FP Newspapers Inc. — Interim / Quarterly Report 2021

Nov 25, 2021

FP NEWSPAPERS INC.

FINANCIAL STATEMENTS

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

FP Newspapers Inc. Condensed Balance Sheets

(unaudited, in thousands of Canadian dollars)

			As at			As at
		September 30,			December 30,
	Note		2021			2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	116		$	61
Prepaid expenses			2			5
			118			66
LONG-TERM ASSETS
Investment in FP Canadian Newspapers LP	3		8,435			8,116
TOTAL ASSETS		$	8,553		$	8,182
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	43		$	48
Income taxes payable			423			406
			466			454
LONG-TERM LIABILITIES
Deferred income tax liability	5		292			781
TOTAL LIABILITIES			758			1,235
SHAREHOLDERS’EQUITY
Share capital			71,373			71,373
Deficit			(63,578 )			(64,426 )
TOTAL SHAREHOLDERS’EQUITY			7,795			6,947
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	8,553		$	8,182

(See accompanying notes)

2

FP Newspapers Inc. Condensed Statements of Income and Comprehensive Income

(unaudited, in thousands of Canadian dollars except per share amounts)

			For the three	For the three	months		For the nine	For the nine	months
			ended September 30,				ended September 30,
	Note		2021		2020		2021		2020
Equity interest in FP Canadian Newspapers LP Income	3	$	268	$	256	$	685	$	2,270
Administration expenses			(30 )		(50 )		(117 )		(126 )
Net income before income taxes			238		206		568		2,144
Current income tax recovery (expense)			172		(97 )		(209 )		(648 )
Deferred income tax recovery	5		-		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 income (loss)
from FP Canadian Newspapers LP	3		-		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
(See accompanying notes)

3

FP Newspapers Inc. Condensed Statements of Changes in Equity

(unaudited, in thousands of Canadian dollars)

						Total
		Share			Shareholders’
		Capital		Deficit		Equity
At December 30, 2019	$	71,373	$	(66,361 )	$	5,012
Net income for the period		-		1,530		1,530
Other comprehensive loss for the period		-		(519 )		(519 )
Comprehensive income for the period		-		1,011		1,011
At September 30, 2020	$	71,373	$	(65,350 )	$	6,023
At December 30, 2020	$	71,373	$	(64,426 )	$	6,947
Comprehensive income for the period		-		848		848
At September 30, 2021	$	71,373	$	(63,578 )	$	7,795

(See accompanying notes)

4

FP Newspapers Inc. Condensed Statements of Cash Flows

(unaudited, in thousands of Canadian dollars)

FP Newspapers Inc. Condensed Statements of Cash Flows (unaudited, in thousands of Canadian dollars)
			For the three			months			For the nine		months
			ended September 30,						ended September 30,
	Note		2021			2020			2021		2020
Cash provided by (used in):
Operating activities
Net income for the period		$	410		$	126		$	848	$	1,530
Items not affecting cash:
Equity interest from Class A Units of FP Canadian
Newspapers LP	3		(268 )			(256 )			(685 )		(2,270 )
Deferred income tax recovery			-			(17 )			(489 )		(34 )
Distributions received on Class A units of FP
Canadian Newspapers LP			-			200			366		304
Net change in non-cash working capital items			(212 )			(14 )			15		555
(Decrease) Increase in cash and cash equivalents		$	(70 )		$	39		$	55	$	85
Cash and cash equivalents–beginning of period			186			78			61		32
Cash and cash equivalents–end of period		$	116		$	117		$	116	$	117
Supplemental Cash Flow information:
Income tax paid during the period		$	-		$	-		$	-	$	-

( See accompanying notes)

5

FP Newspapers Inc. Notes to Condensed Financial Statements For the three and nine months ended September 30, 2021 and 2020 (unaudited, in thousands of Canadian dollars)

1. GENERAL INFORMATION

FP Newspapers Inc. (“FPI”), 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 FPLP produces 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.

2. SIGNIFICANT ACCOUNTING POLICIES

These interim condensed financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 “Interim Financial Reporting”. In accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”), these interim condensed financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 30, 2020. In management’s opinion, the interim condensed financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented.

These interim condensed financial statements were approved by the Board of Directors of FPI on November 25, 2021.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates. In preparation of the condensed interim consolidated financial statements the estimates and judgements made by management in applying judgements the Company’s accounting policies were the same as those that applied to the consolidated financial statements for the year ended December 30, 2020.

The COVID-19 pandemic is affecting economic and financial markets and virtually all industries are facing challenges associated with the economic conditions resulting from efforts to address it. Reactions and responses to COVID-19 continue to evolve and change, and developments are highly uncertain and cannot be accurately predicted. New information which may emerge concerning the severity, duration and actions by government authorities to contain the outbreak or manage its impact increase the possibility that circumstances may arise which cause actual results to differ from the estimates applied in these interim consolidated financial statements and such differences may effect FPI’s future financial position, liquidity and operating results.

Regular impairment testing requires predicting future revenues and cash flows in addition to other forward information. The outbreak of COVID-19 has resulted in significantly increased risks with respect to predicting future operating results used in FPI’s impairment testing at September 30, 2021.

6

FP Newspapers Inc. Notes to Condensed Financial Statements For the three and nine months ended September 30, 2021 and 2020 (unaudited, in thousands of Canadian dollars)

3. INVESTMENT IN FP CANADIAN NEWSPAPERS LP

FPI holds all of the Class A limited partner units of FPLP, which entitles it to 49% of the distributable cash, as defined in the Partnership Agreement of FPLP.

The investment in FPLP is summarized as follows:

The investment in FPLP is summarized as follows:
		Class A
		limited
		partner units
Balance at December 30, 2019	$	5,617
Equity interest in comprehensive income for the year ended December 30, 2020		2,803
Distributions received for the year ended December 30, 2020		(304 )
Balance at December 30, 2020	$	8,116
Equity interest in comprehensive income for the nine months ended
September 30, 2021		685
Distributions received for the period ended September 30, 2021		(366 )
Balance at September 30, 2021	$	8,435

The equity interest in net income and other comprehensive income (loss) from FPI’s investment in Class A limited partner units is calculated as follows:

limited partner units is calculated as follows:
		For the three		months			For the nine months
		ended September 30,					ended September 30,
		2021		2020			2021		2020
Net income of FPLP	$	547	$	523		$	1,398	$	4,632
Interest attributable to FPI		49 %		49 %			49 %		49 %
Equity interest in net income of FPLP		268		256			685		2,270
Other comprehensive income (loss) of FPLP		-		1,547			-		(1,447 )
Interest attributable to FPI		49 %		49 %			49 %		49 %
Equity interest in other comprehensive income (loss)
of FPLP	$	-	$	758		$	-	$	(709 )

7

FP Newspapers Inc. Notes to Condensed Financial Statements For the three and nine months ended September 30, 2021 and 2020 (unaudited, in thousands of Canadian dollars)

4. FINANCIAL INSTRUMENTS

The fair value of current assets and liabilities including cash and cash equivalents and accounts payable and accrued liabilities approximates their carrying value due to the short-term nature of these financial instruments. FPI does not carry any assets or liabilities at fair value, and therefore does not prepare a fair value hierarchy.

5. DEFERRED TAXES

In the first quarter, FPI recognized an adjustment to its net deferred tax liability relating to eligible capital expenditures, and historical goodwill and intangible assets of FPLP. The non-cash adjustment resulted in a deferred tax recovery of $489.

8

FP CANADIAN NEWSPAPERS LIMITED PARTNERSHIP

CONSOLIDATED FINANCIAL STATEMENTS

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

FP Canadian Newspapers LP Condensed Consolidated Balance Sheets

(unaudited, in thousands of Canadian dollars)

			As at			As at
		September 30,			December 31,
	Note		2021			2020	1
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	6,096		$	5,300
Accounts receivable			2,655			3,139
Due from related parties	6		1,352			1,904
Inventories			963			969
Prepaid expenses and other assets			675			1,190
			11,741			12,502
LONG-TERM ASSETS
Property, plant and equipment			17,841			19,471
Right of use assets			401			287
Intangible assets			2,619			2,257
TOTAL ASSETS		$	32,602		$	34,517
LIABILITIES AND UNITHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	4,821		$	5,951
Prepaid subscriptions and deferred revenue			3,177			3,014
Lease obligation			102			75
Mortgage loan	7		-			733
Term loan	7		1,000			1,000
			9,100			10,773
LONG-TERM LIABILITIES
Lease obligation			300			212
Term loan	7		5,961			6,940
TOTAL LIABILITIES			15,361			17,925
UNITHOLDERS’EQUITY
Partner units	9		98,280			98,280
Deficit	9		(81,039 )			(81,688 )
TOTAL UNITHOLDERS’EQUITY			17,241			16,592
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY		$	32,602		$	34,517

(See accompanying notes)

---

1 See Note 9

10

FP Canadian Newspapers LP Condensed Statements of Income and Comprehensive Income

(unaudited, in thousands of Canadian dollars)

			For the three	For the three	months			For the Nine	For the Nine	months
			ended September 30,					ended September 30,
	Note		2021		2020			2021		2020
Revenue
Print Advertising		$	5,602	$	5,614		$	16,962	$	17,402
Circulation			6,310		6,238			18,660		18,026
Digital advertising			474		463			1,458		1,445
Other			715		570			2,571		2,112
TOTAL REVENUE			13,101		12,885			39,651		38,985
Operating expenses
Employee compensation	1		5,768		5,265			17,397		13,271
Newsprint and other paper			901		966			2,873		2,990
Delivery			2,446		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	5		(60 )		(76 )			(188 )		(322 )
NET INCOME FOR THE PERIOD		$	547	$	523		$	1,398	$	4,632
Items that will not be reclassified subsequently to
net income:
Remeasurements for defined benefit pension plan			-		1,547			-		(1,447 )
COMPREHENSIVE INCOME FOR THE PERIOD		$	547	$	2,070		$	1,398	$	3,185

(See accompanying notes)

11

FP Canadian Newspapers LP Condensed Consolidated Statements of Changes in Equity

(unaudited. in thousands of Canadian dollars)

								Total
			Partner					Unitholders
	Note		Units			Deficit		Equity
UNITHOLDERS’EQUITY–
DECEMBER 31, 2019	9	$	98,280		$	(86,788 )	$	11,492
Comprehensive income for the period			-			3,185		3,185
Partner contributions			600			-		600
Partner distributions			-			(620 )		(620 )
Partner return of capital			(600 )			-		(600 )
UNITHOLDERS’EQUITY–
SEPTEMBER 30, 2020		$	98,280		$	(84,223 )	$	14,057
UNITHOLDERS’EQUITY–
DECEMBER 31, 2020	9	$	98,280		$	(81,688 )	$	16,592
Comprehensive income for the period			-			1,398		1,398
Partner contributions			723			-		723
Partner distributions			-			(749 )		(749 )
Partner return of capital	9		(723 )			-		(723 )
UNITHOLDERS’EQUITY–
SEPTEMBER 30, 2021		$	98,280		$	(81,039 )	$	17,241

(See accompanying notes)

12

FP Canadian Newspapers LP Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands of Canadian dollars)

			For the three month	For the three month	For the three month		For the Nine month	For the Nine month	For the Nine month
			ended September 30,				ended September 30,
	Note		2021		2020		2021		2020
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income for the year		$	547	$	523	$	1,398	$	4,632
Items not affecting cash:
Depreciation and amortization			847		662		2,481		2,009
Accretion of deferred financing costs			7		7		21		19
Loss on disposal of property, plant and equipment			-		14		1		33
			1,401		1,206		3,902		6,693
Net change in non-cash working capital items			(29 )		402		591		1,074
			1,372		1,608		4,493		7,767
INVESTING ACTIVITIES
Purchases of property, plant and equipment			(292 )		(14 )		(462 )		(31 )
Purchase of intangibles			(55 )		-		(691 )		(1 )
Proceeds from the sale of property, plant and
equipment			-		-		1		48
			(347 )		(14 )		(1,152 )		16
FINANCING ACTIVITIES
Distributions paid to partners			-		(409 )		(749 )		(620 )
Principal repayments of lease obligations			(30 )		(26 )		(63 )		(78 )
Principal repayments of mortgage loan			(699 )		-		(733 )		(14 )
Principal repayment of term loan			-		-		(1,000 )		(6,000 )
Term loan refinancing costs			-		-		-		(86 )
			(729 )		(435 )		(2,545 )		(6,798 )
INCREASE IN CASH AND CASH EQUIVALENTS			296		1,159		796		985
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD			5,800		4,215		5,300		4,389
CASH AND CASH EQUIVALENTS - END OF
PERIOD		$	6,096	$	5,374	$	6,096	$	5,374
Supplemental Cash Flow Information:
Interest paid during the year		$	53	$	97	$	167	$	358
Interest received during the year			1		5		6		22

(See accompanying notes)

13

FP Canadian Newspapers LP Notes to the Condensed Consolidated Financial Statements For the three and nine months ended September 30, 2021 and 2020 (In thousands of Canadian dollars, except as otherwise noted)

1. GENERAL INFORMATION

FP Canadian Newspapers Limited Partnership (“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 reach throughout the province of Manitoba. The breadth of our reach provides compelling platforms for those looking to effectively reach a Manitoba audience. The managing general partner of FPLP is FPCN General Partner Inc. (“FPGP”).

These interim condensed consolidated financial statements include the operating businesses owned by FPLP, and do not include other assets, liabilities, revenues, expenses, or income taxes of the partners.

In March 2020, the outbreak of the novel strain of coronavirus, identified as COVID-19, resulted in governments worldwide enacting emergency measures to combat the spread of the virus. Those measures, which included the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. FPLP is considered an essential service and has continued to operate to service its customers. Governments have rolled out mass vaccination campaigns and management expects FPLP to be able to meet its financial obligations in the foreseeable future, but it is still difficult to predict the duration and potential impact of the pandemic.

In 2020, the federal government announced a wage subsidy program for eligible Canadian employers whose business was affected by COVID-19. The Canada Emergency Wage Subsidy (“CEWS”) provided a subsidy based on a prescribed formula. On April 19, 2021, as part of the proposed budget, the Government of Canada announced they will extend CEWS to September 2021. The CEWS recovery for the three and nine months ended September 30, 2021 was $366 and $1,509, respectively (2020 - $1,126 and $4,983). The Canadian Journalism Tax Credit amount (see note 6) has been reduced by the amount received under the CEWS program for qualifying employees.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

These interim condensed financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 “Interim Financial Reporting”. In accordance with GAAP, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2020. In management’s opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented.

These interim condensed consolidated financial statements were approved by the Board of Directors of FPGP on November 25, 2021.

FPLP’s advertising revenue is seasonal. Historically, advertising revenue and accounts receivable are highest in the second and fourth fiscal quarters, while expenses are relatively constant throughout the fiscal year.

14

FP Canadian Newspapers LP Notes to the Condensed Consolidated Financial Statements For the three and nine months ended September 30, 2021 and 2020 (In thousands of Canadian dollars, except as otherwise noted)

3. USE OF ESTIMATES

The preparation of consolidated financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates. In preparation of the condensed interim consolidated financial statements the estimates and judgements made by management in applying judgements the Company’s accounting policies were the same as those that applied to the consolidated financial statements for the year ended December 31, 2020.

The COVID-19 pandemic is affecting economic and financial markets and virtually all industries are facing challenges associated with the economic conditions resulting from efforts to address it. Reactions and responses to COVID-19 continue to evolve and change, and developments are highly uncertain and cannot be accurately predicted. New information which may emerge concerning the severity, duration and actions by government authorities to contain the outbreak or manage its impact increase the possibility that circumstances may arise which cause actual results to differ from the estimates applied in these interim consolidated financial statements and such differences may effect FPLP’s future financial position, liquidity and operating results.

Impairment testing requires predicting future revenues and cash flows in addition to other forward information. The outbreak of COVID-19 has resulted in significantly increased risks with respect to predicting future operating results used in FPLP’s impairment testing at September 30, 2021.

4. PENSION PLAN

FPLP participates in a defined benefit multi-employer pension plan. This plan is accounted for as defined contribution plan. FPLP pays contributions to the plan on a contractual basis and has no further payment obligations once the contributions have been paid. The contributions are recognized as an expense in the period when they are earned by the employees. The previous defined benefit plan offered to FPLP’s employees was settled in December 2020.

5. FINANCE COSTS

5. FINANCE COSTS
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2021		2020		2021		2020
Finance Costs
Interest on lease obligations		4		1		7		3
Interest on mortgage loan		4		7		15		22
Interest on term loan		45		61		144		278
Accretion of term loan related to financing costs		7		7		21		19
	$	60	$	76	$	188	$	322

6. DUE FROM RELATED PARTIES

This balance relates to amounts owing from the general partners of FPLP who have agreed to pay FPLP for their respective share of the refundable tax credit for qualifying Canadian Journalism Organizations that they receive. The refundable tax credit for the three and nine months ended September 30, 2021 was $239 and $723, respectively (2020 - $175 and $600) and has been recorded as a reduction to employee compensation costs.

15

FP Canadian Newspapers LP Notes to the Condensed Consolidated Financial Statements For the three and nine months ended September 30, 2021 and 2020 (In thousands of Canadian dollars, except as otherwise noted)

7. LONG-TERM DEBT

The $699 mortgage with Steinbach Credit Union was fully repaid in August 2021 (December 31, 2020 - $733).

The term loan with HSBC Bank Canada matures on January 31, 2023. The loan includes annual principal repayments of $1,000 due annually on June 1 along with a cash sweep equal to 20% of FPLP’s annual distributable cash as defined by HSBC Bank Canada. The cash sweep is to be paid no later than 90 days after the end of each fiscal year. The loan is subject to negative covenants which must be observed to avoid an accelerated termination of the agreement, as well as, a quarterly minimum fixed charge coverage ratio covenant of 1.5 to 1 as measured on a trailing 12-month basis. FPLP is in compliance with all covenants. The variable interest rate is based on a grid determined by the trailing 12-month leverage ratio and at prevailing market rates ranges from 2.55% to 3.55%. The loan is secured by all the assets of the businesses excluding the specific land and buildings secured by a separate mortgage.

8. RELATED PARTY TRANSACTION

Total newsprint purchases from a related company for the three and nine months ended September 30, 2021 were $854 and $2,242, respectively (2020 - $650 and $2,150).

9. PARTNER RETURN OF CAPITAL

Partner distributions totalling $822 and $1,082 related to the Qualifying Journalism Tax Credit previously recorded during the years ended December 31, 2020 and 2019, respectively, have been reclassified as a return of capital to conform with the current period presentation. As a result, the deficit has been reduced by $822 and $1,082 and partners units has decreased by $822 and $1,082 for the years ending December 31, 2020 and 2019, respectively.

10. FINANCIAL INSTRUMENTS

The fair value of current assets and liabilities including cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates their carrying value due to the short-term nature of these financial instruments. At September 30, 2021, the fair value of the HSBC term loan, based on Level 3 fair value hierarchy inputs, is approximately $6,962 (2020 - $9,426). The fair value of the mortgage loan, based on level 3 fair value hierarchy inputs, approximates its carrying value.

FPLP’s financial assets and liabilities are comprised of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease obligations and long-term debt which include the term-loan and mortgage loan.

16