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UNITED STATES
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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
COMMISSION FILE NUMBER: 333-46959
LIBERTY GROUP OPERATING, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4197636
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 DUNDEE ROAD, SUITE 203 60062
NORTHBROOK, ILLINOIS (Zip Code)
(Address of Principal Executive Offices)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of the Company's common stock, par value
$0.01 per share, as of November 15, 2004: 100 shares.
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited) at September 30, 2004 and December 31, 2003.......................... 3
Consolidated Statements of Income (Unaudited) for the Three Months and Nine Months Ended
September 30, 2004 and September 30, 2003................................................................ 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2004 and
September 30, 2003....................................................................................... 5
Notes to Unaudited Interim Consolidated Financial Statements................................................. 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8
Disclosure Regarding Forward-Looking Statements.............................................................. 14
Item 3 Quantitative and Qualitative Disclosures About Market Risk................................................. 14
Item 4 Controls and Procedures.................................................................................... 14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.......................................................................................... 15
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds................................................ 15
Item 3 Defaults Upon Senior Securities............................................................................ 15
Item 4 Submission of Matters to a Vote of Security Holders........................................................ 15
Item 5 Other Information.......................................................................................... 15
Item 6 Exhibits .................................................................................................. 15
Signatures........................................................................................................ 15
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(EXCEPT SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 2,072 $ 2,036
Accounts receivable, net of allowance for doubtful accounts of $1,697 and $1,600 at
September 30, 2004 and December 31, 2003, respectively................................ 21,357 20,587
Inventory............................................................................... 2,935 2,850
Prepaid expenses........................................................................ 1,746 1,078
Deferred income taxes................................................................... 1,498 1,432
Other current assets.................................................................... 179 184
------------- ------------
Total current assets...................................................................... 29,787 28,167
Property, plant and equipment, net...................................................... 45,489 45,771
Goodwill................................................................................ 184,198 185,467
Intangible assets, net.................................................................. 226,503 226,601
Deferred financing costs, net........................................................... 2,707 3,597
Other assets............................................................................ 433 466
------------- ------------
Total assets.............................................................................. $ 489,117 $ 490,069
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Borrowings under revolving credit facility.............................................. $ 7,411 $ --
Current portion of Term Loan B.......................................................... 15,885 744
Current portion of other long-term liabilities.......................................... 353 407
Accounts payable........................................................................ 1,452 1,747
Accrued expenses........................................................................ 8,849 14,111
Deferred revenue........................................................................ 8,724 8,500
------------- ------------
Total current liabilities................................................................. 42,674 25,509
LONG-TERM LIABILITIES:
Borrowings under revolving credit facility, less current portion........................ -- 6,338
Term Loan B, less current portion....................................................... 46,672 71,013
Other long-term liabilities, less current portion....................................... 607 865
Senior subordinated notes............................................................... 180,000 180,000
Deferred income taxes................................................................... 31,443 25,518
------------- ------------
Total liabilities......................................................................... 301,396 309,243
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized, 100 shares issued
and outstanding at September 30, 2004 and December 31, 2003.......................... -- --
Additional paid-in capital.............................................................. 176,879 176,879
Retained earnings....................................................................... 10,842 3,947
------------- ------------
Total stockholder's equity................................................................ 187,721 180,826
------------- ------------
Total liabilities and stockholder's equity................................................ $ 489,117 $ 490,069
============= ============
See accompanying notes to unaudited interim consolidated financial statements.
3
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
2004 2003 2004 2003
-------- ------- -------- --------
REVENUES:
Advertising....................................................... $ 37,514 $34,821 $109,521 $103,302
Circulation ...................................................... 8,775 7,908 25,706 23,589
Job printing and other ........................................... 4,080 2,844 12,664 8,613
-------- ------- -------- --------
Total revenues ................................................ 50,369 45,573 147,891 135,504
OPERATING COSTS AND EXPENSES:
Operating costs .................................................. 24,325 21,644 71,740 64,182
Selling, general and administrative .............................. 13,697 13,448 39,509 38,534
Depreciation and amortization .................................... 3,318 3,327 9,930 10,227
Loss on sale of assets ........................................... -- 104 30 123
-------- ------- -------- --------
Income from continuing operations ................................... 9,029 7,050 26,682 22,436
Interest expense - debt ............................................. 5,343 5,449 16,033 16,546
Interest expense - amortization of deferred financing costs ......... 297 306 890 883
Write-off of deferred financing costs ............................... -- -- -- 161
-------- ------- -------- --------
Income from continuing operations before income taxes ............... 3,389 1,295 9,759 4,846
Income tax expense .................................................. 1,461 599 5,155 2,256
-------- ------- -------- --------
Income from continuing operations ................................... 1,928 696 4,604 2,590
Income from discontinued operations, net of tax ..................... -- 123 4,593 485
-------- ------- -------- --------
Net income.......................................................... $ 1,928 $ 819 $ 9,197 $ 3,075
======== ======= ======== ========
See accompanying notes to unaudited interim consolidated financial statements.
4
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income ................................................................... $ 9,197 $ 3,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 9,930 10,227
Amortization of deferred financing costs ..................................... 890 883
Non-cash compensation ........................................................ -- 13
Deferred taxes ............................................................... 4,931 1,878
Loss on sale of assets ....................................................... 30 123
Write-off of deferred financing costs ....................................... -- 161
Income from discontinued operations, net of tax .............................. (4,593) (485)
Changes in assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable, net ................................................... (766) 326
Inventory .................................................................. (45) 277
Prepaid expenses and other assets .......................................... (641) (536)
Accounts payable ........................................................... (322) 157
Accrued expenses ........................................................... (5,774) (3,357)
Deferred revenue ........................................................... (277) (92)
-------- --------
Net cash provided by operating activities ....................................... 12,560 12,650
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ................................... (2,738) (1,566)
Payments for acquisitions .................................................... (968) (45)
Proceeds from exchange of publications and sales of other assets ............. 1,994 1,050
-------- --------
Net cash used in investing activities .......................................... (1,712) (561)
-------- --------
Cash flows from financing activities:
Repayments of Term Loan B .................................................... (9,200) --
Net borrowing (repayments) under revolving credit facility ................... 1,073 (7,651)
Dividends to Parent .......................................................... (2,302) (1,488)
Net payments on other long-term liabilities .................................. (383) (346)
-------- --------
Net cash used in financing activities .......................................... (10,812) (9,485)
-------- --------
Net increase in cash and cash equivalents ...................................... 36 2,604
Cash and cash equivalents, at beginning of period .............................. 2,036 1,696
-------- --------
Cash and cash equivalents, at end of period .................................... $ 2,072 $ 4,300
======== ========
See accompanying notes to unaudited interim consolidated financial statements.
5
LIBERTY GROUP OPERATING, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) THE COMPANY AND BASIS OF PRESENTATION
Liberty Group Operating, Inc. (Operating Company," LGO" or "Registrant")
is a Delaware corporation formed on January 27, 1998 for the purpose of
acquiring a portion of the daily and weekly newspapers owned by American
Publishing Company or its subsidiaries ("APC"), a wholly owned subsidiary of
Hollinger International Inc. ("Hollinger"). LGO is a wholly owned subsidiary of
Liberty Group Publishing Company, Inc. ("Parent" or "LGP"). The unaudited
interim consolidated financial statements include the accounts of Operating
Company and its consolidated subsidiaries (the "Company").
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. As of September 30, 2004, the Company owns and operates 288
publications located in 15 states that reach approximately 2.1 million people on
a weekly basis. The majority of the Company's paid daily newspapers have been
published for more than 100 years and are typically the only paid daily
newspapers of general circulation in their respective non-metropolitan markets.
The Company's newspapers generally face limited competition as a result of
operating in markets that are distantly located from large metropolitan areas
and that can typically support only one primary newspaper, with the exception of
the Company's publications in the Chicago suburban market. The Company has
strategically clustered its publications in geographically diverse,
non-metropolitan markets in the Midwest and Northeast United States and in the
Chicago suburban market, which limits its exposure to economic conditions in any
single market or region.
The Company's portfolio of publications is comprised of 64 paid daily
newspapers and 119 paid non-daily newspapers. In addition, the Company publishes
105 free circulation and "total market coverage," or TMC, publications with
limited or no news or editorial content that it distributes free of charge and
that generally provide 100% penetration in their areas of distribution. The
Company believes that its publications are generally the most cost-effective
method for its advertisers to reach substantially all of the households in their
markets. Unlike large metropolitan newspapers, the Company derives a majority of
its revenues from local display advertising rather than classified and national
advertising, which are generally more sensitive to economic conditions.
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 accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the results of
the interim periods presented. The accompanying unaudited interim consolidated
financial statements as of September 30, 2004 and for the three and nine months
ended September 30, 2004 and September 30, 2003 should be read in conjunction
with the audited consolidated financial statements of the Company included in
LGO's Annual Report on Form 10-K for the year ended December 31, 2003 filed with
the Securities and Exchange Commission. The Company's results for the interim
periods are not necessarily indicative of the results to be expected for the
full year.
(2) RECLASSIFICATIONS
Certain amounts in the prior year's unaudited interim consolidated
financial statements have been reclassified to conform to the 2004 presentation.
(3) LEE EXCHANGE
On February 3, 2004, the Company acquired the daily newspapers in Corning,
New York and Freeport, Illinois from Lee Enterprises, Inc. in exchange for the
Company's daily newspapers in Elko, Nevada and Burley, Idaho, as well as its
weeklies in Haily, Idaho and Jerome, Idaho (the "Lee Exchange"). In conjunction
with the Lee Exchange, the Company received cash proceeds of $1,804. The Company
used an independent third-party valuation firm to determine the fair value of
the newspaper businesses acquired in the Lee Exchange, which collectively
resulted in a pre-tax gain of $7,661, or a gain of $4,591, net of the tax effect
of $3,070. The Company has accounted for the acquired newspaper businesses using
the purchase accounting method. Accordingly, the fair value of the newspaper
business acquired has been allocated to the assets acquired and liabilities
assumed based on their respective fair values. An independent third-party
valuation firm determined the fair values and estimated remaining useful lives
for the advertiser and customer relationships and masthead intangible assets.
Advertiser and customer relationships are being amortized over remaining useful
lives of 30 and 20 years, respectively. Mastheads have not been amortized
because their useful life was determined to be indefinite.
6
The operating results of the acquired newspaper businesses from the Lee
Exchange have been included in the unaudited interim consolidated financial
statements since the exchange date. The operating results of the newspaper
businesses disposed of in the Lee Exchange have been accounted for as a
discontinued operation and, accordingly, such amounts have been reclassified to
reflect the disposition as a discontinued operation for all periods presented.
Income from discontinued operations for the nine months ended September 30, 2004
includes operating income of $2 and a gain on the exchange of $4,591, net of
tax.
A computation of the gain on the exchange is as follows:
Fair value of newspaper businesses acquired ... $ 24,579
Cash consideration received from Lee .......... 1,994
--------
26,573
Net book value of newspaper businesses disposed (18,174)
Other liabilities ............................. (270)
Legal and professional fees ................... (468)
--------
Gain on exchange before taxes ................. 7,661
Income tax expense ............................ 3,070
--------
Gain on exchange, net of tax ............ $ 4,591
========
The fair value allocation for the newspaper businesses acquired is as
follows:
Fair value of newspaper businesses acquired $ 24,579
========
Current assets ............................ $ 869
Property, plant, and equipment ............ 3,300
Advertiser customer relationships ......... 7,947
Subscriber customer relationships ......... 2,588
Mastheads ................................. 3,004
Current liabilities ....................... (920)
--------
Remainder (goodwill) ................ $ 7,791
========
(4) WRITE-OFF OF DEFERRED FINANCING COSTS
As of March 31, 2003, the Company had incurred $161 in legal and bank fees
associated with a proposed amendment to its Amended Credit Facility. On March
31, 2003, the Company wrote off these costs because the Company postponed
amending its Amended Credit Facility.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXECUTIVE SUMMARY
The Company's mission is to be the leading local news source in the
communities it serves, to provide the most effective means for local advertisers
to reach their potential customers and to create shareholder value. In order to
achieve its long-term objectives, the Company focuses on generating reader and
employee loyalty, expanding local advertising bases and improving margins
through regional clustering and strict cost control measures.
The Company primarily generates revenues from advertising, circulation and
job printing. Advertising revenue is recognized upon publication of the
advertisements. Circulation revenue, which is billed to customers at the
beginning of the subscription period, is recognized on a straight-line basis
over the term of the related subscription. The revenue for job printing is
recognized upon delivery. The Company's operating costs consist primarily of
newsprint, labor and delivery costs. The Company's selling, general and
administrative expenses consist primarily of labor costs.
The Company's long-term strategy is pursued with a portfolio of properties
that serve its customers in print and online. As of September 30, 2004,
properties outside the metropolitan areas, also referred to as the community
markets, represented 88% of the Company's 288 publications, while the group of
publications in the western suburbs of Chicago, also referred to as the Chicago
suburban market, accounted for 12% of its publications.
On February 3, 2004, the Company acquired daily newspapers in Corning, New
York and Freeport, Illinois (and received cash consideration) from Lee
Enterprises, Inc. in exchange for daily newspapers in Elko, Nevada and Burley,
Idaho and weekly newspapers in Hailey, Idaho and Jerome, Idaho (the "Lee
Exchange"). In conjunction with the exchange, the Company received cash proceeds
of $2.0 million. The Company used an independent third-party valuation firm to
determine the fair value of the newspaper businesses acquired in the Lee
Exchange, which collectively resulted in a pre-tax gain of $7.7 million, or a
gain of $4.6 million, net of the tax effect of $3.1 million. The operating
results of the acquired newspaper businesses from the Lee Exchange have been
included in the unaudited interim consolidated financial statements since the
exchange date. The operating results of the newspaper businesses disposed of in
the Lee Exchange have been accounted for as a discontinued operation and,
accordingly, such amounts have been reclassified to reflect the disposition as a
discontinued operation for all periods presented. See Note 3 to the unaudited
interim consolidated financial statements included herein.
8
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain revenue
and expense items (expressed as a percentage of total revenues):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2004 2003 2004 2003
----- ----- ----- -----
REVENUES:
Advertising ............................................ 74.5% 76.4% 74.1% 76.2%
Circulation ............................................ 17.4 17.4 17.4 17.4
Job printing and other ................................. 8.1 6.2 8.5 6.4
----- ----- ----- -----
Total revenues ...................................... 100.0 100.0 100.0 100.0
OPERATING COSTS AND EXPENSES:
Operating costs ........................................ 48.3 47.5 48.6 47.4
Selling, general and administrative .................... 27.2 29.5 26.7 28.4
Depreciation and amortization .......................... 6.6 7.3 6.7 7.5
Loss on sale of assets ................................. -- 0.2 -- 0.1
----- ----- ----- -----
Income from continuing operations ......................... 17.9 15.5 18.0 16.6
Interest expense - debt ................................... 10.6 12.0 10.8 12.2
Interest expense - amortization of deferred financing costs 0.6 0.7 0.6 0.7
Write-off of deferred financing costs ..................... -- -- -- 0.1
----- ----- ----- -----
Income from continuing operations before income taxes ..... 6.7 2.8 6.6 3.6
Income tax expense ........................................ 2.9 1.3 3.5 1.7
----- ----- ----- -----
Income from continuing operations ......................... 3.8 1.5 3.1 1.9
Income from discontinued operations, net of tax ........... -- 0.3 3.1 0.4
----- ----- ----- -----
Net income ................................................ 3.8% 1.8% 6.2% 2.3%
===== ===== ===== =====
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30,2003
Total Revenue. Total revenue for the quarter ended September 30, 2004
increased by $4.8 million, or 10.5%, to $50.4 million from $45.6 million for the
quarter ended September 30, 2003. The increase in total revenue was comprised of
a $2.7 million, or 7.7%, increase in advertising revenue, a $0.9 million, or
11.0%, increase in circulation revenue, and a $1.2 million, or 43.5%, increase
in job printing and other revenue. The increase in advertising revenue was
primarily due to same property increases in the Company's community and Chicago
suburban markets of $0.7 million and $0.4 million, respectively, and revenue
from the newspaper businesses acquired in the Lee Exchange of $1.6 million. The
increase in circulation revenue was primarily due to the Lee Exchange of $0.9
million. The increase in job printing and other revenue was primarily due to an
increase in commercial printing in the Chicago suburban market due to the
acquisition of a print facility in December 2003.
Total revenue for the nine months ended September 30, 2004 increased by
$12.4 million, or 9.1%, to $147.9 million from $135.5 million for the nine
months ended September 30, 2003. The increase in total revenue was comprised of
a $6.2 million, or 6.0%, increase in advertising revenue, a $2.1 million, or
9.0%, increase in circulation revenue, and a $4.1 million, or 47.0%, increase in
job printing and other revenue. The increase in advertising revenue was
primarily due to same property increases in the Company's community and Chicago
suburban markets of $1.5 million and $0.5 million, respectively, and revenue
from the newspaper businesses acquired in the Lee Exchange of $4.2 million. The
increase in circulation revenue was primarily due to the Lee Exchange of $2.4
million and higher circulation revenue in the Chicago suburban market of $0.1
million, partially offset by lower circulation revenues in the Company's
community markets of $0.4 million. The increase in job printing and other
revenue was primarily due to an increase in commercial printing in the Chicago
suburban market due to the acquisition of a print facility in December 2003.
Operating Costs. Operating costs for the quarter ended September 30, 2004
increased by $2.7 million, or 12.4%, to $24.3 million from $21.6 million for the
quarter ended September, 30, 2003. The increase in operating costs was primarily
due to operating costs from the newspaper businesses acquired in the Lee
Exchange and the print facility acquired in December 2003 of $2.4 million and
higher newsprint costs of $0.3 million. Operating costs for the nine months
ended September 30, 2004 increased by $7.6 million, or 11.8%, to $71.7 million
from $64.2 million for the nine months ended September 30, 2003. The increase in
operating costs was primarily due to operating costs from the newspaper
businesses acquired in the Lee Exchange and the print facility acquired in
December 2003 of $6.8 million and higher newsprint of $0.6 million.
9
Selling, General and Administrative. Selling, general and administrative
expense for the quarter ended September 30, 2004 increased to $13.7 million from
$13.4 million for the quarter ended September 30, 2003. For the quarter,
selling, general and administrative expenses increased by $0.6 million as a
result of the newspaper businesses acquired in the Lee Exchange and the print
facility acquired in December 2003, which was partially offset by lower
insurance costs of $0.3 million. Selling, general and administrative expenses
for the nine months ended September 30, 2004 increased by $1.0 million, or 2.5%,
to $39.5 million from $38.5 million for the nine months ended September 30,
2003. The increase in selling, general and administrative expenses of $1.0
million was due primarily to selling, general and administrative costs of $1.6
million from the newspaper businesses acquired in the Lee Exchange and the print
facility acquired in December 2003, partially offset by a reduction of $0.8
million in insurance costs.
Depreciation and Amortization. Depreciation and amortization expense for
the quarter ended September 30, 2004 was $3.3 million, the same as for the
quarter ended September 30, 2003. Depreciation and amortization expense for the
nine months ended September 30, 2004 decreased by $0.3 million, or 2.9%, to $9.9
million from $10.2 million for the nine months ended September 30, 2003. During
the nine months ended September 30, 2004, the Company recorded $6.4 million in
amortization of intangible assets, compared with $6.7 million for the nine
months ended September 30, 2003. The decrease in amortization is primarily due
to a decrease in non-compete intangible amortization resulting from certain
non-compete assets that are now fully amortized, partially offset by
depreciation and amortization from the Lee Exchange and the print facility
acquired in December 2003.
EBITDA. The Company recorded net income of $1.9 million for the quarter
ended September 30, 2004, and net income of $0.8 million for the quarter ended
September 30, 2003. EBITDA (which is defined as earnings before interest, taxes,
depreciation and amortization) for the quarter ended September 30, 2004
increased by $1.8 million, or 17.6%, to $12.3 million from $10.5 million for the
quarter ended September 30, 2003. The increase was primarily due to higher
revenues of $4.8 million, partially offset by higher operating costs of $2.7
million and increased selling and administrative expenses of $0.3 million. The
Company recorded net income of $9.2 million for the nine months ended September
30, 2004, compared to net income of $3.1 million for the nine months ended
September 30, 2003. EBITDA for the nine months ended September 30, 2004
increased by $11.2 million, or 33.6%, to $44.3 million from $33.1 million for
the nine months ended September 30, 2003. The increase was primarily due to
higher revenues of $12.4 million, partially offset by higher operating costs of
$7.6 million and higher selling, general and administrative costs of $1.0
million. In addition, the nine months ended September 30, 2004 included a gain
of $7.7 million, before taxes, from the exchange of publications in the Lee
Exchange, partially offset by the income from discontinued operations before
taxes, depreciation and amortization of $0.9 million for the nine months ended
September 30, 2003. The nine months ended September 30, 2003 also included
write-offs of deferred financing costs of $0.2 million.
EBITDA is not a measurement of financial performance under accounting
principles generally accepted in the United States of America, or GAAP, and
should not be considered in isolation or as an alternative to income from
operations, net income (loss), cash flows from operating activities or any other
measure of performance or liquidity derived in accordance with GAAP. EBITDA is
presented because the Company believes it is an indicative measure of the
Company's operating performance and its ability to meet its debt service
requirements and is used by investors and analysts to evaluate companies in its
industry as a supplement to GAAP measures. Not all companies calculate EBITDA
using the same methods; therefore, the EBITDA figures set forth herein may not
be comparable to EBITDA reported by other companies. A substantial portion of
the Company's EBITDA must be dedicated to the payment of interest on its
outstanding indebtedness and to service other commitments, thereby reducing the
funds available to the Company for other purposes. Accordingly, EBITDA does not
represent an amount of funds that is available for management's discretionary
use.
The Company believes that net income is the financial measure calculated
and presented in accordance with GAAP that is most directly comparable to
EBITDA. The following table reconciles net income to EBITDA for the three and
nine months ended September 30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
------- ------- ------- -------
Net income ........................ $ 1,928 $ 819 $ 9,197 $ 3,075
Depreciation and amortization (1) 3,318 3,327 9,930 10,227
Interest expense ................ 5,640 5,755 16,923 17,429
Income tax expense (2) .......... 1,461 599 8,225 2,401
------- ------- ------- -------
EBITDA ............................ $12,347 $10,500 $44,275 $33,132
======= ======= ======= =======
(1) Depreciation and amortization expense for the three months ended September
30, 2003 includes $122 related to the newspaper businesses disposed of as
part of the Lee Exchange. Depreciation and amortization expense for the
nine months ended September 30, 2004 and 2003 includes $45 and $422,
respectively, related to the newspaper businesses disposed of as part of
the Lee Exchange.
10
(2) Income tax expense for the nine months ended September 30, 2004 consists
of $3,070 of income tax expense related to the gain recorded on the Lee
Exchange and $5,155 of income tax expense related to the loss from
continuing operations. Income tax expense for the nine months ended
September 30, 2003 consists of $2,256 income tax expense related to
continuing operations and $145 of income tax expense related to
discontinued operations.
Interest Expense. Interest expense for the quarter ended September 30,
2004 decreased by $0.2 million, or 2.0%, to $5.6 million from $5.8 million for
the quarter ended September 30, 2003. The decrease of $0.2 million is due to
lower debt levels, partially offset by higher interest rates. Interest expense
for the nine months ended September 30, 2004 decreased by $0.5 million, or 2.9%,
to $16.9 million from $17.4 million for the nine months ended September 30,
2003. The decrease of $0.5 million is due to lower debt levels, partially offset
by higher interest rates.
Write-off of Deferred Financing Costs. As of March 31, 2003, the Company
incurred $0.2 million in legal and bank fees associated with a proposed
amendment to its Amended Credit Facility (as defined below). On March 31, 2003,
the Company wrote off these costs because the Company postponed amending its
Amended Credit Facility.
Income Tax Expense. Income tax expense for the quarter ended September 30,
2004 increased by $0.9 million, or 143.9%, to $1.5 million from $0.6 million for
the quarter ended September 30, 2003. The increase was primarily due to an
increase in deferred federal income tax expense recognized by the Company.
Income tax expense for the nine months ended September 30, 2004 was $5.2 million
compared to an income tax expense of $2.3 million for the nine months ended
September 30, 2003. The increase of $2.9 million for the nine months ended
September 30, 2004 was primarily due to an increase in deferred federal income
tax expense recognized by the Company for the nine months ended September 30,
2004.
Income from Discontinued Operations. Income from discontinued operations,
net of tax, for the quarter ended September 30, 2004 decreased by $0.1 million,
or 100%, from $0.1 million for the quarter ended September 30, 2003. Income from
discontinued operations was $4.6 million for the nine months ended September 30,
2004 compared to $0.5 million for the nine months ended September 30, 2003. The
Lee Exchange on February 3, 2004 resulted in a pre-tax gain of $7.7 million and
an after-tax gain of $4.6 million.
CRITICAL ACCOUNTING POLICY DISCLOSURE
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company assesses impairment of goodwill and mastheads on an annual
basis by using multiples of recent and projected revenues and EBITDA (earnings
before interest, taxes, depreciation, and amortization) for individual or
strategic regional clusters of properties to determine the fair value of the
properties and deducts the fair value of assets other than goodwill and
mastheads to arrive at the fair value of goodwill and mastheads. This amount is
then compared to the carrying value of goodwill and mastheads to determine if
any impairment has occurred. If the fair value is less than the carrying value,
then the Company will consider whether a temporary or permanent impairment has
occurred based on the specific facts and circumstances associated with the
individual or strategic regional cluster of properties. The multiples of revenue
and EBITDA used to determine fair value are based on the Company's experience in
acquiring and selling properties and multiples reflected in the purchase prices
of recent sales transactions of newspaper properties similar to those it owns.
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." The Company assesses the recoverability of its long-lived
assets, including property, plant and equipment and definite lived intangible
assets, whenever events or changes in business circumstances indicate the
carrying amount of the assets, or related group of assets, may not be fully
recoverable. Factors leading to impairment include significant under performance
relative to expected historical or projected future operating losses,
significant changes in the manner of use of the acquired assets or the strategy
for the Company's overall business, and significant negative industry or
economic trends. The assessment of recoverability is based on management's
estimate. If undiscounted future operating cash flows do not exceed the net book
value of the long-lived assets, then a permanent impairment has occurred. The
Company would record the difference between the net book value of the long-lived
asset and the fair value of such asset as a charge against income in the
consolidated statements of operations if such a difference arose.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for working capital, borrowing
obligations and capital expenditures. The Company has no material commitments
for capital expenditures. The Company intends to continue to pursue its strategy
of opportunistically acquiring community newspapers in contiguous markets and
new markets. The Company's principal sources of funds have historically been,
and will be, cash provided by operating activities and borrowings under its
revolving credit facility.
The indentures relating to the Notes and the Amended Credit Facility
impose upon the Company certain financial and operating covenants, including,
among others, requirements that the Company satisfy certain quarterly financial
tests, including a maximum senior leverage ratio, a minimum cash interest
coverage ratio and a maximum leverage ratio, limitations on capital expenditures
and restrictions on the Company's ability to incur debt, pay dividends or take
certain other corporate actions.
The Company's revolving credit facility matures in March 2005, and the
Company is currently considering whether to refinance or extend its revolving
credit facility. Although the Company believes it will be able to enter into
such new financing arrangements, there can be no assurance that such facilities
will be available on acceptable terms. Assuming the Company refinances or
extends its revolving credit facility, management believes that the Company has
adequate capital resources and liquidity to meet its working capital needs,
borrowing obligations, all required capital expenditures and pursue its business
strategy for at least the next 12 months.
Cash flows from operating activities. Net cash provided by operating
activities for the nine months ended September 30, 2004 was $12.6 million
compared with net cash provided by operating activities of $12.7 million for the
nine months ended September 30, 2003. The decrease is primarily due to an
increase in working capital requirements largely offset by an increase in income
from continuing operations before depreciation and amortization for the nine
months ended September 30, 2004.
Cash flows from investing activities. Net cash used in investing
activities was $1.7 million for the nine months ended September 30, 2004
compared to net cash used in investing activities of $0.6 million for the nine
months ended September 30, 2003. The increased use of cash was primarily due to
an increase in capital expenditures of $1.2 million and acquisitions of $0.9
million, partially offset by an increase of $1.1 million in cash proceeds from
the exchange of publications and sales of other assets. The Company's capital
expenditures for the nine months ended September 30, 2004 consisted of the
purchase of machinery, equipment, furniture and fixtures relating to its
publishing operations and amounted to 1.9% of revenues.
Cash flows from financing activities. Net cash used in financing
activities was $10.8 million for the nine months ended September 30, 2004
compared to net cash used in financing activities of $9.5 million for the nine
months ended September 30, 2003. The Company's financing activities for the nine
months ended September 30, 2004 reflects increased dividends to Parent and
repayments of the Term Loan B of $9.2 million and additional borrowing of $1.1
million under the revolving credit facility under LGO's Amended and Restated
Credit Agreement, dated as of April 18, 2000, as further amended, with a
syndicate of financial institutions led by Citibank, N.A, with Citicorp USA,
Inc. as administrative agent (the "Amended Credit Facility"). The Company is
subject to certain covenants that limit its ability to pay cash dividends and
make other restricted payments and does not expect to pay cash dividends in the
foreseeable future.
Amended Credit Facility. The Amended Credit Facility provides for a $100.0
million principal amount Term Loan B that matures in March 2007 and a revolving
credit facility with a $135.0 million aggregate commitment amount available,
including a $10.0 million sub-facility for letters of credit, that matures in
March 2005. The Amended Credit Facility is secured by a first-priority security
interest in substantially all of the tangible and intangible assets of LGO, LGP
and LGP's other present and future direct and indirect subsidiaries.
Additionally, the loans under the Amended Credit Facility are guaranteed,
subject to specified limitations, by LGP and all of the future direct and
indirect subsidiaries of LGO and LGP. The Company is required to permanently
reduce the Term Loan B and/or revolving commitment amount with disposition
proceeds in excess of $1.5 million if the proceeds are not reinvested in
Permitted Acquisitions (as defined under the Amended Credit Facility) within 300
days of receipt of such proceeds.
The Term Loan B and the revolving credit facility bear interest, at LGO's
option, equal to the Alternate Base Rate for an ABR loan (as defined in the
Amended Credit Facility) or the Adjusted LIBO Rate for a eurodollar loan (as
defined in the Amended Credit Facility) plus an applicable margin. The
applicable margin is based on: (1) whether the loan is an ABR loan or eurodollar
loan; and (2) the ratio of (a) indebtedness of LGO and its subsidiaries that
requires interest to be paid in cash to (b) pro forma EBITDA for the 12-month
period then ended. The weighted average interest rate for the Amended Credit
Facility for the three and nine months ended September 30, 2004 was 5.08% and
4.90%, respectively. LGO also pays an annual fee equal to the applicable
eurodollar margin for the aggregate amount of outstanding letters of credit.
Additionally, LGO pays a fee on the unused portion of the revolving credit
facility. No principal payments are due on the revolving credit facility until
the March 2005 maturity date. As of September 30, 2004, the Term Loan B requires
principal payments of $23.7 million in 2005, $31.1 million in 2006 and $7.8
million in 2007. The Amended Credit Facility contains financial covenants that
require LGO and LGP to satisfy quarterly financial tests, including a maximum
senior leverage ratio, a minimum cash interest coverage ratio and a maximum
leverage ratio. The Amended Credit Facility also contains affirmative and
negative covenants customarily found in loan agreements for similar
transactions.
12
The Company is highly leveraged and has indebtedness that is substantial
in relation to its stockholder's equity, tangible equity and cash flow. Interest
expense for the three and nine months ended September 30, 2004 was $5.6 and
$16.9 million, respectively, including amortization of deferred financing costs
of $0.3 million and $0.9 million, respectively. The degree to which the Company
is leveraged could have important consequences, including the following: (1) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on Operating Company's $180.0 million aggregate
principal amount of 9 3/8% Senior Subordinated Notes (the "Notes") due February
1, 2008 and interest on other indebtedness, thereby reducing the funds available
to the Company for other purposes; (2) indebtedness under the Amended Credit
Facility is at variable rates of interest, which causes the Company to be
vulnerable to increases in interest rates; (3) the Company is more leveraged
than certain competitors in its industry, which might place the Company at a
competitive disadvantage; (4) the Company's substantial degree of leverage could
make it more vulnerable in the event of a downturn in general economic
conditions or other adverse events in its business; and (5) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired.
As of September 30, 2004, approximately $70.0 million was outstanding
under the Amended Credit Facility (without giving effect to $2.2 million of
outstanding letters of credit as of such date) and the aggregate principal
amount of the Notes outstanding was $180.0 million.
On July 25, 2003, the Operating Company and LGP entered into an amendment
to the Amended Credit Facility. The amendment permits LGP to issue debt in lieu
of paying cash for the interest due on debt instruments issued by LGP.
SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table reflects a summary of the Company's contractual
obligations as of September 30, 2004 (in thousands):
TOTAL 2004 2005 2006 2007 2008 THEREAFTER
-------- ----- ------- -------- ------ --------- -----------
Long-term debt (principal only):
9 3/8% senior subordinated notes $180,000 $ -- $ -- $ -- $ -- $ 180,000 $ --
Term Loan B .................... 62,557 -- 23,664 31,115 7,778 -- --
Revolving credit facility ...... 7,411 -- 7,411 -- -- -- --
Operating leases:
Real estate lease payments ..... 1,177 119 435 427 123 71 2
Other contractual obligations:
Non-compete payments ........... 888 24 282 177 177 121 107
Other .......................... 72 18 17 17 17 3 --
-------- ----- ------- -------- ------ --------- ------
$252,105 $ 161 $31,809 $31,736 $8,095 $ 180,195 $ 109
======== ===== ======= ======== ====== ========= ======
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not engage in off-balance sheet transactions,
arrangements, obligations (including contingent obligations), and other
relationships with unconsolidated entities of other persons that may have a
material current or future effect on its financial condition, changes in
financial condition, revenues, expenses, results of operations, liquidity,
capital expenditures or capital resources.
RELATED PARTY TRANSACTIONS
The Company paid $370,000 in management fees for each of the quarters
ended September 30, 2004 and 2003 to Leonard Green & Partners, L.P. The Company
paid $1,110,000 in management fees for each of the nine month periods ended
September 30, 2004 and 2003 to Leonard Green & Partners, L.P. The Company paid
Leonard Green & Partners, L.P. $125,000 during the three months ended September
30, 2004 for fees that were earned and accrued for prior to January 1, 2004.
13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain "forward-looking statements" (as defined
in Section 21E of the Securities Exchange Act of 1934, as amended) that reflect
the Company's expectations regarding its future growth, results of operations,
performance and business prospects and opportunities. Words such as
"anticipates," "believes," "plans," "expects," "intends," "estimates" and
similar expressions have been used to identify these forward-looking statements,
but are not the exclusive means of identifying these statements. These
statements reflect the Company's current beliefs and expectations and are based
on information currently available to the Company. Accordingly, these statements
are subject to known and unknown risks, uncertainties and other factors that
could cause the Company's actual growth, results of operations, performance and
business prospects and opportunities to differ from those expressed in, or
implied by, these statements. As a result, no assurance can be given that the
Company's future growth, results of operations, performance and business
prospects and opportunities covered by such forward-looking statements will be
achieved. Such factors include, among others: (1) the Company's dependence on
local economies and vulnerability to general economic conditions; (2) the
Company's substantial indebtedness; (3) the Company's holding company structure;
(4) the Company's ability to implement its acquisition strategy, (5) the
Company's competitive business environment, which may reduce demand for
advertising and (6) the Company's ability to attract and retain key employees.
See "Risk Factors" beginning on page 20 of our Annual Report on Form 10-K for
the year ended December 31, 2003 for a discussion of the above factors and other
factors. For purposes of this Form 10-Q, any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking
statements. The Company is not obligated and has no intention to update or
revise these forward-looking statements to reflect new events, information or
circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Operating Company has a $135.0 million revolving credit facility and a
separate Term Loan B that mature in March 2005 and 2007, respectively.
Borrowings under the revolving credit facility and the Term Loan B bear interest
at an annual rate, at Operating Company's option, equal to the Alternate Base
Rate (as defined in the Amended Credit Facility) or the Adjusted LIBO Rate (as
defined in the Amended Credit Facility) plus a margin that varies based upon a
ratio set forth in the Amended Credit Facility. As a result, Operating Company's
interest expense will be affected by changes in the Alternate Base Rate or in
the Adjusted LIBO Rate. At September 30, 2004, Operating Company had borrowings
outstanding of $7.4 million under the revolving credit facility (without giving
effect to $2.2 million of outstanding letters of credit as of such date) and
$62.6 million under the Term Loan B. The weighted average interest rate for the
Amended Credit Facility for the three and nine months ended September 30, 2004
was 5.08% and 4.9%, respectively. A hypothetical 100 basis point change in
interest rates would impact quarterly interest expense by approximately $0.2
million based on the balance outstanding at September 30, 2004. For additional
information regarding the Company's Amended Credit Facility, see "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources."
Newsprint is a commodity subject to supply and demand market conditions. See
Item 1 "Business-Newsprint" in the LGO's Form 10-K for the year ended December
31, 2003 for further discussion.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of September 30, 2004, the end of the quarter covered by this report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the foregoing, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective at the reasonable assurance level.
There has been no change in the Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
14
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved from time to time in legal proceedings relating to
claims arising out of its operations in the ordinary course of business. The
Company is not party to any legal proceedings that, in the opinion of the
Company's management, are reasonably expected to have a material adverse effect
on the Company's business, financial condition or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
(a) The exhibits required to be filed as part of this report on Form
10-Q are listed in the attached Exhibit Index.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 2004 LIBERTY GROUP OPERATING, INC.
/s/ KENNETH L. SEROTA
---------------------------------------
Kenneth L. Serota
President, Chief Executive Officer and
Chairman of the Board of Directors
(principal executive officer)
/s/ DANIEL D. LEWIS
---------------------------------------
Daniel D. Lewis
Chief Financial Officer
(principal financial and accounting
officer)
16
INDEX TO EXHIBITS
EXHIBIT
NO. ITEMS
- -------- ---------------------------------------------------------------------------------
2.1 Asset Purchase Agreement dated as of November 21, 1997, among Liberty Incorporated by reference to
Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Exhibit 2.1 included on the
Liberty Group Operating, Inc., Hollinger International Inc., APAC-90 Company's Registration
Inc., American Publishing, and APAC-95, Inc. Statement on Form S-4
(Registration No. 333-46957)
(the "Company's S-4").
2.2 Asset Purchase Agreement dated as of November 21, 1997, among Liberty Incorporated by reference to
Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Exhibit 2.2 included on the
Liberty Group Operating, Inc., Hollinger International Inc., American Company's S-4.
Publishing Company of Illinois, APAC-90 Inc., and APAC-95, Inc.
2.3 Exchange Agreement dated as of November 21, 1997, between American Incorporated by reference to
Publishing Company of Illinois and Chicago Deferred Exchange Exhibit 2.3 included on the
Corporation. Company's S-4.
2.4 Qualified Exchange Trust Agreement, dated as of November 21, 1997 among Incorporated by reference to
the Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago Exhibit 2.4 included on the
Deferred Exchange Corporation, and American Publishing Company of Company's S-4.
Illinois.
2.5 Amendment to Asset Purchase Agreement dated as of January 14, 1998, Incorporated by reference to
among Liberty Group Publishing, Inc., Green Equity Investors II, L.P. Exhibit 2.5 included on the
(as guarantor), Liberty Group Operating, Inc., Hollinger International Company's S-4.
Inc., APAL-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.
2.6 Amendment to Asset Purchase Agreement, dated as of January 14, 1998, Incorporated by reference to
among Liberty Group Publishing, Inc., Green Equity Investors II, L.P. Exhibit 2.6 included on the
(as guarantor), Liberty Group Operating, Inc., Hollinger International Company's S-4.
Inc., American Publishing Company of Illinois, APAC-90 Inc., American
Publishing (1991) Inc. and APAC-95 Inc.
2.7 Amendment to Exchange Agreement, dated as of January 14, 1998, between Incorporated by reference to
American Publishing Company of Illinois and Chicago Deferred Exchange Exhibit 2.7 included on the
Corporation. Company's S-4.
2.8 Amendment to Qualified Exchange Trust Agreement, dated as of January Incorporated by reference to
14, 1998, among The Chicago Trust Company, as Trustee under No. Exhibit 2.8 included on the
38347501, Chicago. Company's S-4.
2.9 Agreement dated as of January 15, 1998, among Liberty Group Publishing, Incorporated by reference to
Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group Exhibit 2.9 included on the
Operating, Inc., Hollinger International, Inc., American Publishing Company's S-4.
Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc., and
APAC-95 Inc.
2.10 Agreement dated as of January 23, 1998, among American Publishing Incorporated by reference to
Company of Illinois, Chicago Deferred Exchange Corporation and The Exhibit 2.10 included on the
Chicago Trust Company. Company's S-4.
2.11 Agreement dated as of January 26, 1998, among Liberty Group Publishing, Incorporated by reference to
Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group Exhibit 2.11 included on the
Operating, Inc. Hollinger International, Inc., American Publishing Company's S-4.
Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc., and
APAC-95 Inc.
48
EXHIBIT
NO. ITEMS
- -------- ---------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Liberty Group Operating, Inc. Incorporated by reference to
Exhibit 2.11 included on the
Company's S-4.
3.2 By-laws of Liberty Group Operating, Inc. Incorporated by reference to
Exhibit 3.2 included on the
Company's S-4.
4.1 Indenture dated as of January 27, 1998 among Liberty Group Operating, Incorporated by reference to
Inc. and State Street Bank and Trust Company, as Trustee, including Exhibit 4.1 included on the
form of 9 3/8% Senior Subordinated Notes due 2008. Company's S-4.
*10.1 Employment Agreement dated as of November 27, 1997, between Liberty Incorporated by reference to
Group Publishing, Inc. and Kenneth L. Serota. Exhibit 10.1 included on the
Company's S-4.
*10.2 Amendment to Employment Agreement, dated as of August 11, 2000, between Incorporated by reference to
Liberty Group Operating, Inc., Kenneth L. Serota, Liberty Group Exhibit 10.2 included on the
Publishing, Inc., Green Equity Investors II, L.P. and Green Equity Company's Annual Report on
Investors III, L.P. Form 10-K for the year ending
December 31, 2000 (the
"Company's 2000 10-K").
10.3 Non-Competition Agreement dated as of January 27, 1998 between Liberty Incorporated by reference to
Group Operating, Inc. and Hollinger International, Inc. Exhibit 10.3 included on the
Company's S-4.
10.4 Management Services Agreement, dated as of April 18, 2000, between Incorporated by reference to
Liberty Group Operating, Inc. and Leonard Green & Partners, L.P. Exhibit 10.13 included on the
Company's 2000 10-K.
10.5 Amended and Restated Credit Agreement dated as of April 18, 2000, among Incorporated by reference to
Liberty Group Operating, Inc., Liberty Group Publishing, Inc., the lenders Exhibit 10.14 included on the
party thereto, Citicorp USA, Inc., Citibank N.A., DB Banc Alex Brown LLC, Company's 2000 10-K.
Wells Fargo Bank, N.A., and Bank of America, N.A.
10.6 First Amendment to Credit Agreement dated as of May 10, 2001, Incorporated by reference to
among Liberty Group Operating, Inc., Liberty Group Publishing, Inc., Exhibit 99 included on the
the lenders party thereto, Citibank, N.A. and Citicorp USA, Inc. Company's March 31, 2001 10-Q.
10.7 Second Amendment to Credit Agreement and Limited Waiver and Consent Incorporated by reference to
dated as of December 14, 2001 among Liberty Group Operating, Inc., Exhibit 10.7 included on the
Liberty Group Publishing, Inc. the lenders party thereto, Citibank, Company's 2001 10-K.
N.A. and Citicorp USA, Inc.
10.8 Guarantor Pledge and Security Agreement dated as of January 27, 1998 Incorporated by reference to
among Liberty Group Publishing, Inc., Liberty Group Arizona Holdings, Inc., Exhibit 10.6 included on the
Liberty Group Arkansas Holdings, Inc., Liberty Group California Holdings, Company's S-4.
Inc., Liberty Group Illinois Holdings, Inc., Liberty Group Iowa Holdings,
Inc., Liberty Group Kansas Holdings, Inc., Liberty Group Michigan Holdings, Inc.
Liberty Group Minnesota Holdings, Inc., Liberty Group Missouri Holdings, Inc.,
Liberty Group New York Holdings, Inc., Liberty Group Pennsylvania Holdings, Inc.,
Liberty Group Management Services, Inc. and Citicorp USA, Inc.
10.9 Borrower Pledge and Security Agreement dated as of January 27, 1998 Incorporated by reference to
between Liberty Group Operating, Inc. and Citicorp USA, Inc. Exhibit 10.7 included on the
Company's S-4.
49
EXHIBIT
NO. ITEMS
- -------- ---------------------------------------------------------------------------------
10.10 Guaranty, Indemnity and Subordination Agreement, dated as of January Incorporated by reference to
27, 1998, entered into by Liberty Group Publishing, Inc., Liberty Group Exhibit 10.10 included on the
Arizona Holdings, Inc., Liberty Group Arkansas Holdings, Inc., Liberty Company's 2001 10-K/A.
Group California Holdings, Inc., Liberty Group Illinois Holdings, Inc.,
Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc.,
Liberty Group Michigan Holdings, Inc., Liberty Group Minnesota
Holdings, Inc., Liberty Group Missouri Holdings, Inc., Liberty Group
New York Holdings, Inc., Liberty Group Pennsylvania Holdings, Inc. and
Liberty Group Management Services, Inc., for the benefit of the
Beneficiaries (as defined therein).
*10.11 Liberty Group Publishing, Inc.'s Publisher's Deferred Compensation Plan. Incorporated by reference to
Exhibit 10.10 included on the
Company's Annual Report on
Form 10-K for the period
ended December 31, 1998 (the
"Company's 1998 10-K").
*10.12 Liberty Group Publishing, Inc.'s Executive Benefit Plan. Incorporated by reference to
Exhibit 10.11 included on the
Company's 1998 10-K.
*10.13 Liberty Group Publishing, Inc.'s Executive Deferral Plan. Incorporated by reference to
Exhibit 10.12 included on the
Company's 1998 10-K.
*10.14 Liberty Group Publishing, Inc.'s 1999 Stock Option Plan. Incorporated by reference to
Exhibit 10.15 included on the
Company's 1999 10-K.
*10.15 Amended and Restated Employment Agreement, dated as of February 11, Incorporated by reference to
2003, between Liberty Group Operating, Inc., Kenneth L. Serota, Liberty Exhibit 10.25 included on the
Group Publishing, Green Equity Investors II, L.P. and Green Equity Company's Annual Report on
Investors III, L.P. Form 10-K for the period
ended December 31, 2002.
10.16 The Third Amendment to Credit Agreement, dated as of July 25, 2003, by and Incorporated by reference to
among Liberty Group Operating, Inc., Liberty Group Publishing, Inc., the Exhibit 10.1 included on the
Lenders party thereto, Citibank, N.A. and Citicorp USA, Inc. Company's June 30, 2003 10-Q.
31 Certifications Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 Included herewith.
32 Certifications Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 Included herewith.
- ------------------
* Management Contract/Compensatory Plan or Arrangement
50