<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
MARCH 31, 2000 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
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TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION PAGE
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Item 1 Unaudited Interim Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at March 31, 2000 and December
31,1999...................................................................... 1
Unaudited Consolidated Statements of Operations for the Three Months Ended
March 31,
2000 and March 31, 1999...................................................... 2
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and March 31,
1999......................................................................... 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................... 10
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds.................................... 11
Item 4 Submission of Matters to a Vote of Security Holders.......................... 11
Item 6 Exhibits and Reports on Form 8-K............................................. 12
SIGNATURE PAGE ...................................................................... 14
</TABLE>
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LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
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Assets
Current Assets:
Cash and cash equivalents $ 2,319 $ 1,860
Accounts receivable, net of allowance
for doubtful accounts of $1,356 and $1,141
in 2000 and 1999, respectively 18,888 19,561
Inventory 2,421 2,130
Prepaid expenses 1,684 507
Other current assets 342 306
--------- ---------
Total current assets 25,654 24,364
Property, plant and equipment, net 43,067 39,356
Intangible assets, net 415,086 402,748
Deferred financing costs, net 10,005 10,475
Other assets 5,496 2,217
--------- ---------
Total assets $ 499,308 $ 479,160
========= =========
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Borrowings under revolving credit facility $ 120,650 $ 99,500
Current portion of long-term liabilities 456 419
Accounts payable 2,644 1,993
Accrued expenses 11,750 14,445
Deferred revenue 8,276 7,801
--------- ---------
Total current liabilities 143,776 124,158
Long-term liabilities:
Senior subordinated notes 180,000 180,000
Senior discount debentures, redemption value $89,000 64,622 62,813
Long-term liabilities, less current portion 1,842 1,499
Deferred income taxes 19,516 17,030
--------- ---------
Total liabilities 409,756 385,500
Senior mandatory redeemable exchangeable cumulative
preferred stock, $0.01 par value, 21,000,000 shares
authorized, 2,159,922 and 2,009,024 issued and
outstanding at March 31, 2000 and December 31, 1999 61,674 59,481
Aggregate involuntary liquidation preference
$25 plus accrued dividends -- --
Junior mandatory redeemable cumulative
preferred stock, $0.01 par value, 175,000
Shares authorized, 55,485 and 52,812 issued and
outstanding at March 31, 2000 and December 31, 1999 60,747 59,266
--------- ---------
Total mandatory redeemable preferred stock 122,422 118,747
Stockholders' equity (deficit)
Common stock, $0.01 par value, 1,655,000 shares
authorized, 1,600,000 issued and 1,572,400 outstanding at
March 31, 2000 16 16
Additional paid in capital 8,189 8,144
Subscriptions receivable (138) (250)
Accumulated deficit (40,687) (32,747)
Treasury stock at cost, 32,000 shares in 1999 (250) (250)
--------- ---------
Total stockholders' equity (deficit) (32,870) (25,087)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 499,308 $ 479,160
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
REVENUES:
Advertising $ 32,225 $ 25,623
Circulation 7,374 6,576
Job printing and other 2,698 2,804
-------- --------
Total revenues 42,297 35,003
OPERATING COSTS AND EXPENSES:
Operating costs 18,176 15,387
Selling, general and 14,604 11,634
administrative
Depreciation and amortization 4,537 3,668
-------- --------
Income from operations 4,980 4,314
Interest expense 8,756 7,143
Amortization of debt issue costs 392 350
-------- --------
Loss before income taxes (4,168) (3,179)
Income taxes 96 --
-------- --------
Net Loss (4,264) (3,179)
======== ========
See accompanying notes to consolidated financial statements.
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LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
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THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
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Cash flows from operating activities:
Net Loss $ (4,264) $ (3,179)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 4,537 3,668
Amortization of debt issue costs 392 350
Accretion of Senior discount notes 1,817 1,615
Non-cash compensation 101 --
Changes in assets and liabilities, net of acquisitions:
Working capital-net (1,582) (2,710)
Other assets -- 54
-------- --------
Net cash flows provided by (used in)
Operating activities 1,001 (202)
-------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (4,757) (990)
Acquisitions, net of cash
Acquired (16,851) (31,659)
-------- --------
Net cash flows used in investing
activities (21,608) (32,649)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit facility 21,150 34,000
Payments on Long Term Liabilities (84)
-------- --------
Net cash provided by (used in)
financing activities 21,066 34,000
-------- --------
Net increase (decrease) in cash and cash
equivalents 459 1,149
Cash and cash equivalents, at
beginning of period 1,860 1,025
-------- --------
Cash and cash equivalents, at
end of period $ 2,319 $ 2,174
======== ========
Supplemental cash flow disclosure -
Cash interest paid 6,939 5,528
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<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 news, print
advertising, and other local content 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
March 31, 2000 and for the three months ended March 31, 2000 and 1999 should be
read in conjunction with the December 31, 1999 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 ("Initial Acquisition"). The effective date
of the Initial Acquisition was January 1, 1998. Since that time, the Company has
purchased an additional 144 publications, for a total of 310 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 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.
(2) BORROWINGS
The Initial Acquisition, including the payment of related fees and expenses, was
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 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
<PAGE> 7
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
March 31, 2000, the Operating Company had utilized $120.7 million of the
Revolving Credit Facility. The average interest rate on these borrowings was
8.85% March 31, 2000. See note 7 for changes pertaining to the Revolving Credit
Facility.
(3) STOCKHOLDERS' EQUITY
LGP has the authority to issue up to 22,830,000 shares of capital stock, of
which 21,175,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 1,655,000 shares are designated as Common Stock, par value $0.01 per
share. The Initial Acquisition, including the payment of related fees and
expenses, was financed in part from the proceeds of (i) $45,000 from the
issuance and sale of 1,800,000 shares of 14.75% Senior Mandatory Redeemable
Exchangeable Cumulative Preferred Stock (the "Senior Preferred Stock"), (ii)
$49,000 from the issuance and sale of 49,000 shares of 10% Junior Mandatory
Redeemable Cumulative Preferred Stock (the "Junior Preferred Stock"), and (iii)
$8,000 from the issuance and sale of 1,600,000 shares of Common Stock. At
December 31, 1999, 100% of the Junior Preferred Stock and 92% of the Common
Stock is owned by Green Equity Investors II, L.P. the controlling stockholder of
the Company. 8% of the Common Stock is owned by the Company's senior management
team.
In February 2000, the Company effected a 20-to-1 stock split of its common
stock, bringing the total shares of common stock issued to 1,600,000. All share
data has been retroactively restated to account for this stock split. The
Company then authorized the issuance of 55,000 additional common shares to be
made available in the form of stock options to local publishers. Management
Investors received 4,400 new shares to eliminate any dilution of their original
holdings that will result from the issuance of shares under the Company's stock
option plan.
The Senior Preferred Stock issued by the 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. The Company has no obligation
to redeem the preferred shares at any time prior to February 1, 2010. 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, plus accrued but unpaid dividends. LGP is dependent upon the cash flows
of the Operating Company to service these redemption requirements.
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. Since inception, the Company has elected to pay all
of its Senior Preferred Dividends in additional shares of Senior Preferred
Stock. At March 31, 2000, the Company had accumulated but undeclared dividends
of $1,479.
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 at a price
equal to 100% of its liquidation preference per share and is mandatorily
redeemable on February 1, 2010 at a price equal to 100% of its Liquidation
preference per share. The Company has no obligations to redeem the preferred
shares at any time prior to February 1, 2010. 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, plus accrued
but unpaid dividends. LGP is dependent upon the cash flows of the Operating
Company to service these redemption requirements.
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. Since inception, the Company has elected to pay all
of its Junior Preferred Dividends
<PAGE> 8
in additional shares of Junior Preferred Stock. At March 31, 2000, the Company
had accumulated but undeclared dividends of $996.
(4) ACQUISITIONS
In the first quarter of 2000, the Company acquired 9 publications in 5
transactions for a total cash purchase cost of $16.9 million, including the
following acquisitions that had a material impact on the Company's results:
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<CAPTION>
Date Purchase Price Description
---- -------------- -----------
<S> <C> <C> <C>
Elko Daily Free Press 1/3/2000 $ 13.2 Purchase of stock and real estate
Other Publications various 3.7 Purchase of stock and assets
--------------
Total purchase price paid $ 16.9
</TABLE>
These acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed accordingly to their fair market
values at the dates of acquisition and amortized. The results of operations are
included in the consolidated financial statements since the dates of
acquisition.
(5) 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 92% of the Common Stock.
(6) RECLASSIFICATIONS
Certain amounts in prior year's financial statements have been reclassified to
conform to the 2000 presentation.
(7) SUBSEQUENT EVENTS
On May 1, 2000, the Company purchased the stock of Downers Grove Reporter, a
group of eight weekly and multi-weekly newspapers with a combined circulation of
69,000, and in a separate transaction on the same date, the stock of Terry
Newspapers, Inc. a group of two weekly and two shopper publications. Also on May
1, 2000, the Company purchased the assets of the McDonough County Shopper and
the Fulton County Shopper.
On April 18, 2000, the Company entered into an agreement to amend and restate
its $175.0 million credit facility. The amendment and restatement extended the
maturity date of the revolving portion ("Amended Revolving Credit Facility") to
March 2005, and included the issuance of a $100 million Term Loan B. The Term
Loan B matures in March 2007, and will require annual principal payments of
$500,000 in 2000, $1,000,000 from 2001 through 2004, $36,125,000 in 2005,
$47,500,000 in 2006, and $11,875,000 in 2007. The Term Loan B and the Amended
Revolving Credit Facility bear interest at the Company's option equal to the
Base Rate (as defined in the amended and restated credit agreement) or the
Eurodollar Rate (as defined in the amended and restated credit agreement) plus a
margin that varies based upon a ration set forth in the amended and restated
credit agreement. There is an individual margin for the Term Loan B and the
Amended Revolving Credit Facility, the company pays a fee equal to the
Applicable Margin or Eurodollar advances (as defined in the amended and restated
credit agreement) per annum on the aggregate amount of outstanding letters of
credit. The Company also pays a fee on the unused portion of the Amended
Revolving Credit Facility. No principal payments are due on the Amended Credit
Facility until the maturity date.
Also on April 18, 2000, the Company raised $7.9 million from the issuance of
524,605 shares of common stock at $15 per share and $22.1 million from the
issuance of 22,131 shares of its 10% Junior Preferred Stock at $1,000 per share.
The proceeds from the equity and Term Loan B were used to pay down the
pre-amended credit facility.
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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 has 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
Liberty Group Publishing, Inc. ("LGP") is a leading publisher of community
newspapers and related publications that are the dominant source of news, print
advertising, and other local content 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 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 ("Initial Acquisition"). The effective date
of the Initial Acquisition was January 1, 1998. Since that time, the Company has
purchased an additional 144 publications, for a total of 310 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 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.
As a result of the depreciation, amortization, and interest expense related
to these acquisitions, the Company has been and anticipates that it will be, for
the foreseeable future, in a tax loss position. 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.
<PAGE> 10
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
Total Revenues. Total revenues for the quarter ended March 31, 2000
increased by $7.3 million, or 20.8%, to $42.3 million from $35.0 million for the
quarter ended March 31, 1999. The increase in total revenues was primarily due
to acquisitions and growth in same store business and was comprised of a $6.6
million increase in advertising revenue and a $0.8 million increase in
circulation revenue, while job printing and other revenue decreased by $0.1
million.
Operating Costs. Operating costs for the quarter ended March 31, 2000 were
$18.2 million which was an increase of $2.8 million over the quarter ended March
31, 1999. This increase was primarily driven by acquisitions and partially
offset by lower newsprint costs. As a percentage of revenue, operating costs
decreased from 44.0% to 43.0%, primarily due to higher sales growth than the
related increase in operating costs and also the operating cost structure of
properties acquired in the last twelve months.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended March 31, 2000 increased by $3.0 million, to
$14.6 million from $11.6 million for the quarter ended March 31, 1999. The
increase in selling, general and administrative expenses during the quarter
ended March 31, 2000 was primarily due to acquisitions. As a percentage of
revenue, selling, general and administrative expenses increased from 33.2% to
34.5%, primarily because properties acquired in the last twelve months had a
higher selling, general and administrative cost structure than existing
properties.
Depreciation and Amortization. Depreciation and amortization expense for
the quarter ended March 31, 2000 increased by $0.9 million, to $4.6 million from
$3.7 million for the quarter ended March 31, 1999, as a result of the
depreciation and amortization of fixed assets and intangible assets acquired and
disposed of during the preceding twelve months.
Interest Expense. Interest expense for the quarter ended March 31, 2000
increased by $1.6 million to $8.8 million from $7.1 million for the quarter
ended March 31, 1999. The increase in interest expense was due to interest on
borrowings used to fund acquisitions and higher interest rates.
EBITDA. EBITDA (which is defined as operating income before interest,
taxes, depreciation and amortization) for the quarter ended March 31, 2000
increased by $1.5 million, to $9.5 million from $8.0 million for the quarter
ended March 31, 1999. The increase in EBITDA during the quarter ended March 31,
2000 was primarily due to operating income generated by acquisitions, same store
revenue growth, and lower newsprint costs.
Net Income (Loss). The Company incurred a net loss of $4.3 million for the
quarter ended March 31, 2000, compared to a net loss of $3.2 million for the
quarter ended March 31, 1999. The $1.1 million increase in net loss is
attributable to increased depreciation, amortization, and interest expense
associated with the acquisitions, which is partially offset by operating income
from acquisitions, same store revenue growth, and lower newsprint costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities. Net cash provided by operating
activities for the three months ended March 31, 2000 increased by $1.2 million
to $1.0 million compared with cash used of ($0.2) million for the three months
ended March 31, 1999. The increase is primarily due to lower receivables, higher
payables and accrued expenses, partially offset by higher interest expense on
the Revolving Credit Facility.
Cash Flows From Investing Activities. Net cash used in investing activities
for the three months ended March 31, 2000 reflects the acquisition of Elko (NV)
Daily Free Press, Magic Valley (ID) Publishing, New Hampton (IA) Tribune &
Advertiser, Dansville-Wayland (NY) Pennysaver, and Plaquemine (LA) Publishing.
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 provided by financing
activities for the three months ended March 31, 2000 reflects borrowings made
under the Company's Revolving Credit Facility to fund acquisition costs. 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.
<PAGE> 11
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.
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 March 31, 2000 was $9.1 million
including non-cash interest of $1.8 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, 2000, 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.
Recent Acquisitions. During the quarter ended March 31, 2000, the Company
purchased all of the stock of Elko Daily Free Press, a 7,900 circulation daily,
and certain real property from Free Press Properties, LLC, located in Elko,
Nevada. The Company also purchased all of the stock of Magic Valley Publishing,
consisting of three weeklies and a shopper, located in Jerome, Idaho. The
Company purchased the assets of New Hampton Tribune & Advertiser, a weekly and a
shopper with circulation of 12,400, located in New Hampton, Iowa. The Company
purchased the assets of the Dansville-Wayland Pennysaver, a shopper publication,
in Dansville, New York. The Company also purchased the stock of Plaquemine
Publishing, located in Plaquemine, Louisiana; a weekly and shopper with
circulation of 16,000.
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. On May 1, 2000, the Company purchased the stock of
Downers Grove Reporter, a group of eight weekly and multi-weekly newspapers with
a combined circulation of 69,000, and in a separate transaction on the same
date, the stock of Terry Newspapers, Inc. a group of two weekly and two shopper
publications. Also on May 1, 2000, the Company purchased the assets of the
McDonough County Shopper and the Fulton County Shopper.
On April 18, 2000, the Company entered into an agreement to amend and
restate its $175 million credit facility. The amendment and restatement extended
the maturity date of the revolving portion ("Amended Revolving Credit Facility")
to March 2005, and included the issuance of a $100 million Term Loan B. The Term
Loan B matures in March 2007, and will require annual principal payments of
$500,000 in 2000, $1,000,000 from 2001 through 2004, $36,125,000 in 2005,
$47,500,000 in 2006, and $11,875,000 in 2007. The Term Loan B and the Amended
Revolving Credit Facility bear interest at the Company's option equal to the
Base Rate (as defined in the amended and restated credit agreement) or the
Eurodollar Rate (as defined in the amended and restated credit agreement) plus a
margin that varies based upon a ratio set forth in the amended and restated
credit agreement. There is an individual margin for the Term Loan B and the
Amended Revolving Credit Facility. Under the terms of the Amended Revolving
Credit Facility, the Company pays a fee equal to the Applicable Margin or
Eurodollar advances (as defined in the amended and restated credit agreement)
per annum on the aggregate amount of outstanding letters of credit. The Company
also pays a fee on the unused portion of the Amended Revolving Credit Facility.
No principal payments are due on the Amended Credit Facility until the maturity
date.
Also on April 18, 2000, the Company raised $7.9 million from the issuance
of 524,605 shares of common stock at $15 a share and $22.1 million from the
issuance 22,131 shares of its 10% Junior Preferred Stock at $1,000 a share. The
proceeds from the equity and Term Loan B were used to pay-down the pre-amended
credit facility.
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
<PAGE> 12
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 March 31, 2000, the Company had borrowed $120.7 million under this Revolving
Credit Facility.
<PAGE> 13
Part II
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 4. Submission of Matters to a Vote of Securities Holders.
None
<PAGE> 14
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2) Financial Data
(b) Reports on form 8-K
None.
<PAGE> 15
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.
May 15, 2000 /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
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