Company’s brands or trademarks; possible labour disruptions; possible environmental liabilities, litigation and pension plan obligations; fluctuations in foreign exchange rates and the prices of newsprint and other commodities. While both FPI and FPLP base such information and statements on assumptions believed to be reasonable when made, they are not guarantees of future performance and actual results of operations, financial condition and liquidity, and developments in the industry in which they operate, may differ materially from any such information and statements in this press release. Given these risks and uncertainties, undue reliance should not be placed on any forward-looking information or forwardlooking statements, which speak only as of the date of such information or statements. Other than as required by law, FPI and FPLP does not undertake, and specifically declines, any obligation to update such information or statements or to publicly announce the results of any revisions to any such information or statements.

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FP Newspapers Inc. — Interim / Quarterly Report 2021

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