<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1999 333-46957
LIBERTY GROUP PUBLISHING, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-4197635
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 DUNDEE ROAD, SUITE 203 NORTHBROOK, ILLINOIS 60062
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (847) 272-2244
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS, AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------ --------------------- ----
<S> <C> <C>
Item 1 Unaudited Interim Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at September 30, 1999 and December 31,1998...... 1
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and September 30, 1998............................................. 2
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 and September 30, 1998....................................................... 3
Notes to the Unaudited Interim Consolidated Financial Statements...................... 4
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 6
Item 3 Quantitative and Qualitative Disclosures About Market Risk............................ 8
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds............................................. 9
Item 4 Submission of Matters to a Vote of Security Holders................................... 9
Item 6 Exhibits and Reports on Form 8-K...................................................... 9
SIGNATURE PAGE ................................................................................... 10
</TABLE>
<PAGE> 3
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ -- $ 1,025
Accounts receivable, net of allowance
for doubtful accounts of $1,194 and $1,182
in 1999 and 1998, respectively 19,742 15,021
Inventory 1,938 2,200
Prepaid expenses 679 240
Other current assets 644 144
-------- --------
Total current assets 23,003 18,630
Property, plant and equipment, net 35,763 29,283
Intangible assets, net 403,903 350,754
Deferred financing costs, net 10,030 11,347
Other assets -- 54
-------- --------
Total assets $472,699 $410,068
======== ========
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Borrowings under revolving credit facility $ 92,400 $ 46,000
Current portion of long-term liabilities 400 388
Accounts payable 4,997 2,658
Accrued interest 4,272 7,459
Accrued expenses 8,562 7,023
Deferred revenue 6,897 5,777
-------- --------
Total current liabilities 117,528 69,305
Long-term liabilities:
Senior subordinated notes 180,000 180,000
Senior discount debentures, redemption value $89,000 61,072 56,102
Long-term liabilities, less current portion 1,517 1,446
Deferred income taxes 15,691 8,455
-------- --------
Total liabilities 375,808 315,308
Senior mandatory redeemable exchangeable cumulative preferred
stock, $0.01 par value, 21,000,000 shares authorized, 2,239,569
and 2,009,024 issued and outstanding at September 30, 1999 and
December 31, 1998 57,366 51,460
Aggregate involuntary liquidation preference
$25 plus accrued dividends -- --
Junior mandatory redeemable cumulative
preferred stock, $0.01 par value, 175,000
shares authorized, 56,872 and 52,812 issued and
outstanding at September 30, 1999 and December 31, 1998 57,820 53,692
-------- --------
Total mandatory redeemable preferred stock 115,186 105,152
Stockholders' equity(deficit)
Common stock, $0.01 par value, 80,000 shares
authorized, issued and outstanding at September 30, 1999 and
December 31, 1998 1 1
Additional paid in capital 8,160 8,159
Subscriptions receivable (355) (501)
Accumulated deficit (26,101) (18,051)
-------- --------
Total stockholders' equity (deficit) (18,295) (10,392)
-------- --------
Total liabilities and stockholders' equity (deficit) $472,699 $410,068
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30
-------------------------------- ------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES:
Advertising $31,750 $20,889 $86,707 $56,336
Circulation 6,900 5,897 20,250 16,684
Job printing and other 3,428 2,254 9,636 5,550
------- ------- ------- -------
Total revenues 42,078 29,040 116,593 78,570
OPERATING COSTS AND EXPENSES:
Operating costs 18,558 11,818 51,787 31,638
Selling, general and 12,157 9,212 34,554 25,142
administrative
Depreciation and amortization 3,747 3,095 11,093 8,895
------- ------- ------- -------
Income from operations 7,616 4,915 19,159 12,895
Interest expense 8,283 6,142 22,760 17,201
Amortization of debt issue costs 401 349 1,104 932
------- ------- ------- -------
Income (loss) (1,068) (1,576) (4,705) (5,238)
Net gain on exchange and
disposition of assets 6,689 -- 6,689 --
------- ------- ------- -------
Net income (loss) 5,621 (1,576) 1,984 (5,238)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,984 $ (5,238)
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 11,093 8,895
Amortization of debt issue costs 1,104 932
Accretion of Senior discount notes 4,970 4,025
Non-cash Compensation 146 --
Net gain on exchange and disposition of assets (6,689) --
Changes in assets and liabilities, net of acquisitions:
Working capital-net (5,537) 6,081
Other assets 54 415
-------- ---------
Net cash flows provided by operating activities: 7,125 15,110
-------- ---------
Cash flows from investing activities:
Purchases of property, plant
and equipment (3,205) (1,502)
Acquisitions, net of cash
Acquired (51,416) (350,137)
-------- ---------
Net cash flows used in investing
activities (54,621) (351,639)
-------- ---------
Cash flows from financing activities:
Net proceeds from issuing
long-term debt -- 221,217
Net borrowings (repayments) under 46,400 20,000
revolving credit facility
Net proceeds from issuing preferred stock -- 91,750
Net proceeds from issuing common -- 8,000
Stock
Increase in long term liabilities 71 --
-------- ---------
Net cash provided by financing activities 46,471 340,967
-------- ---------
Net increase (decrease) in cash and cash
Equivalents (1,025) 4,438
Cash and cash equivalents, at
beginning of period 1,025 --
-------- ---------
Cash and cash equivalents, at
end of period $ -- $ 4,438
======== =========
Supplemental disclosure of non-cash financing and
investing activities
Accrued dividends on senior mandatory
redeemable exchangeable cumulative
preferred stock $ 5,906 $ 4,630
Accrued dividends on junior mandatory
redeemable cumulative preferred stock $ 4,128 $ 3,382
Net gain on exchange and disposition
of assets $ 6,689 --
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
LIBERTY GROUP PUBLISHING, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY, BASIS OF PRESENTATION AND ACQUISITION
Liberty Group Publishing, Inc. ("LGP") is a leading publisher of community
newspapers and related publications that are the dominant source of local news
and print advertising in their communities. LGP is a holding company for its
wholly-owned subsidiary Liberty Group Operating, Inc ("Operating Company"). The
interim consolidated financial statements include the accounts of LGP and
Operating Company and its consolidated subsidiaries (the "Company").
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying interim consolidated financial statements as of
September 30, 1999 and for the three and nine months ended September 30, 1999
and 1998 should be read in conjunction with the December 31, 1998 audited
consolidated financial statements of the Company included in the Company's Form
10-K filed with the Securities and Exchange Commission.
The Company began operations on January 27, 1998, upon the acquisition of
virtually all of the assets and certain liabilities that were used primarily in
the business of publishing, marketing and distributing a total of 166 community
newspapers and related publications. The effective date of the initial
acquisition was January 1, 1998. Through September 30, 1999, the Company has
purchased an additional 124 publications, net of 7 dispositions, for a total of
290 publications in 16 states across the United States.
The Company has accounted for these acquisitions using the purchase method of
accounting. Accordingly, the costs of each acquisition have been allocated to
the assets acquired and liabilities assumed based upon their respective fair
values using independent valuations where appropriate. The costs of certain
intangible assets acquired are being amortized over periods ranging from 5 to 40
years.
(2) BORROWINGS
The acquisitions, including the payment of related fees and expenses, were
financed in part from the proceeds of $180.0 million from the issuance and sale
by the Operating Company of $180.0 million aggregate principal amount of 9.375%
Senior Subordinated Notes (the "Notes") due February 1, 2008 and the proceeds of
$50.5 million from the issuance and sale by LGP of $89.0 million aggregate
principal amount of 11.625% Senior Discount Debentures (the "Debentures") due
February 1, 2009.
The Notes were issued by the Operating Company and are general unsecured
obligations of the Operating Company. The Notes are irrevocably and
unconditionally joint and severally guaranteed by each of the Operating
Company's existing and future subsidiaries. The Notes are redeemable for cash at
the option of the Operating Company anytime after February 1, 2003 at stipulated
redemption amounts or, in certain limited circumstances, are partially
redeemable on or prior to February 1, 2001 at a redemption amount of 109.375% of
their principal amount. In the event of a change in control of the Operating
Company or the Company, the Company must offer to repurchase the Notes at 101%
of their principal amount.
The Debentures issued by LGP are general unsecured obligations and pay no cash
interest until February 1, 2003. The Debentures will, however, accrete on a
semi-annual equivalent bonds basis to a full principal amount of $89.0 million
on February 1, 2003. Thereafter, cash interest on the Debentures will accrue and
be payable semi-annually on February 1 and August 1 of each year. The Debentures
are redeemable for cash at the option of LGP any time after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
111.625% of their accreted value. In the event of a change in control of LGP,
LGP must offer to repurchase the Debentures at 101% of their accreted value.
The Operating Company has in place a $175.0 million revolving credit facility
(the "Revolving Credit Facility"). The Revolving Credit Facility is secured by
substantially all of the tangible and intangible assets of the Operating
Company. Borrowings under the revolving credit facility bear interest at an
annual rate, at the Company's option equal to the Base Rate (as defined in the
credit agreement) or the Eurodollar Rate (as defined in the credit agreement)
plus a margin that varies based upon a ratio set forth in
4
<PAGE> 7
the credit agreement (the "Applicable Margin"). Under the terms of the Revolving
Credit Facility, the Company pays a fee equal to the Applicable Margin for
Eurodollar Rate Advances (as defined in the credit agreement) per annum on the
aggregate amount of outstanding letters of credit. The Operating Company also
pays a fee on the unused portion of the Revolving Credit Facility. No principal
payments are due on the Revolving Credit Facility until the maturity date
January 27, 2003. At September 30, 1999, the Operating Company has utilized
$92.4 million of the Revolving Credit Facility.
(3) STOCKHOLDERS' EQUITY (DEFICIT)
LGP has the authority to issue up to 21,255,000 shares of capital stock, of
which 21,175,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 80,000 shares are designated as Common Stock, par value $0.01 per
share. The Company's initial capitalization consisted of (i) $45.0 million from
the issuance and sale of 1.8 million shares of 14.75% Senior Mandatory
Redeemable Exchangeable Cumulative Preferred Stock (the "Senior Preferred
Stock"), (ii) $49.0 million from the issuance and sale of 49,000 shares of 10%
Series B Junior Mandatory Redeemable Cumulative Preferred Stock (the "Junior
Preferred Stock"), and (iii) $8.0 million from the issuance and sale of 80,000
shares of Common Stock. 10% of the Common Stock is owned by the Company's senior
management team.
The Senior Preferred Stock issued by LGP Company is senior to the Common Stock
and Junior Preferred Stock of the Company, with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of the Company. Dividends may be paid, at the Company's option, at any dividend
payment date in cash or in additional shares of Senior Preferred Stock having a
liquidation preference equal to the dividend amount. The liquidation preference
of the Senior Preferred Stock is $25 per share. The Senior Preferred Stock is
redeemable at the option of the Company any time after February 1, 1999 at
stipulated redemption amounts and is mandatorily redeemable, subject to certain
conditions, on February 1, 2010 at a price equal to 100% of its liquidation
preference per share. In the event of a change in control of the Company, the
Company must offer to repurchase the Senior Preferred Stock at 100% of its
liquidation preference per share. Except as required by law, the holders of
shares of Senior Preferred Stock are generally not entitled or permitted to vote
on any matters voted upon by the stockholders of the Company. Subject to certain
conditions, the Senior Preferred Stock is exchangeable, on any dividend payment
date, in whole, but not in part, at the option of the Company for 14.375% Senior
Subordinated Debentures (the "Exchange Debentures") of the Company maturing
February 1, 2010. The Exchange Debentures are redeemable prior to maturity on
substantially the same terms as the Senior Preferred Stock.
To date, the Company has elected to pay all of its Senior Preferred Dividends in
additional shares of Senior Preferred Stock. At September 30, 1999, the Company
had accumulated but undeclared dividends of $1,376.
The Junior Preferred Stock issued by LGP is senior to the Common Stock of LGP,
with respect to dividend distributions and distributions upon the liquidation,
winding up or dissolution of the Company. Dividends may be paid, at the
Company's option, at any dividend payment date in cash or in additional shares
of Junior Preferred Stock having a liquidation preference equal to the dividend
amount. The Junior Preferred Stock is redeemable at the option of the Company in
2010 at a price equal to 100% of its liquidation preference per share and is
mandatory redeemable on February 1, 2010 at a price equal to 100% of its
liquidation preference per share. In the event of a change in control of the
Company, the Company must offer to repurchase the Junior Preferred Stock at 100%
of its liquidation preference per share. Except as required by law, the holders
of shares of Junior Preferred Stock are generally not entitled or permitted to
vote on any matters voted upon by the stockholders of the Company.
To date, the Company has elected to pay all of its Junior Preferred Dividends in
additional shares of Junior Preferred Stock. At September 30, 1999, the Company
had accumulated but undeclared dividends of $948.
(4) RELATED PARTY TRANSACTIONS
On January 27, 1998 the Company entered into a Management Agreement with Leonard
Green & Partners, L.P. ("Green"), the principal stockholder of LGP; whereby,
Green will provide management, consulting and financial planning services to the
Company for an annual management fee of $1.0 million. Green owns 100% of the
Junior Preferred Stock and 90% of the Common Stock.
(5) RECLASSIFICATIONS
Certain amounts in prior year's financial statements have been reclassified to
conform to the 1999 presentation.
(6) SUBSEQUENT EVENTS
The following newspapers were acquired by the Company subsequent to September
30, 1999:
<TABLE>
<CAPTION>
TITLE LOCATION TYPE OF PAPER CIRCULATION
- ----- -------- ------------- -----------
<S> <C> <C> <C>
Star Courier Kewanee, IL Daily 5,756
Star Extra Kewanee, IL Shopper 5,000
Atkinson-Annawan News Kewanee, IL Weekly 2,200
Henry County Advertizer Geneseo, IL Shopper 17,881
Ottumwa Courier Ottumwa, IA Daily 18,000
Wapello County Shopper Ottumwa, IA Shopper 20,000
Forever Young Ottumwa, IA Magazine 11,600
Area Visitors Guide Ottumwa, IA Magazine 20,000
Neighbors Ottumwa, IA Tab 10,000
Homes Ottumwa, IA Tab 4,000
Times Record Aledo, IL Weekly 3,000
Town Crier Aledo, IL Shopper 11,917
Eldora Herald-Ledger Eldora, IA Weekly 2,600
Hardin County Index Eldora, IA Weekly 2,600
Times-Plain Dealer Cresco, IA Weekly 3,450
The Extra Cresco, IA Shopper 7,255
</TABLE>
The following newspapers were disposed by the Company subsequent to September
30, 1999:
<TABLE>
<CAPTION>
TITLE LOCATION TYPE OF PAPER CIRCULATION
- ----- -------- ------------- -----------
<S> <C> <C> <C>
Daily Sun Beatrice, NE Daily 8,500
Penny Press 5 Beatrice, NE Shopper 18,500
Plug Nickel Beatrice, NE Shopper 9,000
Weekender Beatrice, NE Weekly 22,000
Sunland Beatrice, NE Shopper 14,500
The Atchison Daily Globe Atchison, KS Daily 3,500
Atchison Area Advertiser Atchison, KS Shopper 3,800
</TABLE>
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of the Company, including the notes thereto which have been
summarized in the Company's Annual Report on Form 10-K, SEC file number
333-46957. Certain information in this section includes forward-looking
statements pertaining to, among other things, competition in its markets,
availability of adequate acquisition opportunities, price and availability of
newsprint, significant use of leverage, general economic conditions, and
environmental matters.
OVERVIEW
The Company is a leading publisher of community newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. As of September 30, 1999, the Company owned 290 publications,
including 67 daily newspapers and 123 paid weekly newspapers, in 16 states.
Revenues are derived from advertising (73% of 1998 total revenues), circulation
(20%), and job printing and other (7%).
The Company's primary operating costs and expenses are comprised of
operating costs and selling, general and administrative expenses. Salaries and
employee benefits are the Company's largest operating costs. The Company has
been able to control salaries and employee benefit expenses by realizing
efficiencies from the implementation of new technologies and the achievement of
synergies from its strategy of clustering its newspaper operations.
The Company began operations on January 27, 1998, upon the acquisition of
virtually all of the assets and certain liabilities that were used primarily in
the business of publishing, marketing and distributing a total of 166 community
newspapers and related publications. The effective date of the initial
acquisition was January 1, 1998. Since that time, the Company has purchased an
additional 124 publications, net of 7 dispositions, for a total of 290
publications in 16 states across the United States.
The Company has accounted for these acquisitions using the purchase method
of accounting. Accordingly, the cost of each acquisition has been allocated to
the assets acquired and liabilities assumed based upon their respective fair
values using independent valuations where appropriate. The costs of certain
intangible assets acquired are being amortized over periods ranging from 5 to 40
years.
Although the quarter ended September 30, 1999 resulted in a net income
position, the Company anticipates that in the forseeable future it will be in a
tax loss position due to depreciation, amortization, and interest expense
related to acquisitions. Given the uncertainty as to the timing of the Company's
ability to utilize such losses to offset future taxable income, the Company does
not presently anticipate recording any tax benefit associated with its pre-tax
losses.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Total Revenues. Total revenues for the quarter ended September 30, 1999
increased by $13.1 million, or 45%, to $42.1 million from $29.0 million for the
quarter ended September 30, 1998. The increase in total revenues for the quarter
was comprised of a $10.9 million increase in advertising revenue, a $1.0 million
increase in circulation revenue, and a $1.2 million increase in job printing and
other revenue. Total revenues for the nine months ended September 30, 1999
increased by $38.0 million, or 48%, to $116.6 million from $78.6 million as of
September 30, 1998. The increase in total revenues was primarily due to
acquisitions, as well as revenue growth from existing properties and was
comprised of a $30.4 million increase in advertising revenue and a $3.6 million
increase in circulation revenue, while job printing and other revenue increased
by $4.0 million.
Operating Costs. Operating costs for the quarter ended September 30, 1999
were $18.6 million which was an increase of $6.8 million over the quarter ended
September 30, 1998. Total Operating costs, for the nine months ended September
30, 1999 increased by $20.2 million, to $51.8 million from $31.6 million as of
September 30, 1998. This increase was primarily driven by acquisitions. As a
percentage of revenue, for the quarter ended September 30, 1999, operating costs
increased from 40.7% to 44.1%, primarily because properties acquired subsequent
to September 30, 1998 had a higher cost structure than existing properties.
6
<PAGE> 9
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended September 30, 1999 increased by $3.0 million, to
$12.2 million from $9.2 million for the quarter ended September 30, 1998. For
the nine months ended September 30, 1999, selling, general and administrative
expenses increased by $9.5 million to $34.6 million from $25.1 million as of
September 30, 1998. The increase in selling, general and administrative expenses
during the quarter ended September 30, 1999 was primarily due to acquisitions.
As a percentage of revenue, for the quarter ended September 30, 1999, selling,
general and administrative expenses decreased from 31.7% to 28.9%, primarily
because properties acquired subsequent to September 30, 1998 had a lower cost
structure than existing properties.
Depreciation and Amortization. Depreciation and amortization expense for the
quarter ended September 30, 1999 increased by $0.6 million, to $3.7 million from
$3.1 million for the quarter ended September 30, 1998, as a result of the
depreciation and amortization of fixed assets and intangible assets acquired
during the period. For the nine months ended September 30, 1999, depreciation
and amortization expense increased by $2.2 million to $11.1 million from $8.9
million as of September 30, 1998 primarily because of properties acquired
subsequent to September 30, 1998.
Interest Expense. Interest expense for the quarter ended September 30, 1999
increased by $2.2 million to $8.3 million from $6.1 million for the quarter
ended September 30, 1998. For nine months ended on September 30, 1999, interest
expense increased $5.6 million to $22.8 million from $17.2 million as of
September 30, 1998. The increase in interest expense was primarily due to
interest on borrowings used to fund acquisitions subsequent to September 30,
1998, as well as higher interest rates on the revolving credit facility.
EBITDA. EBITDA (which is defined as operating income before interest, taxes,
depreciation and amortization) for the quarter ended September 30, 1999
increased by $3.4 million, to $11.4 million from $8.0 million for the quarter
ended September 30, 1998. For nine months ended on September 30, 1999, EBITDA
increased $8.5 million, to $30.3 million from $21.8 million as of September 30,
1998. The increase in EBITDA during the quarter ended September 30, 1999 was
primarily due to operating income generated by acquisitions, higher sales
volume, and lower newsprint costs.
Net Income (Loss). The Company recognized net income of $5.6 million for the
quarter ended September 30, 1999, compared to a net loss of $1.6 million for the
quarter ended September 30, 1998. The $7.2 million increase in net income is
primarily due to higher sales volume, lower newsprint costs, and earnings from
new acquisitions, as well as a net gain from the exchange of properties with
Newspaper Holdings, Inc. and the disposition of the Atchison Daily Globe. For
the nine months ended September 30, 1999, the Company recognized net income of
$2.0 million, compared to a net loss of $5.2 million for the nine months ended
September 30, 1998. The $7.2 million increase in net income is attributable to
higher sales volume, lower newsprint costs, earnings from new acquisitions, and
net gains from the exchange and disposition of assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities. Cash flows from operating activities
for the nine months ended September 30, 1999 decreased by $8 million to $7.1
million compared with cash provided of $15.1 million for the nine months ended
September 30, 1998. The decrease is primarily due to only one payment of
semi-annual interest on Operating Company's 9.375% Subordinated notes in 1998
and higher receivables.
Cash Flows From Investing Activities. Net cash used in investing activities for
the nine months ended September 30, 1999 reflects the acquisitions of Life
Printing & Publishing, Inc., Halsted Shopper, Missouri Ozarks, Press Republican,
the Maryville Daily Forum, Glen News Printing, and Maverick Media as well as
the exchange of properties with Newspaper Holdings, Inc., and the disposition of
the Atchison Daily Globe. The Company's capital expenditures consist of the
purchase of machinery, equipment, furniture and fixtures relating to its
publishing operations. The Company has no material commitments for capital
expenditures. The Company will continue to pursue its strategy of
opportunistically purchasing community newspapers in contiguous markets and
clusters of community newspapers in new markets. The Company will only pursue
acquisitions that it believes would contribute to the Company's overall cash
flow growth.
Cash Flows From Financing Activities. Net cash flows from financing
activities for the nine months ended September 30, 1999 reflects borrowings made
under the Company's Revolving Credit Facility to fund acquisition costs.
Dividends payable on the Senior Preferred Stock and the Junior Preferred Stock
may be paid, at the Company's option, in cash or in additional shares of the
respective Stock having a liquidation preference equal to the dividend amount.
To date, the Company has elected to pay all of its Dividends in additional
shares of Stock. The Company is subject to certain covenants that limit its
ability to pay dividends and make other restricted payments and does not expect
to pay cash dividends in the foreseeable future.
Liquidity. The Company's principal sources of funds will be cash provided by
operating activities and borrowings under its Revolving Credit Facility. The
Company believes that such funds will provide the Company with sufficient
liquidity and capital resources to meet its current and financial obligations
for the foreseeable future. See Note 2 to the Unaudited Consolidated Financial
Statements for a summary of the terms of the Revolving Credit Facility.
7
<PAGE> 10
LGP is highly leveraged and has indebtedness that is substantial in relation
to its stockholders' deficit, tangible equity and cash flow. Total interest
expense for the three months ended September 30, 1999 was $8.3 million including
non-cash interest of $1.7 million and amortization of debt issuance costs of
$0.4 million. The degree to which LGP is leveraged could have important
consequences, including the following: (i) for the fiscal year ending December
31, 1999, a substantial portion of the Company's cash flow from operations must
be dedicated to the payment of interest on the Notes and interest on its other
indebtedness, thereby reducing the funds available to the Company for other
purposes; (ii) indebtedness under the Revolving Credit Facility is at variable
rates of interest, which causes the Company to be vulnerable to increases in
interest rates; (iii) the Company is substantially more leveraged than certain
of its competitors, which might place the Company at a competitive disadvantage;
(iv) the Company may be hindered in its ability to adjust rapidly to changing
market conditions; (v) the Company's substantial degree of leverage could make
it more vulnerable in the event of a downturn in general economic condition or
other adverse events in its business; and (vi) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions or
general corporate purposes may be impaired.
Year 2000. The Company has implemented a program to assess, remediate and
mitigate the potential impact of the Year 2000 problem throughout the Company. A
Year 2000 problem will occur where date-sensitive software uses two digit year
date fields, sorting the year 2000 ("00") before the year 1999 ("99"). The Year
2000 problem can arise in software, technology equipment, or any other equipment
or process that uses embedded software, resulting in data corruption and
processing errors.
The Company has evaluated its internal software and computer systems and
believes its costs associated with addressing the risk of operational disruption
from internal software systems failures relating to Year 2000 issues will be
approximately $0.4 million in 1999.
Management believes that the Company's systems will be substantially Year
2000 ready prior to the commencement of the Year 2000. The Company should not
have a material business risk from such Year 2000 issues provided the Company's
suppliers, vendors, service providers and customers, over which the Company has
no control, successfully address their own Year 2000 issues. The Company has
assessed and will continue to monitor its suppliers, vendors, service providers
and customers Year 2000 remediation efforts.
Recent Acquisitions. In pursuit of its strategy to acquire community
publications, the Company recently consummated several acquisitions. On July 1,
1999, the Company acquired the assets of Missouri Ozarks Publishing, a group of
shopper publications in Osage Beach, MO with circulation of approximately
49,000. On July 1, 1999, the Company purchased the stock of Press Republican, a
group of weekly newspapers in the Chicago suburbs, with a combined circulation
of approximately 32,000. On July 31, 1999, the Company purchased the stock of
Glen News, a group of weekly newspapers in the Chicago suburbs, with a combined
circulation of approximately 24,000. On July 31, 1999, the Company acquired the
assets of the Maryville Daily Forum, a daily publication with circulation of
approximately 4,200. On July 1, 1999, the Company traded seven Pennsylvania
properties for Moberly, MO; Joplin, MO; Beatrice, NE; Oswego, NY; Pratt, KS;
Donaldsonville, LA and Bastrop, LA. On September 1, 1999, the Company acquired
the assets of Penny Press 2 and The Gentry County Shopper, located in Maryville,
MO, with circulation of 19,600 and 13,000, respectively. Each of these purchases
will be accounted for using the purchase method of accounting.
Safe Harbor Provision. This Form 10-Q contains "forward-looking statements,"
which can be identified by the use of forward-looking terminology, such as
"may," "intend," "will," "expect," "anticipate," "estimate," "seek," or
"continue" or the negative thereof or other variations thereon or comparable
terminology. In particular, any statements, expressed or implied, concerning the
future operating results or the ability to generate revenues, income or cash
flow are forward-looking statements. Although LGP believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been accurate. LGP disclaims
any obligation to update any such forward-looking statements or to publicly
announce results of any revisions to any of the forward-looking statements
contained in this Form 10-Q to reflect future events or developments. All
forward-looking statements are expressly qualified by such cautionary
statements. Actual results could differ materially and adversely from the
forward-looking statements as a result of, among other things, competition in
the Company's markets, availability of attractive acquisition opportunities,
price and availability of newsprint, the Company's significant use of leverage,
general economic conditions and environmental matters.
Subsequent Events.
The following newspapers were acquired by the Company subsequent to September
30, 1999:
<TABLE>
<CAPTION>
TITLE LOCATION TYPE OF PAPER CIRCULATION
- ----- -------- ------------- -----------
<S> <C> <C> <C>
Star Courier Kewanee, IL Daily 5,756
Star Extra Kewanee, IL Shopper 5,000
Atkinson-Annawan News Kewanee, IL Weekly 2,200
Henry County Advertizer Geneseo, IL Shopper 17,881
Ottumwa Courier Ottumwa, IA Daily 18,000
Wapello County Shopper Ottumwa, IA Shopper 20,000
Forever Young Ottumwa, IA Magazine 11,600
Area Visitors Guide Ottumwa, IA Magazine 20,000
Neighbors Ottumwa, IA Tab 10,000
Homes Ottumwa, IA Tab 4,000
Times Record Aledo, IL Weekly 3,000
Town Crier Aledo, IL Shopper 11,917
Eldora Herald-Ledger Eldora, IA Weekly 2,600
Hardin County Index Eldora, IA Weekly 2,600
Times-Plain Dealer Cresco, IA Weekly 3,450
The Extra Cresco, IA Shopper 7,255
</TABLE>
The following newspapers were disposed by the Company subsequent to September
30, 1999:
<TABLE>
<CAPTION>
TITLE LOCATION TYPE OF PAPER CIRCULATION
- ----- -------- ------------- -----------
<S> <C> <C> <C>
Daily Sun Beatrice, NE Daily 8,500
Penny Press 5 Beatrice, NE Shopper 18,500
Plug Nickel Beatrice, NE Shopper 9,000
Weekender Beatrice, NE Weekly 22,000
Sunland Beatrice, NE Shopper 14,500
The Atchison Daily Globe Atchison, KS Daily 3,500
Atchison Area Advertiser Atchison, KS Shopper 3,800
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's subsidiary, Liberty Group Operating, Inc. has a $175.0 million
Revolving Credit Facility that matures in January of 2003. Borrowings under the
Revolving Credit Facility bear interest at an annual rate, at the Company's
option equal to the Base Rate (as defined in the Credit Agreement) or the
Eurodollar Rate (as defined in the Credit Agreement) plus a margin that varies
based upon a ratio set forth in the Credit Agreement. As a result the Company's
interest expense will be affected by changes in the Base Rate or in the
Eurodollar Rate. At September 30, 1999, the Company had borrowed $92.4 million
under this Revolving Credit Facility.
8
<PAGE> 11
Part II
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 4. Submission of Matters to a Vote of Securities Holders.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2) Financial Data
(b) Reports on Form 8-K
On July 16, 1999, the Company filed a Form 8-K with respect to its
exchange of newspapers with Newspaper Holdings, Inc. On September 14,
1999 the Company filed an Amendment to its Form 8-K with respect to its
exchange of newspapers with Newspaper Holdings, Inc. The following
financial statements were included in the 8-K in respect of the acquired
newspapers: Statement of Net Assets, Statement of Income, Statement of
Changes in Net Assets, Statement of Cash Flows.
On October 15, 1999, the Company filed a Form 8-K with respect to its
acquisitions and exchange with Lee Enterprises.
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to by signed on its behalf by the
undersigned thereunto duly authorized.
DATE: LIBERTY GROUP PUBLISHING,
INC.
November 15, 1999 /s/ Kenneth L. Serota
Kenneth L. Serota
President and Chief
Executive
Officer
/s/ Kevin O'Shea
Kevin O'Shea
Senior Vice President and
Chief Financial Officer
Principal Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the balance sheet as
of September 30, 1999 and the statement of operations for the nine months ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,936
<ALLOWANCES> (1,194)
<INVENTORY> 1,938
<CURRENT-ASSETS> 23,003
<PP&E> 45,232
<DEPRECIATION> (9,469)
<TOTAL-ASSETS> 472,699
<CURRENT-LIABILITIES> 117,528
<BONDS> 448,658
57,366
57,820
<COMMON> 1
<OTHER-SE> (355)
<TOTAL-LIABILITY-AND-EQUITY> 472,699
<SALES> 116,593
<TOTAL-REVENUES> 116,593
<CGS> 51,787
<TOTAL-COSTS> 51,787
<OTHER-EXPENSES> 45,647
<LOSS-PROVISION> 446
<INTEREST-EXPENSE> 22,760
<INCOME-PRETAX> 1,984
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,984
<EPS-BASIC> 24.80
<EPS-DILUTED> 24.80
</TABLE>
