<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: SEPTEMBER 14, 1999
LIBERTY GROUP PUBLISHING, INC.
(Exact Name of Registrant as Specified in its Charter)
333-46959
(Commission File Number)
DELAWARE 36-4197636
(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
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On July 1, 1999 the Registrant (through Liberty Group Operating, Inc.,
a Delaware corporation and a wholly owned subsidiary of the Registrant)
consummated an exchange of assets with Newspaper Holdings, Inc. The
Registrant transferred to Newspaper Holdings, Inc. substantially all the
assets used in, and the liabilities related to, the publication, marketing
and distribution of seven newspaper businesses operated in the following
communities in Pennsylvania: Corry; Kane; Punxsutawney; Ridgway; Saint
Mary's; Titusville; and Warren County (the "Liberty Newspapers"). In
exchange, the Registrant accepted substantially all the assets used in, and
the liabilities related to, the publication, marketing and distribution of
seven newspaper businesses operated in the following communities: Moberly,
Missouri; Joplin, Missouri; Oswego, New York; Beatrice, Nebraska;
Donaldsonville, Louisiana; Bastrop, Louisiana; and Pratt, Kansas (the "CNHI
Newspapers"). The Registrant believes that the assets transferred to
Newspaper Holdings, Inc. by the Registrant had an approximate book value of
$41.5 million and the assets transferred to the Registrant by Newspaper
Holdings, Inc. had an approximate fair value of $49.0 million.
Prior to this transaction, no material relationship existed between the
Registrant and Newspaper Holdings, Inc., or between any affiliates of such
entities.
Subsequent to the closing of the asset exchange, Newspaper Holdings, Inc.
paid to the Registrant approximately $209,000 in cash which is the amount
by which the net working capital of the newspaper groups transferred to
Newspaper Holdings, Inc. exceeded the net working capital of the newspaper
groups transferred to the Registrant.
(b) The Registrant intends to continue to use the acquired assets for the same
purposes as previously used by Newspaper Holdings, Inc.
The foregoing brief summary of the terms of the asset exchange is qualified in
its entirety by reference to the provisions of the Asset Exchange Agreement
dated as of July 1, 1999 among the Registrant, Liberty Group Pennsylvania
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of the
Registrant, and Newspaper Holdings, Inc., a Delaware corporation, a copy of
which was filed as an exhibit to the Registrant's Form 8-K filed July 16, 1999
and is incorporated by reference herein.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) 1. Financial Statements of Moberly Monitor Index
Independent Auditors' Report
Statements of Net Assets as of December 31, 1997 (Predecessor) and
1998 (Successor) and June 30, 1999 (Successor)(unaudited)
Statements of Income for the year ended December 31, 1997 (the
Predecessor Period), the period from January 1, 1998 through September
10, 1998 (the Predecessor Period), the period from September 11, 1998
through December 31, 1998 (the Successor Period), and the six months
ended June 30, 1998 (the Predecessor Period) and 1999 (the Successor
Period)(unaudited)
Statements of Changes in Net Assets for the year ended December 31,
1997 (the Predecessor Period), the period from January 1, 1998 through
September 10, 1998 (the Predecessor Period), the period from September
11, 1998 through December 31, 1998 (the Successor Period), and the six
months ended June 30, 1998 (the Predecessor Period) and 1999 (the
Successor Period)(unaudited)
Statements of Cash Flows for the year ended December 31, 1997 (the
Predecessor Period), the period from January 1, 1998 through September
10, 1998 (the Predecessor Period), the period from September 11, 1998
through December 31, 1998 (the Successor Period), and the six months
ended June 30, 1998 (the Predecessor Period) and 1999 (the Successor
Period)(unaudited)
Notes to Financial Statements
2. Financial Statements of Pratt Newspapers
Independent Auditors' Report
Statements of Net Assets (Liabilities) as of December 31, 1997
(Predecessor) and 1998 (Successor) and June 30, 1999 (Successor)
(unaudited)
Statements of Operations for the period from January 1, 1997 through
March 31, 1997 (the Predecessor Period), the period from April 1, 1997
through December 31, 1997 (the Predecessor Period), the period from
January 1, 1998 through December 18, 1998 (the Predecessor Period),
the period from December 19, 1998 through December 31, 1998 (the
Successor Period), and the six months ended June 30, 1998 (the
Predecessor Period) and 1999 (the Successor Period)(unaudited)
Statements of Changes in Net Assets (Liabilities) for the period from
January 1, 1997 through March 31, 1997 (the Predecessor Period), the
period from April 1, 1997 through December 31, 1997 (the Predecessor
Period), the period from January 1, 1998 through December 18, 1998
(the Predecessor Period), the period from December 19, 1998 through
December 31, 1998 (the Successor Period), and the six months ended
June 30, 1998 (the Predecessor Period) and 1999 (the Successor
Period)(unaudited)
Statements of Cash Flows for the period from January 1, 1997 through
March 31, 1997 (the Predecessor Period), the period from April 1, 1997
through December 31, 1997 (the Predecessor Period), the period from
January 1, 1998 through December 18, 1998 (the Predecessor Period),
the period from December 19, 1998 through December 31, 1998 (the
Successor Period), and the six months ended June 30, 1998 (the
Predecessor Period) and 1999 (the Successor Period)(unaudited)
Notes to Financial Statements
3. Combined Financial Statements of American Publishing Company
Newspapers
Independent Auditors' Report
Combined Statements of Net Assets as of December 31, 1997 and 1998 and
June 30, 1999 (unaudited)
Combined Statements of Income for the years ended December 31, 1997
and 1998, the six months ended June 30, 1998 (unaudited), the period
from January 1, 1999 through January 31, 1999 (unaudited), and the
period from February 1, 1999 through June 30, 1999 (unaudited)
Combined Statements of Changes in Net Assets for the years ended
December 31, 1997 and 1998, the six months ended June 30, 1998
(unaudited), the period from January 1, 1999 through January 31, 1999
(unaudited), and the period from February 1, 1999 through June 30,
1999 (unaudited)
Combined Statements of Cash Flows for the years ended December 31,
1997 and 1998, the six months ended June 30, 1998 (unaudited), the
period from January 1, 1999 through January 31, 1999 (unaudited), and
the period from February 1, 1999 through June 30, 1999 (unaudited)
Notes to Combined Financial Statements
<PAGE> 4
4. Financial Statements of Donaldsonville Newspapers
Independent Auditors' Report
Statements of Net Assets as of December 31, 1997 and 1998 and June
30, 1999 (unaudited)
Statements of Operations for the years ended December 31, 1997 and
1998, the six months ended June 30, 1998 (unaudited), the period from
January 1, 1999 through February 18, 1999 (unaudited), and the period
from February 19, 1999 through June 30, 1999 (unaudited)
Statements of Changes in Net Assets for the years ended December 31,
1997 and 1998, the six months ended June 30, 1998 (unaudited), the
period from January 1, 1999 through February 18, 1999 (unaudited), and
the period from February 19, 1999 through June 30, 1999 (unaudited)
Statements of Cash Flows for the years ended December 31, 1997 and
1998, the six months ended June 30, 1998 (unaudited), the period from
January 1, 1999 through February 18, 1999 (unaudited), and the period
from February 19, 1999 through June 30, 1999 (unaudited)
Notes to Financial Statements
5. Financial Statements of Bastrop Newspapers
Independent Auditors' Report
Statements of Net Assets (Liabilities) as of December 31, 1997 and
1998 and June 30, 1999 (unaudited)
Statements of Income for the years ended December 31, 1997 and 1998,
the six months ended June 30, 1998 (unaudited), the period from
January 1, 1999 through February 18, 1999 (unaudited), and the period
from February 19, 1999 through June 30, 1999 (unaudited)
Statements of Changes in Net Assets (Liabilities) for the years ended
December 31, 1997 and 1998, the six months ended June 30, 1998
(unaudited), the period from January 1, 1999 through February 18, 1999
(unaudited), and the period from February 19, 1999 through June 30,
1999 (unaudited)
Statements of Cash Flows for the years ended December 31, 1997 and
1998, the six months ended June 30, 1998 (unaudited), the period from
January 1, 1999 through February 18, 1999 (unaudited), and the period
from February 19, 1999 through June 30, 1999 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of June 30, 1999 (unaudited)
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1998 (unaudited) and the six months ended June 30, 1999
(unaudited)
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibit (incorporated by reference from exhibits included in the
Company's Form 8-K filed July 16, 1999)
2.1 Asset Exchange Agreement, dated as of July 1, 1999, among
the Registrant, Liberty Group Pennsylvania Holdings, Inc.
and Newspaper Holdings, Inc.
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Liberty Group Operating, Inc.
We have audited the accompanying statements of net assets of the Moberly Monitor
Index as of December 31, 1997 (Predecessor) and 1998 (Successor), and the
related statements of income, changes in net assets and cash flows for the year
ended December 31, 1997 (the Predecessor Period) the period from January 1, 1998
through September 10, 1998 (the Predecessor Period), and the period from
September 11, 1998 through December 31, 1998 (the Successor Period). These
financial statements are the responsibility of the Moberly Monitor Index's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the Moberly Monitor Index as of
December 31, 1997 (Predecessor) and 1998 (Successor), and the results of its
operations and its cash flows for the year ended December 31, 1997 (the
Predecessor Period), the period from January 1, 1998 through September 10, 1998
(the Predecessor Period), and the period from September 11, 1998 through
December 31, 1998 (the Successor Period) in conformity with generally accepted
accounting principles.
As discussed in note 1 to the financial statements, effective September 11,
1998, the Moberly Monitor Index was acquired by Newspaper Holdings, Inc. in a
business combination accounted for as a purchase. As a result of the
transaction, the financial information for the period after the transaction is
presented on a different basis than that for the periods before the transaction
and, therefore, are not comparable.
/s/ KPMG LLP
Chicago, Illinois
September 10, 1999
<PAGE> 6
MOBERLY MONITOR INDEX
STATEMENTS OF NET ASSETS
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- -----------
1997 1998 1999
-------- -------- -----------
(Predecessor) (Successor) (Successor)
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 7 3 7
Accounts receivable, net of allowance for doubtful
accounts of $1, $8, and $9 at December 31, 1997,
December 31, 1998, and June 30, 1999 (unaudited),
respectively 133 168 157
Inventories 5 22 14
Prepaid expenses 1 - 3
Other current assets 12 - -
-------- -------- ----------
Total current assets 158 193 181
Property, plant and equipment, net of accumulated
depreciation 537 857 810
Other assets 3 - -
-------- -------- ----------
Total assets $ 698 1,050 991
======== ======== ==========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable $ 13 35 26
Accrued expenses - 23 2
Deferred revenue 81 94 92
-------- -------- ----------
Total current liabilities 94 152 120
Net assets 604 898 871
-------- -------- ----------
Total liabilities and net assets $ 698 1,050 991
======== ======== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
MOBERLY MONITOR INDEX
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 10, 1998 (PREDECESSOR),
PERIOD FROM SEPTEMBER 11, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1998 (PREDECESSOR)(UNAUDITED) AND
1999 (SUCCESSOR) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From Six Months Ended
January 1, 1998 September 11, 1998 June 30,
Year Ended Through Through -------------------------
December 31, 1997 September 10, 1998 December 31, 1998 1998 1999
----------------- ------------------ ----------------- ------------- -----------
(Predecessor) (Predecessor) (Successor) (Predecessor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising $1,183 869 412 642 639
Circulation 511 362 151 260 245
Job printing and other 60 43 18 32 29
------ ------- ------- ------ ------
Total revenues 1,754 1,274 581 934 913
OPERATING COSTS AND EXPENSES:
Operating costs 708 510 197 365 331
Selling, general and administrative, including
expenses from Parent of $0, $0, and $15 for
the year ended December 31, 1997, the
period from January 1, 1998 through
September 10, 1998, and the period from
September 11, 1998 through December 31,
1998, respectively, and $0 and $0 for
the six months ended June 30, 1998 (unaudited)
and 1999 (unaudited), respectively 374 273 139 186 228
Depreciation 106 79 37 60 56
------ ------- ------- ------ ------
Income before income taxes 566 412 208 323 298
Income tax expense 216 157 72 122 111
------ ------- ------- ------ ------
Net income $ 350 255 136 201 187
====== ======= ======= ====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
MOBERLY MONITOR INDEX
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 10, 1998 (PREDECESSOR),
PERIOD FROM SEPTEMBER 11, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1999 (SUCCESSOR)(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Assets
<S> <C>
Balance at December 31, 1996 (Predecessor) $ 586
Net income 350
Transfers to Parent, net (548)
Income tax expense transferred to Parent 216
------
Balance at December 31, 1997 (Predecessor) 604
Net income 255
Transfers to Parent, net (463)
Income tax expense transferred to Parent 157
------
Balance at September 10, 1998 (Predecessor) 553
Increase in net assets attributable to
purchase business combination 427
Net income 136
Transfers to Parent, net (290)
Income tax expense transferred to Parent 72
------
Balance at December 31, 1998 (Successor) 898
Net income (unaudited) 187
Transfers to Parent, net (unaudited) (325)
Income tax expense transferred to Parent (unaudited) 111
======
Balance at June 30, 1999 (Successor)(unaudited) $ 871
======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 9
MOBERLY MONITOR INDEX
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 10, 1998 (PREDECESSOR),
PERIOD FROM SEPTEMBER 11, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1998 (PREDECESSOR)(UNAUDITED)
AND 1999 (SUCCESSOR)(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From Six Months Ended
January 1, 1998 September 11, 1998 June 30,
Year Ended Through Through -------------------------
December 31, 1997 September 10, 1998 December 31, 1998 1998 1999
----------------- ------------------ ----------------- ------------- -----------
(Predecessor) (Predecessor) (Successor) (Predecessor) (Successor)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 350 255 136 201 187
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 106 79 37 60 56
Income tax expense transferred to Parent 216 157 72 122 111
Loss on dispositions of property, plant and
equipment 11 -- -- -- --
Changes in assets and liabilities:
Accounts receivable, net 22 (13) (22) (14) 11
Inventories 8 (17) -- (15) 8
Prepaid expenses and other assets (9) (3) 19 (15) (3)
Accounts payable (22) (6) 28 18 (9)
Accrued expenses (1) -- 23 10 (21)
Deferred revenue 3 12 1 13 (2)
-------- ------- ------- ------ ------
Cash provided by operating activities 684 464 294 380 338
-------- ------- ------- ------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES --
Purchases of property, plant and equipment (135) (8) (1) (8) (9)
-------- ------- ------- ------ ------
CASH FLOWS USED IN FINANCING ACTIVITIES --
Transfers to Parent, net (548) (463) (290) (373) (325)
-------- ------- ------- ------ ------
Net increase (decrease) in cash 1 (7) 3 (1) 4
Cash at beginning of period 6 7 -- 7 3
-------- ------- ------- ------ ------
Cash at end of period $ 7 -- 3 6 7
======== ======= ======= ====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 10
MOBERLY MONITOR INDEX
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Moberly Monitor Index (the "Business") is a paid daily newspaper
published in Moberly, Missouri. Effective September 11, 1998, Newspapers
Holdings, Inc. (CNHI) purchased the operating assets and liabilities of the
Business from Donrey Media Group, Inc.(Donrey) The transaction was accounted for
as a purchase, and accordingly the acquired assets and liabilities were recorded
at their estimated fair market values. Certain intangible assets resulting from
the transaction and the related amortization expense have been recorded on
CNHI's books and are not reflected in the accompanying financial statements of
the Business. As a result of the transaction, the financial information for the
period after the transaction is presented on a different cost basis than that
for the periods before the transaction, and, therefore are not comparable.
(b) BASIS OF PRESENTATION
The accompanying financial statements represent the net assets and
associated revenues, expenses, and cash flows of the Business, assuming that the
Business was organized as a separate legal entity.
In the accompanying financial statements, the term "Business" when used
in situations pertaining to periods prior to the purchase by CNHI are referred
to as "Predecessor", and when used in situations subsequent to the purchase by
CNHI are referred to as "Successor". Further, the term "Parent" when used in
situations pertaining to the year ended December 31, 1997 and the period from
January 1, 1998 through September 10, 1998 relates to Donrey and the period from
September 11, 1998 through December 31, 1998 relates to CNHI.
Included within selling, general and administrative expenses for the
period from September 11, 1998 through December 31, 1998 are $15 of CNHI
management fees allocated to the Business at a rate of 2.5% of total revenues.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(d) INVENTORIES
Inventories consist principally of newsprint and ink, which are valued at
the lower of cost or net realizable value. Cost is determined using the
first-in, first-out (FIFO) method. Newsprint and ink are readily available, and
the Business is not dependent on a single or limited number of suppliers.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at historical cost, adjusted to
reflect the impact of the business combination accounted for as a purchase as
discussed in note 1. Depreciation is calculated under the straight-line method
over the estimated useful lives, 10 to 40 years for buildings and improvements,
2 to 4 years for vehicles, 3 to 14 years for machinery and equipment, 2 to 5
years for furniture and fixtures, and 2 to 5 years for computer equipment.
(f) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. Revenue for job printing is recognized upon delivery. No
individual customer accounts for a significant percentage of revenues.
<PAGE> 11
(g) INCOME TAXES
The Business was included in the consolidated U.S. income tax returns for
Donrey for the year ended December 31, 1997 and the period from January 1, 1998
through September 10, 1998, and for CNHI for the period from September 11, 1998
to December 31, 1998. The provision for income taxes of the Business has been
calculated as if the Business was a stand-alone corporation filing separate tax
returns.
The Business accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Cumulative
deferred taxes have been settled through net assets.
(h) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1997 and 1998: accounts receivable; accounts payable, and accrued
expenses.
(i) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999, respectively are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been included. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results to be
achieved for the full fiscal year.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
---- ----
<S> <C> <C>
Land $ 40 30
Buildings and improvements 238 405
Vehicles 54 32
Machinery and equipment 302 275
Furniture and fixtures 17 15
Computer equipment 208 137
------- -------
859 894
Less accumulated depreciation (322) (37)
------- -------
$ 537 857
======= =======
</TABLE>
(3) 401(k) RETIREMENT PLAN
The Parent maintains a 401(k) Savings Plan (the Plan) that covers all
full-time employees of the Business who have satisfied minimum age and service
requirements. The Business provides an employer match based on a percentage of
employee contributions. Business contributions to the Plan for the year ended
December 31, 1997, the period from January 1, 1998 through September 10, 1998,
and the period from September 11, 1998 through December 31, 1998 were $10, $10,
and $1, respectively.
(4) SUBSEQUENT EVENT (UNAUDITED)
On July 1, 1999, CNHI consummated an exchange of assets with Liberty Group
Operating, Inc. (Liberty). CNHI transferred to Liberty substantially all the
assets used in, and the liabilities related to, the publication, marketing and
distribution of seven newspaper businesses, including the Business. In
exchange, CNHI accepted substantially all the assets used in, and the
liabilities related to, the publication, marketing and distribution of seven
other newspaper businesses.
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Liberty Group Operating, Inc.
We have audited the accompanying statements of net assets (liabilities) of the
Pratt Newspapers as of December 31, 1997 (Predecessor) and 1998 (Successor), and
the related statements of operations, changes in net assets (liabilities) and
cash flows for the period from January 1, 1997 through March 31, 1997 (the
Predecessor Period), the period from April 1, 1997 through December 31, 1997
(the Predecessor Period), the period from January 1, 1998 through December 18,
1998 (the Predecessor Period), and the period from December 19, 1998 through
December 31, 1998 (the Successor Period). These financial statements are the
responsibility of the Pratt Newspapers' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets (liabilities) of the Pratt Newspapers as
of December 31, 1997 (Predecessor) and 1998 (Successor), and the results of its
operations and its cash flows for the period from January 1, 1997 through March
31, 1997 (the Predecessor Period), the period from April 1, 1997 through
December 31, 1997 (the Predecessor Period), the period from January 1, 1998
through December 18, 1998 (the Predecessor Period), and the period from December
19, 1998 through December 31, 1998 (the Successor Period) in conformity with
generally accepted accounting principles.
As discussed in note 1 to the financial statements, effective April 1, 1997 and
December 19, 1998, the Pratt Newspapers were acquired by Murphy McGinnis Media,
Inc. and Newspaper Holdings, Inc., respectively, in business combinations, each
accounted for as a purchase. As a result of these transactions, the financial
information for the periods after the transactions are presented on a different
basis than that for the periods before the transactions and, therefore, are not
comparable.
/s/ KPMG LLP
Chicago, Illinois
September 10, 1999
<PAGE> 13
PRATT NEWSPAPERS
STATEMENTS OF NET ASSETS (LIABILITIES)
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- -----------
1997 1998 1999
-------- -------- -----------
(Predecessor) (Successor) (Successor)
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 18 25 22
Accounts receivable, net of allowance for doubtful
accounts of $11, $19, and $11 at December 31, 1997,
December 31, 1998, and June 30, 1999 (unaudited),
respectively 108 90 97
Inventories 15 8 20
Prepaid expenses 4 - -
-------- -------- --------
Total current assets 145 123 139
Property, plant and equipment, net of accumulated
depreciation 433 441 390
Intangible assets, net of accumulated amortization 1,588 - -
Deferred financing costs, net of accumulated
amortization 22 - -
-------- -------- --------
Total assets $ 2,188 564 529
======== ======== ========
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS (LIABILITIES)
Current liabilities:
Note payable $ 16 - -
Accounts payable 25 31 53
Accrued expenses 102 30 26
Deferred revenue 83 90 87
Current portion of due to Parent 153 - -
-------- -------- --------
Total current liabilities 379 151 166
Long-term liability 480 - -
Due to Parent, less current portion 1,380 - -
-------- -------- --------
Total liabilities 2,239 151 166
Net assets (liabilities) (51) 413 363
-------- -------- --------
Total liabilities and net assets (liabilities) $ 2,188 564 529
======== ======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 14
PRATT NEWSPAPERS
STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1997 THROUGH MARCH 31, 1997 (PREDECESSOR),
PERIOD FROM APRIL 1, 1997 THROUGH DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH DECEMBER 18, 1998 (PREDECESSOR),
PERIOD FROM DECEMBER 19, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1998 (PREDECESSOR)(UNAUDITED)
AND 1999 (SUCCESSOR)(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period from Period from Period from Period from
January 1, 1997 April 1, 1997 January 1, 1998 December 19, 1998
through through through through
March 31, 1997 December 31, 1997 December 18, 1998 December 31, 1998
-------------- ----------------- ----------------- -----------------
(Predecessor) (Predecessor) (Predecessor) (Successor)
<S> <C> <C> <C> <C>
REVENUES:
Advertising $ 165 629 757 29
Circulation 59 183 246 -
Job printing and other 14 63 82 -
------ ------- ------- -------
Total revenues 238 875 1,085 29
OPERATING COSTS AND EXPENSES:
Operating costs 112 350 464 4
Selling, general and administrative,
including expenses from Parent of
$ 0, $ 35, $ 43, and $ 0 for the
period from January 1, 1997 through
March 31, 1997, the period from April 1, 1997
through December 31, 1997, the period from
January 1, 1998 through December 18, 1998,
and the period from December 19, 1998
through December 31, 1998, respectively, and
$22 and $0 for the six months ended June 30,
1998 (unaudited) and 1999 (unaudited),
respectively 73 305 389 3
Depreciation and amortization 13 134 179 -
------ ------- ------- -------
Income from operations 40 86 53 22
Interest expense - 137 147 -
------ ------- ------- -------
Income (loss) before income taxes 40 (51) (94) 22
Income tax expense (benefit) 7 (9) (23) 4
------ ------- ------- -------
Net income (loss) $ 33 (42) (71) 18
====== ======= ======= =======
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1999
------------- -----------
(Predecessor) (Successor)
(Unaudited)
<S> <C> <C>
REVENUES:
Advertising 384 372
Circulation 122 127
Job printing and other 39 46
------ ------
Total revenues 545 545
OPERATING COSTS AND EXPENSES:
Operating costs 191 234
Selling, general and administrative,
including expenses from Parent of
$ 0, $ 35, $ 43, and $ 0 for the
period from January 1, 1997 through
March 31, 1997, the period from April 1, 1997
through December 31, 1997, the period from
January 1, 1998 through December 18, 1998,
and the period from December 19, 1998
through December 31, 1998, respectively, and
$22 and $0 for the six months ended June 30,
1998 (unaudited) and 1999 (unaudited),
respectively 228 134
Depreciation and amortization 91 54
------ ------
Income from operations 35 123
Interest expense 96 --
------ ------
Income (loss) before income taxes (61) 123
Income tax expense (benefit) (13) 34
------ ------
Net income (loss) (48) 89
====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 15
PRATT NEWSPAPERS
STATEMENTS OF CHANGES IN NET ASSETS (LIABILITIES)
PERIOD FROM JANUARY 1, 1997 THROUGH MARCH 31, 1997 (PREDECESSOR),
PERIOD FROM APRIL 1, 1997 THROUGH DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH DECEMBER 18, 1998 (PREDECESSOR),
PERIOD FROM DECEMBER 19, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1999 (SUCCESSOR)(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Assets (Liabilities)
<S> <C>
Balance at December 31, 1996 (Predecessor) $ 927
Net income 33
Income tax expense transferred to Parent 7
-----
Balance at March 31, 1997 (Predecessor) 967
Decrease in net assets attributable to purchase business
combination (967)
Net loss (42)
Income tax benefit utilized by Parent (9)
-----
Balance at December 31, 1997 (Predecessor) (51)
Net loss (71)
Income tax benefit utilized by Parent (23)
-----
Balance at December 18, 1998 (Predecessor) (145)
Increase in net assets attributable to purchase business
combination 577
Net income 18
Transfer to Parent, net (41)
Income tax expense transferred to Parent 4
-----
Balance at December 31, 1998 (Successor) 413
Net income (unaudited) 89
Transfers to Parent, net (unaudited) (173)
Income tax expense transferred to Parent (unaudited) 34
-----
Balance at June 30, 1999 (Successor) (unaudited) $ 363
=====
</TABLE>
See accompanying notes to financial statements.
<PAGE> 16
PRATT NEWSPAPERS
STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 THROUGH MARCH 31, 1997 (PREDECESSOR),
PERIOD FROM APRIL 1, 1997 THROUGH DECEMBER 31, 1997 (PREDECESSOR),
PERIOD FROM JANUARY 1, 1998 THROUGH DECEMBER 18, 1998 (PREDECESSOR),
PERIOD FROM DECEMBER 19, 1998 THROUGH DECEMBER 31, 1998 (SUCCESSOR),
AND THE SIX MONTHS ENDED JUNE 30, 1998 (PREDECESSOR) (UNAUDITED)
AND 1999 (SUCCESSOR) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period from Period from Period from Period from
January 1, 1997 April 1, 1997 January 1, 1998 December 19, 1998
through through through through
March 31, 1997 December 31, 1997 December 18, 1998 December 31, 1998
-------------- ----------------- ----------------- ------------------
(Predecessor) (Predecessor) (Predecessor) (Successor)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 33 (42) (71) 18
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 13 132 177 --
Amortization of debt issue costs -- 2 2 --
Income tax expense (benefit)
transferred (utilized) by Parent 7 (9) (23) 4
Changes in assets and liabilities:
Accounts receivable, net 7 (10) 4 14
Inventories -- 5 6 1
Prepaid expenses and other assets (3) (1) (4) 8
Accounts payable (18) 12 6 --
Accrued expenses 3 52 (84) 12
Deferred revenue -- 2 5 2
-------- ------- ------- -------
Cash provided by operating activities 42 143 18 59
-------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of property, plant and equipment -- (7) (62) --
-------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers to Parent, net -- -- -- (41)
Borrowings (payments) on due to Parent (46) (117) 49 --
Payments on note payable (4) (18) (16) --
-------- ------- ------- -------
Cash provided by (used in)
financing activities (50) (135) 33 (41)
-------- ------- ------- -------
Net increase (decrease) in cash (8) 1 (11) 18
Cash at beginning of period 25 17 18 7
-------- ------- ------- -------
Cash at end of period $ 17 18 7 25
======== ======= ======= =======
Supplemental disclosure of cash flow
information - interest paid $ -- 82 202 --
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1998 1998
-------------- -----------------
(Predecessor) (Successor)
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (48) 89
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 90 54
Amortization of debt issue costs 1 -
Income tax expense (benefit)
transferred (utilized) by Parent (13) 34
Changes in assets and liabilities:
Accounts receivable, net 21 (7)
Inventories 5 (12)
Prepaid expenses and other assets - -
Accounts payable 1 22
Accrued expenses 15 (4)
Deferred revenue 3 (3)
-------- -------
Cash provided by operating activities 75 173
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of property, plant and equipment (42) (3)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers to Parent, net - (173)
Borrowings (payments) on due to Parent (44) -
Payments on note payable (3) -
-------- -------
Cash provided by (used in)
financing activities (47) (173)
-------- -------
Net increase (decrease) in cash (14) (3)
Cash at beginning of period 18 25
-------- -------
Cash at end of period 4 22
======== =======
Supplemental disclosure of cash flow
information - interest paid 108 -
======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 17
PRATT NEWSPAPERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Pratt Newspapers (Business) publishes a daily newspaper and three
weekly newspapers in South Central Kansas. Effective April 1, 1997, Murphy
McGinnis Media, Inc. (MMM) purchased the operating assets and liabilities of the
Business from Hometown Communications, Inc. (Hometown), including The Sunflower
Shoppers' Guide, The Pratt Tribune, The Barber County Index, The Kiowa County
Signal and The St. John News. The transaction was accounted for as a purchase,
and accordingly the acquired assets and liabilities were recorded at their
estimated fair market values. The $1,187 excess of the purchase price over the
fair market values of the assets was recorded as goodwill.
Effective December 19, 1998, the Business was purchased by Newspaper
Holdings, Inc. (CNHI). This transaction was accounted for as a purchase, and
accordingly the acquired assets and liabilities were recorded at their estimated
fair market values. Certain intangible assets resulting from this transaction
and the related amortization expense have been recorded by CNHI and are not
included in the financial statements of the Business.
As a result of these transactions, the financial information for the
periods after the transactions are presented on a different cost basis than that
for the periods before the transactions, and, therefore are not comparable. The
financial statements include the operations of the Business which was acquired
in 1999 as described in note 7 to these financial statements.
(b) BASIS OF PRESENTATION
The accompanying financial statements represent the net assets
(liabilities) and associated revenues, expenses, and cash flows of the Business,
assuming that the Business was organized for all periods as a separate legal
entity.
In the accompanying financial statements, the term "Business" when used
in situations pertaining to periods prior to the purchase by CNHI are referred
to as "Predecessor", and when used in situations subsequent to the purchase by
CNHI are referred to as "Successor." Further, the term "Parent" when used in
situations pertaining to the period from January 1, 1997 through March 31, 1997
relates to Hometown, the periods from April 1, 1997 through December 31, 1997
and the period from January 1, 1998 through December 18, 1998 relate to MMM, and
the period from December 19, 1998 through December 31, 1998 relates to CNHI.
MMM has historically provided certain services to the Business, including
accounting, tax services, consulting assistance on operational issues and
financial reporting. The cost of providing such services is recovered by MMM by
allocating to the Business a management fee using a percentage of revenue
method. The management fee, which is included in selling, general and
administrative expenses, was $35 for the period from April 1, 1997 through
December 31, 1997 and $43 for the period from January 1, 1998 through December
18, 1998. In the opinion of management of the Business, such management fee is
representative of the cost of performing such services.
As the Business' operations represent a portion of MMM for the period
from April 1, 1997 through December 31, 1997 and the period from January 1, 1998
through December 18, 1998, the operations of the Business have been financed
through, and certain of the assets of the Business have been pledged as security
for borrowings of, MMM. The Business' interest expense represents an allocation
of MMM's interest expense based on the portion of long-term debt allocated to
the Business as discussed in note 4. Subsequent to the completion of the
transaction described in note 7, the Business is expected to have a capital
structure different than that in the accompanying statements of net assets
(liabilities) and, accordingly, interest expense is not necessarily indicative
of the interest expense that the Business would have incurred as a separate
independent entity.
Effective December 18, 1998, principal operating cash disbursements are
paid by CNHI on behalf of the Business. Such cash disbursements, income taxes
and related-party transactions are paid by CNHI and are reflected as transfers
to Parent.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at historical cost, adjusted to
reflect the impact of the business combinations accounted for as purchases as
discussed in note 1. Depreciation is calculated on the straight-line method over
the estimated useful lives, 40 years for buildings and improvements, 5 years for
vehicles, 7 years for furniture and fixtures, and 5 to 10 years for computer
equipment. Effective December 19, 1998, buildings are being depreciated over 10
years.
(e) INTANGIBLE ASSETS
Intangible assets consist of organization costs, noncompetition
agreements with former owners of the Business, and the excess of
acquisition costs over estimated fair value of net assets acquired (goodwill).
Amortization is calculated using the straight-line method over the respective
estimated useful lives ranging from 5 years for organization costs, 10 years
for noncompetition agreements, and 15 years for goodwill.
(f) INVENTORIES
Inventories consist principally of newsprint and ink, which are valued at
the lower of cost or net realizable value. Cost is determined using the
first-in, first-out (FIFO) method. Newsprint and ink are readily available, and
the Business is not dependent on a single or limited number of suppliers.
(g) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. Revenue for job printing is recognized upon delivery. No
individual customer accounts for a significant percentage of revenues.
<PAGE> 18
(h) INCOME TAXES
The Business was included in the consolidated U.S. income tax returns for
Hometown for the period from January 1, 1997 through March 31, 1997, MMM for the
periods from April 1, 1997 through December 31, 1997 and from January 1, 1998
through December 18, 1998, and CNHI from December 19, 1998 through December 31,
1998. The provision for incomes taxes of the Business has been calculated as if
the Business was a stand-alone corporation filing separate tax returns.
The Business accounts for income taxes in accordance with statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Cumulative
deferred taxes have been settled through net assets (liabilities).
(i) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1997 and 1998: accounts receivable; long-term liabilities, accounts
payable, and accrued expenses.
(j) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999, respectively are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been included. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results to be
achieved for the full fiscal year.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
------- -------
<S> <C> <C>
Land $ 40 25
Buildings and improvements 120 135
Vehicles 6 6
Furniture and fixtures 51 25
Computer equipment 250 250
------- -------
467 441
Less accumulated depreciation (34) -
------- -------
$ 433 441
======= =======
</TABLE>
(3) INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
------- -------
<S> <C> <C>
Non-compete agreement $ 475 -
Organization costs 24 -
Goodwill 1,187 -
------- -------
1,686 -
Less accumulated amortization (98) -
------- -------
$ 1,588 -
======= =======
</TABLE>
(4) RELATED-PARTY TRANSACTION
MMM and each direct and indirect subsidiary of MMM (Borrowers) entered
into a line of credit facility with Signet Bank as of February 29, 1996. The
Borrowers are jointly and severally responsible for repayment of the
corresponding obligation. Effective March 31, 1997, MMM and its subsidiaries
amended the original line of credit facility agreement with Signet Bank. The
amendment increased the amount available under the credit facility to $23,000.
The additional borrowings were required to purchase several additional
newspapers, including the Business. Borrowings under the line of credit bear
interest at an adjusted London Interbank offer rate, resulting in an
effective rate of 8.75% at December 31, 1997 and mature on March 1, 2008. The
total liability due to Parent which was allocated to the Business by the Parent
as of December 31, 1997 is $1,533. The current portion of the debt and the
management fee due to Parent as of December 31, 1997 is $153.
(5) LONG-TERM LIABILITY
Effective March 31, 1997, MMM and certain of its subsidiaries, including
the Business, entered into a Promissory Note with Hometown bearing interest at
9%. Interest payments are payable on March 31, 1998 and March 31, 1999 and the
entire balance of principal and interest is due on December 15, 1999. The
long-term liability in the amount of $480 as of December 31, 1997 represents the
portion of the Promissory Note allocated to the Business by MMM. Interest in the
amount of $33 has been accrued as of December 31, 1997 and is included in
accrued expenses. Subsequent to the completion of the transaction on December
19, 1998 as discussed in note 1, this liability is no longer an obligation of
the Business.
(6) 401(k) RETIREMENT PLAN
The Business maintains a 401(k) Savings Plan (the Plan) that covers all
full-time employees who have satisfied minimum age and service requirements. The
Business provides an employer match based on a percentage of employee
contributions along with a nondiscretionary contribution of 1% of eligible
compensation. Business contributions to the Plan for the period from January 1,
1997 through March 31, 1997, the period from April 1, 1997 through December 31,
1997, the period from January 1, 1998 through December 18, 1998, and the period
from December 19, 1998 to December 31, 1998 were $0, $5, $5, and $0,
respectively.
(7) SUBSEQUENT EVENT (UNAUDITED)
On July 1, 1999, CNHI consummated an exchange of assets with Liberty
Group Operating, Inc. (Liberty). CNHI transferred to Liberty substantially all
the assets used in, and the liabilities related to, the publication, marketing
and distribution of seven newspaper businesses, including the Business. In
exchange, CNHI accepted substantially all the assets used in, and the
liabilities related to, the publication, marketing and distribution of seven
other newspaper businesses.
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Liberty Group Operating, Inc.
We have audited the accompanying combined statements of net assets of the
American Publishing Company Newspapers as of December 31, 1997 and 1998, and the
related statements of income, changes in net assets and cash flows for the years
then ended. These financial statements are the responsibility of the American
Publishing Company Newspapers' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the net assets of the American Publishing
Company Newspapers as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accouting principles.
/s/ KPMG LLP
Chicago, Illinois
September 10, 1999
<PAGE> 20
AMERICAN PUBLISHING COMPANY NEWSPAPERS
COMBINED STATEMENTS OF NET ASSETS
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- -----------
1997 1998 1999
-------- -------- -----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 121 218 144
Accounts receivable, net of allowance for doubtful
accounts of $36, $54, and $16 at December 31, 1997,
December 31, 1998, and June 30, 1999 (unaudited),
respectively 690 793 860
Inventories 92 30 69
Prepaid expenses 11 13 12
Other current assets 16 13 41
-------- -------- -------
Total current assets 930 1,067 1,126
Property, plant and equipment, net of accumulated
depreciation 1,405 1,311 1,243
-------- -------- -------
Total assets $ 2,335 2,378 2,369
======== ======== =======
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Liabilities - current:
Accounts payable $ 15 12 174
Accrued expenses 241 196 127
Due to affiliates 205 888 -
Deferred revenue 355 369 344
-------- -------- -------
Total liabilities 816 1,465 645
Net assets 1,519 913 1,724
-------- -------- -------
Total liabilities and net assets $ 2,335 2,378 2,369
======== ======== =======
</TABLE>
See accompanying notes to combined financial statements
<PAGE> 21
AMERICAN PUBLISHING COMPANY NEWSPAPERS
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED), THE PERIOD FROM JANUARY 1, 1999 THROUGH JANUARY 31, 1999
(UNAUDITED), AND THE PERIOD FROM FEBRUARY 1, 1999 THROUGH JUNE 30, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Years Ended December 31, Six Months January 1, 1999 February 1, 1999
------------------------ Ended Through Through
1997 1998 June 30, 1998 January 31, 1999 June 30, 1999
------ ------- ------------- ---------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising $6,158 6,289 3,080 401 2,791
Circulation 1,501 1,532 761 121 629
Job printing and other 215 243 119 13 104
------ ------- ------- ------- -------
Total revenues 7,874 8,064 3,960 535 3,524
OPERATING COSTS AND EXPENSES:
Operating costs, including expenses from Parent of
$108 and $102 for the years ended December 31, 1997
and 1998, respectively, and $50, $10 and $46
for the six months ended June 30, 1998 (unaudited),
the period from January 1, 1999 through January 31,
1999 (unaudited), and the period from February 1,
1999 through June 30, 1999 (unaudited),respectively;
and costs of printing services purchased from
affiliates of $622 and $680 for the years ended
December 31, 1997 and 1998, respectively and $335,
$39, and $0 for the six months ended June 30,
1998 (unaudited), the period from January 1, 1999
through January 31, 1999 (unaudited), and the
period from February 1, 1999 through June 30, 1999
(unaudited), respectively 3,188 3,281 1,570 286 1,481
Selling, general and administrative, including
expenses from Parent of $130 and $136 for
the years ended December 31, 1997 and 1998,
respectively, and $68, $13 and $52 for the
six months ended June 30, 1998 (unaudited), the
period from January 1, 1999 through January 31,
1999 (unaudited), and the period from February 1,
1999 through June 30, 1999 (unaudited),
respectively 2,137 2,234 1,142 187 976
Depreciation 185 154 89 13 64
Allocation from Parent 1,816 2,045 1,011 - -
------ ------- ------- ------- -------
Income before income taxes 548 350 148 49 1,003
Income tax expense 212 135 48 10 387
------ ------- ------- ------- -------
Net income $ 336 215 100 39 616
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 22
AMERICAN PUBLISHING COMPANY NEWSPAPERS
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE PERIOD FROM
JANUARY 1, 1999 THROUGH JANUARY 31, 1999 (UNAUDITED), AND THE PERIOD FROM
FEBRUARY 1, 1999 THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Assets
<S> <C>
Balance at December 31, 1996 $1,093
Net income 336
Transfers to Parent, net (122)
Income tax expense transferred to Parent 212
------
Balance at December 31, 1997 1,519
Net income 215
Transfers to Parent, net (956)
Income tax expense transferred to Parent 135
------
Balance at December 31, 1998 913
Net income (unaudited) 39
Transfers from Parent, net (unaudited) 728
Income tax expense transferred to Parent (unaudited) 10
------
1,690
Balance at January 31, 1999 (unaudited)
Net income (unaudited) 616
Transfers to Parent, net (unaudited) (969)
Income tax expense transferred to Parent (unaudited) 387
------
Balance at June 30, 1999 (unaudited) $1,724
======
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 23
AMERICAN PUBLISHING COMPANY NEWSPAPERS
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED), THE PERIOD FROM JANUARY 1, 1999 THROUGH
JANUARY 31, 1999 (UNAUDITED), AND THE PERIOD FROM FEBRUARY 1, 1999 THROUGH
JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Years Ended December 31, Six months January 1, 1999 February 1, 1999
------------------------ Ended Through Through
1997 1998 June 30, 1998 January 31, 1999 June 30, 1999
-------- ------- ------------- ---------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 336 215 100 39 616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 185 154 89 13 64
Income tax expense transferred to Parent 212 135 48 10 387
Loss on dispositions of property, plant and
equipment 8 - - - -
Changes in assets and liabilities:
Accounts receivable, net (27) (103) (66) 92 (159)
Inventories (29) 62 17 (26) (13)
Prepaid expenses and other assets 32 1 (14) (14) (13)
Accounts payable (3) (3) (3) 14 148
Accrued expenses 2 (45) 62 2 (71)
Deferred revenue 29 14 (11) 6 (31)
Due to affiliates (416) 683 337 (888) -
-------- ------- ------- -------- --------
Cash provided by (used in) operating activities 329 1,113 559 (752) 928
-------- ------- ------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES --
Purchases of property, plant and equipment (211) (60) (23) - (9)
-------- ------- ------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES --
Transfers from (to) Parent, net (122) (956) (446) 728 (969)
-------- ------- ------- -------- --------
Net increase (decrease) in cash (4) 97 90 (24) (50)
Cash at beginning of period 125 121 121 218 194
-------- ------- ------- -------- --------
Cash at end of period $ 121 218 211 194 144
======== ======= ======= ======== ========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 24
AMERICAN PUBLISHING COMPANY NEWSPAPERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The American Publishing Company Newspapers (the "Business") is a group
of small and mid-size daily and weekly newspapers owned by American Publishing
Company (the "Parent"), a wholly owned subsidiary of Hollinger International
Inc. The Business consists of The Palladium Times and Community Preview TMC
published in Oswego, New York; the Big Nickel published in Joplin, Missouri;
and the Beatrice Daily Sun, Penny Press, Plug Nickel, Sunland, and Weekend Extra
published in Beatrice, Nebraska.
(b) BASIS OF PRESENTATION
The accompanying combined financial statements represent the net assets
and associated revenues, expenses, and cash flows of the Business, assuming that
the Business was organized as a separate legal entity.
The Parent provides certain administrative services to the Business
including general management, insurance, accounting, and payroll. Included
within the combined financial statements of the Business is an allocation of
corporate expense from the Parent totaling $1,816 and $2,045 for the years
ended December 31, 1997 and 1998, respectively. The Parent also provides
certain employment-related benefits to the employees of the Business. Included
within operating costs are $108 and $102 of fringe benefit costs allocated from
the Parent for the years ended December 31, 1997 and 1998, respectively.
Included within selling, general and administrative expenses are $130 and $136
of fringe benefit costs allocated from the Parent for the years ended December
31, 1997 and 1998, respectively.
During the years ended December 31, 1997 and 1998, the Business utilized
the printing services of affiliate newspapers owned by the Parent. Included
within operating costs are $622 and $680 of printing services purchased from
affiliates of the Parent for the years ended December 31, 1997 and 1998,
respectively.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(d) INVENTORIES
Inventories consist principally of newsprint and ink, which are valued at
the lower of cost or net realizable value. Cost is determined using the
first-in, first-out (FIFO) method. Newsprint and ink are readily available, and
the Business is not dependent on a single or limited number of suppliers.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
calculated under the straight-line method over the estimated useful lives, 10 to
25 years for buildings and improvements, 5 years for vehicles, 5 to 10 years for
furniture and fixtures, 7 to 10 years for machinery and equipment, and 3 years
for software.
(f) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. Revenue for job printing is recognized upon delivery. No
individual customer accounts for a significant percentage of revenues.
<PAGE> 25
(g) INCOME TAXES
The Business represents a business unit of American Publishing Company
and as such does not file separate income tax returns. The provision for income
taxes of the Business has been calculated as if the Business was a stand-alone
corporation filing separate tax returns.
The Business accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Cumulative
deferred taxes have been settled through net assets.
(h) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1997 and 1998: accounts receivable; accounts payable, and accrued
expenses.
(i) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998, the period from January 1, 1999 through January 31, 1999, and the
period from February 1, 1999 through June 30, 1999, respectively are unaudited;
however, in the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the financial
statements for the interim periods have been included. The results of
operations for the period from January 1, 1999 through January 31, 1999 and the
period from February 1, 1999 through June 30, 1999 are not necessarily
indicative of the results to be achieved for the full fiscal year.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
------- -------
<S> <C> <C>
Land $ 183 183
Buildings and improvements 987 998
Vehicles 17 17
Furniture and fixtures 82 95
Machinery & equipment 1,190 1,216
Software 72 82
------- -------
2,531 2,591
Less accumulated depreciation (1,126) (1,280)
------- -------
$ 1,405 1,311
======= =======
</TABLE>
(3) 401(k) RETIREMENT PLAN
The Parent maintains a 401(k) Savings Plan (the Plan) that covers all
full-time employees of the Business who have satisfied minimum age and service
requirements. The Parent and the Business did not make any contributions to the
Plan during 1997 and 1998.
(4) SUBSEQUENT EVENTS (UNAUDITED)
Effective February 1, 1999, Newspaper Holdings, Inc. (CNHI) purchased
substantially all of the assets used in and the liabilities related to the
publication, marketing and distribution of the Business in exchange for cash
consideration.
On July 1, 1999, CNHI consummated an exchange of assets with Liberty Group
Operating, Inc. (Liberty). CNHI transferred to Liberty substantially all the
assets used in, and the liabilities related to, the publication, marketing and
distribution of seven newspaper businesses, including the Business. In
exchange, CNHI accepted substantially all the assets used in, and the
liabilities related to, the publication, marketing and distribution of seven
other newspaper businesses.
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Liberty Group Operating, Inc.
We have audited the accompanying statements of net assets of the Donaldsonville
Newspapers as of December 31, 1997 and 1998, and the related statements of
operations, changes in net assets and cash flows for the years then ended. These
financial statements are the responsibility of the Donaldsonville Newspapers'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the Donaldsonville Newspapers as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
September 10, 1999
<PAGE> 27
DONALDSONVILLE NEWSPAPERS
STATEMENTS OF NET ASSETS
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- -----------
1997 1998 1999
-------- -------- -----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 11 50 4
Accounts receivable, net of allowance for doubtful
accounts of $0, $0, and $2 at December 31, 1997, 62 62 55
December 31, 1998, and June 30, 1999 (unaudited),
respectively
Prepaid expenses 6 - -
-------- -------- --------
Total current assets 79 112 59
Property, plant and equipment, net of accumulated
depreciation 54 41 180
Intangible assets, net of accumulated amortization 125 117 1,826
-------- -------- --------
Total assets $ 258 270 2,065
======== ======== ========
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of long-term liabilities $ 5 - -
Accounts payable 17 13 29
Accrued expenses 9 19 57
Deferred revenue 24 28 35
Current portion of due to Parent 6 6 -
-------- -------- --------
Total current liabilities 61 66 121
Long-term liabilities, less current portion 12 - -
Due to Parent, less current portion 92 89 -
-------- -------- --------
Total liabilities 165 155 121
Net assets 93 115 1,944
-------- -------- --------
Total liabilities and net assets $ 258 270 2,065
======== ======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 28
DONALDSONVILLE NEWSPAPERS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED), THE PERIOD FROM JANUARY 1, 1999 THROUGH
FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM FEBRUARY 19, 1999
THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Years Ended December 31, Six Months January 1, 1999 February 19, 1999
------------------------ Ended Through Through
1997 1998 June 30, 1998 February 18, 1999 June 30, 1999
-------- ------- ------------- ----------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising $ 544 533 252 50 184
Circulation 83 72 36 10 16
Job printing and other 8 4 3 - 12
------- ------- ------- ------- -------
Total revenues 635 609 291 60 212
OPERATING COSTS AND EXPENSES:
Operating costs 301 296 117 28 101
Selling, general and administrative,
including expenses from Parent of
$57 and $55 for the years ended
December 31, 1997 and 1998, respectively,
and $26, $11, and $0 for the six months
ended June 30, 1998 (unaudited), the
period from January 1, 1999 through
February 18, 1999 (unaudited), and the
period from February 19, 1999 through
June 30, 1999 (unaudited), respectively 244 218 130 29 107
Depreciation and amortization 26 22 6 2 34
------- ------- ------- ------- -------
Income (loss) from operations 64 73 38 1 (30)
Interest expense 9 9 5 - 61
------- ------- ------- ------- -------
Income (loss) before income taxes $ 55 64 33 1 (91)
Income tax benefit - - - - (22)
------- ------- ------- ------- -------
Net income (loss) $ 55 64 33 1 (69)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 29
DONALDSONVILLE NEWSPAPERS
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE PERIOD FROM JANUARY 1, 1999
THROUGH FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM FEBRUARY 19, 1999
THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Assets
<S> <C>
Balance at December 31, 1996 $ 55
Transfers to Parent, net (17)
Net income 55
------
Balance at December 31, 1997 93
Transfers to Parent, net (42)
Net income 64
------
Balance at December 31, 1998 115
Transfers to Parent, net (unaudited) (41)
Net income (unaudited) 1
------
Balance at February 18, 1999 (unaudited) 75
Increase in net assets attributable to
purchase business combination (unaudited) 1,973
Transfers to Parent, net (unaudited) (13)
Net loss (unaudited) (69)
Income tax benefit utilized by Parent (unaudited) (22)
------
Balance at June 30, 1999 (unaudited) $1,944
======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 30
DONALDSONVILLE NEWSPAPERS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED), THE PERIOD FROM JANUARY 1, 1999 THROUGH
FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM FEBRUARY 19, 1999 THROUGH
JUNE 30, 1999 (UNAUDITED) (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Six Months January 1, 1999 February 19, 1999
Ended Through Through
Years Ended December 31, June 30, 1998 February 18, 1999 June 30, 1999
------------------------ ------------- ----------------- -----------------
1997 1998 (unaudited) (unaudited) (unaudited)
-------- ------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 55 64 33 1 (69)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 26 22 6 2 34
Income tax benefit utilized by Parent - - - - (22)
Changes in assets and liabilities:
Accounts receivable, net 5 - 4 15 (8)
Prepaid expenses and other assets (5) 6 1 - -
Accounts payable 5 (4) (3) (3) 19
Accrued expenses (9) 10 3 (14) 52
Deferred revenue (9) 4 - - 7
-------- -------- -------- -------- --------
Cash provided by operating activities 68 102 44 1 13
-------- -------- -------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment, net (26) (1) - - -
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers to Parent, net (17) (42) (21) (41) (13)
Payments on due to Parent (32) (3) (3) (6) -
Net borrowings (payments) on long-term liabilities 16 (17) (3) - -
-------- -------- -------- -------- --------
Cash used in financing activities (33) (62) (27) (47) (13)
-------- -------- -------- -------- --------
Net increase (decrease) in cash 9 39 17 (46) -
Cash at beginning of period 2 11 11 50 4
-------- -------- -------- -------- --------
Cash at end of period $ 11 50 28 4 4
======== ======== ======== ======== ========
Supplemental disclosure of cash flow
information - interest paid $ 9 9 5 - 61
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 31
DONALDSONVILLE NEWSPAPERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The financial statements include the operations of TLS Communications,
Inc.'s (TLS) Donaldsonville, Louisiana publication (the Business), which was
acquired in 1999 as described in note 7. The Business is engaged in the
publication and distribution of three weekly newspapers.
(b) BASIS OF PRESENTATION
The accompanying financial statements represent the net assets and
associated revenues, expenses, and cash flows of the Business, assuming that the
Business was organized for all periods as a separate enterprise.
TLS has historically provided certain services to the Business, including
accounting, payroll administration, consulting assistance on operational issues
and financial reporting. The cost of providing such services is recovered by TLS
by allocating to the Business a management fee and computerized accounting
service fee using a percentage of revenue method. The management fee, which is
included in selling, general and administrative expenses, was $44 and $43 for
the years ended December 31, 1997 and 1998, respectively. The computerized
accounting service fee, which is included in selling, general and administrative
expenses, was $13 and $12 for the years ended December 31, 1997 and 1998,
respectively. In the opinion of management of the Business, such management fee
and computerized accounting service fee is representative of the cost of
performing such services. The Business was indebted to TLS, for these fees, in
the amount of $6 as of December 31, 1997 and 1998.
As the Business' operations represent a portion of TLS, the operations of the
Business have been financed through, and certain of the assets of the Business
have been pledged as security for borrowings of, TLS. The Business' interest
expense represents an allocation of TLS' interest expense based on the portion
of long-term debt allocated to the Business as discussed in note 4. Subsequent
to the completion of the transaction described in note 7, the Business is
expected to have a capital structure different than that in the accompanying
statements of net assets and, accordingly, interest expense is not necessarily
indicative of the interest expense that the Business would have incurred as a
separate independent entity.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
calculated on accelerated methods over the estimated useful lives, 5 for
vehicles, 5 years for furniture and fixtures, and 5 to 7 years for computer
equipment. Leased assets are amortized over the estimated useful life of the
asset or the term of the applicable lease.
(e) INTANGIBLE ASSETS
Intangible assets consist of archives and the excess of acquisition costs
over estimated fair value of net assets acquired (goodwill). Amortization is
calculated using the straight-line method over the respective estimated useful
lives ranging from 10 years for archives and 40 years for goodwill.
(f) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. Revenue for job printing is recognized upon delivery. No
individual customer accounts for a significant percentage of revenues.
<PAGE> 32
(g) INCOME TAXES
Effective February 1, 1997, the Business has elected to be treated as
an S Corporation under the provisions of Subchapter S of the Internal Revenue
Code, whereby its income is not subject to Federal income taxes and is
allocated and taxed to its stockholders by inclusion in the stockholder's
Federal income tax return. Accordingly, no liability or provision for Federal
income taxes is required nor are any deferred taxes provided for temporary
differences between tax and financial reporting.
(h) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1997 and 1998: accounts receivable; long-term liabilities, accounts
payable, and accrued expenses.
(i) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1999 and for the six months
ended June 30, 1998, the period from January 1, 1999 through February 18, 1999,
and the period from February 19, 1999 through June 30, 1999, respectively are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the financial statements for the interim periods have been included. The
results of operations for the period from January 1, 1999 through February 18,
1999 and the period from February 19, 1999 through June 30, 1999 are not
necessarily indicative of the results to be achieved for the full fiscal year.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
---- ----
<S> <C> <C>
Leasehold improvements $ 30 30
Vehicles 19 19
Furniture and fixtures 14 14
Computer equipment 110 111
------- -------
Less accumulated depreciation 173 174
(119) (133)
------- -------
$ 54 41
======= =======
</TABLE>
(3) INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
---- ----
<S> <C> <C>
Archives 11 11
Goodwill 283 283
---- ----
294 294
Less accumulated amortization (169) (177)
---- ----
125 117
==== ====
</TABLE>
(4) RELATED-PARTY TRANSACTION
TLS and other affiliated companies are contingently liable as guarantor of
an obligation with Regions Bank. The portion of the total outstanding principal
is allocated to the Business based on the percentage of proceeds received by the
Business. Borrowings under the note payable bear interest at prime plus 1% (9.5%
and 9.0% as of December 31, 1997 and 1998, respectively). The Business'
long-term liability due to Parent of $92 and $89 as of December 31, 1997 and
1998, respectively, represent an allocation of TLS' outstanding balance as of
that date.
(5) LONG-TERM LIABILITIES
The Business has a long-term liability on one of its vehicles included as a
fixed asset. The note payable is held by Hibernia National Bank and is a fixed
8%, 4-year note payable expiring in April 2001. The annual principal and
interest payments total approximately $6. The current portion of the long-term
liabilities as of December 31, 1997 is $5. The note was fully repaid in December
1998.
(6) EMPLOYEE BENEFIT PLANS
The Parent, along with other affiliated companies, provides health care
benefits to eligible employees and covered dependents. The Smith Newspapers
Group Employee Benefit Trust (the Trust) was established to administer health
care claims. The Business is charged a monthly premium (based upon the number of
covered individuals) which is subject to annual revision based on the Trust's
experience rate. The total amount paid to the Trust for the years ended December
31, 1997 and 1998 was $12.
(7) SUBSEQUENT EVENTS (UNAUDITED)
Effective February 19, 1999, Newspaper Holdings, Inc. (CNHI) entered into
an agreement to purchase the stock of TLS for cash consideration.
On July 1, 1999, CNHI consummated an exchange of assets with Liberty Group
Operating, Inc. (Liberty). CNHI transferred to Liberty substantially all the
assets used in, and the liabilities related to, the publication, marketing and
distribution of seven newspaper businesses, including the Business. In exchange,
CNHI accepted substantially all the assets used in, and the liabilities related
to, the publication, marketing and distribution of seven other newspaper
businesses.
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Liberty Group Operating, Inc.
We have audited the accompanying statements of net assets (liabilities) of the
Bastrop Newspapers as of December 31, 1997 and 1998, and the related statements
of income, changes in net assets (liabilities) and cash flows for the years then
ended. These financial statements are the responsibility of the Bastrop
Newspapers' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets (liabilities) of the Bastrop Newspapers as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
September 10, 1999
<PAGE> 34
BASTROP NEWSPAPERS
STATEMENTS OF NET ASSETS (LIABILITIES)
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- -----------
1997 1998 1999
-------- -------- -----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 7 20 --
Accounts receivable, net of allowance for doubtful
accounts of $2, $3, and $3 at December 31, 1997,
December 31, 1998, and June 30, 1999 (unaudited),
respectively 132 142 230
Inventories 8 16 41
Prepaid expenses 1 1 27
-------- -------- --------
Total current assets 148 179 298
Property, plant and equipment, net of accumulated
depreciation 105 74 668
Intangible assets, net of accumulated amortization 740 705 --
Deferred financing costs, net of
accumulated amortization 28 25 --
Other assets 5 5 --
-------- -------- --------
Total assets $ 1,026 988 966
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS (LIABILITIES)
Current liabilities:
Accounts payable $ 19 45 27
Accrued expenses 28 14 16
Deferred revenue 51 54 133
Due to affiliate 1 -- --
Current portion of due to Parent 12 12 --
-------- -------- --------
Total current liabilities 111 125 176
Due to Parent, less current portion 1,522 1,465 --
-------- -------- --------
Total liabilities 1,633 1,590 176
Net assets (liabilities) (607) (602) 790
-------- -------- --------
Total liabilities and net assets (liabilities) $ 1,026 988 966
======== ======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 35
BASTROP NEWSPAPERS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED), THE PERIOD FROM JANUARY 1, 1999 THROUGH
FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM FEBRUARY 19, 1999
THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Years Ended December 31, Six months January 1, 1999 February 19, 1999
------------------------ Ended Through Through
1997 1998 June 30, 1998 February 18, 1999 June 30, 1999
-------- ------- ------------- ----------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising $ 894 879 435 142 270
Circulation 318 287 145 36 101
Job printing and other 273 275 138 33 137
------ ------- ------ ------ ------
Total revenues 1,485 1,441 718 211 508
OPERATING COSTS AND EXPENSES:
Operating costs 674 734 302 76 215
Selling, general and administrative,
including expenses from Parent of $132
and $130 for the years ended December 31,
1997 and 1998, respectively, and $65, $12,
and $0 for the six months ended June 30,
1998 (unaudited), the period from January
1, 1999 through February 18, 1999
(unaudited), and the period from February
19, 1999 through June 30, 1999 (unaudited),
respectively 457 394 252 72 147
Depreciation and amortization 69 69 38 5 -
------ ------- ------ ------ ------
Income from operations 285 244 126 58 146
Interest expense 148 143 73 12 -
------ ------- ------ ------ ------
Income before income taxes 137 101 53 46 146
Income tax expense 41 26 10 9 46
------ ------- ------ ------ ------
Net income $ 96 75 43 37 100
====== ======= ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 36
BASTROP NEWSPAPERS
STATEMENTS OF CHANGES IN NET ASSETS (LIABILITIES)
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE PERIOD FROM
JANUARY 1, 1999 THROUGH FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM
FEBRUARY 19, 1999 THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Assets (Liabilities)
<S> <C>
Balance at December 31, 1996 $ (630)
Net income 96
Income tax expense transferred to Parent 41
Transfers to Parent, net (114)
------
Balance at December 31, 1997 (607)
Net income 75
Income tax expense transferred to Parent 26
Transfers to Parent, net (96)
------
Balance at December 31, 1998 (602)
Net income (unaudited) 37
Income tax expense transferred to Parent (unaudited) 9
Transfers to Parent, net (unaudited) (16)
------
Balance at February 18, 1999 (unaudited) (572)
Increase in net assets attributable to purchase
business combination (unaudited) 1,334
Net income (unaudited) 100
Income tax expense transferred to Parent (unaudited) 46
Transfers to Parent, net (unaudited) (118)
------
Balance at June 30, 1999 (unaudited) $ 790
======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 37
BASTROP NEWSPAPERS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998, THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED), THE PERIOD FROM JANUARY 1, 1999
THROUGH FEBRUARY 18, 1999 (UNAUDITED), AND THE PERIOD FROM
FEBRUARY 19, 1999 THROUGH JUNE 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period From Period From
Years Ended December 31, Six Months January 1, 1999 February 19, 1999
------------------------ Ended Through Through
1997 1998 June 30, 1998 February 18, 1999 June 30, 1999
-------- ------- ------------- ----------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 96 75 43 37 100
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 66 66 37 5 --
Amortization of debt issue costs 3 3 1 -- --
Income tax expense transferred to Parent 41 26 10 9 46
Changes in assets and liabilities:
Accounts receivable, net (4) (10) 15 (22) (66)
Inventories 8 (8) (7) (39) 14
Prepaid expenses and other assets 8 -- 1 -- (21)
Accounts payable (7) 26 37 18 (36)
Accrued expenses 8 (14) 7 -- 2
Deferred revenue (18) 3 3 -- 79
Due to affiliate 1 (1) (1) -- --
-------- ------- ------- ------- -------
Cash provided by operating activities 202 166 146 8 118
-------- ------- ------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES --
Purchases of property, plant and equipment, net (9) -- -- -- --
-------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers to Parent, net (114) (96) (96) (16) (118)
Payment on due to Parent (77) (57) (57) (12) --
-------- ------- ------- ------- -------
Cash used in financing activities (191) (153) (153) (28) (118)
-------- ------- ------- ------- -------
Net increase (decrease) in cash 2 13 (7) (20) --
Cash at beginning of period 5 7 7 20 --
-------- ------- ------- ------- -------
Cash at end of period $ 7 20 -- -- --
======== ======= ======= ======= =======
Supplemental disclosure of cash flow
information - interest paid $ 148 143 73 12 --
======== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 38
BASTROP NEWSPAPERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The financial statements include the operations of DLS, Inc.'s (DLS)
Bastrop, Louisiana publication (the Business), which was acquired in 1999 as
described in note 6. The Business is engaged in the publication and distribution
of two weekly newspapers.
(b) BASIS OF PRESENTATION
The accompanying financial statements represent the net assets
(liabilities) and associated revenues, expenses, and cash flows of the Business,
assuming that the Business was organized for all periods as a separate
enterprise.
DLS has historically provided certain services to the Business, including
accounting, payroll administration, consulting assistance on operational issues
and financial reporting. The cost of providing such services is recovered by DLS
by allocating to the Business a management fee and computerized accounting
service fee using a percentage of revenue method. The management fee, which is
included in selling, general and administrative expenses, was $103 and $101 for
the year ended December 31, 1997 and 1998, respectively. The computerized
accounting service fee, which is included in selling, general and administrative
expenses, was $29 for the years ended December 31, 1997 and 1998, respectively.
In the opinion of management of the Business, such management fee and
computerized accounting service fee is representative of the cost of performing
such services. The Business was indebted to DLS, for these fees, in the amount
of $12 as of December 31, 1997 and 1998.
As the Business' operations represent a portion of DLS, the operations of
the Business have been financed through, and certain of the assets of the
Business have been pledged as security for borrowings of, DLS. The Business'
interest expense represents an allocation of DLS' interest expense based on the
portion of long-term debt allocated to the Business as discussed in note 4.
Subsequent to the completion of the transaction described in note 6, the
Business is expected to have a capital structure different than that in the
accompanying statements of net assets (liabilities) and, accordingly, interest
expense is not necessarily indicative of the interest expense that the Business
would have incurred as a separate independent entity.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
(d) INVENTORIES
Inventories consist principally of newsprint and ink, which are valued at
the lower of cost or net realizable value. Cost is determined using the
first-in, first-out (FIFO) method. Newsprint and ink are readily available, and
the Business is not dependent on a single or limited number of suppliers.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
calculated on accelerated methods over the estimated useful lives, 5 years for
vehicles, 5 years for furniture and fixtures, and 5 to 7 years for computer
equipment. Buildings are being depreciated on a straight-line basis over 31.5
years.
(f) INTANGIBLE ASSETS
Intangible assets consist principally of circulation-related assets,
noncompetition agreements with former owners of the Business, and the
excess of acquisition costs over estimated fair value of net assets acquired
(goodwill). Amortization is calculated using the straight-line method over the
respective estimated useful lives ranging from 10 to 15 years for
circulation-related assets, 15 years for noncompetition agreements, and 40 years
for goodwill.
(g) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. Revenue for job printing is recognized upon delivery. No
individual customer accounts for a significant percentage of revenues.
<PAGE> 39
(h) INCOME TAXES
The Business is included in the consolidated U.S. income tax return for
DLS, Inc. The provision for income taxes of the Business has been calculated as
if the Business was a stand-alone corporation filing separate tax returns.
The Business accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Cumulative
deferred taxes have been settled through net assets (liabilities).
(i) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1997 and 1998: accounts receivable; long-term liabilities, accounts
payable, and accrued expenses.
(j) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1999 and for the six months
ended June 30, 1998, the period from January 1, 1999 through February 18, 1999,
and the period from February 19, 1999 through June 30, 1999, respectively are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the financial statements for the interim periods have been included. The
results of operations for the period from January 1, 1999 through February 18,
1999 and the period from February 19, 1999 through June 30, 1999 are not
necessarily indicative of the results to be achieved for the full fiscal year.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
---- ----
<S> <C> <C>
Land $ 50 50
Buildings and improvements 263 263
Vehicles 9 9
Computer equipment 270 270
------- -------
592 592
Less accumulated depreciation (487) (518)
------- -------
$ 105 74
======= =======
</TABLE>
(3) INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998
---- ----
<S> <C> <C>
Non-compete agreement $ 123 123
Subscribers lists 262 262
Advertiser lists 224 224
Archives 25 25
Goodwill 1,076 1,076
------ ------
1,710 1,710
Less accumulated amortization (970) (1,005)
------ ------
$ 740 705
====== ======
</TABLE>
(4) RELATED-PARTY TRANSACTION
During 1992, DLS entered into a debt agreement with Regions Bank
(Regions) to refinance existing debt owed by its subsidiaries. DLS and other
affiliated companies are contingently liable as guarantor of the obligation. The
portion of the total outstanding principal is allocated to the Business based on
the percentage of proceeds received by the Business. Borrowings under the note
payable bear interest at prime plus 1% (9.5% and 9.0% as of December 31, 1997
and 1998, respectively). The Business' long-term liability due to Parent of
$1,522 and $1,494 as of December 31, 1997 and 1998, respectively, represent an
allocation of DLS' outstanding balance as of the date.
(5) 401(k) RETIREMENT PLAN
The Parent, along with other affiliated companies, provides health care
benefits to eligible employees and covered dependents. The Smith Newspapers
Group Employee Trust (the Trust) was established to administer health care
claims. The Business is charged a monthly premium (based upon the number of
covered individuals) which is subject to annual revision based on the Trust's
experience rate. The total amount paid to the Trust for the years ended
December 31, 1997 and 1998 was $28 and $26, respectively.
(6) SUBSEQUENT EVENTS (UNAUDITED)
Effective February 19, 1999, Newspaper Holdings, Inc. (CNHI) purchased
substantially all of the assets used in and the liabilities of DLS, including
the Business, in exchange for cash consideration.
On July 1, 1999 CNHI consummated an exchange of assets with Liberty Group
Operating, Inc. (Liberty). CNHI transferred to Liberty substantially all the
assets used in, and the liabilities related to, the publication, marketing and
distribution of seven newspaper businesses, including the Business. In exchange,
CNHI accepted substantially all the assets used in, and the liabilities related
to, the publication, marketing and distribution of seven other newspaper
businesses.
<PAGE> 40
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) OF
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES AND ACQUIRED BUSINESS
The following unaudited pro forma consolidated balance sheet as of June
30, 1999 and the pro forma consolidated statements of operations for the year
ended December 31, 1998 and six months ended June 30, 1999 give effect to the
Company's exchange of assets with Newspaper Holdings, Inc. The pro forma
information is based on the respective historical financial statements of
Liberty Group Publishing, Inc. and subsidiaries and the Moberly Monitor Index,
the Pratt Newspapers, the American Publishing Company Newspapers, the
Donaldsonville Newspapers, and the Bastrop Newspapers (the "CNHI
Newspapers") giving effect to the exchange under the purchase method of
accounting and the assumptions and adjustments described in the accompanying
notes to the pro forma consolidated financial statements. The unaudited pro
forma consolidated statements of operations for the year ended December 31,
1998, and six months ended June 30, 1999 reflect adjustments as if the exchange
had occurred on January 1, 1998. The unaudited pro forma balance sheet as of
June 30, 1999 gives effect to the exchange as if it had occurred on June 30,
1999. See "Acquisition or Disposition of Assets".
The pro forma consolidated financial statements have been prepared by the
management of Liberty Group Publishing, Inc. and subsidiaries based upon the
audited financial statements of Liberty Group Publishing, Inc. and subsidiaries
and the CNHI Newspapers for the year ended December 31, 1998 and the unaudited
financial statements of these entities for the six months ended June 30, 1999.
The financial effects of the exchange as presented in the pro forma financial
statements are not necessarily indicative of either financial position or
results of operations that would have been obtained had the exchange actually
occurred on the dates set forth above, nor are they necessarily indicative of
the results of future operations. The pro forma consolidated financial
statements should be read in conjunction with the notes thereto, which are an
integral part thereof, with the consolidated financial statements of Liberty
Group Publishing, Inc. and subsidiaries and notes thereto, and with the
financial statements of the CNHI Newspapers and notes thereto included elsewhere
in this Form 8-K/A.
<PAGE> 41
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN
LIBERTY GROUP MOBERLY PUBLISHING
PUBLISHING, INC. MONITOR PRATT COMPANY DONALDSONVILLE BASTROP PRO FORMA PRO FORMA
CONSOLIDATED INDEX NEWSPAPERS NEWSPAPERS NEWSPAPERS NEWSPAPERS ADJUSTMENTS (A)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,502 7 22 144 4 -- 32 (c) 1,711
Accounts receivable, net 16,349 157 97 860 55 230 (994)(d) 16,754
Inventories 1,929 14 20 69 -- 41 (104)(d) 1,969
Prepaid expenses 894 3 -- 12 -- 27 (75)(d) 861
Other current assets 158 -- -- 41 -- -- -- 199
-------------------------------------------------------------------------------------------------
Total current assets 20,832 181 139 1,126 59 298 (1,141) 21,494
Property, plant and
equipment, net 34,451 810 390 1,243 180 668 (1,934)(d) 35,808
Intangible assets, net 379,852 -- -- -- 1,826 -- 4,665 (b) 386,343
Deferred financing costs, net 11,361 -- -- -- -- -- -- 11,361
Other assets -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Total assets 446,496 991 529 2,369 2,065 966 1,590 455,006
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under revolving
credit facility 75,350 -- -- -- -- -- -- 75,350
Current portion of long-term
liabilities 17 -- -- -- -- -- -- 17
Accounts payable 3,441 26 53 174 29 27 (25)(d) 3,725
Accrued expenses 14,993 2 26 127 57 16 (37)(d) 15,184
Deferred revenue 6,424 92 87 344 35 133 (379)(d) 6,736
-------------------------------------------------------------------------------------------------
Total current liabilities 100,225 120 166 645 121 176 (441) 101,012
Senior subordinated notes 180,000 -- -- -- -- -- -- 180,000
Senior discount debentures 59,363 -- -- -- -- -- -- 59,363
Long-term liabilities, less
current portion 1,992 -- -- -- -- -- -- 1,992
Deferred income taxes 13,715 -- -- -- -- -- -- 13,715
-------------------------------------------------------------------------------------------------
Total liabilities 355,324 120 166 645 121 176 (441) 356,802
Senior mandatory redeemable
preferred stock 55,325 -- -- -- -- -- -- 55,325
Junior mandatory redeemable
preferred stock 56,410 -- -- -- -- -- -- 56,410
-------------------------------------------------------------------------------------------------
Total mandatory redeemable
preferred stock 111,735 -- -- -- -- -- -- 111,735
Stockholders' equity (deficit)
Common stock 1 -- -- -- -- -- -- 1
Additional paid-in-capital 8,159 -- -- -- -- -- -- 8,159
Subscriptions receivable (409) -- -- -- -- -- -- (409)
Accumulated deficit (28,285) -- -- -- -- -- 7,723 (a) (20,562)
Net assets -- 871 363 1,724 1,944 790 (5,692)(e) --
-------------------------------------------------------------------------------------------------
Total stockholders'
equity (deficit) (20,534) 871 363 1,724 1,944 790 2,031 (12,811)
-------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 446,496 991 529 2,369 2,065 966 1,590 455,006
=================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 42
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN
LIBERTY GROUP MOBERLY PUBLISHING
PUBLISHING, INC. MONITOR PRATT COMPANY DONALDSONVILLE BASTROP PRO FORMA PRO FORMA
CONSOLIDATED INDEX NEWSPAPERS NEWSPAPERS NEWSPAPERS NEWSPAPERS ADJUSTMENTS (A)
DESCRIPTION ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Advertising $ 81,554 1,281 786 6,289 533 879 (6,699) (d) 84,623
Circulation 22,844 513 246 1,532 72 287 (2,654) (d) 22,840
Job printing and other 8,133 61 82 243 4 275 (691) (d) 8,107
----------------------------------------------------------------------------------------------------
Total revenues 112,531 1,855 1,114 8,064 609 1,441 (10,044) 115,570
OPERATING COSTS AND EXPENSES:
Operating costs 45,976 707 468 3,281 296 734 (3,386) (d) 48,076
Selling, general and
administrative 36,303 412 392 2,234 218 394 (4,308) (d) 35,645
Depreciation and
amortization 11,917 116 179 154 22 69 (274) (f) 12,183
Allocation from Parent -- -- -- 2,045 -- -- (2,045) (g) --
----------------------------------------------------------------------------------------------------
Income from operations 18,335 620 75 350 73 244 (31) 19,666
Interest expense 25,234 -- 147 -- 9 143 (299) (g) 25,234
----------------------------------------------------------------------------------------------------
Income (loss) before
income taxes (6,899) 620 (72) 350 64 101 268 (5,568)
Income tax expense (benefit) -- 229 (19) 135 -- 26 (371) (g) --
----------------------------------------------------------------------------------------------------
Net income (loss) $ (6,899) 391 (53) 215 64 75 639 (5,568)
====================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 43
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN
LIBERTY GROUP MOBERLY PUBLISHING
PUBLISHING, INC. MONITOR PRATT COMPANY DONALDSONVILLE BASTROP PRO FORMA PRO FORMA
CONSOLIDATED INDEX NEWSPAPERS NEWSPAPERS NEWSPAPERS NEWSPAPERS ADJUSTMENTS (A)
DESCRIPTION ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Advertising $ 54,957 639 372 3,192 234 412 (3,369)(d) 56,437
Circulation 13,350 245 127 750 26 137 (1,375)(d) 13,260
Job printing and other 6,207 29 46 117 12 170 (274)(d) 6,307
----------------------------------------------------------------------------------------------------
Total revenues 74,514 913 545 4,059 272 719 (5,018) 76,004
OPERATING COSTS AND EXPENSES:
Operating costs 33,229 331 234 1,767 129 291 (1,629)(d) 34,352
Selling, general and
administrative 22,396 228 134 1,163 136 219 (2,619)(d) 21,657
Depreciation and
amortization 7,346 56 54 77 36 5 (95)(f) 7,479
----------------------------------------------------------------------------------------------------
Income (loss) from operations 11,543 298 123 1,052 (29) 204 (675) 12,516
Interest expense 15,194 -- -- -- 61 12 (73)(g) 15,194
----------------------------------------------------------------------------------------------------
Income (loss) before
income taxes (3,651) 298 123 1,052 (90) 192 (602) (2,678)
Income tax expense
(benefit) -- 111 34 397 (22) 55 (575)(g) --
----------------------------------------------------------------------------------------------------
Net income (loss) $ (3,651) 187 89 655 (68) 137 (27) (2,678)
====================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Represents the difference between the fair value of the CNHI
Newspapers and cash received by the Registrant from CNHI and the book
value of the Liberty Newspapers transferred by the Registrant to CNHI, as
follows:
Fair value of CNHI Newspapers $49,000
Cash received from CNHI 209
-------
Total consideration received from CNHI 49,209
Book value of Liberty Newspapers (41,486)
-------
Gain on exchange $ 7,723
=======
The fair value of the CNHI Newspapers was derived through independent
valuations. The Registrant will record an immediate gain of $7,723 at the
consummation of the purchase business combination.
(b) Represents the adjustment necessary to increase the Registrant's
intangible assets balance as a result of the excess of the fair value of
the CNHI Newspapers over the book value of the Liberty Newspapers, as
follows:
Total consideration received from CNHI $49,209
Tangible assets of the CNHI Newspapers
assumed by the Registrant (5,126)
Tangible liabilities of the CNHI Newspapers
assumed by the Registrant 1,228
-------
Excess of fair value over net assets
assumed 45,311
Intangible assets of the Liberty Newspapers
reflected in the Liberty Group Operating,
Inc. Consolidated total (38,820)
-------
Increase in Registrant's intangible assets 6,491
Intangible assets of the CNHI Newspapers
not assumed by the Registrant (1,826)
-------
Pro forma adjustment required $ 4,665
=======
The $5,126 of tangible assets of the CNHI Newspapers assumed by the
Registrant excludes $177 of cash and $1,826 of intangible assets.
(c) Represents the $209 of cash received from CNHI less the $177 of cash not
assumed by the Registrant from the CNHI Newspapers as part of the exchange.
(d) Represents the elimination of the Liberty Newspapers balance from the
Liberty Group Operating, Inc. Consolidated total.
(e) Represents the elimination of the CNHI net asset balance that would not be
recorded by the Registrant as part of the exchange.
(f) Represents the excess depreciation expense on the fixed assets of the
CNHI Newspapers over the fixed assets of the Liberty Newspapers and the
adjustment necessary to amortize the additional $6,491 of intangible
assets (calculated in note (b)) over their estimated useful lives,
presently estimated for mastheads, advertising lists, and goodwill over 40
years, and subscriber lists over 33 years.
(g) Represents the elimination of the CNHI Newspapers interest and tax expense
that would not be recorded by the Registrant had the exchange occurred on
January 1, 1998.
<PAGE> 45
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, hereunto duly authorized.
Dated: September 14, 1999 Liberty Group Publishing, Inc.
By /s/ Kevin O'Shea
-----------------------------------------
Kevin O'Shea,
Senior Vice President,
Chief Financial Officer and Secretary
