<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
June 30, 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 [ ]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I -- FINANCIAL INFORMATION PAGE
Item 1 Unaudited Interim Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 ................ 1
Unaudited Consolidated Statements of Operations for the the
Three and Six Months Ended June 30, 2000
............................................................................................ 2
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000
............................................................................................ 3
Notes to the Unaudited Interim Consolidated Financial Statements ............................ 4
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ....... 7
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 ............................................................ 11
Signature Page ..................................................................................... 12
</TABLE>
<PAGE> 3
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 2,168 $ 1,860
Accounts receivable, net of allowance
for doubtful accounts of $1,648 and $1,141
in 2000 and 1999, respectively ................................ 21,168 19,561
Inventory ..................................................... 2,323 2,130
Prepaid expenses .............................................. 1,602 507
Other current assets .......................................... 287 306
--------- ---------
Total current assets ............................................... 27,548 24,364
Property, plant and equipment, net ................................. 50,772 39,356
Acquisitions in progress ........................................... 40,748 --
Intangible assets, net ............................................. 426,735 402,748
Deferred financing costs, net ...................................... 12,549 10,475
Other assets ....................................................... 395 2,217
--------- ---------
Total assets ....................................................... $ 558,747 $ 479,160
========= =========
Liabilities and stockholders' equity (deficit) Current Liabilities:
Borrowings under revolving credit facility ......................... $ 44,000 $ 99,500
Current portion of long-term liabilities ........................... 456 419
Accounts payable ................................................... 2,424 1,993
Accrued expenses ................................................... 16,067 14,445
Deferred revenue ................................................... 8,302 7,801
--------- ---------
Total current liabilities ............................................... 71,249 124,158
Long-term liabilities:
Term loan B ........................................................ 100,000 --
Senior subordinated notes .......................................... 180,000 180,000
Senior discount debentures, redemption value $89,000 ............... 66,464 62,813
Long-term liabilities, less current portion ........................ 1,577 1,499
Deferred income taxes .............................................. 21,790 17,030
--------- ---------
Total liabilities ....................................................... 441,080 385,500
Senior mandatory redeemable exchangeable cumulative preferred stock,
$0.01 par value, 21,000,000 shares authorized, 2,496,569 and
2,322,153 issued and outstanding at June 30, 2000 and December 31,
1999 Aggregate involuntary liquidation preference
$25 plus accrued dividends ....................................... 63,949 59,481
Junior mandatory redeemable cumulative
preferred stock, $0.01 par value, 250,000
Shares authorized, 83,450 and 58,294 issued and
outstanding at June 30, 2000 and December 31, 1999 ............... 84,919 59,266
--------- ---------
Total mandatory redeemable preferred stock .............................. 148,868 118,747
Stockholders' equity
Common stock, $0.01 par value, 2,655,000 shares
authorized, 2,157,005 issued, and 2,125,005 outstanding at
June 30, 2000 and 1,600,000 shares authorized, 1,600,000
issued, and 1,568,000 outstanding at December 31, 1999 ...........
22 16
Additional paid in capital ......................................... 15,741 8,144
Subscriptions receivable ........................................... (198) (250)
Accumulated deficit ................................................ (46,516) (32,747)
Treasury stock at cost, 32,000 shares in 2000 and 1999 ............. (250) (250)
--------- ---------
Total stockholders' equity (deficit) ............................... (31,201) (25,087)
--------- ---------
Total liabilities and stockholders' equity (deficit) .................... $ 558,747 $ 479,160
========= =========
</TABLE>
See accompanying notes to unaudited 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Advertising ................. $ 37,449 $ 29,383 $ 69,674 $ 55,011
Circulation ................. 7,779 6,774 15,153 13,350
Job printing and other ...... 3,214 3,354 5,913 6,153
-------- -------- -------- --------
Total revenues ................... 48,442 39,511 90,740 74,514
OPERATING COSTS AND EXPENSES:
Operating costs ............. 19,856 16,457 38,033 31,844
Selling, general and ........ 15,575 12,147 30,178 23,781
administrative
Depreciation and amortization 4,721 3,678 9,258 7,346
-------- -------- -------- --------
Income from operations ........... 8,290 7,229 13,271 11,543
Interest expense ................. 9,271 7,334 18,027 14,477
Amortization of debt issue costs 448 367 841 717
-------- -------- -------- --------
Loss before income taxes ......... (1,429) (472) (5,597) (3,651)
Income taxes ..................... 163 -- 260 --
-------- -------- -------- --------
Net loss ......................... (1,592) (472) (5,857) (3,651)
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 5
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (5,857) $ (3,651)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization ............................... 9,258 7,346
Amortization of debt issue costs ............................ 840 717
Accretion of senior discount notes .......................... 3,670 3,261
Non-cash compensation ....................................... 122 92
Changes in assets and liabilities, net of acquisitions:
Working capital-net ......................................... 570 (1,547)
Other assets ................................................ -- 54
--------- ---------
Net cash flows provided by
operating activities ............................................ 8,603 6,272
--------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equipment (including print
facility).................................................... (5,414) (2,140)
Acquisitions, net of cash
acquired .................................................... (73,763) (33,180)
--------- ---------
Net cash flows used in investing
activities ...................................................... (79,177) (35,320)
--------- ---------
Cash flows from financing activities:
Net borrowings under
revolving credit facility ................................... 66,350 29,350
Net proceeds from issuing
preferred stock ............................................. 22,131 --
Net proceeds from issuing
common stock ................................................ 7,419 --
Net proceeds from issuing
long term debt .............................................. 97,158 --
Net increase (decrease) in
long term liabilities ....................................... (326) 175
Extinguishment of debt on prior
revolving credit facility ................................... (121,850) --
--------- ---------
Net cash flows provided by
financing activities ............................................ 70,882 29,525
--------- ---------
Net increase in cash and cash
equivalents ..................................................... 308 477
Cash and cash equivalents, at
beginning of period ............................................. 1,860 1,025
--------- ---------
Cash and cash equivalents, at
end of period ................................................... $ 2,168 $ 1,502
========= =========
Supplemental cash flow disclosures -
Cash interest paid .............................................. 14,357 11,217
Other Assets transferred to property, plant, and equipment (New
Print Facility) ...................................................... 1,798 --
</TABLE>
See accompanying notes to unaudited 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 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
June 30, 2000 and for the three and six months ended June 30, 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 157 publications, for a total of 331 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. LGP
is dependent upon the cash flows of the Operating Company to service these debt
requirements.
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 credit facility ("Amended Revolving Credit
Facility") from January 2003 to March 2005, and included the issuance of a
$100.0 million Term Loan B. The Term Loan B matures in March 2007, and will
require annual principal payments of $0.5 million in 2000, $1.0 million from
2001 through 2004, $36.1 million in 2005, $47.5 million in 2006, and $11.9
million 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.
The Company pays a fee equal to the Applicable Margin or Eurodollar advances (as
defined in the amended
4
<PAGE> 7
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.
(3) STOCKHOLDERS' EQUITY
LGP has the authority to issue up to 23,905,000 shares of capital stock, of
which 21,250,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 2,655,000 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) $45.0 million 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)
$49.0 million from the issuance and sale of 49,000 shares of 10% Junior
Mandatory Redeemable Cumulative Preferred Stock (the "Junior Preferred Stock"),
and (iii) $8.0 million from the issuance and sale of 1,600,000 shares of Common
Stock.
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 June 30, 2000, the Company had accumulated but undeclared dividends of
$1,534.
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 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 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.
On April 18, 2000, the Company raised approximately $7.9 million from the
issuance of 524,605 shares of common stock at $15 per share and approximately
$22.1 million from the issuance of 22,131 shares of its Junior Preferred Stock
to Green Equity Investors III, LP at $1,000 per share.
5
<PAGE> 8
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 in additional shares of Junior Preferred
Stock. At June 30, 2000, the Company had accumulated but undeclared dividends of
$1,391.
At June 30, 2000, 100% of the Junior Preferred Stock and 92% of the Common Stock
is owned by Green Equity Investors II, L.P. and Green Equity Investors III,
L.P., the controlling stockholders of the Company. 8% of the Common Stock is
owned by the Company's senior management team.
(4) ACQUISITIONS
In the first six months of 2000, the Company acquired 30 publications in 9
transactions for a total cash purchase cost of $73.8 million, including the
following acquisitions that had a material impact on the Company's results:
<TABLE>
<CAPTION>
DATE PURCHASE PRICE DESCRIPTION
-------- -------------- ---------------------------------
<S> <C> <C> <C>
Elko Daily Free Press....................... 1/3/2000 $ 13.2 Purchase of stock and real estate
Downers Grove Reporter-Progress............. 5/1/2000 11.5 Purchase of stock and assets
Adrian, Coldwater and Sturgis, Michigan..... 6/30/2000 40.7 Purchase of assets
Other Publications.......................... Various 8.4 Purchase of stock and assets
--------
Total purchase price paid................... $ 73.8
</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 values at the
dates of acquisition and amortized. The results of operations are included in
the consolidated financial statements since the dates of acquisition.
The following unaudited pro forma financial information presents the Company's
results of operations as if the acquisitions accounted for as purchases had
occurred at the beginning of the respective year. This summary is provided for
informational purposes only. It does not reflect the actual results that would
have occurred had the acquisitions been made as of the beginning of the
respective years or of results that may occur in the future.
Six Months Ended
June 30, 2000 June 30, 1999
-------------- --------------
Revenues.................................. $101,441 $85,213
Net Loss.................................. ($5,605) ($3,399)
(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.
(6) RECLASSIFICATIONS
Certain amounts in prior year's financial statements have been reclassified to
conform to the 2000 presentation.
(7) SUBSEQUENT EVENT
On August 2, 2000, the Company purchased the assets of the McGraw Publishing
Company, which includes a group of seven weekly publications.
6
<PAGE> 9
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 157 publications, for a total of 323 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.
7
<PAGE> 10
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 1999
Total Revenues. Total revenues for the quarter ended June 30, 2000 increased
by $8.9 million, or 22.6%, to $48.4 million from $39.5 million for the quarter
ended June 30, 1999. The increase in total revenues was primarily due to
acquisitions and growth in local advertising revenue and was comprised of a $8.1
million increase in advertising revenue and a $1.0 million increase in
circulation revenue, while job printing and other revenue decreased by $0.2
million. Total revenues for the six months ended June 30, 2000 increased by
$16.2 million, or 21.8%, to $90.7 million from $74.5 million as of June 30,
1999. The increase in total revenues for the six months was primarily due to
acquisitions and increases in local advertising revenues and was comprised of a
$14.7 million increase in advertising revenue and a $1.8 million increase in
circulation revenue, while job printing and other revenue decreased by $0.3
million.
Operating Costs. Operating costs for the quarter ended June 30, 2000 were
$19.9 million which was an increase of $3.4 million over the quarter ended June
30, 1999. This increase was primarily driven by acquisitions and higher labor,
and delivery costs. Total operating costs for the six months ended June 30, 2000
increased by $6.2 million, to $38.0 million from $31.8 million as of June 30,
1999. This increase was primarily driven by acquisitions and higher labor and
delivery costs. As a percentage of revenue for the quarter ended June 30, 2000,
operating costs decreased from 41.7% to 41.0%, 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 June 30, 2000 increased by $3.5 million, to $15.6
million from $12.1 million for the quarter ended June 30, 1999. For the six
months ended June 30, 2000, selling, general and administrative expenses
increased by $6.4 million to $30.2 million from $23.8 million as of June 30,
1999. The increase in selling, general and administrative expenses during the
quarter ended June 30, 2000 was primarily due to acquisitions and higher labor
costs. As a percentage of revenue for the quarter ended June 30, 2000, selling,
general and administrative expenses increased from 30.7% to 32.2%, 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 June 30, 2000 increased by $1.0 million, to $4.7 million from $3.7
million for the quarter ended June 30, 1999, as a result of the net depreciation
and amortization of fixed assets and intangible assets acquired and disposed of
during the preceding twelve months. For the six months ended June 30, 2000
depreciation and amortization expense increased by $2.0 million to $9.3 million
from $7.3 million as of June 30, 1999 as a result of fixed assets and
intangibles assets acquired during the preceding twelve months.
Interest Expense. Interest expense for the quarter ended June 30, 2000
increased by $2.0 million to $9.3 million from $7.3 million for the quarter
ended June 30, 1999. For the six months ended on June 30, 2000, interest expense
increased $3.5 million to $18.0 million from $14.5 million as of June 30, 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 June 30, 2000 increased by
$2.1 million, to $13.0 million from $10.9 million for the quarter ended June 30,
1999. For the six months ended on June 30, 2000, EBITDA increased $3.6 million,
to $22.5 million from $18.9 million as of June 30, 1999. The increase in EBITDA
during the quarter ended June 30, 2000 was primarily due to operating income
generated by acquisitions, increases in local advertising revenue, which are
partially offset by increases in labor and delivery costs.
Net Income (Loss). The Company incurred a net loss of $1.6 million for the
quarter ended June 30, 2000, compared to a net loss of $0.5 million for the
quarter ended June 30, 1999. The $1.1 million increase in net loss is
attributable to increased depreciation, amortization, and interest expense
associated with the acquisitions, and higher labor and delivery costs which is
partially offset by operating income from acquisitions and increases in local
advertising revenue. For the six months ended June 30, 2000, the Company
incurred a net loss of $5.9 million compared to a net loss of $3.7 million for
the six months ended June 30, 1999. The $2.2 million increase in the net loss is
attributed to increased depreciation, amortization, and interest expense
associated with the acquisitions, and higher labor and delivery costs, which is
partially offset by operating income from acquisitions and increases in local
advertising revenue.
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities. Net cash provided by operating
activities for the six months ended June 30, 2000 increased by $2.3 million to
$8.6 million compared with cash provided of $6.3 million for the six months
ended June 30, 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 and higher prepaid expenses.
Cash Flows From Investing Activities. Net cash used in investing activities
for the six months ended June 30, 2000 reflects the acquisition of the Elko (NV)
Daily Free Press, Magic Valley (ID) Publishing, New Hampton (IA) Tribune &
Advertiser, Dansville-Wayland (NY) Pennysaver, Plaquemine (LA), Publishing
Downers Grove (IL) Reporter, Terry Newspapers (IL), McDonough/Fulton County
Shoppers (IL) along with the publications purchased in Adrian (MI), Coldwater
(MI) and Sturgis (MI). 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. The Company's capital expenditures consist of the purchase of
machinery, equipment, furniture and fixtures relating to its publishing
operations. During the quarter ended June 30, 2000, the Company completed
construction and placed into service a centralized print facility located in the
suburbs of Chicago, IL. In addition to providing more efficient production
capability for the Company's Chicago area cluster, the new facility will allow
the Company to obtain long term contracts for commercial print revenue. The cost
of construction will be approximately $6.1 million and is partially offset by
the sale of an existing print facility, $0.9 million, and the anticipated sale
of another facility under contract to close during the third quarter of this
fiscal year, $1.2 million, resulting in a net cost of $4.0. The Company has no
material commitments for capital expenditures.
Cash Flows From Financing Activities. Net cash flows provided by financing
activities for the six months ended June 30, 2000 reflect borrowings made under
the Company's revolving credit facilities to fund acquisition costs, proceeds
from issuing common and preferred stock, proceeds from acquiring a Term Loan B,
which are partially offset by a payment to extinguish the Revolving Credit
Facility balance at April 18, 2000. 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 Amended 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 Amended 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 six months ended June 30, 2000 was $18.9 million including
non-cash interest of $3.7 million and amortization of debt issuance costs of
$0.8 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 Amended Revolving Credit Facility and Term
Loan B 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. On May 1, 2000, the Company purchased the assets of the
McDonough County Shopper and the Fulton County Shopper, and in a separate
transaction on the same date, the stock of Terry Newspapers, Inc. a group of two
weekly and two shopper publications. On May 2, 2000, the Company purchased the
stock of the Downers Grove Reporter, a group of eight weekly and multi-weekly
newspapers with a combined circulation of 69,000. On June 30, 2000, the Company
executed a purchase agreement to acquire the assets of three daily newspapers
and six shoppers located in Adrian, Coldwater, and Sturgis, Michigan.
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
9
<PAGE> 12
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 credit facility ("Amended Revolving Credit
Facility") from January 2003 to March 2005, and included the issuance of a
$100.0 million Term Loan B. The Term Loan B matures in March 2007, and will
require annual principal payments of $0.5 million in 2000, $1.0 million from
2001 through 2004, $36.1 million in 2005, $47.5 million in 2006, and $11.9
million 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,
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.
At June 30, 2000, the Company had borrowed $44.0 million under the Amended and
Restated Credit Facility.
10
<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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
2) Financial Data
(b) Reports on form 8-K
None.
11
<PAGE> 14
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.
LIBERTY GROUP PUBLISHING, INC.
/s/ Kenneth L. Serota
--------------------------
Kenneth L. Serota
President and Chief
Executive
Officer
/s/ Kevin O'Shea
--------------------------
Kevin O'Shea
Executive Vice President and
Chief Financial Officer
Principal Financial Officer
Date: August 14, 2000
12
